China ‘Broke the Deal’ on Trade, and Trump’s Retaliation Starts Friday

China ‘Broke the Deal’ on Trade, and Trump’s Retaliation Starts Friday

WASHINGTON — A pivotal round of trade talks between the United States and China gets underway on Thursday but American businesses are bracing for higher tariffs on Chinese imports as a quick resolution to resolve a yearlong trade war becomes increasingly unlikely.

Just a week ago, Wall Street and the nation’s largest industry lobbying groups were hopeful that the world’s two largest economies were on the cusp of securing a historic trade treaty. But President Trump’s anger at China for backtracking on big parts of an emerging deal has raised fears that the fragile negotiations are on the verge of collapse.

At a rally in Florida on Wednesday night, Mr. Trump vented that China reneged on its commitments.

“They broke the deal,” he said, adding that he was just as happy to punish China with tariffs.

Mr. Trump plans on Friday morning to raise tariffs on $200 billion worth of Chinese imports to 25 percent from 10 percent, including many consumer products that Americans rely on from Beijing, like seafood, luggage and electronics. The standoff is expected to raise prices for American companies and their customers across a large swath of sectors, potentially sending global stock markets falling.

The talks are due to resume around 5 p.m. at the offices of the United States Trade Representative.

Stock markets fell in the United States on Thursday morning, with the S&P 500 index down slightly more than 1 percent after trading began.

Despite Mr. Trump’s affinity for corporate America, its vocal concerns about the damage from the president’s trade war and tariffs have done little to change the White House’s approach.

“Clearly, we think a negotiating strategy based on tariffs is the wrong direction,” said David French, senior vice president of government relations at the National Retail Federation. “We’re certainly hopeful that the Chinese, when they come to Washington this week, come with a plan to make substantial concessions to avert this disaster.”

But Mr. Trump, already emboldened by a healthy American economy, may be encouraged to keep his trade war going given the monthly trade deficit with China fell in March to its lowest level since 2014 as China slowed its exports to America. The overall United States trade deficit with the world increased 1.5 percent in March to $50 billion, as it continued to import more goods and services than it exported worldwide.

Retailers wielded their influence successfully in 2017 when Republicans were considering a tax plan that they believed would have harmed their businesses. But when it comes to trade, Mr. French said that the Trump administration had been intransigent about their tariff concerns. To make its point, the retail association has been holding events featuring businesses that are suffering from tariffs in politically important states like Ohio.

Most business groups agree with Mr. Trump that China treats the United States unfairly on trade. They think that intellectual property protections need to be bolstered and that China’s subsidies of state-owned enterprises must be curbed. Yet they also believe that the economic pain of tariffs makes them a poor negotiating tool.

“When the U.S. and China fight, nobody wins, as the past year’s market gyrations, lost deals, and strained diplomatic ties have made abundantly clear,” said Peter Robinson, chief executive of the United States Council for International Business. “American business continues to have major problems with China’s commercial policies, but we simply must find a way to tackle these that doesn’t turn our most competitive companies into collateral damage.”

Mr. Robinson suggested that the United States should team up with other trading partners to pressure China to change its ways and work with the World Trade Organization to adjudicate its complaints.

The United States and China appeared to be closing in on an agreement after more than a year of talks. Despite the sense of optimism, which Mr. Trump had often fanned, some of the president’s top advisers signaled last week that the administration was running out of patience.

Speaking at the Milken Institute Global Conference in Los Angeles last week, Mick Mulvaney, the White House chief of staff, said that the talks would not “go on forever.” Steven Mnuchin, the Treasury secretary, said the negotiations were in their “final laps” and noted that it would soon be evident if it were time to strike a deal or walk away.

Asked at the conference if he was feeling optimistic about the talks, Stephen A. Schwarzman, the chief executive of Blackstone and a confidant of Mr. Trump, rolled his eyes and said, “we’ll see.”

After Mr. Mnuchin and Robert Lighthizer, Mr. Trump’s top trade negotiator, returned from a trip to Beijing last week, they were angered to receive from their Chinese counterparts a new draft of the agreement with major revisions to provisions they thought had been agreed to. According to people who have been tracking the talks, Chinese officials determined that many of the concessions they were being asked to make would clash with Chinese laws, which the government was not prepared to change.

“The administration has been talking to China for months now about specific things that needed to change in Chinese law,” said Clete Willems, a former member of Mr. Trump’s trade team who left recently to become a partner at the law firm Akin Gump. “The administration was operating under the assumption that some of that would be part of the deal, so to the extent that China is saying that’s no longer possible, that is a pretty big reversal.”

Despite Mr. Trump’s threat of higher tariffs, China decided that it would send a delegation, led by Vice Premier Liu He, to Washington nonetheless. Still, it remains unclear if there will be sufficient time to avert the tariff increase and how forcefully China will respond.

Mr. Willems said that while both sides have overcome setbacks, Mr. Trump and his economic team believe that the progress that they have made with China is directly related to the president’s willingness to impose tariffs.

“I do think more likely than not you’re going to see tariffs going into place tomorrow,” Mr. Willems said. “This is not a bluff by the president.”

This week Mr. Lighthizer has warned members of Congress to be prepared for the tariffs to increase, according to people familiar with the discussions, while Mr. Mnuchin has expressed hope that Mr. Liu will bring meaningful concessions to the table.

Although there appears to be little time to resolve their remaining differences before the Friday deadline, a Trump administration official clarified that the higher tariffs would hit products leaving China on May 10. This could provide some additional time for the two sides to reach an agreement before those goods reach the United States.

Wall Street analysts have been girding for more volatility this week and many have been adjusting their predictions about the likelihood of an all out trade war.

“The opportunity window for avoiding a trade war is closing fast,” economists at Citigroup wrote in a note to clients.

They warned that if tariffs increased, inflation in the United States could begin to tick up and financial conditions could tighten. A full-blown trade war is expected to be a drag on global economic growth.

Thus far, most companies have managed to absorb the brunt of the initial batch of China tariffs, keeping inflation at bay, but analysts warn that jumping to a rate of 25 percent will be impossible to ignore.

“Any maneuverability these companies had been using to blunt the impact of these tariffs is very likely exhausted,” said Henrietta Treyz, director of economic policy at the investment advisory firm Veda Partners.

Equally painful will be China’s retaliatory measures, which Chinese officials have signaled are already being prepared. China has already imposed new duties on American products from soybeans to seafood, damaging businesses in parts of the United States where voters tend to support Mr. Trump.

An escalation in the trade dispute will probably mean more pressure on agricultural industries whose workers account for a large part of the president’s base.

Lyle Benjamin, president of the Montana Grain Growers Association, said that China had essentially stopped buying American wheat since last year. He was hopeful that a trade truce would change that, but now he expected prices to keep falling.

“It’s highly frustrating, particularly in the agricultural sector, to be collateral damage as we try to achieve these trade goals for other industries,” Mr. Benjamin said. “It’s a tough game right now and it’s tied almost entirely to this trade war.”

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