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What is at stake as US begins crucial round of trade talks with China

Despite repeated warnings that it would walk away, President Donald Trump's administration appears to be committed to trade talks with China until a deal is done.

Almost five months after they began the negotiations, U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin are meeting in Beijing with top Chinese negotiators, including Liu He, the country's vice premier, for talks that are slated to end in a deal in Washington in two weeks.

Mnuchin told The New York Times at the Milken Institute Global Conference on April 28 that the two countries are "getting into the final laps," but that there are still a number of outstanding issues, not least of which is enforcement, with the U.S. pushing for a unilateral mechanism to reimpose tariffs, while China is seeking a third-party system. Also in play are intellectual property, forced technology transfer, non-tariff barriers, agriculture and services.

Trump has threatened to add to the tariffs already in place on $250 billion of Chinese goods if a deal is not struck, with levies on a further $267 billion of Chinese imports in his sights that would target nearly all remaining consumer goods from China.

However, that would likely spur further retaliatory tariffs from China, adding to the $110 billion in place on U.S. exports, with the risk that it could alienate parts of his base.

Those voters include farmers, who have already been targeted by retaliatory tariffs on billions of dollars of U.S. agricultural exports including soybeans. And reaching a deal to end this financial burden becomes even more critical with the 2020 presidential election on the horizon, according to one Washington trade lawyer.

"Throwing tariffs out has costs," said Warren Maruyama, a partner at Hogan Lovells and former general counsel for the U.S. trade representative under the George W. Bush administration. "Ag has gotten hammered, and everyone knows that is a politically sensitive part of Trump's base."

Declining trade

Also at stake, according to Panjiva, a division of S&P Global Inc., is a worsening U.S. trade balance with China. U.S. exports to China of products targeted by Chinese retaliatory tariffs fell 21.9% year over year in February, or by $1.69 billion.

Preliminary data from the Chinese government shows that Chinese exports to the U.S. in March rose by $1.14 billion, while U.S. exports to China fell by $3.94 billion over that span, a $5.1 billion widening of the trade gap between the two countries.

Jonathan Gold, vice president of supply chain and customs policy for the National Retail Federation, said in an interview that the trade group, which represents companies that rely heavily on goods from China, hopes for a deal as soon as possible that would remove all existing tariffs.

"We also hope the administration will avoid any enforcement mechanism that would unilaterally trigger future tariffs," Gold said, something he said would create "perpetual uncertainty" for U.S. companies.

Enforcement

Michael Smart, managing director at Rock Creek Global Advisors, said he believes an agreement can be reached by early May but is concerned that it may not adequately address forced technology transfer by China, which sparked the trade war originally.

"The U.S. wants the right to judge China's compliance in an agreement," Smart said. "By not using a third-party settlement [tool], I'm worried the commitments in the agreement will look strong but will not achieve structural reform."

The Office of the U.S. Trade Representative and the Treasury Department did not return requests for comment. However, the trade office reiterated in its annual Section 301 report on intellectual property protection on April 29 that China remains a top culprit of not providing IP protection and enforcement for U.S. companies.

Mnuchin told Fox Business on April 29 that the enforcement mechanisms are "close to done." But he added: "There are still some important issues. We still have more work to do."