Senior US officials accused China of backtracking on its pledges in talks to end the trade war between the world’s largest economies and said a new round of tariffs on Chinese exports would take effect on Friday morning.
Despite the stinging criticism directed at President Xi Jinping’s trade negotiators, China’s commerce ministry said on Tuesday that vice-premier Liu He would arrive in Washington on Thursday for an abbreviated round of talks. Mr Liu had previously been scheduled to lead a large delegation for at least three days of discussions aimed at concluding a draft agreement.
In a briefing on Monday, Robert Lighthizer, the US trade representative, and Steven Mnuchin, the US Treasury secretary, said the Trump administration was prepared to move ahead with higher tariffs on $200bn of Chinese imports as they accused Mr Liu’s team of failing to honour commitments made in previous negotiating rounds.
“Over the course of the last week or so we have seen an erosion in commitments by China,” said Mr Lighthizer. “Really, I would use the word reneging on prior commitments.”
Mr Mnuchin described a “big change in direction for the negotiations”.
In its statement, China’s commerce ministry did not respond to Mr Lighthizer and Mr Mnuchin’s comments. Chinese stock markets, which had fallen sharply on Monday, also stabilised as it emerged that this week’s negotiations had not been completely derailed.
A Chinese foreign ministry spokesman declined to comment on the US allegations, saying it was “natural for the two sides to have differences”. Geng Shuang also dismissed the threat of higher US tariffs on Chinese imports as “something we have seen many times before”.
The remarks underscored the abrupt shift in the tone of US-China negotiations in recent days. Last week, Mr Lighthizer and Mr Mnuchin left Beijing touting “productive” conversations that were widely expected to set the stage for a final session and possibly an agreement by the end of this week.
On Sunday, however, Donald Trump, the US president, fired off a pair of tweets denouncing the slow pace of the negotiations and vowing to impose higher tariffs on a wide range of Chinese goods.
Mr Trump’s tweets caused a sell-off in equity markets on Monday, as investors grappled with the prospect of a new escalation in US-China trade tensions. By late trading in New York, the losses were contained, partly because of expectations that some kind of settlement between Washington and Beijing could still be found. But Mr Lighthizer’s comments sent the S&P 500 futures contract falling again, and hit after-market trading in trade-sensitive stocks such as Apple, Caterpillar and Boeing.
Chinese equities rebounded slightly on Tuesday, rising more than 1 per cent after falling 5.8 per cent on Monday, the biggest one-day fall in more than three years, while Hong Kong’s Hang Seng index was up by nearly 0.6 per cent after shedding over 2.8 per cent the previous day.
Japan’s Topix slipped nearly 0.5 per cent after traders returned from a six-day holiday. South Korea’s Kospi fell more than 0.9 per cent, while Australia’s S&P/ASX 200 was up almost 0.9 per cent.
US stocks remained under pressure on Tuesday, with the S&P 500 opening 0.8 per cent lower, the Dow Jones Industrial Average off 0.9 per cent at the Nasdaq Composite down 1 per cent.
Mr Lighthizer and Mr Mnuchin stressed they were not breaking off talks with Beijing, leaving some hope the negotiations could get back on track.
However, Mr Lighthizer said they were ready to move ahead with higher tariffs on Chinese goods while Mr Liu and his team are in Washington. Under such a scenario, he said levies on $200bn of Chinese goods would increase from 10 per cent to 25 per cent at 12.01am on Friday.
Mr Lighthizer did not specify precisely how China had retreated on its pledges but he suggested a backlash from hawks in Beijing might have caused the shift.
“My own view is that these were serious, real commitments that were enforceable and that some people in China found that difficult and objected to it,” he said. “For whatever reason, it is where it is.”
According to people briefed on the negotiations, Chinese officials moved away from their previous willingness to enshrine measures to curb technology transfer and to protect US intellectual property in law, insisting that steps could be taken simply by changing regulations.
Mr Lighthizer and Mr Mnuchin did not, however, specify what lay at the heart of the eleventh-hour dispute.
“It did become particularly clear over the weekend, with some new information, that they were trying to go back on language that had been previously negotiated, very clear language that had the potential of changing the deal dramatically,” said Mr Mnuchin. “It’s unfortunate if we can’t conclude an agreement because I think this agreement would have opened up China.”
US business groups had been hoping a deal would materialise, and mostly reacted with disappointment to the prospect of higher tariffs.
“Future growth for our industry depends on a strong trading relationship with China and a trade policy that creates certainty and predictability for investors — not a looming threat of more or higher tariffs,” said Cal Dooley, president of the American Chemistry Council. “We are starting to see signs that the tariffs are disrupting supply chains, cutting off markets, and eroding US chemical manufacturing competitiveness.”
Mr Lighthizer suggested that businesses should have factored in the possibility of failure of the talks, saying they had been put “on notice that this was something that could very well happen”. He also said there would be a process to exempt some companies from the levies.
While corporate America has been pushing for a deal, China hardliners in Washington cheered the tougher tone from Mr Trump, calling on the US administration to hold the line and not accept a weak deal. In recent weeks, there had been growing criticism that China had not made sufficient concessions on issues ranging from digital trade, to cybertheft and industrial subsidies.
Mr Mnuchin and Mr Lighthizer emphasised that there had not been a personal rupture with Mr Liu in recent days, though Mr Mnuchin said they had not had any conversations with the Chinese vice-premier since they left Beijing.
“We have a friendly mood, we have a trusted relationship, we are just moving backwards, not forwards,” said Mr Lighthizer. “For right now, the progress is towards the rear.”
Additional reporting by Robin Wigglesworth in New York, Hudson Lockett and Daniel Shane in Hong Kong and Yuan Yang in Beijing