BEIJING -- China warned Wednesday of retaliation if President Trump goes through with his threat to further raise tariffs on Chinese goods, setting up a potential escalation in a trade war that had seemed just weeks ago to be nearing its end.
On Wednesday morning, the U.S. trade representative's office filed a public notice in the Federal Register saying that tariffs on roughly $200 billion of Chinese products would increase to 25% from 10% on Friday "in light of the lack of progress in the additional rounds of negotiations since March 2019."
The trans-Pacific brinkmanship now spills over to face-to-face negotiations as trade talks are scheduled to resume late today in Washington -- just hours before Trump's latest tariff threats are due to hit $200 billion in Chinese products.
The Chinese warning -- issued as China's vice premier arrived in Washington -- signaled that Beijing was prepared to take the same route and raise tariffs on American products in response.
"An escalation in trade frictions is not in line with the American or Chinese interests or the interests of the world, and would thus be much to China's regret," a spokesman for the Commerce Ministry said in a statement on its website.
"But if the U.S. goes ahead with its tariff measures against China, China will have to resort to necessary countermeasures," the statement added.
Until just days ago, the two sides appeared close to a deal, with Trump saying last month they were forging a "monumental" and "epic" pact.
The Trump administration has been pushing China not just to narrow its trade gap with the United States but also to institute changes on matters such as Beijing's support for state-backed companies and protection for intellectual property rights.
There appeared to be some headway. But then Trump tweeted Sunday that China had attempted to renegotiate the almost-completed deal.
He threatened to increase tariffs from 10% to 25% on Friday and to levy a new 25% fee on the remaining $325 billion of Chinese imports "shortly" if there is no progress toward a trade deal.
The sudden shift sent Asian financial markets tumbling. Wall Street also has taken a hit. But U.S. investors Wednesday were more sanguine, with the Dow Jones industrial average closing almost unchanged.
On Wednesday, Trump sought to explain his assertions of Chinese wobbling in terms of U.S. politics.
"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, and thereby continue to ripoff the United States," the president tweeted.
Liu He, the lead Chinese negotiator, is set to meet with his American counterparts, Treasury Secretary Steven Mnuchin and Trade Representative Robert E. Lighthizer, for talks scheduled to wrap up Friday.
In the talks that led up to the sudden shift, the Chinese particularly objected to how Trump's advisers wanted to codify the deal, people familiar with the negotiations said. The administration wanted the text of the agreement to specify that some of the changes that China had promised would be made in Chinese law. But Chinese negotiators insisted that the changes would be carried out through regulatory and administrative actions by the Chinese government, and not cemented in place through legislation in the National People's Congress.
Chinese authorities were trying to reassure markets Wednesday. And China's state media has now swung into action.
But the main tone was one of strength and resilience.
"Tried and tested by the trade war for more than a year, entrepreneurs and ordinary people in China have learned to handle everything with grace and greater ease now," state news agency Xinhua wrote in a commentary published Wednesday. "Chinese society has weathered storms and is now able to endure great stress. We have also learned that the world doesn't end, as long as we keep our own house in order."
The overseas edition of the People's Daily, the mouthpiece of the Communist Party of China, described the Chinese economy was "like a vibrant, vast forest with a solid foundation, strong resilience, high quality and great potential."
"Market confidence is picking up and positive factors are setting in," the Guangming Daily declared on its front page Wednesday. "The Chinese economy has great resilience and huge potential."
But statistics show a different story.
Trade data released Wednesday showed that Chinese export growth was disappointing last month. The value of Chinese exports fell 2.7% in April compared with the previous year, against market expectations of 3% growth.
While the slump in domestic demand and exploding debt levels are the main reason for China's slowing economy, the trade tensions are weighing heavily on it.
China's trade surplus narrowed sharply to $13.84 billion in April, according to data from the General Administration of Customs. This was far below the $32.65 billion recorded in March and against economists' expectations that the surplus would grow.
The stakes are high for Chinese President Xi Jinping, who has a vision to make China a global superpower to rival the United States and who has asserted strong control over the ruling Communist Party, including by eliminating limits on his presidency.
"On some issues, Xi won't budge, most obviously on the right for China to pursue policies to make its technological base competitive with the U.S. Any concessions here could be dangerous for him domestically," said Richard McGregor, author of a book about the Communist Party and a China expert at the Lowy Institute in Sydney.
"But in other areas, it's always been true that some of Xi's advisers would like to use the trade talks as an excuse to push through reforms. The question is whether Xi goes along with them," he said, referring to the structural changes that the United States would also like to see, such as eliminating the special treatment for state-owned enterprises.
It remains to be seen whether both sides can walk back the tensions and bridge the significant remaining differences. Trump administration officials including Lighthizer and Peter Navarro, a top trade adviser, remain deeply skeptical of China's record of upholding its past commitments. Senior Trump administration advisers have been circulating a five-page, single-spaced document detailing the economic promises that China has made to various U.S. presidents and then broken.
Lighthizer is leading preparations before the next round of negotiations and, according to an administration official, the president is unfazed by the volatility in the stock market this week and wants to show China that he is serious about his threat to ratchet up tariffs.
Longtime China critics in the United States have pushed the president to hold out against what they see as China's tough negotiating style.
"In my study of Chinese negotiating tactics, in almost every case, they believe the endgame is where they can score the most points," said Michael Pillsbury, a China scholar at the Hudson Institute and an adviser on China to the White House. "They'll be totally prepared for this final phase."
Information for this article was contributed by Anna Fifield and David J. Lynch of The Washington Post; and by Ana Swanson and Keith Bradsher of The New York Times.
A Section on 05/09/2019