The Deal Trump Should Strike With Xi

Focus on Investment, Not Trade, at the G-20

U.S. President Donald Trump takes part in a welcoming ceremony with Chinese President Xi Jinping in Beijing, November 2017.  Damir Sagolj / REUTERS

Chinese President Xi Jinping will go to the G-20 Summit in Buenos Aires at the end of November with one thing on his mind: defusing the trade war with the United States. That means striking a deal, and U.S. President Donald Trump is in a strong bargaining position. The current tit-for-tat tariffs hurt China more than they do the United States. The Chinese economy is more dependent on the United States than the U.S. economy is on China. The prospects for the U.S. economy look very good; there are growing storm clouds above the Chinese economy. In sum, advantage America. But what kind of deal should Trump push for?

The problem for Trump is that Xi cannot give him what he says he wants: an immediate and dramatic reduction in the U.S. trade deficit with China. Trump will probably get some guarantees to buy more U.S. exports—for example, further contracts for Boeing to supply China’s large and growing commercial aviation market. But these will not change the underlying structural reality driving the massive trade imbalance: Chinese people save much more than Americans; Americans consume much more than the Chinese. 

What China can give—and what the United States should accept—concerns investment, not trade. Trump should push for more market access and better protections, including on intellectual property, for U.S. multinational firms investing and operating in China. He should also change the terms of Chinese investment in the United States. The aim should be fewer acquisitions of existing assets by Chinese companies, more investments in new projects that promise to create American jobs. 


The veteran American business leader Maurice Greenberg put things succinctly in a Wall Street Journal op-ed this past summer. “China cannot expect to continue receiving favorable trade and investment terms in foreign markets when it is unwilling to reciprocate,” he wrote. “It is in China’s interest to reform, and the U.S. is right to press to level the

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