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Trump in front of microphones Bloomberg

China warns it will retaliate if Trump follows through on tariff threat

Trump has said he will raise tariffs on $200 billion of Chinese goods from 10% to 25% Friday.

by Shannon Pettypiece and Ye Xie

The U.S. and China sent conflicting signals over trade, with President Donald Trump expressing optimism about the prospect of a deal and Beijing warning that it will retaliate if the U.S. follows through on a threat to hike tariffs.

Trump said Wednesday that China indicated it hopes to “make a deal” when senior Chinese officials visit Washington for negotiations Thursday and Friday. The U.S. has said it will raise tariffs on $200 billion of Chinese goods to 25% from 10% on Friday at 12:01 a.m. New York-time.

“We have gotten an indication they want to make a deal, our teams are meeting with their team tomorrow, we will see what happens," White House press secretary Sarah Huckabee Sanders told reporters after the president commented in a series of tweets.

The S&P 500 Index rose for the first time this week, as markets found a measure of calm after the White House suggested a deal was still possible, even as China’s Commerce Ministry warned it will retaliate if the U.S. follows through on hiking tariffs.

“Escalating the trade conflict is not in the interest of the people in both countries and the world. China deeply regrets the move,” the ministry said in a statement on Wednesday.

With less than 36 hours before the higher tariffs take effect, investors are on edge over the risk that talks between the world’s two-biggest economies will derail, sinking hopes for a lasting truce to their trade war.

Hard ball

"It’s in both countries’ interest to reach a deal. The consequence of a failure is that the economic relationship between the two countries will decouple,” said Cheng Li, research director of the Brookings Institution’s John L. Thornton China Center. “The environment has changed. There’s a possibility that China will play a hard ball.”

In a tweet on Wednesday morning, Trump also took a shot at his challengers, singling out former Vice President Joe Biden, who is running for the 2020 Democratic presidential nomination, saying China would prefer to negotiate with them. Biden has been criticized in recent weeks for playing down the economic threat posed by China, arguing the U.S. is in a much stronger position than Trump credits it with.

Biden will ensure that the U.S. and its allies “write rules of the road” in the relationship with China, Kate Bedingfield, his deputy campaign manager, wrote on Twitter on Wednesday.

“The reason for the China pullback & attempted renegotiation of the Trade Deal is the sincere HOPE that they will be able to “negotiate” with Joe Biden or one of the very weak Democrats, and thereby continue to ripoff the United States (($500 Billion a year)) for years to come....” Trump said. In a subsequent tweet, he wrote: “Guess what, that’s not going to happen.”

Pressure cooker

Trump’s comments underscore the political pressure he’s under to reach a deal with China, with his own party fractured over the merits of tariffs and Democrats looking to blame the president if the trade war seriously damages the U.S. economy.

“The president is correct in asserting what we have to do with China, how he’s doing it though is empowering them to hurt people,” House Speaker Nancy Pelosi said at an event in Washington on Wednesday, after previously citing China’s treatment of Uighurs, a Muslim ethnic minority, and Tibetans, along with the wider issue of human rights.

The U.S. Trade Representative’s office took a formal step toward implementing the tariffs on Wednesday by publishing a Federal Register notice confirming the duties will increase.

Trump said in another tweet on Wednesday that “China has just informed us that they (Vice-Premier) are now coming to the U.S. to make a deal. We’ll see, but I am very happy with over $100 Billion a year in Tariffs filling U.S. coffers.”

Beijing’s top trade negotiator, Liu He, is traveling to the U.S. on Thursday and Friday for high-stakes talks. U.S. officials have said Chinese negotiators reneged in the past week on provisions in a draft deal the U.S. considered settled. The developments raise the prospect that talks between the U.S. and China to resolve their trade war could collapse entirely.

--With assistance from Shawn Donnan, Anna Edgerton and Justin Blum.

To contact the reporters on this story:

Shannon Pettypiece in Washington at spettypiece@bloomberg.net;

Ye Xie in New York at yxie6@bloomberg.net

To contact the editors responsible for this story:

Alex Wayne at awayne3@bloomberg.net

Andrew Mayeda, Sarah McGregor

© 2019 Bloomberg L.P.

TAGS: Trade
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