This week’s trade headline-induced stock market rout continued in New York on Friday morning, helped by US President Donald Trump’s insistence that there is “absolutely no need to rush” a potential agreement.
Trump more than doubled the tariff rate on $200 billion in Chinese shipments to the US, effective Friday morning, and China vowed to implement unspecified “countermeasures.”
But stocks climbed off of session lows after Treasury Secretary Steven Mnuchin told reporters that talks were “constructive,” despite the top Chinese negotiator, Vice-Premier Liu He, departing with no announcement of a deal. The S&P 500 and Dow Jones Industrial Average were both unchanged on the day as of Friday afternoon.
“They were constructive discussions between both parties. That’s all we’re going to say,” Mnuchin said as he was leaving the US Trade Representative’s office.
Liu added, speaking to reporters at his hotel, that discussions with his US counterparts went “fairly well.”
In a Twitter post on Friday morning, Trump reiterated a threat to impose tariffs on all Chinese shipments to the US without giving a specific timeline.
“The process has begun to place additional Tariffs at 25% on the remaining 325 Billion Dollars,” the US president wrote, adding that he would subsidize farmers who have been affected by retaliatory tariffs from China.
Trump also wrote that tariffs will bring in “FAR MORE” wealth to the United States than even a “phenomenal” trade deal would.
2020 presidential campaign in spotlight
The abrupt escalation in the trade fight, which the US side claims was started by China’s backtracking on key commitments, comes as Trump positions himself for a protracted campaign for re-election in 2020.
The top Democratic contender to challenge Trump, former Vice-President Joe Biden, faced criticism for recent comments downplaying the threat that China poses to the United States.
In a series of Tweets earlier this week, Trump suggested that China pulled back on commitments it made in trade talks in hopes of negotiating with a possible future Biden administration.
“The reason for the China pullback & attempted renegotiation of the Trade Deal is the sincere HOPE that they will be able to ‘negotiate’ with Joe Biden or one of the very weak Democrats, and thereby continue to ripoff the United States (($500 Billion a year)) for years to come,” the president said.
The reason for the China pullback & attempted renegotiation of the Trade Deal is the sincere HOPE that they will be able to “negotiate” with Joe Biden or one of the very weak Democrats, and thereby continue to ripoff the United States (($500 Billion a year)) for years to come….
— Donald J. Trump (@realDonaldTrump) May 8, 2019
Biden attempted to walk back his earlier comments, saying on Sunday: “I don’t suggest China is not a problem. I’m the guy who’s been the toughest on – I’ve spent more time with [Chinese President] Xi Jinping than anybody else, just because the nature of my job.”
“[Xi’s] got problems, he’s got gigantic problems. Doesn’t mean he’s not a threat, doesn’t mean they’re not a threat,” Biden added.
According to polling data released in August of last year, US views of China have soured since the start of the trade conflict. Specifically, those surveyed by Pew Research said, China’s economic strength had become more of a concern.
Interestingly, the number one issue of concern to respondents was the amount of US debt held by China.
Trump counties hit by Chinese tariffs
Despite marginally more negative views towards China, economists widely agree that the ripple effect of continued trade uncertainty will weigh on the economy, the issue for which Trump enjoys the most support among voters.
The president received a net positive approval rating for only a few issues, while a plurality of respondents disapproved of his handling of relations with China, according to a Gallup poll conducted in February of this year.
Retaliatory tariffs, which China will keep in effect or possibly add to if the two sides are not able to agree to another truce, have disproportionately impacted voters who helped Trump win election.
That includes counties in several Rust Belt states in the Midwest where Trump won in the 2016 election by a small margin.
Farmers have been the hardest hit during the trade conflict thus far, as China began to source agricultural products from other countries. According to the US Department of Agriculture, farm income is forecast to have fallen by 16% in 2018.
The data about the impact of the tariffs proved to be too sensitive for the department’s chief, Sonny Purdue, leading to the resignation of six economists who worked for the agency.
But while the tariffs are proving painful for much of the country, and may put a dent in US economic growth more broadly, lawmakers in both parties are reluctant to criticize the confrontation with China.
Some, especially those representing agriculture-dependent states and districts, have called for a quick resolution of the trade negotiations, but there is a consensus in Washington that the Trump administration’s demands are warranted.
Chuck Schumer, the top Democrat in the Senate, egged Trump on in a Tweet this week, calling on him to “hang tough” on China.
Hang tough on China, President @realDonaldTrump. Don’t back down.
Strength is the only way to win with China. https://t.co/pZqeR346ov
— Chuck Schumer (@SenSchumer) May 5, 2019