With Deadline Looming, Can U.S.-China Trade Deal Get Done?


With Deadline Looming, Can U.S.-China Trade Deal Get Done?

Feb 12, 2019 3 min read
Riley Walters

Former Senior Policy Analyst, Economist

Riley Walters was a senior policy analyst and economist at The Heritage Foundation.
Trump was recently optimistic about a future meeting with Xi. He’s also been optimistic that a deal can get done.  AFP Contributor / Contributor/Getty Images

Are President Donald Trump and Chinese President Xi Jinping ever going to make a trade deal? Can they make a deal? 

According to the White House, the two sides are still far apart on outstanding issues, such as fair access to Chinese markets. Unless a deal, or even an extension, is made before March 2, the cost of trade between the U.S. and China will increase again. 

The Trump administration has already imposed new tariffs, or taxes, ranging from 10 percent to 25 percent on $250 billion worth of goods Americans buy from China. There are 5 percent to 25 percent tariffs on $110 billion worth of goods Chinese buy from Americans. 

This $360 billion worth of cross-border trade includes a wide variety of agricultural, industrial, energy, and commercial goods. 

Trump was recently optimistic about a future meeting with Xi. He’s also been optimistic that a deal can get done. 

Certainly, before March 2, the two sides could reach a deal—one that includes both nominal purchases of U.S. goods and structural reform in China. 

To think every outstanding issue the White House has with China has to be resolved before a deal can be made is unrealistic. It also takes away the importance of having a continued dialogue with Chinese officials. 

The U.S. needs to continue engagement with China on economic issues, given that it’s the country we trade the most with. Between 2017 and 2018, the U.S. and China traded $749 billion worth of goods and services. 

Moreover, as of 2017, U.S. companies have invested as much as $108 billion in China, making it the 15th-largest destination for U.S. overseas investment.

On Feb. 14 and 15, U.S. Trade Representative Robert Lighthizer, the lead for the U.S. negotiating team, will travel to Beijing with Treasury Secretary Steven Mnuchin to continue talks. 

Again, White House officials have signaled there’s been significant progress in the talks, but continue to suggest it might not be enough. 

Meanwhile, the politics behind getting a deal done has gotten interesting.  

The U.S. team wants to continue to show China and the world that pressure in the trade talks have worked toward bringing Beijing to the negotiating table. Also, the U.S. continues to show it maintains fair amounts of skepticism toward any potential deal. They do this to potentially maximize the results they can get out of Chinese negotiators. 

Trump emphasizes that these negotiations will lead to a “trade deal.”He and others in the White House do this to fit the narrative that the Trump administration is signing new trade deals. 

However, the U.S.-China talks aren’t technically a trade deal at all. It’s really just an executive agreement between the two sides, with the commitments to reform on the Chinese side.

Unlike a real trade agreement, it will require no change to U.S. law, and so no action by Congress. Neither will it be a treaty, so no Senate action is necessary.  

China’s leadership wants to distance any reforms it makes away from the trade talks. That includes reforms of China’s investment rules, intellectual-property laws, and tariff levels over the past year. 

The last thing the Chinese Communist Party wants is any indication that a foreign government (in this case, the U.S.) has had any effect in changing China’s domestic policy. 

Chinese state media have also been downplaying progress of the talks. Various outlets continue to paint a picture that China is a victim of unilateral U.S. action. 

Whether or not the U.S. and China can make a deal before March 2, rest assured that investors will be hanging on every word that comes out of the White House over the next three weeks. 

It will likely be a bumpy ride for the markets.

This piece originally appeared in The Daily Signal