US and Chinese negotiators are under mounting pressure to compromise in a new round of trade talks this week, as growing financial market volatility and fears of a bruising slowdown hit the global economy.
A delegation of American officials will meet Chinese counterparts on Monday in Beijing for two days of discussions — the first face-to-face talks since President Donald Trump and President Xi Jinping agreed a trade truce at the G20 summit in Argentina last month — with a looming March 2 deadline to strike an agreement or see an escalation in tariffs.
The mission, led by Jeff Gerrish, the US deputy trade representative, follows a torrid month for global markets, which have been convulsed by concerns of a looming downturn in the world’s two biggest economies. The S&P 500 has fallen 13 per cent since the start of October.
Mr Gerrish will be joined by high-ranking officials from the agriculture department, energy department and treasury department in a sign that the talks are becoming more specific than they were when Mr Trump and Mr Xi met in Buenos Aires.
For the US, success will hinge on how far China is prepared to go to purchase more American goods in agriculture, manufacturing and energy, as well as curbing intellectual property theft and the forced transfer of technology.
“Mutually assured destruction is too strong but the incentives for both China and the US are to work towards some kind of agreement,” said Stephanie Segal, a senior fellow at the Center for Strategic and International Studies, a Washington-based think-tank. “They are going to be looking for an outright victory, and if not they will want to declare sufficient progress to kick the can down the road.”
“If I were them, I would be looking at the list of US demands that the Chinese said they would be willing to accept, and clarifying those so I can declare victory and it doesn’t look like I capitulated,” said one former US trade official.
The Chinese want Washington to commit to not raising tariffs further and removing levies on some items, as it hopes to chip away at the US approach.
Senior US officials were comforted by a strong jobs report for December, including a significant jump in manufacturing employment which allayed some concerns about a weakening outlook.
They have interpreted last week’s revenue warning from Apple, which the iPhone maker largely blamed on the economic slowdown in China, as a symptom of Beijing’s weakness rather than a worrying sign of spreading economic pain from their trade war.
China is grappling with sharply weakening growth, led by lower domestic demand and the trade war, prompting the government to resort to stimulus measures, such as injecting $117bn into the banking system, investing in infrastructure and urging banks to increase lending to small businesses.
Mr Trump maintained his bearish approach on Friday, saying that the US was in a “very strong position” in the talks, adding that it would not be “the worst thing in the world” if an agreement were not reached.
But US officials see an agreement with China as critical to ending the febrile mood on Wall Street. “When we settle the trade issues with China, then people will go back to focusing on the long-run growth that absolutely is going to return to probably a higher level once we fix this problem with China,” Kevin Hassett, chairman of the White House council of economic advisers, told CNN last week.
Analysts say it is in the interests of both sides to do a deal.
“The Chinese economy isn’t doing well so you can say the Chinese side has more motivation to reduce the scope of the trade war. But the US side also has this pressure because the US economy isn’t doing too well either,” said Tu Xinquan, a trade expert at the University for International Business and Economics in Beijing.
Stephen Moore, an economic adviser to Mr Trump’s 2016 presidential campaign and a visiting fellow at the Heritage Foundation, a conservative think-tank, said he had advised the White House to achieve a trade deal with China that could “energise the economy”, adding that this would “dramatically increase” the president’s chances of re-election.
China trade hawks in Washington, meanwhile, are urging Mr Trump to hold the line, despite the mounting economic and financial pressure. “I think he will stick to his guns and see it through because he has an obligation to the American farmers and workers in the heartland who elected him,” said Jeff Ferry, chief economist at the Coalition for a Prosperous America, a group of manufacturers that supports Mr Trump. “I have no problem with putting 25 per cent tariffs on half of Chinese imports.”
