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Wall Street expects U.S. to move ahead with tariff hikes on China

Trump threatens more tariffs on China
  • Investment bank Goldman Sachs puts the odds of the U.S. slapping higher tariffs on $200 billion in Chinese goods on Friday at 60 percent.
  • China's Vice Premier is set to arrive in Washington, D.C., on Thursday to meet with U.S. officials to continue trade talks. 
  • If negotiations fail, on Friday the tariffs on Chinese imports will jump from 10 percent to 25 percent, potentially raising costs for consumers on a range of products.

Investment professionals expect the U.S. to proceed with a steep increase in U.S. tariffs on Chinese goods this week. Analysts with Goldman Sachs told clients in a report on Wednesday that a hike is now the bank's "base case." 

President Donald Trump on Sunday threatened to more than double levies on $200 billion in Chinese imports, from 10 percent to 25 percent, rattling financial markets. Chinese Vice-Premier Liu He, the country's top economic adviser, is scheduled to meet with U.S. trade officials for two days of talks starting Thursday. Barring a breakthrough, the tariffs are set to take effect on Friday at 12:01 a.m. Eastern time.

Mr. Trump maintained the pressure ahead of the meeting. In a tweet Wednesday, he reiterated a previous claim that the U.S. loses $500 billion a year to China because of its unfair trade practices.

Stocks treaded water Wednesday after tumbling in prior-day trading, when the Dow fell 473 points and other benchmark indexes also slumped amid mounting investor concerns about trade tensions.     

White House Press Secretary Sarah Sanders told reporters on Wednesday that the Trump administration has reason to believe China is interested in reaching agreement on trade. "They're going to sit down tomorrow, and we'll see what happens from there," she said. 

Despite those negotiations, several signs point to the U.S. moving to impose the stiffer tariffs, according to Goldman. The Office of the U.S. Trade Representative on Wednesday morning issued a formal notice of the plan, while the agency is also expected soon to announce its intention to impose a 25 percent tariff on an additional $325 billion in Chinese products. That would effectively cover all goods imported into the U.S. from China, including electronic gear, apparel and other products previously exempted from earlier tariff hikes. 

A shorter time frame for this week's trade talks also suggests diminished expectations for the gathering, which had originally been scheduled to last three days, according to Goldman. In addition, statements by U.S. Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer this week accusing China of having reneged on commitments to revise the country's trade policies indicate a substantive disagreement rather than an 11th-hour bargaining maneuver.

Dow dives more than 500 points on China trade fears

The "justification U.S. officials have given for the move -- reversal of what the U.S. believed were commitments to change Chinese law in several policy areas -- suggests that the proposed tariff increase is more than just a negotiating tactic," the Goldman analysts note. They put the odds of the tariffs going into effect this week at 60 percent. 

By contrast, they see only a 10 percent chance the sides reach a deal. China could also offer more modest concessions that stop short of a formal agreement, encouraging the U.S. to delay the planned tariff hike for a few weeks ahead of further negotiations. 

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