The United States has imposed some simply unacceptable demands for China so far, according to analysts, but the conciliation reached in Osaka conforms to market expectations.
And the US should scale back its conditions as compromises from both sides are necessary for trade agreements.
President Xi Jinping and his US counterpart, Donald Trump, agreed to restart trade negotiations based on equality and mutual respect during their meeting in Osaka, Japan, on June 29.
“Trump is asking China to make root-and-branch changes to its state-led economic model. This is clearly unacceptable to China, as it would be to any country,” said Alan Wheatley, associate fellow on global economy and finance at Chatham House – a London-based international affairs think tank.
“So the key to watch is whether Trump scales back his demands and accepts less significant policy commitments by Beijing that allow him to declare victory,” he said.
Wheatley said he expected the US president to call off the trade war at some point later this year or in the first half of 2020.
This is because of “the risk that a protracted stand-off with China would cause serious harm to the US economy and to Wall Street as the 2020 presidential election approaches”, he explained.
Siriwan Chutikamoltham, academic director of the Nanyang Business School at Nanyang Technological University in Singapore, said, “Some of the US’s demands on China extended far beyond trade such as more liberalization of the Chinese financial markets, reform foreign investment rules, and intellectual property protection.” Fulfillment of US demands “will require major reforms in China that will take time, beyond a reasonable time frame of the trade talk,” she said.
“However, I think that eventually they could come up with compromises that could end the immediate tension. Leaders of both the US and China must know that the trade dispute has already hurt both sides.”
The resumption of trade talks itself is welcome.
The agreement of Trump and Xi to restart trade negotiations "should create a positive market sentiment because it shows there is still a willingness to talk even after a few past months of escalating trade tensions by both sides", said Siriwan.
The trade tension between the US and China has sent shock waves across global economies, raising likelihood of a worldwide recession. “This is why (Trump and Xi's decision) to resume (trade negotiations) will be positive for the global trade and markets, said Nawazish Mirza, associate professor of finance at the France-based La Rochelle Business School.
The de-escalation of the situation and improvement in US-Sino relations will support global supply chains, reduce costs for producers and expand the domestic job market for both economies. “This will contribute towards global economic recovery and it's the consumer who will be the ultimate beneficiary,” he said.
“I believe that both China and the US need to defuse the economic tensions (at a time) when overall global economic growth is already slow. Therefore, these talks which are warranted by the economic realities, are signs of good faith between the two sides.”
Wheatley noted both leaders also had warm words for each other after the previous G20 summit in Buenos Aires in December (2018)” before striking a conciliatory tone in Osaka.
“The agreement to restart the trade negotiations “was the outcome that markets had expected. It could have been worse, so there might be a short-term relief rally,” he said.
However, the talks may not signal an immediate to tensions.
Siriwan said, “I don't think that all the issues on the table will be resolved in one round, or even multiple rounds of talks.
“When you look into this trade dispute in-depth, it is more than trade or US’s trade deficit with China. There seems to be a struggle for global power, and leadership,” she said.
Wheatley echoed the views, “Washington and Beijing are likely to be locked in a battle for economic, technological and geopolitical supremacy for decades to come.”
“There was a Sword of Damocles hanging over the world economy even before the G20 Summit started and it hasn’t been removed. Everything depends on the course of the trade negotiations that are now set to resume.”
Yet China will continue its development with dedication, just as Xi pronounced at the G20 summit on June 28.
“Chinese President Xi Jinping is capitalizing on the G20 summit as a platform to advance the Chinese narrative where China is committed to launching more economic reforms,” said Aaron Jed Rabena, program convenor at the Manila-based think-tank Asia-Pacific Pathways to Progress.
“His speech also emphasized cooperation instead of protectionism.”
Iris Pang, economist for Greater China for ING, a Dutch investment bank, noted Xi said “China will continue to develop new technology, new sectors, and at the same time protect and encourage innovation”.
“Xi’s emphasis on technology, and (his call to) protect (technological innovation) reflects the fact that China has started to improve the intellectual protection environment, and will continue to open up more markets for foreigners,” Pang said.