May 6, 2019 / 6:15 AM / 2 months ago

Breakingviews - Trump tariff threats shake trade deal foundations

FILE PHOTO: U.S. President Donald Trump answers a question during an Oval Office meeting with Slovakia’s Prime Minister Peter Pellegrini at the White House in Washington, U.S. May 3, 2019. REUTERS/Jonathan Ernst/File Photo

HONG KONG (Reuters Breakingviews) - Donald Trump’s tariff threats are shaking the foundations of a future trade deal. The U.S. president says he will soon hike duties on $200 billion of Chinese goods. It may well be an eleventh-hour negotiating ploy. It has rattled investors anyway, just as both economies have steadied. Such bursts of frustration with Beijing are worrying: they raise questions about whether a final pact can stick.

The president tweeted on Sunday that he plans to increase tariffs on $200 billion of Chinese goods to 25 percent starting Friday from the current 10 percent, adding he could shortly impose taxes on hundreds of billions more. The eye-popping escalation comes just as Beijing prepares for another round of negotiations in Washington this week. The outburst has shaken local equity markets, which have surged for much of 2019. The benchmark CSI300 stock index, already slipping, opened down around 3.5 percent on Monday.

Trump has menaced out of exasperation before. When the United States was in talks with Canada and Mexico to revise their trilateral trade pact and negotiations dragged, the president threatened auto tariffs. He has become increasingly vexed with Beijing after a March 1 deadline blew past. This Friday has been seen as a cutoff – to either finalise an agreement, or walk away.

Part of Sunday’s bluster, then, smacks of an attempted art-of-the-deal ruse. Yet markets are right to be worried. The president’s tweets came after an update on negotiations from the hawkish United States Trade Representative Robert Lighthizer, who said Beijing was pulling back from previous commitments. Earlier negotiations had already left some U.S. negotiators disappointed, suggesting that the terms of a détente are proving tricky to hammer out.

What’s more, the bipartisan consensus on the need for a more muscular approach to Beijing raises questions about the durability of any agreement that is reached.  Even Senate Democratic leader Chuck Schumer told the president to “hang tough”. With an array of flashpoints from Huawei to China’s Belt and Road Initiative, the mood in Washington is likely to stay sour for some time yet. Tactic or not, Trump’s threat may be giving markets a wake-up call.

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