Trump’s grand bargain with China?

Donald Trump’s return to the White House is expected to usher in further hostilities between the U.S. and China. Yet, could his love of a transactional deal pave the way for a surprise deal with Xi Jinping? Call it soybeans on steroids.

If history is any guide, many are bracing themselves for a worsening of U.S.-China relations once Trump returns to office for a second time. After all, his first term was widely regarded as the point when relations with China took an adversarial turn, and his cabinet is expected to include some of Washington’s most prominent China hawks.

Add to that, the Biden administration’s sweeping export controls and a web of alliances echoing Cold War containment strategies, and relations between the U.S. and China are near a low point. Renowned investor Ray Dalio summed up the mood, predicting an “‘America First’ foreign policy and preparations for external war with China, perceived as America’s greatest threat.”

Yet, while a further decline in relations is possible, the conventional wisdom may overlook a competing, perhaps even more likely scenario: A U.S.-China grand bargain, driven by Trump’s ambition to be remembered as one of America’s great statesmen. In fact, Trump has reportedly already held a call ahead of his inauguration, discussing “balancing trade, fentanyl, TikTok and many other subjects.”

Trump, guided by a transactional mindset, sees diplomacy as a series of high stakes deals.  His 2018 tariffs were less about systemic economic strategy and more about gaining leverage — ultimately securing a $200 billion trade deal centered on agricultural products like soybeans.

However, Trump prizes his popularity above all else, and a winning strategy for him could involve imposing early punitive tariffs on Chinese imports and even on imports from Chinese firms 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 impact.

The result? A grand bargain where China offers a mix of substantive and symbolic concessions, earning Trump the admiration of his base and bolstering his self-image as a master dealmaker. Call it “soybeans on steroids.”

However, such a deal wouldn’t come without risks. While a Trump-Xi agreement might bring short-term economic relief, it could alienate U.S. allies in Asia. Trump’s admiration for strongman leaders such as Xi Jinping, whom he has called “brilliant, fierce, and smart,” contrasts sharply with his disdain for democratic leaders in Japan, South Korea and Taiwan, whom he has accused of seeking protection without paying their fair share. A purely transactional approach risks emboldening Beijing’s regional ambitions while undermining long-term strategic objectives.

Still, Trump’s unpredictability and love for dramatic posturing make a reset in U.S.-China relations plausible. As the world watches, one thing is clear: Trump’s return promises surprises. “Soybeans on steroids” might just be the opening act in an unexpected geopolitical shake-up that few could have anticipated.

David Bach is the 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 deputy dean at Yale School of Management.