Trump Will Use Tariffs, But Only To Make ‘A Big Deal In China’: Strategies By Investing.com

In his anticipated second term, former President Donald Trump is expected to use the tariffs, not as a long-term protectionist strategy, but as a bargaining chip to get a big deal with China.

Contrary to the usual narrative of escalating trade wars, strategists believe Trump’s ultimate goal is to realign the US-China trade relationship, potentially driving significant Chinese foreign direct investment (FDI) into the United States.

Tariffs have historically been a favorite tool in Trump’s economic playbook, used to pressure trading partners in negotiations.

However, strategists at BCA Research suggest that Trump’s tariff strategy in his second term will be fundamentally different from that used during his first term.

“Former President Trump plans to use tariffs in his second term, but with the goal of making a big deal in China. Such a bargain would surprisingly include inducing Beijing to increase FDI in the US,” analysts at BCA Research said in a note.

Trump’s recent speeches, including his speech at the Republican National Convention, indicate a change in his approach. He mentioned tariffs only twice during his 2024 speech, a stark contrast to his previous rhetoric.

Importantly, these remarks were in the context of China’s push to move its manufacturing operations from Mexico to the United States. This indicates a pivot toward using tariffs as a means of forcing China to invest directly in the American economy, rather than just penalizing imports from China.

The concept of a “grand bargain” with China underlines Trump’s strategy. Such a deal would likely involve China agreeing to step up investment in the US, particularly in sectors that create jobs and support American manufacturing. This reflects the successful trade negotiations of the 1980s, where economic concessions were traded on favorable terms.

Analysts say China’s current economic strategy aligns with Trump’s goals. Faced with growing economic risks and the need to diversify its investments, China may be more inclined to negotiate a deal that benefits both nations.

The increase in Chinese FDI in Mexico as part of its de-risking strategy demonstrates Beijing’s willingness to move capital abroad. Trump’s strategy would redirect these investments to the US, offering China favorable trade terms in return.

For investors, Trump’s tariff strategy presents both risks and opportunities. Initial rhetoric of renewed trade tensions could trigger market volatility, hitting small-cap stocks and the US dollar in particular. However, analysts are advising investors to remain cautious and avoid making rash decisions based on early trade war fears. The belief is that Trump’s strategy will eventually lead to a resolution rather than a protracted conflict.

Investors are being encouraged to “tone down the hysteria” surrounding Trump’s tariff threats and instead focus on the longer-term implications of a potential deal with China.

If successful, such a deal could stabilize US-China trade relations, attract significant foreign investment and support sectors such as US manufacturing and technology.