Tariffs loom as US-China talks begin

Without a deal, the tariff hike -- which President Donald Trump previewed earlier in the day -- will take effect at midnight. The President signaled no qualms at the move, which has worried businesses and investors. Instead, he said he was willing to go even further, threatening to slap tariffs on nearly all Chinese imports.

Hours before US and Chinese officials sat down at the offices of the US trade representative, Trump revealed from the White House that he had just received an upbeat letter from his Chinese counterpart, Xi Jinping, and suggested a deal was still attainable.

But he reiterated his belief that tariffs would benefit the United States, and appeared unfazed by market losses prompted by the renewed trade war.

"It's possible to do it," Trump said when asked about the prospect of an agreement that would prevent a tariff hike on Chinese goods. "I have no idea what's going to happen."

Even a week ago, top administration officials appeared bullish on the chances a deal would soon be struck with China. But backtracking by the Chinese and an emboldened Trump have dampened the optimism, and on Wednesday and Thursday the President had already seemed to write off the chances of a breakthrough.

"By the way, you see the tariffs we're doing?" the President asked during a Florida campaign rally. "Because they broke the deal."

A day later, Trump claimed the Chinese were backtracking on their commitments.

"They took many, many parts of that deal and they renegotiated," he said. "You can't do that."

Still, just the presence of the top Chinese negotiator in Washington was a sign to officials that progress could be made. And Trump remains hopeful an agreement can be struck that would lift markets and, in his view, help him politically.

The talks began Thursday evening at 5 p.m. ET, followed by a dinner near the White House between Chinese Vice Premier Liu He and US officials, including Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin.

The negotiators emerged without announcing a new agreement, however. And there was no indication that Trump was moving to block the tariff increase.

Talks will continue into Friday, but by then the deadline for the tariff increase will have passed. Trump says he plans to raise tariffs to 25% on $200 billion of Chinese products at midnight Thursday, a move that has roiled global markets and thrown the talks into flux.

Ahead of the meetings, people close to the situation said that if the talks went well, the tariffs might not go into effect. But merely the chance the tariffs could increase pushed equity markets lower on Thursday.

The Dow closed down 0.5%, or 140 points. The S&P 500 and the Nasdaq ended 0.3% and 0.4% down, respectively, both closing lower for their fourth straight day.

Progress toward a deal was derailed last week following a round of talks in Beijing. While US officials departed the Chinese capital confident, they were later surprised by new Chinese demands the US characterized as backtracking on agreed-to commitments.

That included promises by China to codify into law changes to certain economic practices -- an aspect of the deal US officials had believed was settled, but which Chinese officials objected to.

Trump, who has called China's Xi a close friend, said Thursday he'd received a letter from his counterpart advocating for continued talks.

"Let's work together, let's see if we can get something done," Trump said of Xi's message.

Right now, there are no set plans for Trump to meet with Liu when he's in Washington this week, according to US officials. Trump has met with Liu during his past visits to Washington as the two sides appeared to be getting closer to an agreement. But with both sides hardening in their negotiating stance, the White House decided this week that talks should not include Trump this time.

Still, that could change if this week's discussions prove fruitful. If Trump does meet with Liu, it would be a sign that talks are making progress, officials said. The decision would likely be made at the last minute.

After Trump threatened new tariffs on China in a tweet last weekend, Liu's planned visit was thrown into question. Trump's Sunday tweet was meant to rattle Beijing, and it came without extensive discussions among his economic team, officials said. A person familiar with Trump's thinking added that the President also believed his team would be better positioned to extract concessions from China with the threat of additional tariffs.

US officials viewed it as a good sign the Chinese negotiator actually made the trip, albeit with a reduced delegation.

For now, however, planning has been halted on a summit meeting between Trump and Xi. White House officials had begun preliminary work toward arranging the meeting when it appeared talks were on their way to a resolution. And lawmakers have received word from administration officials that a tariff hike is likely this week, even as talks move forward.