China vowed to retaliate against the US with “necessary countermeasures” if Washington proceeds with higher tariffs on its imports later this week, on the eve of a pivotal negotiating session to salvage the chances of a trade deal between the two countries. 

After the US formally announced that it would raise levies on $200bn of Chinese goods from 10 per cent to 25 per cent, the Chinese commerce ministry issued a statement on Wednesday saying that the escalation was not in the “interests” of the two countries or the world. 

“China deeply regrets it and if the US tariffs are implemented, China will have to take necessary countermeasures,” it said.

The vow to retaliate further raised the stakes as Liu He, China’s lead trade negotiator, was due to arrive in Washington on Thursday to meet Robert Lighthizer, the US trade representative, and Steven Mnuchin, the US Treasury secretary. 

“Vice-premier Liu He’s visit to the US demonstrates China’s responsible attitude and sincerity,” a Chinese commerce ministry spokesperson said in Beijing on Thursday. “At the same time, China is fully prepared for all kinds of possibilities.”

Earlier this month, hopes were high that a deal to end the trade war between the world’s two biggest economies could be reached as early as this week. Those hopes were dashed after US officials accused China of “reneging” on their commitments, and President Donald Trump fired off a pair of angry tweets on Sunday that included the threat of higher tariffs. 

Speaking at a rally in Florida on Wednesday evening, Mr Trump reiterated his earlier allegation that China “broke” an almost-completed draft trade agreement last week. Chinese officials have not responded to Mr Trump’s allegation and have so far been measured in their comments on the latest setback in trade talks. 

Asian stocks fells on Thursday, with the CSI 300 index of major stocks listed in Shanghai and Shenzhen falling 1.9 per cent, putting it on track for its worst week since October, and Hong Kong’s Hang Seng was down 2.4 per cent. Japan’s Topix was down 1.4 per cent to a three-month low.

The onshore renminbi, which is permitted to trade within a 2 per cent band either side of a daily midpoint set by China’s central bank, weakened by 0.4 per cent to its lowest level against the US dollar since January at Rmb6.8071. The offshore renminbi also weakened to its lowest since January.

A US trade official said on Wednesday that the higher tariffs would apply to products exported from China starting on Friday and not goods that are already in transit.

The clarification offers US and Chinese negotiators a window of two to four weeks to reach a deal before the bulk of the pain from the higher tariffs hits US consumers and businesses, based on shipping times between the countries.

On Wednesday morning, Mr Trump noted on Twitter that Mr Liu was still coming to the US capital to “make a deal”.

The president’s latest tweets were posted just before the US equity markets were set to open after two days of losses driven by the flare-up in trade tensions with China. US stocks were volatile but trading slightly higher on Wednesday compared to earlier in the week. 

Mr Trump specifically accused China of trying to draw out the trade negotiations until after the 2020 presidential election. 

“The reason for the China pullback & attempted renegotiation of the Trade Deal is the sincere HOPE that they will be able to ‘negotiate’ with Joe Biden or one of the very weak Democrats, and thereby continue to rip-off the United States (($500 Billion a year)) for years to come,” Mr Trump wrote.

But the US president then offered some hope that a settlement could still be reached. 

“China has just informed us that they (Vice-Premier) are now coming to the US to make a deal. We’ll see, but I am very happy with over $100 Billion a year in Tariffs filling US coffers . . . great for US, not good for China!” the US president added. 

The talks with Mr Liu are expected to last through Friday.

Mr Trump’s references to Mr Biden and other potential rivals for the 2020 presidential race highlighted the president’s sensitivity to the political ramifications of any trade deal. 

While an agreement would fulfil one of his key campaign promises to reset trade relations with Beijing, Mr Trump seems acutely aware that he needs to preserve his aura of toughness with China, or else Democrats might outflank him on the issue and accuse him of settling for a weak deal. 

Just last week, Mr Trump rebuked Mr Biden for dismissing the economic threat from China at a campaign stop in Iowa. The former vice-president had suggested it was implausible that Beijing would “eat our lunch” and that China was “not competition for us”. 

In an interview with Fox News, Mr Trump said: “For somebody to be so naive and say China is not a problem, if Biden actually said that, that is a very dumb statement.”

On Wednesday, Kate Bedingfield, Mr Biden’s deputy campaign manager, responded to Mr Trump on Twitter. “Unfortunately, the only people @realdonaldtrump has gotten tough w/ so far on trade are US farmers, small business owners & consumers, who feel the brunt of his tariff war,” she wrote, adding that Mr Biden would “invest in our core strengths & ensure that US & our allies write rules of the road re: China”.

Democrats running for president in 2020 have generally been reluctant to talk about trade issues because they tend to split the party’s base. Many voters are sympathetic to Mr Trump’s aggressive negotiating stance, particularly with China, while others are reluctant to give him any credit and are concerned about the adverse economic and market impact of the tariffs.

Additional reporting by Xinning Liu

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