(Bloomberg) -- President Donald Trump predicted China will be first to buckle as the world’s largest economies teeter on the brink of a trade war that’s sent financial markets reeling, without indicating where his assessment sprang from.
“China will take down its Trade Barriers because it is the right thing to do,” Trump told his 50 million Twitter followers early Sunday. “Taxes will become reciprocal & a deal will be made on Intellectual Property.” He also said that no matter what happens, “President Xi and I will always be friends,” referring to Chinese President Xi Jinping.
The comments follow a week of rising tensions on trade, punctuated by the president’s surprise order late on Thursday that the U.S. identify additional Chinese goods to target and Beijing’s immediate vow that it won’t back down.
Top members of Trump’s economic team, speaking on Sunday morning talk shows, defended the U.S. threats to impose tariffs on Chinese imports and framed the moves as part of a longer-term strategy for growth -- while suggesting a trade war can be averted.
“I think it’s going to generate very positive results which will grow” the economies of the U.S., China, and the world, Larry Kudlow, Trump’s top economic adviser, said on CNN’s “State of the Union.”
Jittery Markets
Kudlow said while he would support imposing tariffs if negotiations with China fail, nothing has happened yet. In a separate interview on “Fox News Sunday,” Kudlow acknowledged market “jitters” but said “we’re not gonna to end up in a trade war.”
Treasury Secretary Steven Mnuchin said on CBS’s “Face the Nation” that the U.S. objective “is to continue to have discussions with China.”
Trump escalated the dispute late Thursday by instructing the U.S. Trade Representative’s office to consider tariffs on an additional $100 billion in Chinese imports, raising to $150 billion the amount of Chinese goods under consideration.
“Rather than remedy its misconduct, China has chosen to harm our farmers and manufacturers,” Trump said in a statement announcing the move.
China proposed duties on $50 billion in U.S. products from aircraft to soybeans after the U.S. targeted steel and aluminum imports. It has threatened to respond proportionately and “counterattack with great strength” if the U.S. makes good on the latest proposal.
Number Eight
The escalation in rhetoric pushed the S&P 500 index down sharply on Friday; it lost 1.4 percent on the week after several days of exaggerated daily swings.
Gains in U.S. equities prices since Trump was inaugurated -- which Trump, along with his family and members of his administration have regularly claimed credit for -- have eroded since late January, and trade tensions have been behind some of the reversal.
The advance in the Dow Jones Industrial Average since Trump’s inauguration is now 20.7 percent, placing the former New York real estate developer in eighth position at this point in his tenure among presidents since 1900, according to data compiled by Bloomberg.
Trump on Friday acknowledged there could be “a little pain” ahead for the U.S., while emphasizing that his goal is to ensure the U.S. emerges a much stronger country in the end.
Benign Spat
On Friday, Kudlow said that the U.S. and China are holding “back-channel discussions” to resolve the escalating trade dispute. And on CNN he said that ultimately the outcome of the spat “may turn out to be very benign.”
Still, White House adviser Peter Navarro, known as a hardliner on trade, said the threat of tariffs is not merely a bargaining chip. “We’re moving forward in a measured way,” he said on NBC’s “Meet the Press.”
Navarro has said that high-level talks will take place before any tariffs will take effect, led on the U.S. side by Mnuchin and Trade Representative Robert Lighthizer.
Trump “has a very close relationship with President Xi, and we’ll continue to discuss those issues with them,” Mnuchin said. He declined to comment on the progress of any back-channel talks with Beijing.
“You’ll know when we reach a deal there’s progress, and that’s our objective,” Mnuchin said.
