Xi-Trump G20 meeting in Japan boosts hopes of a trade war truce but raises anxiety over global economy

Zhou Xin

This is the final of four stories examining important issues ahead of the meeting between Chinese President Xi Jinping and US President Donald Trump at the G20 leaders summit on June 28-29 in Osaka, Japan. Read part one here, part two here, and part three here.

The most likely outcome from the meeting between Chinese President Xi Jinping and US counterpart Donald Trump at the G20 summit in Osaka, Japan, this weekend is another truce on new tariffs to buy time for Beijing and Washington to negotiate a final deal to end their trade war, analysts say.

That is because the obstacles to an immediate deal are too high, while an escalation is in neither side’s interest, the analysts said.

The US is willing to suspend the next round of tariffs on an additional US$300 billion of Chinese imports while Beijing and Washington prepare to resume trade negotiations, Bloomberg reported Wednesday, citing people familiar with the matter. The US will not accept any further conditions on tariffs as part of reopening negotiations and no detailed trade deal is expected from the leaders’ summit, a senior administration official said on Tuesday.

There is probably not the time necessary to reach a full agreement, but rather to talk about next steps and how, when, where and why to get back to the negotiation table

Craig Allen

Like the Xi-Trump summit in Buenos Aires in December, the meeting between the Chinese and US leaders and their top economic and security aides will take place on the sidelines of the G20 leaders’ meeting.

The high-stakes gathering, which is expected to take place on Saturday, is the real focus of global attention, as its outcome will have greater implications for global politics and the global economy than the multilateral conference itself, which often produces little action other than a joint statement.

That is exactly what happened in Argentina at the end of last year, when Xi and Trump agreed to a three-month tariff truce, during which time the US held off on its previous decision to raise tariffs from 10 per cent to 25 per cent on US$200 billion worth of Chinese products.

Progress in the ensuring trade talks resulted in an extension of the tariff truce until early May, when the talks broke down and the US followed through with the threatened tariff increase.

In a less likely scenario, Xi and Trump could agree on a deal to officially end the year-long trade war between the world’s two largest economies, with the US lifting some of the existing tariffs in exchange for China’s vow to accept Washington’s demands for a series of checks to ensure that the agreement is fully implemented.

However, it remains a long shot that the two sides can resolve all their remaining differences in the few days before the leaders meet, analysts said.

Craig Allen, president of the US-China Business Council, said both leaders want to end the trade war but it might be “overly optimistic” to expect a deal in Osaka.

“There is probably not the time necessary to reach a full agreement, but rather to talk about next steps and how, when, where and why to get back to the negotiation table,” Allen said.

“The other thing we are hopeful of is that there will be no new tariffs. The tariffs that already exist have done a lot of harm to many companies, workers and farmers.”

Chinese President Xi Jinping and US counterpart Donald Trump last met at the G20 summit in Argentina in December. Photo: AP

Arthur Kroeber, research head and co-founder of Gavekal Dragonomics, wrote in a note that “it will be very tricky to come up with a deal that satisfies the political requirements on both sides.”

Trump, a Republican, decided to break off negotiations in early May because a deal would be a “political liability” for him if right-wing hardliners and Democratic opponents saw its terms as inadequate.

In China, the terms negotiated by Vice-Premier Liu He, Xi’s top economic aide, were “politically unsaleable,” with powerful forces in Beijing suggesting US demands were excessive, Kroeber added.

At the same time, the fact that Xi and Trump have agreed to meet in Japan – after the war of words that followed the collapse of talks in early May – is a strong sign that both sides are trying to avoid further escalation of the conflict.

While Trump is not willing to agree a “weak” deal with Xi that would give his political foes an excuse to attack him, he does not intend to roil financial markets or dampen consumer and investor confidence ahead of his 2020 re-election campaign by falling out with China completely.

“He is under severe pressure from industry and from [the US] Congress to work things out and finally to remove the tariffs that have been imposed,” said Joel Trachtman, a professor of international law at Tufts University’s Fletcher School who specialises in globalisation and trade. “There’s real pain.”

China's Vice-Premier Liu He with US trade representative Robert Lighthizer and U S Treasury secretary during the last round of talks in Washington in May. Photo: Bloomberg

Over the past week, representatives from hundreds of US companies sat before an Office of the United States Trade Representative panel to request their products be exempt from potential new tariffs on US$300 billion of Chinese imports.

In total, the trade agency received almost 3,000 written submissions concerning the tariff proposal, mostly from consumer goods and electronics firms.

Such tariffs would hit low-income American families particularly hard, according to a study by the National Retailers Federation, which estimated an annual cost to American consumers of US$18 billion a year.

The potential cost of the US trade war with China comes into even starker relief given recent forecasts that, if the US implements more tariffs, there is a credible risk of recession in the US towards the end of 2020, just around the same time the 2020 US presidential election vote will take place.

Xi, meanwhile, is not going to sign a deal that could be viewed as unfair to China as he understands that a full-blown confrontation with the US could further hurt domestic growth, impede China’s development, and even bring with it risks to Chinese social and political stability.

“Cooperation is in the interests of both China and US, while confrontation hurts both,” Xi said, according to the state-owned Xinhua news service in a telephone conversation with Trump on June 11.

Vice-Minister of Commerce Wang Shouwen, a top deputy in China’s negotiation team, said on Monday that Beijing is ready to make a deal if the US shows respect and makes concessions, although he did not reveal China’s demands.

Vice-Minister of Commerce Wang Shouwen. Photo: Simon Song

“We should meet each other halfway, which means that both sides will need to compromise and make concessions, and not just one side,” Wang said.

Trade negotiators – led by US trade representative Robert Lighthizer and US Treasury Secretary Steven Mnuchin on the US side and Liu on the Chinese side – resumed discussions on Monday via telephone, Xinhua confirmed on Tuesday morning.

A Chinese government official, who declined to be named, summarised Beijing’s stance as “to talk is better than not to talk, and to have a deal is better than no deal”.

A separate source said Beijing’s pursuit of a less confrontational relationship with the US is one factor underlying the decision to take a step back on the passing of the controversial and high-profile extradition bill in Hong Kong.

Beijing is also seeking to add leverage from other fronts before the meeting after Xi made a state visit to North Korea last week, showing Beijing’s influence over Pyongyang and raising the prospects that he could help make progress on a deal to denuclearise the Korean peninsula, a key foreign policy goal for Trump.

In 2017, Trump also promised that if Xi helped him make progress with North Korea, China would get a better trade deal.

The two leaders are also expected to touch on other important bilateral topics, including Washington’s ban on US companies supplying Chinese telecommunications giant Huawei, growing US support for Taiwan and recent incidents in the South China Sea.

“I think we have a chance. I know that China wants to make a deal. They don’t like the tariffs,” Trump said after his phone call with Xi last week. “China would like to make the deal, we’d like to make the deal, but it has to be a good deal for everybody.”

A scaling back of tariffs as a gesture of good faith in exchange for commitments from China is one possibility, said a source close to the talks, who confirmed that the US government’s treatment of Huawei was also up for discussion.

“Whether or not all of the US national security apparatus is happy or not, the president has signalled that [Huawei is] on the table,” the source said.

“If the US starts to play with tariffs, that should, I would think, make it easier for President Xi to show a little more flexibility on the issues where he couldn’t show flexibility before.”

Trump may propose easing restrictions on Huawei in a way “where [he still] protects national security, but does not go all the way in terms of knocking them out as an economic competitor”, added the source, who also confirmed Trump has a track record of resisting calls from those around him for even tougher action against China.

“I’ve heard him say, ‘I just want fair competition.’ And a lot of the things that his advisers may push him to do, he ultimately pushes back on because he says, ‘Look, as long as we’re competing on a level playing field, let’s compete with each other.’”

Sign up to our China at a Glance newsletter and you'll receive an exclusive 3-day G20 news package in collaboration with POLITICO (coverage from 28-30 June)

More from South China Morning Post:

This article Xi-Trump G20 meeting in Japan boosts hopes of a trade war truce but raises anxiety over global economy first appeared on South China Morning Post

For the latest news from the South China Morning Post download our mobile app. Copyright 2019.