The United States and China appear to be inching towards a deal on trade. If it is as outlined, that might be a relatively good outcome for the US and China but it could be quite damaging for China’s other trading partners.

White House economic advisers are talking about an "historic’’ deal that would see China agreeing to increase its purchases of US products by $US1.2 trillion ($1.7 trillion) over six years, dropping the tariffs on US imports it imposed in response to Donald Trump’s own tariffs on $US250 billion of China’s exports to the US, removing restrictions on foreign ownership of auto joint ventures and ending forced technology transfers.

Global shares rose on Monday amid growing optimism the United States and China will reach a trade agreement as soon as this month.

One sticking point might be the enforcement mechanisms. The US wants to retain the right to reimpose tariffs for breaches of the agreement but wants China to agree that it won’t respond with its own tariffs on US goods if the US exercises that right. Would China agree to something that one-sided?

Another problematic issue might be a US demand that China reduce subsidies to state-owned enterprises.

The trade stoush has damaged both economies, even though Trump still believes his tariffs are pouring revenue into the US Treasury’s coffers. Most of the analysis so far says it is US companies and consumers who are paying for the US tariffs – the tariffs are being paid by importers and have generally been passed on in the form of higher prices.

While the trade conflict has probably hurt China more, with the US tariffs having been imposed even as its economy was slowing and vulnerable, changes in the domestic political settings in the US mean that Trump also needs a deal.

The final-quarter sell-off in US stock markets was partly attributable to the trade tensions (albeit probably more influenced by the US Federal Reserve Board’s stance at the time). A president who measures his success by the direction of the markets won’t want to risk another meltdown in the event of a failed negotiation.

Trade talks between the US and China have kept markets on edge. AP

The aggression with which the Democrats are now wielding the majority of the House that they claimed in last year’s mid-term elections; the apparent imminence of the Robert Mueller investigation into Russian interference in the last presidential election; the backdown over the "shut-down’’ and looming vote against his declaration of an emergency to access funding for his border wall and the failure of his negotiations with North Korea’s Kim Jong-un have added to the pressure on the Trump team to give him something he can claim as a victory.

Whether it is a real victory will depend on the fine print and on whether the US has been able to coerce China into making substantial changes to its centrally-planned and driven economic model and agreeing to mechanisms for monitoring and enforcing those changes.

If the US can do something more than bullying China into buying more US product, it will get some applause from other countries which share its frustrations about the lack of access to China’s markets, its subsidised state competitors and the forced technology transfers from foreign companies wanting to operate in China.

Key White House economic adviser, Larry Kudlow, says the US is heading towards ''a remarkable, historic deal” with China. AP

Those are the kind of demands, however, that China will resist or, if forced to accept them, find ways to subvert the agreements in future.

It wouldn’t, however, be difficult for China to agree to buy more US agricultural products and energy. It needs those products, so if sourcing them from the US helps end the trade war it’s not an overly difficult decision to take.

A bilateral deal between China and the US that boosted US exports to China to the extent that appears to be contemplated, however, would have knock-on effects to existing suppliers.

There is talk about a $US18 billion deal under which China will not only agree to buy LNG from US company Cheniere Energy but help finance the expansion of its export facilities. That gas would displace LNG from other suppliers, including Australia.

Similarly, increased agricultural commodity purchases from the US would impact existing suppliers, including the European Union and Australia.

In a free-trade environment the efficient and competitive prosper. If the US and China strike a bilateral deal which locks in a preference for US products it will damage the exports of existing, more competitive, suppliers.

Trump’s "America First’’ approach to trade undermines the global trading order that the US historically promoted and renders the World Trade Organisation and its rules irrelevant.

It will adversely affect economies that, like Australia, have traditionally been allied to the US and committed to the free market philosophies it traditionally promoted. It will encourage them to at least consider protectionist or bilateral measures of their own.

With Trump planning, once the US-initiated dispute with China has been resolved, to move on to the European Union and Japan, using the spectre of auto tariffs as leverage and "national security’’ as his pretext, the collateral damage from the apparent embrace by the US of mercantilist policies could spread and deepen.