China and the United States are trying to resolve "very difficult issues" with their current trade negotiations but any deal could be extremely positive for the economic outlook, Charles Evans, president and chief executive officer of the Federal Reserve Bank of Chicago, told CNBC Monday.
Washington and Beijing have been locked in a trade conflict for nearly two years with tariffs being placed on billions of dollars' worth of each other's goods. The U.S. wants China to change its policies on intellectual property, industrial subsidies, market access and forced technology transfers. However, China has denied that is trade practices are unfair and has retaliated with its own levies on U.S. goods.
Evans told CNBC's Annette Weisbach in Frankfurt that the U.S. administration is looking to make big adjustments in trade and intellectual property rights for people doing business in China.
"Those are very difficult issues. If they make progress on that then that would be extremely positive, but they are using brinkmanship style and so it has been unnerving," he said.
"I think corporations have to be a little nervous about where they have got supply chains located close to borders, investments that they have made over a long period of time and where they have a lot of capital in place now. The value of that is more uncertain as they think about where they should be adding the next million dollars of investment — it's not as obvious," he said.
President Donald Trump said last week that a trade deal with China could happen sooner-than-expected and the two delegations are set to have a new round of talks in mid-October in Washington, D.C.
The trade war has brought economic uncertainty to the world's largest economy. It is often cited by institutions, such as the Federal Reserve and the International Monetary Fund, as one of the biggest risks to economic growth in the country.
When asked about whether a recession could happen next year, Evans said: "I don't expect economic recoveries to die of old age, but I think there is increasing fragility in the U.S. economy at the moment so, if we were to get hit by a shock, I think it could be a little bit more negative than it might be during more normal times."