Are You Ready for the World’s Greatest Deal?
August 25, 2025
“Deals are my art form. Other people paint beautifully or write poetry. I like making deals, preferably big deals. That’s how I get my kicks.”
Donald Trump, December 2014
[reposted by the White House, April 2025]
A trade deal between Donald Trump and Xi Jinping is increasingly likely in the coming months. This agreement will not solve most of the problems between the world’s two largest economies, but it will reduce tensions enough to restore confidence among China’s entrepreneurs, consumers and investors, as well as reduce inflation risks in the US. Global investors and corporate boards should take this opportunity to prepare for the coming change in climate, where the White House will replace talk of decoupling with encouragement for trade and investment flows.
On July 9, I wrote that “President Trump is famously unpredictable, but the odds of a trade deal with China – while still low – appear to be rising.” Those odds have improved substantially in recent weeks, as Trump is focused on meeting Xi to close a deal around the time of the APEC leaders summit in Korea at the end of October.
A deal is not a sure thing. But the odds are high enough that investors should think about how they would take advantage of the potential impact on China’s equity markets.
In this note I discuss why Trump wants a deal, and what both he and Xi would want to get out of an agreement.
Trump Promised 200 Deals But Doesn’t Yet Have One
Twenty days after his April 2 “Liberation Day” press conference, Trump said, “I’ve made 200 deals.” Asked when those deals would be announced, he replied, “I would say, over the next three to four weeks, and we’re finished, by the way.”
At this point, Trump has not announced even one comprehensive trade deal.
On August 21 Washington and Brussels announced a “Framework Agreement” which they said is “a first step in a process that can be further expanded over time to cover additional areas and continue to improve market access and increase their trade and investment relationship.” Progress, but not a final deal ready to be implemented.
Trump previously signed an executive order implementing a very limited agreement with the UK, covering only imports of British autos and airplane parts. There is a social media posting about an agreement with Vietnam, but no details have been released, so it’s hard to call that a deal.
The President is likely feeling pressure to fulfill his pledge of making real, binding trade deals, and China would be a big win.
Trump Must Be Starting To Worry About Inflation And Job Losses
As he promised, Trump quickly raised taxes on imported goods. American consumers now face an overall average effective tariff rate of 18.2%, the highest since 1934, according to the Yale Budget Lab.
Average US tariffs on goods imported from China are now 57.6% and cover all Chinese imports, according to Chad Bown at PIIE. These tariff rates are up 36.8 percentage points since the second Trump administration began.
Trump has maintained that foreigners pay this tax, but Treasury Secretary Bessent has publicly acknowledged the reality that tariffs are paid by the importer in the US. Bessent has presumably been trying to educate Trump on this in private.
At this point, the impact on inflation has not been dramatic. Core CPI (which excludes more volatile food and energy prices) rose 3.1% YoY in July, the fastest annual pace in five months.
But the minutes of the late July meeting of the Fed’s Open Market Committee stated that “Participants noted that tariff effects were becoming more apparent in the data, as indicated by recent increases in goods price inflation.”
“In terms of timing, many [FOMC] participants noted that it could take some time for the full effects of higher tariffs to be felt in consumer goods and services prices. Participants cited several contributors to this likely lag. These included the stockpiling of inventories in anticipation of higher tariffs; slow pass-through of input cost increases into final goods and services prices; gradual updating of contract prices; maintenance of firm–customer relationships; issues related to tariff collection; and still-ongoing trade negotiations.”
A few FOMC participants “observed that evidence so far suggested that foreign exporters were paying at most a modest part of the increased tariffs, implying that domestic businesses and consumers were predominantly bearing the tariff costs.”
The Atlanta Fed wrote on August 21 that a nationwide survey found that “business executives, on average, have ratcheted up their year-ahead price growth expectations since the end of last year. Firms with supply chains that rely on imported goods have revised up their year-ahead expectations markedly . . . As direct evidence on the potential for tariffs to broaden into a full-fledged inflationary shock, we find that firms with largely domestic supply chains that operate in industries heavily exposed to tariffs have increased their price growth expectations by roughly half of those firms that are directly exposed.”
Concern about inflation (and job losses) isn’t limited to Fed nerds. The University of Michigan consumer survey reported on August 15 that:
“Although CPI inflation has not surged, our data show that consumers are still bracing for an increase in inflation to come. Moreover, consumers are also concerned that labor markets will weaken. The share of consumers expecting unemployment to worsen in the year ahead was about 32% in 2022 and as recently as November 2024, but is now about 60%, a reading last seen in the Great Recession.”
The President is presumably being briefed about the impact of his tariffs on American companies. The CEO of Walmart, America’s biggest retailer, this month said, “as we replenish inventory at post-tariff price levels, we’ve continued to see our costs increase each week, which we expect will continue into the third and fourth quarters.”
Some companies are already passing higher costs on to consumers. Sony announced a price increase for its PlayStation 5 consoles that are sold in the US. Japanese automakers have also begin passing on tariff costs to American car buyers, according to The Nikkei. Home Depot announced it will be raising some prices to cover tariff costs.
For companies that choose to continue absorbing the new import taxes, margin compression may lead to job cuts. Caterpillar expects $1.5 billion in tariff-related costs this year, and Deere, the world’s largest farm equipment maker, expects $600 million. UPS announced plans to lay off 20,000 employees, calling tariffs the “biggest trade disruption in more than a century.”
Tariffs Are Polling Poorly, Even Before Inflation Bites
In early August, when asked if he would like to run for a third term in the White House, Trump replied, “Hey, Becky, I’d like to run. I have the best poll numbers I’ve ever had. You know why? Because people love the tariffs.”
Those tariff fans are clearly avoiding pollsters. In a survey conducted in mid-June by Politico-Public First, one-quarter of self-identified Trump voters said tariffs on China hurt American companies.
A Pew poll published in August found 61% of Americans disapprove of Trump’s tariff policies, with 32% of Republicans disapproving. One-quarter of Republicans said they expect the personal impact of tariffs to be mostly negative in the coming years.
Another August poll, by Navigator, found that 59% of Americans have an unfavorable view of the tariffs. Twenty-nine percent of Republicans don’t like tariffs, a share that jumped to 47% of those identifying as “non-MAGA” Republicans. Asked if Trump’s tariff policy is “making their costs go up,” 49% of Republicans said yes, with 62% of “non-MAGA” Republicans saying yes.
Trump Knows That Xi Holds Better Cards
Trump’s response to troubles with two commodities - rare earths and soybeans - suggests that he understands that Xi has significant leverage in the trade dispute.
When China raised its own tariffs on US imports in retaliation to Trump’s April announcement, Bessent called it “a big mistake . . . because they’re playing with a pair of twos. What do we lose by the Chinese raising tariffs on us? We export one-fifth to them of what they export to us, so that is a losing hand for them.”
Trump quickly realized that Xi was in fact holding a full house, as Beijing froze exports of rare earth magnets to US companies, scaring automakers and defense contractors.
China dominates global refining of critical minerals and has a 92% market share of global production of rare earth magnets, which are key components in many US weapons systems, from fighter jets to drones and submarines.
This led Trump to pare back his tariffs in May in return for China resuming magnet shipments to automakers and other civil-use manufacturers. A White House spokeswoman said in late July, “President Trump has publicly discussed his desire for a constructive relationship with China, who is sending rare earth magnets to the United States.”
In the case of soybeans, China simply boycotted American farmers. In an August 19 letter to Trump, the American Soybean Association pointed out that:
“Over the past five years, China has imported an average of 61% of the world’s available soybean supplies – more than the rest of the world combined. Historically, the US was the provider of choice for Chinese customers. However, due to ongoing tariff retaliation, our longstanding customers in China have and will continue to turn to our competitors in South America to meet their demand . . . China has not purchased any US soybeans for the months ahead as we quickly approach harvest.”
The letter was signed by Caleb Ragland, a Kentucky farmer and president of the Association, which represents 500,000 soybean farmers across the country. In a recent article, Ragland wrote, “Like many of my fellow farmers, I voted for President Donald Trump in the past three elections.” But, in his letter to Trump, Ragland said that today “US soybean farmers are standing at a trade and financial precipice. . . [and] cannot survive a prolonged trade dispute with our largest customer.”
Shortly before Ragland published his letter, Trump posted on Truth Social a direct plea to Xi to buy more beans. “I hope China will quickly quadruple its soybean orders. . . Thank you President Xi.” It is unlikely that Xi will take that step absent concessions from Trump.
Trump’s Rhetoric Is Leaning Towards A Deal
Trump talks like he really wants to do a “big deal” with Xi. On August 5, the President said:
“We’re getting very close to a deal. We’re getting along with China very well. . . My relationship with him is very good. I think we’ll make a good deal. It’s not imperative, but I think we’re going to make a good deal. . . I’ve had a great relationship with President Xi. We respect him a lot. They respect us a lot. They didn’t respect Biden. They thought he was a numbskull.”
Trump’s team is also speaking in more constructive terms about China.
Bessent said “we’re very happy” with the discussions with China. “I think right now the status quo is working pretty well.” And, when attacking Indian companies for buying Russian oil, Bessent declined to criticize Chinese purchases.
Even Peter Navarro, White House trade advisor and author of Death By China, held his tongue in a Financial Times Op-Ed criticizing India’s relationship with Putin. Navarro, who rarely misses an opportunity to criticize Beijing, only mentioned China once in the article, to note that India is “now cozying up to both Russia and China.” Presumably, the President asked both Navarro and Bessent to avoid rhetoric which could dampen the environment for a deal with Beijing.
Trump Isn’t Focused on National Security Issues With Beijing
Another reason I expect Trump is ready to do a deal is that he does not share his hawks’ concerns about the national security threat from China. And, unlike past presidents, Trump views export controls as a form of negotiating leverage, rather than as a critical tool to protect national security. Trump is likely to relax key export controls put in place by his hawks if they get in the way of reaching a trade deal with Xi.
During his first term, Trump cancelled serious sanctions imposed by his Commerce Department against ZTE, a Chinese telecommunications equipment maker. The Commerce Department had banned US companies from selling components to ZTE for seven years because it had violated the terms of a settlement deal for illegally shipping goods made with US parts to Iran and North Korea. The ban might have crippled ZTE.
Trump reversed it, saying, "ZTE, the large Chinese phone company, buys a big percentage of individual parts from US companies. This is also reflective of the larger trade deal we are negotiating with China and my personal relationship with President Xi.”
More recently, Trump has reversed course on his sanctions on TikTok. During his first term, Trump signed an executive order saying the US “must take aggressive action against the owners of TikTok to protect our national security.” Since returning to the White House in January, however, Trump has routinely deferred enforcement of a law banning TikTok or forcing sale of the app.
In May, rather than call the app a national security threat, Trump said, “I have a little warm spot in my heart for TikTok,” because it helped him win re-election. “No Republican ever won young people, and I won it by 36 points, and I focused on TikTok.” In August, the White House launched its own TikTok account.
Trump has also suggested he will allow Nvidia to ship to China a modified version of its top-end Blackwell AI GPU, which would represent a significant weakening of current export restrictions.
This is all consistent with the President’s national security philosophy. He basically told a reporter that “America First” means whatever he says it means. “Well, considering that I’m the one that developed ‘America First,’ and considering that the term wasn’t used until I came along, I think I’m the one that decides that.”
I assume that if Trump chooses to reposition China as an economic partner rather than as an adversary, his team, and most of his supporters across the country, will accept that.
Trump Likes Big Deals, But Not Necessarily Complicated Ones
As I noted in the opening paragraph of this note, while I think a deal is increasingly likely, it will not solve most of the problems between the world’s two largest economies.
This has been the case with deals that Trump has already reached in his second term, all of which are very limited in scope, and which leave many key points undefined.
Trump clearly emphasizes the pomp and circumstance of meetings with foreign leaders and would likely be happy with a limited “big deal” with Xi, accompanied by red carpets and shiny objects.
The best opportunity for this would be around the time of the APEC leaders summit in Gyeongju, Korea, on October 31-November 1. They could meet on the margins of that event in Korea, or Trump could travel to China before or after APEC, which would provide a grander backdrop.
It appears that Trump is aiming for a meeting with Xi at that time to close a big deal. "President Xi has invited me to China, and we'll probably be doing that in the not-too-distant future," Trump told reporters in the White House's Oval Office. "A little bit out, but not too distant.”
Xi is playing a strong hand, but Trump will want some concessions from him in order to close a deal.
What Might Make Trump Happy?
Looking back at the Phase One trade deal with China during Trump’s first term, it is likely that the President will again focus on sales and investment numbers rather than less-sexy but more important longer-term structural changes.
In January 2020, Trump announced that China agreed to purchase $50 billion worth of US agricultural products, and I expect a similar commitment this time, with a focus on soybeans. As noted earlier, Trump has already asked Xi to “quickly quadruple” soybean orders.
Aircraft sales commitments are another likely goal. According to an August 21 Bloomberg report, “Boeing Co. is heading closer toward finalizing a deal with China to sell as many as 500 aircraft . . . a transaction that would end a sales drought that stretches back to US President Donald Trump’s last visit in 2017.” If, as Bloomberg reports, the talks on aircraft sales are at an advanced stage, this would indicate that Xi is open to concluding a broader trade deal and meeting with Trump.
The President is also likely to ask Xi to commit to manufacturing investments in the US, which would require Trump to again override his hawks’ national security concerns. Last year, he said he was open to Chinese automakers building cars in the US. “We’re going to give incentives, and if China and other countries want to come here and sell the cars, they’re going to build plants here, and they’re going to hire our workers.
Trump might ask Xi to pledge investments by BYD, the world’s largest maker of new energy vehicles, and by CATL, the world’s leading battery maker. Robin Zeng, CATL’s founder and chairman, last year told Reuters, “Originally, when we wanted to invest in the US, the US government said no. For me, I’m really open-minded.”
While purchase and investment commitments like these may never be consummated, that’s beside the point for a White House focused on announcing big deals.
Xi Isn’t Desperate, But Would Welcome A Deal
I’ve explained why Trump is eager for a deal. But what about Xi?
Xi isn’t desperate for a deal with Trump, but I think he would be happy to sign a deal that would boost consumer and entrepreneur confidence without requiring significant concessions.
Exports to the US are not a major concern for Xi. Overall, exports are a relatively small part of China’s GDP, and between 2001, when China joined the WTO, and pre-pandemic 2019, net exports on average were a negative 2.2% drag on real GDP growth. Last year, exports to the US were only 15% of China’s total exports. Thus, in the first seven months of this year, while exports to the US fell 12.6% YoY, total exports rose 6.1% YoY.
Weak confidence, however, is a problem for Xi. His government’s own consumer confidence index fell sharply, from 113 to 87, during the 2022 Shanghai COVID lockdown and hasn’t recovered, registering only 88x in June. (It is noteworthy that the Chinese government continues to publish this negative data set monthly.)
The IMF forecasts GDP growth of 4.8% YoY for China this year (vs. 1.9% for the US), but this pace is disappointing to most of its citizens, and growth slowed sharply in July. Housing prices continued to fall, and retail sales growth slowed to 3.7% YoY, down from 6.4% in May. Families are saving rather than spending: household bank balances have risen by 10% YoY or more for 81 consecutive months.
The unemployment rate of young, urban people (aged 16-24, excluding students) was 17.8% in July.
Political tensions between Washington and Beijing are just one reason why confidence is low, but Xi must recognize that reducing those tensions via a deal with Trump would boost his ongoing efforts to promote domestic demand.
Confidence among retail equity investors in China has already begun to improve. Trading volume in Shanghai is up and almost 2 million new A-share accounts were opened in July, a 71% YoY increase. The Shanghai Composite Index is at the highest level since August 2015, and up 16% year-to-date.
When consumer confidence does return, they will be able to draw down on household savings which have risen 98% since the start of 2020, for a net increase in savings equal to $11.2 trillion.
What Would Make Xi Happy?
Politically, it is hard to envision Xi signing a deal which assigns US tariffs to Chinese exports which are higher than Trump’s baseline for the rest of the world, which seems to be 10-15%. Xi can’t stop Trump from implementing a higher rate (currently 57.6%), but he can refuse to sign such a deal.
Xi will also want a sharp relaxation in US export controls which are designed to constrain China’s tech sector. As noted earlier, this is feasible because Trump doesn’t share his hawks’ concerns about the national security threat from China, and because he views export controls as a form of negotiating leverage.
Xi’s third request will be for Trump to end his administration’s efforts to contain PRC exports to third countries. The White House has claimed, for example, that it wants to limit Chinese content in goods made in Vietnam and destined for US markets, although no details have been published.
Xi Would Make A Modest Request About Taiwan
Xi’s fourth request to Trump will be about Taiwan, but I expect this will be a modest request. I do not think Xi will ask Trump to abandon US support for Taiwan’s separate status, and I don’t think Trump would agree if asked. (There is no evidence that Xi Jinping intends to use force to coerce unification between the mainland and Taiwan.)
Instead, Xi is likely to ask Trump to publicly reiterate that the US does not support formal Taiwan independence (it currently has de facto independence).
The most likely formulation would be for Trump to repeat the language that President Clinton used in a June 1998 speech in Shanghai:
“We don’t support independence for Taiwan, or two Chinas, or one Taiwan-one China. And we don’t believe that Taiwan should be a member of any organization for which statehood is a requirement.”
Because this is a reiteration of previous policy and does not require the US to scale back its current relations with Taiwan, it wouldn’t be difficult for Trump to accept. And it would re-assure Beijing that Trump rejects efforts by some of his hawks to promote more formal ties between Washington and Taipei. Trump’s recent refusal of Taiwan President Lai Ching-te’s request to visit New York City is another indication that the White House is hoping for a deal with Xi.
Trump recently told Fox News that Xi told him that he would not use military force to coerce reunification with Taiwan during Trump’s presidency. Trump claimed, “He told me, ‘I will never do it as long as you’re president.’ President Xi told me that.”
It is impossible to believe that Xi actually said that to Trump. When asked about it, the PRC foreign ministry cleverly chose to neither confirm or deny that statement attributed to Xi, and instead just reiterated China’s longstanding Taiwan policy.
If there is a trade deal, Trump may repeat this spurious claim of a Xi pledge not to use force, and Beijing will likely continue to ignore it.
Xi Is Likely To Make More Domestic Policy Changes
Since last fall, Xi has been taking tentative steps to restore confidence and
boost consumption. It is likely that he recognizes that regardless of how the current tariff chaos plays out, Beijing must rely primarily on its own 1.4 billion customers - not foreign markets - to drive innovation and growth.
In the coming quarters, I expect Xi to accelerate and deepen his efforts to
fix his own policy mistakes, with modest, new programs to restore private sector and consumer confidence and encourage consumption.
I wrote about this in my June 17 report, “Trump Will Make China Great Again,” which is available at www.sinologyllc.com
I will be in China in September and will have an update on this topic after my visit. In the meantime, it is worth noting that regardless of how the trade talks play out, four things will remain constant:
I. China will remain the world’s second-largest and fastest-growing consumer market. Xi will continue to take modest steps to accelerate and deepen policies to support private firms, which will result in more investment and jobs, and stronger wage growth, boosting consumption.
II. World-class competitors will continue to come from China. DeepSeek won’t be the last Chinese company to surprise foreigners. BYD sells more electric vehicles globally than Tesla. CATL is the world’s top battery maker. DJI is the world’s leading drone manufacturer. And Mixue, which listed in Hong Kong recently, has more global beverage franchises than Starbucks.
III. China will remain a key part of global supply chains, for everything from rare earth magnets to pharmaceuticals. Last year, about 30% of big pharma deals with at least US$50 million up-front involved Chinese companies, up from none five years ago.
IV. China is likely to continue to account for more than 20% of global economic growth, larger than the combined share of growth from the US and its G-7 developed nation partners.
Andy Rothman
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