New tariffs kick in as US-China trade talks head into second day

A US tariff increase on hundreds of billions of dollars of goods imported from China has taken effect after US and Chinese trade negotiators failed to reach an 11th-hour breakthrough – but agreed to continue their discussions to end their trade war.

US President Donald Trump met Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin following the first day of the crucial talks with the Chinese delegation and the sides “agreed to continue discussions tomorrow morning”, the White House said in a statement late on Thursday.

However, the announcement did not affect US plans to more than double the tariffs on $200bn worth of Chinese imports to 25 percent – dashing hopes that Trump might decide to hold off at the last minute as the negotiations continued.

Beijing had threatened to retaliate if Washington went ahead with the tariff hikes at 12:01am Eastern time (04:01 GMT) on Friday in the United States, adding to the heated rhetoric from both sides that was shaking stock markets around the world.

After the new tariffs took effect, China’s commerce ministry said it “deeply regrets” the move and promised to take “necessary countermeasures.” It did not specify what those might be. But it sounded hopeful that the two sides could reach a compromise.

“The eleventh round of China-US high-level economic and trade consultations is underway and we hope the US and the Chinese side can meet each other halfway,” the commerce ministry’s statement said.

Since last year, the two economic powerhouses have exchanged tariffs on more than $360bn in two-way trade, gutting US agricultural exports to China and weighing on both countries’ manufacturing sectors.

Lighthizer and Mnuchin met the Chinese delegation for about 90 minutes on Thursday evening. The White House statement said they also “had a working dinner with Vice Premier Liu He” who is leading the Chinese delegation.

The two countries are sparring over US allegations that China steals technology and pressures US 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.

Despite optimism from officials in recent weeks that the talks were moving towards a deal, tensions reignited this week after Trump angrily accused China of trying to back pedal on issues already agreed to in the negotiations.

“They took many, many parts of that deal and they renegotiated. You can’t do that,” Trump said on Thursday.

But he held out hopes of salvaging a trade deal, even with the sudden flare-up in hostilities.

“It’s possible to do it,” Trump said of the trade deal on Thursday. “I did get last night a very beautiful letter from President Xi.”

However, he also said he would be equally satisfied to simply keep tariffs in place. And he has renewed his threat to extend the tough tariffs to all products the US imports from China.

The US administration bought a little extra time for talks to work: according to a filing on Wednesday in the Federal Register, the tariff hike will not hit goods that have already left Chinese ports before Friday’s deadline.

So the tariffs will not start taking effect until those shipments complete the three- to four-week voyage across the Pacific Ocean.

“This creates an unofficial window, potentially lasting a couple of weeks, in which negotiations can continue and generates a ‘soft’ deadline to reach a deal,” Goldman Sachs said in a report on Thursday.

The International Monetary Fund has repeatedly warned that the trade battle between the world’s top economies was a “threat” to global growth, and called for a rapid resolution.