The United States and China remain locked in one of the largest trade wars in history with no sign of resolution as talks in Washington failed to reach a deal.
U.S. President Donald Trump jacked up tariffs on Friday to 25 per cent from 10 per cent on US$200-billion worth of Chinese goods – on top of US$50-billion of products subject to the same levies since last year – in a key fight of his nationalistic economic agenda.
China vowed retaliation, even as Vice-Premier Liu He hunkered down with U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin for a second straight day in a bid to break the impasse. But there were few concrete signs of progress.
“They were constructive discussions. That’s all I can say,” Mr. Mnuchin said as he left Mr. Lighthizer’s office near the White House.
In early evening, Mr. Lighthizer announced that he would start working on a plan to extend tariffs even further, to cover all US$539-billion worth of Chinese imports.
The gulf separating the two sides appears vast. The United States wants Beijing to change laws on intellectual property, stop obliging American companies to turn over trade secrets and get rid of subsidies to Chinese companies. The United States also wants the right to keep its tariffs in place until it is certain China is complying with the deal, but for China to give up the right to impose tariffs on the United States in retaliation.
China had previously made concessions on at least some of these measures, the White House has said, before changing its mind last week and reneging on its promises. This prompted Mr. Trump to order the tariff hike.
In a series of tweets on Friday, Mr. Trump made clear that he believes tariffs are good economic policy and not merely a useful negotiating tactic. He also falsely claimed that their cost is paid by China. In fact, U.S. tariffs on China are paid by American companies that import Chinese goods. Often, U.S. importers pass that cost on to American consumers in the form of higher prices. Instances in which Chinese companies compensate American businesses for the cost of the tariffs are believed to be rare.
“Talks with China continue in a very congenial manner − there is absolutely no need to rush − as Tariffs are NOW being paid to the United States by China of 25% on 250 Billion Dollars worth of goods & products,” Mr. Trump tweeted. “These massive payments go directly to the Treasury of the U.S.”
The President said he planned to use the money from tariffs to buy American agricultural products and give the food to low-income countries. The administration did not release any specific plan for making this happen.
The President also spoke Friday with Prime Minister Justin Trudeau about the trade negotiations and “relations with China,” according to a summary released by Mr. Trudeau’s office. Ottawa has been agitating for Washington to pressure China to release two Canadian citizens detained since December in apparent retaliation for police in Vancouver serving an American arrest warrant on Huawei CFO Meng Wanzhou.
The tariffs cover a vast swath of goods, ranging from auto parts to meat to CD players to sports equipment.
The average American family of four will pay US$767 more annually in increased costs because of the tariffs, and the economy will lose 934,000 jobs, according to one estimate by The Trade Partnership, a Washington consulting company. The same study found that covering all Chinese exports with tariffs would raise those numbers to US$2,300 and 2.1 million.
After the initial round of tariffs last year, China retaliated with levies on U.S. goods, particularly food. This ensured the fallout from the battle between the world’s two largest economies would be particularly acute across the Trump-voting American heartland.
Bret Davis, who farms soybeans in central Ohio, said the trade war has pushed prices down from US$10.38 a bushel last year to $8 now – a loss of $200,000 in revenue for his operation. He’s had to cope by deferring purchases of new equipment, growing still-profitable crops of wheat and corn and relying on savings built up over 40 years of farming.
“It’s getting kind of serious now,” Mr. Davis, secretary of the American Soybean Association, said in an interview. “You tighten your belt. It’s a trying time here on the farm.”
Tiffany Zarfas Williams, third-generation owner of the Luggage Shop of Lubbock in west Texas, said roughly 85 per cent of the bags and briefcases she sells are made in China. The 10-per-cent tariff increase last year meant a price hike to most goods in her store; sales are already down 8 per cent so far this year.
“We’re Americans first and we certainly want to respect our country and we want trade with China to be addressed, and want that to be fair and enforceable … it’s just difficult for a small store owner to have so much of that impact on what we sell and what we do,” she said in a conference call with reporters organized by the National Retail Federation.
Trade experts largely agree that China has behaved badly by unfairly competing through flooding global markets with heavily subsidized products and forcing foreign companies to turn over their trade secrets as a condition of doing business. But many argue there are other ways to deal with these problems.
Inu Manak, a trade scholar at the libertarian Cato Institute think tank, said one option would be for the United States to sue China at the World Trade Organization. Joining the Trans-Pacific Partnership, a free-trade deal covering 11 countries in east Asia and the Americas meant to counter Chinese influence, would be another idea.
Ms. Manak said she could not think of another trade war of this size.
“This is a shock-and-awe approach,” she said. “It’s unprecedented. It’s something that’s never been done to this scale.”
Jorge Guajardo, a former Mexican ambassador to China, said he agrees with using tariffs to push China into trade concessions. But he said Mr. Trump’s love of tariffs for their own sake, and the fact that he would like to keep them in place even if China makes a deal, gives Beijing little incentive to negotiate.
What’s more, Mr. Guajardo said, Mr. Trump had hurt his own case by simultaneously fighting trade wars with Canada, Mexico and the European Union, which remain subject to American steel and aluminium tariffs.
“China keeps promising reform, keeps promising it will play by the rules of the game, but it never does. I can’t think of any way to confront China other than this,” Mr. Guajardo said. “The U.S. could accomplish so much if it had brought other countries on board.”
A similar thought had occurred to Skip West, owner of Maxsa Innovations in Fairfax Station, Va.
Maxsa designs and distributes a suite of electronics manufactured in China, including laser guidance systems for parking cars and heated blankets that plug into car cigarette lighters. When selling goods through large retailers, Mr. West said, he is not allowed to raise prices to match the tariffs, meaning the costs come straight out of Maxsa’s bottom line.
Mr. West has long done business in Canada, as well, and said he couldn’t understand why Mr. Trump took aim at the country, along with other free-market democracies, instead of enlisting them as allies in his push against China.
“Why did we piss off our trading partners instead of having them as a united front?”