Trump's big deal with China?

Donald Trump's return to the White House is expected to spark further hostilities between the US and China. But could his penchant for transactional business pave the way for a surprise deal with Xi Jinping? Call it soy on steroids.

If history is any guide, many people are preparing for a deterioration in U.S.-China relations when Trump returns to office for a second time. After all, his first term was widely seen as the moment when relations with China took an adversarial turn, and his government is expected to include some of the most prominent China hawks in Washington.

Add to that the Biden administration's sweeping export controls and a network of alliances that mirror Cold War containment strategies, and U.S.-China relations are near their worst. Famous investor Ray Dalio summed up the moodenvisioning an “America First” foreign policy and preparations for external war with China, perceived as the greatest threat to America.”

But while further deterioration in relations is possible, conventional wisdom may overlook a competing, perhaps even more likely scenario: a U.S.-China grand bargain, fueled by Trump's ambition to be remembered as one of America's great statesmen. In fact, Trump did it apparently he was already having a conversation ahead of the inauguration, discussing “balancing trafficking, fentanyl, TikTok and many other topics.”

Trump, with a transactional mindset, views diplomacy as a series of high-stakes transactions. His 2018 agenda was less about systemic economic strategy and more about – ultimately – gaining leverage securing a $200 billion trade deal focuses on agricultural products such as soybeans.

But Trump values ​​his popularity above all else, and a winning strategy for him could include imposing punitive tariffs on Chinese imports early, or even on imports from Chinese companies operating in neighboring countries such as Mexico. This would create a pressure cooker, paving the way for negotiations with Beijing before American consumers feel the effects.

Result? A grand bargain in which China offers a mix of substantive and symbolic concessions, earning Trump the admiration of his base and strengthening his image as a master dealmaker. Call it “soy on steroids.”

However, such a transaction would not be without risk. While the Trump-Xi deal may provide short-term economic relief, it could discourage U.S. allies in Asia. Trump's admiration for strongman leaders like Xi Jinping, whom he called “brilliant, wild and wise” contrasts sharply with his own contempt for democratic leaders in Japan, South Korea and Taiwan were accused of seeking protection without paying their fair share. A purely transactional approach risks emboldening Beijing's regional ambitions and undermining long-term strategic goals.

Still, Trump's unpredictability and penchant for the dramatic make a reset in U.S.-China relations likely. The world is watching and one thing is clear: Trump's return promises surprises. “Soy on steroids” may just be the opening act of unexpected geopolitical upheavals that few could have expected.

David Bach is President of IMD, a position he has held since September 2024, and Nestlé Professor of Strategy and Political Economy. Before joining IMD in 2020, he was associate dean of the Yale School of Management.