China weighed in on the Iran war recently, urging Tehran and Washington to negotiate and stating that “a ceasefire and dialogue remain the only way out.”
The comments on their own won’t have much impact. But they’re emblematic of how China has handled the war in Iran so far: cautiously, from the sidelines, encouraging diplomacy while refusing to get involved itself.
But there’s another layer here, too. China is quietly benefiting from the conflict in the Middle East.
SO FAR, CHINA IS WINNING THE IRAN WAR
It might not seem that way, given that the Strait of Hormuz is closed, bottlenecking the global trade system on which China depends. But it’s true, and President Donald Trump needs to mount a response.
Start with the fact that, in Tehran’s eyes, not all commerce is created equal. While U.S. and European ships trying to move oil and natural gas through the strait remain stalled, a small handful of vessels have been allowed to pass, including Chinese ones.
Part of this is because China isn’t allied with the United States or Israel. But part, too, is that China is the world’s single largest buyer of Iranian oil, responsible for more than 80% of Iran’s oil exports. The last thing Iran wants is to cut loose its economic lifeline.
So while Iran actively bombs U.S. and Israeli targets, China is helping keep its economy afloat. Virtually all of the Iranian crude oil that’s been allowed to pass through the Strait of Hormuz since its closure has been bound for China. For Beijing, the war is an economic opportunity.
Another reason China stands to benefit is it’s overall less dependent on fossil fuels than the United States.
The U.S. is an oil and natural gas powerhouse, the largest producer of both resources in the world. China has huge oil and gas reserves as well, but it has chased the electric vehicle trend much further than the U.S., with an extensive fleet of electric cars, buses, and trains.
This isn’t always a positive: China consumes twice as much electricity as the U.S. does, placing significant strains on its power grid. But it does insulate China more than the U.S. against disruptions to the global oil market.
Economists call this “oil intensity”: Just how reliant is a country on oil? The U.S. economy is estimated to be 40% more oil-intensive than China’s.
This puts China in a better position to weather rising gas prices. And it’s not just Chinese commuters who will see (relative) benefits. After months of bad news for China’s BYD, the world’s largest electric car maker, the company saw its EV sales suddenly rebound after the Iran war began.
Data suggest soaring gas prices are prompting more car buyers to consider electric vehicles. China has a head start on this technology, and it’s profiting from it.
Throw in a hotter-than-expected Chinese economy even before the war began, and it’s clear the U.S. needs to make sure its war on the ayatollahs isn’t handing its biggest rival an advantage.
Thankfully, there are measures Trump can take to keep the U.S. economy competitive. The first is simply negotiating with Iran to reopen the Strait of Hormuz to U.S. shipping. Trump is already doing this, and the continued transit of Chinese vessels, along with Iran’s own interest in reopening the strait, shows the impasse isn’t insurmountable.
An “all of the above” energy program can also help the U.S. brace the coming pain at the gas pump. Investing more not just in electrification, as China has, but oil and natural gas extraction can turn the U.S. into an even more formidable energy superpower. This will help stabilize global markets and diminish Iran’s influence.
There’s also room for pushback against China’s tech sector. Recently, the Trump administration shrewdly greenlit a merger between U.S. technology companies Hewlett Packard Enterprise and Juniper Networks. The U.S. intelligence community strongly urged it to do so, and it’s easy to see why. The resulting larger company is expected to be a tough global competitor against Huawei, the massive conglomerate and arm of the Chinese state that seeks to dominate the world’s 5G and AI future.
THE CHINA FACTOR: TRUMP’S IRAN STRIKES THREATEN TO RESHAPE GLOBAL ORDER
This kind of creative thinking is exactly what the U.S. needs to maintain its competitive edge.
Right now, the Trump administration is focused on winning the war against Iran. But it should also keep up the economic pressure on China — and make sure the U.S. is set to thrive long after the fighting stops.
Scott Garrett is a former member of Congress from New Jersey. He served on the Committee on Financial Services and chaired the Capital Markets subcommittee.