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More stock market carnage could force Trump to make a China trade deal, expert says

Key Points
  • President Donald Trump will be pushed to make a trade deal with China should markets continue to slide, said Pushan Dutt, an economics and political science professor at INSEAD business school.
  • The U.S. and China will hold vice ministerial level trade talks in Beijing on Jan 7-8, according to the Chinese commerce ministry.
  • Dutt acknowledged that the issues at hand are "very complex and difficult," and both parties will unlikely come to a comprehensive deal at the end of a 90-day trade truce — but there will likely be some sort of a smaller agreement, he said.
VIDEO2:3402:34
China could give some 'minor concessions' in trade talks: Prof

The U.S. and China are unlikely to reach a full deal at the end of their 90-day ceasefire on tit-for-tat tariffs, but a sustained decline in markets will push President Donald Trump to close a deal, an expert told CNBC on Monday.

Washington and Beijing are meeting for trade negotiations at the vice ministerial level in the Chinese capital on Monday and Tuesday — and markets have been keeping a close watch on those developments amid growing concerns about China's slowing economy and its impact on U.S. businesses.

"Trump ties his political fortunes to the Dow Jones Index and the best hope for the talks (is) that the Dow continues to slide and this actually create(s) incentives for him, because this provides political incentives, " said Pushan Dutt, an economics and political science professor at INSEAD business school.

The Dow is up 0.45 percent since the start of the trading year after rallying on Friday, after falling 8.2 percent since the start of December.

The Chinese commerce ministry announced on Friday that a working team led by Deputy U.S. Trade Representative Jeffrey Gerrish will be in Beijing to conduct "positive and constructive discussions" with their Chinese counterparts. Global markets rallied after that news, in part due to hopes for progress in the ongoing trade dispute.

They are negotiating over very complex and difficult issues.
Pushan Dutt
professor at INSEAD business school

However, Dutt said the U.S. and China are unlikely to come to a comprehensive deal at the end of the 90-day truce, though there will likely be some sort of a smaller agreement.

"They are negotiating over very complex and difficult issues — so this is not just about 'I'll buy some more soybeans and natural gas' and 'you provide market access and cars,'" said Dutt.

The two countries slapped a series of punitive tariffs on each other's goods last year, sparking concerns over a global economic slowdown. The U.S. has already put tariffs on $250 billion worth of Chinese goods — and has threatened additional duties on double that value of products. Beijing has responded with tariffs on $110 billion in U.S. goods targeting politically important industries such as agriculture.

After a December meeting between Trump and Chinese President Xi Jinping, the leaders of the world's two largest economies agreed to a temporary truce while they sought an agreement within three months, ahead of a March deadline. Trump said he would not carry out a planned increase in the tariff rate on $200 billion in goods to 25 percent from 10 percent that was initially due to take effect on Jan. 1.

Washington has previously accused China of forcing technology transfers, and tacitly supporting intellectual property violations and cyber-crime, but those issues were downplayed in official descriptions of the December agreement between Trump and Xi.

Many of the ongoing issues Washington has had with Beijing have been going on for many years, Dutt said, adding that a lot of them are key to China's national economic development strategy.

The most likely outcome is that "China gives some minor concessions as it has done in the past, either on the technology transfer or the intellectual property, or also market access for goods and energy," he said. "That allows the Trump administration to declare victory and move on."

— Reuters and CNBC's John W. Schoen and Jacob Pramuk contributed to this report.

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