Sending a high-end delegation to Washington for urgent trade talks May 8, China hopes to avoid another round of tariffs slated to go up to 25% Friday, May 10. Beijing has complained the 72-year-old President Donald Trump continues to play hardball with China, especially over copyright and patent infringements, costing U.S. businesses billions in foreign piracy. Unwilling to stop unfair, if not illegal, trade practices, China threatened to cancel the meeting, spooking Wall Street, dropping the Dow Jones Industrial Average over 250 point today, before ending the session 66 points down at 26,438. Wall Street’s recovery shows the resiliency in a full employment economy, adding 263,000 jobs in April, dropping the unemployment rate to 3.6%. Trump’s been in ongoing discussions with China since 2017 when he insisted China reduce its whopping $500 billion trade deficit with the U.S.
Trade discussions so far have been reduced to tit-for-tat tariffs, hurting American businesses more than China. “We are also in the process of understanding the relevant situation. What I can t ell you is that China’s team is preparing to go to the United States for discussions,” said Chinese Foreign Ministry Spokesman Geng Shuang. If Shuang doesn’t understand what’s expected by the U.S. now, it’s doubtful he’ll reach any agreement when the parties meet Wednesday. China sees the U.S. as the aggressor in trade talks, not acknowledging the amount of copyright and patent infringements costing U.S. companies billions in lost revenues. “What is of vital importance is that we still hope the United States can work hard with China to meet each other half way, and strive to reach mutually beneficial, win-win agreement on the basis of mutual respect,” Shuang said, hoping to make a deal.
U.S. Trade Representative Robert Lighthizer confirmed that China had pulled back from previous trade commitments, prompting Trump to threaten more tariffs. “The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No!” Trump tweeted. Without a deal Wednesday, Trump promised to increase the 10% tariff on $200 billion worth of goods to 25%, starting Friday. Trump also promised to target an additional $325 billion in Chinese goods for another 25% in tariffs, letting China know he means business. “The atmosphere of the negotiations has changed,” said an unnamed Chinese official with knowledge of the trade talks. Chinese officials put the onus on Trump to stop applying tariffs, if there’s going to be any trade deal. “All depends on the attitude of the United States,” said the Chinese official, taking no responsibility for China’s unfair trade surplus with the U.S.
No one knows for sure whether Trump’s bluffing ahead of Wednesday’s trade talks. Trump said that tariffs have not resulted in price hikes for Chinese goods-and-services. “The tariffs paid to the USA have had little impact on products costs, mostly borne by China,” Trump tweeted. Raising tariffs means raising taxes on millions of American families and inviting further retaliation on American farmers,” said Christin Fernandez, spokeswoman for the retail industry. Sen. Minority Leader Chuck Schumer (D-N.Y.) urged Trump to stay tough with China. “Don’t back down. Strength is the only way to win with China.” Without the same urgency as before, it’s more likely that the trade war will continue. “The urgency is gone. So, it’s likely to see a longer trade war,” said a trade expert familiar with trade talks. China and the U.S. have lost billions in trade across a wide swath of industries since the trade war began in 2017.
China insists that all tariffs must be removed, despite the fact that China tariffs U.S. goods, especially agriculture sold into Chinese markets. Trump wants to keep some tariffs to make sure China lives up to its bargain about patent and copyright infringements. While dealing with China, Trump wants a fair trade, not free trade, policy where the U.S. can begin to see improvements in trade deficits, now over $500 billion. Threatening to go from 10% to 25% tariffs raises the stakes at a time when the U.S. economy looks poised for growth. While there’s no way to determine when the next recession comes around, imposing high tariffs could trigger another stock market sell-off, like the one that plunged market at the end of 2018 by 25%. Trump seems less concerned about potential recession, something that would rain on Wall Street and today’s aggressive economic growth.
Playing a dangerous game of chicken with Beijing, Trump thinks he can win the trade war but only with cuts to U.S., companies. Trump’s tariffs have already disrupted the supply chain for many U.S. electronics companies, something vulnerable to the current trade war. When the U.S. and China sit down on Wednesday, the U.S. should meet China halfway, not insist on bumping up tariffs to 25%, something that could have catastrophic consequences on Wall Street and the U.S. economy. Trump knows his reelection is contingent on the economy finishing strongly in 2020. Any sign of economic weakness would be seen unfavorably. More looses to the trade war will have dire consequences on the U.S. economy, potentially triggering a bear market on Wall Street. Raising tariffs to 25% would hurt U.S. business far worse than China, where the government still subsidizes most industries.
