The US hiked tariffs on more than $200 billion in goods from China on Friday in the most dramatic step yet of President Donald Trump's push to extract trade concessions, deepening a conflict that has roiled financial markets and cast a shadow over the global economy.
China immediately said in a statement it is forced to retaliate, though hadn't specified how as of 2:20 p.m. in Beijing. The move came after discussions between 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. The negotiations were due to resume on Friday morning Washington time.
Asian stocks swung in a volatile session and US futures dropped.
Ahead of the talks on Thursday, Trump also said the US would go ahead with preparations to impose 25% tariffs on a further $325 billion in goods from China, raising the prospect of all of China's goods exports to the US - which were worth about $540 billion last year - being subject to new import duties.
Such a move would take weeks to deploy. But it would have significant repercussions for the US, Chinese and global economies. 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 US 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 new tariffs that took effect at 12:01 a.m. Washington time Friday raise from 10% to 25% the duties on more than 5,700 different product categories from China - ranging from cooked vegetables to Christmas lights and highchairs for babies.
US officials have said the new duties - introduced on just five days' notice - will not apply to goods already on boats headed for American shores. A 25% tariff is already in place on a further $50 billion in imports from China.
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 that broke up around 8:40 p.m. Washington time.
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 Liu had the authority to make any meaningful commitments. It was also unclear whether China had resolved the internal debates that had led to last week's rescinding of prior commitments to enshrine reforms agreed in Chinese law.
Ahead of the talks, Liu told Chinese state media he was coming to Washington under pressure but "with sincerity" and warned that a move to raise tariffs by the US starting Friday was not a solution and would be painful for both China and the US
Earlier in the day, Trump calmed US financial markets after he insisted it was still possible to reach a deal this week, even as he reiterated plans to raise tariffs on Chinese goods. Trump, speaking at an event in Washington, also said he may hold a phone call with his Chinese counterpart, Xi. No call between the two leaders had taken place by late Thursday nor had one been scheduled, according to a senior Trump administration official.
What Trump says
"He just wrote me a beautiful letter, I just received it, and I'll probably speak to him by phone, but look, we have two great alternatives, our country is doing fantastically well," Trump said. "Our alternative is an excellent one, it's an alternative I've spoken about for years. We've taken well over $100 billion from China in a year."
The escalation in the trade tensions between the US and China has roiled financial markets around the world with investors who had been expecting a deal as recently as a week ago forced to confront a sharp turnaround in expectations. The S&P 500 retreated for a fourth day Thursday, falling into its worst stretch of losses this year.
What Bloomberg's economists say
"The trade truce, one of the pillars on which optimism about global growth is based, appears to be crumbling. We'll see how talks in D.C. go on Friday. Assuming there's no speedy resolution and higher tariffs remain in place, forecasts for global growth will be shaded down, with the main blow landing on China and its Asian neighbors.'
Tom Orlik, Chief Economist at Bloomberg EconomicsFor the full note click here
China has disputed the US characterization that the country reneged on prior commitments. But it has also sent its own signals that a deal could take time.
"There's definitely disappointment and frustration" in China, said Zhu Ning, deputy director of the National Institute of Financial Research at Tsinghua University in Beijing. "We thought we were on a good path of making progress and having a deal.'
Trump has seized on recent strong economic data as a sign that his trade wars are working and may even be boosting growth - something economists challenge.
Trade data released Thursday showed the US trade deficit with China decreased to the narrowest in almost three years as imports slowed and exports advanced. Strong gross domestic product and jobs numbers in recent weeks have also emboldened Trump.
"When people looked at the economic numbers, they were shocked. When they look at the import-export numbers they were shocked," Trump said Thursday. "Try looking at all of the tariffs that China's been paying us for the last eight months. Billions and billions of dollars."
While Trump insists that the tariffs are paid for by China most economists say the evidence shows that their cost is being absorbed by American companies and consumers.