Trump threatens to hike tariffs on $272 billion of China goods, escalating tension in trade talks

US President Donald Trump on Sunday dramatically increased pressure on China to reach a long-sought trade deal by announcing he will markedly increase US tariffs on certain Chinese goods.
US President Donald Trump at the White House in Washington, US, on May 3, 2019.
US President Donald Trump at the White House in Washington, US, on May 3, 2019. PHOTO: REUTERS

WASHINGTON - President Donald Trump threatened on Sunday (May 5) to raise tariffs on billions of dollars worth of Chinese goods and slap new taxes on billions more in a high-stakes move calculated to pressure China to reach an agreement, but may put this week’s trade talks in jeopardy instead.

The new tariffs, which would cover almost all Chinese exports to the United States, come days ahead of the Beijing trade delegation’s arrival in Washington and has reportedly prompted the Chinese to consider pulling out of this week’s trade talks altogether.

Said Mr Trump on Twitter: “The trade deal with China continues, but too slowly, as they attempt to renegotiate. No!”

But trade watchers said that the President’s pressure tactic might end up alienating Beijing, leaving him with little choice but to follow through on his tariff threat and escalate the trade war between the world’s two biggest economies, instead of concluding it.

Former acting deputy US Trade Representative Wendy Cutler told The Straits Times: “President Trump’s latest tariff gambit against China is high stakes. It could easily backfire if China decides not to send (Chinese vice-premier and lead negotiator) Liu He to the US this week and refuse to re-engage until the tariff threat is removed."

“If this were to occur, we would find ourselves in a serious stalemate with neither side willing to back down and President Trump having no option but to make the threat a reality, with harmful consequences not just for China, but for the United States too and the global economy,” added Ms Cutler, who is the vice-president of the Asia Society Policy Institute.

Mr Trump said that the 10 per cent tariff currently in place on US$200 billion (S$272 billion) of  Chinese goods will go up to 25 per cent on Friday. This revives a hike that had originally been scheduled to take effect on March 1, but which he had postponed indefinitely in late February.

Fresh tariffs will also be imposed “shortly” on another US$325 billion of previously untaxed Chinese goods, said Mr Trump.

His threatened tariffs will together cover almost all Chinese goods exported to the US, which totalled US$539.5 billion last year, according to the Office of the US Trade Representative.

Chinese industrial machinery and electronics parts, among other products, have so far been exempt from the Trump administration’s tariffs.

Trade talks so far have been stalled by unresolved key disagreements between Washington and Beijing, including how a trade deal will be enforced and when tariffs will be lifted.

While China wants tariffs dialled back as soon as the deal is signed, the US is keen to keep them in place for a while to ensure that China complies with the terms of the agreement, and to be able to reimpose tariffs without retaliation if China does not.

Reports emerged from last week’s negotiations in Beijing that the US watered down a key demand that China reduce its subsidies to state-owned enterprises, a central tenet of the Chinese economy.

Mr Trump’s announcement was an abrupt departure from previous optimistic statements from White House officials that talks were going well.

Bloomberg reported that China had backpedalled on some earlier commitments, emboldening trade hawks within the Trump administration to push for a harder line.

Ms Cutler told ST: "When endgame issues hit a major roadblock in trade talks in which I was involved, typically we would postpone the talks until we had greater confidence that we were headed towards closure. The Trump administration has resorted to one tactic - threat of tariff increases - to break the logjam."

"While this tactic has met with some success to date, the latest threat is high stakes and one that could lead to greater harm to the US than China if we lose the Chinese market opening in the table and face high tariffs on lots of consumer products," she added.

Wilson Centre senior associate for North-east Asia Shihoko Goto told ST: "The latest Trump tweet supposedly is to put pressure on China before this week's negotiations, so that Beijing will be confronted by Washington's willingness to squeeze China further and not back down. The logic is that this will force Beijing to capitulate."

But the pressure tactic shows that the White House is more concerned about reducing its trade deficit with China than with addressing any fundamental change in China's trade practices, she said.

 
 

"When it comes to the latter, the United States has a great deal of support, including other Asian countries. By threatening to increase and expand tariffs, there is concern that this tactic will be used not just against China, but against other countries that are currently negotiating deals or may look to have a deal with China in the future," Ms Goto added. 

Mr Hu Xijin, editor-in-chief of China's nationalist paper Global Times, said on Twitter: "President Trump threatens China while he seemingly doesn't understand how tariffs work. Not sure whether US public doesn't understand either. China has long ago prepared for the worst. We won't buy this trick. Moreover, he didn't even scare North Korea."

It remained to be seen whether the President - known for his unpredictable negotiating style and willingness to walk away from talks - was being serious. 

"With President Trump, it is impossible to know which of his threats are real and which are idle. But it is noteworthy that he is dropping this 'bombshell' on a Sunday, when financial markets are closed," wrote Peterson Institute for International Economics senior fellow Chad Bown on Twitter.

The President also said that the tariffs so far had little impact on costs in the US, and were mostly borne by China, statements which economists disputed.

The Trump administration’s tariffs were almost completely passed on to consumers as importers raised the prices of imported goods, according to a study by researchers from the Federal Reserve Bank of New York, Princeton University and Columbia University in March this year.

Their study found that by the end of last year, tariffs cost American consumers and import companies US$3 billion per month in added tax costs, and reduced income by US$1.4 billion per month.

The Tariffs Hurt the Heartland campaign, comprising more than 150 retail, technology, manufacturing and agriculture trade organisations, condemned the tariff hikes in a statement hours after Mr Trump’s tweets on Sunday.

"For 10 months, Americans have been paying the full cost of the trade war, not China. To be clear, tariffs are taxes that Americans pay, and this sudden increase with little notice will only punish US farmers, businesses and consumers," said the group.

It added: "Raising tariffs to 25 per cent could cost nearly one million American jobs, according to recent estimates. This decision will also roil financial markets and increase the likelihood of retaliation on American farmers who are facing the lowest income levels in years."

Said Ms Goto: "For the US consumer, the best case scenario is that this pressure tactic will work out. Otherwise, the impact on domestic prices will be considerable."