On Sunday President Donald Trump’s tweeted that he will raise tariffs on $200 billion in Chinese exports to 25% from 10% on Friday and add $325 billion in new Chinese goods that will face the higher 25% tariffs.
The 25% rate was most recently scheduled to go into effect on March 1 but the President had delayed implementation because trade talks between the United States and China were showing progress in the President’s estimation. The latest round of talks ended in Beijing in April last and a new round is scheduled to begin this week in Washington.
In Sunday’s tweet Trump wrote: “The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No!”
The shift in position or in negotiating tactics or whatever could move financial markets on Monday because in recent weeks the markets have been increasingly optimistic that the talks were headed to a successful conclusion as early as this Friday. And because it seems an indicator that hardliners in Washington and Beijing who don’t want a deal under the current terms have, at least temporarily, taken control of the talks. It’s likely that President Trump’s very public demand will strengthen the position of those in Beijing who have argued against “giving in” to U.S. demands.
Based on calculations by Bloomberg, tariffs at the current level add up to a 0.5 percentage-point drag on China’s gross domestic product growth this year. An increase to 25% tariffs on $200 billion in Chinese exports from 10 percent would raise the drag to 0.9 percentage point. Tariffs on an additional $325 billion in exports, essentially all Chinese exports to the United States, would increase the drag of China’s economy to 1.5 point.
