MNI INTERVIEW2:China Needs Caution Over Quick Trump Deal - Liu

China should be cautious of any “quick-win” U.S. trade deal or extension to the Aug 12 deadline for talks that largely maintains the current status quo, with the potential for tensions to resurface in March, once campaigning gets underway for next year’s U.S. midterm elections, a senior Chinese government economic advisor told MNI.

President Trump is likely to seek an agreement that maintains the roughly 50% tariffs on Chinese goods negotiated in London and Geneva, potentially alongside purchase commitments reminiscent of the 2019 deal between the two countries, as he seeks to stabilise the economy ahead of next year’s vote, said Liu Qiao, dean of the Guanghua School of Management at Peking University.

“The U.S. will avoid pushing too hard given China’s countermeasures have proven capable of harming U.S. assets, increasing inflation, lowering the dollar’s value and causing stock and bond market crises,” Liu said. 

However, any short-term deal, which could also include an extension of the Aug 12 deadline, may prove unstable, with Trump potentially reviving confrontational measures in March 2026, as the campaign season gains momentum and as previous agreements fall short of addressing deeper structural drivers, Liu said. (See MNI: China Advisors Hopeful Of US Trade Deal By Mid-August)

“Ultimately, Trump’s actions are motivated less by trade imbalances and more by broader objectives to expand the manufacturing sector’s share of GDP, enhance total factor productivity, and drive up economic growth needed to maintain the edge over China,” Liu argued. (See MNI INTERVIEW: Manufacturing Share Of GDP In China 5-Yr Plan)

China has been willing to cooperate with the U.S. by transferring production, however, high American labour costs outweigh better labour productivity, diminishing the interest of firms in doing so, he continued. 

Bloomberg reported last week that Trump now favoured purchase deals and quick wins with Beijing, rather than confrontation, citing unnamed sources.

U.S. TREASURIES

China could offer to increase purchases of U.S. Treasury bonds and offer assurances against divesting existing holdings, as part of a broader agreement with the United States, given no fundamental economic constraints, Liu said.

“However, Treasury purchases are just one piece of the jigsaw, the outcome will ultimately depend on the overall structure of the deal,” he added.