The US-China trade war is entering a dangerous end of the game?


What is the likely outcome of the US-China trade war in light of the US decision to postpone the tariff hike that had been threatened on March 1 and the promise of a summit between US President Donald Trump and Chinese President Xi Jinping ?

Recent meetings in Washington and Beijing saw the two sides operating from a common roadmap rather than resorting to their own points of discussion. That is real progress. The reports indicate that the latest round of bilateral trade negotiations has reached consensus on peripheral issues such as currency stability and has made modest progress in terms of intellectual property rights, forced technology transfers, non-tariff barriers and services.

But there is no agreement on major structural barriers in sectors that China believes require protection from foreign rivals because they are not yet ready for competition or because there are security issues involved, such as in telecommunications and banking.

Little has been done in China to recalibrate the role of state-owned enterprises at home or abroad, in addition to requiring mixed ownership and better management, which still leaves the state in control of key sectors. The goals of "Made in China 2025," the country's strategic program to achieve dominance in high-tech sectors, have not changed.

The US decision to postpone raising Chinese product tariffs, leaving many issues to be resolved at the Trump-Xi summit in Mar-a-Lago at the end of March, raises bets – and risks of failure.

Hopefully, outstanding issues regarding implementation mechanisms and agreed indicators to measure progress can be resolved in the coming weeks. The result would be a truce at the end of March.

But this could be temporary. The US would almost certainly launch new trade deals if Beijing failed, as is likely, to deliver on its promises of reform before the US presidential elections of 2020.

With significant enforcement measures that will hardly materialize, a minimal agreement is becoming the basic case, which consists of buying expensive US goods through China, an additional opening of the Chinese market for US companies and front measures. intellectual property rights and forced transfer of technology.

A more substantial and durable agreement – which reduces the risk of tariff increases in the next 18 months – may be the least likely outcome.

There is another dimension of the conversations that Americans underestimate. Simplifying: What does China take away from any business besides achieving a temporary reduction in the risk of tariff increases? Beijing will almost certainly insist on reciprocal US actions on any trade agreement. Xi will need to be able to show his internal audience that he has achieved something more than a commercial deal than postponing higher fares.

Beijing may press for Trump to instruct the US Justice Department to reach an agreement with Huawei for allegedly escaping US sanctions against Iran while allowing Canada to release Meng Wanzhou, chief financial officer of Huawei and daughter of the group's founder, after she was arrested in December at the request of the United States.

Xi would also like to see a reversal of US tariffs in specific categories of products. If immediate tariff relief is not offered, the Chinese president will find it difficult to accept any US agreement.

Disagreements over business strategy among Trump administration officials will continue in the final phase of the game. This could increase mistrust, but also encourage a possibly mistaken Chinese confession that Trump will give way to deference to Xi.

This may happen if Trump believes Chinese support is needed to support a North Korean nuclear deal after its summit with North Korean leader Kim Jung Un in Hanoi. Trump may also decide to conclude a face saving agreement with Beijing over the trade if the Hanoi summit yield little, but criticism about its inability to obtain concessions from Pyongyang.

What will US companies say about a "light" business transaction result? The American corporate reaction is likely to range from a timid "wait-and-see" attitude to criticism that the consequences of the disruption of trade and the subsequent treatment of US companies in China are not worth the price of making purchases and promises of openness from the market. . After all, most of the features of this agreement have been on the table since November 2017.

But a modest agreement is not the only possible outcome. The chances of a non-agreement outcome of a Trump-Xi summit are at least 20%. Keep in mind that a basic assumption that Trump shares with both hawks and doves in their administration is that China is facing the real risk of a sharp decline in growth in the middle of this year.

This perspective would support a "now or never" view that the US should use its influence to take a tough approach in the coming weeks. This means that a spectacular collapse of the Florida sun can not be ruled out.

Kevin Nealer is director of The Scowcroft Group, a former US government trade lawyer and senior nonresident researcher at the Center for Strategic and International Studies in Washington D.C.


Source link