By inviting Xi Jinping to attend his inauguration, lowering proposed tariffs and delaying the TikTok ban, President Trump has begun his second term in office delivering olive branches to China. The president’s rhetorical pivot from threats to compliments suggests that he may smell a deal in the air.

However, any potential “grand bargain” is unlikely to deliver on two critical planks of Trump’s America First agenda: trade and security.

On the economic and trade fronts, Trump aims to reshore factories, revive U.S. manufacturing and reduce the trade deficit — goals Beijing could address by promising to boost imports from the U.S., commit to voluntary export restrictions, and make greater investments in the U.S. manufacturing sector.

Nevertheless, any attempt to reduce the trade imbalance would likely disappoint due to the fundamentally export-oriented nature of China’s economy.

China’s economic model systematically suppresses consumption and encourages exports. In 2023, consumption accounted for just 56 percent of China’s GDP — 20 percent lower than the global average. This low consumption is tightly linked to China’s manufacturing and export prowess. 

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Given the deflation of the country’s real estate bubble and the riskiness of its financial markets, China’s residents increasingly deposit their savings with the banks, whose loans the state steers towards to “new, quality productive forces” in industries such as battery, automotive and semiconductor manufacturing.

Altering this equilibrium too quickly would threaten social stability, a top priority of the Chinese Communist Party. Excessive debt-financed fiscal stimulus for consumers might turn the government’s debt challenge into a full-blown crisis. Cutting industrial subsidies or imposing voluntary export restrictions would be a death sentence to manufacturing firms reliant on foreign markets to absorb excess capacity, leading to job losses and economic disruption.

In the near-term, directing increased investments from China to the U.S. might be a genuine win-win, allowing Trump to inaugurate new factories and Chinese investors to enjoy better returns. If investment targets are agreed to, the Trump administration will need to negotiate a strong enforcement mechanism and frequently press China on implementation to avoid repeating the failure of the 2020 Phase One Trade Deal. Even with constant pressure from Washington, there is no guarantee of success.

Nonetheless, China’s leaders are too determined to give something away for free. They understand that they have more leverage when linkages are brought into negotiations or as Zoe Liu wrote in Foreign Affairs, “no issues are off the table and concessions in one area might be traded for gains in another, even if the issues are unrelated.”

The costly and rapid expansion of China’s conventional and nuclear forces give its leaders new sources of leverage which can be used not just to engineer a return to less hostile rhetoric characteristic of the past but to extract wholly new concessions, particularly on the valuable but vulnerable prize of Taiwan.

Eager to avoid escalation and entrapment overseas and deeply concerned by the effect of vast distances on the advantage of U.S. forces in a Taiwan contingency, Trump may be interested in a deal to relieve pressure on the U.S.’s Indo-Pacific periphery.

China’s leaders may demand that the U.S. reinterpret or modify prior policies and behaviors towards Taiwan in exchange for assurances that they will abstain from the use of force and decrease the tempo of regional military operations.

U.S. concessions could include new restrictions on contact between U.S. officials and their counterparts in Taiwan, diminishing weapons sales to Taiwan, making official statements that further weaken the U.S.’s ambiguous commitment to defending Taiwan, agreeing to “oppose” rather than “not support” Taiwan independence, or edging toward if not outright accepting the People’s Republic of China’s One China Principle.

These kinds of concessions would make the U.S. strategic position in Asia increasingly vulnerable, as they leave Beijing with openings for future exploitation. Studies of Taiwanese public opinion have found that perceptions of diminished U.S. commitment are linked to lower confidence in self-defense capabilities and willingness to fight. U.S. concessions would also provide fuel for Beijing’s ongoing propaganda campaign in Taiwan, which emphasizes American betrayal and selfishness.

A fracturing of public opinion on the island may create openings for political forces willing to make their own deep concessions to China on matters of sovereignty and governance to delay a complete takeover. Accommodation by Taiwan may paradoxically make aggressive coercive action more attractive for the mainland, as it would then put the U.S. in a situation where intervention risks escalation and nonintervention reinforces the sense of betrayal in Taiwan, accelerating a political turn away from the U.S.

Major concessions on issues of sovereignty may also tie the hands of future U.S. presidents and regional allies should China eventually choose to use force.

Furthermore, Beijing would struggle to credibly commit to its end of the bargain whether by paying a political cost or tying its hands. As discussed above, structural economic factors make trade inducements non-credible.

Dropping threatening rhetoric against Taiwan would not cost China’s leaders much in terms of public opprobrium, as most of their people are not eager for war in the first place, and such rhetoric could easily be restored in the future. China’s institutional trends make hand-tying unlikely as well, given the concentration of power under Xi and the withering of institutions which once restrained China’s leaders.

This is all not to say that Trump should not try to strike a hard but focused bargain with China. It will take plenty of browbeating to make deals on any of the countless thorny issues in the U.S.-China relationship from AI competition to fentanyl precursors. A bilateral investment deal might stand to benefit both sides.

The bottom line is that Trump must avoid the temptation to pursue a wide-ranging grand bargain that attempts to totally reforge the trade and security relationship between the U.S. and China. China’s economy cannot be remade in a day to benefit the U.S. and the Chinese Communist Party’s military buildup and internal centralization of power pose significant challenges to its credibility on matters of regional security.