Analysis

In 2025, China’s economy appeared fundamentally paradoxical: it was somehow facing intense structural challenges at home while increasingly dominating markets abroad. The US government’s tariffs on Chinese imports catalyzed this dichotomy. US trade restrictions created a short-term shock to global supply chains, damaging China’s economy while incentivizing Chinese firms to pivot to new markets. The result was domestic overcapacity and “involution” (内卷, deemed by one pundit as 2025’s “word of the year”) and global trade “realignment” whereby China’s attempts to offload overcapacity at home drove its engagement across the Global South. 

The confluence of these two trends is not coincidental. Rather, they are closely interrelated. Domestic overcapacity, a feature of the CCP’s systematic promotion of efficiency through intensive internal competition within China’s economy, led to “excessive” price wars and diminishing returns despite an increase in inputs. 

Moreover, in attempting to offset this downward cycle, the CCP pushed Chinese firms to "open wider" (越开越大) into global markets, a feature that became doubly urgent after the US government imposed tariffs on Chinese imports. As the United States attempted to decouple from China, China pivoted to alternative markets. “Fixing” overcapacity and involution–both of which the CCP has underscored as vital in 2026–has therefore simultaneously divested China from the US economy and deepened engagements across the Global South at the US’s expense. 

This twin dynamic has major implications for US companies, even those that do not engage directly with Chinese suppliers or customers. Alternative markets provide Chinese firms with substitutes for US products. This leaves US companies facing a future where China may simply stop buying US goods entirely, a potentially devastating scenario for some industries. (This has in fact been a CCP policy goal since 2022. It is known as “Delete America.”). An almost cult-like belief that technological innovation will bring increased economic productivity through AI-driven efficiencies and “resource pooling,” combined with state-driven “swarm approach” to promoting multiple, competing domestic giants that can collectively outcomplete foreign competitors, mean that Chinese tech is primed for a global onslaught. 

This means that US companies around the world will increasingly encounter Chinese competitors, almost all of which will enjoy some form of state support. Competing with China will demand a rethinking in how US companies offer unique products or services at prices that still attract customers away from highly competitive Chinese alternatives. This is a trend that is already prevalent in some industries, notably renewable energy and electric vehicles. In the year ahead, however, we anticipate this list to grow. US companies need to be ready.

Analysis

A new US administration under President Trump in many ways continued the approach of both his first term in office and the Biden administration in viewing China as a systemic rival to the United States. The trends of geopolitically driven bilateral competition, defined by a growing fusion of national security and trade policy, have crystalized political choices in both countries. Each views the other as fundamentally adversarial. That view is unlikely to change. 

Based on this logic, the second Trump administration made forceful moves to increase pressure on China through continued export controls, new tariffs, and attempts to sever US tech supplies to Chinese companies. Beijing responded with rare earth restrictions and a massive state-backed effort to achieve self-reliance; a whole-of-society counter to the United States’ more piecemeal approach. The political situations in Beijing and Washington mean that these trends will continue in 2026, even if there are hints at possible deals or relaxations of trade restrictions. For companies looking to return to China’s market, the year ahead will be more, not less, difficult for market reentry. 

One indication that this difficulty will continue is that decisions to fuse businesses with national security have a ratchet effect. In China, direct state intervention in business is already a given, but the codification of a total fusion of the CCP and Chinese businesses in last year’s 15th Five-Year Plan emphasizes the party’s desire for ultimate control over the private sector. In the United States, a taste of government power over the private sector in key industries, like tech or critical minerals, similarly suggests a potential new era of “Neo-Mercantilism” or "state capitalism with US characteristics," where political allegiance and national security objectives override free-market logic. That is a power that the US government is unlikely to want to relinquish soon. This is particularly the case as both Washington and Beijing strive for supremacy in key capital-intensive industries like AI, quantum research, and robotics, which already require a degree of state-corporate fusion. 

The real question for the year ahead is not only how this intensified competition will shape bilateral relations and the business world, but how each side will respond to each other’s breakthroughs. Will Chinese successes in technology innovation spur additional state intervention by the US government in Silicon Valley? Will China prioritize ending involution in certain sectors ahead of competition with the US? However this competition evolves, business  will need to adapt quickly to avoid dire consequences.

Analysis

The past year saw the upending of long-established trade relationships, supply chains bottlenecks, rising prices, and ever-shifting US and Chinese regulatory environments. Through executive orders–the legality of which are currently under review by the Supreme Court–President Trump imposed tariffs on friend and foe alike, with the intent of bringing equilibrium to perceived trade imbalances and preventing China from acquiring advanced US technologies. China retaliated by imposing more narrow export controls on critical rare earth metals, along with other chokepoint products in global supply chains. The effects of Chinese controls were further compounded by often short-lived retaliatory trade efforts from the likes of Canada, Mexico, Japan, and South Korea, who also suffered under the new US tariff regime. In short, 2025 ushered in a neo-mercantilist era, defined by its increasingly protectionist measures at home and the weaponization of trade abroad.

Going into 2026, we expect this dynamic to continue. This is because the trade war has evolved into a strategic stalemate characterized by a specific trade-off: US semiconductors for Chinese rare earth metals. China consistently exploited its monopoly on rare earth mining and processing—controlling over 80% of global refining capacity—to pressure the US, implementing export controls that threatened to halt American industries ranging from EVs to aerospace. The US responded by vacillating on semiconductor restrictions, at times relaxing controls on Nvidia’s chips to secure rare earth flows. This dynamic created a volatile "tit-for-tat" cycle where China would restrict minerals, the US would impose tariffs or tighten chip controls, and then both would temporarily de-escalate without resolving the underlying structural conflict. By the end of 2025, despite attempts to develop domestic mining, "friend-shoring" with Australia, and newly developed preferential tax schemes by India, the US remained vulnerable to China's "chokepoint" strategy.

It is also for this reason that we expect China to maintain the upper hand as we begin the new year. Although the trade war has been tit-for-tat, that does not mean that ground has not been gained or lost in the process, and China has continually come out ahead. For instance, what began as the US government’s firm resolve to prevent China from accessing advanced semiconductor technology, especially in the form of Nvidia’s H200 chips, ultimately came to nothing by year’s end with those exact chips becoming permitted for export. To add insult to injury, China then decided it no longer wanted them, as it had, in the interim, developed sufficient (although not equivalent) domestic replacements via the herculean efforts of companies like Huawei. It is becoming increasingly clear that China’s rare earths defeat the US’s advanced tech in the current trade war, as China can innovate domestically during a stalemate in trade relations, but the US cannot produce without the necessary raw materials. 

Given this dynamic, US companies need to prepare for increased volatility in 2026. In a world where US tariffs are ruled unconstitutional, the current trade environment will be upended overnight. In its place, we would likely see a more piecemeal suite of laws and regulations, only this time involving Congress. If the current tariffs remain in place, the present jockeying for advantage in the US-China trade war will mean unpredictable if temporary spikes and reprieves, making over-allocating funds for projected annual operating costs essential to ensuring a balanced budget. To help mitigate these effects, US companies should continue to diversify and friend-shore supply chains wherever possible.

Analysis

The events of 2025, most notably the emergence of the DeepSeek AI model, reshaped Beijing’s assessment of constraint. Instead of treating export controls as a temporary obstacle, Chinese policymakers appear to have internalized them as a permanent feature of the operating environment. Competitive AI performance derived from software efficiency and system-level optimization reduced dependence on advanced hardware. This, in turn, exposed the limits of access denial as a sole mechanism for constraining frontier capability, shaping Beijing’s more confident posture heading into 2026.

Looking ahead, China’s emphasis on distributed innovation is likely to deepen. The formalization of a “swarm” model—spreading development across major firms, research institutes, and startups—suggests that future advances will be incremental and harder to attribute to any single actor. In 2026, this may translate into fewer visible “breakthrough moments,” but a steady accumulation of capability across AI tooling, advanced manufacturing processes, and applied industrial systems. By blurring the line between civilian, commercial, and strategic applications, this diffusion complicates enforcement for US and allied regulators.

Capital deployment will reinforce this trajectory. The state-directed venture funds announced ahead of the 15th Five-Year Plan indicate that Beijing is prioritizing boosting early-stage ventures rather than looking to support existing companies in scaling operations. As these “micro-bet” investments mature in 2026, policymakers will likely tolerate higher failure rates in exchange for broader technical coverage. This approach favors resilience: even if individual firms collapse or are sanctioned, the ecosystem retains accumulated knowledge and trained talent that can be reabsorbed elsewhere.

For global markets, the year ahead is unlikely to be defined by the acute volatility of 2025, but rather by a steady accumulation of structural pressure. Chinese firms are less likely to re-emerge as dominant, consumer facing platforms and more likely to surface as specialized state-aligned suppliers embedded deep within global supply chains. In sectors such as industrial equipment, advanced materials, and applied AI systems, competition may unfold gradually and unevenly, compressing margins over time rather than displacing incumbents in a single disruptive moment.  

The main risk in 2026 is not a sudden Chinese technology leap, but the steady normalization of an innovation system built to function under ongoing restrictions. As the US and China continue to tie technology policy to national security, government involvement in key industries is likely to deepen rather than retreat. Each side’s respective response to the other's progress will justify further intervention. In turn, making political alignment increasingly important for market access and competitiveness. For businesses, this competition will not stay abstract: firms operating across both systems will face growing pressure from diverging rules, standards, and expectations. Success will depend less on technical leadership alone and more on adaptability and the ability to operate in a splintered global technology landscape in this environment.

Analysis

Chinese espionage tactics expanded dramatically against the US private sector in 2025. Two trends emerge as clear preferences for these attacks. First, Chinese actors are increasingly brazen in how and where they steal commercial secrets. Getting caught doesn’t matter as much when one’s espionage apparatus is vast and sophisticated. Second, China’s approach to espionage has become increasingly sophisticated. Gone are the days when a second-rate cyber criminal got blocked attempting to infiltrate company secrets. As widespread cyber attacks–most notably Salt Typhoon–demonstrated this year, China is capable of penetrating corporate defenses with the capability (and backing) of a nation state. 

Among these larger and more explicit attacks, a taxonomy is also becoming clear in precisely how the CCP uses its proxies to achieve its goals. These include “trawler net” versus “line caught” espionage. Like a trawler net, China is invested in mass data harvesting from US companies either through attacks like Salt Typhoon or through data collection from Chinese apps downloaded in the West. Such trawling does not necessarily have one defined intention or target. The point is to collect as much data as possible that might be of use, and then sift and analyze. 

At the same time, China also targets individuals through “line caught” operations that coopt individuals to either steal sensitive corporate IP or that incentivize individuals of interest, usually Chinese nationals working abroad in key technology fields, to relocate back to China. If China is so capable of trawler net attacks, why does it also promote targeted “line caught” cooptation of individuals? 

The two strategies overlap, but have different advantages. In part, coopting an individual who already has access to protected information of interest is still easier (and cheaper) than acquiring that information via a mass cyber attack, although this is changing with AI-orchestrated attacks. But it is also a key function of the CCP’s strategy to bring Chinese talent home, that is to redirect Chinese talent away from places like Silicon Valley to Hangzhou, Suzhou, Beijing, and elsewhere in China. The CCP sees these individuals, with experience and knowledge of working in US tech companies, as an obvious, latent weapon. What if instead of innovating for US companies, those individuals innovated for Chinese companies that are conveniently under the direction of the CCP? For the CCP, this is a win-win: undermine the United States while buoying Chinese innovation. 

The CCP’s increasingly aggressive recruitment of Chinese nationals, combined with the potential for increasingly sophisticated cyber infiltration, will force companies to treat every digital interaction and hiring decision as a potential security threat, even if employees are unaware of the risks involved. Internal diligence, an emphasis on employee safety and security, and strengthened cyber capabilities will no longer be optional for companies.