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Trade war

Trump vows to hike China tariffs Friday as trade talks resume

Beijing says it still plans to send a delegation to the US despite twitter threats

WASHINGTON/NEW YORK -- U.S. President Donald Trump has threatened to dramatically increase tariffs on Chinese imports just as the two sides are set to resume trade talks this week. The surprise warning drew a muted response from Beijing, however, with China's foreign ministry saying only that it still plans to send a delegation to Washington.

Trump said on Sunday that the U.S. will raise the tariffs on $200 billion worth of Chinese goods to 25% from the current rate of 10% on Friday, signaling frustration over the lack of progress in the bilateral trade talks.

In a pair of tweets Sunday, the president wrote, "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."

The president also said he will "shortly" impose a 25% tariff on the remaining $325 billion worth of Chinese goods that are currently not subject to punitive duties.

His comments quickly rippled through Asian markets as trading began Monday morning. The CSI 300 index of Chinese blue chips slid 3.3%, while Hong Kong's Hang Seng Index dropped 2.4%. Pork producer WH Group, which has extensive U.S. operations that have been affected by the trade conflict, tumbled 8.7%.

The yuan weakened by 0.72% against the dollar after the Chinese central bank shifted the midpoint anchor for trading to its weakest level in two and a half months. Singapore's Straits Times Index was down 2.5%, while benchmark indexes in Taiwan, Australia and New Zealand fell more than 1%.

"Asian markets that are highly related to trade between U.S. and China will feel more impact than other regions," said Gordon Sun, an economist at the Taiwan Institute of Economic Research.

Trump expressed unhappiness with the state of the U.S.-China trade talks. "The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No!" he wrote on Twitter. This comes on the heels of a short visit to Beijing by U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin.

China's lead trade negotiator, Vice Premier Liu He, is scheduled to visit Washington from Wednesday. The Friday deadline is seen as an ultimatum to pressure the Chinese delegation during that visit.

Following Trump's tweet, Chinese foreign ministry spokesman Geng Shuang said at a regular briefing on Monday that a Chinese delegation is preparing to go to the U.S. for trade talks. But he did not say if the lead negotiator, Liu, would be part of the delegation.

Earlier, The Wall Street Journal reported on Sunday night that China was considering canceling the upcoming trade talks, citing unidentified sources. Beijing has responded to previous U.S. threats by saying it wouldn't negotiate under pressure.

There have been no reports of Trump's tweet in the Chinese media, which suggests the Communist Party is strictly controlling the news. The average Chinese citizen cannot read the tweets as their access to Twitter is typically blocked.

Trump said as recently as Friday that talks were going "very well." Hopes of a deal to end the trade tensions had buoyed U.S. stocks. But this new threat could drive Beijing to take a harder line, further prolonging the trade war and putting international supply chains at risk, with potentially severe consequences for the global economy.

The sudden shift in tone appears likely to dampen sentiment on the U.S. stock market on Monday as well. Dow Jones Industrial Average futures fell close to 500 points on Sunday.

"Tariff man is back just in time to make the stock market dive, dive, dive," Chris Rupkey, New York-based chief financial economist at Japan's MUFG Bank, wrote in a note to clients. Trump hailed himself as "Tariff Man" in a December tweet.

"For weeks now, markets have been lulled to sleep on the U.S. trade war with China, thinking an agreement was imminent. No more," Rupkey wrote. "When the president puts his foot down, it makes the market go down. ... It looks like the markets could be headed for a tailspin."

Donald Selkin, New York-based chief market strategist at Newbridge Securities, called it "a poor decision" by the president, certain to complicate negotiations with China over a final trade deal.

"China paying tariffs has nothing to do with our economic results, as the only thing that they do is raise prices of imported goods to consumers here," he said in an email to Nikkei.

Trump initially had threatened to raise tariffs if no agreement were reached by March 1, but he said in late February that the hike would be postponed, citing "substantial progress" in the negotiations.

The two sides held further talks, looking to conclude a deal in April with a summit. China proposed boosting its imports of U.S. goods, including liquefied natural gas and soybeans, by more than $1 trillion over six years, and passed legislation in March barring forced technology transfers.

But negotiations have stalled since, in part over when the additional U.S. tariffs and China's retaliatory duties should be removed. Trump said in late March that Washington would keep its tariffs in place for a "substantial period of time" even after a deal. Beijing has objected, arguing that Trump and Chinese President Xi Jinping agreed at their December summit that all the extra duties would be lifted immediately following a deal.

Trump's threatened tariff increase, meanwhile, could backfire on the American economy, with consumers potentially feeling more of a pinch.

The increase to 25% from 10% applies to the $200 billion worth of items that became subject to tariffs last September. About 24% of these target consumer goods, according to the Peterson Institute for International Economics.

The biggest category on the list by import value is furniture, followed by network equipment such as routers. Other affected items include vacuum cleaners, fridges and other appliances; handbags and apparel; sporting goods; and fruits, vegetables and seafood.

The previous rounds of U.S. duties, targeting a total of $50 billion in imports, focused more on items such as robots and chemicals. Consumer goods accounted for just 1%.

The 10% duty is believed to have had a limited impact on inflation, as it was offset to an extent by a decline in the yuan against the dollar. But an increase to 25% would hit the U.S. economy much harder.

Trump's further threat to impose a 25% tariff on the remaining imported goods from China would cover items such as Apple's iPhone and Apple Watch. China-made computers, toys and clothes would be affected as well.

If American consumers feel harmed by the impact, Trump may face greater opposition in the 2020 presidential election.

"We strongly oppose the president's announcement that he will continue to penalize American families, and add additional obstacles to economic growth," Rick Helfenbein, president and CEO of the American Apparel & Footwear Association, said in a statement Sunday.

The industry group warned that a 25% duty on its products would cost a family of four an additional $500 a year.

On Sunday, U.S. Secretary of State Mike Pompeo said that China "poses an enormous challenge" to the U.S.

Talking on Fox News Sunday, Pompeo said that he believed that the U.S. will ultimately prevail, but that it will take "a serious, concerted effort; a president like President Trump, who is prepared to push back against China, whether that be on trade or their military buildup or the theft of our intellectual property."

"We need a president who will be serious in protecting America against the challenges that China presents," Pompeo said.

The International Monetary Fund calculates that if Washington and Beijing both impose a 25% tariff on all imported goods, it would push down U.S. gross domestic product by up to 0.6% and China's GDP by up to 1.5%.

Nikkei staff writer Issaku Harada in Beijing contributed to this report.

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