China Trade Deal On The Verge After Beijing Slams Trump's Latest Surprise "Flip-Flop"

One day after Trump surprised trade watchers by announcing he would impose 25% tariffs on up to $50 billion in Chinese tech imports as well as other sanctions, a confused Beijing hit back at the US president, saying that if the U.S. insists on unilateral measures, China will respond accordingly, according to foreign ministry spokeswoman Hua Chunying told reporters in Beijing on Wednesday.

“Every flip-flop in international relations simply depletes a country’s credibility,” Hua added following the White House's statement on Tuesday that a final list of imported goods to be targeted will be released by June 15, and levies imposed “shortly thereafter.” 

Trump’s latest u-turn was greeted with dismay in the Chinese state media, though pledges to retaliate were muted: "The world faces an extremely mercurial White House administration,” an editorial in China’s Global Times tabloid read. “The Chinese government has the ability and wisdom to handle such situations."

As Bloomberg notes, the announcement by Trump, which seemed to tear up an agreement reached only 10 days ago in Washington, is the latest twist in a trade dispute between the U.S. and China that has rattled financial markets for months and could threaten the broadest global upswing in years, according to the International Monetary Fund.

Earlier on Wednesday, the Wall Street Journal reported that the trade talks between the two countries scheduled for June 2 in Beijing may be derailed by the fresh threat from Washington. Specifically, the WSJ reported that in order to test the waters after Trump's surprising announcement, a U.S. advance team was scheduled to arrive in Beijing Wednesday afternoon ahead of Commerce Secretary Wilbur Ross’s planned arrival on Saturday.

Members of the U.S. team, consisting of staffers from the Commerce, Treasury, Agriculture and Energy departments and the office of the U.S. Trade Representative, are set to meet with their Chinese counterparts to hammer out broad outlines of the talks.

If the two sides fail to reach accord about issues to be discussed, Ross’s trip could be canceled, the people said. “If the working-level teams from both sides can’t agree on anything, there would be no point for Ross to take the trip,” one of the WSJ sources said. Should those discussions go well, "the people said the high-level talks would proceed as planned."

While the ongoing trade dispute poses a risk to China’s economic outlook, the two countries will likely find common ground, said Robin Xing, chief China economist at Morgan Stanley; he expects China will buy an additional $60 billion to $90 billion of American goods over several years as it seeks to address Trump’s criticisms over the trade surplus.

“The two parties can reach a deal by China increasing imports,” Xing said Wednesday in a Bloomberg Television interview from Beijing. “De-escalation over time through negotiation remains our base case because we see areas where China and the U.S. can find some middle ground to make some mutually beneficial progress, for example to meet China’s own demand for upgrading consumption.”

Trump has vacillated in recent weeks on how hard to push Beijing over issues such as tariffs and intellectual property. The dispute began in March, when his administration first threatened to slap tariffs on as much as $50 billion in Chinese shipments to punish Beijing for violating American I.P. rights.

It is unclear if the latest flip-flop jeopardizes what until last weekened was seen as an all but done deal on ZTE, and, reciprocally, NXP-Qualcomm. As a reminder, China pressed the U.S. to give ZTE a break after the Commerce Department cut off the company from U.S. suppliers to punish it for allegedly lying to American officials in a sanctions case. Republican Senator Marco Rubio and other lawmakers from both parties have criticized Trump’s leniency toward ZTE, arguing that doing business with the company presents a risk to national security.

When Trump announced the initial plan to impose tariffs on Chinese goods, he also instructed the Treasury Department to draw up new curbs on investment in the U.S. by Chinese companies. The Treasury has presented its

As Bloomberg accurately highlights, the latest move by Trump signals the more hawkish wing of Trump’s trade team is trying to amplify its hard line, after Treasury Secretary Steven Mnuchin said this month that any talk of a trade war was suspended for now.

“Mnuchin’s ‘trade war on hold’ comments look to have been repudiated,” said Derek Scissors, a China analyst at the American Enterprise Institute in Washington. “It may be the administration has shifted somewhat to appease the Congress on the lifting of the ZTE sanctions.”

Which begs the question: is China trade hawk dragon Peter Navarro back in Trump's good graces, and if so, is the countdown to Mnuchin's resignation officially on?