A rig sits dockside at the Port of Iberia, in New Iberia, Louisiana, U.S. (Photographer: Derick E. Hingle/Bloomberg)

U.S.-China Tensions Simmer While Both Say There’s No Trade War

(Bloomberg) -- The U.S. and China played down the prospect of a diplomatic breakthrough to resolve their escalating trade dispute as the White House considers what demands it will present to the Chinese.

Serious talks “have not really begun yet,” Larry Kudlow, head of the White House National Economic Council, told Bloomberg TV. Treasury Secretary Steven Mnuchin, in a CNBC interview later on Friday, declined to give details about contacts between the two superpowers because doing so could reveal America’s negotiating hand.

“We haven’t yet given China a list of demands on what we want,” Kudlow told reporters later on Friday at the White House. “We haven’t done that but such a list is under discussion.”

Trump on Thursday instructed the U.S. Trade Representative’s Office to consider tariffs on an additional $100 billion in Chinese imports, bringing to $150 billion the range of Chinese goods under consideration. China, which already proposed duties on $50 billion in American goods including aircraft and soybeans after the first U.S. move, has said it will respond proportionately.

“We Chinese won’t pick fights, but if someone picks a fight, we’ll resolutely meet them head on,” Chinese Ministry of Commerce spokesman Gao Feng said at a press conference late Friday in Beijing. Chinese and U.S. officials haven’t held talks “for a period of time” on any economic or trade issues, Gao said.

Financial markets declined on the escalating conflict. The S&P 500 Index fell 2.7 percent as of 3:03 p.m. in New York.

‘A Little Pain’

President Donald Trump on Friday morning said any short-term pain for investors will be followed by long-term gain.

“I’m not saying there won’t be a little pain,” Trump said Friday during an interview on 77 WABC Radio’ “Bernie & Sid in the Morning” program. “So we might lose a little of it but we’re going to have a much stronger country when we’re finished, and that’s what I’m all about.”

Trump has previously cited the car trade as an example of the unbalanced playing field, saying China puts a 25 percent duty on imported U.S. cars while the U.S. charges 2.5 percent for Chinese vehicles. He’s also asked for a $100 billion reduction in the U.S. trade deficit with China, about a third of the total gap recorded last year.

Kudlow, a new hire to the president’s economic team and a committed free-trader, said Trump is in regular contact with his Chinese counterpart Xi Jinping. “Perhaps there will be some fruitful negotiations,” he said. “But I would say they have been unsatisfactory, so we will see.” The U.S. and China are holding “back-channel discussions,” Kudlow later told reporters at the White House, without providing further details on who was involved.

Mnuchin said the U.S. doesn’t intend to “lay out our negotiations in the public domain.” He said the government’s aim is to avoid a trade war with China, though he acknowledged that the potential for such a conflict does exist.

Some analysts have speculated the two countries could reach a detente before new tariffs take effect. The U.S. hasn’t said when the initial set of charges on $50 billion of goods will come into force. There’s also no timeline for identifying which products will be subject to the second round demanded by Trump, an administration official said Friday.

Blame China

Before that presidential order, Kudlow had been working to allay concern about a fullblown trade war between the world’s two biggest economies. On Friday, while still rejecting the idea that such a conflict is already under way, he pointed at China as the reason for escalating tensions.

“China is the problem. President Trump is the solution,” said Kudlow. “This is the first president in 20 years to have the backbone to go in and challenge China on the kind of unfair and illegal trading practices that they have adopted for the past several decades.”

Kudlow said there may be more serious negotiations in the coming months, and that the U.S. wants China to stop violating U.S. intellectual property and open the Asian nation’s markets to more American merchandise and investment.

‘More to Lose’

Earlier this month, China announced tariffs on $3 billion of U.S. goods such as pork and wine in retaliation for the steel and aluminum tariffs imposed last month by Trump.

It’s that gradual ratchet effect that makes the mood ominous, according to Patrick Bennett, a Hong Kong-based strategist at Canadian Imperial Bank of Commerce.

“This is starting to feel like the beginnings of a trade war, if simply each proposal is matched with a retaliation,” Bennett said. “The U.S. risks isolating itself from global trade in this process. And we think the U.S., USD and U.S. asset markets have more to lose.”

©2018 Bloomberg L.P.