TOKYO \u2013 Something very few political wonks saw coming in 2025 was the extent to which China would get the better of Donald Trump.<\/p>\n
To be sure, few serious economists thought the US president\u2019s tariffs would end well. But count the ways Chinese leader Xi Jinping \u2014 through strategic patience and exploiting Trump\u2019s desperation for a quick deal \u2014 continues to outmaneuver the White House.<\/p>\n
Case in point: Xi recently won\u00a0another delay \u2014 this one for a year \u2014 on the economic arms\u00a0race Trump launched earlier this year. This means any trade agreement, grand or otherwise, probably won\u2019t happen until 2027 \u2013 and that\u2019s the best-case scenario. That affords the US Supreme Court<\/a> loads of time to rule Trump\u2019s tariffs unconstitutional.<\/p>\n It also affords Beijing more time to Trump-proof its economy. Xi can redouble efforts to build stronger trade ties with Europe, Southeast Asia and the rest of the \u201cGlobal South.\u201d And it provides more time for Trump\u2019s tariffs to boomerang on US households through higher inflation.<\/p>\n China is now projected to grow this year by 5%<\/a>, despite the tariffs, while the US labor market quakes and inflation rises at a 3% rate. But could China be on the verge of an even better 2026?<\/p>\n That\u2019s the working thesis at Goldman Sachs, where economists think Asia\u2019s biggest economy could see growth as high as 6%. Not just for 2026 but for the \u201cnext few years.\u201d<\/p>\n \u201cChina\u2019s economy<\/a>\u00a0is likely to grow more quickly than previously forecast, helped by the government\u2019s determination to advance the competitiveness of manufacturing and boost exports,\u201d Goldman economists Andrew Tilton and Hui Shan write in a recent report.<\/p>\n Export growth has been surprisingly strong in 2025, the researchers note. This performance, despite US tariffs that jumped to more than 100% in April before Trump reduced levies to 30% a month later.<\/p>\n Mainland exports, meanwhile, could expand 8% this year, \u201cdemonstrating the competitiveness of Chinese products across a wide range of industries relative to global peers,\u201d the Goldman economists point out.<\/p>\n Caveats abound<\/a>, of course. Not least of which is a confidence-crushing property crisis that\u2019s fueling deflation. Local government finances nationwide are in shambles. Youth unemployment is alarmingly high while China\u2019s aging population is shrinking. Households are still more inclined to save than to spend.<\/p>\n The Xi era, since 2013, has seen a lot more talk of recalibrating growth engines than action. Pledges to get bad assets off property developers\u2019 balance sheets have seen little follow-through. Nor has Team Xi made much headway\u00a0in building a robust social safety net system to incentivize\u00a0consumption.<\/p>\n Looked at another way, though, investors haven\u2019t made loads of money betting against China this past decade. So, let\u2019s entertain, for now, Goldman\u2019s prediction that China will confound the naysayers in 2026 \u2014 and, perhaps, further humiliate Trump\u2019s efforts to bring Xi\u2019s economy to its knees.<\/p>\n Part of Goldman\u2019s optimism<\/a> stems from the assessment that China\u2019s \u201cproperty downturn is beginning to ebb,\u201d even if there\u2019s a \u201clong way to go\u201d to work through excess housing inventory. <\/p>\n Tilton and Shan write that the \u201cproperty downturn will enter its fifth year in 2026 after the market peak in 2021.\u201d While it\u2019ll take time, they argue, \u201cour researchers conclude that the drag on growth will shrink.\u201d<\/p>\n New housing starts are 75% below the peak, and property investment is 50% lower, which means real estate\u2019s share of GDP has fallen significantly, Tilton and Shan argue. \u201cEven if the rate of decline remains the same, the impact of the property market\u2019s downturn on the economy should become smaller in the next few years.\u201d<\/p>\n Seth Carpenter, Morgan Stanley\u2019s chief global economist, sees China having something of a status quo 2026 for China \u2014 which may be impressive all its own given the strength of the headwinds bearing down on Asia. China\u2019s real GDP is forecast to expand 5% in 2026, helped by front-loaded government policy support.<\/p>\n The following year, though, could see GDP ease to 4.5% \u201cas the effect of fiscal stimulus wanes,\u201d Carpenter says.<\/p>\n Oxford Economics notes that China\u2019s impressive performance<\/a> in 2025 has many sheepish about doubting its trajectory next year.<\/p>\n \u201cThis point is central to our thinking for 2026,\u201d Oxford\u2019s team argues. \u201cChina\u2019s recent doubling down on support for the industrial and export pillars of the economy as engines for growth has led us to raise our forecasts for China.\u201d<\/p>\n Oxford adds that \u201cwhat has been a source of upside surprise for China has also\u2014arguably\u2014been the cause of downside surprise for Germany.\u00a0Even our below-consensus call of just 0.5% growth in 2025 looks to have been too hopeful this year, with our current estimate at just 0.2%.<\/p>\n \u201cGermany\u2019s industrial malaise has many causes, including structurally uncompetitive energy prices, tariffs, and a backloaded fiscal response, but some of the weakness is down to China\u2019s emergence over the past two decades as a competitor in advanced economy export markets.\u201d<\/p>\n If, in fact, China does outperform in 2026, that might mean less need for the People\u2019s Bank of China to ease rates. That, in turn, could mean the yuan will remain steady-to-higher as the Federal Reserve<\/a> eases in Washington.<\/p>\n A stable yuan would be good news on three fronts. One, a sliding yuan would increase the risk that giant property developers will default on offshore debt. Two, it might set back efforts to pitch the yuan as a reserve currency. Three, it might enrage Trump, who may think Beijing is devaluing its way to growth.<\/p>\n Yet some easing seems in order, given China\u2019s deflation challenge.\u00a0The PBOC spent much of 2025 reluctant to ease, with consumer prices\u00a0falling for a third straight year. This patience affords PBOC Governor Pan Gongsheng space to cut rates.<\/p>\n One big wildcard for 2026 is Japan\u2019s escalating war of words with China over Taiwan. The spike in bilateral tensions, sparked when Japanese Prime Minister Sanae Takaichi\u00a0told<\/a>\u00a0parliament that an attack on Taiwan<\/a> could be deemed \u201ca situation threatening Japan\u2019s survival\u201d, is the worst since 2012 and things are heating up by the day.<\/p>\n Along with bans on travel and seafood, China on Tuesday (November 25) instructed its airlines to reduce flights to Japan. All this adds to the already long list of geopolitical concerns heading into 2026.\u00a0<\/p>\n