TOKYO – Something very few political wonks saw coming in 2025 was the extent to which China would get the better of Donald Trump.
To be sure, few serious economists thought the US president’s tariffs would end well. But count the ways Chinese leader Xi Jinping — through strategic patience and exploiting Trump’s desperation for a quick deal — continues to outmaneuver the White House.
Case in point: Xi recently won another delay — this one for a year — on the economic arms race Trump launched earlier this year. This means any trade agreement, grand or otherwise, probably won’t happen until 2027 – and that’s the best-case scenario. That affords the US Supreme Court loads of time to rule Trump’s tariffs unconstitutional.
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 “Global South.” And it provides more time for Trump’s tariffs to boomerang on US households through higher inflation.
China is now projected to grow this year by 5%, 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?
That’s the working thesis at Goldman Sachs, where economists think Asia’s biggest economy could see growth as high as 6%. Not just for 2026 but for the “next few years.”
“China’s economy is likely to grow more quickly than previously forecast, helped by the government’s determination to advance the competitiveness of manufacturing and boost exports,” Goldman economists Andrew Tilton and Hui Shan write in a recent report.
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.
Mainland exports, meanwhile, could expand 8% this year, “demonstrating the competitiveness of Chinese products across a wide range of industries relative to global peers,” the Goldman economists point out.
Caveats abound, of course. Not least of which is a confidence-crushing property crisis that’s fueling deflation. Local government finances nationwide are in shambles. Youth unemployment is alarmingly high while China’s aging population is shrinking. Households are still more inclined to save than to spend.
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’ balance sheets have seen little follow-through. Nor has Team Xi made much headway in building a robust social safety net system to incentivize consumption.
Looked at another way, though, investors haven’t made loads of money betting against China this past decade. So, let’s entertain, for now, Goldman’s prediction that China will confound the naysayers in 2026 — and, perhaps, further humiliate Trump’s efforts to bring Xi’s economy to its knees.
Part of Goldman’s optimism stems from the assessment that China’s “property downturn is beginning to ebb,” even if there’s a “long way to go” to work through excess housing inventory.
Tilton and Shan write that the “property downturn will enter its fifth year in 2026 after the market peak in 2021.” While it’ll take time, they argue, “our researchers conclude that the drag on growth will shrink.”
New housing starts are 75% below the peak, and property investment is 50% lower, which means real estate’s share of GDP has fallen significantly, Tilton and Shan argue. “Even if the rate of decline remains the same, the impact of the property market’s downturn on the economy should become smaller in the next few years.”
Seth Carpenter, Morgan Stanley’s chief global economist, sees China having something of a status quo 2026 for China — which may be impressive all its own given the strength of the headwinds bearing down on Asia. China’s real GDP is forecast to expand 5% in 2026, helped by front-loaded government policy support.
The following year, though, could see GDP ease to 4.5% “as the effect of fiscal stimulus wanes,” Carpenter says.
Oxford Economics notes that China’s impressive performance in 2025 has many sheepish about doubting its trajectory next year.
“This point is central to our thinking for 2026,” Oxford’s team argues. “China’s 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.”
Oxford adds that “what has been a source of upside surprise for China has also—arguably—been the cause of downside surprise for Germany. Even 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%.
“Germany’s 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’s emergence over the past two decades as a competitor in advanced economy export markets.”
If, in fact, China does outperform in 2026, that might mean less need for the People’s Bank of China to ease rates. That, in turn, could mean the yuan will remain steady-to-higher as the Federal Reserve eases in Washington.
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.
Yet some easing seems in order, given China’s deflation challenge. The PBOC spent much of 2025 reluctant to ease, with consumer prices falling for a third straight year. This patience affords PBOC Governor Pan Gongsheng space to cut rates.
One big wildcard for 2026 is Japan’s escalating war of words with China over Taiwan. The spike in bilateral tensions, sparked when Japanese Prime Minister Sanae Takaichi told parliament that an attack on Taiwan could be deemed “a situation threatening Japan’s survival”, is the worst since 2012 and things are heating up by the day.
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.
“Conflicts in Ukraine, the Middle East and simmering tensions elsewhere could drive food and energy prices higher, wreck trade flows, and raise inflation,” says Denise Cheok, analyst at Moody’s Analytics. “Not every flashpoint will reach that severity, but as the souring Japan-China relationship in the wake of Takaichi’s comment on Taiwan’s defense has shown, even lower-grade confrontations can rattle economies.”
Though the spat has cast a shadow over bilateral ties, “the economic implications have so far been marginal,” Cheok says. “Even if Chinese arrivals were halved, GDP would fall only 0.2%. More likely, other tourists would fill the gap, encouraged by a weak yen. As for seafood, exports account for only a small fraction of Japan’s modest agricultural trade.”
It follows, she says, that the sharp rhetoric “may be a reflection of China’s deeper economic malaise.” Cheok argues that mainland consumer confidence “is shattered, youth unemployment is high and the property market is in the doldrums. Beijing has talked about support, but not deployed sufficient fiscal firepower to stabilize growth. Meanwhile, overcapacity is crushing prices.”
Still, Trump’s efforts to put China’s economy on the defensive clearly aren’t playing out as planned. Nor, for that matter, do Washington’s tariffs and other policies seem about to throw Xi’s $19 trillion off course in 2026. That is, if an upbeat Goldman Sachs has it right.
Follow William Pesek on X at @WilliamPesek
