U.S. President Donald Trump, frustrated by increasingly fruitless negotiations with China, said the United States would impose a 10-per-cent tariff on an additional US$300-billion worth of Chinese imports next month, a significant escalation in a trade war that has dragged on for more than a year.
Mr. Trump had agreed in June not to impose more tariffs after meeting with Chinese President Xi Jinping and agreeing to restart trade talks. But the President said he was moving ahead with the levies as of Sept. 1 as punishment for China’s failure to buy more U.S. agricultural products and stem the flow of fentanyl into the United States, as it had promised.
The new tariff would be in addition to the 25-per-cent levies that Mr. Trump has already imposed on US$250-billion of Chinese imports and would result in the United States taxing nearly every Chinese product sent to the U.S., from toys to televisions to tires.
Mr. Trump’s move, which will most likely be met with reciprocal punishment by China, increases the likelihood that the world’s two largest economies will be locked in a protracted trade dispute for months, if not years. While both sides continue to negotiate, the United States has insisted that China buy more farm goods and agree to cement certain changes into Chinese law. Beijing has insisted it will only enter into a trade deal that carries benefits for both sides, and seems increasingly confident it can wait out the trade war indefinitely.
Mr. Trump seems content to rattle the U.S. economy, despite the economic and political consequences. On Thursday, his building frustration with the grinding pace of the negotiations boiled over.
“We thought we had a deal with China three months ago, but sadly, China decided to re-negotiate the deal prior to signing,” Mr. Trump said on Twitter. “More recently, China agreed to buy agricultural product from the U.S. in large quantities, but did not do so.”
...during the talks the U.S. will start, on September 1st, putting a small additional Tariff of 10% on the remaining 300 Billion Dollars of goods and products coming from China into our Country. This does not include the 250 Billion Dollars already Tariffed at 25%...— Donald J. Trump (@realDonaldTrump) August 1, 2019
The President said that China also did not fulfill its commitment to stop the sale of fentanyl, a potent synthetic opioid, into the United States.
“Until such time as there is a deal, we’ll be taxing them,” Mr. Trump said in remarks at the White House.
Mr. Trump’s comments hammered the stock market. The S&P 500 had been up 1 per cent shortly before 1 p.m., with strong gains seen among technology companies such as semiconductor makers. But the market tumbled sharply after the threat to impose the new tariffs appeared on Twitter. The drop erased all the day’s gains and more, with the benchmark stock index closing down nearly 1 per cent.
Oil prices, which are sensitive to global growth concerns, also fell sharply after the President’s tweets.
The announcement came just after the President’s top advisers returned from two days of trade talks with their Chinese counterparts in Shanghai. There were few signs of real progress and both sides released perfunctory statements when the meetings concluded, saying there would be additional discussions in Washington next month.
Before those talks even began, Mr. Trump took to Twitter to berate China for failing to buy U.S. farm goods and mocking its recent economic slowdown. And he suggested that Beijing was trying to slow-walk negotiations ahead of the 2020 election and hoping that a Democrat would win the White House.
China says it has been preparing to make agricultural purchases, and on Sunday the state-run Xinhua news agency reported that millions of tonnes of American soybeans had been shipped to China. But elsewhere, Chinese officials have continued to insist that they are not making purchases as a condition of the talks. On Wednesday, Xinhua characterized China’s agreement to buy more U.S. farm products as being “according to its own domestic needs and favourable conditions to be offered by the U.S. side for the purchase.”
While Trump described the 10-per-cent tariff as “small,” it will further compound economic damage from his long-running trade war. Unlike his previous tariffs, this round would hit a broad swath of consumer products and could dampen consumer spending at time when economic growth has already begun to cool.
On Wednesday, the Federal Reserve lowered interest rates in part because of the spat with China, which threatens to crimp the economic expansion. Fed chairman Jerome Powell said the quarter-point cut, the Fed’s first since the depths of the 2008 financial crisis, was “intended to ensure against downside risks from weak global growth and trade tensions.” Mr. Powell said Mr. Trump’s trade fights “do seem to be having a significant effect on financial market conditions and the economy.”
Markets, which had pulled back their expectations for future rate cuts after Mr. Powell’s remarks, moved toward pricing in two more reductions by year end after Mr. Trump’s tweets.
After Democratic presidential candidates took to the debate stage this week to criticize Mr. Trump’s China policy and muse about the possibility of returning to the Trans-Pacific Partnership to corral China, the President demonstrated that he would not be deterred from using more tariffs as his negotiating tool of choice.
“Trump is essentially confirming the seemingly inevitable escalation of the trade war that seems in prospect given the gulf in negotiating positions and the broken trust between Chinese and U.S. negotiators,” said Eswar Prasad, the former head of the International Monetary Fund’s China division. “Both sides now seem to be settling in for a broad and unremitting trade war that will last at least through this term of Trump’s presidency.”
Caught in the middle are businesses and consumers, who are being pinched by the tariffs through higher costs and retaliatory punishment. Farmers, in particular, have been hurt as Beijing slowed its purchases of farm products.
In June, hundreds of businesses across the United States sent representatives to the Office of the U.S. Trade Representative to express their concerns about the prospect of more China tariffs. Some businesses with exposure to China have said the additional tariffs – which will raise prices on products such as toys, electronics, sporting goods, household appliances, books and food – could force them out of business.
“The tariffs imposed over the past year haven’t worked, and there’s no evidence another tax increase on American businesses and consumers will yield new results,” said David French, the senior vice-president for government relations at the National Retail Federation. “We are disappointed the administration is doubling down on a flawed tariff strategy that is already slowing U.S. economic growth, creating uncertainty and discouraging investment.”
A delegation from China was scheduled to come to Washington for more trade talks next month, but it is not clear if the new tariffs will change those plans.