Trump says China tariffs will increase as trade deal hangs in the balance

President Donald Trump said Thursday that the United States would raise tariffs on $200 billion worth of Chinese goods Friday morning and begin plans to tax nearly all of China’s imports as he accused Beijing of backtracking on a trade deal.

Trump, who made his comments before a pivotal round of trade talks that began Thursday afternoon, vacillated between threatening China and suggesting a deal was still within reach. In remarks at the White House, the president said he had received a “beautiful letter” from President Xi Jinping of China and would probably speak to him by phone, but Trump said he was more than happy to keep hitting Beijing with tariffs.

“I have no idea what’s going to happen,” he said. “They’ll see what they can do, but our alternative is, is an excellent one,” Trump added, noting that American tariffs on $250 billion worth of Chinese products were bringing “billions” in to the US government.

The renewed brinkmanship has plunged the world’s two largest economies back into a trade war that had seemed on the cusp of ending. The United States and China were nearing a trade deal that would lift tariffs, open the Chinese market to US companies and strengthen China’s intellectual property protections. But discussions fell apart last weekend, when China called for substantial changes to the negotiating text that both countries had been using as a blueprint for a sweeping trade pact.

Trump, angered by what he viewed as an act of defiance, responded Sunday by threatening to raise existing tariffs to 25 percent and impose new ones on an additional $325 billion worth of products. China has said it is prepared to retaliate should those tariffs go into effect.

“We were getting very close to a deal then they started to renegotiate the deal,” Trump said. “We can’t have that.”

It remains unclear whether the talks can get back on track. An administration official described Xi’s letter to Trump as conveying a nice, diplomatic tone but noted that the word “equality” was included, suggesting that China believes the United States is demanding too much and that a trade agreement must be more equitable. Xi also said he believed that his friendship with Trump would endure the trade dispute.

Despite the overture, the administration official said this round of talks had the dour feeling of heading toward a breakup. There is a growing sense of disappointment in Xi being unable to follow through on things that Trump’s trade negotiators thought had been addressed.

Trump’s decision to impose 25 percent tariffs on nearly one-third of all Chinese products is the biggest trade action that Trump has taken so far. The higher tax would hit many consumer products that Americans rely on from Beijing, like seafood, luggage and electronics, raising prices for US companies and their customers across a large portion of sectors.

Stock markets fell Thursday in the United States but pared some of those losses after Trump’s comments in the afternoon. The S&P 500 was down slightly less than 1% in midafternoon trading.

Talks were to resume at 5 p.m. Thursday at the offices of the US trade representative. Steven Mnuchin, the Treasury secretary, and Robert Lighthizer, Trump’s top trade negotiator, were expected to have dinner with Liu He, China’s vice premier, and some members of the Chinese delegation. A Trump administration official familiar with the plans said the meal would not have ceremonial trappings.

Barring any last-minute decision to rescind the tariff increase, the new 25 percent rate will go into effect at 12:01 a.m. Friday. But the higher tariffs would hit only products that leave China as of May 10, not those already in transit. That could provide some additional time for the two sides to reach an agreement. Trump could also rescind the tariffs once a deal is reached, retroactively reversing the higher rates.

“This week is really a challenge if you’ve got boats on the ocean,” said Brian Keare, the field chief information officer at Incorta, who advises companies like Broadcom, Starbucks and Apple on scenario planning amid the uncertainty they face under the Trump administration. “If I’ve got 30 days’ notice, I can make a smarter decision. If I’ve got 72 hours, my hands are more tied.”

China, which has already placed tariffs on nearly all of America’s exports, including agriculture products, has threatened to respond with additional “countermeasures” if the 25% rate kicks in.

The Trump administration has done projections on the effect of the additional tariffs on the economy and believes the negative effects will be minimal and pale in comparison to those facing China, an administration official said. The White House will consider taking additional measures to mitigate the effects of any retaliatory measures that China takes against America’s farmers.

“To the president’s credit, the tariffs are working,” said Dan DiMicco, chairman of the trade lobbying group Coalition for a Prosperous America and a trade adviser to Trump during his 2016 campaign. “America’s manufacturers and workers are now seeing gains as manufacturing employment rises and China’s hold on the US market shrinks.”

Trump’s toughened stance toward China has rattled US businesses, which had been anticipating a trade truce but are now bracing for higher tariffs.

“Clearly, we think a negotiating strategy based on tariffs is the wrong direction,” said David French, the senior vice president of government relations at the National Retail Federation. “We’re certainly hopeful that the Chinese, when they come to Washington this week, come with a plan to make substantial concessions to avert this disaster.”

Retailers wielded their influence successfully in 2017 when Republicans were considering a tax plan they believed would have harmed their businesses. But when it comes to trade, French said, the Trump administration had been intransigent about their tariff concerns. To make its point, the retail association has been holding events featuring businesses that are suffering from tariffs in politically important states like Ohio.

Most business groups agree with Trump that China engages in unfair trade practices. Among the shared concerns is that China needs to protect US intellectual property and curb subsidies for state-owned enterprises. But those businesses, which depend on China for many of the products they rely on and sell, say the economic pain of tariffs makes them a poor negotiating tool.

“American business continues to have major problems with China’s commercial policies, but we simply must find a way to tackle these that doesn’t turn our most competitive companies into collateral damage,” said Peter Robinson, the chief executive of the US Council for International Business.

Robinson suggested that the United States team up with other trading partners to pressure China to change its ways and work with the World Trade Organization to adjudicate its complaints.

But administration officials have begun to run out of patience with China, which they say reneged on several areas of agreement over the weekend. After a meeting last week in Beijing, Mnuchin and Lighthizer were angered to receive a new draft of the agreement from the Chinese with major revisions to provisions they thought had been agreed to. According to people who have been tracking the talks, Chinese officials determined that many of the concessions they were being asked to make would clash with Chinese laws, which the government was not prepared to change.

Lighthizer has warned members of Congress to be prepared for the tariffs to increase, according to people familiar with the discussions, while Mnuchin has expressed hope that Liu will bring meaningful concessions to the table.

Wall Street analysts have been girding for more volatility this week and many have been adjusting their predictions about the likelihood of an all-out trade war.

“The opportunity window for avoiding a trade war is closing fast,” economists at Citigroup wrote in a note to clients.

2019 New York Times News Service