Trump's grand bargain with China: Boosting soybean production with steroids?

• The 2018 tariffs imposed by Trump were not part of a comprehensive economic strategy but were aimed at gaining an advantage in negotiations, ultimately resulting in a $200 billion trade deal that focused on agricultural products such as soybeans.
• To succeed, he might consider imposing early punitive tariffs on Chinese imports and those from Chinese companies in neighboring countries, such as Mexico.
• Trump's admiration among his base and self-image as a master dealmaker were boosted by a grand bargain with China that included both tangible and symbolic concessions.

The anticipated return of Donald Trump to the White House may lead to increased tensions between the U.S. and China. However, could his preference for transactional deals facilitate a surprising agreement with Xi Jinping? This could be referred to as a "soybeans on steroids" deal.

Many anticipate a deterioration of U.S.-China relations upon Trump's return to office, as his first term marked a shift towards an adversarial stance and his cabinet is expected to consist of prominent China hawks.

The Biden administration's export controls and Cold War containment strategies have strained relations between the U.S. and China, with renowned investor Ray Dalio predicting an "America First" foreign policy and preparations for external war with China, perceived as America's greatest threat.

Although a deterioration of relations is a possibility, conventional wisdom may overlook a competing, possibly more likely outcome: a U.S.-China grand bargain, motivated by Trump's desire to be remembered as a great statesman. In fact, Trump has reportedly already discussed various topics, including trade, fentanyl, TikTok, and more, in a call ahead of his inauguration.

Trump's transactional mindset drives him to view diplomacy as a series of high-stakes deals. His 2018 tariffs were not about systemic economic strategy but rather gaining leverage to secure a $200 billion trade deal centered on agricultural products like soybeans.

Trump values his popularity more than anything else, and a successful strategy for him could entail imposing early punitive tariffs on Chinese imports and those from Chinese firms operating in neighboring countries, such as Mexico. This would create a pressure cooker, allowing for negotiations with Beijing before American consumers feel the consequences.

Trump's grand bargain with China includes both tangible and symbolic concessions, winning him praise from his supporters and boosting his image as a skilled negotiator. This can be referred to as "supercharged soybeans."

A Trump-Xi agreement could provide short-term economic relief, but it could also strain U.S. relations with allies in Asia. Trump's admiration for authoritarian leaders like Xi Jinping clashes with his disdain for democratic leaders in Japan, South Korea, and Taiwan. A transactional approach to negotiations could empower Beijing's regional ambitions while jeopardizing long-term strategic objectives.

Trump's unpredictability and love for dramatic posturing make a reset in U.S.-China relations possible. 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.

Since September 2024, David Bach has been the president of IMD, a role he also holds as the Nestlé professor of strategy and political economy. Prior to joining IMD in 2020, he served as deputy dean at Yale School of Management.