Not long ago, Americans and Chinese mostly liked each other. In 2011, polls showed that most people in each country viewed the other favorably. Economically, the United States and China seemed inseparable. The term “Chimerica” captured this dynamic: China produced and saved; America consumed and borrowed. The relationship was celebrated as the engine of global growth, helping the world recover from the 2008 financial crisis.
Today, Chimerica is long forgotten. A 2024 Pew survey shows that 81 percent of Americans view China unfavorably, with 42 percent viewing it as an “enemy” of the United States. The turning point came in 2012, when presidential candidates Barack Obama and Mitt Romney blamed China for job losses to court swing voters in Ohio.
China has lost America. U.S. President Donald Trump did not cause the rift between Washington and Beijing, but so far, he has shown little interest in fixing it.
Both the United States and China are trudging down a similar path of disillusionment. The difference is that the United States has domestic resources and friendly neighbors that make it more likely to muddle through its challenges, while China faces a steeper climb due to resource constraints and volatile neighbors.
Former President Joe Biden steered the U.S. economy onto a more stable trajectory during his tenure, in stark contrast to the sluggish economy under Chinese President Xi Jinping’s leadership. The gap between U.S. and Chinese per capita GDP has widened since the end of the COVID-19 pandemic. Xi’s dismissal of two successive defense ministers amid a broader purge of senior military officials also exposes weakness in China’s military capability and loyalty.
Scott Bessent, Trump’s pick for treasury secretary, has suggested a summit with U.S. 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.
Though the feasibility of such a gathering remains uncertain, many countries might be willing to grant Trump the optics of a diplomatic triumph if it means more favorable trading terms. However, restricting the summit invitee list to U.S. allies would limit its economic impact and miss a golden opportunity. To truly reshape U.S. trade policy and strengthen the United States’ economic leadership, a prospective accord must include China.
The U.S. and Chinese economies are so interlinked and specialized that neither can set an optimal course while it is completely indifferent to the other. Like two oversized passengers squeezed into adjacent airplane seats, their size and influence make avoiding each other impossible. Together, the United States and China account for about 43 percent of global GDP and nearly 48 percent of global manufacturing output. U.S. consumers remain the most important source of demand that keeps Chinese factories running.
The tariffs that Trump has threatened would raise prices for Americans and reduce direct U.S.-China trade partially by redirecting flows via third countries. However, tariffs will not stop Chinese exporters from flooding the global market due to profit-crushing competition at home. Chinese goods will reenter global supply chains at higher prices through intermediaries, such as Mexico and Vietnam.
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 U.S. trade deficit with China stood at $252 billion—its lowest level since 2009, but still 55 percent larger than the deficit with Mexico, the next largest. This trade imbalance often overshadows the significant flow of U.S. exports to China, which exceeded $195 billion last year—surpassed only by exports to Canada and Mexico.
Trump’s pre-inauguration threats of new tariffs on China should be seen more as positioning for future trade negotiations than as a fait accompli. By linking tariffs to Beijing’s insufficient crackdown on chemicals used to produce fentanyl, Trump has demonstrated his willingness to use tariffs as a bargaining chip. A tit-for-tat trade war with China would be anathema to the stock market and would trim U.S. GDP growth—two indicators that Trump is particularly sensitive to and which he is reluctant to admit performed relatively well under Biden.
Trump’s supporters often call him a game-changer—perhaps more literally than the foreign-policy establishment realizes. 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 foreign leader is simply another player vying to dominate their side of the board. Under the rules of this new game, Trump and his fellow world leaders have wide latitude to act and make moves that were once inconceivable.
The Trump administration has the opportunity to strike a grand bargain with China rather than continue with its predecessor’s compartmentalized approach. Trump’s anti-China rhetoric may grant him the public credibility needed to broker a broad and enduring deal, much like former President Ronald Reagan’s arms control deals with the Soviet Union. His firm grip on the Republican Party makes him nearly impervious to criticism from the right, giving him diplomatic flexibility where his predecessors would have been tangled in knots.
A grand bargain with China does not mean compromising on important security issues; the U.S. government should not grant Beijing access to sensitive technologies or turn a blind eye to state subsidies that unfairly advantage Chinese industrial products. The goal of a grand bargain should be to keep China firmly embedded within the U.S.-led global economic system while sharing more of the benefits of bilateral trade with American workers.
To extract meaningful concessions from China to reach a trade deal, though, Trump will need to rely on more than just coercion. Higher tariffs on Chinese goods will likely provoke reprisals, leading to increased U.S. consumer inflation and harm to U.S. industry. Instead, the Trump administration should adopt a grizzly 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 China, the Trump administration needs to present the Chinese leadership with a dilemma rather than a direct confrontation. Rather than using tariffs solely to shrink the trade deficit, the administration should explicitly link tariff levels to the amount of Chinese investment in the United States. If Xi wants lower tariffs, he only needs to invest more in the United States. This would allow Washington to set the terms of a trade deal and leave Beijing with a clear choice: accept penalties for noncompliance or reap rewards for cooperation.
For example, in 2023, the U.S. 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 U.S. long-term securities and launching $621 million in new foreign direct investment (FDI) in the United States—leaving an “unpaid” balance of approximately $83 billion. The Trump administration could make tariffs directly proportional to this unpaid balance, incentivizing China to close the gap through a combination of increased U.S. exports or direct investments that benefit U.S. industries and communities.
To address potential national security concerns, Chinese investments would be restricted to designated industries and subject to rigorous U.S. government reviews. Acquisitions of existing U.S. companies would be discouraged, while greenfield investments—such as newly built factories that create new 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 FDI in the United States has dropped by 97 percent since 2016. Returning to 2016 levels, adjusted for inflation, would require approximately $35 billion in new investments. Similarly, the People’s Bank of China (PBOC) has reduced its holdings of U.S. Treasury debt by more than one-third since 2016.
Reversing this trend by redirecting the PBOC’s purchases of gold during 2024 back into U.S. Treasury debt could generate $43 billion in new investment. This would support U.S. 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. As a side benefit, such a move would effectively squelch talk of an emergent BRICS currency or global de-dollarization by publicly recommitting the PBOC to the U.S. dollar as the world’s reserve currency.
On the trade account side, China could increase its imports of U.S. oil and gas by 25 percent over 2024 levels, generating an additional $5 billion in spending. Even with this increase, the U.S. share of China’s energy imports would remain less than one-third of Russia’s, preserving Chinese energy independence. These measures—a combined $83 billion increase in spending and investment—would enable China to meet its targets and avoid a tariff hike.
The target level for new spending and investment will undoubtedly become a focal point of negotiations between the United States and China. By allowing Beijing the flexibility to determine how to meet these targets, Washington enhances the likelihood of reaching a mutually beneficial agreement.
The issue most likely to dash hopes of a grand bargain between the United States and China is Taiwan. Chinese leadership has been slow to recognize that the relevance of Taiwan to U.S.-China relations is primarily shaped by decisions made in Beijing, not in Washington or Taipei. Xi’s frequent references to the “inevitable reunification” of Taiwan, punctuated by large-scale military exercises around the island, fuel the narrative that China is an imminent military threat, galvanizing anti-China sentiment in Washington. For most of the last 50 years, both the United States and China have largely sidestepped the Taiwan issue; there is no strategic imperative to resolve it now.
A grand bargain with China is possible if both sides avoid letting the geopolitical tail wag the economic dog. The Trump administration should aim to secure economic concessions from China while maintaining geopolitical stability in East Asia. To this end, Trump should reaffirm the long-standing U.S. position on Taiwan and its “One China” policy, which opposes Taiwan’s independence but mandates the peaceful resolution of cross-strait differences. Xi could reciprocate by removing the line from his speeches stating that China will “never promise to renounce the use of force” with respect to Taiwan.
The Trump administration’s initial challenge in negotiating a grand bargain with China is to penetrate the information vacuum surrounding Xi. Here, Trump’s highly personalized approach to diplomacy offers some optimism. Xi enjoys comparisons to former Chinese leader Mao Zedong, while Trump is no stranger to high-impact optics. It wouldn’t be difficult for both leaders’ aides to arrange a visit by Xi to Mar-a-Lago, where he and Trump could reset U.S.-China relations, much like former President Richard Nixon’s historic trip to China in 1972.
The symbolic victories from such a summit could lay the groundwork for substantial achievements. Direct engagement between the leaders would 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 U.S. dollar’s centrality, and stabilizing geopolitical tensions, Trump and Xi could redefine U.S.-China relations for a generation. Such a grand bargain would not only preserve peace but also position both nations as co-architects of a more balanced global order.
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