U.S., China Begin Crucial Trade Talks as Tariff Clock Ticks

(Bloomberg) -- The U.S. and China began a pivotal round of trade negotiations with hours to go before the Trump administration ratchets up tariffs, deepening a conflict that has roiled financial markets and cast a shadow over the global economy.

Chinese Vice Premier Liu He arrived Thursday at the U.S. Trade Representative’s office in Washington to start two days of talks with American officials including Robert Lighthizer, the top U.S. negotiator, and Treasury Secretary Steven Mnuchin.

Liu told Chinese state media he was coming to Washington "with sincerity" and warned that a move to raise tariffs by the U.S. starting Friday was not a solution and would be painful for both China and the U.S.

Liu and his U.S. interlocutors were due to have dinner Thursday, and Liu left Lighthizer’s office about 90 minutes after going in, waving and smiling to reporters outside.

Earlier in the day, President Donald Trump insisted a deal was still possible to reach this week, even as he reiterated plans to raise tariffs on Chinese goods. Trump, speaking at an event in Washington, said he may hold a phone call with his Chinese counterpart, Xi Jinping.

‘Great Alternatives’

“He just wrote me a beautiful letter, I just received it, and I’ll probably speak to him by phone, but look, we have two great alternatives, our country is doing fantastically well,” Trump said. “Our alternative is an excellent one, it’s an alternative I’ve spoken about for years. We’ve taken well over $100 billion from China in a year.”

No call between the two leaders has yet taken place nor has one been scheduled at this time, according to a senior Trump administration official.

The S&P 500 retreated for a fourth day Thursday, falling into its worst stretch of losses this year as the deadline for the U.S. to raise tariffs on Chinese goods approached.

Tariff Hike

U.S. tariffs on some $200 billion in Chinese goods are set to increase to 25% from 10% as of 12:01 a.m. Friday, in a move that economists and businesses say risks being the most economically consequential of all of Trump’s tariff moves so far. Trump repeated a threat on Thursday to impose new 25% tariffs on $325 billion of Chinese imports, which aren’t currently covered, saying that his administration has started preparing the paperwork.

Imposing tariffs on all U.S.-China trade would reduce global gross domestic product by 0.5 percent by 2020, Oxford Economics Chief U.S. Economist Gregory Daco said in a research note Thursday, adding that “if the bilateral tensions spiral into a full-blown global trade war, we would expect this to trigger a global recession.”

The mood on both sides going into the talks had appeared to be hardening with Lighthizer calling members of Congress to warn that an agreement this week is unlikely, according to people familiar with the conversations.

While Trump on Wednesday insisted that Liu was coming to make a deal and dubbed him a “good man,” he later told a rally of supporters that China “broke the deal” by backsliding on prior commitments, leading him to order higher tariffs.

China has disputed Trump’s characterization that the country reneged. But it has also sent its own signals that a deal could take time.

Unlike in some of his previous visits to Washington, Liu is not traveling with the designation “special envoy” of Xi, according to people briefed on his trip. Chinese officials’ public statements have also hardened in recent days with Beijing vowing to retaliate against Trump’s tariff increase and rejecting the idea that it has reneged on any commitments made during the months of tough negotiations that have led to this week’s showdown.

“China is credible and honors its word and that has never changed,” Commerce Ministry Spokesman Gao Feng told reporters Thursday. The Ministry of Commerce also announced it would soon publish details of new retaliatory tariffs.

Data released Thursday offered Trump a chance to claim his tariff war is yielding the desired result. The U.S. trade deficit with China decreased to the narrowest in almost three years as imports slowed and exports advanced.

“When people looked at the economic numbers, they were shocked. When they look at the import-export numbers they were shocked,” Trump said Thursday. “Try looking at all of the tariffs that China’s been paying us for the last eight months. Billions and billions of dollars.”

Economists disagree with the president and say the evidence is that American consumers and companies are bearing the costs of his tariffs via higher prices.

In a tweet Thursday, Hu Xijin, editor-in-chief of Global Times, said a Chinese source who is familiar with the trade talks told him that there’s “zero” probability for a deal before Friday. “If it is that bad, the real suspense is whether the two sides will continue negotiations after Friday,” Hu said. Global Times is a tabloid published by the Communist Party’s People’s Daily.

--With assistance from Dandan Li, Alyza Sebenius, Saleha Mohsin, Kathleen Miller, Millie Munshi, Sophie Caronello, Jenny Leonard and Miao Han.

To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net;Jennifer Jacobs in Washington at jjacobs68@bloomberg.net;Shawn Donnan in Washington at sdonnan@bloomberg.net

To contact the editors responsible for this story: Malcolm Scott at mscott23@bloomberg.net, Andrew Mayeda, Sarah McGregor

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