A 90-day trade truce between China and the United States is scheduled to end March 1. Even if the two economic powers agree to extend the truce or settle their trade differences, the increasingly complex nature of their bilateral relations will remain. Washington will also continue its various offensives against Beijing by taking measures to restrict exports, protect core technologies and challenge China in Taiwan and the South China Sea.

What Happened

The United States and China have made progress on narrowing their differences on trade and other economic issues after three days of talks in Beijing ended Jan. 9. The talks — the first since U.S. President Donald Trump and Chinese President Xi Jinping agreed to a 90-day tariff truce last month — were between mid-level negotiators, meaning they were not expected to produce a deal ending the U.S.-China trade war. But both sides reportedly made progress on some easier concessions, such as China’s commitment to buy U.S. agricultural, energy and manufactured goods and widen access to its markets. Both sides, moreover, agreed to remain in close contact. Cabinet-level talks are expected to follow in the coming weeks as the world watches to see how its two largest economies manage their trade tensions before their self-imposed deadline ends March 1.

Though details are scant, the statements released by each side underscore slightly different priorities. China’s Commerce Ministry said Beijing had made progress on meeting U.S. demands to alter its policies on intellectual property protection, forced technology transfers and other industrial matters. The U.S. statement, meanwhile, focused on the need for measures to verify and enforce any commitments China makes on structural changes. At the same time, significant divisions reportedly remain, not only on both sides but also within the Trump administration, on how far and how soon the United States should push China to deliver on its pledges.

Why It Matters

The 90-day deadline is likely too tight a time period for the United States and China to resolve all the trade tensions between them given their fundamental economic differences and their underlying competition for economic and technological supremacy. But this round of negotiations — the first since the truce began last month — appeared to proceed with some optimism. China’s position is rather consistent. With some domestic structural reforms already underway, its economy weakening and unemployment on the rise, Beijing has been eager to show the United States it is working directly and indirectly to defuse Washington’s concerns by making a series of easy concessions, such as resuming U.S. soybean purchases, suspending an extra 25 percent tariff on U.S. automobiles that it imposed in retaliation to earlier American measures, as well as strengthening laws to discourage technology transfers and protect intellectual property. But as Beijing attempts to move at its own pace to minimize the cost of these changes — while showing no sign of bending on U.S. demands for deeper reforms to its state-dominated development path — it is bidding that a protracted trade war will inflict more pain on the United States than on itself, thereby ultimately forcing Trump to alter his strategy.

The U.S.-China trade war ultimately boils down to a question of political will on Trump’s part. Recent reports suggest Trump wants to cut a deal with China to boost stock markets, which have fallen in part because of trade tensions and the reciprocal tariffs that both nations have imposed on each other. Trump previously has pointed to a rising stock market as a sign of his administration’s economic success; either extending the truce while talks continue or even possibly rolling back some current tariffs could spur stocks higher. White House economic adviser Larry Kudlow and Treasury Secretary Steven Mnuchin are said to favor a quicker deal with China, but trade hawks such as U.S. Trade Representative Robert Lighthizer reportedly oppose any rapid deal and want to maintain tariffs to keep China accountable to its promises.

The U.S.-China economic divide is rooted in Washington’s broader competition with Beijing. Even if conditions lead to an extended trade truce or an easing of tariffs, the United States will continue to build — and elevate — its offensives against China by restricting exports, placing regulatory buffers around core technologies and pursuing other measures to challenge Beijing.

Source: Strafor.com, January 10, 2019