Trump Heads Into Xi Talks With Strong US Data—but Weak Voter Mood Blunts Leverage

Strong US Fundamentals, China’s Structural Headwinds

President Donald Trump appears to be entering upcoming negotiations with Chinese leader Xi Jinping with a macroeconomic edge. The US economy is expanding at a healthy pace, aided by AI-driven investment and resilient consumer activity. China’s headline growth is still described as robust, but the country continues to work through fallout from a housing-market collapse that began five years ago.

On jobs, the contrast is also clear. US employers are still hiring and unemployment remains low. In China, the property downturn sharply reduced residential construction, erasing a major source of employment.

Consumer dynamics further separate the two economies. In the United States, households continue to spend even as inflation has rebounded, though it remains well below where it stood four years ago. In China, consumer demand is still subdued, while prices are only beginning to recover after a prolonged period of deflation, a pattern that can pressure wages and reinforce cautious spending.

Energy is another factor. With significant domestic oil and gas resources, the United States is more insulated from the economic shock of the Iran war than many peers. China, as a major energy importer, is more exposed to oil price spikes—even though it holds a substantial buffer of crude stockpiles.

Why Politics, Not GDP, May Decide the Bargaining Power

Despite these apparent advantages, the negotiations may be shaped less by economic scorecards and more by politics. Consumer sentiment in both countries deteriorated in 2022 and has remained weak. For Trump and the Republican Party, that matters heading into the November midterm elections.

Xi, by contrast, retains ultimate control over the party and the economy. That allows him to prioritize long-term strategy even when near-term public sentiment is poor—provided overall growth does not stall outright.

The imbalance is stark: Trump may be “winning across the board” on several economic measures, but his low support in an election year is limiting his ability to fully convert economic strength into negotiating leverage.

US Consumer Sentiment Hits a Record Low

Trump’s immediate challenge is domestic. Consumer sentiment was near record lows even before the Iran conflict began. Last week, it dropped to a record low in a survey series that goes back to the 1950s, with gas prices continuing to climb.

Americans have not fully adjusted to the sharp price jumps associated with the 2022 inflation crisis. At the same time, the housing market has been frozen for years, restricting access to what many view as the country’s primary wealth-building channel for prospective buyers. Costs for essentials—childcare, groceries, education, and electricity—have increased faster than overall inflation this decade.

A gasoline shock compounds those pressures. High fuel prices hit quickly and visibly, reinforced by widespread signs advertising $4 gas. The result has been deeper uncertainty about the economy and a drop in Trump’s favorability to the lowest point of either of his terms.

Tariffs, Iran, and a Narrower Set of Options

With midterms approaching, Republicans are searching for ways to address voter concerns—reducing the administration’s flexibility in a high-stakes trade confrontation.

“Xi is well aware of the fact that Trump has very little leverage,” said Steve H. Hanke, a Johns Hopkins University professor and former adviser on President Ronald Reagan’s Council of Economic Advisers, arguing that threatening rhetoric, sanctions, and tariffs are not landing well with US voters.

Trump is expected to seek Chinese cooperation on pressuring Iran, increasing exports of rare-earth minerals, and boosting purchases of US goods, while also keeping the threat of higher tariffs on the table. But the political costs are immediate. “If tariffs lift prices, hit markets or disrupt supply chains, voters feel it quickly,” said Nigel Green, CEO of deVere. He added that weak economic sentiment is likely to limit how hard Trump pushes.

That same pressure helps explain why Trump has resisted resuming attacks on Iran during prolonged peace talks and while the Strait of Hormuz remains constrained, a situation that risks further energy-price increases.

China Turns Up Pressure With Rare Earths and Countermeasures

Even as Washington touts growth—US GDP rose at an annualized 2% in the first quarter for the $32 trillion economy—Beijing is applying targeted pressure. Xi has curtailed rare-earth exports, which the Trump administration needs to rebuild weapon stockpiles after the Iran war. Paul Triolo of Albright Stonebridge noted that Chinese officials view rare earths as central to their ability to resist new US demands.

China has also expanded its toolkit. Earlier this month, it revived a 2021 statute—previously unused—to prevent Chinese individuals and companies from complying with US sanctions. “China is relatively confident in its position even if talks fail,” said Joe Mazur of Trivium China, citing a “highly effective” approach last year that included reciprocal tariffs.

Xi’s Strategic Advantage: Time

China’s domestic strains are real. Unemployment remains elevated for a large segment of the population, and youth joblessness has stayed above 16% in recent months. Confidence dropped after 2021 amid the real estate crisis and strict pandemic-era lockdowns, and sentiment has only shown early signs of improvement in the last several months.

Beijing is also trying to reshape the economy, emphasizing AI and other high-tech industries. While that has driven a boom in some areas, the benefits have not spread widely enough to offset job losses over the past decade.

Xi is likely to seek US concessions as well, including extending a pause on harsh tariffs, easing restrictions on US technology for Chinese firms, and improving access to US markets. Taiwan and Iran are also expected to feature prominently. However, US lawmakers in both parties have flagged China’s robotics and AI ambitions as national security concerns, limiting Washington’s appetite for broader technology access.

Even so, the balance of power may favor Beijing. Xi brings something Trump does not: time.

Coinasity's Take

Markets often price negotiations through the lens of trade and supply chains, but this round also hinges on political durability. Weak US consumer sentiment, heightened by energy-price shocks, narrows Trump’s room to escalate tariffs without risking inflationary fallout—an important constraint as investors watch for spillovers into global manufacturing, commodity inputs like rare earths, and risk assets including crypto.