BOFIT Viikkokatsaus / BOFIT Weekly Review 2018/49

Presidents Donald Trump and Xi Jinping held high-level bilateral talks during the G20 summit in Buenos Aires last weekend. The US and China agreed to work together in resolving their current trade impasse over the next three months, during which time the United States promised to refrain from imposing further tariff hikes.

The US had earlier threatened to raise the 10 % tariff imposed in September on 200 billion dollars’ worth of Chinese imports to 25 % at the start of 2019 unless China committed to trade policy reforms demanded by the US. The US said that the tariff increases would go into effect in March if the two countries failed to reach an agreement within 90 days. China has consistently responded to US tariff hikes with retaliatory counter-tariffs.

The stated goals of the trade talks are quite ambitious. The US says the talks will address “structural changes” to such issues as forced technology transfers, protection of intellectual property, non-tariff barriers to trade, various cyber-threats, services and agriculture. China was vague on the goals of the bilateral talks and only confirmed that both countries were committed to easing access to their respective markets. Both countries confirmed a promise from China to increase its imports of energy, agricultural and industrial products from the US to reduce the trade imbalance.

The United States insists that China make real changes, not simply show good intentions. The appointment of China-critic Robert Lighthizer as US trade representative illustrates the US hard-line stance.

It will be difficult for the US to negotiate on “structural changes” as many go directly to the core of China’s economic and political system. Reaching a meaningful outcome is complicated by the intricate and sensitive matters involved, the brief period for negotiation and the fact that trade policy disputes are just part of the broader power struggle between the world’s leading economies. By stoking uncertainty in global markets, the ongoing US-China trade dispute has become quite toxic for global business communities.

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