Trump's trade talks with China could decide the fate of the trade war and the US economy's future

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President Donald Trump is expected to meet with Chinese officials on Wednesday to try and secure a deal to end the US-China trade war.

• US and Chinese officials are meeting in Washington, DC, on Wednesday to continue trade talks with the goal of ending the trade war.
• The two sides have until March 1 to reach a trade deal - or the US is scheduled to increase tariffs on $200 billion worth of Chinese goods.
• The two sides both have a lot of pressure to reach an agreement, but remain far apart on some major issues.
• Complicating the talks is the US's extradition request of Huawei CFO Meng Wanzhou.

As the deadline to reach a deal rapidly approaches, officials from the Trump administration and Chinese government are set to meet in Washington on Wednesday to try and end the US-China trade war.

The Trump team, led by US Trade Representative Robert Lighthizer, will sit down with a Chinese delegation led by Vice Premier Liu He, the country's top economic official.

The two sides are facing down a March 1 deadline to find an agreement that would put a permanent pause on the escalation of a trade war that has seen tariffs slapped on $360 billion worth of goods going between the two nations.

But with a large agenda of economic issues to discuss and a growing number of non-economic complications, the US and Chinese teams will have to thread a small needle to get a deal done.

Pressure on both sides to make a deal

Thomson Reuters

US Trade Representative Robert Lighthizer (pictured) is meeting with China's top economic official Liu He on Wednesday.

The talks between Lighthizer and Liu are the second high-level meeting between the two countries since President Donald Trump and Chinese President Xi Jinping hashed out a temporary truce at the G20 summit in December.

As part of the agreement, both sides agreed to not escalate the trade fight for 90 days, setting up the March 1 deadline. After that date the US is scheduled to increase its 10% tariffs on $200 billion worth of Chinese goods to 25%, and Trump has threatened to hit the remaining $255 billion of Chinese imports with tariffs, too.

Such an increase would likely cause major ripple effects in the US economy. Close to half of economists The Wall Street Journal surveyed in December cited the ongoing trade war as the biggest threat to the US economy.

Read more: A simple chart shows the winners and losers from Trump's trade war with China

With the prospect of a major escalation just 30 days away, both the US and China have a lot of reasons to get a deal done.

For Beijing, the trade war is weighing on an already slowing economy. Internal factors such as high indebtedness are putting major strains on the Chinese economy, and the tariffs are not helping the situation.

The Trump administration is also facing economic concerns, and distaste for the trade war among key political groups puts the president in a tough spot.

"Republicans in Congress aren't going to find additional tariffs really a winner back home, and they are already facing concern in large parts of the country over the impact of the partial government shutdown," Mary Lovely, an economics professor at Syracuse University, told the Wall Street Journal on Wednesday. "More tariffs and failure to get a deal will ultimately seem to people like further failure of the government."

A long way to go

Reuters

Trump with Treasury Secretary Steve Mnuchin and Boeing Chairman and CEO Dennis Muilenburg. Dennis can't be too happy about higher steel prices of trade war in general. Sorry, Dennis.

But despite the pressure on the two countries to get a deal done, major differences still remain.

On one side, the US is likely to insist that China make significant changes to the way the country does business, like eliminating subsidies for favored companies and cracking down on the theft of US intellectual property.

On the other side, the team from Beijing is expected to offer merely superficial changes to its economic system, but commit to purchasing large amounts of US goods to help lower the US-China trade imbalance.

There are some encouraging signs that the Chinese government is already taking some of the reforms that the US requested seriously. On Wednesday, Beijing moved up the timetable for a new law that would strengthen intellectual property protections and, in theory, increase market access for non-Chinese companies.

While the move is part of a broader internal reform plan, whether China is truly committed to its promises is a key sticking point in the trade negotiations.

Also adding to the difficulties is the lack of cohesion on the Trump team. Lighthizer has generally been more hawkish toward China, while pro-free trade members of the administration - most notably Treasury Secretary Steven Mnuchin - have advocated for a short-term deal to lift the tariffs.

These opposing ideas have previously complicated talks, and Susan Aaronson, a senior fellow at Centre for International Governance Innovation (CIGI), warned they could do so again.

"The Trump Administration still lacks any clear objectives, strategy or metrics for success in its trade talks with China," Aaronson said in a statement. "Without such a plan, they are sending confusing messages to Chinese bureaucrats and mocking what trade is about: mutual benefit."

The Huawei problem

Darryl Dyck/The Canadian Press via AP

Huawei chief financial officer Meng Wanzhou arrives at a parole office with a security guard in Vancouver, British Columbia.

Complicating matters further is the ongoing argument over the US's charges against Chinese tech giant Huawei.

On Tuesday, the US officially submitted an extradition request for Huawei CFO Meng Wanzhou around two months after the executive was arrested in Canada for alleged violations of American sanctions on Iran and fraud. The request came the day after the US also charged Huawei with the theft of trade secrets.

Beijing immediately condemned the move.

"We call on the US side to immediately withdraw the arrest warrant for Meng Wanzhou as well as the official extradition request," China's Foreign Ministry spokesman Geng Shuang told reporters Tuesday.

While both sides have insisted that Meng's arrest does not have to do with the trade talks, the move appears to be part of a broader strategy by the Trump administration to combat China's growing influence in everything from economics to technology to international security.

Trump linked the two issues in December, suggesting that he could "intervene" in Meng's case if doing so would help seal a trade deal.

Trump is expected to attend a dinner with Liu Wednesday night.