Trump’s big deal with China?

Donald Trump’s return to the White House is expected to lead to further hostilities between the US and China. Still, could his penchant for transactions pave the way for a surprise deal with Xi Jinping? Call it soy on steroids.

Speaking of history, many are bracing for a worsening of US-China relations if Trump returns to office for a second term. After all, his first term has been widely seen as the point when relations with China took a adversarial turn, and his cabinet is expected to include some of Washington’s most prominent China hawks.

Add to that the Biden administration’s extensive export controls and a network of alliances that echo Cold War containment strategies, and U.S.-China relations are close to a low point. A well-known investor Ray Dalio set the moodpredicting “an ‘America First’ foreign policy and preparations for foreign war with China, perceived as America’s greatest threat.”

Yet while a further decline in relations is possible, the conventional wisdom may not consider a competing, perhaps even more likely, scenario: a major US-China deal driven by Trump’s desire to be remembered as one of America’s great statesmen. In fact, Trump has as reported, a call has already been made ahead of his inauguration, discussing “the balance of trade, fentanyl, TikTok and many other topics.”

Trump, driven by a transactional mindset, views diplomacy as a series of high-stakes deals. His tariffs in 2018 were less about systemic economic strategy and more about gaining leverage — ultimately securing a $200 billion trade deal focused on agricultural products such as soybeans.

However, Trump values ​​his popularity above all, and a winning strategy for him could include early imposition of punitive tariffs on Chinese imports and even on imports from Chinese firms operating in neighboring countries such as Mexico. This will create a pressure cooker, paving the way for negotiations with Beijing before American consumers feel the impact.

The result? A mega deal in which China offers a mix of substantive and symbolic concessions, earning Trump the admiration of his base and bolstering his image as a master dealmaker. Call it “soybeans on steroids.”

However, such a deal will not be without risk. While the Trump-Xi deal may bring short-term economic relief, it could alienate US allies in Asia. Trump’s admiration for strong leaders like Xi Jinping, whom he called “brilliant, fierce and intelligent”, in stark contrast to his disdain for the democratic leaders of Japan, South Korea and Taiwan, whom he accused of seeking protection without paying their fair share. A purely transactional approach risks emboldening Beijing’s regional ambitions while undermining long-term strategic goals.

Still, Trump’s unpredictability and penchant for 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” can only be the trigger for an unexpected geopolitical upheaval that few could have foreseen.

David Bach is President of IMD, a position he holds from September 2024, and Nestlé Professor of Strategy and Political Economy. Prior to joining IMD in 2020, he was Associate Dean of the Yale School of Management.