By Fen Osler Hampson

May 12, 2026

Whether Donald Trump acknowledges it or not, Iran is the likely spoiler in his summit with President Xi Jinping in Beijing this week.

As Trump prepares to negotiate trade tensions with Beijing, he faces a far more intractable crisis in the Persian Gulf.

Trump’s failed negotiations with Iran over the Strait of Hormuz should have surprised no one. Iran’s proposal was straightforward: reopen the vital shipping lane, recognize Iran’s sovereignty over the strait, allow commerce to resume, lift American sanctions, and defer nuclear discussions to some future date. Trump rejected it outright.

The outcome was predictable because the fundamental problem remains unchanged—neither side trusts the other, and both believe they hold the stronger hand.

Trump’s confidence rests on America’s military dominance. He seems to believe he can threaten Iran into submission and that the credible threat of devastating strikes will force Iran’s regime to capitulate.

Iran’s calculation is different. They see a president who is worried about rising energy prices hammering consumer confidence and Republicans’ prospects in November. They also understand that Trump desperately wants a successful summit that lowers trade tensions with China. But they know that continued uncertainty in the Gulf, including the possibility of an even bigger war, will spook Beijing, making any agreement harder to reach.

The political arithmetic is brutal for Trump. China’s leadership will not commit to major trade concessions if they suspect regional instability will crater their own economic growth. And every day the strait remains closed, oil prices creep higher, gasoline at American pumps becomes more expensive, and Trump’s political runway narrows.

Trump now faces a binary, genuinely unattractive set of options: TACO or NACHO.

Under the TACO — Trump Always Chickens Out — option, Trump swallows hard and gives Iran much of what it wants. Iran receives a partial restoration of its frozen assets. It gains effective control over the Strait of Hormuz, at least in practical terms. The American blockade is lifted. Both parties commit to negotiating on nuclear issues, resulting in a weakened successor to the Obama-era JCPOA that Trump infamously discarded.

The strategic upside is clear: energy prices fall and Trump can claim he stabilized the region. The political cost, however, is staggering. For Trump, accepting Iran’s terms would constitute a humiliating defeat that would haunt him throughout his presidency.

TACO requires humiliation he likely cannot accept. NACHO risks the political and economic consequences he desperately seeks to avoid.

It echoes the ghosts of past presidents who were accused of “losing” geopolitical contests in Korea and Vietnam. Trump has built his image on strength and unpredictability. Capitulating to Iran destroys his political brand.

That leaves NACHO—per The Wall Street Journal, “Not a Chance Hormuz Opens”—where the strait remains closed, the blockade continues, and both sides wait for the inevitable Iranian provocation. The Revolutionary Guards eventually attack American forces and strike regional allies. When they do, Trump unleashes devastating strikes against Iran’s energy infrastructure: Kharg Island, refineries, ports, and critical industrial facilities.

The goal is economic collapse that forces regime change or unconditional surrender.

This option preserves Trump’s image as the strong man willing to use force. It demonstrates resolve to regional allies and to Beijing. But it also guarantees continued economic disruption, higher gas prices through November, and the very real possibility of a greater regional war.

Trump’s predicament reflects a harsh strategic reality: there is no good option, only less catastrophic ones. TACO requires humiliation he likely cannot accept. NACHO risks the political and economic consequences he desperately seeks to avoid. And all the while, Iran knows that time is on its side.

Trump’s Summit with Xi may be derailed by this conflict. At the outset, Trump was aiming for a major trade agreement that would halt the tariff war he ignited, restore market access for American goods, and demonstrate that his tough negotiating stance yields genuine economic results.

He also aimed to leverage America’s technological advantages and market size to extract Chinese concessions on intellectual property, industrial subsidies, and market barriers, thus confirming his “America First” trade philosophy. Instead, the Iran crisis threatens to transform the summit from a negotiating triumph into a damage-control exercise where he is forced to secure Beijing’s help to deal with Iran.

Trump’s problem is that Beijing’s leadership will not commit to major economic concessions while there is regional instability in the Persian Gulf and the spectre of a war that disrupts key energy supplies on which China depends on for its manufacturing base and economic security.

With uncertainty over whether the Strait of Hormuz will reopen and oil prices spiking further, Chinese policymakers will hunker down in a defensive posture at the negotiating table. What was supposed to be Trump’s triumphant showcase achievement — a deal that proves he can bend America’s greatest strategic rival to his will — now risks becoming another casualty of the unresolved Iran standoff.

Trump’s choices are not between victory and defeat, but between different kinds of loss. And with each passing day, the cost of either option grows.

Policy Contributing Writer Fen Osler Hampson, FRSC, is the Chancellor’s Professor and Professor of International Affairs at Carleton University, and president of the World Refugee & Migration Council. He is co-chair of the Expert Group on Canada-US Relations.