Trump’s tariff hike on Chinese goods takes effect as talks stall

Sharply raising the stakes in the trade battle with China, the Trump administration moved ahead with plans to significantly hike tariffs on imports from that country — even as U.S. and Chinese negotiators continue to talk in Washington in hopes of reaching a deal.

As of Friday, tariffs on $200 billion in products from China — including electronics, medical devices, seafood, clothing and handbags — will go up from the current 10% to 25%. The new tariff move was expected to be met with retaliatory measures from China.

The onset of new duties ends a cease-fire agreed to by President Trump and Chinese President Xi Jinping six months ago after a series of tit-for-tat tariff actions. And it increases the odds of a full-on trade war between the two largest economies that would have ripple effects around the world.

The White House, however, issued a short statement late Thursday indicating that the two sides would keep talking, led by U.S. Trade Representative Robert Lighthizer and Xi’s chief trade negotiator, Liu He, saying, “This evening, Ambassador Lighthizer and [Treasury] Secretary [Steven T.] Mnuchin met with President Trump to discuss the ongoing trade negotiations with China. The ambassador and secretary then had a working dinner with Vice Premier Liu He, and agreed to continue discussions tomorrow morning.”

Analysts had worried that the Chinese, feeling insulted, would walk away from the talks and return home if the new punitive tariffs were imposed.

Unlike previous tranches of tariffs imposed by Trump, the new ones are structured to give at least a couple of weeks of cushion before the higher import taxes will be assessed on goods arriving by ship. The higher tariffs would apply to products that left China on or after 12:01 a.m. Eastern time Friday, meaning ships in transit before then would not be taxed at the new rate. Container ships from China typically take two to three weeks to reach the West Coast.

Even so, analysts said the prospects for reaching a deal within that time frame did not look optimistic.

“It feels as if it’s now become more tense and with more risks on the table for both sides politically,” said Claire Reade, a former assistant U.S. trade representative responsible for China.

Although the two sides held 10 rounds of talks before this week and previously reported substantial progress, U.S. and Chinese negotiators appear to be struggling with some key remaining issues, such as how to enforce commitments made by China and how much of the tariffs would be removed, if any.

With Friday’s move, Trump has now imposed 25% tariffs on $250 billion in Chinese goods. He also has threatened to slap 25% duties “shortly” on an additional $325 billion in Chinese imports, which would cover practically all products coming into the United States from China.

Trump said earlier Thursday that his administration has started the paperwork to implement those additional tariffs, although it wouldn’t be until late June, at the earliest, before they could take effect.

Friday’s tariffs and threats of more to come are a striking turnabout from just a few weeks ago, when Trump spoke of closing in on a landmark deal and the two sides seemed to be thinking about where and when Trump and Xi could meet for a deal-signing ceremony.

The two sides have been talking off and on since early last year, when Trump began to take punitive measures against China, complaining about the United States’ big trade deficit with the country — about $340 billion in 2018 — and what he characterized as Beijing’s unfair business dealings.

Trump’s top trade negotiator, Lighthizer, has sought to extract enforceable commitments from China to address long-standing grievances about market access, government subsidies, intellectual property protections and technology acquisition policies.

On Sunday, however, Trump posted on Twitter that a deal was taking too long and threatened to hike tariffs to 25% on Friday. Lighthizer later attributed Trump’s hardened attitude to what he described as “an erosion in commitments by China,” although he declined to provide details.

At a White House event on Thursday, Trump said: “We were getting very close to a deal, then they started to renegotiate the deal. We can’t have that. We can’t have that.”

Trump said he received a “very beautiful letter” from Xi and indicated that he would probably be speaking with him by phone.

Surprised by Trump’s ultimatum on Sunday, Chinese officials considered canceling the previously scheduled talks for this week but then decided to go ahead with the trip to Washington.

Liu, Xi’s top trade official who has been involved in the talks since last year, arrived Thursday, a day later than scheduled.

That the high-profile Liu came at all had left open the possibility that the Chinese could make a revised offer — a Hail Mary pass, as Reade put it — that would satisfy U.S. demands. Trump has backed away twice in the past from threats to put on higher tariffs.

Analysts appear divided on the longer-term outlook.

On the one hand, both Trump and Xi have economic incentives to reach a resolution. The trade conflict has hurt farmers and businesses and could potentially cause considerable damage to the economies of both countries.

U.S. and global stock markets have retreated this week and are likely to drop further Friday. Thus far, though, the selloff has not been as severe as many people feared, perhaps in part because the two sides have kept talking.

What’s more, the cushion built into the latest tariffs suggested that there’s still hope that Trump could rescind or postpone the higher tariffs before shipments from China in transit actually arrive and hurt businesses.

“I think they’re circumspect about the whole thing,” said Ted Murphy, a trade lawyer at Baker & McKenzie in Washington who advises clients on customs matters. “Prior reports and statements had been positive, pointing to a potential resolution.”

Trump has repeatedly said the tariffs on Chinese goods are paid by China, but experts widely agree that the brunt of the pain is borne by various parties in the United States.

“Tariffs are taxes, plain and simple. And they’re paid for by U.S. consumers, workers and businesses — not by China,” said Gary Shapiro, chief executive of the Consumer Tech Assn.

In doubling down on tariffs, Trump may have become emboldened by a stronger-than-expected domestic economy. There also is bipartisan support in Washington for the United States to confront China on a range of issues, including its state-controlled industrial policies.

A full-blown trade war, however, will test the patience of even some of Trump’s staunchest supporters, and Trump himself is known to be particularly sensitive to stock market gyrations.

Xi, for his part, may feel his back is almost against the wall. He is trying to deal with a host of domestic financial and social challenges. Xi wants to see solid economic growth and technological advances that would help maintain the Communist Party’s grip on power.

Trade tensions with America present a threat. Chinese merchandise shipments to the United States account for almost a fifth of the country’s total exports. And Chinese exports already have been hurt by the trade conflict.

At the same time, Xi and other party leaders do not want to cave to American demands that they believe would infringe on China’s sovereignty and endanger its political and economic system.

The U.S. and Chinese economies have become intertwined over the decades, but neither is thought to be so dependent on the other that it could not survive without it. And many experts believe the trade battle is just a part of a widening escalation of bilateral tensions between two nations with fundamentally opposing ideologies that will play out for years to come.

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