Boy, that escalated quickly.
You can picture President Donald Trump standing amid the crowd of news teams, with his hand grenade. "Don, where'd you get a hand grenade?"
Well, this one came from Twitter. With two Tweets on Sunday, for a total of 102 words, Trump has exploded hopes of an immediate agreement on Chinese trade, previously expected to be signed shortly. The truce in this phony war is apparently no more.
Tariffs on $200 billion in Chinese goods will go up to 25% from 10% on Friday, according to Trump's tweets. He added that $325 billion of additional goods will have tariffs of 25%.
"The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No!" stated the tweets.
Is this a last-minute strategy from The Art of the Deal? It seems highly likely. If so, it will backfire.
Trump's tough talk seems designed to play well to a domestic audience leading into an election cycle. But it will not go down well with the Chinese negotiating team. They also have a domestic audience to play to within China, and above all, China wants to be treated as an equal in these talks, not get a dressing down.
The delegation led by Vice Premier Liu He will still travel to Washington this week, despite initial speculation that trip might be cancelled. It may be delayed by three days to Thursday, but China says it will still go ahead. Basically, they don't believe Trump's bluster.
"There have been many times that the U.S. side has threatened to increase tariffs," Foreign Ministry spokesman Geng Shuang said on Monday. "China's position is clear-cut, and the U.S. side is well aware of it." A "mutually beneficial" deal is still the desired outcome.
Let's be honest, we've all lost count of the number of times the U.S. team, led by U.S. Treasury Secretary Steve Mnuchin and U.S. Trade Representative Robert Lighthizer, has visited Beijing, or the Chinese team has called in on Washington. (It will be the 11th round of negotiations if you're keeping score).
Trump may also be trying to communicate directly with Chinese President Xi Jinping. Xi himself reportedly vetoed some of the latest concessions agreed by his negotiators.
Xi told his team, "I'll be responsible for all the possible consequences," according to the South China Morning Post.
Key among the sticking points is wording to remove state subsidies from China's state-owned enterprises. The effort to reform these admittedly bloated and inefficient companies has stalled as China's economy slowed. But Chinese economic figures are also looking sunnier.
So it seems the world needs Xi and Trump to get in a room.
Meantime, the trade war is going to rumble on, creating mayhem for anyone who counts on Chinese goods in the United States, or selling U.S. goods to China.
Trump appears to have been encouraged by the strong showing for the U.S. economy in the first quarter, with GDP up 3.2%, the best start to a year in four years.
Tariff "payments are partially responsible for our great economic results," Trump tweeted, which is not true.
Laura Ingraham hopped on Twitter to side with the president.
But I liked the reasoned reply of John Seaver (@John_K_Seaver), who is CEO of New Hampshire Industries, a machinery-parts manufacturer in Claremont, N.H.
Sir - as an importer of goods from China that can't be sourced in the US, let me just say that it is my company, not China, that must pay the 25% and we then must pass the cost on to our customers & eventually the US consumer. This is a tax on us, not China.— John Seaver (@John_K_Seaver) May 5, 2019
I wholeheartedly agree. The consumer ultimately pays any tariffs in the form of higher prices on goods. If U.S. customers want to fork over more cash at the register, they're very effective.
What the tariffs have not accomplished is to redress any trade "imbalance" with China. The U.S. deficit with China escalated 12% from $375.6 billion in 2017 to $419.2 billion in 2018.
Asian stocks tanked on Monday as my part of the world reeled. Chinese shares sold off their most in three years. Around 1,000 companies fell by the maximum 10% daily limit.
Hong Kong shares followed suit, with the Hang Seng down 2.9%. And the fallout also extended to Singapore's Straits Times, down 3.0%, and Taiwan, down 1.8%. All three markets have a hefty dose of China-oriented businesses.
Virtually no one was spared, no matter their exposure to China. Most other exchanges in the region, including Sydney, Seoul, Jakarta, Manila, Wellington, Mumbai and Karachi, fell around 1%.
Tokyo stocks will surely be in for a nasty shock when they resume trading on Tuesday. They have been closed for 10 days to honor the accession to the throne of new Emperor Naruhito.
This is likely a buying opportunity for Asian stocks, since I doubt the effects of the trade war are going to deepen. But the age-old saying is that markets hate uncertainty -- these tariffs, and trade talks, are both uncertain again.
Beijing may have countered Trump's Tweets. The Taoran Notes social-media account used by Chinese officials to leak word out to the public on trade-talk information said this deadline is a trick "to increase tensions and generate pressure on the other side."
The latest blast "is merely smoke and mirrors to exert extreme pressure," the post said. "You don't have to take it seriously."