• by Thom Forbes  @tforbes, May 6, 2019

With global stock markets tumbling, China said this morning it still intended to attend trade talks in Washington, D.C. on Wednesday despite two tweets by President Donald Trump Sunday threatening to increase tariffs on a number of Chinese exports from 10% to 25% on Friday if the negotiations don’t pick up their pace. Trump also said that the U.S. would impose a 25% tariff on an additional $325 billion of Chinese goods that are currently not taxed.

“Stocks in China closed down 5.5% on Monday as investors in Asia Pacific were caught off guard by the U.S. president’s tweets and reports indicating the government in Beijing might pull out of this week’s scheduled talks…,” Martin Farrer reported in The Guardian at 4:38 a.m. EDT. 

“Although markets are closed in Japan and London on Monday, the Dax in Germany was down 1.6%. Futures trading indicated that Wall Street would fall 2% when trading opens later on Monday. Oil prices -- a benchmark for global trade -- also plunged and the Chinese yuan tumbled,” he continues.

“A Chinese delegation is preparing to travel to Washington for negotiations aimed at ending the trade war,” according to a BBC report, but the question remains whether Beijing’s top trade negotiator, vice-premier Liu Hem, will be part of the team as planned.

“‘We are currently working on understanding the situation,’ foreign ministry spokesman Geng Shuang said during a regular news briefing. Earlier, U.S. media reported that Beijing was considering canceling the talks. Reports said the Chinese were due to send a 100-person delegation to the negotiations,” the BBC continues.

On Friday, following a meeting with Slovak Prime Minister Peter Pellegrini at the White House, Trump had a totally different read on the talks. 

“The deal itself is going along pretty well. I would even say very well. We’ll see what happens over the next couple of weeks,” he said, Teddy Ng reports for the South China Morning Post.

The Chinese were themselves a tad less optimistic.

“‘During a closed-door meeting with Austrian chancellor Sebastian Kurz last week, Xi Jinping was asked what he thought the chances were for a successful conclusion of this week’s China-U.S. trade talks in Washington,” Tom Mitchell and Yizhen Jia write for the Financial Times.

“‘Fifty-fifty,’ the Chinese president replied, according to three people briefed on the discussion. Those odds changed dramatically on Monday morning after Mr Xi was greeted by [Trump’s] tweets. … The move enraged officials in Beijing,” they continue.

“Coming into talks this week, business leaders appeared to be mostly optimistic that talks were near completion with a number of critical issues left to be ironed out, including whether the two countries would agree to remove billions of dollars of tariffs that have been imposed over the past year,” Donna Borak and Devan Cole write for CNN Politics. 

“‘These negotiations have been picking up steam in the last few weeks,’ said Myron Brilliant, executive vice president and head of international affairs for the U.S. Chamber of Commerce, to reporters Thursday on a call. ‘We are certainly in the end game of these negotiations. We have a critical window before us.’”

What changed between then and Sunday?

“It’s possible talks are breaking down, with China offering insufficient concessions, and an increase in tariffs a genuine prospect,” Bloomberg economist Tom Orlik tellsMarket Watch's Shawn Langlois. “More likely, in our view, is that this renewed threat is an attempt to extract a few more minor concessions in the final days of talks.” 

“With President Trump, you never know, but there is a good chance that this is just a threat,” Chad Bown, a senior fellow at the Peterson Institute for International Economics, tells the Wall Street Journal’s Bob Davis, Rebecca Ballhaus and Lingling Wei. “If they announce a deal later this week, it will make it appear as if he acted as tough as possible to get the deal.”

But the bluster could also blow up the talks -- and result in higher prices here.

“Tariffs on Chinese goods are actually paid to the United States by the companies importing the goods, and most of those companies are U.S.-based. American businesses, while supportive of Trump’s crackdown on China’s trade practices, are eager for the tariffs to be removed, not expanded,” write Reuters’ Ben Blanchard and Jeff Mason.

“Raising tariffs means raising taxes on millions of American families and inviting further retaliation on American farmers,” Christin Fernandez, a spokeswoman for the Retail Industry Leaders Association, tells them.

“It remains to be seen whether Mr. Trump’s threat will produce a beneficial trade agreement for the United States -- or whether his attempts to pressure China will backfire by pushing already-tense relations past the breaking point. While the United States believes it has leverage over China, huge swaths of the American economy depend on access to the Chinese market for materials, products and sales,” Ana Swanson and Keith Bradsher observe for the New York Times.

Indeed, the jittery markets this morning are just the tip of that iceberg.