Tag Archives: tariffs

Fed policymakers promise response if U.S. economy slows

FILE PHOTO: Federal Reserve Chairman Jerome Powell poses for photos with Fed Governor Lael Brainard (L) at the Federal Reserve Bank of Chicago, in Chicago, Illinois, U.S., June 4, 2019. REUTERS/Ann Saphir

By Howard Schneider and Ann Saphir

CHICAGO (Reuters) – Signs that the economy is losing momentum hung over a Federal Reserve summit for a second straight day as policymakers hinted they would be ready to cut interest rates if the U.S. trade war threatens a decade-long expansion.

Investors added to bets that the Fed would have to lower borrowing costs multiple times by year-end on Wednesday after a report by a payrolls processor showed private employers added 27,000 jobs in May, well below economists’ expectations and the smallest monthly gain in more than nine years.

The U.S. economy will mark 10 years of expansion in July, the longest on record. Strong job gains have been a key feature. But rising trade tensions between the United States and China have led to tit-for-tat tariffs, put a chill on U.S. businesses’ spending and exacerbated a manufacturing slowdown.

Current and threatened U.S.-China tariffs could slash global economic output by 0.5% in 2020, the International Monetary Fund warned on Wednesday as world finance leaders prepare to meet in Japan this weekend.

“We’ll be prepared to adjust policy to sustain the expansion,” Fed Governor Lael Brainard said in an interview with Yahoo Finance on the sidelines of the Fed’s Chicago summit. “The U.S. economy, generally, is in the midst of a very lengthy expansion, the U.S. consumer remains confident, but trade policy is definitely a downside risk.”

Brainard’s remarks follow a pledge on Tuesday by Fed Chairman Jerome Powell to react “as appropriate” to trade-war fallout. Other Fed officials struck a similarly cautious tone.

Since the Fed’s last rate-setting meeting, Trump slapped new 25% tariffs on $200 billion of Chinese imports and threatened new import taxes on Mexican goods unless immigration slows. Until recently officials had been largely signaling that they would keep rates at their 2.25-2.50% target range.

The trade war added urgency to what was intended to be a strategy session at the Chicago Fed focused on how the central bank can shore up its policies. Officials worry that economies risk getting stuck in a self-fulfilling cycle of low rates and low inflation that will make it harder to rebound from recessions and require increasingly forceful intervention.

To combat those risks, Fed officials are considering whether they want to temporarily welcome inflation a bit above their 2%-a-year target – and keep rates lower for longer – in the hopes that such a strategy will make attaining the central bank’s goals for maximum employment and price stability more likely.

Policymakers are also revisiting exactly what maximum employment means and whether they are doing a good enough job in how they speak to the public. No changes are expected until next year.

(Reporting by Howard Schneider and Ann Saphir; Writing and additional reporting by Trevor Hunnicutt; Editing by Andrea Ricci)

Trump vows rapid, high tariffs on Mexico unless illegal immigration ends

FILE PHOTO: Joe Alvarado, a U.S. Customs and Border Protection (CBP) Agriculture Specialist, checks imported broccoli from Mexico at the Pharr Port of Entry in Pharr, Texas, October 4, 2018. REUTERS/Adrees Latif/File Photo

By Steve Holland and Frank Jack Daniel

WASHINGTON/MEXICO CITY (Reuters) – U.S. President Donald Trump, responding to a surge of illegal immigrants across the southern border, vowed on Thursday to impose a tariff on all goods coming from Mexico, starting at 5% and ratcheting much higher until the flow of people ceases.

Trump’s move dramatically escalates his battle to control a wave of tens of thousands of asylum seekers, including many Central American families fleeing poverty and violence, that has swelled alongside his promises to make it harder to get U.S. refuge and his efforts to build a wall on the Mexican border.

The announcement rattled investors who feared that worsening trade friction could hurt the global economy. The Mexican peso, U.S. stock index futures and Asian stock markets tumbled on the news, including the shares of Japanese automakers who ship cars from Mexico to the United States.

The president’s decision, announced on Twitter and in a subsequent statement, was a direct challenge to Mexican President Andres Manuel Lopez Obrador and took the Mexican government by surprise on a day when it had started a formal process to ratify a trade deal with the United States and Canada (USMCA).

It raised the risk of devastating economic relations with the biggest U.S. trade partner for goods. Mexico, heavily dependent on cross-border trade, rose to that ranking as a result of Trump’s trade war with China.

The measures against Mexico open up a new front on trade and if implemented are bound to trigger retaliation that would hit heartland, Trump-supporting farming and industrial states.

Higher tariffs will start at 5% on June 10 and increase monthly up to 25% on Oct. 1, unless Mexico takes immediate action, he said.

“If the illegal migration crisis is alleviated through effective actions taken by Mexico, to be determined in our sole discretion and judgment, the tariffs will be removed,” Trump said.

Lopez Obrador responded in a letter he posted on Twitter, calling Trump’s policy of America First “a fallacy” and accusing him of turning the United States into a “ghetto,” that stigmatized and mistreated migrants.

“President Trump, social problems are not resolved with taxes or coercive measures,” he wrote, adding that a delegation led by Foreign Minister Marcelo Ebrard would travel to Washington on Friday. He did not threaten to retaliate, saying he wanted to avoid confrontation.

Lopez Obrador pushed back against Trump’s assertion that Mexico let immigration happen through “passive cooperation,” saying: “you know we are fulfilling our responsibility to stop (migrants) moving through our country, as much as possible and without violating human rights.”

Determined to avoid a break down in Mexico’s most important bilateral relationship, since Trump threatened to close the world’s busiest land border over the migrant surge, Lopez Obrador’s government has drastically tightened controls on the movement of migrants, detaining and deporting thousands in recent months, while calling for U.S. aid to tackle root causes.

“We’re in a good moment building a good relationship (with the United States) and this comes like a cold shower,” said Mexico’s deputy foreign minister for North America, Jesus Seade, who had been in Mexico’s Senate delivering the USMCA trade deal for ratification shortly before the news broke.

In Beijing, Chinese foreign ministry spokesman Geng Shuang expressed sympathy with Mexico.

“The United States has repeatedly taken trade bullying action. China is not the only victim,” Geng told reporters.

Cross border trade between Mexico and the United States: https://tmsnrt.rs/2V59n2R

SIDING WITH HAWKS

Despite Trump’s assertion that Mexico could easily end Central American immigration, its relatively small security forces, also struggling with a record level of gang violence and homicide, are having a hard time controlling the flows.

In the biggest migrant surge on the U.S-Mexican border in a decade, U.S. officials say 80,000 people are being held in custody with an average of 4,500 mostly Central American migrants arriving daily, overwhelming the ability of border patrol officials to handle them. A senior White House official said Trump was particularly concerned that U.S. border agents apprehended a group of 1,036 migrants as they illegally crossed the border from Mexico on Wednesday. Officials said it was the largest single group since October. Before unveiling the tariff threat, Trump posted a video purporting to be of the crossing on his Twitter feed.

A source close to Trump said there had been a debate inside the White House over whether to go forward with the new policy, with immigration hawks fighting for it and others urging a more diplomatic approach. Trump sided with the hawks.

“The last thing he wants is to look weak,” said the source, who spoke on condition of anonymity.

Trump’s directive also spelled the potential for chaos for his efforts to get the U.S. Congress to approve the USMCA deal, which he negotiated as a replacement to the North American Free Trade Agreement between the United States, Mexico and Canada.

Doug Ducey, the governor of Arizona, which shares a 370-mile (595-km) border with Mexico, said on Twitter that he spoke to the White House and it was time for Congress to act on border security and the United States-Mexico-Canada Agreement.

“Everyone knows I am opposed to tariffs and deeply value Arizona’s relationship with Mexico. I prioritize national security and a solution to our humanitarian crisis at the border above commerce,” he said on Twitter.

Trump said he was acting under the powers granted to him by the International Emergency Economic Powers Act. He campaigned for election in 2016 on a vow to crack down on immigration.

Jaime Serra, Mexico’s former trade minister who negotiated the original NAFTA, told Reuters the announcement was unacceptable and “in total violation of NAFTA.” Another negotiator said Trump risked violating World Trade Organization rules.

WHITE HOUSE WANTS ACTION ‘TONIGHT’

White House acting chief of staff Mick Mulvaney, asked in a conference call with reporters which products from Mexico could be affected by the tariffs, said: “All of them.”

Mulvaney added, “We are interested in seeing the Mexican government act tonight, tomorrow.”

Shares in Toyota Motor Corp, Nissan Motor Co and Honda Motor Co all fell around 3% or more, while Mazda Motor Co fell nearly 7%. All four operate vehicle assembly plants in Mexico.

“Mexico is the U.S.’s largest trading partner and a flare-up in trade tensions was definitely not on the market radar,” said Sean Callow, a senior currency analyst at Westpac.

The benchmark S&P 500 e-mini futures dropped 0.82% to the lowest the contract has traded since early March. Investors scooped up safe assets, driving the yield on the 10-year U.S. Treasury note to 2.18%, the lowest since September 2017.

The dollar surged more than 2.5 percent against the Mexican peso.

(Reporting by Steve Holland, Eric Beech and Mohammed Zargham; additional reporting by Mica Rosenberg in New York,Noe Torres and Anthony Esposito in Mexico City, and Cate Cadell in Beijing; Editing by Grant McCool and Clarence Fernandez)

U.S., China bicker over ‘extravagant expectations’ on trade deal

A surveillance camera is seen next to containers at a logistics center near Tianjin Port, in northern China, May 16, 2019. REUTERS/Jason Lee

By Ben Blanchard and David Lawder

BEIJING/WASHINGTON (Reuters) – China accused the United States on Monday of harboring “extravagant expectations” for a trade deal, underlining the gulf between the two sides as U.S. action against China’s technology giant Huawei began hitting the global tech sector.

Adding to bilateral tension, the U.S. military said one of its warships sailed near the disputed Scarborough Shoal claimed by China in the South China Sea on Sunday, the latest in a series of “freedom of navigation operations” to anger Beijing.

Alphabet Inc’s Google has also suspended business with China’s Huawei Technologies Co Ltd that requires the transfer of hardware, software and technical services, except those publicly available via open source licensing, a source familiar with the matter told Reuters on Sunday, in a blow to the company that the U.S. government has sought to blacklist around the world.

Shares in European chipmakers Infineon Technologies, AMS and STMicroelectronics fell sharply on Monday amid worries the Huawei suppliers may suspend shipments to the Chinese firm due to the U.S. blacklisting of it last week.

The Trump administration’s addition of Huawei to a trade blacklist on Thursday immediately enacted restrictions that will make it extremely difficult for it to do business with U.S. counterparts.

In an interview with Fox News Channel recorded last week and aired on Sunday night, Trump said the United States and China “had a very strong deal, we had a good deal, and they changed it. And I said ‘that’s OK, we’re going to tariff their products’.”

In Beijing, Chinese Foreign Ministry spokesman Lu Kang said he didn’t know what Trump was talking about.

“We don’t know what this agreement is the United States is talking about. Perhaps the United States has an agreement they all along had extravagant expectations for, but it’s certainly not a so-called agreement that China agreed to,” he told a daily news briefing.

The reason the last round of China-U.S. talks did not reach an agreement is because the United States tried “to achieve unreasonable interests through extreme pressure”, Lu said.”From the start, this wouldn’t work.”

China went into the last round of talks with a sincere and constructive attitude, he said.

“I would like to reiterate once again that China-U.S. economic and trade consultation can only follow the correct track of mutual respect, equality and mutual benefit for there to be hope of success.”

No further trade talks between top Chinese and U.S. trade negotiators have been scheduled since the last round ended on May 10 – the same day Trump raised the tariff rate on $200 billion worth of Chinese products from 10 percent.

Trump took the step after the United States said China backtracked on commitments in a draft deal that had been largely agreed to.

STERNER TONE

Since then, China has struck a sterner tone, suggesting that a resumption of talks aimed at ending the 10-month trade war between the world’s two largest economies was unlikely to happen soon.

Beijing has said it will take “necessary measures” to defend the rights of Chinese companies but has not said whether or how it will retaliate over the U.S. actions against Huawei.

The editor of the Global Times, an influential tabloid run by the ruling Communist Party’s People’s Daily, tweeted on Monday that he had switched to a Huawei phone, although he said his decision did not mean that he thinks it is right to boycott Apple and said he was not throwing away his iPhone.

“While the U.S. spares no efforts to subdue Huawei, out of personal belief, I chose to support the well-respected company by using its product,” Hu Xijin tweeted.

Trump, who said the interview with Fox News host Steve Hilton had taken place two days after he raised the tariffs, said he would be happy to simply keep tariffs on Chinese products, but said that he believed that China would eventually make a deal with the United States “because they’re getting killed with the tariffs”.

But he said that he had told Chinese President Xi Jinping before the most recent rounds of talks that any deal could not be “50-50” between the two countries and had to be more in favor of the United States because of past trade practices by China.

(Reporting by David Lawder and Ben Blanchard; Writing by Tony Munroe; Editing by Richard Borsuk, Robert Birsel and Nick Macfie)

U.S. farmers receive $8.52 billion in aid to date, USDA says

FILE PHOTO: A farmer drives tractor along a road in Pearl City, Illinois, U.S., July 25, 2018. REUTERS/Joshua Lott

WASHINGTON (Reuters) – The U.S. Department of Agriculture has to date paid out $8.52 billion in direct payments to American farmers as part of the 2018 aid program, designed to offset losses from trade tariffs by China and other trading partners, a spokesman for the agency said.

The Trump administration has pledged up to $12 billion in aid to help offset losses for crops hit by Chinese tariffs imposed in response to Washington’s tariffs on Chinese goods.

(Reporting by Humeyra Pamuk; editing by Jonathan Oatis)

No easy options for China as trade war, U.S. pressure bite

FILE PHOTO: Containers are seen at the Yangshan Deep Water Port in Shanghai, China April 24, 2018. REUTERS/Aly Song/File Photo

By Kevin Yao and Michael Martina

BEIJING (Reuters) – China is running out of options to hit back at the United States without hurting its own interests, as Washington intensifies pressure on Beijing to correct trade imbalances in a challenge to China’s state-led economic model.

China said this week it would impose higher tariffs on most U.S. imports on a revised $60 billion target list. That’s a much shorter list compared with the $200 billion of Chinese products on which Washington has hiked tariffs.

Washington has also turned up the heat on other fronts, from targeting China’s tech firms such as Huawei and ZTE to sending warships through the strategic Taiwan Strait.

As the pressure mounts, Chinese leaders are pressing ahead to seal a deal and avoid a drawn-out trade war that risks stalling China’s long-term economic development, according to people familiar with their thinking.

But Beijing is mindful of a possible nationalistic backlash if it is seen as conceding too much to Washington.

Agreeing to U.S. demands to end subsidies and tax breaks for state-owned firms and strategic sectors would also overturn China’s state-led economic model and weaken the Communist Party’s grip on the economy, they said.

“We still have ammunition but we may not use all of it,” said a policy insider, declining to be identified due to the sensitivity of the matter.

“The purpose is to reach a deal acceptable to both sides.”

The State Council Information Office, finance ministry and commerce ministry did not immediately respond to Reuters’ requests for comment.

Of the retaliatory options available to China, none come without potential risks.

RESTRICTING U.S. IMPORTS

Since July last year, China has cumulatively imposed additional retaliatory tariffs of up to 25 percent on about $110 billion of U.S. goods.

Based on 2018 U.S. Census Bureau trade data, China would only have about $10 billion of U.S. products, such as crude oil and big aircraft, left to levy duties on in retaliation for any future U.S. tariffs.

In contrast, U.S. President Donald Trump is threatening tariffs on a further $300 billion of Chinese goods.

The only other items Beijing could tax would be imports of U.S. services. The United States had a services trade surplus with China of $40.5 billion in 2018.

But China does not have as much leverage over the United States as it might seem because large parts of that surplus are in tourism and education, areas that would be more difficult for the Chinese government to significantly roll back, James Green, a senior adviser at McLarty Associates, told Reuters.

China is more likely to further erect non-tariff barriers on U.S. goods, such as delaying regulatory approvals for agricultural products, said Green, who until August was the top U.S. Trade Representative official at the embassy in Beijing.

HURTING U.S. FIRMS

Trade analysts say China could reward other global companies at the expense of U.S. firms, replacing for example Boeing planes with Airbus jets where possible.

But there is considerable risk for China in transitioning its retaliation from tariffs to non-tariffs barriers on U.S. companies because doing so would intensify perceptions of an uneven playing field in China and incentivize some firms to shift sourcing or investment outside the country, they say.

Trump has called for U.S. firms to move production back to the United States.

“The medium- to long-term ramifications on supply chains are being deeply underestimated. I would be severely concerned if I was China,” Robert Lawrence, a nonresident senior fellow at the Peterson Institute for International Economics, recently told journalists in Beijing, where a group from the think-tank met with senior Chinese officials.

After trade negotiations hit a wall last week and led to the imposition of new tariffs, Chinese state media has stepped up nationalist rhetoric, vowing that China won’t be bullied.

But analysts say Beijing, at least for the time being, is trying to keep the trade war from seeping into the larger political arena.

“I don’t think they see that as in their interests and are worried that anti-Americanism becomes anti-regime very quickly,” said Green.

DEVALUING THE YUAN

A weaker yuan could help mitigate the impact on China’s exports from higher U.S. tariffs, but any sharp yuan depreciation could spur capital flight, analysts say.

Chinese leaders have repeatedly said they will not resort to yuan depreciation to boost exports, and the central bank has said it will not use the currency as a tool to cope with trade frictions.

The yuan has lost just over 2 percent against the dollar so far this month as the trade war intensifies, but analysts said the depreciation is likely to be market-driven.

DUMPING U.S. TREASURIES

Investors are concerned that China, which is the largest foreign U.S. creditor, may dump Treasury bonds and send U.S. borrowing costs higher to punish the Trump administration.

But most analysts say such action by China is unlikely as it risks starting a fire sale that would burn its own portfolio too.

China’s massive Treasury holdings totaled $1.131 trillion in February, according to the latest U.S. data.

CIRCUMVENTING THE U.S.

The near-term shock to China’s economy from higher U.S. tariffs could be mitigated by increased policy stimulus to spur domestic demand.

Chinese exporters are diversifying overseas sales, helped in part by Beijing’s Belt and Road initiative to recreate the old Silk Road.

To meet its demand for raw materials, China is also seeking alternative overseas suppliers.

Chinese purchases of U.S. soybeans – once China’s biggest import item from the United States – came to a virtual halt after Beijing slapped 25% tariffs on U.S. shipments last year.

Beijing has since scooped up soybeans from Brazil.

(Reporting by Kevin Yao and Michael Martina; Additional reporting by Hallie Gu; Editing by Ryan Woo & Shri Navaratnam)

Trump says no hurry to sign China deal as trade war escalates

A general view of Kwai Tsing Container Terminals for transporting shipping containers in Hong Kong, China July 25, 2018. REUTERS/Bobby Yip

By Susan Heavey and Yawen Chen

WASHINGTON/BEIJING (Reuters) – U.S. President Donald Trump on Friday said he was in no hurry to sign a trade deal with China as Washington imposed a new set of tariffs on Chinese goods and negotiators entered a second day of last-ditch talks to try to salvage an agreement.

The United States early on Friday increased its tariffs on $200 billion in Chinese goods to 25% from 10%, rattling financial markets already worried the 10-month trade war between the world’s two largest economies could spiral out of control.

The move, which is expected to lead China to retaliate, went into effect just hours after U.S. Trade Representative Robert Lighthizer, U.S. Treasury Secretary Steven Mnuchin and Chinese Vice Premier Liu He ended a first day of talks in Washington without a deal.

They resumed negotiations on Friday morning.

In a series of morning tweets, Trump defended the tariff hike and said he was in “absolutely no rush” to finalize a deal, adding that the U.S. economy would gain more from the levies than any agreement.

“Tariffs will bring in FAR MORE wealth to our country than even a phenomenal deal of the traditional kind,” Trump said in one of the tweets.

Despite Trump’s insistence that China will absorb the cost of the tariffs, U.S. businesses will pay them and likely pass them on to consumers.

Global equities sagged after his comments. MSCI’s All-Country World Index, which tracks stocks across 47 countries, was down 0.8% in London. U.S. stock indexes, which have fallen sharply this week, opened lower again

Trump, who has adopted protectionist policies as part of his “America First” agenda and railed against China for trade practices he labels unfair, said the trade talks, originally due to last two days, could drag on beyond this week.

“We will continue to negotiate with China in the hopes that they do not again try to redo deal!” said Trump, who has accused Beijing of reneging on commitments it made during months of negotiations.

Following the U.S. tariff hike, China’s Commerce Ministry said it would take countermeasures but did not elaborate.

The ministry said it “hopes the United States can meet China halfway, make joint efforts, and resolve the issue through cooperation and consultation.”

‘RUSSIAN ROULETTE’

Under the latest U.S. action, U.S. Customs and Border Protection imposed a 25% duty on more than 5,700 categories of products leaving China after 12:01 a.m. EDT (0401 GMT) on Friday.

Seaborne cargoes shipped from China before midnight were not subject to the new tax as long as they arrived in the United States prior to June 1. Those cargoes will be charged the original 10% rate.

“This delay might create an unofficial window during which the U.S. and China can continue to negotiate,” investment bank Goldman Sachs wrote in a note, adding that it was a “somewhat positive sign” that talks were continuing.

Trump gave U.S. importers less than five days notice about his decision to increase the rate on $200 billion worth of goods, which now matches the rate on a prior $50 billion category of Chinese machinery and technology goods.

He has also threatened to impose new tariffs on another $325 billion in Chinese imports.

Investors worry that an escalating trade war could further damage a slowing global economy. The higher tariffs could reduce U.S. gross domestic product (GDP) by 0.3% and China’s by 0.8% in 2020, consultancy Oxford Economics said.

“There is no greater threat to world growth,” French Finance Minister Bruno Le Maire said on Friday.

Many business groups have opposed the tariffs, saying they will be disastrous for companies and lead to higher prices for consumers across a range of products.

Gary Shapiro, chief executive of the Consumer Technology Association, said the tariffs would be paid by American consumers and businesses, not China, as Trump has claimed.

“Our industry supports more than 18 million U.S. jobs, but raising tariffs will be disastrous,” Shapiro said in a statement.

It may take three or four months for American shoppers to feel the pinch but retailers will have little choice but to raise prices to cover the rising cost of imports before too long, economists and industry consultants say.

Mats Harborn, president of the European Union Chamber of Commerce in China, said: “European companies are watching aghast as the U.S. and China play Russian roulette with the world economy.”

RETALIATE HOW?

The biggest Chinese sector affected by the latest tariff increase is a $20 billion-plus category of internet modems, routers and other data transmission devices, followed by about $12 billion worth of printed circuit boards used in a vast array of U.S.-made products.

Furniture, lighting products, auto parts, vacuum cleaners and building materials also are high on the list of products subject to increased duties.

Just hours after the U.S. move, which will add pressure on an already slowing Chinese economy, China’s central bank said it was fully able to cope with any external uncertainty.

On Monday, the People’s Bank of China cut the amount of reserves that some small and medium-sized banks need to hold, freeing up funds for lending to cash-strapped businesses.

James Green, a senior adviser at McLarty Associates who until August was the top USTR official at the embassy in Beijing, said he expected China would increase non-tariff barriers on U.S. firms, such as delaying regulatory approvals.

“I think the Chinese, in the end, will want to keep negotiations going. The question is: ‘where do they go for retaliation?'” he said.

Even without the trade war, China-U.S. relations have continued to deteriorate, with an uptick in tensions over the South China Sea, Taiwan, human rights and China’s plan to re-create the old Silk Road, called the Belt and Road Initiative.

(Reporting by David Lawder in Washington, and Yawen Chen, Michael Martina, Ryan Woo, Ben Blanchard and Kevin Yao in Beijing, and Xihao Jiang in Shanghai; Writing by Paul Simao; Editing by Simon Cameron-Moore, Kim Coghill and Bill Trott)

As tariff hike looms, China asks U.S. to meet it halfway, denies backtracking

FILE PHOTO: Chinese and U.S. flags are set up for a meeting during a visit by U.S. Secretary of Transportation Elaine Chao at China's Ministry of Transport in Beijing, China April 27, 2018. Picture taken April 27, 2018. REUTERS/Jason Lee/File Photo

By Yawen Chen and Se Young Lee

BEIJING (Reuters) – China appealed to the United States to meet it halfway to salvage a deal that could end their trade war, with its chief negotiator in Washington for two days of talks hoping to stave off U.S. tariff hikes set to be triggered on Friday.

The two sides had appeared to be converging on a deal until last weekend when U.S. President Donald Trump announced his intention to raise tariffs with his negotiators saying that China was backtracking on earlier commitments.

“The U.S. side has given many labels recently, ‘backtracking’, ‘betraying’ etc…China sets great store on trustworthiness and keeps its promises, and this has never changed,” Commerce Ministry spokesman Gao Feng said on Thursday.

Gao told reporters in Beijing that it was normal for both sides to have disagreements during the negotiating process.

Trump told supporters at a rally in Florida on Wednesday that China “broke the deal”, and vowed not to back down on imposing new tariffs on Chinese imports unless Beijing “stops cheating our workers”.

A protracted trade war between the world’s two largest economies would damage global economic growth, and investors pulled their money out of stock markets this week amid fears of the prospective agreement unraveling.

Gao said the decision to send the delegation led by Vice Premier Liu He to Washington despite the tariff threat demonstrated China’s “utmost sincerity”.

“We hope the U.S. can meet China halfway, take care of each others’ concerns, and resolve existing problems through cooperation and consultations,” he said.

Gao urged the United States to eschew unilateral action, while warning China was fully prepared to defend its interests.

“China’s attitude has been consistent and China will not succumb to any pressure. China has made preparations to respond to all kinds of possible outcomes.” He did not elaborate.

U.S. government and private sector sources previously told Reuters that a draft trade agreement was riddled with reversals by China that undermined core U.S. demands.

In each of the seven chapters of the draft, China had deleted its commitments to change laws to resolve core complaints that caused the United States to launch a trade war: Theft of U.S. intellectual property and trade secrets; forced technology transfers; competition policy; access to financial services; and currency manipulation.

The stripping of binding legal language from the draft struck directly at the highest priority of U.S. Trade Representative Robert Lighthizer – who views changes to Chinese laws as essential to verifying compliance after years of what U.S. officials have called empty reform promises.

U.S. TARIFFS

Lighthizer’s office said tariffs on $200 billion of Chinese goods would rise to 25 percent from 10 percent at 12:01 a.m. (0401 GMT) on Friday, during the discussions in Washington.

The tariffs would target chemicals, building materials, furniture and some consumer electronics among other goods.

Trump also threatened on Sunday to levy tariffs on an additional $325 billion of China’s goods, on top of the $250 billion of its products already hit by import taxes.

Since July last year, China has cumulatively imposed counter-tariffs of up to 25 percent on about $110 billion of U.S. products. It last levied tariffs, of 5 percent to 10 percent, on $60 billion of U.S. goods including liquefied natural gas and small aircraft in September.

Based on 2018 U.S. Census Bureau trade data, China would only have about $10 billion in U.S. imports left to levy in retaliation for any future U.S. tariffs, including crude oil and large aircraft.

Gao did not answer directly when asked if China would consider imposing tariffs on imported U.S services.

While the United States wants to reduce the scale of its trade deficit with China, it is also seeking stronger protection for American intellectual property and more market access in China for U.S. companies.

Gao described accusations about Chinese firms stealing tech secrets as unreasonable and said they were not based on facts.

STRONG MENTALITY

Chinese state media on Thursday published and aired reports quoting U.S.-based organizations and individuals critical of Trump’s decision to raise tariffs, though playing down the impact of higher U.S. tariffs on the Chinese economy.

“China is well-prepared for an escalation in trade tensions. A variety of plans are in place, such as countermeasures for any tariff rise, and favorable policies to minimize losses for Chinese enterprises,” the Global Times, a tabloid published by the ruling Communist Party’s People’s Daily, said in an editorial.

“Mentally and materially, China is much better prepared than its U.S. counterpart.”

The country’s share markets have taken a battering due to the renewed trade tensions, however.

China’s blue-chip CSI300 index has slumped about 7 percent so far in May while in the United States, the benchmark S&P 500 index has only declined about 2 percent.

The Chinese yuan has also weakened to a four-month low, crossing the 6.80 per dollar level.

ECONOMIC IMPACT

While China’s overall economic growth has remained steady so far this year, the outlook for exporters has been challenging.

Exports unexpectedly declined in April, with some analysts attributing the drop to slumping shipments to the United States.

U.S.-bound shipments fell more than 13 percent last month, according to official data released this week.

But imports from the United States declined by even more – almost 26 percent, widening China’s trade surplus with the United States.

The U.S. Commerce Department said on Thursday the politically sensitive goods trade deficit with China fell 16.2 percent to $20.7 billion, the lowest level since March 2014, also as imports from the world’s No. 2 economy fell 6.1 percent. Exports to China jumped 23.6 percent in March.

“For months, U.S. companies and agricultural producers and their respective trade associations have desperately urged the two sides to come to some kind of trade agreement that would prevent the further use of tariffs by both countries, fearing such a scenario would cripple their already-damaged bilateral trading relationship,” said Nelson Dong, senior partner at international law firm Dorsey & Whitney.

“However, those urgent pleas seem to have been ignored. Once again, the two countries, and indeed, the entire world’s economy will be forced into a crisis mode that will likely inflict enormous losses on many individual companies and many thousands of workers and farmers in both countries.”

(Reporting by Yawen Chen and Se Young Lee; Writing by Ryan Woo; Editing by Simon Cameron-Moore/Mark Heinrich)

Exclusive: China backtracked on almost all aspects of U.S. trade deal – sources

FILE PHOTO: Chinese Vice Premier Liu He, right, looks as U.S. Treasury Secretary Steven Mnuchin, center, swaps places with his Trade Representative Robert Lighthizer during a photograph session before they proceed to their meeting at the Diaoyutai State Guesthouse in Beijing, Wednesday, May 1, 2019. Andy Wong/Pool via REUTERS

By David Lawder, Jeff Mason and Michael Martina

WASHINGTON/BEIJING (Reuters) – 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 world’s two largest economies, according to three U.S. government sources and three private sector sources briefed on the talks.

The document was riddled with reversals by China that undermined core U.S. demands, the sources told Reuters.

In each of the seven chapters of the draft trade deal, China had deleted its commitments to change laws to resolve core complaints that caused the United States to launch a trade war: Theft of U.S. intellectual property and trade secrets; forced technology transfers; competition policy; access to financial services; and currency manipulation.

U.S. President Donald Trump responded in a tweet on Sunday vowing to raise tariffs on $200 billion worth of Chinese goods from 10 to 25 percent on Friday. timed to land in the middle of a scheduled visit by China’s Vice Premier Liu He to Washington to continue trade talks.

The United States said on Wednesday the higher tariffs would go into effect on Friday, according to a notice posted on the Federal Register.

Trump said on Wednesday that China is mistaken if it hopes to negotiate trade later with a Democratic presidential administration.

“The reason for the China pullback attempted renegotiation of the Trade Deal is the sincere HOPE that they will be able to ‘negotiate’ with Joe Biden or one of the very weak Democrats,” Trump tweeted. Trump also said he would be happy to keep tariffs on Chinese imports in place.

The stripping of binding legal language from the draft struck directly at the highest priority of U.S. Trade Representative Robert Lighthizer – who views changes to Chinese laws as essential to verifying compliance after years of what U.S. officials have called empty reform promises.

Lighthizer has pushed hard for an enforcement regime more like those used for punitive economic sanctions such as those imposed on North Korea or Iran than a typical trade deal.

“This undermines the core architecture of the deal,” said a Washington-based source with knowledge of the talks.

‘PROCESS OF NEGOTIATION’

Spokespeople for the White House, the U.S. Trade Representative and the U.S. Treasury Department did not immediately respond to requests for comment.

Chinese Foreign Ministry spokesman Geng Shuang told a briefing on Wednesday that working out disagreements over trade was a “process of negotiation” and that China was not “avoiding problems”.

Geng referred specific questions on the trade talks to the Commerce Ministry, which did not respond immediately to faxed questions from Reuters.

Lighthizer and U.S. Treasury Secretary Steven Mnuchin were taken aback at the extent of the changes in the draft. The two cabinet officials on Monday told reporters that Chinese backtracking had prompted Trump’s tariff order but did not provide details on the depth and breadth of the revisions.

Liu last week told Lighthizer and Mnuchin that they needed to trust China to fulfill its pledges through administrative and regulatory changes, two of the sources said. Both Mnuchin and Lighthizer considered that unacceptable, given China’s history of failing to fulfill reform pledges.

One private-sector source briefed on the talks said the last round of negotiations had gone very poorly because “China got greedy.”

“China reneged on a dozen things, if not more … The talks were so bad that the real surprise is that it took Trump until Sunday to blow up,” the source said.

“After 20 years of having their way with the U.S., China still appears to be miscalculating with this administration.”

FURTHER TALKS THIS WEEK

The rapid deterioration of negotiations rattled global stock markets, bonds and commodities this week. Until Sunday, markets had priced in the expectation that officials from the two countries were close to striking a deal.

Investors and analysts questioned whether Trump’s tweet was a negotiating ploy to wring more concessions from China. The sources told Reuters the extent of the setbacks in the revised text were serious and that Trump’s response was not merely a negotiating strategy.

On Wednesday morning, U.S. stock market indexes were mostly weaker again, pointing to a third straight day of losses on Wall Street. The S&P 500 has fallen more than 2 percent so far this week. Yields on benchmark U.S. Treasury securities fell to the lowest in more than a month.

Chinese negotiators said they couldn’t touch the laws, said one of the government sources, calling the changes “major.”

Changing any law in China requires a unique set of processes that can’t be navigated quickly, said a Chinese official familiar with the talks. The official disputed the assertion that China was backtracking on its promises, adding that U.S. demands were becoming more “harsh” and the path to a deal more “narrow” as the negotiations drag on.

Liu is set to arrive in Washington on Thursday for two days of talks that just last week were widely seen as pivotal; a possible last round before a historic trade deal. Now, U.S. officials have little hope that Liu will come bearing any offer that can get talks back on track, said two of the sources.

To avert escalation, some of the sources said, Liu would have to scrap China’s proposed text changes and agree to make new laws. China would also have to move further toward the U.S. position on other sticking points, such as demands for curbs on Chinese industrial subsidies and a streamlined approval process for genetically engineered U.S. crops.

The U.S. administration said the latest tariff escalation would take effect at 12:01 a.m. Friday (0401 GMT), hiking levees on Chinese products such as internet modems and routers, printed circuit boards, vacuum cleaners and furniture.

The Chinese reversal may give China hawks in the Trump administration, including Lighthizer, an opening to take a harder stance.

Mnuchin, who has been more open to a deal with improved market access, and at times clashed with Lighthizer, appeared in sync with Lighthizer in describing the changes to reporters on Monday, while still leaving open the possibility new tariffs could be averted with a deal.

Trump’s tweets left no room for backing down, and Lighthizer made it clear that, despite continuing talks, “come Friday, there will be tariffs in place.”

(Additional reporting by Chris Prentice and Dan Burns in NEW YORK, and Jing Xu and Ben Blanchard in BEIJING; Editing by Simon Webb, Brian Thevenot and Paul Simao)

Wall Street plunges on heightening U.S.-China trade worries

By Amy Caren Daniel

(Reuters) – Wall Street’s main indexes tumbled more than 1 percent on Tuesday, as renewed worries over trade negotiations with China stoked global growth worries and kept investors away from risky assets.

Beijing said on Tuesday that Chinese Vice Premier Liu He will visit the United States this week for trade talks, playing down U.S. President Donald Trump’s unexpected threat on Sunday that he would raise tariffs on $200 billion worth of Chinese goods to 25 percent from 10 percent.

Trade tensions also pushed U.S. treasury yields lower as investors turned to low-risk government bonds, pressuring interest rate sensitive banking stocks, which fell 1.69%. [US/]

“Many had been looking at this week as providing a potential breakthrough in talks between the world’s two largest economies, yet we instead have seen the U.S. threaten a raft of new tariffs,” Joshua Mahony, senior market analyst at IG, wrote in a note.

“Much of the gains of the eventual deal have been factored into market valuations and thus there is a substantial risk that markets could jolt lower if the direction of talks shift towards more, rather than less barriers to trade.”

Boeing Co, the single largest U.S. exporter to China, slipped 2.7% and Caterpillar Inc declined 1.9%.

All the major S&P sectors were trading in the red, with technology companies posting the steepest decline of 2%.

The CBOE Volatility Index, a gauge of investor anxiety, spiked to its higher level in over three months.

At 10:55 a.m. ET the Dow Jones Industrial Average was down 355.41 points, or 1.34%, at 26,083.07. The S&P 500 was down 42.23 points, or 1.44%, at 2,890.24 and the Nasdaq Composite was down 138.67 points, or 1.71%, at 7,984.62.

Marquee names including Microsoft Corp, Apple Inc, Amazon.com Inc and Facebook Inc fell more than 1.7% and weighed on markets.

The earnings season has now reached its homestretch. Of the 414 S&P companies that have reported earnings so far, about 75% have surpassed analysts’ estimates, according to Refinitiv data.

The upbeat reports have turned around earnings estimates for the first quarter to an almost 1.2% rise, a sharp improvement from the 2.3% decline expected at the start of the earnings season.

American International Group Inc jumped 6.7%, the most among S&P companies, after the insurer reported a quarterly profit that blew past expectations.

Among decliners, Mylan NV tumbled 17% after the drugmaker missed Wall Street estimates for quarterly revenue, hurt partly by manufacturing problems at its Morgantown plant in West Virginia.

Shares of Regeneron Pharmaceuticals Inc fell 5% after the drugmaker missed quarterly profit estimates.

Declining issues outnumbered advancers for a 4.26-to-1 ratio on the NYSE and for a 2.95-to-1 ratio on the Nasdaq.

The S&P index recorded four new 52-week highs and four new lows, while the Nasdaq recorded 37 new highs and 22 new lows.

(Reporting by Amy Caren Daniel and Shreyashi Sanyal in Bengaluru; Editing by Shounak Dasgupta and Arun Koyyur)

China trade team still plans on U.S. talks as Trump vows to raise tariffs

FILE PHOTO: Chinese and U.S. flags are set up for a meeting during a visit by U.S. Secretary of Transportation Elaine Chao at China's Ministry of Transport in Beijing, China April 27, 2018. Picture taken April 27, 2018. REUTERS/Jason Lee/File Photo

By Ben Blanchard and Jeff Mason

BEIJING/WASHINGTON (Reuters) – China said on Monday that a delegation was still preparing to go to the United States for trade talks, even as U.S. President Donald Trump dramatically increased pressure on Beijing to reach a deal, saying he would hike tariffs on Chinese goods this week.

Trump’s comments on Sunday marked a major escalation in tensions between the world’s two largest economies, and a shift in tone from the president, who as recently as Friday had cited progress toward a deal.

Stock markets sank and oil prices tumbled on his remarks, as negotiations to end the months-long trade war were thrown into doubt.

“We are also in the process of understanding the relevant situation. What I can tell you is that China’s team is preparing to go to the United States for the discussions,” Chinese Foreign Ministry spokesman Geng Shuang told a news briefing.

But Geng did not say if Vice Premier Liu He, who is China’s lead official in the negotiations, will be part of the delegation as originally planned. Negotiations are set to start May 8 in Washington.

“What is of vital importance is that we still hope the United States can work hard with China to meet each other halfway, and strive to reach a mutually beneficial, win-win agreement on the basis of mutual respect,” Geng said.

The Wall Street Journal reported earlier that China was considering canceling this week’s meetings in Washington in light of Trump’s comments, which took Chinese officials by surprise.

Trump appeared to defend his decision in a tweet early Monday, slamming the U.S.-China trade deficit and vowing not to lose out to Beijing.

A less-than-rosy update from U.S. Trade Representative Robert Lighthizer, including details that China was pulling back from some previous commitments, prompted Trump’s weekend decision.

“The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No!” Trump said in a tweet.

Trump said tariffs on $200 billion of goods would increase on Friday to 25 percent from 10 percent, reversing a decision he made in February to keep them at 10 percent due to progress between the two sides.

The president also said he would target a further $325 billion of Chinese goods with 25 percent tariffs “shortly,” essentially covering all products imported to the United States from China.

‘ATMOSPHERE HAS CHANGED’

U.S. officials did not weigh in on whether they expected talks to go ahead this week. The White House and the U.S. Trade Representative’s Office declined to comment. China’s commerce ministry did not immediately respond to a request for comment.

“The atmosphere of the negotiations has changed,” said a Chinese official with knowledge of the situation.

Whether and how the talks proceed are being re-evaluated, the official told Reuters on condition of anonymity.

“All that depends on the attitude of the United States,” the official said.

Chinese news outlets have been told not to independently report on Trump’s tweets, and instead adhere to any report from the official Xinhua news agency, said a source with direct knowledge of the matter.

Global financial markets, which had been expecting news of a trade deal soon, went into a tailspin. U.S. equity futures fell more than 2 percent and stocks across trade-reliant Asia tumbled. China’s main indexes slid 5 percent.

“There is still a question of whether this is one of the famous Trump negotiation tactics, or are we really going to see some drastic increase in tariffs,” said Nick Twidale, Sydney-based analyst at Rakuten Securities Australia. “If it’s the latter, we’ll see massive downside pressure across all markets.”

Mindful of his 2020 re-election bid, Trump had also suggested the duties were not leading to price increases for U.S. consumers. “The Tariffs paid to the USA have had little impact on product cost, mostly borne by China,” he tweeted.

Tariffs on Chinese goods are actually paid to the United States by companies that import the goods, and most of those companies are U.S.-based. American businesses, while supportive of Trump’s crackdown on China’s trade practices, are eager for the tariffs to be removed, not expanded.

“Raising tariffs means raising taxes on millions of American families and inviting further retaliation on American farmers,” said Christin Fernandez, a spokeswoman for the Retail Industry Leaders Association.

‘HANG TOUGH’

Nevertheless, the president’s aggressive strategy drew rare bipartisan support from U.S. Senate Democratic leader Chuck Schumer, who urged Trump to “hang tough” in a tweet: “Don’t back down. Strength is the only way to win with China.”

One Chinese trade expert said recent signs of resilience in both economies were breeding over-confidence.

“The urgency is gone. So, it’s likely to see a longer trade war,” the expert said, speaking on condition of anonymity due to the sensitivity of the topic.

The trade war resulted in billions of dollars in losses for both sides in 2018, hitting autos, technology and above all, agriculture, while inflicting collateral damage on export-reliant economies and companies from Japan to Germany.

On Friday, Trump said talks with China were going well.

Last week, industry sources said they believed the talks were in the end game, but a Trump administration official said aides had told the president that significant hurdles remained.

The increase in U.S. tariffs on Friday would be the first since Trump imposed 10 percent tariffs on $200 billion of Chinese goods in September, coming on top of 25 percent tariffs on $50 billion of goods enacted earlier last year.

Negotiations about tariffs have been one of the remaining sticking points between the two sides. China wants the tariffs to be removed, while Trump wants to keep some, if not all, as part of any final deal to ensure China lives up to its commitments, a White House official said on Sunday.

(Reporting by Jeff Mason, David Shepardson, Timothy Gardner, Lawrence Hurley and Makini Brice in Washington; Sinead Carew in New York; and Ben Blanchard, Michael Martina, Shu Zhang, Jing Xu, Cheng Leng and Yawen Chen in Beijing; Editing by Simon Cameron-Moore and Jeffrey Benkoe)