What Would a Trade Deal Imply for US-China Relations?

On today’s Big Take podcast, experts discuss the implications of a potential trade deal for US-China relations. They explore how this agreement could reshape the dynamics between the two nations and influence their respective roles on the global stage, considering economic, political, and strategic factors that may affect future interactions and cooperation.

A trade deal between the United States and China could significantly reshape their bilateral relations, opening up new avenues for collaboration. A successful agreement would likely ease tensions that have escalated over tariffs and trade practices, fostering a more stable economic environment. Such an accord might also signal a commitment to diplomatic engagement, potentially addressing broader issues like climate change and global security.

Moreover, improved trade relations could lead to mutual economic benefits. Increased exports and reduced tariffs would bolster American businesses while providing Chinese consumers with greater access to U.S. goods. This economic interdependence could encourage both nations to prioritize dialogue over conflict, thus creating a more cooperative international atmosphere.

A trade deal between the United States and China would have significant implications for their bilateral relations, influencing economic, political, and strategic dynamics. Below is a comprehensive analysis of what such a deal could mean, based on the current state of affairs and historical context:

1. Economic Implications

• De-escalation of Trade Tensions: A trade deal would likely reduce or eliminate high tariffs, such as the 145% U.S. tariffs on Chinese goods and China’s 125% retaliatory tariffs, as seen in recent negotiations. For instance, the May 2025 Geneva agreement slashed U.S. tariffs to 30% and Chinese tariffs to 10% for 90 days, signaling a temporary truce. A more permanent deal could stabilize trade flows, reducing costs for businesses and consumers.
• Reduction of Trade Deficit: The U.S. has long aimed to address its trade deficit with China, which was $295 billion in 2024, the largest with any country. A deal could include commitments for China to purchase more U.S. goods, as attempted in the 2020 Phase One agreement, though China failed to meet its $200 billion purchase target. Success here could boost U.S. exports, particularly in agriculture and manufacturing.
• Supply Chain Stability: A deal could ease disruptions in global supply chains, where China plays a critical role. For example, lifting China’s export restrictions on rare earth minerals and magnets, vital for U.S. industries like electric vehicles and defense, would reduce economic strain. The June 2025 framework agreement in London addressed this, ensuring Chinese supply of these materials.
• Inflation and Consumer Prices: High tariffs have driven inflation, with Goldman Sachs estimating a doubling to 4% by 2025 due to trade disputes. A deal lowering tariffs could mitigate price increases for U.S. consumers and stabilize global markets, as seen in the stock market rally after the Geneva talks.
• Challenges to Full Decoupling: Complete economic decoupling is unlikely due to deep interdependence—bilateral trade was over $600 billion in 2024. A deal would reinforce this interconnectedness, encouraging cooperation over isolation.

2. Political and Diplomatic Implications

• Improved Bilateral Relations: A trade deal could signal a thaw in U.S.-China relations, strained by years of trade wars and geopolitical rivalry. The Geneva and London talks in 2025, described as “constructive,” suggest both sides see value in dialogue. A successful deal could pave the way for broader cooperation on issues like climate change or global health.
• Strengthening Negotiation Channels: The establishment of consultation mechanisms, as agreed in Geneva, indicates a commitment to ongoing dialogue. This could reduce the risk of escalatory rhetoric and foster trust, though deep mistrust persists due to past failures, like China’s non-compliance with the 2020 Phase One deal.
• Domestic Political Wins: For the U.S., President Trump could claim a victory in fulfilling campaign promises to rebalance trade, boosting his domestic support. In China, the deal could be framed as a defense of global trade, enhancing Beijing’s image as a responsible global player.
• Geopolitical Positioning: A deal could shift the tone of U.S.-China competition. Trump’s approach, likened to a “bear-hug strategy,” aims to keep China within the U.S.-led global economic system, potentially reducing China’s alignment with rivals like Russia. However, unresolved issues like technology restrictions could maintain tensions.

3. Strategic and Security Implications

• Fentanyl and Non-Tariff Issues: A trade deal could address U.S. concerns about China’s role in fentanyl precursor exports, a priority for the Trump administration. The 20% U.S. tariff on Chinese goods tied to fentanyl remained post-Geneva, indicating its strategic importance. Progress here could improve trust on security matters.
• Technology and Military Concerns: The U.S. is unlikely to relax export controls on advanced technologies like AI chips, as confirmed by Treasury Secretary Scott Bessent. China’s push to ease these restrictions, as noted in London talks, suggests ongoing friction over technology transfer and military applications. A deal might skirt these issues, limiting its strategic depth.
• Rare Earths and Critical Minerals: China’s export restrictions on rare earths, critical for U.S. defense and tech industries, were a sticking point. The June 2025 deal’s inclusion of rare earth access for U.S. firms indicates strategic concessions, but China’s six-month license limit shows lingering leverage.

A U.S.-China trade deal would signal a temporary de-escalation, stabilizing markets, reducing consumer costs, and fostering dialogue. It could boost U.S. exports, secure critical resources, and address issues like fentanyl, but structural issues—subsidies, technology disputes, and mistrust—limit the prospect of a transformative agreement. Politically, it offers both leaders domestic wins, but strategic tensions and the risk of non-compliance could undermine long-term gains. The global economy would benefit from reduced uncertainty, but a lasting resolution requires addressing deeper economic and geopolitical divides. For now, deals like those in Geneva and London are steps toward coexistence, not partnership.

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