As Donald Trump once suddenly assumes the role of industry, China’s leader Xi Jinping is casting himself as the manager of world trade, globalization and financial assistance.
At the height of the “new period of turbulence and change” that “is causing a significant challenge,” Xi said in Peru on Friday ( November 15 ), when national leaders were gathering for the Asia-Pacific Economic Cooperation ( APEC ) forum summit.
Notably, Xi did n’t point the finger straight at Trump. China and the new US administration are working together to keep communication, foster cooperation, and resolve conflicts for the mutual benefit of the two countries in a diplomatic conversation a day later.
And that’s, simply, specifically what one might expect of the head of a large, unstable market staring down the barrel of 60 % taxes to take down the political temperature.
What if Trump upsets and turns out to be Xi’s open and accepting rival, with the 60 % tax hazard acting as a blip in order to elicit a significant fresh bilateral trade agreement?
Trump’s challenges to restart colossal trade wars are numerous, and there are many reasons to take them seriously. In the runup to his election win on November 5, Trump talked earlier and often about making “retribution” the driving power of his presidency, which begins on January 20, 2025. The business of Xi has every reason to worry that Trump’s revenge tour will make its debut there.
But, the other side of the argument is worth exploring. Chances are high that Trump’s taxes are only “part of a bigger American plan” and “part of a deal-making method that is going on in Trump’s thinking”, says Neil Thomas, an scientist at the Asia Society Policy Institute’s Center for China Analysis. The aim, Thomas argues, is a “grand deal” business bargain between the two biggest markets.
” So”, Thomas says,” they are there for their own sake, ostensibly to advance the’ America First ‘ plan, or they are going to be treated as leverage over China to extract some kind of broader, either monetary or proper, great deal”.
People have made this argument, of lessons, including some in Trump’s inward loop. But there are factors to wish Trump 2.0 may promote the government’s interpersonal impulses over conflict.
One is that it’s difficult to imagine a contemporary president who is more interested in what people think of them than Trump. He almost seems like the type of person who wants to be remembered for the trade war that America lost during his first word, from 2017 to 2021, and for impeachments, indictments, and other things.
After all, if the objective was to change China’s financial big-picture path, claw millions of jobs back from Asia’s biggest sector and revive US manufacturing, then Trump’s win-list to date is very small.
Trump is unquestionably the least-idéal US leader in recent 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 did n’t stop China’s growing share of global commerce. They know that China did n’t “pay” Trump’s tariffs, American companies and households did.
Trump’s ability to convince the populace that his protectionist trade policies are ineffective will be limited.
Trump may make the case that he makes a different choice, giving posterity a reason to remember him as a dealmaker with Xi, China’s most powerful leader since Mao Zedong, to make a case for it.
Two strong and proud hawks can prevail in a war and prevail in history. Take Charles , de Gaulle, the French president who in less than two years, from 1959 to 1961, made peace with Algeria. Few people believed that 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 objectives was then challenged. That injustice cannot be endured once more. Without World War III, might we still be able to accomplish those objectives today.
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 is not well known as a man of history or a fan of the Bretton Woods institutions, which still constitute the world’s foundation. However, some of his advisors, who are former members of geopolitical alliances, are urging Trump to bring about economic harmony.
Trump voters would be far more rewarded by a trade deal that results in significant increases in Chinese investment in US manufacturing jobs than outdated tariffs that were removed from 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. A general lack of confidence among businesspeople and the wealthy is China’s single biggest issue right now. Domestic animal spirits would undoubtedly increase if the US-China relationship improved.
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.
Could this increase Xi’s willingness to trade? At this point, there is no clear pattern in terms of how everything is organized. Many think Trump will, in fact, go full tariffs at first, only to change course later on when the results are n’t what he and his likely trade czar, Robert Lighthizer, had hoped and envisioned.  ,
For starters, China is less dependent on US markets now than it was when Trump was in 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 assume that all of this gives Trump “more leverage over both allies and adversaries in negotiations,” Lipsky continues. ” But it’s not quite so straightforward”.
For one thing, both US allies and adversaries have had access to his methods and observations of how he operates. Some people believe that because of this, his trade war threats wo n’t materialize 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.
According to Lipsky,” 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”.
The chances that the Federal Reserve will continue cutting rates, as Wall Street fully anticipates, will drop dramatically if Trump’s trade levies increase inflation. Jerome Powell, the head of the US Federal Reserve, and Donald Trump might encounter a second collision.
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. Look back to 2018 and see how the markets responded negatively to his criticism of Powell at the time, which forced him to back away.
Trump has every reason to give the grand bargain trade route priority if this dance ever breaks out.
There are many causes for doubt about whether this will work, including how Trump intends to enlist China hawks in his next cabinet.
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. According to Georgetown University professor Evan Medeiros, Trump might support Beijing’s efforts to reach a deal with the pro-Taiwan independence wing. 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. Advisors who ( 1 ) view strategic competition with China as a global conflict, ( 2 ) urge the US to narrowly target deterring China in Asia, and ( 3 ) aim to stop bilateral economic disentanglement will likely engage in lobbying.
The most focused White House would struggle to balance these divergent objectives. And focus and discipline are n’t exactly Trump’s proven strengths.
However, Trump and Xi may choose to go that route for various reasons. Top Trump advisor Elon Musk, after all, has a giant Tesla” Gigafactory” in Shanghai that would benefit from a tamping down of trade tensions.
What might Trump and Xi ask for from the other, according to Gave’s list.
Trump’s wishlist includes a stronger yuan and a weaker US dollar, a push from Beijing to allow China to establish factories in the US, a purchase of Boeing aircraft, John Deere tractors, soybeans, and wheat to help reduce the nation’s record-setting US trade deficit, and a promise from China to keep North Korea in check.
According to Gave, Xi’s wish list includes assurances that any agreement will be successful, that the US will not collapse in the wake of China’s new tariffs, fewer semiconductor restrictions, the US Navy to stop parking aircraft carriers close to China’s territorial waters, and Washington to stop rattling the cage on Taiwan.
Is there enough to make a workable deal out there? Gave asks. Trump sees himself as a master negotiator who is master of” the art of the deal.” The market’s clear message is that any such bargain is priced at close to 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