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Trade war

As clock ticks on tariff deadline, Trump says he received Xi letter

Negotiators begin crucial talks in Washington

Chinese Vice Premier Liu He arrives at the office of the U.S. Trade Representative in Washington, where he was greeted by lead negotiator Robert Lighthizer, right, and Treasury Secretary Steven Mnuchin. (Photo by Taisei Hoyama)

WASHINGTON/BEIJING -- Top American and Chinese trade negotiators began crucial talks late Thursday afternoon with less than half a day left before Washington raises tariffs on Chinese goods.

Chinese Vice Premier Liu He arrived at the U.S. Trade Representative's office around 5 p.m. Eastern time and was greeted by lead American negotiator Robert Lighthizer and U.S. Treasury Secretary Steven Mnuchin.

Ahead of the talks, U.S. President Donald Trump said he had received a letter from Chinese President Xi Jinping, and that he would likely speak to his counterpart by phone.

"He just wrote me a beautiful letter. I just received it, and I'll probably speak to him by phone," Trump told reporters at the White House earlier Thursday.

He said that in the letter Xi had called to "work together" and see "if we can get something done."

Trump also said that he was taking steps to authorize new tariffs on $325 billion worth of Chinese imports. He said the U.S. was "starting ... paperwork today" to impose a 25% tariff on the remaining Chinese goods untouched by the trade war so far.

U.S. Customs and Border Protection, meanwhile, issued an announcement Thursday saying it would begin collecting a 25% tariff on $200 billion worth of Chinese imports at 12:01 a.m. on Friday, which is seen as another step toward activation of Trump's planned tariff increase.

U.S. President Donald Trump, right, and China's President Xi Jinping seen in Beijing in November 2017. Trump has touted his personal relationship with Xi repeatedly.   © Reuters

The negotiators have little time to prevent an escalation that could rock the global economy.

Upon arriving in Washington, Liu told reporters that he came with sincerity and that he hoped to engage in rational and candid exchanges with the U.S. side, the official Xinhua News Agency reported. China believes that "raising tariffs is not a solution to the problems" and would be harmful to China, the U.S. and the world, he said.

The higher duty applies only to exports sent on or after that date, according to a notice published in the Federal Register by the Office of the U.S. Trade Representative. This contrasts with previous tariff rounds that also hit shipments already in transit.

The affected goods include many items that can take two to four weeks to arrive by sea, such as appliances and furniture, meaning that the hike's full impact will likely take some time to be felt. This leaves some room for the two countries to continue negotiating toward a deal and potentially head off the worst of the damage.

China has vowed to retaliate if the tariffs rise. Commerce Ministry spokesman Gao Feng said Thursday that Beijing is prepared to deal with any possible outcome.

The U.S. and China were "getting very close to a deal then they started to renegotiate the deal. We can't have that. We can't have that," Trump said Thursday.

The main point of contention for Washington is Beijing's subsidies to core industries, a cornerstone of its model of state capitalism. The Chinese government is making more than $500 billion in financial support available to advanced manufacturing sectors at the center of its "Made in China 2025" initiative, the Office of the U.S. Trade Representative said in a February report.

In the closing stages of the talks, Beijing began putting forward smaller reform proposals, such as just reviewing practices on the local-government level, an executive at a U.S. industry group said.

The Chinese side has also balked at writing certain proposals into law, such as a broader ban on forced technology transfers, which the USTR insists is necessary to ensure enforcement.

Liu, a close aide to Xi, had been drafting the agreement in line with the American demands. But the Communist Party's Politburo objected strongly to some provisions when it reviewed the proposed final version this month, according to a source familiar with the trade negotiations.

The International Monetary Fund estimates that a 25% added tariff on all trade in goods between the U.S. and China would depress American real gross domestic product by up to 0.6% and Chinese real GDP by as much as 1.5%.

A breakdown in talks would "put downward pressure on trade" beyond the U.S. and China, according to Bank of Japan Gov. Haruhiko Kuroda.

Concern about the dimming outlook for a deal continues to rattle markets. The yuan plunged against the dollar in Shanghai on Thursday, while the S&P 500 was down more than 1% an hour and a half after opening.

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