President Donald Trump said on Tuesday a trade deal with China might have to wait until after the U.S. presidential election in November 2020, denting hopes that the two largest economies would soon reach an initial deal to ease their damaging trade war.
“I have no deadline, no,” Trump told reporters in London, where he was due to attend a meeting of NATO leaders.
“In some ways, I like the idea of waiting until after the election for the China deal. But they want to make a deal now, and we’ll see whether or not the deal’s going to be right; it’s got to be right.”
Trump’s remarks sent stock prices tumbling and triggered a rush into safe assets such as U.S. Treasury debt. MSCI’s measure of global stock performance slid 0.9 per cent, while the U.S. benchmark S&P 500 Index dropped 1.22 per cent, its largest fall in nearly two months. Investors piled into government bonds, driving the yield on the 10-year U.S. Treasury note to a one-month low near 1.7 per cent. The dollar weakened against a basket of key trading partners’ currencies.
Trump’s comments came as sources in Beijing and Washington familiar with the talks said that the two countries have made progress, but are still wrangling over whether existing U.S. tariffs will be removed and over specific levels of Chinese purchases of U.S. agricultural products as part of a “phase one” trade deal.
“The Chinese side must have such a requirement, because the Chinese side has promised more U.S agricultural purchases. This is in a way, to some extent, a transaction,” a Chinese source who advises Beijing on the talks told Reuters.
A Washington-based source briefed on the talks said that the U.S. side is willing to remove some tariffs, but wants additional concessions from Beijing to curb the forced transfer of American technology to Chinese firms.
While the deal being discussed includes new protections for trademarks, copyrights and other intellectual property, trade sources have said it would leave the most difficult technology transfer issues to future talks.
Trade experts say the most likely tariffs to be removed would be 15 per cent duties imposed on Sept. 1 on about $125-billion of Chinese consumer goods, including smart speakers, Bluetooth headphones, television sets and footwear.
But Trump’s most recent trade actions may leave Chinese officials concerned about whether he would uphold an initial deal.
On Monday, he said he would hit Brazil and Argentina with trade tariffs for “massive devaluation of their currencies.”
The United States then threatened duties of up to 100 per cent on French goods, from champagne to handbags, because of a digital services tax that Washington says harms U.S. tech companies.
“All of these things are affecting the Trump administration’s credibility, but both sides have credibility problems,” said Scott Kennedy, a China economics expert at the Center for Strategic and International Studies in Washington.
NO IN-PERSON TALKS
U.S. Commerce Secretary Wilbur Ross on Tuesday said that while staff-level talks are continuing with Chinese officials, no high-level meetings are scheduled.
If there is no deal or substantial progress in talks before Dec. 15, tariffs on remaining Chinese imports, including cellphones, laptop computers and toys, will take effect, Ross told CNBC on Tuesday.
“I think it’s also important that the president make clear: he’s under no time pressure to get it done. Because otherwise there’s a tendency of the other side to say ‘Oh, he needs it for political reasons, so we’ll give him a worse deal than we would.’ He’s not going to play that game.”
But Seema Shah, chief strategist at Principal Global Investors, said Trump could not afford a repeat of the stock market’s sharp falls in late 2018, when he raised the temperature of the trade standoff.
“The Chinese government believes that President Trump is desperate for a deal before the end of the year, when the race for the presidential election will really heat up,” Shah said.
“Trump’s latest comments are a ploy to regain the upper hand in these negotiations.”
Washington and Beijing have yet to ink a “phase one” agreement announced in October, which had raised hopes of a de-escalation.
Trump and Chinese President Xi Jinping had planned to meet and sign the preliminary trade deal at an Asia-Pacific leaders’ summit in Chile in mid-November, but the summit was cancelled because of violent anti-government protests in Santiago.
Trump, who had said in September that he did not need a deal before the 2020 election, sought on Tuesday to put pressure on Beijing.
“The China trade deal is dependent on one thing – do I want to make it, because we are doing very well with China right now, and we can do even better with a flick of a pen,” he said. “And China is paying for it, and China is having by far the worst year that they have had in 57 years. So we’ll see what happens.”
China reported its slowest economic growth in 27 years in October as the trade tensions with the United States hit its manufacturing sector.
On Monday, before travelling to London, Trump said U.S. legislation backing protesters in Hong Kong was not making trade negotiations with China easier, but he believed Beijing still wanted a deal with the United States.