Trump's latest tariff threat betrays impatience for a China deal

With the latest volley of tariffs, Mr Trump may be playing one of his final cards. PHOTO: NYTIMES

WASHINGTON (BLOOMBERG) - With his latest tariff threat, President Donald Trump has shown he is growing impatient for a deal and is prepared to risk denting his economy and American consumers' wallets to break the deadlock with an increasingly obstinate Beijing.

China has repeatedly decried such pressure tactics, meaning the latest salvo threatens to extend the impasse should Beijing respond by stepping back from the negotiating table. Already, there are signs officials there are girding for a prolonged confrontation.

Speaking to reporters as he left the White House for a rally in industrial Ohio on Thursday (Aug 1), Mr Trump complained that while he liked China's President Xi Jinping, "frankly he is not going fast enough". At the evening rally in Cincinnati, he said he would be "taxing the hell out of China" until there is a deal.

Behind Thursday's decision to impose a 10 per cent tariff on a further US$300 billion (S$413 billion) in imports from China - ranging from smartphones to children's clothing - is a view that China is slow-walking the talks, people close to the administration say.

They see China reverting to a strategy it has used effectively to wait out US administrations as elections near, with the go-slow only getting worse since Mr Trump and Mr Xi struck a tentative truce in Osaka at the end of June.

That view was reinforced after this week's talks in Shanghai during which Chinese officials offered nothing new and insisted that they would not deliver on any commitments until after US tariffs were removed, according to people familiar with the discussions.

"They'd like to see a new president in a year and a half so they can continue to rip off the United States like they've been doing for the last 25 years," Mr Trump said at the Cincinnati rally. "They'd love to see a guy like sleepy Joe Biden who has no clue what the hell he's doing. They'd say to sleepy Joe, 'Sir, just sign right there'. 'Oh OK, I'll sign'," he said, mocking Mr Biden.

With the latest volley of tariffs, Mr Trump may be playing one of his final cards. Most importantly, China also appears to have decided it can wait Mr Trump out and weather an economic storm starting to cause plenty of harm in the US as well.

"New tariffs will by no means bring closer a deal that the US wants, it will only make it further away," Mr Hu Xijin, the editor of the state-run Global Times, said on Twitter. "I think the Chinese will no longer give priority to controlling trade-war scale, they will focus on the national strategy under a prolonged trade war."

Mr Damien Ma, a China expert who leads the Paulson Institute's in-house think-tank, said one message emerging from a Chinese politburo meeting on the economy earlier this week was that officials were already preparing for a worst-case scenario and ready to cope with more tariffs and a further slowdown in growth.

"If the feeling in Beijing is that they can withstand this because they've already priced it in, then I think that's not a good outcome for negotiations," Mr Ma said.

Mr Trump, meanwhile, is presiding over a US economy that everyone from Federal Reserve chairman Jerome Powell to chief executives have said is slowing as a result of the trade demons he has unleashed.

While Mr Trump on Thursday continued to insist that China was paying the cost of his tariffs, CEOs have in earnings calls over the past few weeks repeatedly detailed the rising direct and indirect costs to their businesses.

The president on Thursday shrugged off the tumble in markets that followed his announcement, which included the steepest fall in the price of crude oil seen in four years on fears over global growth. He is likely to have a harder time dismissing further falls, or a more precipitous slowdown in growth as the 2020 election nears.

Indeed, the impact of his trade wars on the manufacturing sector are growing increasingly evident. A few hours before Mr Trump announced his tariffs on Thursday, the Institute of Supply Management released its July factory gauge showing its fourth straight decline and its worst result since 2016.

"If the President's goal is to bring manufacturing back to the United States, then doubling down on tariffs makes about as much sense as bowling cleats,'' said Mr Kip Eideberg of the Association of Equipment Manufacturers. "At the end of the day this means smaller profits, selective price increases, and supply chains moving from China to countries such as Vietnam and Mexico. It does not mean more American manufacturing jobs."

Another reason the lack of tangible progress at the Shanghai meetings hit a political nerve was Mr Trump's growing frustration that Mr Xi has not delivered on what he took to be a deal in Osaka to ramp up purchases of US agricultural products.

Mr Trump has repeatedly promised farmers, many of whom voted for the president in 2016 and who blame the trade war with China for contributing to the worst farm crisis since the 1980s, that he would deliver them a mountain of purchases that has yet to materialise.

People inside and near to the administration complain that Chinese officials have become increasingly arrogant since talks broke down in May over Beijing's refusal to enshrine agreed reforms in law.

Mr Michael Pillsbury, a China expert at the Washington-based Hudson Institute who has advised the Trump administration, pointed to a statement earlier this week by a Chinese foreign ministry spokesman that the US should not "give medical advice when you are the one who is sick".

"Calling the US president 'sick' from the spokesman podium in front of 50 reporters takes us back 50 years," Mr Pillsbury said. There are those in and around the administration who still see a steady escalation of tariffs as a valid policy objective in its own right.

"We love tariffs. Tariffs are a wonderful thing," White House trade adviser Peter Navarro told Fox Business News ahead of the announcement.

Mr Dan DiMicco, the former Nucor steel CEO who led Mr Trump's trade transition team and has been pushing for an across the board 25 per cent tariff on imports from China, urged Mr Trump to raise tariffs to the "full 25% NOW!".

Others suggest that Mr Trump may be revealing his real hand with the latest escalation.

"What if, all along, President Trump was never really interested in a deal? What if he simply wanted to fulfill his campaign pledge of imposing tariffs on all of Chinese imports?" said Mr Chad Bown, a former member of president Barack Obama's Council of Economic Advisers, who is now at the Peterson Institute for International Economics.

Mr Trump has long sought to project an air of insouciant strength: If we get a deal, great; if we don't, that's okay too.

"He sees the play here as 'either I break the Chinese stall or I'm the toughest president ever on China'," said Mr Derek Scissors, a China expert at the American Enterprise Institute who occasionally has advised the administration.

Thursday's tariff move "fits his behaviour: All or nothing. It's not desperation. It's exasperation," he added.

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