China Has 90 Days To Make An Offer Trump Can't Refuse

Before the trade war between the US and China began in July 2018, tariffs imposed by Washington on Beijing and vice versa were relatively low. In January 2018, US tariffs on Chinese exports stood at 3.1% , while Chinese tariffs on US exports were at 8% .

While the current 10% Chinese tariffs on US goods aren't far from the pre-trade war level, the same cannot be said of US tariffs on Chinese goods, which stand at 30%.

For Beijing, a big win would be a return of the pre-trade war tariffs or the absence of tariffs entirely. But either outcome is highly unlikely.

A major obstacle is Trump's need for a political win. In early April this year, the US president has harshly criticized foreign nations for having “looted, pillaged, raped, and plundered” the US.

To address this problem, the US has imposed a minimum tariff of 10% on all nations sending exports to the US. And if Washington were to reduce tariffs on Chinese products to under 10%, then Trump would be expected to do the same with the rest of the world.

Even this 90-day deal with China could be seen as capitulation by Trump, who was already under pressure from the US stock market and business leaders to roll back the high tariffs on Chinese goods. But revising baseline tariffs downwards to below 10% for the rest of the world would be seen as an even greater cop out.

This could eat into Trump's political capital and harm the Republican Party's chances at midterm elections scheduled for 2026 . All of which seems unlikely.

What China hopes is that future US tariffs to get back to around 10%. This represents a massive improvement from the previous 145% imposed by the White House in April this year. But for Washington to save face and claim a believable victory of its own to reduce tariffs, Beijing needs to offer something in return.

One significant issue affecting US-Sino relations is the drug fentanyl. According to the US Drug Enforcement Agency (DEA) , fentanyl, which is responsible for tens of thousands of US deaths each year, comes primarily from China and Mexico.

Washington expects Beijing to do more to stem the flow of drugs and chemicals used to make drugs from flowing into the US. To push China to take action on this, the US imposed a 30% tariff on China instead of the baseline 10% it has put on all other nations.

Beijing sees things differently and claims that Washington is engaging in a “smear campaign” and aims to “shift blame” on China for not doing enough when the country has some of the strictest drug laws in the world.

Trump sees the fentanyl problem as a national security issue , and says China needs to provide sufficient concessions in stemming the outflow of the drug so that the White House can justify the lowering of tariffs below the existing 30%.

But China can do more to secure lower tariffs. As part of the present trade deal, China has agreed to lift its export ban on critical minerals to the US. This is crucial for the US as these items are essential in manufacturing advanced weaponry .

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If Beijing can guarantee the flow of critical minerals to the US and assure its support for US agriculture, an important political support base for Trump, then it is likely that a Trump administration would lower, and more importantly, maintain these tariffs in the foreseeable future.

China probably will want to hedge its bets. It needs to engage with the US and lower US tariffs as much as possible, but will want to look at other options, rather than relying on an unpredictable Trump.

It will look to increase its trade with other significant regional players such as the Association of Southeast Asian Nations (ASEAN), an economic bloc that promotes economic growth among its member nations.

Ultimately, China needs policy continuity from Washington. Without it, any plans that it has for reviving its sluggish economy won't work.

But like any good trader, Trump will likely find it difficult to pass up a good deal, especially when the US has to deal with its own economic problems . So if Beijing can find a way to make a deal that works and brings a symbolic win for both sides, it is likely to get Trump's attention.

Chee Meng Tan is assistant professor of business economics, University of Nottingham

This article is republished from The Conversation under a Creative Commons license. Read the original article .

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