US, China scramble to revive deal as trade truce collapses

China and the United States head on Thursday into a make-or-break round of trade war negotiations with hopes of a deal hanging by a thread after Washington scheduled a massive tariff hike on Chinese goods.

After months of seemingly collegial talks, Chinese trade envoy Liu He returns to the bargaining table in the US capital under a tense atmosphere after US negotiators accused Beijing of reneging on previously agreed commitments.

President Donald Trump tweeted on Wednesday that Liu still wanted to “make a deal,” but the US leader boasted about tariffs that were “not good for China.”

The United States plans to increase tariffs on $200 billion in Chinese goods from 10 to 25 per cent on Friday, prompting Beijing to vow to hit back with “necessary countermeasures.”

“By the way, do you see the tariffs we’re doing? Because they broke the deal! They broke the deal!” Trump said at a rally in Florida on Wednesday.

“So they are flying in — the vice premier tomorrow is flying in. Good man. But they broke the deal. They can’t do that. So they’ll be paying if we don’t make the deal.”

This was not how the week was initially meant to go.

The sudden rupture has roiled global stock markets this week, inflaming anxieties among exporters, markets and industries that had been lulled into optimism in recent months as both sides steadily announced progress in their efforts to end the trade war Trump started last year.

Chinese stocks extended the slide on Thursday falling in morning trading.

American officials this week accused their Chinese counterparts of retreating from major planks of an agreement they had been working toward since early in the year that aims to resolve Washington’s grievances of industrial theft, massive state intervention in markets and a yawning trade deficit.

“It turns out the Chinese had pulled out an eraser and started taking back things that they had offered,” said Scott Kennedy, a China trade and economics expert at the Center for Strategic and International Studies.

“They didn’t realize when they pulled their concessions off the table that the administration would have the reaction that it did,” he told AFP.

Kennedy warned that the “possibilities for miscalculation on both sides is pretty high.”

There’s a lot of pressure

Since last year, the two sides have exchanged tariffs on more than $360 billion in two-way trade, gutting US agricultural exports to China and weighing on both countries’ manufacturing sectors.

US Trade Representative Robert Lighthizer released an official notice on Wednesday making the tariff increase a virtual fait accompli.

Punitive duties on a vast array of Chinese-made goods, from electrical equipment to machinery to seafood to furniture, will jump to 25 per cent at midnight on Thursday (0400 GMT Friday).

Chinese producers of the impacted goods this week said the abrupt tariff hike had wreaked havoc on operations and would bring high costs, layoffs and further shifts of production to Southeast Asia.

“If the tariffs go up to 25 per cent, costs will go up, customers so far have suspended orders, I don’t know what will happen,” said Emily Wang of Hainan Zhongyi Frozen Food, which exports tilapia.

Washington has demanded far-reaching and profound changes to the Chinese economy, such as submitting state enterprises to market principles, reducing massive subsidies and ending the alleged theft of US technology.

Analysts say China will be reluctant to make many of these changes, which could undermine the Communist Party’s political power.

And each side possibly believes it is better positioned than the other to survive the dispute, according to Kennedy.

Trump suggested that he would be just as content to strike a deal as to leave punitive import duties in place, believing they generate billions in government revenue.

“We’ll increase tariffs on China. We won’t back down until China stops cheating our workers and stealing our jobs,” Trump told the Florida crowd.

“The era of economic surrender is over.”

Please the Grand Poobah

While US companies complain of lost export markets, disrupted supply chains and higher costs, Americans continue to see steady growth and falling unemployment.

Anthony Nieves, who heads a survey of the services sector by the Institute for Supply Management, said the tariffs were hitting China “a lot more than what we’re feeling over here in the states. There’s a lot of pressure on them.”

Various media accounts indicated the Chinese side had balked at US demands that Beijing codify the seven-chapter agreement in Chinese law and publish the text of the deal, or indeed had sought to weaken most of its core elements.

Mary Lovely, an economist at Syracuse University, said the Chinese objected foremost to enacting a law to ratify the agreement, given that the text of any accord was likely to be “vague.”

She doubted the Chinese side had simply miscalculated the potential American reaction, adding that Liu likely still believed he could offer enough concessions to ensure a deal with the Americans.

“They’re bringing enough gifts to please the Grand Poobah in the White House,” she said. “Otherwise, I don’t think Liu would be coming.”

Agence France-Presse