With this in mind, Washington should adjust its coercive economic strategy to reflect a broader use of tools beyond sanctions. The end goal of a sanction should not merely be a penalty, but rather a change in an actor’s behavior. Given the degree of political interference in China’s banking system via formal state ownership and the indirect influence of opaque party committees, penalties imposed against the country’s banks, which conduct the majority of their operations in the domestic market, are unlikely to produce a meaningful change in behavior. Although in past disputes with European banks, the threat of secondary sanctions was potent, the wide array of state tools to support sanctioned banks, coupled with China’s hostility to the use of sanctions, reduces this leverage.

Trump lifts some restrictions on Chinese telecommunications firm Huawei

US President Donald J. Trump agreed on June 29 to lift some restrictions on Chinese telecommunications giant Huawei and delay imposing new tariffs on Chinese goods. These concessions were announced following a meeting between Trump and Chinese President Xi Jinping on the sidelines of the G20 summit in Osaka, Japan, at which the two leaders agreed to restart trade negotiations between their countries.

“Frankly, this was all fairly predictable,” said Mark Linscott, a senior fellow with the Atlantic Council’s South Asia Center and a former assistant US trade representative (USTR) for South and Central Asian Affairs.

“The two sides had already made progress before and intensifying the war is in neither side’s interest,” Linscott said, adding, “At this point, it seems a lot easier to impose tariffs than to lift them, so avoiding new ones makes a lot of sense, particularly to allow more space for negotiation.”

The G20 this weekend faces its biggest collective challenge since the group of world leaders first met in November 2008 in the jaws of the financial crisis. A toxic trifecta of growing political instability, escalating trade tensions and slowing global growth would be challenge enough, but the perils don’t stop there.

Beyond that, the 19 leaders of the world’s largest economies and the European Union gather as history’s tectonic plates shift underneath them. How the G20 plays out in its group setting – and perhaps more importantly in the sideline meeting between US President Donald Trump and Chinese leader Xi Jinping – will shed light on whether today’s leaders are up to the challenge of navigating those unsettling, interlocking shifts.

There is reason to assume this will be the case for the United States and China—countries with very different political and economic systems, very different historic and cultural perspectives, but very similar aspirations for global and regional preeminence, or at least equality, in economic strength, technological advancement, and military capability. But these need not, and with skilled management by the leaders of both nations should not, lead to major political, economic, or military confrontations. That will be a decades-long responsibility of and challenge for both countries.

US President Donald J. Trump and Chinese President Xi Jinping may agree to a temporary ceasefire in their ongoing trade war when they meet in Osaka, Japan, on June 29, but a full trade deal is unlikely, according to Bart Oosterveld, C. Boyden Gray fellow on global finance and growth and director of the Atlantic Council’s Global Business and Economics Program.

Most of the issues the two nations continue to grapple with relate to difficult systemic or “structural” differences on such matters as protection of intellectual property and trade secrets; equal access and rights for foreign investors in both the United States and China; a level playing field for businesses; and a consensus on what are appropriate amounts and types of government support for critical 21^st century technologies and state enterprises.

And even if US and Chinese negotiators surprise us by reaching an agreement that both Trump and Xi can sell to their publics as a major success, that agreement will be unlikely to resolve all of the economic differences between the United States and China. This is just the beginning of a much longer process.

China has developed close economic ties, including through the Belt and Road Initiative, with a number of Central and Eastern European countries and several Southern European countries, like Italy and Greece. Many EU members see an important economic benefit in being more closely engaged with China on BRI trade and investment projects and many have become major users of Chinese telecommunications and other technologies.

In coming negotiations, will the United States say to the EU “as a precondition for making the deal you have to reduce your ties with China or agree not to further increase them or not participate in BRI projects or not buy certain Chinese advanced technology products?” And will China step up its efforts to involve greater numbers of European countries in the BRI, further develop its markets in the region, and apply pressure on countries to use Chinese companies in domestic projects as well as purchase Chinese technology or Chinese products rather than American ones?

Both China and the United States are also likely to attempt to establish “zones” or “spheres” of economic/trade/investment/rule-making influence, or preeminence, to broaden and deepen their market positions in their regions, and worldwide, at the expense of the other. This will be particularly true with respect to advanced telecommunications and information technology. Recently, for example, Chinese President Xi Jinping and Russian President Vladimir Putin agreed that the Chinese telecommunications firm Huawei would cooperate with MTS, Russia’s largest mobile operator, to develop a 5G network for Russia.