Although investors have become increasingly optimistic about the US-China trade negotiations, there are many “structural issues” concerning the Chinese economic model still to be solved.
Recent reports suggest that China has made a dramatic proposal to address the central issue of imbalanced trade. This would eliminate entirely its bilateral trade surplus with America within six years. Since this surplus reached $380bn in 2018 on trade in goods and services, and may exceed $500bn by 2024, this idea could have a large effect on global trade flows and world gross domestic product.
Noah Smith dismisses this new Chinese suggestion as a massive red herring because its implementation would clash with other objectives of President Xi Jinping’s administration. But it is clearly at the centre of the latest talks so it deserves analysis.