Clouds of red fireworks in the night sky had evaporated like the morning dew. The bunting was being stashed away for another decade as China woke up on Wednesday following the country’s 70th birthday bash.

After the party, comes the hangover, metaphorically speaking.

Next week, Beijing and Washington are scheduled to take part in round 13 of talks in a bid to break the trade war deadlock. It will be held in more sober surroundings.

By then, the feel-good factor will have worn off, replaced by realpolitik.

Vice-Premier Liu He will lead China’s delegation on October 10 and across the table will be the United States team, spearheaded by Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin.

A major breakthrough appears unlikely although optimism and pessimism seesaw depending on what day it is.

The chance of an “interim deal” has been mentioned by US President Donald Trump before backtracking in the same sentence. If an agreement is hammered out, it would be a short-term fix to a long-term problem.

“The two sides disagree too much on the objectives of the negotiations,” Zhou Xiaoming, China’s former top diplomat in Geneva to the United Nations mission, said at the end of last month. “It is almost impossible to reach a [lasting agreement].”

To retrace the road to economic purgatory, the row erupted over America’s soaring trade deficit with China in 2017. Since then, there has been no significant reduction. In 2018, the US deficit was $419.52 billion.

Yet after the opening salvos, other issues began to overshadow dollars and cents.

Intellectual Property theft, forced transfer of technology, cyberspace spying and even Beijing’s state-run model have come under the microscope. Also, there is the thorny problem of enforcing any subsequent “agreement.”

Tariffs hike

For team Trump, this is a red line, and a bone of contention for Xi and senior Communist Party officials within his administration.

Judging by China’s past record, it seems a reasonable request to keep certain tariffs in place. Others disagree.

“Tariffs are the original reason why a trade dispute arose between the two sides, and the purpose of talks is to solve this underlying problem. A final agreement that keeps the tariffs in place would be meaningless, and such an agreement would only serve to fully expose the bullying attitude of the American side,” Wu Zhenglong, of the China Foundation for International Studies, which is linked to the Ministry of Foreign Affairs, said.

Washington has already pushed back a planned hike in duties on Chinese imports worth US$250 billion until October 15 as a “gesture of goodwill” ahead of the 70th-anniversary celebrations earlier this week.

“The president’s been very clear if we can get the right deal, he wants the deal,” Mnuchin told the media. “If we can’t get the right deal, he’s happy with the tariffs.”

Still, the pain is being felt on both sides of the Pacific.

US manufacturing activity in September dropped to a level not seen since the Great Recession in 2009 as the trade conflict stymied exports, a survey from the Institute for Supply Management revealed. Global growth has also been hit, sparking fears of a recession.

In China, the economy has continued to slow with growth dipping across a broad range of sectors, from retail sales to industrial output, which plunged to a 17-year low in August.

Big-ticket items such as new car sales have stalled while residential property prices have also suffered as consumer debt increases.

To combat the downturn, Beijing has pressed ahead with a technology-fueled infrastructure drive centered around Huawei’s 5G ground-breaking networks. Up to August, the poster child of the “Made in China 2025” blueprint had shipped 200,000 base stations around the world, according to the Shenzhen tech giant.

At home, they will power “smart”, or fully automated, factories and advanced transportation hubs such as ultrafast rail networks. Nearly every aspect of Chinese society will revolve around 5G.

Yet that will take time. Right now, there are other pressing challenges. “Economic and technological decoupling is [looking like the objective] of the US government,” Zhou pointed out.

US deficit

Media reports had even suggested that Trump was threatening to delist Chinese companies on Wall Street in a move to starve them of US investment. This was later denied by Treasury spokeswoman Monica Crowley in a tweet.

Bargaining chip? Probably. But even the mere suggestion alarmed the Nasdaq.

“One critical quality of our capital markets is that we provide non-discriminatory and fair access to all eligible companies,” the New York exchange said in a statement. “The statutory obligation of all US equity exchanges to do so creates a vibrant market that provides diverse investment opportunities for US investors.”

But then brinkmanship bordering on vitriolic rhetoric has peppered the discussions as the trade row enters a second year.

Jia Qingguo, an influential academic at the School of International Studies at Peking University, accused the US last month of trying to “demonize” the world’s second-largest economy.

“People would say: ‘This is China trying to set up another alternative model of development. This is wrong,” he told the Singapore Summit last month.

“A lot of people in Washington are … trying to demonize China and develop policies on that basis. I think the world should get over that,” Jia added.

Yet during the past 18 months, the relationship between the world’s two largest economic powers has changed dramatically.

“There’s been a tectonic shift,” Warren Maruyama, the former general counsel for the Office of US Trade Representative and a partner with legal firm Hogan Lovells, said.

“The old idea that China was in the middle of free-market economic reforms that would lead them our way is effectively dead. There’s bipartisan support for a tougher China policy,” he told the Reuters news agency.

The fireworks might be over in Beijing but there may be a few more going off in Washington next week.