Trump suggests the trade war with China could last until 2020 after series of dramatic escalations

Reuters/Carlos Barria

President Donald Trump welcomes Chinese President Xi Jinping at Mar-a-Lago state in Palm Beach, Florida.

• President Donald Trump defended the prospect of a prolonged trade dispute with China on Tuesday, saying he would be willing to support farmers hurt by tariffs next year if necessary.
• The comments raised further concerns following a series of dramatic trade escalations between the largest economies.
• Trump announced last week the US would soon slap tariffs on virtually all products from China, which has vowed to retaliate.
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President Donald Trump defended the prospect of a prolonged trade dispute with China on Tuesday, raising further concerns following a series of dramatic trade escalations between the largest economies.

"We are in a very strong position," the president wrote on Twitter, also suggesting that tariffs could remain in place through 2020. "Companies are also coming to the U.S. in big numbers. A beautiful thing to watch!"

The US Treasury Department declared China a currency manipulator Monday after the nation allowed the yuan to breach the psychologically crucial level of 7 against the dollar. It was the first time the US made such a declaration since 1994, casting a fresh layer of doubt on newly resumed negotiations between the two sides.

The Chinese government had earlier that day backed down on its pledge to resume purchases of American farm products and threatened to slap additional tariffs on them. Trump was already frustrated on the agricultural front, announcing last week the US would soon slap tariffs on virtually all of its products. China has vowed to retaliate against such action, which Trump previously agreed to hold off on.

The move came as a surprise to trade negotiators on both sides and was scheduled to take effect before the next round of anticipated talks in early September. White House economic adviser Larry Kudlow said Tuesday those in-person meetings were still expected to take place in Washington next month, adding that the Trump administration was not planning any other punitive measures related to the weakening yuan.

"We're willing to negotiate movement toward a good deal," Kudlow said on CNBC. "It might change the tariff situation, it might not."

But the rapid string of escalations has underscored how far apart the two sides remained in a trade war that has led to more than $350 billion worth of tariffs. Trump increased duty rates on China in May after the US said that the country reneged on key commitments in a draft deal, unraveling nearly a dozen rounds of high-level negotiations.

China's willingness to allow the yuan to weaken to that point, which can undercut the effect of Trump's tariffs and hurt American companies by making exports cheaper, appeared to underscore an increasingly defiant stance on both sides.

"Perhaps, from China's perspective, the balance of risks from additional escalation is beginning to shift in its favour," said Alexander Redman, a research analyst at Credit Suisse. "With the US political calendar warming up, Beijing is likely to be acutely aware of the sensitivities of the US agricultural heartlands in determining 2020."

Trump has increasingly sought to placate American farmers, who helped elect him in the last presidential election, following the start of his 2020 campaign. His administration has rolled out a $28 billion bailout package for those who have suffered losses from retaliatory tariffs on agricultural products.

On Tuesday, Trump suggested he would extend that subsidy program if the trade war lasted through 2020.

"As they have learned in the last two years, our great American Farmers know that China will not be able to hurt them in that their President has stood with them and done what no other president would do - And I'll do it again next year if necessary!" he said on Twitter.

The president misleadingly added that "Massive amounts of money from China and other parts of the world is pouring into the United States for reasons of safety, investment, and interest rates!" While the White House claims that foreign exporters pay tariffs, evidence overwhelmingly suggests those costs mostly fall on American companies and consumers.

Most American companies appear either unwilling or unable to move complex global supply chains, many of which they've spent decades developing, said Brian Keare, the field chief information officer at the data-analytics firm Incorta.

"Companies unable to adapt will suffer tremendously, and the stakes are incredibly high - failure to act could mean that some household name companies may cease to exist as we know them in the not-too-distant future," said Keare, who advises businesses like Broadcom, Starbucks, and Apple.

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