Trump vows tariff hike on Chinese goods, escalating tension in trade talks

The move marked a major escalation in tensions between the world’s largest economies and a shift in tone from U.S. President Donald 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.

U.S. officials did not immediately know if China would attend and the U.S. Trade Representative’s Office did not immediately comment. China’s commerce ministry did not immediately respond to a request for comment.

But the editor of an influential, Chinese state-run newspaper said Liu was unlikely to go.

"I think Vice Premier Liu He will very unlikely go to the U.S. 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.

U.S. Treasury Secretary Steven Mnuchin had described last week’s negotiations in Beijing as "productive."

But a less than rosy update from United States Trade Representative Robert Lighthizer, including details that China was 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. U.S. equity futures fell more than 2 percent and stocks across trade-reliant Asia tumbled, with China’s main indexes plunging 4 percent.

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

The president also said he would target a further $325 billion of Chinese goods with 25 percent tariffs "shortly," essentially targeting all products imported to the United States 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.

Mindful of his 2020 re-election bid, Trump suggested the measures were not leading to price increases for U.S. 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 United States by the companies importing the goods. Most of those companies are U.S.-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 spokeswoman for the Retail Industry Leaders Association.

Nevertheless, the president’s aggressive strategy drew rare bipartisan support from U.S. 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 were breeding over-confidence.

"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.

Not getting close?

Trump’s latest threat could be counter-productive, said Tai Hui, Asia-Pacific chief market strategist at J.P. Morgan Asset Management.

"As we learnt a year ago, Beijing could be willing to walk away if the U.S. 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 were going well.. Mnuchin expressed hope last week that the Beijing and Washington rounds would lead U.S. advisers to a recommendation to Trump on whether a deal was reachable, and a White House official told Reuters that dates were 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 was a warning to China.

"The president is, I think, issuing a warning here, that, you know, we bent over backwards earlier, we suspended the 25 percent 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 U.S. tariffs on Friday will be the first move of that kind since Trump imposed 10 percent tariffs on $200 billion of Chinese goods in September, coming on top of 25 percent tariffs on $50 billion of goods enacted earlier last year.

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