Although the United States and China have announced that their leaders hope to sign a "Phase 1" agreement that would take first steps toward resolving their ongoing trade dispute, the two sides remain far apart in their expectations of what that agreement would accomplish.
That's not surprising, given that the U.S. and China have different objectives, according to Amy P. Celico, principal at the strategic advisory and commercial diplomacy firm Albright Stonebridge Group. Celico, a former U.S. diplomat in China and senior director for China affairs in the Office of the U.S. Trade Representative, discussed the two countries' approaches to negotiations at the Coalition of New England Companies for Trade's 18th Annual Northeast Cargo Symposium in Providence, R.I., earlier this month.
Celico explained that, in a nutshell, China wants the U.S. to cancel tariffs on such items as cell phones, laptops, and children's toys that are scheduled to go into effect on Dec. 15, and to roll back tariffs that went into effect earlier this year. The U.S. wants China to address trade barriers surrounding intellectual property, business subsidies, currency valuation, and other issues it considers to be unfair to U.S. business or in violation of World Trade Organization (WTO) rules. U.S. officials have said they have not made any commitments to cancel tariffs, despite China's assertion to the contrary.
Both President Trump and China's President Xi want an interim deal, Celico said, but even if they sign it, that agreement is not likely to "get at the heart of the issues" between the trading partners. Those will probably be dealt with in a "Phase 2" negotiation sometime in the future, she added.
The U.S. approach of imposing successive tranches of tariffs on Chinese goods has "brought China to the table to negotiate in a more meaningful way" than in the past, Celico said. But what she termed a "fundamental misalignment of reality" between Beijing and Washington could hold back progress on any deal, as each side thinks it has more power to make the other side change, she said. China does not want to bend to U.S. pressure to change its economic structure and is willing to wait out the dispute; Celico said she believes China thinks that if it just buys more U.S. agricultural products, then the U.S. will "cave." The U.S. perspective, meanwhile, is that China will have to give in to keep its economy growing, and that the strong U.S. economy will allow the United States to stand its ground, she said.
Although the trade dispute and the impact of tariffs on U.S. businesses are understandably the big story right now, more is at stake in a world where the U.S. and China have long been "the twin propellers of global growth," Celico cautioned. Xi believes China "should make the rules, and not take direction from others, and both countries are essentially rewriting global trade rules without involving other participants," she observed, saying that may not be a successful strategy. It will be hard for China to be as aggressive as Xi wants to be unless it makes more "friends" among other nations, and if the U.S. isn't "more active in restoring its alliances" it will find it difficult to compete globally with China, she said.