US and Chinese officials plunged into a new round of trade talks on Thursday with a burst of optimism that a trade ceasefire was within reach, in sharp contrast to the gloom that enveloped the run-up to the negotiations in recent days.
While there was still a chance that the negotiations could prove inconclusive or fall apart, people briefed on the talks said it was realistic to expect a limited agreement to stave off future tariff increases by the US in exchange for some concessions on the Chinese side.
The prospects of such a mini-deal were boosted on Thursday morning after Donald Trump, the US president, said he was ready to meet Liu He, China’s vice-premier, on Friday — an encounter which was unlikely to happen if the negotiations were expected to be fruitless. Mr Trump had previously said he was not interested in a small deal, but appears open to changing his mind.
So what might this agreement look like?
The US has now imposed tariffs on $360bn of Chinese goods — with about $250bn of those imports facing a duty of 25 per cent and the remaining $110bn facing a duty of 15 per cent.
The deal being discussed would at least stop an increase in the tariff rate on the $250bn of goods to 30 per cent, which was planned for October 15. A more ambitious deal might also prevent the imposition of 15 per cent tariffs on a further $156bn of Chinese goods set to hit on December 15. In that scenario, some are also hoping for a partial or full rollback in the 15 per cent tariffs on $110bn of goods that took effect September 1.
In exchange for easing tariff pressure, China would drop its own retaliatory tariffs, but also agree to boost its purchases of US agriculture and energy products. US farmers in particular have borne the brunt of the pain from the trade war with Beijing, and Mr Trump has been keen to given them some relief, especially since they are a core part of his political base.
Higher soyabean and pork exports to China are likely to feature prominently on the list of goods purchased by China in a smaller package. While these are not structural changes to the Chinese economy, they might help narrow the bilateral trade deficit, a top priority for Mr Trump.
During the talks over a bigger trade deal in April, the US and China had settled on a provision committing Beijing to refrain from any competitive devaluation of its currency. This has been put back on the table in the context of a smaller deal.
Mixing currencies and trade was previously taboo for US administrations, but Mr Trump has insisted on it in some deals, like the revised Nafta agreement with Canada and Mexico. The big question is whether such a measure would really have a binding, enforceable impact on China, which many currency analysts doubt.
At the root of the US-China trade war are American complaints that China steals its companies’ intellectual property and forces them to hand over their technology. This makes it impossible for Mr Trump to ignore the issue, even in a small deal. But China has resisted any big changes in this area for fear that it could imperil its economic development and capacity to innovate.
Myron Brilliant, the head of international affairs at the US Chamber of Commerce, who recently spoke to both delegations, suggested that while some “20th century” intellectual property issues might be addressed in the interim deal, the “21st century” ones would like not be included. Among them are matters related to cyber security, data flows and the ability of US cloud computing companies to access the Chinese market. Meanwhile, China has been unwilling to make any commitments that would crimp the industrial subsidies and state-owned enterprises that are core to its economic model.
The fate of Huawei — the Chinese telecommunications network that is dubbed by the US as a threat to national security — has been enmeshed in the trade talks since last year. After it was abruptly placed on an export blacklist by Mr Trump in May, Huawei — and its many US suppliers of chips and other products — have been hoping for a reprieve from that ban.
The US commerce department has issued a general waiver for companies to sell to Huawei, which lasts until November, but some companies are hoping to receive permanent licences, particularly for non-sensitive goods, as part of the interim pact.