Anticipation is building once again toward a U.S.-China trade agreement that would pause tariff escalation or even partially reverse it, and potentially include a range of commitments covering agricultural purchases, market access, currency, and intellectual property protections. Simultaneously, there are signs of emphasis from Beijing on reform policy, showing some willingness to engage on sensitive policy issues where reforms have been largely stalled for some time. Should reform fanfare amid ongoing trade negotiations be considered a harbinger of change or just more of the same?
We were early to observe that U.S.-China relations as we knew them were changing fundamentally. We did not think it did any good to pretend that we were just going through a rough patch: engagement had been justified and sustained by signs of China’s policy convergence with market economy norms. The critical mass of evidence that this was still the case had eroded, and without that divergence was inevitable.
Trade tensions are weighing on China’s economy, but headwinds are blowing more from the consequences of domestic policy imprudence in the name of growth, which now contribute to faltering performance and future challenges. The silver lining of near-term pessimism about the costs of U.S.-China tensions and a broader U.S.-China decoupling is that these conditions may hasten a change in course for Beijing, resulting in bolder reforms. Indeed, some U.S. policymakers are hoping for this narrative playing out.