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President Trump is likely to concede ground first regarding trade relations with China. An initial indication of this occurred recently when he mentioned a potential adjustment to the significant tariffs imposed on Chinese goods. Treasury Secretary suggested a possible resolution to the existing trade standoff between the two major economies.
Reaching an agreement would undoubtedly benefit both nations. The ongoing trade conflict has negatively impacted financial markets, increased economic uncertainty, and created a slowdown in the U.S. economy. Simultaneously, China’s shipping sector has experienced a decline, indicating strain on its export activities, a crucial factor in the nation’s economic expansion.
However, considerable hurdles remain in achieving a resolution. Currently, there are no substantial discussions taking place between the U.S. and China, leaving no immediate solution in sight. This situation is partly due to China’s reluctance to initiate such discussions.
Chinese officials believe their system offers greater unity and resilience than the U.S. government in dealing with the impact of a trade war. They anticipate less public concern or political reaction to market fluctuations compared to the U.S. Additionally, the Chinese government has the ability to influence public opinion regarding the trade war through state-controlled media outlets.
Furthermore, China possesses the means to inflict economic pain on the U.S., such as limiting the supply of rare earth elements and essential components vital to American industries. A prolonged trade war could severely disrupt U.S. manufacturing, result in job losses, and lead to increased inflation and product shortages. Chinese leaders appear to anticipate that Trump will experience political pressure sooner and more intensely than Xi Jinping. Essentially, China believes time is on its side.
This perspective explains China’s cautious approach to trade negotiations. Given their perceived advantage and ability to be patient, they will await Trump’s specific demands before engaging in negotiations.
Trump has asserted that China needs a trade agreement and must make concessions to maintain access to the U.S. market. However, this view is not shared by Chinese leaders, who perceive Trump as an unpredictable negotiator who often changes his mind and rarely adheres to agreements.
Considering these dynamics, any de-escalation of the trade war is likely to require a concession from Trump, rather than an initiative from Beijing.
To reach an agreement, Trump needs to define clear objectives and empower his team to negotiate accordingly. He must also acknowledge China’s desire for respect and ensure that any agreement can be presented as a mutually beneficial outcome.
During his initial term, Trump finalized a trade agreement with China. As part of this agreement, China pledged to increase its purchases of U.S. goods and services significantly above 2017 levels. However, China did not fulfill its purchasing commitments. Consequently, there is limited support within the U.S. for a renewed agreement based on similar purchasing pledges.
The challenge lies in identifying areas of shared interest between Washington and Beijing that could justify negotiations. One potential area is China’s commitment to transitioning its economy towards greater domestic consumption. Concrete steps in this direction could benefit both sides, fostering Chinese economic growth while reducing export reliance.
Trump might also consider negotiations related to Chinese investment in U.S. manufacturing, excluding sectors related to national security. Chinese investments could enable Trump to highlight progress in revitalizing American industry, while Xi could emphasize the expanded opportunities for Chinese companies to profit in the U.S. market.
Even these limited objectives may be difficult to achieve, given the heightened political tensions surrounding the trade war. The alternative is to allow the trade war to continue and await the upcoming diplomatic engagements.
Both Trump and Xi are expected to attend the APEC summit in South Korea in November. This event will be the first opportunity for them to meet and potentially guide future negotiations.
The possibility of discussions prior to November remains. Both sides still have a limited opportunity to mitigate the escalating costs of the trade war. However, China is unlikely to initiate such actions. Any move to resolve the conflict will likely need to come from Trump.
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