China warns it will retaliate against any new tariffs

Major US equities benchmarks erased early losses in New York on Wednesday, the day before Chinese Vice-Premier Liu He arrives in Washington for dramatic trade negotiations. US President Donald Trump threatened on Sunday to slap new tariffs on Chinese goods Friday, a plan made official late on Monday.

China announced on Wednesday, after a fresh set of tweets from Trump, that it would retaliate in kind if Washington follows through with additional tariffs.

A report early on Wednesday revealed new details about what US Trade Representative Robert Lighthizer characterized as “an erosion in commitments by China.”

Beijing deleted commitments to change domestic laws in every one of the seven chapters of the nearly 150-page draft text of the agreement, Reuters reported, citing US officials and others briefed on the negotiations. The sources said the changes were not shown to the US side until Friday night, via a diplomatic cable.

Despite the rapidly escalating tensions, investors appear to be skeptical that the talks will break down. All three major US stock indices were in the green as of early Wednesday afternoon.

Trump suggested early on Wednesday that a deal might still be in the works, writing on Twitter that a delegation from Beijing was “coming to the US to make a deal.”

“China has just informed us that they (Vice-Premier) are now coming to the U.S. to make a deal. We’ll see, but I am very happy with over $100 Billion a year in Tariffs filling U.S. coffers…great for U.S., not good for China!” the US president wrote.

….Guess what, that’s not going to happen! China has just informed us that they (Vice-Premier) are now coming to the U.S. to make a deal. We’ll see, but I am very happy with over $100 Billion a year in Tariffs filling U.S. coffers…great for U.S., not good for China!

— Donald J. Trump (@realDonaldTrump) May 8, 2019

China’s Ministry of Commerce released a statement after Trump’s tweet, saying that Beijing would have to “take necessary countermeasures” should the US implement new tariffs.

Top Democratic lawmaker House Speaker Nancy Pelosi voiced skepticism that a trade deal was possible, while criticizing Trump’s trade policy. Her comments came after the top Democratic senator, Chuck Schumer, encouraged the president to “hang tough on China.”

“Let me just say that first of all, I never believed that the Chinese were going to honor what they said they were going to do,” Pelosi said in a live event hosted by The Washington Post. “In any trade agreement, if you don’t have enforcement, all you’re having is a conversation, a cup of tea.”

While Pelosi agreed that Trump was right to confront China, she said his methods were “empowering [the Chinese] to hurt our people.”

China policy is shaping up to be a prominent issue on the campaign trail as Democrats look to wrest the presidency from Trump.

Despite concerns about tariffs’ negative impact on the economy, there is bipartisan support among lawmakers to challenge Beijing on trade. Unlike steel and aluminum tariffs imposed on allies, members of Congress have been reluctant to criticize the Trump administration’s tariffs on China.