President Donald Trump moved Thursday to impose import tariffs on US$300 billion ($458b) worth of Chinese goods on September 1, effectively taxing every product that Americans buy from China and prompting American businesses to warn of a rising economic toll at home.
The president said the tariff - on products such as cellphones, televisions, toilet seats and pillows - would initially be set at 10 per cent but could rise to 25 per cent or more.
"Until such time as there is a deal, we'll be taxing them," he told reporters before leaving the White House for a political rally in Ohio.
The president acted one day after Treasury Secretary Steven Mnuchin and US Trade Representative Robert Lighthizer wrapped up two days of talks in Shanghai aimed at a comprehensive trade deal that appears ever more elusive.
In a trio of tweets, the president assailed Chinese foot-dragging and criticised Chinese President Xi Jinping by name - an unusual step for Trump, who is usually effusive about his respect for the Chinese leader.
"We thought we had a deal with China three months ago, but sadly, China decided to renegotiate the deal before signing," Trump tweeted. "More recently, China agreed to. . ...buy agricultural product from the US in large quantities, but did not do so. Additionally, my friend President Xi said that he would stop the sale of Fentanyl to the United States - this never happened, and many Americans continue to die!"
Trump's outburst stood in contrast to a White House statement one day earlier that labeled this week's talks "constructive," announced plans for discussions in Washington next month and said China had "confirmed their commitment to increase purchases" of American farm products.
Thursday's abrupt tariff announcement caught many business groups and trade analysts by surprise - with some saying it would backfire and make agreement less likely.
"The US will start, on September 1, putting a small additional Tariff of 10 per cent on the remaining 300 Billion Dollars of goods and products coming from China into our Country. This does not include the 250 Billion Dollars already Tariffed at 25 per cent," the president tweeted.
Stocks fell sharply,with the Dow Jones industrial average finishing the day down about 280 points. Stocks had started the day significantly higheras Wall Street traders grew optimistic about another rate cut from the Federal Reserve.
A measure of stock market volatility, the Vix index, hit a two-month high while the yield on the 10-year Treasury security sank below 1.9 per cent as investors sought the safety of guaranteed returns.
"We love tariffs. Tariffs are a wonderful thing," Trump adviser Peter Navarro told Fox Business on Thursday morning.
The president has grown frustrated with repeated promises by Chinese negotiators that go unfulfilled, according to a former administration official who requested anonymity to speak with candidly.
Little progress was made this week, when Chinese negotiators insisted none of their preliminary concessions would be binding until the US removed its tariffs on US$250b in goods, according to Derek Scissors, a China expert at the American Enterprise Institute and an occasional administration adviser.
Trump believes the strong US economy, with unemployment at a 50-year low, puts him in a stronger position than Xi to weather a prolonged stalemate, the former official said.
But major business associations attacked the president's move. "Additional tariffs at this point will lead to yet a further hardening of the Chinese position and make it more difficult to reach an agreement," said Craig Allen, president of the US-China Business Council and a former US diplomat. "Additional tariffs will drive the Chinese from the table."
Myron Brilliant, executive vice president of the US Chamber of Commerce, said the newest tariffs were a mistake. "We're disappointed to see the latest action, which undermines the ability of the two governments to work on a deal," he said.
The president has insisted for a year that any trade deal include structural changes in Beijing's state-directed economic model.
Some analysts and business executives said the stalemate made it more likely that negotiators would agree first on a much smaller deal, perhaps involving Chinese agricultural orders in return for a relaxation of the ban on Huawei, which would allow the Chinese telecom giant to continue purchasing some American parts.
Retailers were stunned that Trump is imposing tariffs in September, the peak season for Walmart, Target and other major retailers to bring goods in from China for the holiday shopping season.
"This is going to impact every American who goes shopping. It's US companies and consumers who pay the tariffs, not the Chinese," said Jonathan Gold, vice president of supply chain and customs policy at the National Retail Federation.
Trump repeated his false claim that Chinese companies absorb the costs or US firms buy from elsewhere, but economists and many corporate leaders say Americans are paying the tax.
"Franky, it hasn't cost our consumer anything; it costs China," Trump said. "China eats it because they have to pay it."
Even before the tariffs go into effect, a typical American family of four was already facing US$850 more a year in costs because of Trump's tariffs, according to the Tax Foundation.
Thursday's tariffs will hit popular consumer goods like iPhones, shoes, laptops and baby products that are typically imported directly from China, making it harder to cut costs or shift production to another country.
Sixty-two per cent of the items hit by this tariff are consumer goods, according to Goldman Sachs, much higher than earlier levies that targeted industrial components.
The first call many executives made after seeing the tweet was to shipping companies to see if they could expedite shipments to ensure arrival before the tariffs take effect.
"The first thing I said to my team was, 'reserve as many containers as you can,' because they go quickly and the prices are going to go through the roof to get goods from China to the United States," said Brad Mattarocci, vice president of Baby Trend, a strollers and car seat company.
But there is only so much companies can do since it typically takes weeks to manufacture items in China and get them across the Pacific Ocean. Trump circumvented the usual process of implementing tariffs, meaning it remains unclear if September 1 is the deadline to have imports arrive in the United States or on a boat.
Ninety per cent of the core products that keep babies safe are currently made in Asia, the vast majority in China, according to the Juvenile Products Manufacturers Association.
"It's going to mean higher prices on American families," said Joseph Shamie, president of Delta Children, a crib and toddler furniture company. "If a family makes US$60,000 a year, their income didn't go up, but the cost of a stroller or pajama set did. What are they going to compromise to continue?"
A number of economists and US political figures have said that Trump's trade war is becoming a more serious drag on growth. Business investment in the second quarter fell by 0.6 per cent, its worst performance in more than three years, and Fed Chair Jerome Powell on Wednesday cited uncertainty over trade policy as contributing to weaker global growth.
In an interview with the BBC, Gary Cohn, former National Economic Council director, said that "everyone loses in a trade war." Constant uncertainty about tariffs stops businesses from investing, he said, while the import levies drive up the cost of importing crucial products from China, negating the intended benefits of Trump's tax cuts.
"When you build plant equipment, you're buying steel, you're buying aluminum, you're buying imported products and then we put tariffs on those, so literally the tax incentive we gave you with one hand was taken away with the other hand," Cohn said.
Democrats were quick to criticise the president's move. "Trump doesn't have any strategy to get China to stop cheating on trade - the only thing he knows how to do is raise tariffs," said Sen. Ron Wyden, D-Ore., a member of the Senate Finance Committee.
"The tariffs announced today will raise costs on everything from computers to backpacks to clothes as kids go back to school, without any reason to think that it will make China stop stealing our technology and undercutting American jobs. Trump said he'd bring back Americans' jobs, instead he's picking their pockets."