President Trump threatens to raise tariffs even higher if no deal reached
November 26, 2019 Category Foreign trade, Weekly
Chinese officials and state-run media were silent last week after U.S. President Donald Trump threatened for the second time to “raise the tariffs even higher” on Chinese imports if a trade deal cannot be reached, casting further uncertainty on the “phase one” trade agreement he announced in October. “China is going to have to make a deal that I like. If they don’t, that’s it,” Trump told reporters. “If we don’t make a deal with China, I’ll just raise the tariffs even higher.” President Trump also said that Beijing so far has not made sufficient concessions in trade talks, making him reluctant to conclude a bargain. “I can tell you this. China would much rather make a trade deal than I would. I don’t think they’re stepping up to the level that I want.” Wall Street retreated further from record highs as pessimism mounted among investors about the chances for a deal to bring an end to the lingering trade dispute. Trump said he is “looking at” exempting Apple from the China tariffs, but added it might be unfair to Samsung given the U.S. free trade deal with South Korea.
U.S. Commerce Secretary Wilbur Ross was more measured in his comments than Trump, saying that the White House remains “optimistic” that an agreement can be reached. He said that the success of a phase one deal depended on “fine-tuning” the agreement’s details. “I think they Chinese realized that he means what he says and he says what he means,” Ross said. “The question is getting into details and getting into the fine-tuning because that’s the only way you really find out whether you have a deal or you don’t.” U.S. Treasury Secretary Steven Mnuchin said that he still expects a deal to be reached, but he also anticipated an additional 15% tariff to be placed on about USD156 billion of Chinese imports on December 15 if there is no agreement. “When necessary, we will fight back, but we have been working actively to try not to have a trade war. We did not initiate this trade war and this is not something we want,” President Xi Jinping told American guests at the New Economy Forum (NEF) in Beijing, which included former U.S. Secretary of State Henry Kissinger.
Global sourcing and logistics firm Li & Fung said the ongoing U.S.-China trade war has created a new trading landscape that has complicated global supply chains and had “huge impact” on the company. The Hong Kong-based global trading group, which supplies consumer goods to major retailers worldwide, is more than a century old and has been a big winner from China’s rise as the world’s factory. The rise of bilateral trade agreements and regional trade pacts underscored the deterioration of the multilateral trading system, showing the challenges faced by the World Trade Organization (WTO) in administering common rules and resolving trade disputes, said Ka-mun Chang, Managing Director of Li & Fung Development (China). China remains the world’s most important manufacturing base but Vietnam, Bangladesh, and Cambodia were gaining market share as low-cost sourcing bases, Chang said. Myanmar, Kenya, Madagascar and Egypt were also emerging as hubs for the production of mass market and high-volume goods, he added. “So not only are we diversifying our sourcing base, we are also considering near shoring or onshoring in the major consumer markets including the U.S.,” Chang said.
Another obstacle to signing a phase one trade deal is the Hong Kong Human Rights and Democracy Act adopted in the U.S. Congress and expected to be signed into law by President Trump. China considers the law to be wanton interference in its internal affairs and has warned unspecified retaliation in case it would be enacted. “The Hong Kong issue has the potential to influence the process of the trade talks. China will have to respond if Trump signs it into law,” said one person who is familiar with the trade talks. Some sources said that in a worst-case scenario, China was willing to “fight and talk alternatively”. Chinese Foreign Minister Wang Yi said adoption of the act had shaken confidence between the two nations, and that “right now, the China-U.S. relationship has reached a critical crossroads”. He added: “we regret to see that some politicians in the United States are now smearing, attacking, slandering China to a level close to madness”.
The outlook for China-U.S. trade talks will determine how much above or below 6% China’s 2020 growth will be, experts say. In the worst case scenario, where trade war tensions increase, China’s growth rate could slip to as low as 5.3% next year, according to Morgan Stanley. The company’s economists are predicting in their baseline scenario – which assumes China and the U.S. sign their phase one trade deal and some tariffs are rolled back – that China’s growth will bottom out at 5.9% in the fourth quarter and experience a modest recovery next year, with the full-year average growth rate at 6.0%. In the worst case scenario – where trade war tensions increase – China’s growth rate could slip to as low as 5.3% next year, while in the best case scenario, marked by further improvement in trade relations, it could see growth rise to 6.4%. The outlook for the job market will be an important element in the outlook for consumer spending. Employment is widely seen as China’s Achilles’ heel, given its implications for ensuring social stability, the government’s top priority. “Unemployment is certainly rising amid the economic slowdown, but it won’t be a big problem,” said Larry Hu, Chief China Economist of Macquarie Capital in Hong Kong, as reported by the South China Morning Post.
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