Liu He, China’s vice premier, center, smiles while being greeted by Steven Mnuchin, U.S. Treasury secretary. (Photographer: Andrew Harrer/Bloomberg)

U.S. Gives China a Month for Trade Deal as Talks Deadlocked

(Bloomberg) -- President Donald Trump’s administration told China it has a month to seal a trade deal or face tariffs on all its exports to the U.S., even as both sides sought to avoid a public breakdown in negotiations despite a developing stalemate.

The threat was made during talks Friday in Washington, hours after Trump upped the ante by imposing a second round of punitive duties on $200 billion in Chinese goods. The talks are under close scrutiny across global financial markets, and U.S. stocks turned positive after negotiators on both sides said the session had gone fairly well.

In a series of tweets that cheered markets, Trump declared Friday that the talks with China had been “candid and constructive.” “The relationship between President Xi and myself remains a very strong one, and conversations into the future will continue,” he said. Further talks are possible, but there’s no immediate plan for the next round, according to a person familiar with the negotiations.

Earlier, in a meeting with Chinese Vice Premier Liu He, U.S. officials laid out their bottom line, telling him that Beijing had three or four weeks to agree to a deal or face additional 25% tariffs on a further $325 billion in exports to the U.S., according to people familiar with the talks. The threat came in response to the lack of any meaningful concessions by China during two days of meetings, the people said.

U.S. Gives China a Month for Trade Deal as Talks Deadlocked

In a statement late Friday, U.S. Trade Representative Robert Lighthizer said the administration would release details of its plans for tariffs on roughly $300 billion in imports from China on Monday, setting the process in motion for Trump to deliver on his latest threat.

The lack of progress left major question-marks hanging over the search for a deal on trade -- just one source of tensions in a growing geopolitical rivalry that’s already shifting supply chains and testing established economic and security alliances.

In an interview Friday with Chinese state broadcaster CCTV, Liu said both sides agreed to keep talking despite what he called “some temporary resistance and distractions,’’ and to hold future meetings in Beijing. He dismissed the idea that talks had broken down. “It’s normal to have hiccups during the negotiations. It’s inevitable.”

‘Equality and Dignity’

He also struck a note of defiance. “For the interest of the people of China, the people of U.S. and the the people of the whole world, we will deal with this rationally,’ the vice premier said. “But China is not afraid, nor are the Chinese people,” adding that “China needs a cooperative agreement with equality and dignity.”

Chinese state media released a statement of the official view of fault-lines in the talks. In a commentary published Saturday, Xinhua news agency said the two sides differ on whether or not all tariffs should be removed as part of an agreement. The second sticking point is on the amount of purchases China should make in order to even the trade balance. The third is on the “balance” of the text -- Chinese commentators have long signaled that they see the agreement as being one sided and damaging to Chinese sovereignty.

In a series of morning tweets Trump, who is seeking re-election on the back of a booming U.S. economy, sought to justify his decision to hike tariffs as well as to convince businesses and financial markets that he wasn’t walking away from a deal.

No Rush

“There is absolutely no need to rush,” the U.S. president said. In another tweet, Trump proposed a vast new plan to use income from tariffs to buy up the crops of American farmers who’ve watched their exports to China collapse, and send them to poor countries as aid.

The presidential good humor hid what people familiar with the discussions say has been an increasingly gloomy mood around the negotiations in recent days.

In a call with Trump supporters on Friday, trade adviser and China hawk Peter Navarro said the two sides hadn’t reached a deal yet.

He also denied that the Trump administration’s actions amounted to a trade war, telling supporters that the U.S. was defending itself against a China that did not obey international norms, according to two people on the call.

Before the rebound late Friday, U.S. markets had posted their worst week of the year so far, as the trade truce that had been in place for months was shattered by the new U.S. tariffs.

The S&P 500 recovered from earlier losses Friday, ending the day 0.4% higher.

Election Year

This week’s tariff move is likely to have significant short-term consequences for retailers and other U.S. businesses reliant on imports from China. But extending it to all trade would increase the economic and political stakes even further for Trump and American businesses.

Such a step would see price increases on smartphones, laptops and other consumer goods -- the kind that Trump’s advisers have been eager to avoid, out of concern for the fallout. It would likely provoke further retaliation, and some economists are predicting it could even tip the U.S. economy into recession just as Trump faces re-election in 2020.

Those risks are one reason why some analysts believe the two sides will eventually strike a deal.

“It is in both sides’ interest to keep talking,’’ said Clete Willems, who until last month served as director of international economics on Trump’s National Economic Council. “I don’t think there is any reason that we can’t still have an agreement. There was a lot of progress made over the last four or five months and we shouldn’t throw that away.”

‘Gets Harder’

But this week’s talks have also amplified the differences that remain between the two governments, as they try to navigate their own domestic politics as well as a growing international rivalry.

Securing a trade deal is likely to get harder from here unless outside factors, such as an economic downturn, force a compromise, according to Ely Ratner, a China expert who served in the administration of President Barack Obama and is now director of studies at the Center for a New American Security think-tank.

“The question is can the Chinese come back and offer enough such that Trump can sell it?’’ he said. “I think it is going to be hard for them to do that in the face of Trump escalating. I think it gets harder as this thing goes on, and it gets harder politically for Trump.’’

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