Mixed messages coming from the US on the trade war with China could sink prospective negotiations before they begin, damaging prospects for a resolution to the growing dispute.
With President Donald Trump telling aides to proceed with additional tariffs on Chinese products, the Chinese government is considering declining the offer of talks, according to a Wall Street Journal report, which cited officials with knowledge of the discussions, Bloomberg reported.
Beijing last week welcomed the invitation to meet with US Treasury Secretary Steven Mnuchin, an offer which was then undermined by a tweet from the president.
Stocks in Asia and Europe tumbled on Monday and futures for US equities all pointed to a weaker open as a rally late last week on optimism of talks fizzled.
The lack of unity within the US administration on trade isn’t new—Chinese and American officials have held a series of talks over the dispute, and reached at least one agreement which was subsequently abandoned by Trump. The lack of progress and collapse of that deal have made future negotiations more difficult, as it’s unclear who speaks for the US administraation and there’s a lack of confidence that any deal will be honored.
Trust Deficit
“The two sides are still lacking trust,” said Raymond Yeung, chief greater China economist for Australia & New Zealand Banking Group Ltd. in Hong Kong. “China sees the US’s action following Vice Premier Liu He’s visit in May as dishonorable,” he said, adding that Trump’s tariff threat only rubs salt into the wound.
Officials from both countries have met four times for formal talks, most recently in August, when treasury’s undersecretary for international affairs, David Malpass, led discussions in Washington with Chinese Vice Minister Wang Shouwen. The collapse of the May talks between Liu He and Mnuchin left Mnuchin discredited with Beijing as an interlocutor, according to people who have met with senior Chinese officials in recent weeks.
The Chinese Foreign Ministry has repeatedly called for talks based on “equality and good faith”, indicating their concern about previous rounds of negotiations.
“Given divided trade policy preferences within the administration and continued news flow that hints at President Trump’s preference for tariffs, it remains unclear if potential high-level talks will yield any meaningful results,” according to a research note from Nomura Holdings Inc. economists in the US. “We see increasingly fewer reasons for the Trump administration to divert from the gradual trajectory towards more protectionism, especially on China.”
Potential Retaliation
Beijing isn’t prepared to negotiate with a “gun pointed to its head”, according to the Wall Street Journal report, adding that officials are also considering potential retaliation steps, the report said. China has already detailed thousands of US items that it would levy extra tariffs on if the $200 billion threat is carried out.
China’s commerce and finance ministries didn’t immediately respond to request for comment Monday on the trade discussions, but the comments are similar to statements by Chinese officials over the past few months.
“If one party does not honor its words, talks cannot succeed,” Vice Minister Wang said in an interview in Geneva in July. For negotiations to succeed, “no party should point a gun at the other party,” he said.
Some Chinese officials advising the leadership are proposing to step up the trade fight a notch by restricting China’s sales of materials, equipment and other parts key to US manufacturers’ supply chains, the Wall Street Journal report said. Such restrictions could even apply to Apple Inc.’s iPhones, which are assembled in the mainland, the report said.
US Offensives
It’s nothing new for the US administration to try to escalate tensions so as to exploit more gains at the negotiation table and China “will not just play defense” against the backdrop of “successive US offensives in the trade war,” the Global Times, a tabloid run by the official People’s Daily, said in an editorial late Sunday.
An announcement of the new round of tariffs has been delayed as the administration considers revisions based on concerns raised in public comments, according to four people familiar with the matter. Trump may be running low on products he can target without significant backlash from major US companies and consumers, two of the people said.
The new round of tariffs would be in addition to those on $50 billion of Chinese goods that already face a 25% duty. The Chinese have retaliated with tariffs on an equivalent amount of US exports and have promised to retaliate against future rounds of US duties.
Trump has threatened a third tranche of tariffs on another $267 billion of Chinese imports, which would mean levying duties on nearly everything China exports to the US. Trump said at the time those tariffs were “ready to go on short notice”, but the administration hasn’t yet published a list for public comment.
The White House isn’t just dismissing technology companies’ concerns about tariffs on China, it’s picking up the pace. Both Reuters and the Wall Street Journal have learned that the Trump administration is likely to formally announce its latest tariffs on Chinese goods within the next few days (possibly as soon as September 17).
Forecasters have warned that the worsening conflict between the world’s two biggest traders could cut up to 0.5 percentage point off global economic growth through 2020 if all threatened tariff hikes go ahead.
China has tried without success to recruit Germany, France, South Korea and other governments as allies against Washington. Some of them have criticized Trump’s tactics but many echo US complaints about Chinese market barriers and industrial strategy.
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