As the presidents of U.S. and China near a highly anticipated meeting on trade, the gap in both sides’ expectations regarding a deal remains wide.
Analysts with ties outside China see major obstacles, notably on how both sides can come to terms over the treatment of Chinese telecom giant Huawei. But after a tumultuous few weeks of increased tough talk from Beijing, the calculus of some with ties to the Chinese government is that President Donald Trump is ready to move toward an agreement.
Chinese President Xi Jinping broke his silence on Tuesday with state media announcing he is willing to discuss trade issues with Donald Trump at next week’s G-20 meeting. The reports came less than 20 minutes after Trump tweeted that he “had a very good telephone conversation with President Xi of China” and the two would have an “extended meeting” during the gathering.
“Xi Jinping emphasized, on the issue of trade, that both sides should resolve the problem through fair dialogue; the important thing is to protect the rational concerns of both sides,” state news agency Xinhua reported, according to a CNBC translation of the Chinese-language article. “We also hope the U.S. will fairly treat Chinese enterprises.”
U.S. and Chinese stock indexes jumped, partly in anticipation that the world’s two-largest economies will reach an agreement in the trade dispute that has lasted for over a year.
“The best we can hope for from this meeting is an agreement not to raise tariffs,” Tom Rafferty, principal economist for China at The Economist Intelligence Unit, said in a phone interview Wednesday.
The key will be finding the right language that balances U.S. and Chinese interests, he said. “The risk of this falling apart and the U.S. proceeding with tariffs is quite high.”
Warding off additional tariffs and cancelling ones applied during the last 18 months have been a priority for Beijing in the trade dispute.
Earlier this month, Trump threatened tariffs on an additional $300 billion Chinese goods if Xi didn’t attend the G-20 meeting.
The Office of the U.S. Trade Representative began Monday a planned seven days of public hearings on proposed tariffs on $300 billion worth of Chinese goods. U.S. companies said at Monday’s hearing that China still offers better infrastructure and local talent than other countries, leaving few alternatives for producing clothes, electronics and other consumer goods, according to Reuters.
If Trump doesn’t reach a deal at the G-20, he will need to add tariffs to these $300 billion, said Liang Ming, director of the Institute of International Trade, a research unit under the Ministry of Commerce.
Trump needs to respond to businesses’ complaints and increase his popularity in the near-term by reaching a deal, Liang said in Mandarin, according to a CNBC translation. “Other measures won’t have as great a boost.” Trump on Tuesday officially launched his campaign to be re-elected as president next year.
Wei Jianguo, a former vice minister at the Ministry of Commerce, also emphasized Trump’s need to boost his popularity among voters in an interview with CNBC Wednesday afternoon.
Three things have changed since trade talks took a turn for the worse in early May, he said, according to a CNBC translation of his Mandarin-language remarks. Wei is now vice chairman and deputy executive officer at Beijing-based think tank China Center for International Economic Exchanges.
“First, from early May to now, the U.S. has seen China isn’t that easy to defeat. China is not like other countries,” Wei said. Second, he noted that Americans from farmers to business people and consumers all oppose tariffs and Trump is lagging behind Joe Biden in the polls.
Third, Wei said Trump has yet to achieve major presidential campaign promises such as bringing manufacturing back to the U.S.
All this leads Wei to believe that Trump and Xi will agree to further talks on trade and wrap up a deal by the end of the year — one which essentially includes the U.S. changing its position on Huawei.
The Trump administration put Huawei on an “entity list” that effectively bans U.S. companies from selling to the telecom and smartphone company. China responded with the threat of an “unreliable entities list” but has yet to provide details. Huawei has said many times it does not want to be part of a trade deal.
“Huawei is the most critical watchpoint. Further trade negotiations are likely impossible unless China sees some potential lifeline for Huawei,” Michael Hirson, practice head, China and Northeast Asia, at Eurasia Group, said in a note released Wednesday morning Beijing time. “It is certainly possible that Trump will offer this, but it is complicated politically for both sides.”
“Trump will face bipartisan backlash in Congress if he attempts to fully roll back the current restrictions on Huawei, and will thus be under more pressure to show the trade deal is resolving difficult issues related to Beijing’s innovation policies, such as market access restrictions for U.S. firms and subsidies to domestic companies,” Hirson said.
He expects Trump and Xi will most likely agree to an extension of trade talks, potentially for 60 days.
That’s similar to what happened the last time both leaders met on the sidelines of the G-20 meeting in Argentina late last year. Then, the communication from both sides to their domestic audiences varied in the terms of what was discussed.
This time, it’s clearer that Beijing wants it to be seen that the U.S. is bending.
”(I) highly doubt a deal comes out of this meeting,” Jacob Shapiro, director of analysis at online publication Geopolitical Futures, said in an email. ”(I) think both Xi and Trump still need to milk ‘looking tough’ to their domestic constituencies before either one of them is in a position to make compromises necessary for a deal.”