Trump administration officials have hinted for weeks that a trade agreement with China was imminent. On Sunday, however, just as it seemed that talks were entering the endgame, President Trump tweeted a new threat: more tariffs unless Beijing had a deal by Friday.
….of additional goods sent to us by China remain untaxed, but will be shortly, at a rate of 25%. The Tariffs paid to the USA have had little impact on product cost, mostly borne by China. The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No!
— Donald J. Trump (@realDonaldTrump) May 5, 2019
Although that Friday deadline might seem like a great way to force China’s hand and finally seal a deal, it could also backfire spectacularly.
First, there’s no reason to think that a desperate-sounding threat just before Chinese negotiators head to the U.S. is going to push Beijing to capitulate to Trump’s demands. Indeed, Trump has tried this tactic before with little success. Last fall, he made a similar threat ahead of a November meeting with Chinese President Xi Jinping only to back down and agree to a monthslong truce instead. And in February, a planned tariff hike set for March 1 was similarly postponed.
Even more counterproductive is Trump’s insistence on making such a public threat against China. Since the ruling, the Chinese Communist Party under Xi has claimed the mantel of China’s defender against Western bullying, resorting to a threat that amount to just that sort of bullying makes it more difficult on the Chinese government to reach a deal that will be seen as a success in China.
The CCP is trying to make sure nobody sees them as bowing to Western demands, and that’s why Trump’s threats were reportedly censored in China.
But aside from undercutting the very people he is trying to reach an agreement with, Trump’s tariff threat is also bad news for him.
On Monday morning, U.S. markets took a hit as investors grappled both with the prospect of a lost U.S.-China deal and a sharp increase in already costly tariffs. For a president who has continuously touted the economy as a benchmark for success, that’s a poor start to an already heating up 2020 election.
But the real loser of jacking up tariffs are U.S. consumers and producers. Unlike Trump’s Twitter economics, tariffs are not paid from one country to another but by individual companies who pass those costs on to consumers. That means that charging tariffs on Chinese goods isn’t demanding Beijing to fork over money to Washington, but instead forcing those in the U.S. to pay more for anything they buy from China.
Those extra costs have a serious impact not only in families and companies which source products and material from China but also on the overall economy. In November 2018, for example, existing tariffs on Chinese goods cost U.S. businesses an additional $2.1 billion in just one month. With the threatened increase, those costs would certainly go up in addition to adding more uncertainty to the economy.
For now, China still seems willing to continue talks. But if a deal is so far off that Trump felt the need to make new threats to push it along, it seems unlikely that there will be a breakthrough this week. Negotiators aren’t scheduled to sit down until Wednesday, and an agreement that has been elusive for months doesn’t seem likely to be resolved in two days.
That impasse would leave Trump with a tariff stalemate of his own making. If he fails to impose the tariffs, he runs the risk of having his trade policy be characterized by empty threats. If he does go through with them, he will be undermining all his economic gains while making China less willing to compromise.
