The war in Iran was not on Xi Jinping’s agenda. He had other plans for May – specifically, a carefully planned summit with U.S. President Donald Trump in Beijing designed to stabilize what has become the world’s most consequential and combustible bilateral relationship. Instead, Beijing finds itself navigating a conflict it didn’t start, doesn’t want, and cannot afford to ignore.
How China handles this moment will reveal more about its actual power – and its vulnerabilities – than any trade deal announced in Beijing.
I spent more than two decades in China, including as president of the American Chamber of Commerce in Shanghai during the first Trump administration. I watched from close range as China built its position as the world’s factory, accumulated the world’s largest trade surplus, and gradually positioned itself as an alternative pole in the global order.
Xi Jinping believes he has outmaneuvered Trump in the trade war. China’s overall trade numbers are up, its surplus has grown, and the Chinese economy – while sluggish – has not been damaged the way Washington’s tariff architects predicted. On the surface, Xi has a point.
But the conflict in Iran is a reminder that what appears on the surface is not the whole story.
China is deeply dependent on the stability of the global trading system – and on open waterways – in ways that its confident posture obscures. China is the world’s largest trading nation without a blue-water navy capable of protecting its supply lines. Its energy security depends on sea lanes it does not control. The chaos that war creates – spiking oil prices, disrupted shipping, rattled markets – lands on Beijing as directly as it lands on anyone. As I argue in my book, “The Fragile Dragon,” one of China’s most significant and underappreciated vulnerabilities is the gap between its economic reach and its capacity to safeguard its trading relationships.
China’s oil dependency on Iran is more manageable than it appears. This conflict comes at a time when China has a strategic reserve of nearly 1.4 billion barrels of oil – more than three times the size of the United States’ – along with land-based pipelines and a rapidly expanding renewable energy base. What is far less manageable is a prolonged disruption to the global trading system itself. High oil prices and clogged shipping lanes don’t just cost China energy – they cost China customers. Every nation unable to afford oil is a nation buying fewer Chinese goods.
What Beijing should be doing – and to its credit, is attempting to do – is play the diplomatic role it has been quietly building for itself in the Middle East. In 2023, China brokered the Saudi-Iranian rapprochement, a piece of diplomacy that surprised everyone, including Washington. Less remembered but equally significant: China was a party to the JCPOA, also known as the Iran nuclear agreement, reached in 2015 under U.S. President Barack Obama.
After the deal was signed, Obama’s Energy Secretary Ernest Moniz made a stop in Shanghai, where he met with a group of us from the American Chamber. Moniz was one of the key negotiators, along with Wendy Sherman and Secretary of State John Kerry, and told us that China had played an important and constructive role throughout the two plus years of difficult negotiations.
Why was Moniz at the negotiating table? For one, his background as a theoretical nuclear physicist came in handy during the complex negotiations over enriched uranium. Also, he had worked with Iran’s chief technical negotiator, Ali Akbar Salehi, at MIT. Trust was a critical ingredient, as Salehi had initiated secret talks with the Obama administration before the formal negotiations could begin. With a certain level of trust built up over decades, the adversaries were able to reach an agreement.
Personal diplomacy helped, but pressure on Iran to get to an agreement – and stick to it – came from European allies. And from China. The agreement held – until the next American president withdrew from it unilaterally. That decision reverberated far beyond Iran.
Xi will not say so publicly, but the conflict in Iran creates serious problems for Beijing. It distracts and weakens the United States – which Chinese military planners are observing carefully, taking notes on American weapons and capabilities. But chaos and disruption are not in Beijing’s interest, and it can’t be happy that a China-bound ship has been attacked.
On May 4, a Chinese-owned oil tanker near the entrance to the Strait of Hormuz was attacked and set ablaze – the first time a Chinese vessel has come under fire in this conflict. The ship was marked “CHINA OWNER & CREW” in bold letters on its hull, a designation that had previously functioned as a kind of diplomatic immunity. That immunity is gone. In Beijing’s strategic calculus, the incident is impossible to ignore.
Beijing summoned Tehran’s foreign minister — a pointed use of diplomatic leverage that signals how seriously China takes the Hormuz closure. Chinese Foreign Minister Wang Yi met his Iranian counterpart in Beijing last week and said China is “deeply distressed” by the war, calling a comprehensive ceasefire “urgently needed.”
At the same time, Beijing is playing both sides with characteristic precision. China has invoked a “blocking rule” for the first time, directing Chinese companies not to comply with U.S. sanctions on Iranian crude purchases – directly challenging American economic authority while simultaneously calling for peace.
The delay in the Trump-Xi summit – originally planned for late March to early April – was good for both parties. Hosting Trump while American bombs are falling in the Middle East would have been bad optics for Xi, creating the impression that Beijing approves of what is happening. It does not.
Nor has Beijing forgotten the U.S. military operation in Venezuela, where China has roughly $40 billion invested in oil infrastructure and watched Washington engineer yet another unwelcome outcome. Xi is dealing with a United States that is simultaneously his most important economic partner and his most unpredictable and disruptive neighbor.
Between the United States and China, trust is in short supply. Trump, facing political and economic pressures at home, is counting on a trade deal with China to build momentum going into the midterm elections. To get a deal with China, Trump’s negotiating team needs to build trust, and fast.
Will Xi Jinping trust Donald Trump to stick to a deal? Or will he worry that an agreement could get discarded by the next president, or by this one after changing his mind? China’s leaders never expose themselves to this type of embarrassment. The fate of the JCPOA is all too fresh.
That rules out a grand bargain. The structural issues – technology controls, industrial subsidies, AI governance – will not be resolved in May or any time soon. What remains on the table is a tactical deal: soybeans, fentanyl commitments, a pause on rare earth restrictions. The outcomes are useful, even necessary, but not transformative.
The larger question – given new urgency by the Iran conflict – is whether the United States and China can act as responsible powers in a world that badly needs both of them to function.
China’s posture of aggressive neutrality has served Beijing well. China is aligned with none, trades with all, and is structurally committed to a system that Washington invented but has become increasingly unwilling to defend. But neutrality has a price when the trading system on which China’s own prosperity depends is itself at risk. At some point, a stake in the outcome requires a position.
The JCPOA showed what was possible when the United States came to the table with allies, with expertise, with the credibility of a country that honored its word – and when China chose to be part of the solution rather than a bystander to the problem.
In the short term, China can probably manage the disruption to the Strait of Hormuz, thanks to 1.4 billion barrels in reserve and clean energy capacity that no other major economy can match. The real test is whether Beijing is willing to use its leverage over Iran to stabilize the system it depends on, rather than simply waiting for the United States to become exhausted and abandon the fight. That would be the behavior of a true great power.
Whether Xi Jinping is ready for that role, or whether he still prefers the comfort of watching from the sidelines, is the most important question the next few weeks will answer.
