All indications suggest that President Trump wants a deal with Beijing, despite some of his most hawkish advisers’ preference for a more definitive decoupling. Some combination of purchase commitments revived from the first trade deal alongside potential Chinese investments in America seem certain. The value of these commitments has not yet come into focus. At the same time, speculation is rife that Trump might seek an even grander bargain, even as several other potential elements of a deal are absent from widespread consideration. As it sets out on negotiations, a more limited bargain is both more likely to be achieved and advance US interests.
Sizing up investment
While there is no doubt China fell well short of its prior commitments, there is doubt about how much incremental purchases Beijing can make, particularly at any degree of politically salient speed. Although there is some room in agriculture and energy, other major line items, such as Boeing airliners, are supply constrained. Better than near-term targets would be the removal of non-tariff barriers. Such policy shifts would be more durable and result in potentially significant long-run gains. The US Department of Agriculture estimates that were China’s barriers removed, US long-run exports of beef, corn, pork, and wheat would increase by 46-400 percent, depending on the commodity.
The alternative to closing the trade deficit by increasing exports to China would be to reduce imports. Instead of tariffs, this could be accomplished by substituting domestic production, driven by Chinese investment in America. China is reportedly floating investments that would create up to half a million jobs. For context, Canada, with whom the US traded $900 billion in 2022, has firms employing some 1.1 million Americans while China, with trade in excess of $700 billion (including Hong Kong), has firms employing less than 200 thousand. At a rough ratio of total foreign investment in the US to foreign employment, China would need to invest some $275 billion to achieve its half million employment target.
China has long defied the pattern of other countries which tend to invest more as they trade more. And while the US has built formidable political and legal barriers to Chinese investment, Trump is well positioned to disregard them. By doing so, Trump would strengthen America’s manufacturing base, reduce the trade deficit, and create the conditions for a less confrontational bilateral relationship. An agreement that focused on non-tariff barriers and investment would be cheered by third countries too. By avoiding tariffs, those countries will avoid spillovers of Chinese goods redirected from America into their countries. Reducing non-tariff barriers will create opportunities for other countries to grow their exports to China. And a major agreement on investment will create precedent for others, such as the European Union, to demand the same.
A few missing pieces
Before talks even begin, Beijing will need to take an important step to ensure one risk that could derail them is avoided: avoiding an excessive sentencing of Jimmy Lai as his national security trial concludes in Hong Kong. Hawks will undoubtedly seize on this and any other perceived missteps to muddy the prospects of an agreement.
Beyond purchases and investments, the Trump administration shouldn’t lose sight of trade in services. The first Trump administration’s trade tensions coincided with China’s liberalization of its financial sector, allowing some foreign firms to take whole ownership of their onshore subsidiaries. Opportunities for liberalization in other sectors remain, including lifting the symbolically important quota on Hollywood films. Even restoring broader visa access for journalists would be in character for a president who has a mercurial relationship with the press.
China could also consider affirmatively supporting more overseas listings of its companies. The ongoing TikTok saga has demonstrated that the presence of American vested interests can be a moderating force. Most such listings would fall short of US hawks’ concerns about financing China’s military industrial complex. Recent reforms have also strengthened transparency and accountability for Chinese firms listed in the US.
A grander bargain?
A host of other security and strategic objectives have been mooted as part of a potential grand bargain. This includes measures addressing America’s fentanyl crisis, support ending the Russia-Ukraine conflict, arms control, and even the status of Taiwan. Trump should pass on all but fentanyl.
On fentanyl, much of the attention has been on China’s export of fentanyl precursors. Far greater attention should be given to the role of Chinese money brokers in laundering drug money. Intelligence sharing that resulted in the closure of accounts, stricter know your customer requirements, and even relaxing capital controls to blunt demand for alternative sources of foreign currency would all be positive steps forward.
The White House’s recent overtures to Russia affirm that the United States has little need to involve China if it is willing to engage directly with Russia. Further, China would be unlikely to contribute meaningfully to any resulting peacekeeping arrangement and would be a competitor to Trump’s designs to extract mineral rights and other gains from Ukraine’s reconstruction.
President Trump has a long-held fascination with nuclear weapons. China’s ongoing expansion of its nuclear arsenal introduces a new form of strategic uncertainty. It would indeed be welcome if Trump were to achieve some kind of progress on arms control. The most realistic outcome would be an agreement to commence separate discussions.
With respect to Taiwan, speculation spans from trading away “opposition” to independence to something far more complete. Any attempt to trade Taiwan would lead his most hawkish advisers to join forces with bipartisan external opposition to scuttle an agreement. It would also ignore Taiwan’s agency, including an ability to withhold the semiconductors on which the world economy depends. No less consequential would be the loss of American power and influence as allies from Australia to Korea realign themselves to accomodate a Chinese sphere of influence.
Between managed and unmanaged competition
Behind each of the specific reasons against a grander bargain looms a larger one: the trajectory of the two powers. If China’s economy finds renewed momentum, there is even less reason to believe it will honor its political agreements than what its track record already suggests. And if the country’s rise has stalled, America is best served by waiting for a post-Xi era, the possible reversion to a less antagonistic path, and a stronger relative negotiating position in future.
For its part, Beijing will welcome strategic concessions but may not actively seek them. As scholar Bonnie Glaser has noted, its primary objectives are harm aversion: avoiding the most aggressive tariffs, demands for Covid reparations, or restrictions on visas, among other threats. Even arresting the momentum towards further technology controls is likely to be sufficient as opposed to realizing some significant loosening of them. If some concessions are required, the Trump administration should consider a few targeted exemptions, such as US-controlled cloud computing access for specific purposes, such as medical research.
A deal that limits the risks of a near-term deterioration in bilateral relations and, assuming compliance, creates a basis for broader cooperation going forward is one worth cheering. Meanwhile, the US still has much it needs to do to shore up its own competitiveness and deterrence; the risk of an accident, particularly in the South China Sea, also remains acute. If managed competition is too much to ask and unmanaged competition too much to bear, the middle path of negotiations on a targeted set of outcomes is one worth taking.