Trump’s ‘amazing’ bargain with Xi turns out a dud

US President Donald Trump touted the trade-war breakthrough with China’s Xi Jinping with predictable triumphalism. On Thursday, Trump gushed about an “amazing” meeting with Xi, where he agreed to cut China’s tariff to 47%. But the odds that posterity will concur are exceedingly low.

For one thing, there’s nothing “grand” about the bargain to which Trump and Xi are discussing in the loosest and vaguest terms possible. Specifics, targets, enforcement mechanisms and punishment for non-compliance will all be discussed by US and Chinese trade officials at a future date.

Nothing on the table, though, alters the mechanics of a US$659 billion trade relationship in any notable way. Face-saving agreements to throttle back on tariffs, buy more soybeans and increase the flow of rare-earth minerals are grand on some levels. But narrowing America’s trade deficit with China requires a wholesale remaking of commercial dynamics.

For another, myriad tripwires could — and likely will — return Trump and Xi to battle stations. Count the ways things could go awry: China depreciating the yuan; Trump depreciating the dollar; the US economy slowing sharply; either side failing to live up to a deal; domestic political troubles prompting either leader to lash out abroad.

“It’s good for the world’s top two largest economies to dial down tensions,” says Ting Lu, economist at Nomura Holdings, “but we believe the superpower rivalry will likely escalate in the future.” As such, he says, global investors are learning to embrace the new normal of “tension, escalation and truce.”

Economist Chang Shu at Bloomberg Economics says, “we expect the leaders to approve the deal, but whether it will bring lasting relief to markets is less clear — the new reality for US-China ties appears to be one of frequent ruptures and short-term fixes.”

Goldman Sachs economist Jan Hatzius adds that the “recent policy moves suggest a wider range of potential outcomes than appeared to be the case ahead of the last few key US-China meetings. The likely scenario seems to be that both sides pull back on the most aggressive policies and that talks lead to a further—and possibly indefinite—extension of the tariff escalation pause reached in May.”

Of Trump, Ali Wyne, senior US-China researcher at the International Crisis Group, notes that “he seems to think of Xi not as an avatar of imperial ambition, but rather as the head of an impressive rival business company.” This means the best-case scenario is for Trump and Xi to “leverage mutual vulnerability as a gateway to mutual restraint.”

Yet Trump’s ambition to curb China’s rise, while understandable, lacks any sense of proportion.

“The allure of a single, sweeping deal is understandable,” says Patricia Kim, economist at Brookings Institution. “It offers the promise of clarity in a troubled, high-stakes relationship. But history proves that there is no silver bullet. Managing US-China relations since Nixon’s dramatic visit to China in 1972 has not been about grand gestures or chasing some mythical end state.”

Success requires the tough but ongoing work of strategic management — balancing competition and cooperation, setting firm boundaries and constantly recalibrating to protect US interests.

“For decades, both the United States and China have sought an elusive, all-encompassing agreement — one that would, in a single stroke, resolve their fundamental disputes,” Kim notes. “Time and again, both sides have been disappointed. The reality is that many of their core demands are irreconcilable.”

China, Kim explains, portrays any American pushback as limiting China’s rise and as contrary to free trade principles — despite “its own egregious track record of state-led economic intervention and coercive trade practices.”

For the US, Kim says, a grand bargain would demand the very things China refuses to concede: renouncing military aggression against Taiwan and in the East and South China Seas; curbing its non-market policies that have long disadvantaged American businesses; improving its human rights record, and embracing democratic practices at home.

But the real reason Trump’s China trade talks might not matter in the long run is that Xi was readier for 2025 than Trump World realized. After the Trump 1.0 trade war, Team Xi accelerated efforts to pivot trade away from China’s economy. Today, fast-increasing shipments to Europe, Southeast Asia and Global South nations are enabling Xi to navigate around Trump’s tariffs.

Trump’s exploits from 2017 to 2021 catalyzed China Inc not just to sandbag the export sector but also to increase competitiveness in ways that the Trump 2.0 gang hadn’t noticed, notes Arthur Kroeber, head of research at Gavekal Dragonomics. Chinese exporters now “have plenty of workarounds through transshipment and relocating late-stage production to lower-tariff countries,” he says.

These rules-of-origin-bending transshipments, of course, have painted a target on the backs of several export-geared Southeast Asian economies. Trump pledges to punish countries engaging in the large-scale arbitrage of passing Chinese goods through lower-tariff countries to avoid US levies.

It remains an open question whether Trump will carry through on such threats. But China’s overcapacity is accelerating de-industrialization in parts of Southeast Asia. The heirs apparent to China’s low-cost manufacturing throne — including Vietnam, Indonesia and Thailand — may be seeing their “China+1” dreams dashed.

Even though exports to the US plunged 27% in September year-on-year, global exports hit a six-month high, climbing 8.3%.

Still, China’s Ministry of Commerce is hardly happy about things. “For a long time, the US has been overstretching the concept of national security, abusing export control, taking discriminatory actions against China, and imposing unilateral long-arm jurisdiction measures on various products, including semiconductor equipment and chips,” the ministry said. “The US actions have severely harmed China’s interests and undermined the atmosphere of bilateral economic and trade talks, and China is resolutely opposed to them.”

Trump’s extreme bilateralization of trade is a reminder that his economic strategies are ripped from the pages of the mid-1980s.

The rationale behind Trump’s tariff policies dates back to a time when the five most industrialized nations held vast sway over global dynamics: His obsession with a weaker dollar is inspired by a deal struck 40 years ago in New York’s Plaza Hotel, an iconic property Trump owned for a while. His tax priorities have critics linking them to the “trickle-down economics” era.

The problem with a US leader having his head stuck in 1985, aside from the obvious, is that “Made in China 2025” is upending the global economy now. And at a moment when China is investing in where it thinks the world will be in 2035. This goes, too, for a Global South that’s increasingly forging its own path — one that barely factors in where the US might fit in a decade from now.

“The world economy is splitting into competing groups instead of a single connected system of globalization of the 1990s,” says Gilles Moec, chief economist at AXA Investment.

So, despite what Trump appears to believe, little of what he’s doing with tariffs is going to shrink cross-border trade. What Trump World misses, Moec notes, is that “instead of bringing production back to the countries where products are used, global companies have been reorganizing their supply chains around groups of countries or clubs with similar values or security concerns.”

Moec adds that “this rejig is a diluted version of globalization but can still keep the wheels moving. As long as clubs include both low-wage nations and high-spending economies, the adverse effects of fragmentation – such as inflation and lower efficiency – could be mitigated.”

Even as Trump complains about China’s dominance, he’s paving the way for Asia’s biggest economy to grow its influence. Ending US development aid created more space for Beijing’s Belt and Road Initiative (BRI) to expand its colossal infrastructure investment strategy around the globe, particularly the Global South.

“None of these people has any idea of how the world works,” says Stuart Stevens, a longtime Republican strategist whose latest book is titled The Conspiracy to End America. “The world’s greatest power wants to have as little influence as Liechtenstein.” Either by design or inadvertently, Stevens says, Trump era policies are “going to give away American power” to China and Russia.

Yun Sun, director of China programs at the Stimson Center, adds that any “deterioration of US leadership and credibility will benefit China.”

That goes, too, for Chinese assets. Investors and Asian central banks sitting on mountains of US Treasury securities are already concerned enough about Washington’s US$38 trillion debt load and stubbornly high inflation. Now it’s time to count the ways Trump’s supposed truce with Xi could unravel in short order, shaking up global markets anew.

Follow William Pesek on X at @WilliamPesek