How Trump can clinch a historic accord with China

Not long ago, American and Chinese people mostly liked each other. In 2011, polls showed that the majority in each country viewed the other favorably. That same year, the Kung Fu Panda series was a hit at the box office for the second time.

It offered a rare cultural touchpoint both nations shared. 

Economically, the United States and China seemed inseparable. The term “Chimerica” captured this dynamic – China produced and saved, while the United States consumed and borrowed. 

The relationship was celebrated as the engine of global growth, helping the world recover from the global Financial Crisis in 2007 and 2008. 

Today, that amicability is long forgotten. 

A 2024 Pew survey showed that 81% of Americans viewed China unfavorably, with 42% perceiving it as an enemy. The turning point came in 2012, when presidential candidates Barack Obama and Mitt Romney blamed Beijing for American job losses. 

Domestic resources

The narrative stuck, although the true culprits – automation, demographic shifts and underinvestment – were largely ignored.

Both Washington and Beijing have become disillusioned with each other. Yet the US has some advantages that China lacks. 

The United States’ domestic resources and friendly neighbors make it more likely to muddle through its challenges. China faces a steeper climb due to resource constraints and volatile relationships with its neighbors. 

Economically, the gap between American and Chinese per capita gross domestic product or  GDP has widened since the end of the Covid-19 pandemic. 

All those developments mean that Washington can negotiate with Beijing from a position of relative strength. The 2020 Phase One trade agreement with China negotiated during US President Donald Trump’s first term fell short of its goals.

It was largely abandoned during the pandemic. 

Now, Trump has a second chance to reshape Sino-American trade relations – and this time, he should think big. He treats foreign affairs like a game of Monopoly, viewing countries as properties to control, trade, or leverage to outmaneuver rivals. 

There are no permanent friendships rooted in shared values, nor enemies defined by ideology. Every opponent is simply another player vying to dominate the board. 

Under the rules of this new game, Trump and his fellow world leaders have wide latitude to act in ways that were once inconceivable. 

Still, his anti-China rhetoric could give him the public credibility to broker a broad deal.

And it could have similar ramifications as former President Ronald Reagan’s arms-control agreements with the Soviet Union. His firm grip on the Republican Party makes him nearly impervious to criticism from the right, giving him diplomatic flexibility.

US Treasury Secretary Scott Bessent has suggested a summit with US allies to renegotiate trade terms. Modeled after the 1985 Plaza Accord, the proposed “Mar-a-Lago Accord” would blend substantive trade talks with Trump’s penchant for spectacle and personal branding.

Oversized passengers

Yet, restricting such a summit invitee list to American allies would limit its economic impact and miss a golden opportunity. To truly reshape trade policy and strengthen US economic leadership, a prospective accord needs to include China.

Like two oversized passengers squeezed into adjacent airplane seats, the size and influence of US and Chinese economies make avoiding each other impossible. 

Together, they account for about 43% of global GDP and nearly 48% of worldwide manufacturing output. 

Economic reality underscores the futility of decoupling efforts by Washington’s China hawks and Beijing’s so-called wolf-warrior diplomats. China remains the United States’ largest trading partner in goods and services outside North America. 

In 2023, the US trade deficit with China stood at US$252 billion – its lowest level since 2009. But that was still 55% larger than its deficit with Mexico. This trade imbalance often overshadows the significant flow of US exports to China. 

Last year, it exceeded $195 billion, surpassing only by exports to Canada and Mexico.

Redefining the United States’ relationship with China does not mean compromising on important security issues. Washington should not grant Beijing access to sensitive technologies or turn a blind eye to state subsidies that unfairly advantage Chinese products. 

Trump’s goal should be to keep China firmly embedded within the US-led global economic system while sharing more of the benefits of bilateral trade with American workers.

But he will need to rely on more than just coercion to extract meaningful concessions. 

Higher tariffs on Chinese goods will likely provoke reprisals, leading to increased US consumer inflation and damage to American industry. 

Instead, his administration should adopt a bear-hug strategy – one that ensures China’s economic growth aligns with a vested interest in the future success of the United States.

To succeed in trade negotiations with Beijing, Trump needs to present the Chinese leadership with a dilemma rather than a direct confrontation. 

Trade deal

Instead of using tariffs solely to shrink the trade deficit, he should explicitly link tariff levels to the amount of Chinese investment in the US. If President Xi Jinping wants lower tariffs, he needs only to invest more in the United States. 

This move would allow Washington to set the terms of a trade deal. 

It would also leave Beijing with a clear choice – accept penalties for noncompliance or reap rewards for cooperation.

For example, in 2023, the US trade deficit with China exceeded that of the next highest country, Mexico, by about $90 billion. 

China paid down part of this gap by adding $6.3 billion to its holdings of US long-term securities and launching $621 million in new foreign direct investment in the United States, leaving an “unpaid” balance of approximately $83 billion. 

Trump could make tariffs directly proportional to this unpaid balance, incentivizing Beijing to close the gap through a combination of increased US exports or direct investments that benefit American industries and communities.

To address potential national security concerns, Chinese investments could be restricted to designated industries and subject to rigorous Washington reviews. 

Acquisitions of US companies would be discouraged, while greenfield investments, such as newly built factories that create jobs, and startups in nonsensitive technologies would receive preferential treatment.

China would have multiple pathways to meet its spending and investment targets, as well as avoid higher tariffs. 

For instance, Chinese investment in the United States has dropped by 97% since 2016. Returning to those levels, adjusted for inflation, would require approximately $35 billion in new investments. 

Similarly, the People’s Bank of China or PBOC has reduced its holdings of US Treasury debt by more than one-third since 2016. Reversing this trend by redirecting the PBOC’s purchases of gold during 2024 back into US Treasury debt could generate $43 billion in new investment. 

This would help support efforts to keep interest rates low, particularly as Trump’s policies are projected to increase the national debt by $7.75 trillion over the next decade. 

Energy independence

As a side benefit, such a move would squelch talk of a  BRICS currency or global de-dollarization by publicly recommitting China to the US dollar as the world’s reserve currency.

On the trade-account side, China could increase its imports of US oil and gas by 25% over 2024 levels, generating an additional $5 billion in spending. 

Even with this increase, the US share of China’s energy imports would remain less than one-third of Russia’s, preserving Chinese energy independence. 

Those measures – a combined $83 billion increase in spending and investment – would enable China to meet its targets and avoid a tariff hike.

The exact target levels for new spending and investment would undoubtedly become a focal point of talks between the US and China. By allowing Beijing the flexibility to determine how to meet those targets, Washington enhances the likelihood of reaching a beneficial deal.

Still, the issue most likely to dash hopes of redefining bilateral relations is Taiwan. 

The Chinese leadership should recognize that the relevance of Taiwan to US-China relations is primarily shaped by decisions made in Beijing, not in Washington or Taipei. 

Xi’s frequent references to the “inevitable reunification” of the island, punctuated by large-scale military exercises, fuel the narrative that China is an imminent military threat.

In turn, this has galvanised anti-China sentiment in Washington. 

For most of the last 50 years, Washington and Beijing have largely sidestepped the Taiwan issue, and there is no strategic imperative to resolve it now.

The Trump administration’s initial challenge in negotiating a deal with China is to penetrate the information vacuum surrounding Xi. Here, his highly personalized approach to diplomacy offers some optimism. 

Xi enjoys comparisons to former Chinese leader Mao Zedong, and Trump is no stranger to high-impact optics. 

It would not be difficult to arrange a visit by Xi to Mar-a-Lago, where he and Trump could reset relations, much like former President Richard Nixon’s historic trip to China in 1972.

Historic accord

The symbolic victories from such a summit could lay the groundwork for substantial achievements. Direct engagement between the two leaders could open channels for working-level technocrats to communicate and manage crises more effectively. 

The summit could become the foundation for a historic accord, turning a potential branding exercise into a diplomatic milestone.

By securing agreements on economic investment, reaffirming the American dollar’s centrality, and stabilizing geopolitical tensions, Trump and Xi could redefine US-China relations for a generation. 

Such a deal would not only preserve peace, but also position both nations as coarchitects of a more balanced global order.

Zongyuan Zoe Liu is Maurice R Greenberg Senior Fellow for China studies at the Council on Foreign Relations. 

This edited article was published by the Council on Foreign Relations under a Creative Commons license. Read the original here. 

The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy of China Factor.