to undergird U.S. business and consumer confidence for the Christmas season. I am one of the few commentators who have argued all year that, despite the political fireworks, Trump and Xi’s underlying interests make a deal more likely than not. But the recently announced impeachment proceedings against Trump could throw a wrench into this process. A weakened Trump may be emboldened to take a tougher line against China than U.S. economic interests demand. On balance, however, Trump still cannot afford the risk of a 2020 recession, meaning that a deal remains more probable than not. Nonetheless, a failure to manage the next two critical months could still cause the entire process to collapse. Both sides have already spent much time preparing a plan B for 2020: to let loose the dogs of economic war, foment nationalist sentiment, and blame the other side for the ensuing damage. Should that happen, the risk of recession in the U.S., Europe, and Australia next year will be high, though China would seek to soften the domestic blow through further fiscal and monetary stimulus. The choice now facing the U.S. and China is stark. For the rest of the world, the stakes
Third, while China will want to avoid banning state subsidies for Chinese industry and enterprises, it must retain the draft agreement’s existing provisions on the protection of intellectual property and the prohibition of forced technology transfers. Moreover, it may be possible to have each country declare its position on state industrial policy in the official communiqué accompanying the signing of the agreement. Such a statement could even specify the domestic and international arbitration mechanisms that will be used to enforce all relevant laws on competitive neutrality. Fourth, both sides must create a more positive political atmosphere. In recent weeks, there have been signs that this may happen, including reports of renewed Chinese purchases of American soybeans in September. Though purchases are still well below historical levels, this increase will help Trump to placate angry farmers in his base. The U.S., meanwhile, has already deferred a 5% tariff hike that was originally scheduled for October 1. It could also issue exemptions for some U.S. firms to sell non-sensitive inputs to Huawei. Fifth, both sides should regard the November 14-16 Asia-Pacific Economic Cooperation Summit in Santiago as the last chance for signing a deal. Following high-level negotiations between Chinese Vice Premier Liu He and U.S. Trade Representative Robert Lighthizer this month, outstanding problems should be agreed in Beijing in early November. Getting the deal done before Thanksgiving will be critical
could not be higher. © Project Syndicate
Kevin Rudd , a former prime minister of Australia, is President of the Asia Society Policy Institute in New York.
American Consequences
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