Why Trump and Xi should revive the US-China investment treaty

Max Baucus and Stephen Roach on how a shared investment pact could give Washington and Beijing common ground on fraught industries.

The eagerly awaited encounter between Donald Trump and Xi Jinping at last looks imminent. Having once been called off and now rescheduled for May 14th-15th in Beijing, the talks give both presidents a valuable opening to mend harm caused by an extended Sino-American conflict. Their previous encounter, in South Korea in October 2025, yielded a modest reduction in strain yet no major advance. In our view, the forthcoming summit creates space for a bold step: both leaders backing a Bilateral Investment Treaty.

What a Bilateral Investment Treaty would do

Such deals have multiplied across the past fifty years.

BITs aim to accelerate expansion by reducing obstacles to investing. In contrast to Mr Trump’s ill-conceived preoccupation with two-country trade gaps, in which one side’s gain is treated as a zero-sum loss for the other, an American-Chinese BIT might encourage capital creation, jobs, earnings and spending in each nation.

For the United States — whose BIT effort stretches to the Reagan presidency in the 1980s — these accords have mattered considerably for building bargaining power with commercial and investment counterparts. America’s 40 functioning BITs include many customised provisions, among them “side issues” shaped to the distinctive features of every relationship and to further American objectives: distinctive standards for intellectual-property capital (Poland), foreign-exchange holdings (Egypt), domestic-content mandates (Turkey) and state purchasing methods (Uruguay).

China could be approached with a similarly bespoke design. US negotiators have consistently sought liberalisation measures including open licensing, intellectual-property safeguards and stronger labour norms. Beijing’s purported unjustified support for state-owned enterprises through subsidies might also be tackled inside a fresh BIT.

Importantly, the logic runs in reverse too. Beijing has its own worries over Washington’s subsidies, heightened by America’s recent enthusiasm for industrial policy. Defining dual-use (military-civilian) technological uses would represent another key task for both capitals during BIT talks.

The treaty that was 90% done

Sensitive sectors and the negative lists

A BIT offers a pragmatic route for states to settle viable terms on “sensitive” areas they hesitate to open to foreign capital. China keeps a “negative list” covering, among other fields, defence, rare earths, genetics, nuclear power and education. Although America keeps no official negative list, it operates a national-security screening mechanism, called CFIUS. It has also widened its “entity list” to constrain Chinese firms linked to surveillance, human-rights abuses and weapons of mass destruction, while also curbing Chinese access to cutting-edge semiconductors, other AI-linked operations, biotech and sensitive communications technology.

Such rosters of exclusions provide a path for governments to secure wide-ranging BIT approval without stumbling over each protected sector they wish to defend. Those lists proved an obstacle during the closing phase of bargaining over a Sino-American pact in 2015-16. Still, they may likewise present an opening, should each side view them as baselines from which to negotiate gradual shrinkage of their own rosters. That approach could render the BIT a living accord, adjustable through time.

Forced technology transfer and joint ventures

Equally significant, Washington and Beijing might deploy a BIT to confront the difficult question of forced technology transfer. US and other foreign multinationals have generally had to enter China via joint ventures alongside domestic companies, with the local partners commonly gaining more from the deal via shifted technology and expertise than their overseas counterparts obtained via market entry and added income.

Scrapping ownership ceilings on direct stakes by American and Chinese multinationals would remove the rationale for joint ventures, which have hindered cross-border takeovers in each country. Wholly owned Chinese and American technology businesses might gain greatly from that shift, notably in advanced semiconductors, the fresh front in AI. Any technology handoffs they chose to make would still have to meet BIT rules drawn up to handle the common goals of AI security, privacy and competition. For firms navigating that divide, see The legal trap closing in on multinationals.

The Senate problem — and a workaround

Within America, steering a BIT through domestic politics is difficult. Any treaty needs two-thirds backing in the Senate — improbable, particularly involving China, amid today’s hyper-partisan atmosphere. Yet a workaround may exist: recasting the project as a “congressional-executive agreement”, of the kind that structured NAFTA and its replacement, USMCA. Those pacts can advance with a plain majority in both chambers of Congress.

What the summit could deliver

Returning to the table over the frozen Sino-American BIT would offer a credible initial move toward restoring reciprocal confidence. Each leader could promote it as favouring growth. Investment accords normally engage just corporate managers and policy specialists. But this one, revived, might convert the imminent Beijing summit from a holding exercise into an occasion the planet’s two most influential men can rightfully hail as a landmark achievement. ■

Max Baucus served as a United States senator from 1978 to 2014 and as America’s ambassador to China from 2014 to 2017. Stephen Roach served as Morgan Stanley’s chief economist from 1982 to 2012 and is now on the faculty at Yale University.

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