The tariffs could also be a blow to Trump's tax cuts. Middle-class households are saving about $900 this year on taxes, but the tariffs are likely to cause people to pay more for stuff at the store (or car dealership). If Americans end up paying $500 more for a car, that eats into the benefit of the tax cut significantly. Similarly, business executives might get nervous about what's going on with trade and start to pull back on investing in new factories and equipment.<doc-sep>Not so long ago, U.S. leaders predicted that economic development and the birth of a middle class in China would inevitably move that nation toward democracy. Instead, China’s leadership has profited from a weaker West. It has seized on opportunities created by European fragmentation and political dysfunction in Washington to offer China as an alternative model of stability and development. Another mistake by the U.S.: lawmakers doubted that China would ever become technologically innovative. They believed that, like the Soviet Union, China’s state-dominated economic system would hit a wall when it came to developing new ideas. Instead, China learned from Soviet mistakes. At first, the state allegedly helped Chinese companies steal ideas that couldn’t be developed at home. But now China is investing huge sums in the artificial intelligence, robotics and data-management innovations that will determine tomorrow’s balance of power. China’s President Xi Jinping declared in October that the nation must become a technological superpower. He has repeatedly emphasized the need to shed dependence on foreign intellectual property. “Indigenous innovation” and technological self-reliance are now core to China’s development strategy. His Made in China 2025 program, backed with huge state subsidies for its tech sector, is central to Xi’s vision. On May 29, President Trump launched an offensive against that plan. To protect its national security, the White House said in a statement, the U.S. will restrict investment in and control exports of “industrially significant technology.” The Trump Administration proposes to slap 25% tariffs on some $50 billion of Chinese tech imports, including those related to the vaunted Made in China 2025 program. In essence, the battle for the future has been joined. Trump has been trying to strike a delicate balance in U.S. relations with China, and until now has blown hot and cold on trade. He adopted the tough stance he promised voters while blaming the $375 billion goods trade deficit on former U.S. Presidents rather than on Beijing. Trump would love to have warmer relations with China, just as he would with Russia. Trump has praised Xi just as he’s repeatedly saluted Russia’s Vladimir Putin. Yet, as with Russia, a variety of actors in Washington have made it tough for Trump to build the China ties he wants. Trump pledged to save ZTE, a large Chinese telecom-equipment maker banned from purchasing U.S. technology for violating sanctions, as an apparent favor to Xi, but was attacked by lawmakers of both parties. Many fear that Trump fails to see the threat that Chinese tech companies like ZTE and Huawei pose to U.S. national security. Meanwhile, some American companies fear that U.S. trade action will make it tougher for them to do business in China. Trump’s own advisers are divided on how to proceed. Now the voices preaching confrontation with China appear to have won out. Neither side wants a full-blown trade war, but each believes it has a strong negotiating position. Commerce Secretary Wilbur Ross will travel to Beijing for talks on June 2, but it’s hard to see how Trump can claim victory without Chinese concessions on tech issues, and it’s nearly impossible that Xi will offer him anything of value. This is where the risk of real conflict is most dangerous. This appears in the June 11, 2018 issue of TIME. Sign up for Inside TIME. Be the first to see the new cover of TIME and get our most compelling stories delivered straight to your inbox. Please enter a valid email address. * The request timed out and you did not successfully sign up. Please attempt to sign up again. Sign Up Now An unexpected error has occurred with your sign up. Please try again later. Check the box if you do not wish to receive promotional offers via email from TIME. You can unsubscribe at any time. By signing up you are agreeing to our Terms of Service and Privacy Policy . This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply. Thank you! For your security, we've sent a confirmation email to the address you entered. Click the link to confirm your subscription and begin receiving our newsletters. If you don't get the confirmation within 10 minutes, please check your spam folder. Contact us at letters@time.com.<doc-sep>When Treasury Secretary Steve Mnuchin warned that Washington was not “going easy” on China by halting the trade war despite the deal reached 11 days earlier, he was not joking. The White House reignited U.S.-China trade conflict on Tuesday by reaffirming its aims to impose tariffs, enforce sanctions and curb China’s “unfair trade practices.” ADVERTISEMENT While analysts have speculated that the Trump administration’s remarkable volte-face on U.S.-China trade policy may serve to increase Washington’s leverage as Commerce Secretary Wilbur Ross Wilbur Louis RossCommerce Department unit gathered intel on employees, census critics: report Former Trump officials find tough job market On The Money: Retail sales drop in latest sign of weakening economy | Fast-food workers strike for minimum wage | US officials raise concerns over Mexico's handling of energy permits MORE visits Beijing on Saturday, Trump’s inconsistent messaging may compromise the art of the deal. The White House’s belligerent announcement on Tuesday reinstated a 25-percent tariff on goods imported from China, including “industrially significant” technologies that are included in Beijing’s “Made in China 2025” plan. The announcement also called for stricter, punitive measures to prevent unfair licensing practices, safeguard against forced technology transfer and strengthen export controls. Central to Washington’s ambition is the dual desire to reduce its trade deficit with China and to suppress contentious and unfair trade practices aimed at boosting Chinese technological advancement. According to a seven-month-long Section 301 investigation that ended in March, the Office of the U.S. Trade Representative (USTR) decided that such discriminatory practices “put 44 million American technology jobs at risk.” Chinese officials, however, see their technology transfer policies differently. On the same day that U.S. reignited tensions, the Chinese ambassador to the World Trade Organization (WTO) declared that technology transfer is a standard business activity and that China does not have a systematic, compulsory government practice for foreign firms to surrender their technology. Chinese pundits ridiculed U.S. sanction threats as “calling a deer a horse," i.e., Washington is using claims of foul play as a means of targeting Beijing’s successful manipulation of market access. Despite these oppositional narratives, it is unclear whether Trump’s disciplinary measures will alter China’s ambition to increase its position as a global technological leader. Reacting to renewed U.S. coercion, President Xi publicly reasserted its commitment to “Made in China 2025," citing “self-reliance and innovation” as Beijing’s chosen economic precepts for guiding development and trade strategies. Given the Chinese determination to put up a fight, it remains to be seen how Trump could force Xi’s hand. Furthermore, there might come a point where Trump will have to choose between reducing the trade deficit and countering “Made in China 2025." Reports indicated that the U.S. was making headway in increasing Chinese importation of American energy and agricultural products, which allegedly would reduce the trade deficit by $200 billion. Now, Beijing appears to be having second thoughts as Trump is backpedaling on the deal. At the same time, fledgling attempts to compel China into increasing its purchase of American goods has had adverse effects for Washington’s relationship with other countries. If China were to purchase more goods from the U.S., it will accordingly purchase less of those goods from U.S. allies, such as the EU or Australia. Due to these fears, Angela Merkel went to Beijing last week to reaffirm Beijing-Berlin trade relations and technological partnerships. Other countries would likely follow suit if Trump gets China to concede. For example, Australia is concerned about its beef export to China given its rising bilateral tensions. If Washington’s impulsive decision-making does, in fact, negatively impact its allies, those partnerships will likely take a hit, and China may see more of these countries try to become strange bedfellows. What really is hurting Washington is its inconsistency. Trump first declared a hardline approach for reducing its trade deficit and curtailing unfavorable tech policies, then seemingly retracted all threats and eased up on Chinese cellphone maker ZTE, and now is returning to the original antagonism. From this, Chinese analysts have learned two important lessons about Trump’s Washington: Expect the unexpected, and do not ever expect Trump to be satisfied. One Chinese news source proclaimed that “more concessions will not satisfy Trump’s appetite;” that the next tariff Trump seeks will not be for $50 billion, but for “a trillion dollars.” For this reason, many Chinese reports color Trump as a “contract breaker.” This coloring may prove true yet again, however, given the timeline of the White House’s release of finalized announcements of tariffs and sanctions on China. Trump has plenty of time to take back this most recent round of impositions, as the full list of imports hit by the tariff will be released on June 15, and the full list of restrictions and controls on exports will be released on June 30. Even if Trump does backtrack on Tuesday’s announcement, Washington’s consistent inconsistency makes it difficult for Beijing to believe anything that the U.S. says. Judging by Beijing’s reaction to the Tuesday announcement, China is seeing through Trump’s negotiation technique and is determined to put up a fight. Following the White House’s announcement, Chinese Foreign Ministry spokeswoman Hua Chunying warned, “We don't want a trade war, but we aren't afraid of fighting one.” If a full-out trade war does indeed become an outgrowth of this week’s events, Beijing may just be right. For all of Trump’s cocky tweeting that “trade wars are good and easy to win,” Washington’s inability to streamline a consistent plan of attack is progressively rendering its threats meaningless and denigrating relationships with its allies. Logan Pauley is a Herbert Scoville Jr. peace fellow with the East Asia program at the Stimson Center, a think tank in Washington, D.C.<doc-sep>The widening gulf between the United States and some of its biggest trading partners grew even larger over the weekend. In a rare and striking act, six of the seven countries that make up the G7 (Group of Seven), an informal bloc of some of the nation’s most powerful industrialized countries, came together on Saturday to condemn its seventh member, the US, over Trump’s latest tariffs on steel and aluminum. And on Sunday, the third round of trade talks between the US and China concluded without a breakthrough, which means that the US is currently still on track to impose sweeping tariffs on $50 billion of Chinese goods. China has promised to retaliate against the US’s tariffs, raising the possibility of a trade war between the world’s two largest economies. China also warned on Sunday that US tariffs could torpedo any chance of a future trade deal between the two countries. Still wondering what these new developments mean? Read on. We’ve got you covered. Trump triggered a rare display of division within the G7 On Saturday, finance ministers from six of the G7 nations — Canada, France, Germany, Italy, Japan, and the United Kingdom — issued a statement expressing “unanimous concern and disappointment” over the tariffs Trump has imposed on their steel and aluminum exports to the US. In the statement, the countries said that Trump’s recent trade policies “undermine open trade and confidence in the global economy” and required “decisive action” in response. Analysts say it was a rare display of division within the bloc — a reaction to an unforeseen scenario. For decades, the US has led the push to establish free trade norms around the world and persuade countries to eliminate their trade barriers. But now it’s other countries that are chiding the US for trying to seal itself off from the global trading system. The US now has heavy tariffs in place on steel and aluminum shipments from every other member of the G7. On Thursday night, Trump imposed 25 percent tariffs on steel and 10 percent tariffs on aluminum from the European Union, Mexico, and Canada. And he had imposed those same tariffs on Japan in March. Now every country that’s been subjected to Trump’s steel and aluminum tariffs is making plans to potentially retaliate with tariffs of their own. Europe is considering targeting American bourbon, jeans, and motorcycle exports. It’s not just the tariffs that are making close US allies upset — it’s also the way the US is trying to justify them. The Trump administration has invoked an obscure bit of US trade law known as Section 232 to argue that the US needs to block foreign steel and aluminum exports and boost domestic production in order to protect its national security needs. But all the countries that Trump is targeting with tariffs are close allies of the US, and object to the idea that they would jeopardize the US’s security. “The idea that we are somehow a national security threat to the United States is, quite frankly, insulting and unacceptable,” Canadian Prime Minister Justin Trudeau told Meet the Press on Saturday. The US and China are playing a dangerous game of chicken On Sunday, the US and China wrapped up their third round of talks. The US is hoping to reach an agreement with China in which it agrees to buy more goods from the US and drop some of its unfair trade practices, like the way it forces US companies trying to do business in China to hand over their technology to Chinese companies. But it appears that the talks broke no new ground — which means the possibility of a trade war between the world’s two largest economies is closer than ever. US Commerce Secretary Wilbur Ross and Chinese Vice Premier Liu He didn’t release a joint statement after their meeting, the way that the US and China did after the past talk. But China did release its own statement, warning that the US could obliterate any progress made in the talks by moving ahead with the tariffs it’s threatened to impose on Chinese high-tech goods. “All economic and trade outcomes of the talks will not take effect if the US side imposes any trade sanctions, including raising tariffs,” the Chinese government said in a statement. The White House has said a final list of $50 billion worth of Chinese goods that will be subject to tariffs will be announced on June 15, and that the measures will go into effect “shortly thereafter.” China, for its part, has promised to respond with tariffs on $50 billion worth of US goods, which could deal serious damage to the US agricultural industry. Whatever actually happens next, it seems clear that Trump’s proposed tariffs will have far-reaching consequences.<doc-sep>
China warned Sunday after another round of talks on a sprawling trade dispute with Washington that any deals they produce "will not take effect" if President Donald Trump's threatened tariff hike on Chinese goods goes ahead. The warning came after delegations led by U.S. Commerce Secretary Wilbur Ross and China's top economic official, Vice Premier Liu He, wrapped up a meeting on Beijing's pledge to narrow its trade surplus. Ross said at the start of the event they had discussed specific American exports China might purchase, but the talks ended with no joint statement and neither side released details. The White House threw the meeting's status into doubt Tuesday by renewing a threat to impose 25 percent tariffs on $50 billion of Chinese high-tech goods in response to complaints Beijing steals or pressures foreign companies to hand over technology. The event went ahead despite that but Beijing said it reserved the right to retaliate. Tuesday's announcement revived fears the conflict between the two biggest economies might dampen global growth or encourage other governments to raise their own barriers to imports. "If the United States introduces trade sanctions including a tariff increase, all the economic and trade achievements negotiated by the two parties will not take effect," said the Chinese statement, carried by the official Xinhua News Agency. The negotiating process should be "based on the premise" of not fighting a "trade war," the statement said. The American Embassy in Beijing didn't immediately respond to a request for comment. Trump is pressing Beijing to narrow its politically volatile trade surplus with the United States, which reached a record $375.2 billion last year. Tensions eased after China promised on May 19 to "significantly increase" purchases of farm goods, energy and other products and services following the last round of talks in Washington. U.S. Treasury Secretary Steven Mnuchin said the dispute was "on hold" and the tariff hike would be postponed. That truce appeared to end with Tuesday's surprise announcement. It said the White House also will impose curbs on Chinese investment and purchases of U.S. high-tech goods and on visas for Chinese students. Analysts suggested Trump might be trying to appease critics of his administration's deal to allow Chinese telecom equipment giant ZTE Corp. to stay in business. They said those political pressures mean the technology-related tariff hikes are likely to go ahead. Members of Congress criticized the agreement to lift a ban on sales of U.S. components to ZTE, which admitted violating rules on exports to Iran and North Korea. In exchange, the company is to remove its management team, hire American compliance officers and pay a fine. Trump has threatened to raise tariffs on a total of up to $150 billion of Chinese goods. Tuesday's announcement gave no indication whether the other increases might also go ahead. China has threatened to retaliate by raising import duties on a $50 billion list of American goods including soybeans, small aircraft, whiskey, electric vehicles and orange juice. It criticized Tuesday's announcement but refrained from repeating its earlier threat. Beijing has resisted U.S. pressure to commit to a firm target of narrowing its annual surplus with the United States by $200 billion. Private sector analysts say while Beijing is willing to compromise on its trade surplus, it will resist changes that might threaten plans to transform China into a global technology competitor. Ross was accompanied by agriculture, treasury and trade officials for the meeting at the Diaoyutai State Guesthouse, a leafy compound on Beijing's west side. Liu's delegation included China's central bank governor and commerce minister. Ross and Liu held a working dinner Saturday ahead of their talks. "Our meetings so far have been friendly and frank, and covered some useful topics about specific export items," said Ross at the opening of Sunday's meeting. The U.S. pressure over technology policy reflects growing American concern about China's status as a potential competitor and complaints Beijing improperly subsidizes its fledgling industries and shields them from competition. Foreign governments and businesses cite strategic plans such as "Made in China 2025," which calls for state-led efforts to create Chinese industry leaders in areas from robots to electric cars to computer chips. Trade analysts had warned Ross's hand might be weakened by the Trump administration's decision Thursday to go ahead with tariffs on steel and aluminum imports from Canada, Europe and Mexico.