Having recently returned from China’s capital, Beijing, prominent governmental officials and industry leaders persistently hinted at the escalating friction with America, which is perceived as a concern. Yet, there is a prevalent sense of optimism that a resolution is feasible. Undoubtedly, if negotiations reached an impasse, we could witness a resurgence of an all-out trade feud. Such a scenario would not yield a winner, particularly not China, hence the pressing need to navigate a better course.
For the past three decades, my involvement in trade discussions with Chinese representatives has been nothing short of enlightening, and the current context feels notably unique. The Chinese economy currently reveals signs of frailty, arguably the most significant in the past 20 years, imbued with high youth unemployment rates, a lagging property market, and a mounting frustration within the middle class.
Few in China would publicly admit the increasing political risks faced by Xi Jinping, but all eyes are keenly monitoring his management of these pressures. Concurrently, in response to U.S. strain, China has shown a proactivity in bolstering trade relationships with Russia as well as nations within the Global South.
With a tide of Chinese products flooding their local markets, some African and Latin American leaders are voicing resistance against China’s efforts. While diversifying towards other export markets might eventually benefit China, in the short run, it is indisputable that the U.S. is irreplaceable.
President Donald Trump’s advantage in negotiations is strong, yet he too has valid reasons to prevent a disruption in U.S.-China ties. His strategic focus on economic growth could face potential pitfalls if tariffs breed inflation, thereby diminishing the demand for U.S. exports. Over the past few weeks, President Trump has escalated tariffs on Chinese goods with Beijing reciprocating through responsive maneuvers.
As trade conflicts also arise with other nations such as Canada and Mexico, a prolonged and bitter struggle with China could cause additional stress to global supply chains. The repercussions wouldn’t be localized to just the U.S. and China, they would reverberate across multiple markets in Europe, Asia, and around the globe that are fundamentally a part of the trade network with both these economic powerhouses.
The world’s two biggest economies have a vested interest in keeping this situation from spiraling out of control. Fortunately, there is a ray of hope as both leaders are keeping their communications channels open even amid the chaotic trade-war crossfire.
Recent annual meetings of China’s legislative and leading governmental advisory body endorsed stronger, yet moderate measures to revitalize the lukewarm Chinese economy by elevating consumer spending and instilling confidence in the private sector. Stabilized relations with the U.S. would grant China the breathing room to concentrate on domestic restructuring.
If Xi Jinping sincerely intends to negotiate, an opportunity opens up for President Trump to seize the moment. There is a practical way forward provided both parties display pragmatism. Trade barriers and technology controls sit atop the priority list for both nations. To enhance the probability of a successful negotiation, both sides might benefit from setting a defined timeframe, say six months, to prevent the process from stagnating.
Beijing’s historical tendency has been to prolong negotiations or withdraw from them when they feel cornered, hence a strict deadline would retain pressure and help ensure both parties act in good faith. If negotiations hit a roadblock, tariff hikes should be a viable consideration.
One agenda that necessitates urgent discussion is fentanyl. The U.S Justice Department deduced that Chinese enterprises became a source for Mexican cartels to obtain chemicals essential for the creation of lethal opioids; additionally, Chinese networks might have handled the laundering of drug profits. President Trump sets firm expectations that any substantive discourse with China must include stringent enforcement on fentanyl trafficking. Trump’s amicable relationship with Xi is a bonus in eliciting China’s cooperation.
While a trade war would not suffice to address the issue effectively, a sturdily pragmatic and outcome-focused agreement may. Given the bipartisan pressure related to fentanyl in Washington, addressing this concern prior to the initiation of formal trade talks appears to be a shrewd strategy tactically.
Subsequently, trade obligations deserve prioritization. China had pledged, during President Trump’s first term, to acquire U.S. aircraft, agricultural goods, and energy. However, their efforts have been less than satisfactory. If China expects the U.S. to soften its stance on tariffs, a demonstration of good faith by honoring prior commitments becomes imperative. Negotiations that can’t be enforced are without value. A pause in the escalation of tariffs during negotiations, serving as a gesture of goodwill, should be strongly considered.