China is wrestling with a dilemma over how best to counter U.S. President Donald Trump’s aggressive trade strategy. While Beijing has pledged to strike back against nations that align with Washington’s efforts to squeeze China out of global supply chains, the reality is that punishing its Asian neighbors could backfire—and offering them economic incentives risks clashing with its own strategic objectives.

At the heart of Beijing’s concern is the growing threat of what it calls a “grand encirclement.” This idea, recently articulated by U.S. Treasury Secretary Scott Bessent, describes Washington’s campaign to forge deals with allies to systematically exclude China from key trade flows. It’s a concept that is swiftly becoming reality.

The European Union is urgently negotiating with the United States to protect its car manufacturers from heavy American import duties, with potential solutions ranging from reduced tariffs to import quotas and export credits. These discussions are part of the EU’s strategy to secure a preliminary trade deal with Washington in the coming days, ahead of the August 1 deadline that President Donald Trump set for imposing sweeping new tariffs on dozens of countries.

Automobiles are central to these negotiations. European officials see them as a “red line,” stressing that securing concessions on auto tariffs is essential to any broader deal.

Indonesia’s top economic officials described this week’s high-level discussions in Washington on looming U.S. tariffs as “positive,” saying both sides were working toward a broader commercial relationship that could include deeper collaboration in critical minerals — a sector seen as vital for global supply chains.

Chief negotiator and Economic Affairs Minister Airlangga Hartarto, who met with U.S. Commerce Secretary Howard Lutnick and U.S. Trade Representative Jamieson Greer on Wednesday, said the atmosphere was constructive. He said the two countries were now aligned on pushing negotiations forward on the basis of “mutual benefit.”