US plans to raise tariffs, accuses China of backpedaling on commitments

We felt we were on track to get somewhere. Over the course of last week we have seen an erosion of commitments by China: US Trade Representative

 President Donald Trump’s top trade negotiator said the US plans to raise tariffs on Chinese goods on Friday, accusing Beijing of backpedaling on commitments it made during negotiations.

Still, the trade talks will continue and a Chinese delegation will visit Washington on Thursday and Friday, US Trade Representative Robert Lighthizer told reporters Monday in Washington. Amid those discussions, the Trump administration plans to increase duties on Chinese imports at 12:01 am. on May 10, he said.

“We felt we were on track to get somewhere. Over the course of last week we have seen an erosion of commitments by China. That in our view is unacceptable,” Lighthizer said, adding that significant issues remain unresolved, including whether tariffs will remain in place.

Standard & Poor’s 500 futures fell on the news, along with trade-sensitive stocks including Caterpillar Inc., Apple Inc. and Deere & Co. Semiconductor shares also declined.

Yield on 10-year US Treasury fell six basis points to 2.47 per cent Monday, with most of the decline coming late in the New York day on the back of the tariff news. The dollar fell against the yen and maintained its decline in early Asia-Pacific trading Tuesday and held above lows from early Monday. The Chinese yuan resumed its slide, having recovered from some of its losses from the prior Asia session.

Lighthizer and Treasury Secretary Steven Mnuchin told reporters on Monday that the Chinese backsliding became apparent during their visit to Beijing last week, but that they had been reassured by their Chinese interlocutors that everything would turn out.

That changed over the weekend when China sent through a new draft of an agreement that included them pulling back on language in the text on a number of issues, which had the “potential to change the deal very dramatically,” Mnuchin said. At that stage about 90 per cent of the pact had been finalized, he said, and the Chinese wanted to reopen areas that had already been negotiated.

“We are not willing to go back on documents that have been negotiated in the past,” he said.

What Bloomberg’s Economists Says

“It’s now difficult to put a high probability on any particular outcome. Our base case is that this is an unusually public and messy endgame to negotiations, the truce will hold and a deal ultimately be done. At the same time, the chances of a breakdown in talks and increase in tariffs have clearly increased. The probability of a rapid deal and reduction in tariffs appears low”--Tom Orlik, economist.

The state of the trade talks were cast into doubt after Trump’s surprise announcement over Twitter on Sunday that he planned to raise tariffs on $200 billion of Chinese goods to 25 per cent from 10 per cent because talks were moving too slowly. The president said he may also impose duties “shortly” on $325 billion of Chinese goods that aren’t currently covered, a move that would hit virtually all imports from the Asian nation.

While the prospects of a short-term deal now appear distant, analysts insist both sides have reasons to keep talking.

"It’s important that both sides continue to engage on this. These are the world’s two largest economies and they need to work through their trade problems," said Clete Willems, a former administration official involved in the China talks until recently.

But Willems, who is now a partner at Washington law firm Akin Gump, said the move to increase tariffs should not be a surprise to anyone.

“The only reason that the Administration has gotten as far as it has and made this much progress is because it has been willing to put in place tariffs and has indicated that it will continue to escalate things if the problems aren’t addressed,” he said.

Both Lighthizer and Mnuchin rejected complaints from business groups that the increase in tariffs within a few days would not give companies proper time to plan.

Both said the president had always warned that the tariffs could be raised on the $200 billion list of imports that was hit with a 10 per cent duty in September. But Lighthizer said there would also be an exclusion process for companies seeking to be exempted from the duties.

The two nations imposed duties on a total of $360 billion of each other’s goods last year. Trump and his Chinese counterpart Xi Jinping had declared a tariff truce on Dec. 1 to give time for negotiators to strike a deal.

No Contact

US officials said they haven’t been in contact with Chinese Vice Premier Liu He in the past 24 hours. Liu, China’s top negotiator in the talks, was expected to attend this week’s discussions in Washington, but it wasn’t clear Monday if he would still lead the Chinese delegation.

People familiar with the matter said that during talks last week in Beijing, Chinese officials told their US counterparts they wouldn’t agree to a trade deal that required revisions to Chinese law. China had previously agreed to change its laws as part of the deal, they said.

The change has major implications for provisions of the pact aimed at ending a Chinese practice of forcing US companies seeking to do business in the country to reveal proprietary technologies and other intellectual property.

Lighthizer thought that issues around what’s known as forced technology transfer were resolved and considered the Chinese position on changing its laws to be an attempt to renegotiate, the people said. Lighthizer was angered by the move and briefed Trump.