China threatens retaliation as Trump touts chances of trade deal

The US and China sent conflicting signals over trade, with President Donald Trump expressing optimism about the prospect of a deal and Beijing warning that it will retaliate if the US follows through on a threat to hike tariffs.

Trump said Wednesday that China indicated it hopes to “make a deal” when senior Chinese officials visit Washington for negotiations Thursday and Friday. The US has said it will to raise tariffs on $200 billion of Chinese goods to 25% from 10% on Friday at 12:01 New York-time.

“We have got an indication they want to make a deal, our teams are meeting with their team tomorrow, we will see what happens,” White House press secretary Sarah Huckabee Sanders told reporters after the president commented in a series of tweets.

US stocks climbed on the comments from the White House. But only hours after Trump’s tweets, China’s Commerce Ministry warned that the government will “have to adopt necessary countermeasures” if the US implements its plan to raise duties. The S&P 500 Index traded little changed as of 12:08 in New York.

“Escalating the trade conflict is not in the interest of the people in both countries and the world. China deeply regrets the move,” the ministry said in a statement.

With less than 36 hours before the higher tariffs take effect, investors are on edge over the risk that talks between the world’s two-biggest economies will derail, sinking hopes for a lasting truce to their trade war.

Hard Ball

“It’s in both countries’ interest to reach a deal. The consequence of a failure is that the economic relationship between the two countries will decouple,” said Cheng Li, research director of the Brookings Institution’s John L. Thornton China Center. “The environment has changed. There’s a possibility that China will play a hard ball.”

In a tweet on Wednesday morning, Trump also took a shot at his challengers, singling out former Vice President Joe Biden, who is running for the 2020 Democratic presidential nomination, saying China would prefer to negotiate with them. Biden has been criticised in recent weeks for playing down the economic threat posed by China, arguing the US is in a much stronger position than Trump credits it with.

“The reason for the China pullback & attempted renegotiation of the Trade Deal is the sincere HOPE that they will be able to “negotiate” with Joe Biden or one of the very weak Democrats, and thereby continue to ripoff the United States (($500 Billion a year)) for years to come….” Trump said. In a subsequent tweet, he wrote, “Guess what, that’s not going to happen.”

Pressure Cooker

Trump’s comments underscore the political pressure he’s under to reach a deal with China, with his own party fractured over the merits of tariffs and Democrats looking to blame the president if the trade war seriously damages the US economy.

“The president is correct in asserting what we have to do with China, how he’s doing it though is empowering them to hurt people,” House Speaker Nancy Pelosi said at an event in Washington on Wednesday, after previously citing China’s treatment of Uighurs, a Muslim ethnic minority, and Tibetans, along with the wider issue of human rights.

The US Trade Representative’s office took a formal step toward implementing the tariffs on Wednesday by publishing a Federal Register notice confirming the duties will increase.

Trump said in another tweet on Wednesday that “China has just informed us that they (Vice-Premier) are now coming to the US to make a deal. We’ll see, but I am very happy with over $100 Billion a year in Tariffs filling US coffers.”

Beijing’s top trade negotiator, Liu He, is traveling to the US on Thursday and Friday for high-stakes talks. US officials have said Chinese negotiators reneged in the past week on provisions in a draft deal the US considered settled. The developments raise the prospect that talks between the US and China to resolve their trade war could collapse entirely.