US-China trade war: is the time ripe for peace to break out? | Larry Elliott | Business

Everything is slotting neatly into place for peace to be declared in the trade war between the US and China. The 90-day truce brokered between Donald Trump and Xi Jinping at the G20 summit last month is holding and talks at official level in Beijing this week have gone well.

China’s eagerness for a deal was shown when Xi’s righthand man on economic issues, Liu He, turned up unexpectedly at the start of this week’s talks. Xi is sensitive to the damage Trump could cause to China’s slowing economy and wants a rapid agreement.

Even while running for president, Donald Trump waged a war of words against China, promising punitive import tariffs to “bring back” jobs to America.

The president believes slapping import tariffs on Chinese goods will raise their price versus American equivalents, giving US companies the edge when selling products to domestic consumers.

The hope is businesses will hire more workers, as domestic manufacturing becomes more competitive against foreign competition. The danger is import tariffs drive up the price of goods for consumers and trigger an economic slowdown.

US Census Bureau figures show that US imports from China exceeded exports going the other way by $376bn last year. Many economists would not worry about this risk of reliance on foreign imports, though Trump views the imbalance as payments made to Chinese manufacturers without adequate reciprocation, and has pledged to reduce the trade deficit.

Washington complains China uses “unfair” trading practices, including the theft of US firms’ intellectual property. Many other nations, including EU countries, make similar complaints, yet Trump appears to be going it alone without international cooperation.

Some observers argue the president is using the threat of tariffs to force China into negotiations, and that a deal can be done. Others warn Beijing will not back down.

The way that trade talks work is that the hard graft is done at official level so that 99% of a deal is concluded before political leaders become involved. Significantly, talks between Trump and China’s vice-president, Wang Qishan, are due to take place at the World Economic Forum (WEF) in Davos later this month – an ideal place to declare that the trade war is over.

In a sense, it is strange that Trump has agreed to be the headline act in Davos for a second straight year because his message to his political base is that he has no time for the “globalisers” who make the annual pilgrimage to the Swiss Alps.

However, Trump is a showman. He loved being the centre of attention in Davos last year and would like nothing better than to announce to all the free traders at the WEF that his hard-nosed protectionist approach had paid off.

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It will be as well to read the small print of any deal carefully because the Chinese are hardened trade negotiators and – despite blinking first – will not concede more than they think they have to. Beijing is assuming that Trump is desperate to show US voters that his “America First” approach has succeeded where the emollience of previous presidents did not.

The other thing to note about trade negotiations – at least in recent years – is that hopes of a breakthrough can quickly be dashed. Trump may decide, for example, that China is not actually going to increase significantly imports from the US and has no real intention of tackling intellectual property rights abuses.

Financial markets, though, are signalling a growing belief that Trump understands the risks of a drawn-out battle with China and would prefer to take what’s on offer, claim victory and move on. That looks a reasonable assumption.

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