US President Donald Trump. Picture: REUTERS
US President Donald Trump. Picture: REUTERS

Washington — President Donald Trump dramatically increased pressure on China to reach a trade deal on Sunday, saying he will hike US tariffs on $200bn worth of Chinese goods this week and target hundreds of billions more soon.

The move marked a major escalation in tensions between the world’s largest economies and a shift in tone from Trump, who had cited progress in trade talks as recently as Friday. Stock markets sank and oil prices tumbled as negotiations were thrown into doubt.

The Wall Street Journal reported on Sunday night that China was considering canceling this week’s trade talks in Washington in light of Trump’s comments, which took Chinese officials by surprise.

US officials did not immediately know if China would attend and the US trade representative’s office did not immediately comment. China’s commerce ministry did not immediately respond to a request for comment.

The editor of an influential Chinese state-run newspaper said Liu is unlikely to go.

“I think Vice-Premier Liu He will very unlikely go to the US this week. Let Trump raise tariffs. Let’s see when trade talks can resume,” Hu Xijin, editor-in-chief of the tabloid the Global Times, tweeted.

The newspaper is published by the ruling Communist Party’s People’s Daily, but it not considered an official publication and does not speak for the government.

US treasury secretary Steven Mnuchin had described last week’s negotiations in Beijing as “productive”.

But a less than rosy update from US trade representative Robert Lighthizer, including details that China is pulling back from some commitments it made previously, prompted Trump’s decision and jab on Twitter at Beijing, officials said.

“The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No!” Trump said in a tweet.

Global financial markets, which had been largely pricing in expectations of a trade deal, went into a tailspin. US equity futures fell more than 2% and stocks across trade-reliant Asia tumbled, with China’s main indexes plunging 4%.

Trump said tariffs on $200bn of goods will increase to 25% on Friday from 10%, reversing a decision he made in February to keep them at the 10% rate after progress between the two sides.

The president also said he will target a further $325bn of Chinese goods with 25% tariffs “shortly”, essentially targeting all products imported to the US from China.

Trump wants to keep some, if not all, of the existing tariffs on China as part of any final deal to ensure China lives up to its commitments, a White House official said on Sunday.

Raising tariffs means raising taxes on millions of American families and inviting further retaliation on American farmers
Christin Fernandez,  spokesperson for the Retail Industry Leaders Association

Mindful of his 2020 re-election bid, Trump suggested the measures are not leading to price increases for US consumers. “The Tariffs paid to the USA have had little impact on product cost, mostly borne by China,” he tweeted.

Tariffs on Chinese goods are actually paid to the US by the companies importing the goods. Most of those companies are US-based. American businesses, while largely supportive of Trump’s crackdown on China’s trade practices, are eager for the tariffs to be removed, not expanded.

“Raising tariffs means raising taxes on millions of American families and inviting further retaliation on American farmers,” said Christin Fernandez, a spokesperson for the Retail Industry Leaders Association.

Nevertheless, the president’s aggressive strategy drew rare bipartisan support from US Senate Democratic leader Chuck Schumer, who urged Trump to “hang tough” in a tweet: “Don’t back down. Strength is the only way to win with China.”

One Chinese trade expert said recent signs of resilience in both economies are breeding overconfidence.

“The urgency is gone. So, it’s likely to see a longer trade war,” the expert said, speaking on condition of anonymity citing the sensitivity of the topic.

‘Preserve the progress’

Trump’s latest threat could be counterproductive, said Tai Hui, Asia-Pacific chief market strategist at JP Morgan Asset Management.

“As we learnt a year ago, Beijing could be willing to walk away if the US applies negotiation tactics that they don’t agree with,” Hui said.

“That said, both sides have invested significant time and resource to come this far and are likely to want to preserve the progress achieved in recent months.”

As recently as Friday, Trump said talks with China are going well. Mnuchin expressed hope last week that the Beijing and Washington rounds would lead US advisers to a recommendation to Trump on whether a deal is reachable, and a White House official told Reuters that dates are being looked at for a potential meeting between Trump and Xi in June.

White House economic adviser Larry Kudlow told Fox News that the president’s tweet is a warning to China.

“The president is issuing a warning here, that we bent over backwards earlier, we suspended the 25% tariff to 10 and then we’ve left it there. That may not be forever if the talks don’t work out,” he said.

But Michael Pillsbury, an informal trade adviser to Trump and the director for Chinese strategy at the Hudson Institute, said Kudlow’s remarks downplayed the president’s intent.

“I take the president’s tweet at face value. I was disappointed that Larry Kudlow downgraded it to a mere warning, which may tend to undermine American credibility as the Chinese delegation prepares its position” ahead of this week’s talks, he said.

Last week, industry sources said they believed the talks were in the endgame, but the Trump administration official said aides had told the president that significant hurdles remained.

The increase in US tariffs on Friday will be the first move of that kind since Trump imposed 10% tariffs on $200bn of Chinese goods in September, coming on top of 25% tariffs on $50bn of goods enacted earlier in 2018.

Negotiations about tariffs have been one of the remaining sticking points between the two sides. China wants the tariffs to be lifted, while some US officials believe at least some of them should stay in place as a way to enforce any eventual deal.