Sep 10, 2019

Critical window is about to close for U.S.-China trade deal

Illustration: Sarah Grillo/Axios

The resumption of U.S.-China trade negotiations in October, after an acrimonious summer, is likely to offer the last chance for a breakthrough before both sides flip to a more hardline nationalist Plan B in 2020.

The big picture: The protracted dispute is impacting growth, business confidence and economic uncertainty in both countries. A 2019 deal remains probable and in each leader’s best interests, as President Trump looks to his 2020 campaign amid a softening economy and Chinese President Xi Jinping faces political liabilities from slowing growth.

Where it stands: Bad blood has accumulated on both sides. While some parts of the agreement — such as provisions on intellectual property protection and prohibitions on forced technology transfer — can be preserved from the previous draft, new areas of flexibility are needed to get a deal across the line.

  • The U.S. could yield to Chinese redlines that object to America retaining tariffs post-agreement and remove clauses that enable the U.S. to reimpose punitive tariffs unilaterally if it judges China out of compliance. Under those circumstances, the U.S. would take action regardless.
  • China could improve its offer of a $200 billion reduction in the bilateral trade deficit — a personal and political priority for Trump.
  • State industrial subsidies remain a problem, but could be dealt with in an accompanying communiqué including a Chinese policy declaration that limits subsidies through enforcement of domestic competition laws and relevant World Trade Organization rules.

What's needed: Both sides recognize the need for a more positive political atmosphere before the negotiators meet.

  • China could place large orders for American soybeans and corn, while the U.S. could defer the additional 5% tariff poisonously timed for Oct. 1, the 70th anniversary of the founding of the People's Republic of China.
  • The Trump administration could also issue permits for some U.S. firms to sell nonsensitive applications to Huawei — permitted under the company's current status as a listed entity.

What's next: The 2 months ahead are critical. The Nov. 16 Asia-Pacific Economic Cooperation summit is the last chance to sign an agreement before the window closes.

Kevin Rudd is a former prime minister of Australia and the current president of the Asia Society Policy Institute.

Go deeper: Read Rudd’s recent address on the negotiations.

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