Latest US-China talks: Credit for good behavior, not much more

Latest US-China talks: Credit for good behavior, not much more
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Most of the headlines coming out of this week's talks between U.S. and Chinese negotiators in Beijing were fairly positive. Lower-level negotiators from the two sides met, exchanged ideas and were able to sit across the table from each other for three days without storming out.

That was notably better than President TrumpDonald TrumpLil Wayne gets 11th hour Trump pardon Trump grants clemency to more than 100 people, including Bannon Trump expected to pardon Bannon: reports MORE’s recent record with Democratic congressional leaders.


Whether the news is good or bad depends on the standard one wants to apply. We are not paying the extensive 25-percent tariffs on all imports from China that President Trump had initially threatened for the new year.

But that has been the revised expectation since early December, when Presidents Trump and Xi met in Buenos Aires and set themselves an early-March deadline for resolving the key irritants in the economic relationship.

If we focus instead on the potential ultimate outcomes of the negotiating period, it is easier not to be swayed by the customary statements praising frank and informative discussions.

Consider four possible endgames of the 90-day exercise:

1. Negotiations conclude with all issues settled. Trade peace in our time.

This is the outcome market participants have been hoping for in which China trade troubles recede for good. But it is an exceedingly unlikely outcome of the talks. The Trump administration has repeatedly argued that it wants deep-seated structural reform in China.

It has said it is unwilling to accept simple promises but wants to see results. There is no chance that the administration’s concerns could be met by early March. The administration could certainly scale back its demands, but that would just leave lingering irritants, which brings us to the next option:

2. Limited deal reached, followed by with ongoing tension and backsliding.

This is the most optimistic plausible outcome. When observers talk about the mounting pressures on the Trump administration to strike a deal, they are probably imagining something like this.

It could involve limiting demands to practicable measures, such as promises to purchase soybeans, drop trade barriers and revise laws governing intellectual property theft.

The administration would likely demand continued monitoring and enforcement, but it is hard to see how that would be much different from the status quo in which there are regular reviews of China’s behavior.

Lest this be taken as a suitable approximation of lasting trade peace, it is worth noting that it would be the fifth trade agreement between the Trump administration and China in less than two years. Two of those agreements stuck but were rapidly followed by further complaints and disputes.

Two more — deals on steel capacity with Commerce Secretary Wilbur RossWilbur Louis RossOn The Money: Retail sales drop in latest sign of weakening economy | Fast-food workers strike for minimum wage | US officials raise concerns over Mexico's handling of energy permits US officials raise concerns over Mexico's handling of energy permits Census Bureau racing to complete noncitizen data, watchdog says MORE and on tariffs with Treasury Secretary Steve Mnuchin — were quickly discarded, which leads us to the next option:

3. Limited deal reached, but then rejected.

President Trump employed strident rhetoric about China and its impact on the United States in the 2016 campaign. He has escalated it since then. In the most recent National Security Strategy, China was identified as a strategic competitor.

Last October, Vice President Mike PenceMichael (Mike) Richard PenceHere's how presidents move into the White House in just hours on Inauguration Day New York court worker arrested, accused of threats related to inauguration Meghan McCain: Trump's legacy is DC looking like a 'war zone' MORE elaborated upon the range of threats posed by Chinese behavior. Combined with derision for the willingness of previous presidents to accept deals consisting of simple commercial offers and promises, President Trump raised expectations that his approach would be markedly different.

That could put him in a position similar to the one he found himself in before Christmas. In that instance, even though the White House had signaled a willingness to proceed without wall funding, the ensuing uproar among the president’s core supporters prompted him to reject a deal that his aides had said he would accept. The same pressures could emerge should the president be tempted to settle for a modest China deal.

4. Negotiations fail and protection proceeds.


As a final possibility, the broader talks could simply fail. They are being led by U.S. Trade Representative Robert LighthizerBob LighthizerWhiskey, workers and friends caught in the trade dispute crossfire GOP senator warns quick vote on new NAFTA would be 'huge mistake' Pelosi casts doubt on USMCA deal in 2019 MORE, who has been a prominent skeptic of China deals within the administration.

Outright failure seemed notably less likely once Lighthizer was put in charge of the talks, as he would have a vested interest in appearing to succeed, but he and the president could ultimately decide that Chinese offers are insufficient.

If this were to happen, it is very unlikely that failure would be announced before the March 2 deadline.

Which brings us back to this week’s round of negotiations. Going into the week, neither complete success nor utter failure seemed likely, and there was no way to tell whether a partial compromise deal would last a week or several months. Coming out of the week, prospects look no different.

Philip I. Levy is an adjunct professor of strategy at Northwestern University's Kellogg School of Management and a senior fellow on the global economy at The Chicago Council on Global Affairs.