The United States also wants the agreement to include provisions to ensure that China honours its commitments.

Depending on how far China is willing to go, that could be a point of compromise that paves the way for the US to back off on some of its more difficult demands.

Can China withstand a full-frontal US assault?

Some say the most the two sides can achieve in the near term is a “mini-deal” that would keep current duties in place while negotiations continue.

“My baseline assumption is that very close to the deadline, we will come up with a deal that certainly will not be comprehensive, durable and long-lasting by any means but at least allows both sides some breathing room by de-escalating hostilities or at least a cessation of future hostilities,” Eswar Prasad, former China director at the International Monetary Fund, said last week in a speech in Washington.

Whether the next set of talks will lead to a real deal is uncertain, in part because of Trump’s erratic personality and penchant for making unpredictable commentary via Twitter.

Stocks tumbled Tuesday after The Financial Times reported that the United States had rejected China’s offer of new, in-person, lower-level talks to be held this week because of a lack of progress on some of the main US demands.

But China watchers said such cancellations were normal, and face-to-face consultations were not necessary for Liu’s coming visit.

White House chief economic adviser Larry Kudlow, in an interview with CNBC on Tuesday, denied any meeting was ever scheduled for this week. He added the two countries remain in “constant communication” ahead of the Liu-Lighthizer meeting next week.

Kudlow also emphasised the United States still has big goals for the talks.

“I acknowledge the degree of difficulty, but it is a crucial point for the United States side,” Kudlow said. “We have got to deal with these vexing problems of [intellectual property] theft and the forced transfer of technology, the lack of American ownership of its own companies in China, cyber interference with various corporations, along with various tariff and non-tariff barriers.”

At the same time, both countries are staring down tough economic outlooks.

Trump is in the grips of a month-long government shutdown triggered by his demand for border wall funding that has diminished his approval ratings and risks causing long-term damage to the US government and its economy.

Xi is overseeing a drastic slowdown in China’s economic growth, which adds pressure on him to find a quick end to the trade war. In the last quarter of 2018, China reported the slowest growth rate since its government began publishing quarterly figures in 1992.

The two sides are trying to reach a deal before March 2, when Trump says he will order his government to increase duties on US$200 billion worth of Chinese goods to 25 per cent, a sharp rise from 10 per cent currently.

A simple win could involve commitments from China to purchase specified amounts of US goods by certain target dates. On China’s side, anything that lifts some or all of the tariffs on its exports to the US would be a victory.

Some analysts have speculated that Trump – faced with a jittery stock market and concerns that the government shutdown could help nudge the US economy into recession – will settle for “a light deal” consisting mainly of Chinese purchases and vague promises.

In response, two influential business groups, the US Chamber of Commerce and the American Chamber of Commerce in China, are urging Trump to stand by his pledge to press for meaningful reforms.

Beijing had a plan to dominate tech. Then the US trade war happened

“While reducing the trade deficit and purchases of US exports may be one aspect of the negotiations, we urge the US government to prioritise outcomes that address structural challenges posed by China’s economic policies and practices,” the groups said in a report released this week.

Trump is soon going to focus his attention on his 2020 re-election campaign, and he will be motivated to rapidly shrink the US trade deficit with China to fulfil a core promise he made during his 2016 campaign. That, however, is easier said than done.

The US exported only US$130 billion worth of goods to China in 2017. Either the US has to exponentially grow its manufacturing capacity in a few short years, or China has to stop exporting as much to the US.

Final figures for 2018 are expected to show the US deficit in goods trade with China set a record of more than US$400 billion.

In addition, simple export gains are not likely to go over well after Trump’s team laid out long-standing grievances that are rooted in how Beijing runs the nation’s economy.

Taiwan-based firms feel squeezed between Beijing and Washington

Among the biggest issues the US has raised is getting China to address allegations that it has aggressively supported investment by state-owned or state-directed companies in the United States to secure access to cutting-edge technology in sectors such as aviation, integrated circuits, information technology, biotechnology, industrial machinery, renewable energy and automobiles.

In another big salvo, Trump’s trade office has accused Beijing of conducting and supporting cyberattacks on US company computersto acquire valuable intellectual property and other sensitive commercial information.

The US stepped up its action against China on this front last year, when the Justice Department announced an initiative to “identify priority Chinese trade theft cases, ensure that we have enough resources dedicated to them and make sure that we bring them to an appropriate conclusion quickly and effectively”.

Last year, after an investigation into China’s practices, Trump initially imposed a 25 per cent duty on US$50 billion worth of Chinese exports, which the US trade office judged to be “appropriate” given the level of damage done to the US economy.

However, when China retaliated by imposing duties on US$50 billion worth of US exports, Trump upped the ante by imposing a 10 per cent tariff on another US$200 billion worth of Chinese goods. China has retaliated in kind, imposing tariffs on about 85 per cent of all goods it imports from the US.

A leaked document from a round of talks last May in Beijing showed the United States has a bigger agenda aimed at cutting the US trade deficit with China in half by 2020.

To achieve that, the Trump administration asked China to set “targets” for Chinese firms to buy hundreds of billions of dollars more of American goods.

While the deep-rooted issues could take years, perhaps even decades, for China to properly address, some trade experts theorise that there could be some partial wins to be had in the short time remaining before the March deadline.

Apart from Beijing’s pledges to purchase more American products, a deal could also include commitments to more quickly remove equity caps or joint venture requirements in some sectors in China.

The country could also easily strengthen enforcement of intellectual property rights and make a “structured agreement to keep talking about more intractable issues such as technology transfer,” said Arthur Kroeber, head of research with China-focused Gavekal Dragonomics.

“USTR Robert Lighthizer and the trade and security hardliners could probably live with a restricted deal so long as it offered enough space for the US to keep using investment restrictions, export controls and sanctions, and provided a window for more tariffs to be imposed if China fails to make what the US defines as progress,” Kroeber said.

He added that Lighthizer would want to keep the existing tariffs in place and use the threat of additional levies as his bargaining chip.

But China would not want to accept such a deal unless the US gave up something – most likely a reduction of current tariffs.

China watchers also said the leadership in Beijing is very much concerned about keeping economic risks under control.

“China is interested in seeing the removal of tariffs on US$200 billion of Chinese products, and it is trying to get the original tariffs on US$50 billion removed as well, which would be a major win from the Chinese perspective,” one source briefed on the US side of the negotiations said.

Given the extent of the reforms the United States is demanding, a second source closely following the talks from the Chinese side played down the likelihood of a final deal by the deadline.

“The best outcome for China is to suspend tariffs and have time and room to address other issues,” the source said. “The problem is not whether we have to change or not, but how and when.”

Those systemic changes will require a real commitment from “the top leadership”, the source noted.

Lu Xiang, a researcher on China-US relations with the Chinese Academy of Social Sciences, expected any deal would be centred on addressing the trade imbalance.

“China will respond to US concerns, but it can’t be like a bottomless pit to satisfy US demands, otherwise it would hurt China’s economy,” Lu said.

Earlier this month, the countries held talks in Beijing at the vice-ministerial level. That meeting, originally scheduled for two days, stretched into a third, in what some saw as a sign the two sides were making progress towards a final agreement.

However, the sources close to the governments cautioned against an overly optimistic reading of the extension. Rather, the third day was added because China was moving slowly through the list of agenda issues and avoided difficult discussions on structural issues, such as market access and intellectual property, the source briefed on the US-side of the negotiations said.

“[China] has offered very few commitments on structural changes, but continued to focus on buying American goods to reduce the deficit,” the source briefed on the negotiations said. “The US told China this is not going to end with a positive negotiation outcome.”

Members of Congress, too, said they were informed that little progress had been made.

Senate Finance Chairman Chuck Grassley conveyed to reporters that Lighthizer told him earlier this month no progress had been made on the structural overhaul the US is seeking.

In addition, the United States is expected to insist that any agreement contain robust monitoring and enforcement that could reinstate any tariffs that are lifted as part of the deal.

While China might be willing to agree to an enforcement mechanism as part of the deal, they “probably don’t want the United States to be judge and jury” of whether they have faithfully implemented the pact, said Scott Kennedy, a China expert at the Centre for Strategic and International Studies.

A more attractive alternative for Beijing would be for the agreement to be enforced through the World Trade Organisation. But the United States might not be willing to accept that because the WTO dispute settlement process is notoriously slow.

Still, neither side has an incentive to wrap up the talks until shortly before the March deadline.

For the United States, there is benefit in holding on to the threat of increased tariffs as long as possible to maximise leverage.

For China, there is an advantage in waiting to see if Trump’s price for reaching a deal goes down because of concern about his political future, Kennedy said.

“I think it’s nowhere near decided that the US is going to settle for less. I still think the US raising tariffs on March 2 is the mostly likely outcome,” Kennedy said.