Other BriefingsOne Year of Trump 2.0 – What to Watch for US-China Relations in 2026
After many months of upheaval, the US and China have reached what appears to be a lasting truce. Following the meeting between Trump and Xi in October, China has emerged with growing confidence and leverage, and even as Chinese exports to the US have plunged under tariffs, its overall foreign trade and economy remain resilient. Despite the relative calm, a range of political, regulatory, and security headwinds could still significantly derail US-China relations in 2026, and further shake supply chains and business confidence.
As we reach the one-year anniversary of Trump’s return to power, a prevailing narrative on the state of US-China has emerged: China, having played its hand expertly and called the US’ bluff, has emerged victorious, gaining the upper hand both economically and diplomatically.
This view is one evidently shared by China’s top leadership, with President Xi Jinping telling party members at the Central Economic Work Conference (CEWC) in December that, amidst the “turbulent tariff and trade wars”, China has “demonstrated the resolve, integrity, and confidence of the Chinese people, showcased our core strength, and won the respect of the international community”.
Against this backdrop is the sense that the US is retreating from the Asia-Pacific, turning instead its attention to the Americas – as implied by the new National Security Strategy (NSS), which signals a softer ideological posture toward China and a shift in focus toward the Americas.
Notwithstanding the relative calm of the current status quo, 2026 still holds much uncertainty as political, regulatory, and security pressures continue to build beneath the surface. Above all, Trump remains hawkish on China when it comes to trade and the economy and is not beyond reviving tariffs or other coercive measures should he judge them to be politically or strategically advantageous. Capitol Hill, meanwhile, remains decidedly China skeptic, and continues to pursue anti-China legislation.
For foreign companies, the combination of a de facto truce at the leadership level and ongoing US legislative and regulatory scrutiny means that careful monitoring of both political developments and sector-specific policies will be essential in 2026.
See also: US-China Relations in the Trump 2.0 Era: A Timeline
China’s foreign trade in 2025: Exports maintain momentum despite free fall of US shipments
Chinese exports to the US have plummeted in the year since Trump retook office. In April, after Trump imposed “reciprocal” tariffs of 34 percent – which eventually rose to a high of 125 percent in a series of tit-for-tat escalations before being lowered to 10 percent in May – Chinese shipments to the US plummeted by 20.2 percent from the same month in 2024.
While exports to the US have experienced a gradual decline over the last few years, the drop in 2025 has been a market acceleration. In 2025, China’s total exports to the US fell to just over RMB 3 trillion (US$431.6 billion) from RMB 3.73 trillion (US$536 billion) in 2024, a decline of 19.5 percent.
Notably, the trade agreement reached between China and the US at the end of October has not yet helped to reverse the decline. In the months since, shipments continued their free fall despite the 10-percentage point tariff cut. While they may yet improve in the coming months, this suggests supply chains have already adjusted to the new tariff regime and are yet to recalibrate – if they will at all.
Despite the decline in shipments to one of China’s most important export markets, China’s overall foreign trade has remained resilient. The country’s trade surplus exceeded US$1 trillion for the first time between January and November 2025 and continued to climb to almost US$1.2 trillion by the end of the year. Over the whole of 2025, China’s exports grew by 5.5 percent year-on-year in US dollar terms , a strong indicator that exporters have successfully weathered the storm of the trade war by diverting goods elsewhere.
The largest beneficiaries of this shift have been emerging markets, in particular countries in Southeast Asia and Africa. In 2025, exports to Africa and ASEAN countries soared 25.8 percent and 13.4 percent from 2024 in US dollar terms, respectively. In ASEAN, shipments to Vietnam and Thailand rose sharply, increasing 22.4 percent and 20.3 percent year-on-year respectively.
It is not yet entirely clear whether the uptick in goods exported to trade partners in Southeast Asia and Africa is the result of new demand for Chinese goods in these markets, or whether these countries are being used to reroute goods to the US. US import data suggests that at least some Chinese goods may be circumnavigating tariffs by shipping through third countries. Data from the US International Trade Commission shows that Thailand and Vietnam-derived goods have increased as a share of the US’ total monthly imports by value over the course of 2025 – rising from around 1.8 percent in January to 3 percent in September for Thailand and from 4 percent to 6.4 percent in for Vietnam over the same period. Meanwhile, China’s share shrunk from 13 percent in January to around 8.5 percent in September.
Regardless of how much of this reordering can be attributed to new demand and how much is transshipment with no or minimal add value, the idea of rerouting is certainly a concern for the current US administration. The preliminary – and as yet unconfirmed – trade deal reached with Vietnam over the summer reportedly included a 40 percent transshipment tariff on goods passing through from third countries to the US in a direct swipe at China.
The US’ 2025 NSS released at the beginning of December underscored this point, stating that “The United States imports Chinese goods indirectly from middlemen and Chinese-built factories in a dozen countries”.
The US’ changing stance on foreign intervention
Despite the US’ continued hawkishness on trade with China, there has been a notable softening in its ideological stance. In the NSS, the US professed that “Trade with China should be balanced and focused on non-sensitive factors”.
While this shift in tone does not necessarily mean a complete retreat from intervention in Asia – the NSS emphasizes the need for “a robust and ongoing focus on deterrence to prevent war in the Indo-Pacific” – the US promises to no longer criticize countries for their governance structures or domestic policy, as it has in the past. For the first time in over 30 years, the NSS does not seek to push for political reform or social change overseas, instead advocating a “Predisposition to Non-Interventionism” in which it will refrain from imposing “democratic or other social change that differs widely from [countries’] traditions and histories”.
We seek good relations and peaceful commercial relations with the nations of the world without imposing on them democratic or other social change that differs widely from their traditions and histories. – 2025 US National Security Strategy
Recent events – notably, the announcement of record arms sales to Taiwan, the capture of Venezuelan President Nicolás Maduro, and threats of military intervention in Iran and Greenland – show that the actual implementation of this policy is selective at best, and can be disregarded wherever the US has a direct economic or political interest in a country. Moreover, the US remains decidedly hawkish when it comes to trade and the economy, and advocates collaboration with allies and partners to prevent “domination by any single competitor nation”. The NSS is also clear that the time of tariffs and economic sanctions is far from over, calling for protecting its economy by ending what it views as harmful trade and business practices, including state-directed subsidies and industrial strategies, intellectual property theft and industrial espionage, imports of fentanyl and precursor chemicals, and “Threats against our supply chains that risk US access to critical resources, including minerals and rare earth elements”.
For businesses, this changing foreign policy strategy could reduce the likelihood that broader geopolitical tensions with China spilling over into economic and trade relations. The US’ stated move away from ideological conditionality and political pressure may lower the risk of abrupt policy shifts driven solely by governance or social concerns, though this remains far from certain. Despite the apparent rhetorical shift, recent actions have shown that it is by no means shying away from foreign intervention. The NSS stresses that a mutually beneficial trade relationship with China “must be accompanied by a robust and ongoing focus on deterrence to prevent war in the Indo-Pacific”. This line may yet prove to reveal the US’ true intentions.
At the same time, Trump has strong incentives to continue framing the current trade deal with China as a major win, which may temper the appetite for actions that could quickly destabilize the fragile truce. Trump has already given China considerable latitude in his global tariff assault over the last six months, seemingly unwilling to provoke China again. In July, he threatened a 100 percent “secondary tariff” on Russia’s trade partners. In August, he partially followed through on this threat, raising the tariff on India from 25 to 50 percent due to the country’s purchases of Russian oil. However, despite China’s continued trade with Russia, the threat was not extended to China.
In a move from the same playbook, Trump recently threatened a 25 percent tariff on Iran’s trade partners. China, being by far Iran’s largest trade partner – importing a total of US$2.86 billion worth of Iranian goods in the first 11 months of 2025, per China Customs – would be the prime target of such a tariff, but it has yet to materialize.
Nonetheless, the continued emphasis on defending US economic and industrial interests means that the risk of further trade measures remains. While sweeping blanket tariff hikes may be off the table for now, more targeted duties, export controls, and sanctions aimed at specific industries – in particular sensitive sectors – are likely.
Concessions on rare earth exports
Rare earths have proven to be China’s most effective bargaining chips in 2025. The initial export controls on rare earth elements were put in place just days after the US imposed reciprocal tariffs on China in April and have remained in place ever since. In the months that followed, the issue of rare earths licenses had become central to negotiations, with Trump repeatedly raising the matter, seemingly supplanting the problems that the US had wanted to address at the outset, such as industrial overcapacity, state subsidies, intellectual property theft, and market access barriers for US companies.
On October 9, 2025, just weeks ahead of the Trump-Xi meeting in Busan, South Korea, China further expanded rare earth export controls, creating yet another point of leverage in negotiations. Those measures, which significantly expanded the scope of controls, were subsequently suspended for one year as part of the broader agreement reached between the two sides, along with the controls on other critical minerals and materials including gallium, germanium, antimony, and related dual-use items.
Following the meeting, the US claimed that China had agreed to issue general export licenses for the export of the seven rare earth elements and derivative products placed on the April export controls list.
While the full details of these arrangements have still not been revealed, the issuance of general export licenses has since been confirmed by the Chinese side. China’s Ministry of Commerce (MOFCOM) stated on December 18 that it has approved some general licenses for exports of rare earth-related items to certain companies that have met the basic requirements. This has been corroborated by some European companies, which have confirmed that their Chinese suppliers have received such licenses.
However, it remains unclear whether any general export licenses have been issued for exports to US companies. Moreover, some snags to their full implementation remain, as Chinese authorities have emphasized that licenses will only be issued for civilian use and to non-military end users, and the ban on exports of controlled items to military users or for military purposes remains in place.
For US businesses, there appears to be some light at the end of the tunnel, with the likelihood that general export licenses will be issued for non-sensitive industries at least. At the same time, companies with links to defense or other sensitive sectors may continue to be barred from accessing these materials.
While the developments show important progress on the issue, China is unlikely to fully relinquish its grip on rare earths and other critical minerals. Instead, these materials are likely to remain an important lever for Beijing in any potential future trade or geopolitical conflict.
Impact on US businesses in China
The culminating effect of US-China relations on businesses in China has been one of ever more uncertainty and instability. From the roller coaster of the tariff war and export controls to longstanding domestic frictions in the business climate, generating revenue and managing risks has become increasingly challenging.
The 2026 China Business Climate Summit Survey released by the American Chamber of Commerce (AmCham) in China on January 16, 2026, which surveyed member companies, found that 79 percent of respondents held a neutral or positive outlook for US-China relations in 2026 – a 30-percentage point improvement from the previous year. The medium-term view on US-China relations remained relatively pessimistic but also saw a marked improvement from the previous year, with only 52 percent of companies holding a “pessimistic” or “slightly pessimistic” view on bilateral relations over the next two years, compared to 65 percent in the 2025 survey.
Nonetheless, rising US-China tensions remains a key concern for companies, with 58 percent of respondents stating it was among their top five business challenges in China.
US-China tensions also continue to weigh on investment and business decisions, with 26 percent of respondents stating that uncertainty in the bilateral relationship was a reason for considering reductions to their investments in China in 2026. Moreover, as a result of the trade war, the proportion of respondents that said they have opted to deepen the localization of products and services remained unchanged from 2025 at 21 percent, while 19 percent said they plan to source or assemble components outside of China, a drop of two percentage points from the previous year’s survey. US-China trade tensions, risk management, and US tariffs on Chinese exports were the top three most important reasons cited for companies considering moving capacity outside of China.
While the 2026 survey shows major improvements to business optimism over US-China relations, it also suggests that anxiety over uncertainty and instability persists and points to an ongoing and possibly permanent change in the business environment: a heightened focus on risk management and mitigation, diversifying and building resilience into supply chains, and embedding geopolitical risk more explicitly into investment and operational decision-making.
The progress made in the trade truce – should it last – may prompt some companies to recalibrate their investment decisions to be more bullish in 2026. However, this is likely to come with careful adjustments to a new operating environment in which geopolitical risk is treated as a structural feature of doing business in China, shaping long-term strategy even in periods of relative diplomatic stability.
US-China relations in 2026: What to watch
US-China relations have stabilized, and the current truce provides much-needed breathing room for companies to recalibrate supply chains and reassess investment strategies. However, a range of unresolved issues and lingering political flashpoints have the potential to reignite tensions and create renewed volatility in the business environment in 2026, particularly for companies in sensitive sectors.
A key near-term event to watch is Trump’s planned visit to China in April. Given Trump’s strong preference for interpersonal diplomacy, the meeting with Xi presents the best opportunity for a longer-term and more durable trade deal than the stop-gap agreements reached so far. As with previous agreements, much of the substantive negotiation is likely to occur in the run-up, with lower-level US and Chinese officials meeting to hammer out the contours of a potential agreement, offering early clues of the concessions or commitments that could be on the table.
Any trade deal negotiations are likely to include further agreements on access to China’s rare earths – in particular if the issuance of general licenses is slow, frustrating the US – expanded Chinese purchases of US agricultural products, particularly soybeans, and renewed cooperation on fentanyl, including enforcement actions and financial monitoring commitments
At the same time, US domestic policy is continuing its move toward a more restrictive outbound investment environment, which has the potential to cause trouble over the course of 2026. On December 18, Trump signed into law the US’ annual defense spending bill – the 2026 National Defense Authorization Act (2026 NDAA) – which incorporates several acts directly targeting China, including the BIOSECURE Act and the FIGHT China Act. China has already reacted strongly to the passing of the bill, imploring the US not to implement the provisions related to China and threatening countermeasures if it refuses to do so.
The BIOSECURE Act, which was first introduced under the Biden administration but until now failed to pass Congress, prohibits federal agencies from procuring biotechnology equipment or services produced or provided by “foreign biotechnology companies of concern”, including entities placed on a Department of Defense (DoD) list of Chinese military companies operating in the US.
The provisions have been softened slightly since the bill was first introduced – previously, five Chinese biotechnology companies were explicitly named: BGI, MGI, Complete Genomics, WuXi AppTec, and WuXi Biologics. Now, the provisions instead direct the Director of the Office of Management and Budget (OMB) to publish a list of biotechnology companies of concern within one year of the enactment of the 2026 NDAA based on a list of entities suggested by the DoD. The addition of a Chinese biotechnology company to this list is likely to provoke a quick response from China, with the potential to impact foreign companies operating in the country.
Meanwhile, the FIGHT China Act (the Foreign Investment Guardrails to Help Thwart China Act of 2025), which was first introduced in March 2025, codifies prior outbound investment restrictions introduced through the Outbound Program. This program prohibits or requires notification for certain types of investments by US persons into Chinese companies involved in “prohibited technologies” related to military, intelligence, and surveillance, including advanced semiconductors, AI models, and quantum technologies. While the rules remain mostly unchanged, the 2026 NDAA expands the coverage to include the high-performance computing and supercomputing sector and the hypersonic systems sector.
Other provisions impacting China include the BUST Fentanyl Act, which requires the Secretary of State and Secretary of the Treasury to submit a report on fentanyl to Congress within 180 days of the enactment of the 2026 NDAA. The report must include descriptions of US efforts to get China to commit to more strictly regulate fentanyl, future steps for the US to urge China to combat the production and trafficking of fentanyl and related products, and a description of China’s cooperation in assessing the role of China’s financial system in the trafficking of fentanyl and related products.
The spending bill makes it clear that while the US-China relationship has stabilized at the leadership level, hawkishness remains the prevailing and bipartisan attitude on Capitol Hill – over which Trump’s personal politics will have little sway. These competing dynamics point to a bifurcated policy landscape in 2026, in which tactical engagement and dealmaking takes place at the leadership level, alongside continued scrutiny and targeting of Chinese technology and capital at the legislative and regulatory level. This means that while major tariff and trade volatility may be over, allowing for more stable and predictable supply chains, considerable investment risks remain, and foreign companies operating in affected sectors will continue to find themselves caught between competing regulatory regimes and political priorities.
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