Midterm election shifts could reshape US-China dynamics

Democrats secured majorities in both the House and Senate, alongside governorships in states including Texas, Nevada, and Iowa. While these newly elected officials will not formally assume their roles until January, the shift in power is already prompting assessments of its potential impact.

Before then, U.S. President Donald Trump and Chinese President Xi Jinping are scheduled to meet twice – in Shenzhen this month and in Miami, Florida, next month – in what is expected to be an effort to maintain a delicate balance. Gabriel Wildau of Teneo suggests Trump, focused on his legacy, may be inclined to avoid escalating tensions with China.

A key priority for Democrats will be addressing domestic inflation, which includes consideration of removing tariffs imposed previously. Scott Kennedy of the Center for Strategic and International Studies believes Democrats may push for a more assertive stance on China through legislative actions, especially regarding economic security and Taiwan.

However, Kennedy cautions that any such efforts will be limited by the executive branch’s authority and China’s growing influence. Beijing has been actively engaging with global leaders this year, while simultaneously facing challenges in managing import surges. China’s control over rare earth minerals provides significant leverage in trade negotiations.

George Chen of The Asia Group highlights Taiwan as the most critical and volatile issue in U.S.-China relations. He notes Congress’s history of pursuing Taiwan-related initiatives, even when administrations have been more hesitant, referencing the controversy surrounding Nancy Pelosi’s 2022 visit to Taiwan.

Hakeem Jeffries, poised to become the first Black Speaker of the House, met with Taiwan’s President Tsai Ing-wen in New York in 2023.

During Trump’s visit to Beijing in May, Xi Jinping warned that mismanaging the Taiwan situation could severely damage U.S.-China relations. The stability of Taiwan is increasingly vital given its role as home to TSMC, a major semiconductor manufacturer for Nvidia.

Restrictions on Chinese companies acquiring advanced chips from Nvidia have spurred China’s own technological development. Chen suggests a Democratic-led Congress might intensify scrutiny of technology transfers, potentially creating new points of contention despite ongoing diplomatic efforts between Trump and Xi.

U.S. stock markets reacted positively to Trump’s acceptance of the election results, while oil prices declined amid signals of potential progress in resolving the Iran conflict. Despite gains for many tech companies, Nvidia experienced a downturn.

Liqian Ren of WisdomTree attributes the recent rebound in Chinese tech stocks to regulatory interventions, but emphasizes that their performance remains heavily reliant on global investor sentiment regarding artificial intelligence. “There’s a lot of uncertainty on how much AI can deliver for U.S., or for China,” she stated.