Donald Trump has escalated the trade war with China by announcing plans to hike the tariff imposed on $200bn of Chinese goods from 10% to 25% on Friday.
The US president also threatened to impose tariffs on all Chinese trade with America, a move that could further destabilise relations between the two economic powers.
The move prompted sharp falls in stocks in Asia Pacific on Monday with China’s blue chip stock index dropping 4% – its biggest fall for two months – while the Hang Seng fell 2.5%.
In Australia the benchmark ASX200 was off 1.2% and the dollar fell 0.7% to sink below the long-held level of US70c.
Wall Street is set to plunge nearly 500 points, or 1.8% when trading opens later on Monday .
Fears that Trump’s comments could sink the trade talks were compounded when the editor of China’s Global Times newspaper said on Monday that China’s vice premier Liu He was now “very unlikely” to go to the United States this week.
“Let Trump raise tariffs. Let’s see when trade talks can resume,” Hu Xijin said in a tweet.
Trump announced the move on Twitter, complaining that negotiations between the two countries were proceeding too slowly.
For 10 months, China has been paying Tariffs to the USA of 25% on 50 Billion Dollars of High Tech, and 10% on 200 Billion Dollars of other goods. These payments are partially responsible for our great economic results. The 10% will go up to 25% on Friday. 325 Billions Dollars….
— Donald J. Trump (@realDonaldTrump) May 5, 2019
The move will affect more than 5,000 products made by Chinese farms and factories, from fresh and frozen food to chemicals, textiles, metalwork, building materials, electronics and consumer goods.
Trump originally imposed a 10% tariff on these goods last September in an attempt to cut America’s trade deficit with China and force concessions on issues such as intellectual property rights. It had been scheduled to jump to 25% in January but the president held back while talks between the two sides continued.
Currently, almost half of China’s sales to America are affected by tariffs and Trump is now aiming for the remaining $325bn.
He warned: “325 Billions Dollars of additional goods sent to us by China remain untaxed, but will be shortly, at a rate of 25%. The Tariffs paid to the USA have had little impact on product cost, mostly borne by China. The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No!”
Such a move could cause further pain and disruption to the Chinese economy, and probably trigger retaliatory action by Beijing.
Patrick Chovanec, chief strategist at Silvercrest Asset Management, warned that Trump’s move could disappoint investors and push markets down.
“The prospect of higher and broader tariffs was one factor that drove markets down in the fourth quarter of 2018, but markets have since come to believe that some sort of deal was imminent to avoid them,” Chovanec said.
But Reva Goujon, vice president for global analysis at Stratfor, suggested that Trump’s move could be a ploy to help get negotiations over the line.
#Trump threat to impose 25% #tariffs on remaining Chinese goods may ironically be a sign of real progress. US, #China are nearing final deal but were bound to hit a wall. China shd have been expecting the Trump threat in final stages, could have compromise in back pocket ready..
— Reva Goujon (@RevaGoujon) May 5, 2019
Economists have blamed the US-China trade war for a slowdown in global growth in recent months.
The US treasury secretary, Steven Mnuchin, and trade representative, Robert Lighthizer, held talks with China’s vice-premier, Liu He, in Beijing last week. Liu was expected back in Washington within days.
Despite Trump’s claim that China pays these tariffs, they are actually paid by US companies when they import goods. Those firms can choose to pass the cost on to their customers through high prices, absorb the cost and lower their profits, or try to negotiate the cost of the goods down.