Why Trump and China Are Unlikely to Reach a Trade Deal at the G20 Summit
President Donald Trump plans to meet with Chinese President Xi Jinping at the G20 summit later this week, where the two will continue discussions on a comprehensive deal to end the trade war that has been escalating for more than a year.
Talks broke down last May after two days of what Trump called “candid and constructive conversations.” While the U.S. is demanding protections for intellectual property rights and a more open economy, China has dug in its heels over the need for tariff removal and a balanced deal.
Although the collapse led the U.S. to increase tariffs from 10% to 25% on an estimated $200 billion in goods, Trump continued to tout a strong relationship with Xi. China responded with a tariff increase on $60 billion of U.S. goods. The U.S. also placed Chinese telecommunications company Huawei on a blacklist over security concerns, prompting China to compile its own “Unreliable Entities List.”
The economic volley over these points and more seems to have no end in sight: while Trump and Xi may make progress at the G20 summit, it’s unlikely the nations will come up with a completed deal.
“At the summit itself there might be some positive movement, but I think it’s still going to be months before we get a truly detailed final agreement,” Professor David Denoon, director of New York University’s Center on U.S.-China Relations, told Fortune. “But I think we will get an agreement, because the we have much more leverage over China than they have over us.”
The U.S. imports more from China than China does from the U.S., giving it more product to potentially tax. Trump, for example, threatened tariffs on about $300 billion in Chinese goods to get Xi to the table at G20. If implemented, the tariffs would cover nearly all remaining Chinese imports to the U.S.
More than 600 companies wrote to Trump shortly after this announcement, expressing concern over the economic impact of such tactics.
“We know firsthand that the additional tariffs will have a significant, negative and long-term impact on American businesses, farmers, families and the U.S. economy,” wrote the companies’ leadership. “Broadly applied tariffs are not an effective tool to change China’s unfair trade practices. Tariffs are taxes paid directly by U.S. companies, including those listed below—not China.”
Consumer-based companies have seen little impact from the trade war, however, and experts say the U.S. economy isn’t taking much of a hit.
“The trade war, to date, has had a limited impact inside the U.S.,” said Denoon. “There’s a trade off between the national interest—which is clearly to get some kind of more balanced deal—and the interest of particular companies.”
Being more trade dependent, the Chinese economy has slowed more than the U.S. due to the trade war, but expansion has not halted. According to a recent report on G20 economies from the World Trade Organization, China has maintained “steady if somewhat sluggish growth” despite the introduction of new import-restrictive measures numbering more than three-and-a-half times the average.
“Overall, the major impact of the tariffs has been to change the policy debate on trade with centrally-directed economies,” said Denoon. “In the U.S., both Democrats and Republicans now realize that China policy has to change.”
How to go about changing this policy, however, continues to be a matter of debate. David Dollar, a senior fellow in the John L. Thornton China Center at the Brookings Institution, argued recently that the U.S. should have approached China’s need for policy change by partnering with others like the European Union and Japan. Instead, Trump chose to launch a “bilateral trade war with China.”
“None of our partners agrees with this tactic,” wrote Dollar. “While U.S.-China trade declines, their trade with China is increasing.”
Moreover, a deal is unlikely to be signed if Trump continues to make widespread demands, said Dollar.
“If President Trump wants to make a lasting deal with China then he will need to back away from maximalist demands such as changing a large number of Chinese laws and altering their whole economic system,” Dollar told Fortune.
Indeed, any “significant opening of the Chinese economy” is likely to be unpopular within the country, as it would lead to increased imports and possibly loss of employment, said Denoon. Changing the subsidies for state-owned enterprises in China and removing blocked access to outside companies is going to be difficult, too.
“It’s not just an economic issue, it’s a political issue,” said Denoon. “The people working in the state enterprises all have political connections.”
However Trump and Xi reach a deal, experts agree the world economy has months until the trade war makes a significantly lasting impact. The WTO stated in its report that while tariff increases have “roiled financial markets,” they have not yet led to “significant trade and GDP impacts.”
Still, the WTO warned that a recent study found a global trade war beginning this year could, within three years, reduce global GDP by 1.96% and global trade by 17%. In comparison, global GDP fell about 2.1% and global trade fell 12.4% during the global financial crisis of 2009.
Despite the potentially disastrous effects of a trade war with no end, Trump has been applauded for tackling the issues of Chinese trade, including its closed economy and regular intellectual property theft.
“Prior administrations—from the Clinton administration to George W. Bush to Obama—were simply not willing to pay any price. The Trump administration is willing to pay a price,” said Denoon. “The question is, can they skillfully negotiate out of this?”
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