Word coming out of the negotiations between China and the United States suggest that U.S. negotiators are walking back on demands that China reduces state industrial subsidies as a prerequisite for a trade deal.

Beijing and Washington are nine months into a trade war costing both economies billions of dollars, exasperated financial markets and disrupted global supply chains.

The United States has applied tariffs to $250 billion worth of Chinese imports in an effort to pressure China to curb several policies including the highly criticized state industrial subsidies. China subsequently retaliated with its own tariffs on U.S. imports. The U.S. contends that the state level policies and subsidies do not create a level playing field for U.S. companies competing with Chinese companies.

China’s President Xi Jinping has strengthened the state’s role in the economy through subsidies and tax breaks to state-owned companies and to sectors viewed as strategic for long term development. Experts did not expect Beijing to budge on these issues as they are considered vital to the Chinese government’s industrial policy.

To secure a deal in the near future, the word reaching Rungu is that U.S. negotiators are willing to settle for less on curbing the maligned subsidies and will focus more on other areas where they believe more can be accomplished. These areas include strengthening protection of intellectual property, ending forced technology transfers, and broadening access to China’s markets. China has apparently yielded on these issues.

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