By Bala Ramasamy

The 2026 US midterm elections have delivered a sweeping Democratic victory, with the party securing control of both the House and Senate. The shift in power is set to constrain Donald Trump at home over the final two years of his presidency. Yet it could also push his administration toward a more confrontational China policy—one of the few areas still capable of attracting bipartisan support.

What could this mean for China–US trade relations and the broader economic outlook? And how should Chinese businesses navigate growing political uncertainty without mistaking rhetoric for economic reality? In this article, CEIBS Professor of Economics, Associate Dean and Director of GEMBA Programme Bala Ramasamy examines the implications of the changing US political landscape for China.

The 2026 US midterm elections delivered a result that was widely expected in direction but astonishing in scale. Voters delivered what can fairly be called a blue tsunami, handing Democrats control of both chambers by margins far greater than forecast—reported projections put the party at 255 House seats and 54 in the Senate. The result will constrain President Donald Trump's domestic legislative agenda during the final two years of his presidency. This was not merely the customary correction against a sitting president, but a broad repudiation of the administration's economic stewardship, foreign-policy choices, and governing style.

For China, the implications may be less straightforward. A politically weakened president does not guarantee a softer China policy. A Trump hemmed in by a Democratic Congress may become more inclined to concentrate on Beijing. 

For international business leaders, two seemingly contradictory trends may therefore unfold: louder anti-China rhetoric in Washington, alongside persistent limits on America's ability to disentangle itself from the Chinese economy.

What drove the backlash

The election was shaped by widespread dissatisfaction with the administration across four key issues: the high cost of living, unpopular wars, perceptions of corruption, and heavy-handed treatment of migrants.

Rising living costs were potent because they converted geopolitics into household arithmetic. The war in Iran lifted gasoline and diesel prices, making the economic consequences of foreign policy tangible every time an ordinary American filled a tank, paid a delivery charge, or bought trucked goods. Voters do not experience inflation as a statistic; they experience it as recurring financial burden.

The administration's posture towards Canada deepened the damage. Tariffs were one thing; talk of annexation was another. Canada is not simply a trading partner, but a close ally bound to the United States by commerce, culture, and family. Aggression toward Ottawa crossed an emotional line, turning a trade dispute into an assault on a relationship Americans had long regarded as benign.

The White House's close ties with technology moguls also raised concerns. While cooperation between government and business is ordinary, the growing influence of a small group of extraordinarily wealthy executives prompted questions about favouritism. Critics questioned whether these ties served the national interest rather than private power.

Finally, the administration's strong-arm approach to immigration enforcement was another source of public unease. Aggressive raids, detentions, and the visible use of federal force prompted citizens—well beyond immigrant communities—to question whether the use of government power was being turned against people in ways incompatible with American norms. For many, it was less a debate about immigration policy than about the character of the government itself.

Together, these grievances contributed to growing dissatisfaction with the administration. While ordinary households faced higher living costs and watched the state flex its muscle, concerns mounted over the government's use of power, its ties with wealthy business leaders and its involvement in overseas conflicts. The combination helped fuel a broader backlash against Trump's leadership.

A lame duck—but not a powerless one

The result instantly raised the question of whether Trump has become a “lame duck” president. In one sense he has: his party has lost Capitol Hill, his legislative agenda will face entrenched opposition, and political attention will shift toward the 2028 presidential election. Divided government is hardly unusual in US politics, however. What distinguishes Trump is how he will react to these new constraints.

As presidents enter their final years in office, securing a lasting legacy often becomes a priority. Trump appears particularly conscious of how his presidency will be remembered, as reflected in construction projects around the White House compound and Washington DC. But physical buildings rarely satisfy such ambition; he will want an international legacy too.

A politically weakened Trump is unlikely to remain passive. Domestically, he may rely more heavily on presidential vetoes, executive orders, regulatory measures, procurement, and emergency authorities as his legislative agenda encounters resistance in Democratic Congress. Yet the election also imposes limits. Pressure will mount to wind down his involvement in the Middle East, ease tensions with European allies, take a firmer stance towards Russia, and repair relations with Canada. The very policies that contributed to the midterm defeat will become increasingly difficult to sustain.

That leaves China.

Why China may become the preferred target

As military intervention and confrontational diplomacy become increasingly difficult to justify politically, trade measures such as tariffs may become a more attractive policy tool for Trump.  They project strength, operate largely through executive authority, and let a president claim to defend domestic industry without firing a shot. If Canada and Europe are off-limits, China becomes the obvious focus of US trade policy.  A tougher stance toward Beijing may also attract bipartisan support. The two parties quarrel over instruments and intensity, but suspicion of China now spans both.

The next two years could therefore see a new wave of tariffs, export controls, investment restrictions, sanctions, and trade investigations targeting China. Some may be strategically serious; others improvised or internally inconsistent. All will draw outsized attention in speeches, markets, and media. 

For Chinese business leaders, however, the key is to distinguish political rhetoric from substantive policy changes, rather than interpreting every announcement as a fundamental shift in China–US economic relations.

China is more resilient than headline figures suggest

China enters this period with real structural advantages.

First, it has diversified its export markets. In the Hinrich Foundation–IMD Sustainable Trade Index comparison, China has the least concentrated export portfolio among the 30 economies assessed: its five largest partners account for roughly 40% of exports, against about 89% for Canada. China depends on the US market, but not as acutely as several American allies depend on a handful of destinations.

Second, few countries can match China's ability to meet the scale, speed, variety, and price expectations of the American consumer. Importers can shift some production, but substitution is neither immediate nor cheap; rival hubs often lack China's integrated supplier networks, logistics, skilled labour, and capacity to ramp output quickly.

Third, China is no longer merely the factory of the world, it is increasingly the factory for the world's factories. Even when final assembly moves to Southeast Asia, Mexico, or India, Chinese firms often keep supplying the machinery, components, chemicals, and technical expertise. Bilateral statistics can therefore overstate the degree of separation by recording where assembly ends rather than where industrial value begins. 

Tariffs can reroute trade without removing Chinese participation from supply chains. In some cases, they may create longer, less transparent supply chains and higher costs for American buyers. China's persistent trade surpluses attest to the difficulty of reversing its position through tariffs alone.

The greater threat is psychological

China’s consequential vulnerability may be domestic rather than external. The country's core challenge remains weak consumer confidence and the thin domestic demand that follows. Households anxious about property values, jobs, income, health care, and retirement save rather than spend, limiting consumption's ability to absorb external shocks.

In this context, sustained threats from Washington may therefore cause psychological damage to China’s economy. If relentless threats persuade Chinese households and private firms that decline is inevitable, confidence could erode: consumers postpone purchases, entrepreneurs delay investment, companies hoard cash. In that case even modest US measures could land heavily.

The opposite scenario is equally plausible. China's domestic market is far from mature. If consumption runs at perhaps two-thirds of its potential, the remaining third is both a weakness and a reservoir of growth. Measures that lift household income, strengthen the social safety net, stabilise property, and support private enterprise could unlock substantial domestic firepower. China's response should thus centre not simply on retaliation, but on building a stronger domestic economy combined with continued international diversification.

What Chinese business leaders should do

• Separate rhetoric from implementation. Build systems to distinguish speeches and social-media posts from legally effective rule. Focus on enforceable measures, affected products, start dates, and the odds of judicial or congressional challenge.
• Map exposure beyond direct exports. Assess reliance on US technology, financing, insurance, logistics, software, and dollar transactions, not just sales to American customers.
• Diversify markets for commercial reasons. Deepen presence in Southeast Asia, the Middle East, Latin America, and Africa. Commercially grounded, not merely as tariff evasion.
• Move further up the value chain. Capabilities in advanced machinery, components, and production systems are harder to replace than low-margin assembly operations.
• Invest in domestic confidence. Offer reliable products, protect employment where feasible, maintain transparent governance, and keep investing through uncertainty.
• Avoid overreaction. Hastily relocating capacity or abandoning profitable markets in response to every announcement can destroy more value than the policy itself.

The real test over the next two years

The midterms have weakened Trump at home, but not rendered him irrelevant in global trade. A Democratic Congress will constrain his agenda, intensify oversight, and contest his executive reach—in effect nudging him toward an international legacy in arenas where presidential power still runs strong. China is likely to become central to that effort. 

For Chinese businesses, the next two years are likely to bring uncertainty and occasional disruption. 

But the outcome will not be decided in Washington alone. If China reads every American threat as proof of inevitable decline, faltering confidence could convert limited pressure into a genuine slowdown. If instead it recognises the breadth of its markets, the depth of its industrial ecosystem, and the untapped potential of its consumers, it can absorb much of the shock.

Trump's standing as a lame duck, at least in global trade, will ultimately hinge less on how forcefully he speaks about China than on how confidently China answers.

Bala Ramasamy is Professor of Economics, Associate Dean and Director of GEMBA Programme at CEIBS. His research interest focuses on Asian economies, Foreign Direct Investment, Corporate Social Responsibility and International Business Strategy.