Major US-China trade deal remains uncertain as talks resume

Prospects of a sweeping trade deal between the United States and China appear to be dimming as negotiators prepare to resume two days of talks on Thursday.

American negotiators led by Ambassador Robert Lighthizer, the US trade representative, and Treasury Secretary Steven Mnuchin are entering this week’s trade talks with low expectations for major progress on reaching a comprehensive deal months after negotiations broke down in May, according to two officials familiar with the situation.

Pessimism inside the administration is largely based on signals from Beijing that it’s unlikely to make major concessions during the 13th round of talks, raising speculation that both sides may try to reach for a “mini deal” that could include additional purchases of American farm products in exchange for wiping off the books additional tariffs set to kick in starting next week.

The most likely potential outcome is de-escalation, a person familiar with the negotiations said. China, hoping to thaw a frost over the talks, is describing its objective as an “early harvest,” or limited agreement, during continuing negotiations, the source said.

People familiar with the talks said potential de-escalation may include a meaningful commitment from the Chinese to purchase US goods. In exchange, the US might delay an increase in tariffs and ease restrictions on Huawei’s US suppliers after blacklisting the telecom giant earlier this year.

President Donald Trump, now embroiled in a worsening impeachment battle with House Democrats, agreed in September to postpone ratcheting tariffs on $250 billion in Chinese goods from 25% to 30% until October 15 after Beijing, in a sign of goodwill, waived tariffs on some US goods. He also delayed a tranche of tariffs until mid-December to avoid hurting consumers during the holiday shopping season.

He left a question mark hanging over the talks with a tweet on Thursday morning: “Big day of negotiations with China. They want to make a deal, but do I? I meet with the Vice Premier tomorrow at The White House.”

Yet the news of a potential partial deal, initially reported by Bloomberg, appeared to bolster investors’ confidence on Wall Street, and Trump’s positive sign on meeting Chinese Vice Premier Liu He sent stocks climbing again.

“There’s going to be every effort to come to some accommodation on both sides that allows the administration to declare some victory and remove the short-term threat on tariffs,” said a person familiar with the trade negotiations. “But I do think the President ultimately makes that call.”

Analysts warned predicting the outcome of this week’s talks was far from easy.

“Not even the negotiators themselves can yet be confident of the final result,” said Mark Haefele, global chief investment officer for UBS Wealth Management, who outlined five possible scenarios in a note to clients on Tuesday.

Tensions between the US and China heightened this week as the Trump administration blacklisted more than two dozen Chinese firms and put visa restrictions on Chinese officials. A fight over free speech between China and the National Basketball Association has also widened the gap between the two countries.

Two US officials also acknowledged that Trump’s suggestion that China investigate former Vice President Joe Biden hasn’t been necessarily helpful to the relationship between the two countries, though it’s not expected to arise in the trade talks.

Earlier this week, some aides were even speculating whether the Chinese delegation led by Liu would complete the planned round of talks and wondering whether negotiations could be cut short.

“I don’t know if the Chinese are coming in a mood to really have prolonged talks this week,” said the person familiar with the negotiations. “The Chinese are watching our political environment and deciding how much they really want to engage.”

Since the collapse of talks earlier this year, Beijing has shown few signs it is willing to make any of the concessions that Trump and his aides are looking for as they negotiate a trade deal, according to US officials.

The two sides each offered an olive branch over the summer in an effort to ease tensions and resume talks starting with deputy-level negotiations in September. But the Chinese government has yet to show a willingness to make concessions on core issues to US officials.

Instead, the Chinese government has held firm that a negotiated trade package would include only purchases of agricultural products, some commitments to protection of intellectual property, and market access when it comes to financial services and reducing tariffs on US automakers.

They have yet to address issues that have been central to a more sweeping package of reforms on subsidies and their state-economy model, which the Trump administration has been seeking for more than a year during often-tumultuous negotiations.

“They’re ducking those issues, and they have been for some time since the breakdown in late April, early May, and we haven’t seen them rejoin those issues,” said the person. “And I don’t think the current environment is encouraging that.”

Trump’s trade war has cost US importers $34 billion since February 2018, according to data analyzed by Tariffs Hurt the Heartland, a coalition of business and trade groups that oppose the tariffs.

In August alone, Americans paid $6.5 billion in tariffs, a 48% increase from the same month last year. In August, JP Morgan projected that tariffs would cost each American household a $1,000 more each year.

The President has imposed tariffs on a variety of Chinese goods, as well as steel and aluminum, washing machines and solar panels from a number of countries. The data does not include tariffs on $112 million worth of goods that went into effect September 1.

American farmers, who have taken the brunt of the hit from the trade war, have been helped by two rounds of bailouts from the Trump administration, totaling $28 billion.