The White House's top economic adviser has accused Beijing of doing "nothing" to defuse trade tensions ahead of a likely meeting between Donald Trump and Xi Jinping at the G20 in Argentina next month, damping expectations of a truce in the economic warfare between the US and China.
In an interview with the Financial Times, Larry Kudlow, director of the National Economic Council, said China had offered no sign that it was willing to meet US demands in a way that could lead to a breakthrough between the countries.
This year, the US has slapped tariffs on $250bn of Chinese goods — or nearly half of its imports — while the Chinese have retaliated with tariffs on $110bn of US goods in an escalating conflict that has clouded the global economic outlook. Mr Trump has demanded sweeping changes to Chinese economic policy, including a reduction in their bilateral trade deficit, and a clampdown on practices such as industrial subsidies, and forced technology transfer. But so far these have been met with resistance by Chinese officials, who judge them as unrealistic and contrary to their interests.
"We gave them a detailed list of asks, regarding technology for example, [which] basically hasn't changed for five or six months. The problem with the story is that they don't respond. Nothing. Nada," Mr Kudlow said.
"It's really the president and the Chinese Communist party, they have to make a decision, and so far they have not, or they have made a decision not to do anything, nothing. I've never seen anything like it," Mr Kudlow said.
For their part, Chinese officials have complained of a lack of flexibility on the US side, as well as unpredictability and lack of a single voice within the Trump administration.
If there is no progress in the coming weeks, the US is expected to press ahead with plans to ramp up the tariff rate on $200bn of Chinese imports from 10 per cent to 25 per cent in early 2019, raising the stakes further for both sides. Mr Trump has even threatened to impose levies on a further $267bn of Chinese goods, which would mean all imports from China would be covered by US tariffs.
Mr Kudlow's comments will add to the pressures building on Beijing. On Friday Chinese Vice Premier Liu He, as well as the heads of China's central bank, banking regulator and securities watchdog, made an extraordinary bid to calm China's slumping stock markets after the government reported its lowest quarterly year-on-year economic growth rate in a decade.
Concerns have also been mounting that China could engineer a drop in the renminbi to offset the impact of the tariffs.
But Mr Kudlow said he believed the weakness of the Chinese currency recently was because of market forces rather than any deliberate policy.
"I sense capital outflows from China, I know it's a controlled market, but I think they are losing money, people are coming here, [the US] is the hottest economy in the world"," Mr Kudlow said.
"My sense is we've got to watch it, it's very important, it's part of the trade talks. But [renminbi] weakness is more market-based," he said.
Mr Liu, President Xi Jinping's top economic adviser and lead trade negotiator, said China and the US negotiators were "in contact" and described the trade war's impact as more "psychological" than real.
With midterm elections looming on November 6, and Democrats with a good chance of winning the House of Representatives from the Republicans, Mr Kudlow said he worried that Mr Trump's economic agenda — based on tax cuts, deregulation, and fossil fuel production — could be stunted. He also blamed recent stock market jitters on fears of a possible change of power in Congress.
"The thing that worries me the most is a blue wave in two weeks," he said.
"I don't believe that's going to happen but if it were to happen then the risk is they will overturn our policies and we will stop the boom . . . market knows that and is very worried about that". "If they screw up the boom, we go back to 1-2 per cent growth," Mr Kudlow added.
Most strategists see the recent sell-off as driven by expectations of tighter Fed monetary policy, which pushed longer-term bond yields higher. Speculation about a "blue wave" has been running for many months, and well before the recent stock market declines.
Mr Kudlow was adamant that the US economy was running on all cylinders, with the most encouraging aspect being the growth of wages and employment among blue-collar and lower-salary services workers — as well as the boost in small business growth. "The confidence level continues to rise. More people are starting up businesses now — they think it's easier, there's less red tape and lower taxes. They see a president who is ending the war on business."
Mr Kudlow, 71, a former Federal Reserve and Wall Street economist who became a TV presenter on CNBC, said rising bond yields were a sign of "growth", not a reflection of inflation or debt concerns. "Inflation expectations are pretty well anchored", he said.
But he defended Mr Trump's recent public attacks on the Fed, in which the US president lashed out at Jay Powell, the Fed chairman, for tightening monetary policy.
"[Trump] is worried that the rise in rates will damage economic growth, I think it's a legitimate concern frankly," Mr Kudlow said. "On the other hand, he's not going to the Fed, he's not calling Jay Powell, he's not trying to force them off their policies, he's just giving his opinion, he's been very clear, in fact he's said he respects the Fed's independence."
Additional reporting by Tom Mitchell in Beijing