China 'broke the deal' and will pay for it, Trump says

"We can make the product right here if we have to — like we used to," President Trump told a rally on Wednesday.

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/ Source: CNBC.com
By Everett Rosenfeld, CNBC

President Donald Trump said Wednesday that China "broke the deal" in the ongoing U.S.-China trade talks.

Speaking at a rally in Florida, the president attributed his recent threat of increased tariffs to Beijing's negotiating position.

"By the way, you see the tariffs we're doing? Because they broke the deal. They broke the deal," Trump said. "So they're flying in, the vice premier tomorrow is flying in — good man — but they broke the deal. They can't do that, so they'll be paying."

Over the weekend, Trump surprised markets by threatening in a Twitter post that he would significantly raise American levies on Chinese goods — with a first increase this coming Friday, and another "shortly."

The president said trade talks with China had been moving "too slowly" as Beijing tried to re-negotiate. That came as a shock to many observers, since recent reports had indicated the world's two largest economies could be set to sign an agreement as early as this week.

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Trump added that the United States "won't back down until China stops cheating our workers and stealing our jobs."

"That's what's going to happen. Otherwise, we don't have to do business with them," he said. "We can make the product right here if we have to — like we used to."

Chris Rupkey, managing director and chief financial economist at global financial group MUFG, wrote in a note responding to Trump's Wednesday evening speech that markets may continue to be roiled by that sort of rhetoric: "We are not sure who the president is addressing tonight in a campaign rally, but he is sure scaring the daylights out of the financial markets."

China, for its part, said earlier Wednesday that Beijing will retaliateif U.S. tariffs on $200 billion of Chinese goods are hiked to 25% from 10% as Trump had threatened.

"The escalation of trade friction is not in the interests of the people of the two countries and the people of the world," the ministry said. "The Chinese side deeply regrets that if the US tariff measures are implemented, China will have to take necessary countermeasures."

Speaking at his Florida rally, Trump suggested the U.S. would be fine if there's no deal and the trade war with China continues.

"If we don't make the deal, nothing wrong with taking in over $100 billion a year, $100 billion, we never did that before," he said.

"We have never been so close to recession's door simply based on the policies from Washington," said one analyst.

Trump has made that argument before, but many economists warn it misses the full picture: Although government coffers may see some benefit from tariffs, they argue the effects of such taxes are likely to hurt the American economy overall.

"We have never been so close to recession's door simply based on the policies from Washington," MUFG's Rupkey said. "Trump's claim that there will be short-term pain in order to benefit and see some lasting long-term gains for the economy is being tested tonight."

Chinese Vice Premier Liu He is set to lead a Chinese team holding trade talks this week in Washington with Trump's negotiators. Trump had said in a Twitter post earlier on Wednesday that Liu was "now coming to the U.S. to make a deal."

A source familiar with the Chinese side of the negotiations told CNBC's Eunice Yoon that the vice premier is likely going to try to present an explanation to Trump's team about Beijing's position on the talks — an attempt to clear up any misunderstandings that may have arisen.