WASHINGTON/BEIJING (Reuters) – U.S. President Donald Trump said on Thursday he was taking steps to authorize new tariffs on $325 billion in Chinese imports as officials began last-ditch talks to avert an escalation of a trade war that threatens to derail the global economy.
With acrimony between Washington and Beijing rising, there was little time to salvage a trade deal between the world’s two largest economies before another round of punitive tariffs are triggered.
Chinese Vice Premier Liu He, U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin started two days of talks late Thursday afternoon in Washington after a major setback.
Reuters on Wednesday revealed the extent of the rift that has opened between the two countries, reporting that a draft trade agreement text sent by Beijing on Friday night was riddled with changes that marked reversals in Chinese commitments that undermined core U.S. demands.
Trump responded by ordering a tariff hike. Thursday’s trade talks started only just a few hours before the increased duties on $200 billion of Chinese goods, to 25 percent from 10 percent, was due to begin at 12:01 a.m. EDT (0401 GMT) Friday.
Trump said on Thursday he was “starting … paperwork today” to impose a 25 percent tariff on the $325 billion in Chinese goods untouched by the trade war so far.
China is expected to retaliate, as it has with previous U.S. 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 his “America First” agenda aimed at rebalancing global trade and boosting U.S. 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.
Trump said if the two sides cannot make a deal, the United States would go back to manufacturing products that China now makes. “It’ll be the old-fashioned way, the way we used to do it: We made our own product.”
U.S. stock indexes closed lower on Thursday ahead of the trade talks, though they pared losses after Trump said he had received a “beautiful” letter from Chinese President Xi Jinping. U.S. oil prices slid and U.S. Treasury yields fell as investors sought safe-haven assets.
Data released Thursday showed the U.S. goods trade deficit with China shrank to its smallest level in five years in March, which could further embolden Trump as he escalates the trade war with Beijing.
Tariffs will not apply to cargoes that have left China before the 12:01 a.m. Friday start time for the higher rates, U.S. Customs and Border Protection said on Thursday, giving a grace period to shippers with goods en route.
China appealed to the United States to help salvage the deal earlier on Thursday. Commerce Ministry spokesman Gao Feng said the decision to send Liu to Washington despite the tariff hike threat demonstrated China’s “utmost sincerity.”
“The U.S. side has given many labels recently, ‘backtracking’, ‘betraying’ etc. … China sets great store on trustworthiness and keeps its promises, and this has never changed.” he told a news briefing in Beijing.
A source familiar with the talks said China’s changes to the language of the draft trade deal were so extensive it could take a month to fix them, assuming the United States rejects them.
The talks could still go several ways, a person close to the discussions said.
China could make some concessions to prolong talks even after tariffs and retaliation. The two sides could end negotiations, given they are so far apart. Or China could reverse the changes to the text and return the negotiations to where they were a week ago and work toward a deal to be signed at the G20 summit in Japan in June, the source said.
In seven chapters of the draft, China deleted commitments to change laws to resolve complaints that caused the United States to launch a trade war: theft of U.S. intellectual property and trade secrets; forced technology transfers; competition policy; access to financial services; and currency manipulation, sources told Reuters.
The stripping of binding legal language from the draft struck directly at Lighthizer’s highest priority. The U.S. trade representative views changes to China’s laws as essential to verifying compliance after years of what U.S. officials have called empty reform promises.
Trump told supporters at a rally in Florida on Wednesday 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 United States and China would damage the world economy, disrupt supply chains and rattle investors already nervous over a global slowdown.
Additional reporting by David Lawder, Doina Chiacu, Humeyra Pamuk and Alex Alper in Washington, and Se Young in Beijing; Writing by David Lawder; Editing by Paul Simao, Simon Webb and Leslie Adler