Trump has this long planned visit to China in April. Set aside the prospect that this visit might be clouded by the war with Iran, I want to take a look what each side would want from the other.
From the Chinese side, they would want
1. EVU, though, this would go away in a couple of years.
2. Lower tariffs on Chinese products
3. Opening the U.S. for Chinese investment (EV factories).
4. most advance chips
5. Taiwan
From the U.S. side, we have
1. Rare earth metals,
2. purchase of corn and other agricultural products.
3. Buying U.S. bonds with the huge Chinese trade surplus.
4. Opening Chinese financial sector.
At first glance, there is no big irreconcilable differences. Both sides can give each what they need without itself suffering any undue hardship. This is the basis of a win win relationship. The key to see if any of these will happen is Trump's ability to execute. Each of the compromise from the U.S. hurts the interest of one or more lobby group. The EV will hurt Detroit. The EUV will hurt Apple and Nvidia. The most advance chips will hurt OpenAI etc. The Tariffs will hurt a bunch of companies. Even for Taiwan, there is a strong Taiwan lobby. Given how badly Trump bungled the Iran war, I don't think he has the ability to deliver his end of the bargain. Now the Iran war adds a potential need from the U.S. for Chinese help to get out of the war. Given enough concessions, I am sure the Chinese will be willing to help, but they won't do it for free and at the end of the deal, there will probably involve Chinese military guarantee.
Unfortunately for us, all of the demands from us except the opening of the financial market are urgent needs. Long term corn embargo could cause American farmers to go bankrupt, a source of vote for Trump could go away. The rare earth metals shortage is already hitting the MIC. Pictures of F-35 delivered without radars have surfaced. The ballooning debt is already at dangerous level and we are seeing lack of interest in the U.S. bond market. While this will likely not topple U.S. financial markets in the next few months, our irresponsible government spending will need someone with the heft of China to extend our lifeline.
On the Chinese side, they have done pretty good without EUV thus far. In a couple of years, this issue will be moot. The most advanced Nvidia chips could be smuggled into China. Lowering U.S. tariffs would be nice for China, but the portion of Chinese exports to the U.S. has gone from 22% in 2017 to 9% in 2025. What is left are increasingly things the U.S. can't do without. Opening the U.S. for Chinese investment would be nice, but the world is big and there are many opportunities for the Chinese to spend their trade surplus outside the U.S.
It is unfortunate that our democratic system elected these horrible leaders from both sides. Trump went bankrupt six times. While you might say that he retained much of his wealth through the six bankruptcies, we at a minimum can conclude that this is his consistent failure to execute at some level. Now this trait will show itself in the way he runs this country.
