Trump tariffs as ploy for making a big deal with China
Assumptions Trump will actually make good on 60% tariff threat look past the wily tycoon’s love for striking a grand bargain
As Donald Trump once again assumes the role of disruptor, China’s leader Xi Jinping is casting himself as the keeper of world trade, globalization and economic cooperation.
In Peru on Friday (November 15), where national leaders were gathering for the Asia-Pacific Economic Cooperation (APEC) forum summit, Xi stressed that “dividing an interdependent world is going back in history” at a moment when the globe has “entered a new period of turbulence and change” causing “severe challenges.”
Notably, Xi didn’t point the finger directly at Trump. In his bilateral chat with outgoing US President Joe Biden a day later, Xi said “China is ready to work with the new US administration to maintain communication, expand cooperation and manage differences for the benefit of the two peoples.”
And that’s, frankly, exactly what one might expect of the leader of a giant, unbalanced economy staring down the barrel of 60% tariffs to take down the geopolitical temperature.
But what if Trump surprises and turns out to be a receptive and open counterpart to Xi, with the 60% tariff threat mere posturing to set the stage for a giant new bilateral trade deal?
There are myriad reasons to take seriously Trump’s threats to make giant trade wars great again. In the runup to his election win on November 5, Trump talked early and often about making “retribution” the driving force of his presidency, which begins on January 20, 2025. Xi’s economy has every reason to worry it will be the first stop on Trump’s revenge tour.
However, the other side of the argument is worth exploring. Odds are high that Trump’s tariffs are just “part of a bigger American strategy” and “part of a deal-making process that is going on in Trump’s mind,” says Neil Thomas, an analyst at the Asia Society Policy Institute’s Center for China Analysis. The goal, Thomas argues, is a “grand bargain” trade deal between the two biggest economies.
“So,” Thomas says, “they are there for their own sake, basically to advance the ‘America First’ agenda, or they are going to be treated as leverage over China to extract some kind of broader, either economic or strategic, grand bargain.”
Others have made this argument, of course, including some in Trump’s inner circle. But there are reasons to hope Trump 2.0 might prioritize the president’s transactional impulses over conflict.
One is that it’s hard to think of a modern-day leader who cares more about what posterity thinks of them than Trump. He hardly seems the type who wants to be remembered for impeachments, indictments and launching trade wars that America lost during his first term from 2017 to 2021.
After all, if the goal was to alter China’s economic big-picture trajectory, claw millions of jobs back from Asia’s biggest economy and revitalize US manufacturing, then Trump’s win-list to date is very short.
Trump is arguably the least ideological US leader in living memory. He also is reveling in having won a credible coalition of working-class white, black and Latino voters in the 2024 election, beyond anything serious pollsters saw coming. If Trump wants to be remembered as the “working man’s president,” he’ll have to put real meat on the bones of such a legacy.
Economists understand how and why Trump’s first-term tariffs didn’t stop China’s growing share of global commerce. They know that China didn’t “pay” Trump’s tariffs; American companies and households did.
Trump’s ability to bamboozle the masses a second time that higher prices are not the fault of his protectionist trade policies will be limited.
Hence the argument Trump might go the other way, thus giving posterity a reason to remember him as a dealmaker with the most enigmatic of partners: Xi, China’s strongest leader since Mao Zedong.
History shows that two powerful and proud hawks can beat the odds and make peace. Take Charles de Gaulle, the French president who in less than two years, from 1959 to 1961, made peace with Algeria. Few thought that remotely possible during the previous six years of bloodshed. Or what of Richard Nixon, China and Indochina?
Economist Richard Wolff at the University of Massachusetts, Amherst, observes that the “very real dangers, ecological as well as geopolitical, that the world now faces encourage finding some kind of negotiated agreement on a multipolar world.”
After World War I, Wolff explains, “such goals inspired the League of Nations. After World War II, they inspired the United Nations. The realism of those goals was challenged then. It cannot suffer that indignity again now. Might we manage to achieve those goals now without World War III?”
There are other avenues for cooperation, Wolff says. Why not, he asks, make a comparable deal between the US and China, bringing in the Group of Seven, the BRICS–Brazil, Russia, India, China and South Africa– and the Global South? “With genuine global participation,” he notes, “might such a deal finally end empires?”
Trump isn’t known to be a man of history — or a fan of the Bretton Woods institutions that still form the core of the global order. Surely, though, some of his advisors who are students of past geopolitical pacts are prodding Trump to give economic peace a chance.
A trade deal that wins a big increase in Chinese investments in US manufacturing jobs would do infinitely more to reward Trump voters than outdated tariffs ripped from the headlines of the 1970s and 1980s.
“As it turns out, there are reasons for both China and the US to want a grand bargain,” says Louis-Vincent Gave, an analyst at Gavekal Research. “For Chinese policymakers, their greatest challenge is not a lack of competitiveness, nor an unproductive workforce, nor a lack of natural resources. China’s single biggest problem today is a broad lack of confidence among entrepreneurs and rich people. An improvement in the US-China relationship would surely go a long way to boosting domestic animal spirits.”
Trump’s trade war, like Biden’s various high-end semiconductor restrictions, would aim to stymie Xi’s strategy to transform China into the leading technology powerhouse – and promises to further strain relations between the “Group of Two” economies.
China’s prolonged property slump, rising local government debt, weak consumption, aging population and high youth unemployment makes the specter of crossing swords with Washington again decidedly unappealing.
Might this make Xi keener to deal? The sequencing of all this is fuzzy at this point. Many think Trump will, in fact, go full tariffs at first, only to change course later on when the results aren’t what he and his likely trade czar, Robert Lighthizer, had hoped and envisioned.
For starters, China, circa 2024, is less dependent on tapping US markets than it was in 2017, the last time Trump took office – and thus less likely to be pushed around by Trump 2.0.
“Here’s what’s different this time around: the global economic landscape has shifted dramatically in the past eight years,” says Josh Lipsky, senior director of the Atlantic Council’s GeoEconomics Center.
“Germany’s GDP growth was 2.7% in 2017. Today the country is teetering on the brink of a recession and mired in political dysfunction. China was growing at 7% in 2017. But its GDP growth will be somewhere south of 5% this year,” Lipsky said.
One might think all this gives Trump “more leverage over both allies and adversaries in negotiations,” Lipsky adds. “But it’s not quite so straightforward.”
For one thing, US allies and adversaries alike have had time to see how Trump operates and adapt to his methods. That’ s why some surmise his trade war threats may not turn into trade war action. The globe has seen, too, which levers they can pull in return to avert the worst outcomes.
Another reason Trump’s tariff talk may be more bluster than reality: inflation.
“When Trump was first in office,” Lipsky says, “the main question for policymakers was how the United States could consistently achieve 2% inflation after years of below-target readings coming out of the global financial crisis. Today, higher-than-wanted inflation is front and center in US and global politics; in fact, it was one of the reasons Trump was elected.”
If Trump’s trade levies boost inflation, the odds the Federal Reserve will continue cutting rates – as Wall Street fully expects – will fall sharply. That could put US Federal Reserve Chairman Jerome Powell and Trump on yet another collision course.
In 2019, for example, pressure from Trump—including threats to fire Powell in 2018—pressured the Fed to cut rates at a time when the US economy was already firing on all cylinders.
“As much as Trump believes in tariffs,” Lipsky adds, “he also is highly sensitive to market signals. Just look back to 2018 and how the markets negatively reacted to his criticism of Powell at the time, which forced him to back off.”
If this dance goes awry again, Trump has every reason to prioritize the grand bargain trade route.
Again, there are many reasons to doubt this might work, including the ways in which Trump plans to stuff his next cabinet with China hawks.
They include Marco Rubio as US secretary of state, Lighthizer, Trump’s former and likely future trade representative, Mike Waltz as national security adviser, Elise Stefanik as United Nations ambassador and Fox News host Pete Hegseth as secretary of defense.
A common denominator, aside from being tough on China, is providing strong support for Taiwan. As Evan Medeiros, a Georgetown University professor, sees it, Trump might go along with the pro-Taiwan independence wing of the Republican Party to prod Beijing to do a deal. But the issue could also scuttle any hope of a Washington-Beijing detente.
There’s a Door No 3, too, says Daniel Sneider, lecturer at Stanford University. As some analysts suggest, he points out, “Trump instead may opt for a grand bargain with Xi Jinping, one that could even include abandoning Taiwan.”
Trump, after all, has made several statements about the island economy wrecking America’s semiconductor industry, raising doubts Washington would come to Taipei’s defense in the case of a Chinese attack.
At least one thing is clear, says Ali Wyne, US-China expert at the International Crisis Group. “The second Trump administration will likely see jostling between advisors who (1) regard strategic competition with China as a global struggle; (2) urge the US to focus more narrowly on deterring China in Asia; and (3) aim to slow bilateral economic disentanglement.”
Balancing these diverging goals would be a challenge for the most focused of White House’s. And focus and discipline aren’t exactly Trump’s proven strengths.
But there are reasons why both Trump and Xi might go that route. Top Trump advisor Elon Musk, after all, has a giant Tesla “Gigafactory” in Shanghai that would benefit from a tamping down of trade tensions.
Here, Gave provides a list of what Trump and Xi might ask for from the other.
Items Gave sees as topping Trump’s wish list: a stronger yuan and a weaker US dollar; for Beijing to push Russia to come to the negotiating table over Ukraine; for Chinese companies to open factories in the US; for China to buy a bunch of US goods like Boeing aircraft, John Deere tractors, soybeans and wheat to help reduce the record US trade deficit; a promise from China to keep North Korea in check.
Xi’s wish list, as Gave sees it: guarantees that any deal will last, and that the US will not turn around at a later date to punish China with new restrictions and tariffs; fewer semiconductor restrictions; for the US Navy to stop parking aircraft carriers just outside China’s territorial waters; for Washington to stop rattling the cage on Taiwan.
“Is there enough in here for a workable deal?” Gave asks. “Well, Trump sees himself as a master negotiator who has a master of ‘the art of the deal.’ What’s clear is that the market is pricing the odds of any such bargain at near zero.”
Yet when it comes to markets, Gave concludes, “One often makes the most money after a situation goes from being downright terrible to merely mediocre.”
Hence, Gave adds, if markets sense “that the US-China relationship is moving from the territory of ‘new Cold War’ to ‘possible grand bargain,’ the rerating of assets — starting with Asian currencies and Chinese equities but moving on to emerging market debt in general, commodities, and cyclicals everywhere — could be epic.”
Follow William Pesek on X at @WilliamPesek