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Trump says China ‘broke’ trade deal as Liu heads to Washington

May 09 2019 10:40
Alyza Sebenius, Jenny Leonard and Andrew Mayeda, Bloomberg

US President Donald Trump declared that China’s leaders “broke the deal” he was negotiating with them on trade, ratcheting up his rhetoric ahead of fresh negotiations already clouded by imminent tariff increases and Beijing’s threats of retaliation.

At a campaign rally Wednesday night in Panama City Beach, Florida, the president noted that top Chinese trade negotiator Liu He was traveling to Washington for further talks. “Good man,” Trump said, “but they broke the deal,” leading him to raise tariffs.

The Chinese delegation left Thursday for negotiations in the US, the Ministry of Foreign Affairs said in Beijing. The Ministry of Commerce separately announced that it would soon publish details of planned retaliatory tariffs while urging cooperation between the two sides to resolve the dispute.

Global stocks slumped with US equity futures Thursday while the yuan dropped to its weakest since January. Some analysts believe a collapse in talks could trigger a major selloff in risk assets.

Trump and his trade team discussed the next steps in the dispute and who should meet with Liu while he’s in Washington in a heated debate at the White House on Tuesday, people familiar with the internal deliberations said. The meeting became contentious when Treasury Secretary Steven Mnuchin made his case for putting trust in Liu that China would come back with a satisfactory offer to close the deal.

The president and his advisers concluded that he should only meet with Liu if the two sides make progress in the talks and that the decision would be made on short notice, the people said. Liu got an Oval Office sit-down with Trump every time he traveled to the US for trade talks in recent months.

Tariff Pressure

Meanwhile, US Trade Representative Robert Lighthizer has been calling members of Congress telling them to brace for no deal and to confirm that the tariff increase is firm, one person briefed on the deliberations said.

The US has said it would raise tariffs on $200 billion of Chinese goods to 25% from 10% Friday after alleging China reneged on provisions of a draft trade deal the White House considered settled. The Chinese government has said it will retaliate with “necessary countermeasures” if the US raises tariffs.

Both sides still want to reach a deal, but can’t get over the last few disputes, China’s state-run Global Times wrote in a editorial on Thursday, adding that China and the US seem ready to shift to the “fighting while talking” mode from the previous truce agreed in December.

“We hope that the US can work together with China and meet each other halfway on the basis of mutual respect and equality,” Foreign Ministry spokesman Geng Shuang said at a regular briefing Thursday in Beijing.

China’s refusal to commit to law changes as part of the deal made it impossible that a final agreement can be reached this week, people briefed on the negotiations said. They noted that apart from the most recent rift in the talks, there are other major outstanding issues such as the removal of the existing tariffs between the two nations that still have to be resolved.

At the rally Wednesday evening, Trump said there was “nothing wrong with taking in $100 billion a year” in tariffs on Chinese imports, in the absence of a trade deal. “They come in tomorrow and whatever happens, don’t worry about it. It will work out. It always does,” he said.

Some trade lawyers cautioned the notice outlining Friday’s tariff increase appeared to leave some wiggle room for goods that were already on boats to the US and would arrive after the tariffs were set to kick in Friday. That could also leave some more weeks to negotiate, they said.

Trump has a long history of attacking China at campaign rallies, although he has adopted a more diplomatic approach and even courted Xi Jinping and senior Chinese officials in official meetings. He has also threatened to label China a currency manipulator, but still hasn’t done so.

Delegation Arriving

The Chinese delegation headed by Liu - a Communist Party Politburo member and vice premier - is scheduled to be in Washington for two days of talks with US officials.

Trump’s hawkish supporters inside and outside the administration cheered the hard-nosed approach.

“Welcome to Thunderdome - the long economic war waged on America by the CCP has now been joined by President Trump,” said Steve Bannon, Trump’s former chief strategist.

That support for further escalation stands in stark contrast with many congressional Republicans, who are hoping the threatened tariff increase is really just a negotiating ploy and the countries will ultimately be able to reach a deal.

The imposition of new tariffs and a “complete breakdown” in negotiations would probably cause a drop of 10% to 15% in US stocks from their highs, and a 15% to 20% plunge in Chinese equities, UBS Global Wealth Management Chief Investment Officer Mark Haefele said in a note this week.

“It remains our base case that the US and China will ultimately reach a deal, but with the deadline for the imposition of new tariffs now very short, the path to that deal could well be bumpier than it once looked,” Haefele said.

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