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Trump vows tariff hike on Chinese goods, escalating tensions

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Mr Trump said tariffs on US$200 billion of goods would increase to 25 per cent on Friday from 10 per cent, reversing a decision he made in February to keep them at the 10 per cent rate.

Washington

US President Donald Trump dramatically increased pressure on China on Sunday to reach a trade deal, saying he would hike US tariffs on US$200 billion worth of Chinese goods this week and target hundreds of billions more soon.

The move marked a major escalation in tensions between the world's largest economies and a shift in tone from Mr Trump, who had cited progress in trade talks as recently as last Friday.

Stock markets sank and oil prices tumbled as negotiations were thrown into doubt.

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The Wall Street Journal reported that China was considering cancelling this week's trade talks in Washington in light of Mr Trump's comments, which took Chinese officials by surprise.

A less-than-rosy update from US Trade Representative Robert Lighthizer, including details that China was pulling back from some previous commitments, prompted Mr Trump's decision.

"The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No!" Mr Trump said in a tweet.

US officials did not weigh in on whether China would attend this week's talks. The White House and the US Trade Representative's Office declined to comment. China's commerce ministry did not immediately respond to a request for comment.

But the editor of an influential, Chinese state-run newspaper said Vice Premier Liu He was unlikely to go.

"Let Trump raise tariffs. Let's see when trade talks can resume," Hu Xijin, editor-in-chief of the tabloid the Global Times, tweeted.

The newspaper is published by the ruling Communist Party's People's Daily, but it is not considered an official publication and does not speak for the government.

Chinese media outlets have been told not to independently report on Mr Trump's overnight tweets or tweet about them, and instead adhere to any report from the official Xinhua news agency, said a source with direct knowledge of the matter.

Global financial markets, which had been expecting news of a trade deal soon, went into a tailspin. US equity futures fell more than 2 per cent and stocks across trade-reliant Asia tumbled, with China's main indexes plunging 5 per cent.

Mr Trump said tariffs on US$200 billion of goods would increase to 25 per cent on Friday from 10 per cent, reversing a decision he made in February to keep them at the 10 per cent rate thanks to progress between the two sides.

The president also said he would target a further US$325 billion of Chinese goods with 25 per cent tariffs "shortly", essentially covering all products imported to the US from China.

Mindful of his 2020 re-election bid, Mr Trump suggested the measures were not leading to price increases for US consumers.

"The Tariffs paid to the USA have had little impact on product cost, mostly borne by China," he tweeted.

Tariffs on Chinese goods are actually paid to the US by the companies importing the goods, and most of those companies are US-based. American businesses, while supportive of Mr Trump's crackdown on China's trade practices, are eager for the tariffs to be removed, not expanded.

"Raising tariffs means raising taxes on millions of American families and inviting further retaliation on American farmers," said Christin Fernandez, a spokeswoman for the Retail Industry Leaders Association.

Nevertheless, the president's aggressive strategy drew rare bipartisan support from US Senate Democratic leader Chuck Schumer, who urged Mr Trump to "hang tough" in a tweet: "Don't back down. Strength is the only way to win with China."

One Chinese trade expert said recent signs of resilience in both economies were breeding over-confidence.

"The urgency is gone. So, it's likely to see a longer trade war," the expert said, speaking on condition of anonymity citing the sensitivity of the topic.

The trade war resulted in billions of dollars of losses for both sides in 2018, hitting industries including autos, technology - and above all, agriculture, while inflicting collateral damage on export-reliant economies and companies from Japan to Germany.

Mr Trump's move could backfire, said Tai Hui, Asia-Pacific chief market strategist at JP Morgan Asset Management.

"As we learnt a year ago, Beijing could be willing to walk away if the US applies negotiation tactics that they don't agree with. That said, both sides have invested significant time and resources to come this far."

Last Friday, Mr Trump said talks with China were going well. Treasury Secretary Steven Mnuchin called the round in Beijing "productive", and one White House official told Reuters that dates were being looked at for a potential meeting between Mr Trump and Chinese President Xi Jinping in June.

Last week, industry sources said they believed the talks were in the endgame, but a Trump administration official said aides had told the president that significant hurdles remained.

The increase in US tariffs on Friday would be the first since Mr Trump imposed 10 per cent tariffs on US$200 billion of Chinese goods in September, coming on top of 25 per cent tariffs on US$50 billion of goods enacted earlier last year.

Negotiations about tariffs have been one of the remaining sticking points between the two sides.

China wants the tariffs to be lifted, while Mr Trump wants to keep some, if not all, of them as part of any final deal to ensure China lives up to its commitments, a White House official said on Sunday. REUTERS

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