What China can offer to buy from the U.S.

Investing.com -- The prospect of a new U.S.-China trade deal has resurfaced after President Trump indicated openness to a fresh agreement, though only after relations deteriorate further.

Any such deal would likely center on China agreeing to increase purchases of U.S. goods, particularly in energy, agriculture, and—contingent on U.S. approval—advanced electronics.

While the administration has floated more ambitious scenarios like a sweeping “Grand Bargain,” current signals suggest even a limited deal would be politically complex, according to Capital Economics.

A new memorandum indicates plans to tighten restrictions on investment flows and possibly revoke Most Favoured Nation status for Chinese goods. Analysts at Capital Economics believe tariffs could rise sharply, potentially reaching 60% by the second quarter.

“Our working assumption is still that U.S. tariffs on China will be hiked substantially, possibly to 60% as soon as Q2.

Still, if negotiations materialize, the structure could resemble the 2020 Phase One deal, under which China pledged to raise imports of U.S. goods and services by $200 billion annually relative to 2017 levels.

“We argued at the time that this was unlikely to be realised,” Capital Economics wrote. It noted that “the Chinese made no meaningful attempt to follow through,” adding that while they had initially doubted the commitment would be met, the pandemic “quickly provided an excuse not to do so,” and by the time disruptions eased, Trump was out of office.

The agreement ultimately fell short, but Trump has since defended it, blaming the Biden administration for China’s non-compliance. A new deal could expand on it with even higher targets.

Capital Economics calculates that China could, in theory, raise purchases of U.S. goods by as much as $800 billion, based on the difference between current imports and potential maximum levels.

“Our estimates suggest that China could increase annual purchases from the U.S. by the $200bn it promised in Phase One, or even more if it really wanted to,” the note says, although it cautions these figures represent upper bounds rather than realistic forecasts.

Energy stands out as the biggest category for potential increase, including crude oil, liquefied natural gas, and refined petroleum products. However, structural limitations—such as refinery compatibility and long-term export contracts—could restrict the scale of purchases.

Electronics come next, but export controls on key products like semiconductors and chipmaking tools remain a significant barrier.

Agricultural goods, pharmaceuticals, and automobiles also present meaningful opportunities, with agriculture seen as both logistically easier and politically strategic given Trump’s rural voter base.

Despite the theoretical scope, Capital Economics warns of several constraints, including economic cost, geopolitical backlash, and domestic resistance.

“The upshot is that while China may well make purchases commitments in a bid to minimize the near-term hit from U.S. tariffs, they would have plenty of reasons to drag their feet when it came to following through on those commitments,” the report notes.

“There is surely a risk that China’s compliance with any deal falls to the wayside the moment the U.S. stops proactively policing it,” it adds.

Even if China met its purchase commitments, the firm continues, it wouldn’t resolve the deeper trade imbalances or the broader geopolitical tensions driving economic fragmentation.

Any deal would likely be short-lived—probably not lasting beyond Trump’s presidency—and once it collapsed, trade patterns would quickly revert to their previous state.