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May 10, 2019 12:45 AM, EDT

US Hikes Tariffs Amid Trade Talks; China Vows to Retaliate

President Trump at the White House on May 9 President Donald Trump speaks at the White House on May 9. (Joshua Roberts/Bloomberg News)

The United States hiked tariffs on more than $200 billion in goods from China on May 10 in the most dramatic step yet of President Donald Trump’s push to extract trade concessions, deepening a conflict that has roiled financial markets and cast a shadow over the global economy.

China immediately said in a statement it is forced to retaliate, though hadn’t specified how. The move came after discussions between President Xi Jinping’s top trade envoy and his U.S. counterparts in Washington made little progress on May 9, with the mood around them downbeat, according to people familiar with the talks. The negotiations were due to resume the morning of May 10.

Asian shares pared gains and U.S. equity futures slipped. The yuan rallied for the first time in seven sessions on May 10.

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Ahead of the talks on May 9, Trump also said the U.S. would go ahead with preparations to impose 25% tariffs on a further $325 billion in goods from China, raising the prospect of all of China’s goods exports to the U.S. — which were worth about $540 billion last year — being subject to new import duties.

Such a move would take weeks to deploy. But it would have significant repercussions for the U.S., Chinese and global economies. Economists at Moody’s Analytics said in a report this week that an all-out trade conflagration between the world’s two-largest economies risked tipping the U.S. economy into recession by the end of 2020 just as voters go to the polls in the U.S.

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The move “exacerbates the uncertainty in the global trading environment, further raises tensions between the U.S. and China, negatively affects global sentiment and adds to risk aversion globally,” said Michael Taylor, managing director for credit strategy and standards at Moody’s Investors Service in Hong Kong.

The new tariffs that took effect at 12:01 a.m. Washington time May 10 raise from 10% to 25% the duties on more than 5,700 different product categories from China — ranging from cooked vegetables to Christmas lights and highchairs for babies.

U.S. officials have said the new duties — introduced on just five days’ notice — will not apply to goods already on boats headed for American shores. A 25% tariff is already in place on a further $50 billion in imports from China.

Chinese Vice Premier Liu He huddled with U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin in Washington on May 9 for about 90 minutes of talks before breaking and reconvening later for a working dinner that broke up around 8:40 p.m. Washington time.

Liu He is greeted by Steven Mnuchin

Chinese Vice Premier Liu He (left) and Treasury Secretary Steven Mnuchin on May 9. (Andrew Harrer/Bloomberg News)

Though talks are set to resume May 10, some close observers said they were not hopeful for any meaningful breakthroughs. One person familiar with the discussions said that U.S. officials were unsure whether Liu had the authority to make any meaningful commitments. It was also unclear whether China had resolved the internal debates that had led to last week’s rescinding of prior commitments to enshrine reforms agreed in Chinese law.

Ahead of the talks, Liu told Chinese state media he was coming to Washington under pressure but “with sincerity” and warned that a move to raise tariffs by the U.S. starting May 10 was not a solution and would be painful for both China and the U.S.

Earlier in the day, Trump calmed U.S. financial markets after he insisted it was still possible to reach a deal this week, even as he reiterated plans to raise tariffs on Chinese goods. Trump, speaking at an event in Washington, also said he may hold a phone call with his Chinese counterpart, Xi. No call between the two leaders had taken place by late May 9, nor had one been scheduled, according to a senior Trump administration official.