Senior US officials accused China of backtracking on its pledges in talks to end the trade war between the world’s largest economies, raising the risk of a collapse in the negotiations between Washington and Beijing.
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 early as Friday morning, in response to the impasse in the talks.
“Over the course of the last week or so we have seen an erosion in commitments by China,” Mr Lighthizer said. “Really, I would use the word reneging on prior commitments.” Mr Mnuchin described a “big change in direction for the negotiations”.
The comments 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 with Liu He, China’s vice-premier, 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 to put pressure on Beijing.
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 like Apple, Caterpillar and Boeing.
Mr Lighthizer and Mr Mnuchin stressed they were not breaking off talks with Beijing, leaving some hope the negotiations could get back on track. They said they were still expecting Mr Liu to come to Washington this week for talks, even though he is expected to come with a much smaller delegation than originally intended.
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, Mr Trump’s trade chief said levies on $200bn of Chinese goods would increase from 10 per cent to 25 per cent at 12.01am on Friday morning.
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,” Mr Lighthizer 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,” Mr Mnuchin said. “It’s unfortunate if we can’t conclude an agreement because I think this agreement would have opened up China.”
US business group had been hoping a deal would materialise, and mostly reacted with disappointed to the prospect of higher tariffs around the corner.
“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,” Mr Lighthizer said. “For right now, the progress is towards the rear.”
Additional reporting by Robin Wigglesworth in New York