Trump will use tariffs, but only to make a 'big deal on China': strategists By Investing.com
In his expected second term, former President Donald Trump is expected to raise tariffs, not as a long-term defense strategy but as a bargaining chip for a bigger deal with China.
Contrary to the usual story of escalating trade wars, diplomats believe that Trump's main goal is to reshape the US-China trade relationship, which may result in Chinese Foreign direct investment (FDI) in the United States.
Historically, tariffs have been a favored tool in Trump's economic playbook, used to pressure trading partners into negotiations.
However, BCA Research strategists suggest that Trump's tax strategy in his second term will be very different from the one he employed in his first term.
“Former President Trump intends to use tariffs in his second term, but with the aim of making a big profit in China. Such negotiations, ironically, could involve persuading Beijing to invest in 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 convention speech, a stark contrast to his previous speech.
Importantly, these claims were in the context of forcing China to move its manufacturing operations from Mexico to the United States. This reflects a pivot to using tariffs as a way to force China to invest directly in the American economy, rather than simply punishing Chinese imports.
The idea of a “grand deal” with China underpins Trump's strategy. Such an agreement could involve China agreeing to increase its investment in the US, especially in sectors that create jobs and strengthen American manufacturing. This reflects successful trade negotiations since the 1980s, when economic agreements were negotiated on favorable terms.
Analysts say China's current economic strategy is in line with Trump's intentions. Faced with growing economic risks and the need to diversify its investment, China may be more inclined to negotiate a mutually beneficial deal.
The increase in Chinese FDI in Mexico as part of its de-risking strategy reflects Beijing's willingness to move money abroad. Trump's strategy would aim to redirect this investment to the US by offering China favorable trade terms in return.
For investors, Trump's tax strategy presents both risks and opportunities. Initial talk of renewed trade tensions could cause market volatility, particularly affecting junior stocks and the US dollar. However, analysts advise investors to remain cautious and avoid making hasty decisions based on fears of an early trade war. The belief is that Trump's strategy will eventually lead to a resolution rather than a protracted conflict.
Investors are being encouraged to “cut through the frenzy” surrounding Trump's tariff threats and instead focus on the long-term implications of a potential deal with China.
If successful, such a deal could stabilize US-China trade relations, attract greater foreign investment, and strengthen sectors such as manufacturing and technology in the US.
