President Donald Trump emerged from a briefing at the end of last week convinced China was stalling after months of forward progress in trade negotiations. Frustrated, Trump sent shockwaves through global markets by threatening to hike tariffs, catching everyone off guard.
Trump had been hopeful for a deal by the end of the month, and aides at the White House had begun preliminary preparations for a visit from Chinese President Xi Jinping in early June, according to people familiar with the matter. Irritated over the situation and emboldened by positive back-to-back economic reports showing strong US jobs and GDP growth, the President tweeted that he would nearly more than double tariffs on Chinese imports this coming Friday.
Trump’s Sunday tweet was meant to rattle Beijing, and it came without extensive discussions among his economic team, officials said. A person familiar with Trump’s thinking added that the President also believed his team would be better positioned to extract concessions from China with the threat of additional tariffs.
But it was another instance of Trump acting out publicly during what under any other administration would be carefully orchestrated talks, just as he’s done domestically in negotiations with Democrats and abroad in his talks with North Korean dictator Kim Jong Un.
It was also a sharp turn from the optimism the administration had conveyed over the course of the past several months as negotiating teams jetted between Beijing and Washington. In talks that were described as friendly — and later during more informal dinner outings in each capital — the trade teams believed they were forging significant progress on Trump’s goal of striking a deal that ends some of China’s troublesome economic practices.
The deal is a top priority for both Trump and Xi, who pledged during a December meeting in Buenos Aires to reach a comprehensive trade agreement that would end the escalating tit-for-tat trade war Trump started last year with his shock tariffs on $200 billion in Chinese imports. That hike triggered a brief slowdown in the Chinese economy, prompting fears of a global economic downturn, but the renewed talks between the world’s two largest economies has steadied markets in recent months.
Fears that Trump could escalate the trade war with China were pushing equity markets lower on Tuesday. The Dow Jones Industrial Average was down in triple digits for most of the day.
When officials from the US delegation left their most recent round of trade talks in Beijing last week, they had a sinking feeling. The mood had shifted dramatically, and their Chinese counterparts were now attempting to renegotiate significant aspects that US officials already believed had been settled weeks before, leading to the belief that prospects for a deal were fading.
It only became more apparent in the days after the delegation returned to the US, when, according to administration officials, the Chinese backed off earlier plans to include in the written document a commitment to change some of its laws relating to economic practices.
In comments to reporters on Monday, US Treasury Secretary Steven Mnuchin said there were “some signs” that China might be positioning itself to renege on its commitments during brief meetings last week, but that the Trump trade team had been “reassured” by Chinese negotiators that talks would continue to move forward.
“We thought things would be moving forward, and then there were communications over the weekend that made clear to us we were going substantially backwards, and that’s what led us to updating the President,” said Mnuchin. “Because you are correct this is a big change in direction for the negotiations.”
China has also quibbled with how the 150-page document will be released publicly, according to US officials. And the US has maintained that some tariffs will remain on China as the deal comes into effect, even though Beijing has insisted they must be lifted.
News that China appeared to be backtracking off its verbal commitments was delivered to Trump in a briefing at the end of last week from his chief trade negotiator Robert Lighthizer, who cast the developments as a disappointing move after what had appeared to be weeks of progress. Before that, some of Trump’s advisers – including Mnuchin – had worked to paint the talks in a rosier light, saying the deal was nearing completion.
The administration and analysts have been reluctant to specify what commitments the Chinese government has backpedaled on, but both have acknowledged that as the two countries have neared the finished line there is a faction in Beijing that has found it difficult to agree to commitments that would be enforceable under the deal.
“The President did not appreciate this effort to renegotiate,” said Michael Pillsbury, a China scholar at the Hudson Institute who advises the Trump administration.
The trade negotiation team, which has been riven by internal divisions over China hardliners and more pro-trade voices in the past, is consciously seeking to put on a more united front as the talks reach their end stages, an official said.
In Monday’s briefing with reporters, Mnuchin and Lighthizer told reporters that China was still sending its top trade negotiator to Washington on Thursday. But behind the scenes, officials still aren’t sure if Vice Premier Liu He will show up. If he does, it’s a good sign that the talks are back on the table and a deal is within reach, sources said.
China’s Commerce Department said Tuesday that Liu will still lead the delegation.
The tariffs Trump has threatened are set to go into effect only a day after Liu’s arrival. But people close to the situation say if the talks go well, the tariffs may not happen.
Meetings are scheduled for both Thursday and Friday, and for now the US is just waiting to see how the Chinese respond.
When asked about the possibility of retaliatory tariffs from Beijing, Mnuchin said, “The President is prepared to do what he needs to do and that’s why we’re moving forward on this basis.”
