Short answer, Truman did not want a larger war with China. Politically, economically, militarily, and socially, it was neither desirable nor feasible. At the end of WWII, the US military was drastically cut and by the time of the Korean War, it was a shell of the powerhouse it had once been. The Republicans had many China Firsters who wanted a war, but Truman was neither a Republican nor a China man.

For a great look at this, read David Halberstam's "The Coldest Winter" about the Korean War. Although it is about the Korean war, I'd say about 40% is about MacArthur and 40% is about Mao and the Chinese.

Longer Answer

MacArthur wanted an expanded war. That's why he pushed to the Yalu when the Chinese said they would attack if he crossed the 38th parallel. That's why he was threatening to use nuclear weapons. That's why he did pretty much everything in his power to get the Chinese into the war. And that's why Truman fired him.

The US could have expanded the war into China but to what end? Chiang Kai-shek's military was weak. They were losing upwards of 50% of their weapons (which the US gave them) to the communists during the Civil War. A US memo said to Chiang that when that number crossed 50%, he should probably stop taking US weapons as he was helping out the communists more than he was himself. With that in mind, if the US conquered the communists, who would take over? Who would lead? There was no end game that would work.

Further, the war was restricted to Korea. An expanded war could have easily brought in Soviet help, expanded to Japan and Taiwan, or worse, to Europe. These were all things that Truman wanted to avoid.

TLDR: no good would come of it, Truman didn't want to expand the war.