White House makes sudden u-turn on tariff truce, upsetting calm in financial markets.
President Donald Trump ended the spring truce in the U.S.-China trade war this weekend, with threat to go forward with higher tariffs on $200 billion of Chinese imports.
He also upped the ante with a promise to add tariffs on another $325 billion in goods to the list, by the end of the week.
The President’s tariff threat, which came in a pair of Twitter messages delivered Sunday, mark the end of a truce that Washington D.C. has had with Beijing since March 1.
President Trump said he would hold off on raising tariffs on $200 billion of Chinese goods from 10 percent to 25 percent due to the ongoing progress the U.S. Trade Representative was having in the trade talks.
It was not immediately clear what prompted the latest trade threats. As recently as April 29, U.S. Treasury Secretary Steve Mnuchin said the U.S. and China made “great progress” in the nearly six-month old trade talks.
The world’s two largest economies remain at odds over issues including China’s support of state businesses, the barriers put up to foreign companies trying to do business in China and forced technology transfers to Chinese companies.
The disputes have led the U.S. to impose tariffs on $250 billion in Chinese goods coming into the U.S., covering items such as microwaves and other home appliances, electronic components, and pumping and valve systems.
China has retaliated with higher tariffs on $60 billion in U.S. goods coming into that country, with U.S. soybeans taking the primary hit.
The potential addition of another $325 billion in goods to the list would effectively cover all the goods coming from China into the U.S., meaning a larger swath of consumer goods will face higher prices.
National Retail Federation Vice President David French said “a sudden tariff increase with less than a week’s notice would severely disrupt U.S. businesses, especially small companies that have limited resources to mitigate the impact.
“If the Administration follows through on this threat, American consumers will face higher prices and U.S. jobs will be lost,” he added.
Whether the U.S. will be able to implement the tariffs that quickly is also a question. The U.S. Trade Representative typically publishes a list of all items that would be subject to tariffs, allowing affected companies to submit comments and appeals to remove items.
But financial markets were concerned enough by the potential U-turn by the U.S. on tariffs that major stock indices were set to trade lower to start the week.
The Dow Jones Industrial Average fell 385 points, a nearly 1.5 percent decline in early morning trading. The S&P 500 was down 39 points for a 1.3 percent decline.
Container ship companies saw a steeper drop due to the suddenly risky outlook for world trade. Shares of Maersk (Nasdaq OMX: MAER) were off 3.5 percent during European trading hours. Shares in Hapag-Lloyd (Frankfurt: HLAG) were down slightly.