The writer is president of IMD Business School.

Conventional wisdom surrounding Donald Trump’s return to the White House suggests a grim outlook for US–China relations. The trade war during his first term marked a turning point with Beijing, and his new cabinet will likely include some of the biggest China hawks in memory. Add the Biden administration’s intensified measures against China, and the picture appears bleak. Renowned investor Ray Dalio recently predicted that the new administration’s America First foreign policy will include active preparations for war with China.

Yet this narrative overlooks a more intriguing possibility: the emergence of a US–China grand bargain, spurred by Mr Trump’s transactional instincts and desire to secure a legacy as a great US statesman. While a further deterioration in relations is possible — and perhaps the most likely outcome — Mr Trump’s unique approach to global governance suggests an alternative path that few are considering.

Ideological to transactional

Joe Biden’s approach to China was ideological while still being rooted in realpolitik, framing the rivalry as a struggle between democracy and authoritarianism. Initiatives like semiconductor export controls and strengthening alliances aimed to counter Beijing’s global influence are reminiscent of US diplomat George Kennan’s cold war containment strategy, given they sought to safeguard US technological, economic and military supremacy.

Mr Trump, in contrast, operates with a transactional mindset. His tariffs against China in 2018 were less about systemic rivalry and more about mercantilist instinct and a desire for leverage. His government ultimately secured a deal in which it lowered tariffs in return for China committing to purchase $200bn in US goods, including soybeans — a move designed to appeal to Mr Trump’s rural voter base. His rhetoric, which switches between praising Chinese president Xi Jinping as “brilliant” and “smart” and berating him, reveals a leader more interested in transactional outcomes than strategic positioning.

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The case for a grand bargain

Mr Trump’s admiration for strongman leaders like Mr Xi is in stark contrast to democratic leaders in Japan, South Korea, and Taiwan whom he criticises for not paying enough for US military protection. This disdain could incentivise him to prioritise a bilateral deal with China. Tellingly, Mr Trump invited Mr Xi to his inauguration, even though no foreign head of state has attended the event since the State Department started keeping records in 1874. 

How might such a deal come to pass? While Mr Trump has called ‘tariff’ the most beautiful word in the dictionary, economists estimate his proposals would cost the average American household $2600 per year.

We know that Trump prizes his popularity over anything else. Therefore a winning strategy could see him impose, early in his administration, punitive tariffs on Chinese imports, as well as imports by Chinese firms from neighbouring countries like Mexico, and then quickly start negotiations with Beijing before US consumers feel the impact. An ensuing grand bargain, in which China makes a mix of meaningful and symbolic concessions, would earn Trump the adulation of his supporters, cementing — at least in his and their eyes — his status as a great statesman. Think of it as soybeans on steroids.

For Beijing, a US deal offers strategic advantages. China’s economy faces mounting challenges, including a real estate crisis and declining foreign investment. US tariffs and Mr Biden’s export controls have compounded these pressures. A grand bargain could ease economic strains while allowing Mr Xi to claim a diplomatic victory, particularly if the new arrangement is better than the current status quo. 

Of course, every deal has losers. And should this one materialise, they will likely be America’s traditional allies in the region, such as Japan, the Philippines, South Korea and Taiwan. The logic of America First foreign policy dictates that, having secured what Mr Trump and his team would undoubtedly present as an American triumph, the transactional statesman-in-chief could turn his back on Asia and focus elsewhere.

The art of the deal

If Mr Trump’s political career has taught us anything, it is to expect the unexpected. His transactional diplomacy and willingness to defy conventional wisdom make a US–China bargain plausible. This would serve his personal ambitions and China’s strategic interests, but raise serious questions about its long-term impact on global stability.

As the world braces for the next chapter in US–China relations, one thing is clear: if there is a grand deal to be had, Mr Trump would take it, regardless of its impact on America’s allies or the global order. And it’s easy to see the Make America Great Again movement and much of America’s isolationist public praising statesman Mr Trump. If I were China’s foreign ministry, I’d already be hard at work.

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