On March 7, Foreign Affairs published an article by Brendan Kelly and Michael Hirson analyzing the prospects of a U.S.-China trade agreement under Trump 2.0. The authors examine the forces driving both sides toward a deal, as well as the deep-rooted obstacles that could make any agreement unlikely.

1. Enabling factors

  • Theoretically, a grand bargain could be beneficial for both antagonists, as the ongoing economic “decoupling” is creating serious inflation in the U.S., while China faces deflation and stagnation. A trade deal could thus provide relief on both fronts.
  • Empirically, Trump seems to have a balanced approach towards China, using tariffs strategically while seeking cooperation with China. From the other side, President Xi Jinping thus far has refrained from full-scale tariff retaliation, signaling an openness to negotiation.
  • Historically, the U.S. has effectively used tariff threats to secure trade agreements, such as the Smithsonian Agreement and the Plaza Accord.
  • It is worth mentioning that Trump is increasingly dependent on tech business owners, many of whom have major investments and economic benefits in China. This could encourage a more practical, business-driven approach to Sino-U.S. trade relations.

2. Impeding factors

  • First, both countries have been reducing their dependence on each other for years – at least since the 2015-2016 period when China introduced its Made in China industrial plan and the U.S. accelerated decoupling tendency under Trump’s first term. AI and data security concerns have widened the rift, rendering a broad trade deal less impactful even if it materializes.
  • Second, Trump 1.0’s “Phase One” trade deal with China failed to deliver significant results. While a narrower agreement on specific sectors (e.g., aircraft, medical equipment) could be more feasible, it would still require strong political commitment – something that neither country could offer at the moment due to their respective domestic constraints.
  • Third, historically, the U.S. has been successful in using tariff pressures only on its allies and those reliant on American security guarantee, rather than an equal rival like China. Chinese officials also view the Plaza Accord as a trap, blaming it for Japan’s economic crisis in the 1990s, which makes them wary of similar U.S. strategies.
  • Finally, while having imminent benefits in China’s markets, American firms and tech executives also desire to compete with their Chinese opponents.

3. The Bottom Line

Both authors were former U.S. economic policymakers, thus their insights might be relevant to the realities in the U.S. Nevertheless, the article (i) does not thoroughly examine which factors are more convincing and thus likely to be materialized, and (ii) stops short by concluding that fundamental tensions would render a major agreement unlikely, not exploring the possibility of the two nations engaging in back-door diplomacy or behind-the-scenes negotiations to reach minor agreements on more technical economic issues instead of a sweeping public deal.

Translated and edited by DHKN
An original version of this article was published here