China talks remain in limbo as Trump turns attention to Mexico

Originally Published: 01 JUN 19 08:24 ET

Updated: 01 JUN 19 09:56 ET

(CNN) -- Months of intense trade negotiations between the United States and China may, once again, come down to a meeting between the leaders of the world's two economic superpowers later this month, and no one is quite sure what will happen after that.

Deadlock with the Asian giant comes as President Donald Trump is expanding his trade fights on multiple fronts. On Thursday, he threatened to hit Mexico with new tariffs, escalating his immigration fight with the country's largest trading partner and jeopardizing ratification of his top legislative priority, a revised North American Free Trade Agreement.

The Trump administration has repeatedly used tariffs as a punitive measure to drive a hard bargain in its negotiations, but executives representing the nation's most influential business lobbying group warned the latest move by the White House against Mexico will send the wrong message to other US trading partners, like the European Union, Japan and China, all currently engaged in talks.

"What happens in Mexico doesn't happen without the rest of the world seeing it," said Neil Bradley, executive vice president and chief policy officer at the US Chamber of Commerce on a call with reporters on Friday. "At some point that begins to weaken your ability to negotiate deals around the world."

The collapse of talks between the United States and Beijing earlier this month has triggered an indefinite suspension of trade negotiations after the Trump administration escalated tariffs on $200 billion of Chinese goods over Beijing's failure to keep previously held commitments as part of a trade deal. China has responded with its own set of penalties on US goods, which went into effect on Friday.

But Trump has shown no signs of relenting, threatening to impose further tariffs that "could go up very, very substantially, very easily."

"I think they probably wish they made the deal that they had on the table before they tried to renegotiate," Trump said at a joint press conference in Tokyo alongside Japanese leader Shinzo Abe during his visit there. "They would like to make a deal. We're not ready to make a deal."

Meanwhile, Beijing has also drawn its own "red lines" for any prospective trade deal accusing the US of committing "economic terrorism."

On Friday, China escalated tensions by announcing it was preparing to blacklist foreign companies, individuals and organizations just as its own set of retaliatory tariffs on $60 billion of US goods went into effect at midnight in Beijing.

Details of the blacklist have yet to be announced but the move comes after the US hit Huawei with an export ban, effectively barring American companies from doing business with the smartphone and telecom equipment maker.

The White House has "brought huge damage to the economy of other countries and the US itself," China's Ministry of Foreign Affairs spokesman Lu Kang told reporters in Beijing on Thursday. China has pushed backed on any deal that would leave US tariffs in place and bar Beijing from taking retaliatory action if the US imposes punitive measures should the country fail to keep its commitments.

"We're in a period where both sides think they have the upper hand in the negotiations and are sending public signals to that effect," said Wendy Cutler, a managing director for the Asia Society and a former diplomat and negotiator for the Office of the US Trade Representative under President Barack Obama. "At this point, both sides think they can outlast the other in this current situation."

The latest impasse closely resembles weeks of deadlock between US and Chinese negotiators in the lead up to a dinner encounter between the two leaders in Argentina last December.

The next possible meeting between Trump and Chinese leader Xi Jinping could come at the end of June on the sidelines of the G20 leaders' summit in Japan. No official meeting has been set, and Treasury Secretary Steven Mnuchin has signaled there are no immediate plans for the US delegation to head to Beijing for further talks.

Former trade officials expect that both countries will meet even on an informal basis so it doesn't appear that the two countries have stopped talking to each other entirely.

But former negotiators also said that China's abrupt reversal on commitments in part of a 150-page trade deal with the US was not an unusual tactic.

"It's too early to know whether what just happened is a short-term negotiation tactic by the Chinese or a longer-term play," said one former senior US trade official. "It would be really bad if the US caved right now. We shouldn't look like we really want it that badly."

But veteran trade negotiators said it's clear China had underestimated the US response, assuming that Trump wanted the deal to close and miscalculated what his response would be.

"Both sides have made miscalculations in this negotiation," said Cutler. "President Xi Jinping thought Trump probably wanted the deal so badly he could send text crossed out and it would be OK because he wanted the deal so much. He miscalculated the US and the US had miscalculated China as it looks to the Chinese economic slowdown and concludes quickly that it has the advantage in the negotiations without appreciating all the tools that China has in hand to cause pain to consumers and exporters."

Before the Mexico move, Trump had backed away from his trade war, agreeing to lift steel and aluminum tariffs on Canada and Mexico, a critical hurdle cleared for ratification of Trump's replacement for NAFTA.

He also delayed a decision to impose new tariffs on foreign automobiles as the Trump administration seeks to negotiate new trade deals with the European Union and Japan.

Trump administration officials are talking to Mexican leaders, and Trump hasn't closed the door entirely on the ability of the US and China to reach an agreement eventually without offering a deadline.

"I think sometime in the future China and the United States will absolutely have a great trade deal, and we look forward to that," Trump said in Japan. "Because I don't believe that China can continue to pay these, really, hundreds of billions of dollars in tariffs. I don't believe they can do that."

Earlier this week, China's Foreign Ministry spokesman responded to the President's comments on trade negotiations, arguing Washington has been inconsistent with its message claiming senior officials within the Trump administration have made "all kinds of remarks."

"Sometimes they said a deal was within reach and sometimes they said it was very difficult to reach a deal," Lu told reporters in Beijing on Monday.

"When you review remarks from China, our stance has been consistent," he added.

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