If the United States raises its customs duties to 25%, it will be the escalation of the trade war and China will have no choice but to take countermeasures, said a press release from the authorities.
What has led to this situation? Just a week ago, everything seemed fine and the two powers seemed on their way to finalize an agreement. Apparently, this started after China significantly changed its position on the draft trade agreement with the Americans last week. Such a major turnaround took the American negotiators by surprise.
"The diplomatic cable from Beijing arrived in Washington late on Friday night, with systematic edits to a nearly 150-page draft trade agreement that would blow up months of negotiations between the worlds two largest economies.," Reuters reports.
The document sent back by Beijing is full of reversals compared to what had been negotiated so far, including China's reported renunciation of amending its laws in areas that constitute major stumbling blocks to the United States, such as intellectual property, currency manipulation or forced technology transfers.
In response, Donald Trump issued an ultimatum to China on Sunday: either Beijing reverses its last-minute demands or the surtax on $200 billion worth of imported goods will rise from 10% to 25% as of Friday.
People familiar with the thinking of the Chinese side told the Wall Street Journal that the new hard line taken by China in trade talks came after Beijing interpreted recent statements and actions by President Trump as a sign the U.S. was ready to make concessions.
In particular, these people said, Mr. Trumps hectoring of Federal Reserve Chairman Jerome Powell to cut interest rates was seen in Beijing as evidence that the president thought the U.S. economy was more fragile than he claimed. In addition, Beijing was further encouraged by Mr. Trumps frequent claim of friendship with Chinese President Xi Jinping and by Mr. Trumps praise for Chinese Vice Premier Liu He for pledging to buy more U.S. soybeans.
As talks resume, can things go far enough for Trump to give up the new retaliation measures? It is difficult to say, but the time frame is excessively short, especially since the gap has widened again and trust capital has taken a heavy hit. If no progress is made, the new customs duties will enter into force at 00:01 on Friday.
New data has been released that should convince Donald Trump that he is taking the right stance. The U.S. trade deficit increased less than expected in March and the goods deficit with China, in the midst of tough trade negotiations, fell sharply to its lowest level in three years, the Commerce Department announced on Thursday.
The goods deficit with Beijing fell by 6.16% to $28.26 billion, the lowest level since April 2016. In particular, imports of Chinese goods dropped by 1.2% to $38.8 billion, the lowest level since September 2016.