China's reported offer to slash trade deficit with US is about politics: Economist

  • China's reported offer of a package aimed at cutting the U.S. trade deficit with China by up to $200 billion a year is not about economics but politics, an academic said Friday.
  • Beijing will make concessions during its trade talks with Washington, but they will not be significant ones.

Beijing's purported offer of a package aimed at cutting its trade deficit with the U.S. by up to $200 billion a year is all about politics, an academic said Friday.

"This is not about economics. It's about politics and geopolitics," said Pushan Dutt, a professor of economics and political science at graduate business school, Insead.

China is reportedly offering U.S. President Donald Trump the package of trade concessions and increased purchases of American goods that will cut bilateral trade deficit by up to $200 billion a year, U.S. officials familiar with the proposal told Reuters.

A person familiar with the talks told Reuters the package may include some elimination of Chinese tariffs already in place on about $4 billion worth of U.S. farm products including fruit, nuts, pork, wine and sorghum.

"It's the optics which matter, it's catering to the base which matters. The Chinese realize this very well and that is actually a positive thing," said Dutt, referring to the purported elimination of tariffs for the agricultural sector — a key political base of Trump's.

News of the offer came during the first of two days of U.S.-China trade talks in Washington focused on resolving tariff threats between the world's two largest economies, Reuters reported.

Dutt said while Beijing will make some concessions, they will not be significant ones.

"The best case scenario and also the most realistic scenario is that China gives some marginal concessions which helps address the bilateral trade imbalance between the U.S. and China," Dutt told CNBC.

"This allows Donald Trump to actually proclaim victory, cast himself as a very good negotiator and sort of move on," Dutt added.

China's goods deficit with the U.S. stood at $375 billion last year. The U.S.' two biggest exports to China were aircraft at $16 billion last year, and soybeans, at $12 billion.

— Reuters contributed to this story.