Trade war rattles economy, Trump hardens tone on China

"While I am sure they would love to be dealing with a new administration... 16 months PLUS is a long time to be hemorrhaging jobs and companies," Trump said, claiming China's deteriorating economy could ill afford to wait. (Reuters File Photo)

Amid fresh signs his trade wars are rattling the US economy, President Donald Trump on Tuesday sent stern warnings to China, urging the Pacific power not to drag its feet in trade negotiations.

After a month of escalations in the year-long battle with Beijing, Trump fired off another Twitter blitz, saying Chinese negotiators may be holding out for a better deal in hopes he will be voted out in next year's presidential elections.

The latest invective from the White House ended the more conciliatory tone struck last week by both sides, which had helped soothe markets.

"While I am sure they would love to be dealing with a new administration... 16 months PLUS is a long time to be hemorrhaging jobs and companies," Trump said, claiming China's deteriorating economy could ill afford to wait.

"And then, think what happens to China when I win. Deal would get MUCH TOUGHER!"

While Trump pointed to China's weakening economy, a survey showed Tuesday that the US manufacturing sector -- which Trump has long championed -- had contracted last month for the first time in three years.

While this does not necessarily mean a US recession is now on the horizon, economists said Tuesday it is a worrying sign.

"The canary in the mine may be falling off its perch," economist Joel Naroff told clients in a note.

Wall Street sank into the red early Tuesday, the first trading session since Trump jacked up duty rates on more than $100 billion in Chinese imports over the weekend.

The benchmark Dow Jones Industrial Average fell 1.1 percent. Yields on 10-year US Treasury notes briefly touched three-year lows.

The grim results for the US manufacturing sector were only the latest sign of a softening US economy, which has seen slower hiring and a sharp drop off in investment by businesses.

Forecasts still call for growth of about two percent in the third quarter, however.

Chinese state media reported Tuesday, meanwhile, that Republican Senators Steve Daines and David Perdue had met in Beijing with Vice Premier Liu He, China's top negotiator in the trade talks.

Liu said China hoped for a negotiated resolution based on "equality and mutual respect," according to state news agency Xinhua.

US and Chinese negotiations are due to resume this month after a sharp deterioration in the year-long trade war in August. But Bloomberg reported Tuesday the effort may be faltering.

Officials are having difficulty scheduling a time to meet after Washington rebuffed Beijing's demands to hold off on imposing the weekend's latest round of tariff increases, the news agency said.

Thomas Donohue, head of the US Chamber of Commerce, long a powerful Washington voice, told CNBC on Tuesday that lifting the latest tariffs would have instead allowed for a resumption of the talks.

But a White House strategy that involves creating such high levels of uncertainty could take the United States in a direction he said was unacceptable.

"Uncertainty leads to eventually no good," he said.

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