A week ago, it looked like the world’s two biggest economies were close to resolving their ongoing trade dispute. Now, the United States has imposed a new round of punishing tariff increase on Chinese goods.
Eleventh-hour negotiations got under way on Thursday between a high-level Chinese delegation led by Vice Premier Liu He and US negotiators led by Trade Representative Robert Lighthizer.
The pressure to salvage a trade deal between the two sides ratcheted up on Wednesday after the US formally filed paperwork that would make good on President Donald Trump’s Twitter threat earlier in the week to raise tariffs on Chinese imports.
From Friday, tariffs will increase on $200bn of Chinese goods from 10 percent to 25 percent. China promises to retaliate, but has not offered specifics on possible countermeasures.
Senior Trump administration officials have accused Beijing of reneging on commitments made during earlier trade talks. Speaking at a rally in Florida on Wednesday, Trump had said China “broke the deal”. But Trump changed his tone on Thursday with a tweet saying he had received a “beautiful letter” from Chinese President Xi Jinping.
With the trade war entering its second year, the US and China are wrestling with a long list of hot-button issues.
Most analysts agree Beijing stands to lose more than Washington if the bilateral trade conflict is prolonged. China’s gross domestic product (GDP) could fall by some 1.6 percent this year if punitive tariffs continue to squeeze Chinese companies out of American markets, the International Monetary Fund estimates.
Meanwhile, strong US economic growth, a healthy jobs market and a less-jittery Wall Street have ushered in a bold new stance by the Trump administration.
The US economy grew 3.2 percent in the first quarter, the unemployment rate is hovering at a 50-year low, and a US stock market rally this year has boosted investor confidence – albeit amidst a general perception that the US and China were moving towards a deal.
China ‘seven times as vulnerable’
“The US imported about $540bn in goods from China last year, and had exports to China of $120bn,” Robert E Scott, an economist at the Economic Policy Institute (EPI), told Al Jazeera. “Neither figure is a large share of US GDP, which reached $21.1 trillion in the first quarter.” Scott added the proportion for China is much greater. “Its $540bn in exports to the US in 2018 represented four percent of [China’s $13.4 trillion] economy,” he said. “In other words, China is roughly seven times as vulnerable to trade disruption as the United States in this particular dispute.”