Chinese reversal prompts Trump to impose new tariff hike as markets fall

By Jeff Mason and David Lawder

WASHINGTON (Reuters) - China backtracked on substantial commitments it had made during trade talks with the United States, prompting President Donald Trump to impose additional tariffs on Chinese goods slated to go into effect on Friday, top U.S. trade officials said on Monday.

Chinese Vice Premier Liu He is expected to be in Washington on Thursday and Friday of this week as part of a Chinese delegation to try to reach a deal before the new tariff deadline, U.S. Trade Representative Robert Lighthizer said as he briefed reporters with U.S. Treasury Secretary Steven Mnuchin.

Trump on Sunday tweeted that he would raise tariffs on $200 billion worth of Chinese goods to 25 percent from 10 percent by the end of the week, and would "soon" target the remaining Chinese imports with tariffs, sending stocks and oil prices lower.

"Over the course of the last week or so we have seen ... an erosion in commitments by China," Lighthizer said, adding that China's retreat from those commitments would have led to substantive changes in the text of the deal. "That in our view is unacceptable."

Trump wants to see a deal with substantial structural changes to Chinese policies but that is not where the two sides are at the moment, Lighthizer said, adding that the two sides were still talking.

"We're not breaking off talks at this point. But for now ... come Friday there will be tariffs in place," Lighthizer said.

Mnuchin told reporters that it became clear over the weekend that Chinese negotiators were trying to "go back on language that had been previously negotiated, very clear language, that had the potential of changing the deal dramatically."

The two cabinet officials did not divulge the nature of the backtracking.

A person familiar with the talks said that the Chinese side was seeking to deal with any policy changes through administrative and regulatory actions, not through changes to Chinese law as previously agreed.

"It undermines the core architecture of the deal," the person said, adding that not codifying the concessions would make it difficult to verify and enforce China's compliance.

Speaking on condition of anonymity due to the sensitive nature of the talks, the person said that under China's system in which the Communist Party has ultimate control, changes in law are the only way to get even a small measure of certainty.

(Graphic: U.S. trade disputes around the world - https://tmsnrt.rs/2VHeF4n)

TRUCE ENDS

Trump's tariff announcement abruptly ended a five-month truce in a trade war that has cost the two countries billions of dollars, slowed global growth and disrupted manufacturing supply chains and U.S. farm exports.

The United States is demanding sweeping changes to China's economic policies, including better protection of U.S. intellectual property, and ending forced technology transfers and cyber theft of American trade secrets.

Washington also wants more access to China's vast markets for U.S. companies, curbs on industrial subsidies and increased purchases of American products.

The United States imported about $539.5 billion in goods from China in 2018 and exported $120.3 billion, for a record trade deficit of $419.2 billion, according to U.S. Census Bureau data.Trump has said that China was paying existing U.S. tariffs on Chinese imports into the United States, but in reality, mostly U.S. companies importing the goods pay the tariffs.

The United States currently has 25 percent tariffs on $50 billion worth of Chinese machinery and technology goods, and 10 percent tariffs on $200 billion worth of products ranging from computer modems and routers to furniture, lighting and building materials.

Negotiations on removing punitive U.S. tariffs has been one of the remaining sticking points between the two sides. China wants the tariffs to be removed, while Trump wants to keep some, if not all, as part of any final deal to ensure China lives up to its commitments, a White House official said on Sunday.

(Graphic: U.S. farm country reels from trade war - https://tmsnrt.rs/2BYCdun)

(Reporting by Jeff Mason and David Lawder, Additional reporting by Alexandra Alper and Susan Heavey in Washington and Ben Blanchard, Michael Martina, Shu Zhang, Jing Xu, Cheng Leng and Yawen Chen in Beijing; editing by Simon Webb, Susan Thomas and Rosalba O'Brien)