Trump’s grand bargain with China?

Donald Trump’s return to the White House is expected to usher in more hostilities between the United States and China. But will his love of a deal pave the way for a surprise deal with Xi Jinping? Call it soy on steroids.

If history is any guide, many are bracing for a worsening of US-China relations once Trump returns to office for a second term. After all, his first term was widely considered to be the point when relations with China took an adversarial turn, and his cabinet is expected to include some of Washington’s most prominent China hawks.

Add to that, the Biden administration’s export controls and a network of alliances that echo Cold War containment strategies, and relations between the United States and China are close to a low point. Renowned investor Ray Dalio summed up the moodpredicting an “‘America First’ foreign policy and preparations for external war with China, perceived as America’s greatest threat.”

However, while a further deterioration of relations is possible, conventional wisdom may overlook a competing scenario, perhaps even more likely: A great US-China deal, driven by Trump’s ambition to be remembered as one of the great American statesmen. In fact, Trump has He is said to have already made a call ahead of his inauguration, discussing “balance trade, fentanyl, TikTok and many other subjects”.

Trump, driven by a transactional mindset, sees diplomacy as a series of high-paying deals. His 2018 fees were less about systemic economic strategy and more about gaining leverage – ultimately securing a $200 billion trade deal centered on agricultural products such as soybeans.

However, Trump prizes his popularity above all else, and a winning strategy for him could involve imposing early punitive tariffs on Chinese imports as well as on imports from Chinese companies operating in neighboring countries like Mexico. This will create a pressure cooker, paving the way for negotiations with Beijing before American consumers feel the impact.

The result? A big deal where China offers a mix of substantive and symbolic concessions, earning Trump the admiration of his base and bolstering his self-image as a master dealmaker. Call it “soy on steroids.”

However, such a deal does not come without risks. While a Trump-Xi deal could bring short-term economic relief, it could alienate America’s allies in Asia. Trump’s admiration for strong leaders like Xi Jinping, whom he called “brilliant, fierce and intelligent”, contrasts sharply with his disdain for democratic leaders in Japan, South Korea and Taiwan, whom he he accused of seeking protection without paying his fair share. A purely transactional approach risks encouraging Beijing’s regional ambitions while undermining long-term strategic objectives.

However, Trump’s unpredictability and love of dramatic posturing make a reset in US-China relations plausible. As the world watches, one thing is clear: Trump’s return promises surprises. “Soybeans on steroids” could just be the opening act in an unexpected geopolitical shock that few could have anticipated.

David Bach is the president of the IMD, a position he has held since September 2024, and Nestlé professor of strategy and political economy. Before joining IMD in 2020, he was deputy dean at the Yale School of Management.