Analysis

While US companies continue to mitigate the fallout and subsequent supply chain disruptions from conflict in Ukraine, Venezuela, and elsewhere, the US and Israel’s strikes against Iran adds further uncertainty to global politics. The US military’s removal of Iran’s Ayatollah Khamenei was initially targeted and limited to air strikes. That may change. For starters, war in Iran is already having dramatic and wide-reaching consequences for the entire Persian Gulf region and beyond. Supply chains, energy supplies, petroleum products, shipping, and global aviation will all likely feel the strain of restricted production and the targeting of critical infrastructure. Any product that depends on oil for manufacture and distribution will increase in cost. Chinese businesses are not immune. 

For the CCP, Iran is a valuable partner, but it is not an ally. Iran needs China, but China does not necessarily need Iran. This is to say that China will not automatically assist Iran. In some ways, wars in Ukraine,Venezuela, and Iran are useful to Beijing insofar as they keep European attention on Russia and American attention on the Middle East. That grants China valuable room in East Asia to act as it likes, knowing that potential US and European responses will be constrained by limited resources and attention. 

Chinese officials have nevertheless underscored their intense displeasure with the US and Israel over the attacks on Iran. Where the CCP will likely be the most rattled is that, like with Russia’s invasion of Ukraine, war in Iran is a major destabilizing event. For starters, economic shocks from severed supply chains are forcing the CCP to refocus on stabilizing domestic markets in unanticipated ways, including by offering subsidies and increasing other public spending. Moreover, Iran is a major market for Chinese products. Disruptions to Chinese trade and investment both in Iran and in the wider region represent major external shocks to the already fragile Chinese economy. 

This is particularly the case for the party as it enters a politically sensitive time during its current “Two Sessions” political meetings and President Trump’s planned visit to Beijing in late March. In both cases, highly choreographed pageantry demands conformity and stability. War in Iran therefore adds uncertainty to a paranoid political system. We don’t yet know what China’s response will be, other than publicly staying out of the situation while ensuring domestic energy supplies. China, along with Russia, is likely hard at work behind the scenes attempting to gain advantage by securing its own assets, and damaging the US war effort quietly and incrementally. Economic coercion, cyber attacks, IP theft, infrastructure compromise, and influence operations are China’s preferred modus operandi. Direct application of military force is a last resort. militarily. For now, China will wait to see what happens and how it can best take advantage. 

Iran is crucial for China’s oil and energy supply. Western sanctions against Iran and Venezuela reduced these countries’ ability to sell on the global market, which allowed China to snap up barrels on the cheap. In return, Venezuela and Iran enjoy much-needed Chinese investment and Beijing’s support for a variety of geopolitical goals. This does not mean that these relations are symbiotic–China has a stronger negotiating position and gets a better deal in both cases–but it does mean that chaos in both Venezuela and Iran is anathema to the CCP leadership and its obsession with stability. The reduction in oil supplies will likely also spur an intensification in the PRC’s already high investments in diversified non-fossil fuel energy sources. 

In the short term, the CCP is likely enacting mitigation strategies that it has long planned for in the eventuality of a crisis in the Strait of Hormuz, a choke point for Gulf oil reaching China. But China is also likely trying to plan for a world with potentially two fewer key partners–Iran and Venezuela–not only in terms of oil supply, but in terms of how they draw Western attention away from China. 

Analysis

How can US companies mitigate geopolitical uncertainty? Two recent, but arguably interrelated, cases demonstrate how private firms can find themselves at the arbitrary whims of governments. First, China is increasingly using a US economic mechanism to attack private companies as a means to punish foreign governments with which it disagrees. Recently, PRC authorities imposed export controls on twenty Japanese companies operating in China (authorities added another 20 to a “watchlist”). This occurred after the Chinese government labelled the Japanese firms’ products “dual-use” suppliers to Japan’s military. Notably, China’s actions only targeted Japanese companies, likely in retaliation for Japan’s growing assertiveness in its promises to defend Taiwan against invasion. 

This arbitrary imposition of export controls, while narrowly targeting Japanese companies for now, could be readily expanded to US companies operating in China. This is a risk that falls entirely outside of US companies’ control. While a restriction might be because of a company’s action, the new geopolitical playbook is one of equating corporations with countries, with one serving as a legitimate target for the other.

At the same time, the Pentagon labeled several major Chinese companies as “Chinese Military Companies” in a similar move that equates private companies with their respective governments. The difference is that in the Pentagon’s case, the companies listed–including major tech giants like Alibaba and Tencent–demonstrably assist China’s civil-military fusion. Moreover, in China, private companies are or can be compelled to serve as proxies for the CCP. Japanese companies, by contrast, have no military applications for Japan’s armed forces. 

Despite confusion in the Pentagon’s release of the list–it was published, then redacted, then republished–the addition of major Chinese tech giants should give US companies pause if they have engagements with these companies. Aside from the implicit substantive risks of engaging with Chinese partners (e.g. theft of IP), the Pentagon’s labeling adds a regulatory compliance risk. Corporate lawyers will now have to evaluate any engagements with listed companies to ensure that they are not violating US government restrictions on abetting Chinese military suppliers. 

The added challenge is that US companies may also now have to contend with not only the PRC government, but also the US government. The Pentagon’s threat to Anthropic for the company to be labelled a “supply chain risk,” and potentially lose lucrative US government and military contracts, highlights how the company has become a key focus of the Trump administration’s fusing of politics with business. 

Collectively, US businesses, whether US-based, operating in China, or just using Chinese suppliers, will face a tougher and more dynamic geopolitical regulatory environment. Staying ahead of shifting regulations, having back-up plans for suppliers, and demonstrating diligence on partners will become necessities for doing business.

Analysis

In anticipation of China’s Fourth Plenum, the Chinese punditocracy has offered a range of predictions for not just 2026, but the future of the global economy. Several themes provide a new window onto Chinese understandings of the trade wars.

For instance, political economist Zheng Yongnian 郑永年 argues that the conflict among erstwhile allies at the recent Davos meeting–especially Canadian PM Mark Carney’s now-famous speech proclaiming “the old world order is not coming back”–and increased visits of European and other heads to state to China for the purpose of negotiating bilateral trade deals signals that the “global north is dead.” 

A recent roundtable discussion including business and development representatives from Renmin University and China’s State Council supports this interpretation, and argues that America has been a “good teacher” for China, but that efforts to curtail China’s access to global markets and advanced tech have backfired since China’s domestic industries are rapidly catching up. The roundtable participants predict the global economy is not facing a “China +1” reality, but a “World -1,” where America is the missing term. This is consistent with China’s infamous “Delete America” policy.

Chief Economist at the China Center for International Economic Exchanges, Chen Wenling, appears to concur with the interpretations above, noting that China is now the agent of “change” while the US the agent of “chaos” in global markets. She argues that China must draw clear “bottom lines” for negotiating future trade deals, comparing the move to what China has already done with the territorial issue of Taiwan.

The bullishness of the Chinese pundits, however, emerges alongside mixed reports about the state of China’s economy and its global presence. On the domestic front, economists are predicting that China’s GDP will drop to 4.5% in 2026 (relative to “around 5%” in 2025). (As always, keep in mind that China’s economic statistics are heavily politicized, and so GDP growth figures are suspect.) Low domestic consumption is a perennial problem for Beijing, and state subsidies to spur consumerism have not produced the desired results. This is likely worsened by fears of layoffs brought on by AI, even if China is yet to see the kinds of reductions in workforces already seen in the US. After changing its evaluation methods, Beijing has resumed reporting youth employment numbers again (after stopping in 2023), which remained a whopping 16.5% in December 2025, and again is likely lower than the real numbers. 

Globally, China’s situation looks somewhat better. Chinese EV maker BYD overtook Tesla in more than 20 markets last year, now dominating in South American and expanding its majority in Europe. Similarly, although Huawei handset sales have stayed flat due to US tariffs preventing access to the necessary chips, Huawei wearable tech has grown significantly in European markets, and is currently only second to Apple. Combined with China’s declared intention of a “five-fold increase” in advanced chip output by 2030–a push that will also be spearheaded by Huawei–Chinese companies are optimistic about their prospects. 

China’s global growth, however, seems to result from chronic domestic underconsumption. As China moves into new global markets, it finds new avenues for its overproduction, but even these markets have their limits. Especially as markets continue to bifurcate and the US and China both make exclusivity demands of trading partners, China will inevitably have to deal with its current domestic deflationary malaise. When that time comes, it will pull both the domestic and global economies down with it. To prepare for this, US companies should ensure that any current growth is sustainable and that their markets are diversified in order to help mitigate the worst of such a situation.

Analysis

China’s AI firms are trying to compete with the US by making models cheaper and easier to deploy rather than simply more powerful. This approach could help Chinese AI spread quickly in emerging markets, but hardware limits, less capable software, and security concerns may slow its global adoption.

Recent discussion about a possible new “DeepSeek moment” has renewed attention on China’s AI sector. But the bigger story may not be a single breakthrough model. Instead, Chinese companies are trying to win the AI race by lowering costs and spreading their tools across global markets. Firms such as Moonshot AI, Zhipu, and MiniMax are focusing less on building the largest models and more on building systems that run cheaply and integrate easily into business tools.

It should be no surprise that cost is China’s central advantage. MiniMax’s M2.5-Lightning model reportedly runs at about 100 tokens per second while costing roughly one dollar per hour to operate. This is far cheaper than many Western systems. For companies in emerging markets, this price difference could make Chinese models attractive even if Western models remain more capable. China is also trying to shape the infrastructure around AI, with firms like Huawei reappearing in global standards discussions and technology forums after years of restrictions.

China’s electric vehicle (EV) industry offers a useful comparison. Automakers such as BYD, SAIC, and Geely expanded rapidly across Southeast Asia, Latin America, and parts of Europe by offering cheaper vehicles and tightly controlling supply chains. For analysts watching global competition, these exports act as a vanguard. Chinese firms have already shown they can scale advanced technologies internationally while undercutting Western competitors on price.

But AI may prove harder than EVs for China to dominate. Cheap models do not guarantee adoption, especially if developer tools and integrations lag behind Western platforms like OpenAI or Anthropic. China also faces hardware limits due to US export controls on advanced chips, while security concerns could make some governments hesitant to rely on Chinese AI systems that handle sensitive data. Western cloud providers still hold a powerful advantage as well. Amazon, Microsoft, and Google operate most of the world’s hyperscale data centers, making it easier for businesses to deploy Western AI tools within existing systems. China’s strategy of flooding the market with cheaper models could still win users in the most cost-sensitive markets, but turning that advantage into global AI dominance will depend on whether Chinese firms can overcome their structural constraints.

Analysis

IP theft is tricky to catch and even trickier to litigate. Moreover, for the few companies and individuals who are caught, convicted, and punished, the fallout is usually a relatively small fine. Weak enforcement of IP theft laws means little disincentive to comply with them. This is particularly the case for companies in jurisdictions that have weak legal mechanisms, like in the PRC, to keep engaging in IP theft. In some cases, companies often build the anticipated costs as a business expense. Combatting corporate espionage is a major challenge for US companies fighting unfair competition against competitors that are determined to steal IP with little risk. 

It is therefore perhaps heartening for US companies that the US government recently sanctioned an individual and two entities under the Protecting American Intellectual Property Act (PAIPA). The sanctions were imposed for stealing “several proprietary cyber tools from a US company” and selling them to Russian-based Operation Zero (operating as Matrix LLC), a platform that buys offensive security research and products to then attack companies and governments. As the State Department underscored, these are “...the first designations under PAIPA,” which potentially points to the US government wisening up to the need to protect US companies. 

 PAIPA is not much of a deterrent. The law was enacted in 2022 and we are only now seeing the first prosecution. Moreover, PAIPA is weak. It applies only to foreign companies and individuals, and not American collaborators, and imposes fines and sanctions. Economic espionage is espionage. It costs the US trillions of dollars per year, and kills US companies, eliminates jobs, and erodes national security. The penalty for these crimes should fit the damage they do. At present, the reward for successful IP theft is still far higher than the risk of detection, apprehension, prosecution, and sanction. 

US companies need to stay vigilant in monitoring for and defending against IP theft. While PAIPA is a positive step, it will not save companies facing industry-wide corporate espionage that is only set to increase as competitors integrate agentic AI and other automations into systemic attacks against the US private sector. The survival of US competitiveness depends on both the US government and private sector increasing the costs that attackers pay for stealing US IP.