Wei Cui, Staff Member

The U.S. and China are locked in an escalating trade battle in recent years. Before taking office in 2016, U.S. president Donald Trump has complained about China’s trading practices. [1] In 2017, the U.S. launched an investigation into Chinese trade policies.[2] Last year, the U.S. imposed tariffs on $ 250 billions worth of Chinese products, and Beijing retaliated in kind.[3] The continuing hostilities reached a temporary truce in December. At a post-G20 summit meeting in Buenos Aires, both countries agreed to suspend new trade tariffs for 90 days to allow for talks.[4] However, the US warned that if the parties are unable to reach an agreement in the end of this period of time, the 10 percent tariffs on Chinese goods will be raised to 25%.[5]

Now the U.S. and China have just five weeks to come up with a deal before March 5. Each are asking the counterparty for major concessions.[6] The U.S. mainly hopes that China would implement structural changes to further open its market to American exports (especially the agricultural goods hit hard in the trade war) and stop forced technology transfer from U.S. companies.[7] China mainly needs the U.S. to eliminate or sharply reduce the tariffs imposed on $250 billion worth of Chinese goods. [8] Such a move would help to restore badly shaken confidence in the U.S.-China trade relationship when China’s economy is facing a downturn.[9]

American and Chinese officials will resume in face-to-face trade talks on January 30th, 2019, but whether the next set of talks will lead to a real deal is uncertain.  Some say the most the two sides can achieve in the near term is a “mini-deal” that would keep current duties in place while negotiations continue.[10]  The economic slowdown in U.S. and China seems to exert pressure on the heads of governments to reach a settlement. Trump is faced with a jittering stock market and concerns that the government shutdown could nudge the U.S. economy into recession. He is soon going to run his 2020 reelection campaign, and he will be motivated to rapidly shrink the U.S. trade deficit with China to fulfill a core promise he made during his 2016 campaign.[11] Chairman Xi is overseeing the slowest economic growth rate since its government began publishing quarterly figures in 1992, which adds pressure on him to find a quick end to the trade war.[12]

However, talks held in early January at the vice-ministerial made little progress on the deal.[13] The U.S. insisted that an agreement containing robust monitoring and enforcement that could reinstate lifted tariffs. China agreed to continue buying U.S. goods to reduce deficit, but was unwilling to compromise on structural change, and did not wish the U.S. to be a judge of whether they faithfully implemented the pact.[14] Still, for the U.S, there is benefit in holding on to the threat of increased tariffs as long as possible to maximize leverage. For China, there is an advantage in waiting to see if President Trump’s price for reaching a deal goes down because of concern about his political future. By far, neither side is going to settle for less or has the incentive to wrap up the talk until shortly before the March deadline. Given the current deadlock, the U.S. raising tariffs on March 2nd is the likely outcome, and this would be the beginning of another seesaw battle.

 

[1] Trump Targets China Trade, Says Plans Serious Measures, Reuters (Aug. 24, 2016), https://www.reuters.com/article/us-usa-election-trump-china-idUSKCN10Z2JN.

[2] US to Review China Intellectual Property Policies, BBC (Aug. 19, 2017), https://www.bbc.com/news/business-40982032.

[3] Karishma Vaswani, How China is Fighting back in the Trade War, BBC (Sept. 24, 2018), https://www.bbc.com/news/business-45622815.

[4] US-China Trade War: Deal Agreed to Suspend New Trade Tariffs, BBC (Dec. 2, 2018), https://www.bbc.com/news/world-latin-america-46413196.

[5] Id.

[6] Doug Palmer & Wendy Wu, How the U.S.-China Trade War Ends, South China Morning Post & Politico (Jan. 23, 2019), https://www.politico.com/story/2019/01/23/us-china-trade-war-1121833.

[7] Id.

[8] Karishma Vaswani, Why China is Under Pressure to Make a Trade Deal, BBC (Jan. 27, 2019), https://www.bbc.com/news/business-46997489.

[9] See Palmer & Wu, supra note 6.

[10] Id.

[11] Ryan Koronowski, Remember When Trump Said He’d Fix the Trade Deficit? It Just Rose Again, Thinkprogress (Dec. 6, 2018), https://thinkprogress.org/trade-deficit-hits-high-despite-trump-promise-to-fix-2b4efcb591dd/.

[12] Amanda Lee, China Economy Slows Further, Matching its Lowest Ever Quarterly Growth, South China Morning Post, China Economy (Jan. 21 2019), https://www.scmp.com/economy/china-economy/article/2182948/china-economy-slows-further-matching-its-lowest-ever-quarterly.

[13] Kyodo News, China, U.S. begin vice ministerial-level talks over trade dispute, Kyodo News (Jan. 7, 2019), https://english.kyodonews.net/news/2019/01/b57b117674fd-update1-china-us-begin-vice-ministerial-level-talks-over-trade-dispute.html.

[14] See Palmer & Wu, supra note 6.