US should scale back demands in new trade talks, analysts say

The United States has imposed some unacceptable demands on China, according to analysts, although the conciliation recently reached in Osaka conforms to market expectations.

And the US should scale back its conditions, as compromises from both sides are necessary during their renewed trade talks, they said. 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 comprehensive changes to its State-led economic model. This is clearly unacceptable to China, as it would be to any country," said Alan Wheatley, an associate fellow in the Global Economy and Finance Department at Chatham House, an international affairs think tank in London.

"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," Wheatley said.

He made the following forecast: "I expect Trump to call off the trade war for now or at some point later this year, or in the first half of 2020."

This is because of "the risk that a protracted standoff with China would cause serious harm to the US economy and to Wall Street as the 2020 presidential elections approach", he explained.

Siriwan Chutikamoltham, academic director of the Nanyang Business School at Nanyang Technological University in Singapore, said, "Some of the US demands on China extend far beyond trade such as more liberalization of the Chinese financial markets, reform of foreign investment rules and intellectual property rights protection." Fulfillment of US demands "will require major reforms in China that will take time beyond a reasonable time frame of the trade talks," Siriwan 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," she added.

The resumption of trade talks itself is a positive development.

Xi and Trump's agreement to restart trade negotiations "should create positive market sentiment because it shows there is still a willingness to talk even after the past few months of escalating trade tensions by both sides", Siriwan said.

Wheatley said that both leaders also had warm words for each other after the previous G20 Summit in Buenos Aires late last year before meeting in Osaka last month.

The agreement to restart 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.

Nawazish Mirza, an associate professor of finance at La Rochelle Business School in France, said 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. "These talks which are warranted by the economic realities, are signs of good faith between the two sides," Mirza said.

However, the resumption of talks may not signal an immediate end 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 the US trade deficit with China. There seems to be a struggle for global power and leadership."