US and China might attain a 'fragile settlement,' says Eurasia Group

The U.S. and China could reach a “fragile agreement” when their officials meet to discuss trade in Washington this week, according to an analyst from political risk consultancy Eurasia Group.

Such a deal could involve China purchasing more American farm goods and a delay in raising U.S. tariffs on Chinese goods that are slated for Oct. 15, said Michael Hirson, the consultancy’s practice head for China and Northeast Asia.

That strategy can be understood as a “path of least resistance” for U.S. President Donald Trump, Hirson told CNBC’s “Squawk Box Asia” on Thursday.

“I think there’s still some chance that the two sides could come through this week of talks with a very fragile agreement to avoid further escalation, but it’s going to be under pressure almost immediately,” said Hirson, who was the U.S. Treasury’s chief representative in Beijing.

“What (Trump) would be saying is … we’re supporting U.S. farmers, we’re continuing to talk. But I’m not being soft on China, I’m keeping tariffs up. That’s kind of the path of least resistance right now for President Trump,” Hirson said.

“(Trump) can show that he’s being tough, but he doesn’t have to take the sacrifices, make the concessions necessary to arrive at a broad trade deal,” he added.

Top negotiators from China and the United States at trade talks in Beijing on March 29, 2019.

Nicolas Asfouri | AFP | Getty Images

The two countries are due to meet in Washington on Thursday for two days of high-level trade negotiations. Analysts have low expectations for talks, especially after recent actions that the U.S. took against China this week.

On Monday, the U.S. blacklisted 28 Chinese entities, due to alleged human rights violations against Muslim minorities in China’s Xinjiang region. The list included some of China’s next-generation companies involved in artificial intelligence.

Some analysts have said the best outcome from the meeting would be a postponement of the next round of tariffs. Any possible trade deal, they added, would not resolve thornier issues such as China’s lack of intellectual property rights protection and alleged forced technology transfers from foreign firms to their Chinese partners.

Trump’s ‘political calculus’

China is a major export market for American farmers, who have seen their sales slashed by the trade war that sparked off more than a year ago. In 2018, sales of U.S. farm produce to China stood at $9.1 billion, down more than 50% from the $19.5 billion in 2017, Reuters reported citing the American Farm Bureau.

Farmers are also a large political support base for Trump. That’s why Hirson said he’s “narrowly optimistic” the tariffs set for Oct. 15 could be postponed, even if it’s just to keep China’s agricultural purchases and trade talks going.

“But I think President Trump could easily reverse course at any time,” he cautioned. “It is fundamentally a political calculus by President Trump rather than really a question of where the substance of a trade deal is right now.”

— CNBC’s Patti Domm contributed to this report.

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