In President Trump’s trade war, China won the battle in 2025. What comes next is

When Mao Zedong declared in 1949 that China had “risen up,” it marked the end of national humiliation. In 2025, without mass movements, banners, or fanfare, China will get back on its feet economically and show the world that it will not be bullied into President Trump’s new US-China trade war.

The U.S. government turned to tariffs and tightened access to advanced technology earlier this year, assuming China’s slowing growth and overextended real estate sector would make it an easy target and force it to make swift concessions. It wasn’t. Beijing absorbed the shock and retaliated with a masterclass in economic politics and policy discipline. Rare earth export controls were applied with precision, even though the United States remains highly dependent and vulnerable on defense and automakers. Customs and regulatory frictions seemed to have escalated enough to cause pain without causing panic. Chinese exporters also diverted to Southeast Asia and Mexico, slowing the impact of tariffs even as headline regulations tightened.

The numbers speak for themselves. As of the end of November, China’s trade surplus in goods exceeded the $1 trillion mark for the first time, showing how external demand continued to drive growth despite pressure from the United States. Exports to the United States fell significantly, estimated to be around 40% year-over-year in the third quarter, but the shortfall was masked by increases in other countries. Shipments to Asia, Mexico, Europe, and the Middle East continued to expand, supported by competitive industrial production such as automobiles, chemicals, solar panels, machinery, and steel. The U.S. squeezed market access to China—and China undaunted selling out to the rest of the world. It was definitely a stand-up moment.

However, while China resolutely opposes President Trump’s actions externally, it still faces many problems domestically. Other November macroeconomic numbers tell a different picture. Industrial activity expanded only slightly. Retail sales edged up at the slowest pace in years. Fixed investments decreased, especially in real estate. Domestic demand is stabilizing, but has not yet expanded enough to replace previous growth drivers or reduce dependence on exports. Credit stress remains evident at the local government level. Consumers remain cautious. Confidence in the private sector has flickered, but not fully flared up. In other words, external resilience was real. Internal recovery is not yet complete.

This duality – external strengths and internal constraints – has once again shaped the debate in global markets. “Is China investable again?” The fair answer is more nuanced than the optimism suggests. 2025 will not be a return to the China of 20 years ago, a relatively open market with relatively little risk and friction. This marked the emergence of a new phase of highly selective openness under deep strategic management. Investors can come in, but they can’t do so everywhere, based on old assumptions, and they can’t do so without recognizing the national security logics that shape both capitals.

Although the United States has softened its “risk-averse” rhetoric, the policy-making environment and institutional structures of competition and restrictions remain intact. Semiconductor control continues to manage advanced nodes. There is ample institutional support for overseas investment screening. Concerns about critical infrastructure and data persist across multiple agencies. National security hardliners in Congress (Republicans and Democrats) share more DNA on China policy than on any other issue, and are more willing to acknowledge it publicly than either side. This means that there is a real possibility that laws and regulations will be tightened in 2026, regardless of the tone of the White House.

China’s trajectory reflects this mindset and attitude. Under the banner of “new productive forces,” the Chinese government is elevating frontier technologies such as AI, robotics, advanced manufacturing, and high-end computing as both economic priorities and sovereign obligations. Foreign capital is welcome, but with conditions set to foster self-reliance, rather than diminish it. Foreign investment will expand in the short term in areas that strengthen China, and shrink or shrink in areas that could create vulnerabilities. This is what many are calling “managed decoupling,” and it is slower, more subtle, more targeted and precise than previous stories of rapid rupture, but no less directed or decisive.

Diplomacy was introduced in late 2025 and helped stabilize relations, but 2026 will determine whether this stability is maintained or strained. After China weathered the initial insurrection in Washington in 2025, the Trump administration reversed course—not because of an ideological reversal, but because it could not force surrender through pressure. An engagement followed, culminating in a state visit to Beijing scheduled for April 2026. If done well, it may be possible to further pause escalation, re-establish multi-level dialogue processes, maintain a rhythm of engagement among leaders, and set boundaries on competition.

However, Beijing remembers that President Trump’s state visit in 2017, with all its pomp and pageantry, failed to maintain bilateral stability and preceded the trade tensions of 2018. However, the 2026 calendar could be a way to extend restraint beyond the April state visit, as the G20 meeting later this year could provide a second platform for continued policy stability and sustained contact between leaders.

But as the US midterm elections approach, political gravity is likely to shift in the opposite direction. Sensing influence and electoral opportunities, Congress could legislate regulations that no summit can loosen. It is not hypothetical, but plausible, that a veto-free coalition would strengthen investment and semiconductor regulation. A window of peace exists, but it is narrow.

Technology is where the boundaries narrow the most. While the emergence of DeepSeek in early 2025 was a shocking moment for China, just as important are the advances in industrial AI applied to logistics, ports, manufacturing lines, and energy systems, which are accelerating. US investors see trend lines and success and want to invest. U.S. national security strategists are looking at all risks and dual-use capabilities, as well as increased military power projections. The US government is increasingly debating whether it should support US capital to finance China’s rise, not whether it is happening.

Meanwhile, there are parallel fears that while the United States is betting big on breakthrough AGI, China is building something more down-to-earth: fast, cheap, ubiquitous applied AI with immediate economic benefits. The story of two AIs, one visionary and one industrial, could define the competitive landscape for the entirety of 2026. These power relationships come with risks. China’s success in AI or advanced manufacturing, and its optimism about AI in China, could create new investment restrictions in the AI ​​space and lead to laws restricting the types of business engagement with Chinese AI and technology companies as a way to slow progress.

The same goes for important minerals. The Chinese government has eased the procedure for granting general export licenses. Access is currently improving. However, China still maintains influence and could quickly tighten control if relations worsen or retaliation helps achieve other national goals. Investors should treat flexibility as temporary rather than permanent.

This goes back to the question American investors are once again asking themselves: “Is China investable?”

Yes, but with extreme caution. Opportunities are most evident in green technology, industrial automation, advanced manufacturing, and applied AI, areas where China is setting and shaping the pace rather than copying the standards.

Without a doubt, 2025 was the year that China stood up and captured the attention of politicians and investors. China recognizes that it remains an important market, having proven that it can withstand external pressure from the United States and has the economic strength to compete with the United States. Chinese President Xi Jinping has never said that things are bad, but he ended the year in a more proud mood than President Xi Jinping has in recent years. The difficult questions now are whether China can translate its external resilience into durable domestic self-reliance, and whether 2026 marks a paradigm shift in policy or whether 2025 was just an anomaly.

There is an unresolvable problem with the current availability. Nike’s recently reported weak performance in China showed that consumer sentiment has a long way to go to recover. Nvidia’s export control battle demonstrated how quickly policies on both sides of the Pacific can rewrite a company’s assumptions. Strengthening of US policy due to China’s expansion. Strengthening legislative activity in Congress. Reputational risk as US political sentiment swings back toward competitive rhetoric and very public displays of political instability around China. And all remain real risks as quiet but durable managed decoupling on both sides of the Pacific continues at pace.

Companies need to prepare for both stability and snapback. Plans are being made for the Trump-Xi summit in April to maintain stability, but also scenarios for a hardening of the situation after the visit. That’s what China is doing. China knows it won in 2025. China is preparing to stand up to Washington and take a breather before running for office in 2026.

—Dewardrick McNeil, Managing Director and Senior Policy Analyst, Longview Global, CNBC Contributor