US-China trade talks breakdown despite 'constructive conversations'

US President raises the tariffs on more than $200 billion in Chinese goods on Friday and says the move brings in more wealth than any 'phenomenal deal'

Last-ditch talks to rescue a trade deal between the United States and China broke down before lunch on Friday Washington time.

The US hiked tariffs on $200 billion worth of Chinese goods, prompting an escalation in a trade war between the two countries.

US President Donald Trump tweeted on Friday that trade representatives held “constructive conversations” and that far from breaking down, talks would resume in the future.

He added that in the meantime, “the United States has imposed Tariffs on China, which may or may not be removed depending on what happens with respect to future negotiations!”

China's Global Times newspaper said on Friday that it believes the two sides agreed to meet in Beijing in the near future.

For a while it looked like negotiators agreed to stay at the table in Washington for a second day on Friday, with hopes of an eventual agreement that would remove a major threat to the global economy.

Mr Trump earlier said there was "no need to rush" trade talks with Beijing. In a series of tweets, the US president said he "will continue to negotiate with China in the hopes that they do not again try to redo deal!"

According to people familiar with the talks, the mood between China and America’s top trade envoys had been downbeat prior to talks ending.

Earlier, China's Commerce Ministry said it would take countermeasures, without elaborating.

The tariff increase came after discussions between China President Xi Jinping’s top trade envoy and his US counterparts in Washington made little progress on Thursday, with the mood around them downbeat, according to people familiar with the talks.

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The Commerce Ministry said earlier said it "hopes the United States can meet China halfway, make joint efforts, and resolve the issue through cooperation and consultation".

With negotiations in progress, US Customs and Border Protection imposed the new 25% duty on more than 5,700 categories of products leaving China after 12:01 am (0401 GMT) on Friday.

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

Trump tariff reaction: 'Playing Russian roulette'

US stock futures fell and Asian shares pared gains after Washington went ahead with the tariff hike, reflecting worries that a broader, more protracted trade war would inflict greater damage on the global economy. A major world index looked set for its worst week since December.

"There is no greater threat to world growth," French finance minister Bruno Le Maire said on Friday.

Economists at Moody’s Analytics said in a report this week that an all-out trade conflagration between the world’s two-largest economies risked tipping the American economy into recession by the end of 2020 just as voters go to the polls in the US.

The move “exacerbates the uncertainty in the global trading environment, further raises tensions between the US and China, negatively affects global sentiment and adds to risk aversion globally,” said Michael Taylor, managing director for credit strategy and standards at Moody’s Investors Service in Hong Kong.

The added levy could reduce US gross domestic productby 0.3% and China's by 0.8% in 2020, consultancy Oxford Economics said.

A quarter of our members have exports to the U.S. that were already affected by these ridiculous tariffs," said Mats Harborn, president of the European Union Chamber of Commerce in China.

"Pushing rates to 25% will prove extremely damaging to those companies, and the collateral damage will ripple around the globe. European companies are watching aghast as the U.S. and China play Russian roulette with the world economy."

China's Vice Premier Liu He waves as he departs the office of the US Trade Representative in Washington on Thursday. Bloomberg

Chinese Vice Premier Liu He huddled with US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin in Washington on Thursday for about 90 minutes of talks before breaking and reconvening later for a working dinner.

Though talks are set to resume Friday, some close observers said they were not hopeful for any meaningful breakthroughs. One person familiar with the discussions said that US officials were unsure whether Mr Liu had the authority to make any meaningful commitments.

How can China retaliate?

In April 2018, when Mr Trump's tariffs were still largely just threats, China's Commerce Ministry responded to his escalatory tweets by declaring that the two sides could not conduct negotiations "under these conditions".

But more than a year later, Mr Liu was in Washington trying to save the deal even as Mr Trump warned that the US would start "paperwork" on another $325 billion in Chinese imports, after raising tariffs on $250 billion of Chinese goods.

"I think the Chinese in the end will want to keep negotiations going. The question is: where do they go for retaliation?" said James Green, a senior adviser at McLarty Associates who until August was the top USTR official at the embassy in Beijing.

The Yangshan container port in Shanghai. Donald Trump's latest tariff hikes on Chinese goods took effect Friday, May 10, 2019. AP Phoot

Mr Green expected China to increase non-tariff barriers on US companies, such as delaying regulatory approvals, as it couldn't hit the same amount of imported US goods with higher tariffs.

The biggest Chinese sector affected by the latest tariff hike is a $20bn-plus category of internet modems, routers and other data transmission devices, followed by about $12bn 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 are also high on the list of products subject to higher duties.