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Hopes riding high on US-China trade talks

Chinese delegation in Washington, D.C., today

Abaca Press/TNS

U.S. Trade Representative Robert Lighthizer, seen here with President Trump, wants specific and verifiable actions from China.
Abaca Press/TNS U.S. Trade Representative Robert Lighthizer, seen here with President Trump, wants specific and verifiable actions from China.

WASHINGTON — With a high-level Chinese delegation set to visit Washington, D.C., on today for trade talks, many on Wall Street and in America’s corporate board rooms are hoping it will mark a turning point in the trade war between President Donald Trump and China.

But there seems little chance of a quick resolution, or an immediate removal of the tariffs that have been hanging over the fragile global economy.

For one, the president in recent days has tempered his earlier optimism for a breakthrough. After previously sending tweets such as “talks with China are going very well” and “big progress being made,” Trump’s remarks of late have been more measured. And he’s spoken positively about the money coming in from the tariffs he imposed last year on Chinese goods.

He also has repeated his warning that those tariffs — 10 percent additional taxes on $200 billion of imported Chinese products, including clothing, fish and suitcases — will go up to 25 percent after March 1 if there’s no deal by then.

More significantly, Trump’s lowering of expectations for the upcoming two days of talks reflects the reality on the ground.

The kinds of structural changes that U.S. negotiators are demanding from China — halting intellectual property theft and forced technology transfer, for example — simply won’t happen overnight.

It will take months for Beijing to implement changes in its books and carry them out in the real economy.

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And until it sees real results, the Trump administration isn’t likely to lift tariffs that are in place or give up the option of raising them should China backslide on its commitments.

Robert Lighthizer, Trump’s top trade negotiator, is seeking specific and verifiable actions, given China’s vague and unfulfilled promises in the past.

Lighthizer is a longtime China skeptic, but some other administration officials who have Trump’s ear, notably trade adviser Peter Navarro, are outright China hawks and are pushing for a decoupling of America’s economy from China’s, convinced Beijing is a big military and economic threat to the United States.

Trump also faces political pressure from China hard-liners on both sides of the aisle in Congress.

“I increasingly worry that the range of (U.S.) demands are such that there will never be a deal,” said Nicholas Lardy, a China economy expert at the Peterson Institute for International Economics.

Chinese officials have signaled a willingness to make meaningful concessions, but probably will want some things in return, such as a U.S. pullback on tariffs.

And with a March 1 deadline still more than a month away, it’s unlikely that Liu He, Chinese President Xi Jinping’s right-hand man on the economy who is leading the Chinese delegation, will show all his cards right away.

As a result, Claire Reade, a former assistant U.S. trade representative responsible for China and senior counsel at Arnold and Porter, has modest expectations coming out of this week’s negotiations.

“The best realistic outcome is an announcement that they had very constructive talks, are working very hard, and with all the issues on the table, are exploring solutions to them,” she said.

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Liu went to the White House twice last year as Xi’s emissary — and was burned both times. On the day of his first visit, Trump announced steel tariffs, and on the second go-around, the president ended up nixing a deal that Liu had struck with Treasury Secretary Steven T. Mnuchin.

The Chinese vice premier will do everything he can to avoid political embarrassment a third time.

“The face-saving way out is to announce an extension of talks,” said David Loevinger, an analyst at TCW Emerging Markets Group in Los Angeles and former Treasury Department official on China.

Nonetheless, the renewed senior-level talks, which follow a 90-day cease-fire that Trump and Xi agreed to in Argentina on Dec. 1, have raised hopes among U.S. investors and business leaders that a deal will come together by March 1.

That’s a big part of why stock markets have bounced up from their steep declines in December.

To be sure, both sides have incentives to strike a deal. The global economy is weakening, thanks to a flagging European economy and a sharper-than-expected slowing in China, which is contending with a debt overhang and the trade war.

The U.S. economy and job market, while still solidly growing, also appears to be softening this year as the stimulus from the tax cuts wears off and financial conditions have tightened.

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