Feb 1, 2019 | 23:54 GMT

4 mins read

U.S., China: Trade Talks End on an Up Note

U.S. President Donald Trump talks during an Oval Office meeting with Chinese Vice Premier Liu He, leader of China's trade delegation, on Jan. 31, 2019.
(MARK WILSON/Getty Images)
Stratfor's geopolitical guidance provides insight on what we're watching out for in the week ahead.
The Big Picture

With just a month left before the trade truce between China and the United States ends March 1, the world is eagerly waiting to see whether the high-level negotiations between the two powers will take the path to de-escalation and an agreement.

What Happened

With U.S. President Donald Trump hinting that there is a "good chance" of a trade deal with China, two days of negotiations involving senior officials ended on a high note this week. China's chief negotiator Liu He made a surprise offer to purchase 5 million tons of U.S soybeans when he met with Trump in the White House on Jan. 31. Meanwhile, officials from the U.S. Chamber of Commerce said progress had been made on greater market access and on enforcement of intellectual property rights — two core U.S. concerns. But it wasn't revealed how much overall progress was made or what divisions remain. The details on some core issues — such as China's forced technology transfer and subsidies to strategic industries — were far from clear. Ahead of the talks, China reportedly offered to increase U.S. imports from $155 billion in 2018 to $200 billion in 2019 and to even eliminate its trade surplus with the United States by 2024. And China has taken steps to fast-track domestic legislation that would prohibit forced transfers of technology and open the country's markets more, though implementation will take years and thus fall short of U.S. demands in the short term.

Why It Matters

With less than 30 days left before the U.S.-China tariff truce ends, much can happen. And the ball is in Washington's court. By showcasing its concessions, Beijing hopes to let Trump see that he has scored at least a partial victory on trade, which also may help to avoid further escalation. Although it was unlikely that the two countries could resolve their fundamental differences during the 90-day cease-fire, the current mood in the White House raises prospect that the two countries could be meeting halfway. A deal would extend the truce and encourage the United States to ease or partly roll back the tariffs it has imposed on $250 billion worth Chinese products. Those fees have rattled China's economy and the world market. Washington has threatened to raise tariffs on $200 billion worth of Chinese goods from 10 percent to 25 percent if a deal is not reached before March 1.

What to Watch for Next?

This month will be key. Disagreements within the White House are evident. U.S. Trade Representative Robert Lighthizer keeps underscoring the importance of an enforcement mechanism for China's structural reform. And the U.S. Chamber of Commerce said that China has made no new offers on forced technology transfers — a target of a Section 301 trade investigation — or industrial subsidies. After the latest talks, the White House reiterated that the March 1 deadline is a hard one. But its statement may be an attempt to claw back some negotiating leverage after Trump said an extension was possible.

Substantive talks won't resume until about mid-February after the Lunar New Year, a weeklong public holiday in China. Lighthizer and Treasury Secretary Steven Mnuchin will lead a U.S. delegation to Beijing. Because the Trump administration puts heavy emphasis on the stock market, its performance and other U.S economic indicators could give clues to Washington's negotiating position.

As for a meeting between Trump and Chinese President Xi Jinping, no gathering has been scheduled. But the Chinese delegation reportedly proposed that the two leaders meet on the southern island province of Hainan, a test site of China's free trade zone. If a meeting occurs, Trump said he wants to seal a trade deal then. Beijing, on the other hand, is unlikely to let Xi go into a meeting with Trump without knowing that an agreement is at hand. To do otherwise would risk putting the Chinese president in an odd position on the world stage.

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