US President Donald Trump, centre, at the White House in Washington, DC, the US, May 9 2019. Picture: JOSHUA ROBERTS/BLOOMBERG
US President Donald Trump, centre, at the White House in Washington, DC, the US, May 9 2019. Picture: JOSHUA ROBERTS/BLOOMBERG

Washington/Beijing —  US President Donald Trump said on Thursday he was taking steps to authorise new tariffs on $325bn in Chinese imports as officials prepared for last-ditch talks to avert an escalation of a trade war that threatens to derail the global economy.

With acrimony between Washington and Beijing increasing, there seemed to be little time to salvage what had appeared to be the framework of a tentative deal between the two sides before another round of punitive tariffs are triggered.

The US is set to increase its existing tariffs on $200bn in Chinese goods to 25%  from 10% at 12.01am EDT (04:01 GMT) on Friday. Trump said on Thursday he was "starting the paperwork today" to impose a 25% tariff on the $325bn in Chinese goods untouched by the trade war so far.

China is expected to retaliate against such a move, as it has with previous US tariffs, effectively subjecting all trade between the world's two largest economies to punitive levies. Consumer products, including cell phones, computers, clothing and toys, would be especially hard hit.

Trump, who has adopted protectionist policies as part of an "America First" agenda aimed at rebalancing global trade and boosting US manufacturing, accused Beijing of reneging on commitments made during months of negotiations.

"We were getting very close to a deal, then they started to renegotiate the deal. We can't have that. We can't have that," Trump said at an event at the White House.

Tense talks

Chinese vice-premier Liu He was due to start two days of talks in Washington with US trade representative Robert Lighthizer and treasury secretary Steven Mnuchin on Thursday evening.

Earlier on Thursday in Beijing, China appealed to the US  to meet it halfway to salvage their deal. Commerce ministry spokesman Gao Feng said the decision to send Liu to Washington despite the tariff hike threat demonstrated China's "utmost sincerity".

"We hope the US can meet China halfway, take care of each others' concerns, and resolve existing problems through cooperation and consultations," he told a news briefing.

"The US side has given many labels recently, 'backtracking', 'betraying' etc.... China sets great store on trustworthiness and keeps its promises, and this has never changed," Gao said.

A US source close to the talks said there were three potential scenarios for the discussions on Thursday and Friday, the worst of which would be an "orderly breakup", where the two sides agree to suspend negotiations.

Possible outcomes

The best case would be if the Chinese side walked back its demands for major changes to proposed texts so the two sides could focus on remaining sticking points with the aim of a deal in time for the G20 summit in Japan in late June.

A middle scenario would be some concessions from the Chinese side, with much more time needed to reach a deal and talks continuing under the higher U.S. tariffs and likely retaliation from China, the source said.

US stock indexes opened sharply lower again on Thursday before paring some losses after Trump said he had received a "beautiful" letter from Chinese President Xi Jinping. Oil prices also slid and US Treasury yields fell as investors sought safe-haven assets.

Deep rift

Reuters on Wednesday revealed the extent of the deep rift between China and the US, reporting that a draft trade agreement text sent by Beijing on Friday night was riddled with reversals that undermined core US demands.

US government and private sector sources close to the talks said  that in each of the seven chapters of the draft, China had deleted its commitments to change laws to resolve complaints that caused the US  to launch a trade war: Theft of US intellectual property and trade secrets; forced technology transfers; competition policy; access to financial services; and currency manipulation.

The stripping of binding legal language from the draft struck directly at the highest priority of Lighthizer, who views changes to China's laws as essential to verifying compliance after years of what US officials have called empty reform promises.

Trump told supporters at a rally in Florida on Wednesday night that China "broke the deal", and vowed not to back down on imposing new tariffs on Chinese imports unless Beijing "stops cheating our workers".

A protracted trade war between the world's two largest economies would damage the world economy, disrupt supply chains and rattle investors already nervous over a global slowdown.

Since July 2018, China has cumulatively imposed counter-tariffs of up to 25%  on about $110bn of US products. It last levied tariffs, of 5%  to 10%, on $60bn of US goods including liquefied natural gas and small aircraft in September.

Based on 2018 US Census Bureau trade data, China would only have about $10bn in US imports left to levy in retaliation for any future US tariffs, including crude oil and large aircraft.

Gao did not answer directly when asked if China would consider imposing tariffs on imported US services.

While the US wants to reduce the scale of its trade deficit with China, it is also seeking stronger protection for American intellectual property and more market access in China for US companies.

Reuters