Critical US-China trade negotiations were heading into a second day on Friday, under the shadow of steep new tariffs on Chinese goods that took effect just after midnight. President Donald Trump got a briefing from his trade negotiators, but made no move to hold off on the tariffs -- dashing hopes there might be a last minute reprieve as the negotiations continued.
The punitive duties on $200 billion in imports from China now will more than double to 25 percent -- a move Beijing has vowed to retaliate against.
Locked in a trade dispute for more than a year, officials from the world’s two biggest economies returned to the bargaining table late Thursday, led by Chinese Vice Premier Liu He, US Trade Representative Robert Lighthizer and US Treasury Secretary Steven Mnuchin.
Since last year, the two sides have exchanged tariffs on more than $360 billion in two-way trade, gutting US agricultural exports to China and weighing on both countries’ manufacturing sectors. Trump began the trade war because of complaints over unfair Chinese trade practices.
The US team met with Trump late Thursday night to brief him and "agreed to continue discussions tomorrow morning at USTR," the White House said in a statement.
Lighthizer and Mnuchin met with the Chinese delegation for about 90 minutes Thursday evening. The White House statement said they also "had a working dinner with Vice Premier Liu He" who is leading the Chinese delegation.
Despite optimism from officials in recent weeks that the talks were moving towards a deal, tensions reignited this week after Trump angrily accused China of trying to backpedal on issues already agreed to in the negotiations.
"They took many, many parts of that deal and they renegotiated. You can’t do that," Trump said on Thursday.
But he held out hopes of salvaging a trade deal, even with the sudden flare-up in hostilities.
"It’s possible to do it," Trump said. "I did get last night a very beautiful letter from President Xi."
However, he also said he would be equally satisfied to simply keep tariffs in place. And he has renewed his threat to extend the tough tariffs to all products the US imports from China.
The International Monetary Fund has repeatedly warned that the trade battle was a "threat" to global growth, and called for a rapid resolution.
- Tariffs increase -
The renewed tensions roiled global stock markets this week and unnerved exporters.
Liu said on his arrival in Washington that the prospects for the talks were "promising," but warned that raising the tariffs would be "harmful to both sides," and called instead for cooperation.
"I hope to engage in rational and candid exchanges with the US side," he told China’s CCTV. "Of course, China believes raising tariffs in the current situation is not a solution to the problem, but harmful to China, to the United States and to the whole world."
The higher duty rates will hit a vast array of Chinese-made electrical equipment, machinery, auto parts and furniture.
But due to a quirk in the implementation of the higher tariffs, products already on ships headed for US ports before midnight will only pay the prior 10 percent duty rate, US Customs and Border Protection explained.
That could effectively provide a grace period for the sides to avert serious escalation.
China has less leeway to impose tariffs, since it imports fewer American goods, but vowed unspecified retaliation against the United States.
The US is pressing China to change its policies on protections for intellectual property and massive subsidies for state-owned firms, in a bid to reduce the yawning trade deficit.
Derek Scissors, a China expert at the American Enterprise Institute, said the two sides had clashed over how much of the final trade agreement should be enshrined in a publicly available document, something Beijing has long resisted.
"What the Chinese step-back primarily says is they don’t want to publicly acknowledge that their existing laws, especially on IP, are flawed," he told AFP by email.
Washington is counting on the strong US economy to be able to withstand the impact of higher costs from the import duties and retaliation better than China, which has seen its growth slow.
While American companies complain of lost export markets, disrupted supply chains and higher costs, the US continues to see steady growth and falling unemployment.
But Mary Lovely, an economics professor at Syracuse University in New York, warned that American companies will feel the pinch.
"We’re already hearing a lot of companies screaming about their input costs," said.