The latest escalation in a tariff fight between the U.S. and China has made it “very difficult” for the two economic giants to reach a trade deal that’ll let President Donald Trump claim victory, experts said.
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The U.S. just after midnight ET on Friday increased tariffs on $200 billion of Chinese goods to 25% from 10%. China responded immediately, saying it would take countermeasures against the U.S. The latest hike in levies came after Trump turned up the rhetorical heat against China starting Sunday and accused Beijing of reneging on parts of a developing agreement.
Representatives from both countries are meeting in Washington this week to discuss trade. After the latest developments, however, a resolution in the coming weeks is “very difficult” to imagine, said Steve Okun, a trade expert and senior advisor at consultancy McLarty Associates.
“For the U.S. to win, for Trump to declare victory, he has to show that there’s a substantial change to what (China) does when it comes to intellectual property, when it comes to cyber theft, when it comes to forced technology transfers,” Okun told CNBC’s “Street Signs” just minutes before the latest tariff hike.
“Now, some of what, maybe much of what, the U.S. wants is in China’s interests. But politically, it’s very difficult for President Xi (Jinping) to be seen as giving into what the U.S. is demanding of him,” he added.
Okun is hardly the only expert predicting a deterioration in the relationship between the U.S. and China, which are the two largest economies in the world. Nick Marro, an analyst at consultancy the Economist Intelligence Unit, said Friday’s tariff escalation would undo much of the “goodwill” and “positive momentum” built up in previous meetings between the two countries.
The U.S. and China had been negotiating for a trade deal over the last few months. Investors and analysts were hopeful that both sides would resolve their conflict by reaching some kind of deal. Even the White House was boosting hopes just a week ago that there might be an announcement for an agreement this week.
“I think the potential for a deal has gone down significantly, and the potential that talks might break down even further has risen,” Marro told CNBC’s “Capital Connection” on Friday after the U.S. increased tariffs.
“The fact that the tariff escalation was acted upon is going to do a lot to erase a lot of the goodwill and the positive momentum that we saw built up over the first quarter and it’s going to be very difficult for both sides to really come back from that,” he added.
The best case scenario is for both sides to continue talking, analysts said, but the escalation in trade conflict this week has also increased the probability that the U.S. and China may never reach a deal.
Stefan Legge, an economics researcher and lecturer at the University of St. Gallen in Switzerland, predicted that the trade war will drag on as long as both economies can handle the pressure.
“China and the US might well be deep enough into Thucydides’ Trap so that the time is over for much cooperation anymore,” Legge wrote in a note. “Thucydides’ Trap” is a phrase used to describe a rivalry between an established power and a rising one that often ends in war.
Ratings agency Moody’s is less pessimistic. Its managing director for credit strategy and standards, Michael Taylor, said he believes Washington and Beijing could still eventually reach a trade deal. But before that happens, heightened tensions between the two sides are major threats to the global economy, he wrote in a Friday note.
This week’s tariffs hike “exacerbates the uncertainty in the global trading environment, further raises tensions between the US and China, negatively affects global sentiment and adds to risk aversion globally,” said Taylor.
— CNBC’s Jacob Pramuk anad Everett Rosenfeld contributed to this report.