Trump tariff hike leaves U.S.-China trade deal in limbo as markets fall

WASHINGTON/BEIJING (Reuters) – U.S. President Donald Trump’s threat to increase tariffs on Chinese goods left prospects for a deal to end a trade war between the world’s two largest economies in limbo on Monday, casting uncertainty on plans for more talks this week.

Stocks around the world tumbled and oil prices hit a one-month low after Trump tweeted on Sunday that he would raise tariffs on $200 billion worth of Chinese goods to 25 percent from 10 percent by the end of the week, and would “soon” target the remaining Chinese imports with tariffs.

The announcement abruptly ended a five-month truce in a trade war that has cost the two countries billions of dollars, slowed global growth and disrupted manufacturing supply chains and U.S. farm exports.

Trump’s comments on Sunday came as a surprise after he and members of his team had repeatedly said the two sides were making progress on a deal.

His shift in tone came after U.S. Trade Representative Robert Lighthizer told him that Chinese negotiators had pulled back from some prior commitments in talks last week in Beijing, people familiar with the talks said.

Specifically, the Chinese side was seeking to deal with any policy changes through administrative and regulatory actions, not through changes to Chinese law as previously agreed, one person with knowledge of the talks said.

“It undermines the core architecture of the deal,” the person said, adding that not codifying the concessions would make it difficult to verify and enforce China’s compliance.

Speaking on condition of anonymity due to the sensitive nature of the talks, the person said that under China’s system in which the Communist Party has ultimate control, changes in law are the only way to get even a small measure of certainty.

Another source familiar with the situation said Trump had reiterated to advisers in recent days that he would walk away from a trade deal with China if it was not strong enough.

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This person said that there was “irrational exuberance” about the talks and Trump’s move “shouldn’t be that big of a shock” as the president had originally planned to raise tariffs on Chinese goods in January.

(Graphic: U.S. farm country reels from trade war – tmsnrt.rs/2BYCdun)

LIU TRIP

It was unclear on Monday whether Chinese Vice Premier Liu He would travel as planned to Washington for talks scheduled to start on Wednesday — negotiations that some had viewed as potentially leading to a deal announcement.

A Chinese delegation was still preparing to go to the United States for trade talks, Chinese Foreign Ministry spokesman Geng Shuang said earlier on Monday in Beijing, without saying whether Liu would be part of it. Queries about the talks to China’s embassy in Washington were not answered.

“The atmosphere of the negotiations has changed,” said a Chinese official with knowledge of the talks, and how they would proceed was being re-evaluated.

“All that depends on the attitude of the United States,” the official said.

A spokesman for the U.S. Trade Representative’s office did not immediately respond to a query about the status of the talks in Washington and Liu’s attendance.

The United States is demanding sweeping changes to China’s economic policies, including better protection of U.S. intellectual property, ending forced technology transfers and cyber theft of American trade secrets.

Washington also wants more access to China’s vast markets for U.S. companies, curbs on industrial subsidies and increased purchases of American products.

Trump appeared to defend his decision in a tweet early on Monday, lashing out over the U.S. trade deficit with China. He also said he spoke with Japanese Prime Minister Shinzo Abe on trade in a “very good conversation.”

“With China we lose 500 Billion Dollars. Sorry, we’re not going to be doing that anymore!” Trump tweeted.

The United States imported about $539.5 billion in goods from China in 2018 and exported $120.3 billion, for a record trade deficit of $419.2 billion, according to U.S. Census Bureau data.Trump also has said that China was paying U.S. tariffs on Chinese goods, but in reality, mostly U.S. companies importing the goods pay the tariffs.

BAD FOR THE WORLD’

On Monday, billionaire investor Warren Buffett warned that a wider trade war between the world’s two largest economies would be bad for the world economy and for his conglomerate, Berkshire Hathaway

A full-scale trade war is unlikely, he said, but “would be bad for everything Berkshire owns.”.

Chinese news outlets have been told not to independently report on Trump’s tweets, and instead adhere to any report from the official Xinhua news agency, said a source with direct knowledge of the matter.

“There is still a question of whether this is one of the famous Trump negotiation tactics, or are we really going to see some drastic increase in tariffs,” said Nick Twidale, Sydney-based analyst at Rakuten Securities Australia. “If it’s the latter, we’ll see massive downside pressure across all markets.”

Trump currently has 25 percent tariffs on $50 billion worth of Chinese machinery and technology goods, and 10 percent tariffs on $200 billion worth of products ranging from computer modems and routers to furniture, lighting and building materials.

Negotiations on removing punitive U.S. tariffs has been one of the remaining sticking points between the two sides. China wants the tariffs to be removed, while Trump wants to keep some, if not all, as part of any final deal to ensure China lives up to its commitments, a White House official said on Sunday.

(Graphic: U.S. trade disputes around the world – tmsnrt.rs/2VHeF4n)

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