US, China wield threats going into high-stakes trade talks

US and Chinese negotiators are to resume trade talks in Washington just hours before the United States is set to raise tariffs on Chinese imports in a dramatic escalation of tensions between the world's two biggest economies.

In Beijing, Chinese officials said on Thursday they will retaliate if President Donald Trump goes ahead with more tariff hikes but offered no specific penalties.

The talks were thrown into disarray this week after top US trade negotiator Robert Lighthizer and Treasury Secretary Steven Mnuchin accused the Chinese of reneging on commitments they'd made earlier. 

In response to the alleged backsliding, the United States is raising tariffs on $200 billion in Chinese imports from 10 percent to 25 percent at  0401 GMT (12:01 am Eastern time) on Friday.

The two countries are sparring over US allegations that China steals technology and pressures American companies into handing over trade secrets, part of an aggressive campaign to turn Chinese companies into world leaders in robotics, electric cars and other advanced industries.

Chinese exporters of all sorts of products, from power adapters and computers to vacuum cleaners, are anxiously hoping trade talks in Washington this week will yield a deal that might stave off higher US tariffs on imports from China.

The setback was unexpected. Through late last week, Trump administration officials were suggesting that negotiators were making steady progress.

US officials say they got an inkling of China's second thoughts about prior commitments in talks last week in Beijing, but that the backsliding became even more apparent in exchanges over the weekend. They wouldn't identify the specific issues involved.

On Sunday, President Donald Trump took to Twitter to express frustration with the pace of the talks. 

"The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No!" 

He also said he would go further and slap 25 percent tariffs on another $325 billion in Chinese imports, covering everything China sells the United States.

US officials are insisting that any deal be strictly enforced so that China lives up to its promises — something they say Beijing has repeatedly failed to do in the past. 

Also unclear is what would happen to the current US tariffs on Chinese imports. China wants them lifted; the US wants to keep tariffs as leverage to pressure the Chinese to comply with any agreement.

Hours before the talks were set to resume in Washington, the Chinese government said it would retaliate if the US tariff increases take effect. It did not provide details, but said it had made "all necessary preparations," suggesting it might be bracing for worsening conflict.

"If the US tariff measures are carried out, China will have to take necessary countermeasures," said a Commerce Ministry statement. The spokesman, Gao Feng, said China has the "determination and ability to defend its own interests."

The volley of threats reignited jitters about global economic growth, prompting another round of losses on world stock markets.

If tariff hikes go ahead, "risks of a financial market collapse, extreme risk aversion, and sharp slowdown in global growth will spike," said Philip Wee of DBS Group in a report.

Germany's DAX index shed 1.2 percent and France's CAC 40 lost 1.5 percent. Hong Kong's main benchmark skidded 2.4 percent and the Shanghai Composite Index lost 1.5 percent Tokyo's Nikkei 225 lost 0.9 percent. Wall Street was set to open lower.

China's response

Chinese authorities already have extended retaliation beyond imports by targeting operations of American companies in China. 

Regulators have slowed down customs clearance for their shipments and delayed issuing licenses in finance and other industries.

The Chinese government has an array of other weapons including launching tax, anti-monopoly or other investigations that can hamper company operations.

Chinese leaders see industry development directed by the Communist Party as a path to prosperity and global influence. 

They deny their plans violate Beijing's trade commitments but have offered to change details that provoke the most foreign opposition.

"China is not afraid of conflict," said the Global Times, a newspaper published by the ruling Communist Party's People's Daily that is known for its nationalist tone.

It said Beijing has measures in place to "minimise losses" for its companies.

"Mentally and materially, China is much better prepared than its US counterpart," the newspaper said.