In private discussions hours before China announced new retaliatory tariffs, the Trump administration warned Chinese officials against such a move, according to a source familiar with the discussions. The Chinese were also told — once again — that Chinese President Xi Jinping should request a call with US President Donald Trump. CNN’s Jeff Zeleny and Kylie Atwood report. #CNN #News
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00:00There's new reporting just coming into the Situation Room right now.
00:03We've learned that the Trump administration had private negotiations with China,
00:08warning officials there against retaliatory tariffs.
00:11But those behind-the-scenes talks evidently did not work.
00:15CNN's chief national affairs correspondent, Jeff Zeleny,
00:17is over at the White House watching all of this for us.
00:20Jeff, what's the reaction over there after those warnings apparently fell on deaf ears?
00:25Well, if they did fall on deaf ears, but it's just the latest example
00:28in the really day-by-day, the deepening trade war that is underway
00:33between the United States and China.
00:35Yes, we are learning that U.S. officials privately behind the scenes
00:38urged China to not retaliate.
00:41In fact, the Treasury Secretary Scott Besson has been saying that publicly all along,
00:45warning countries to not retaliate.
00:46Well, those warnings have fallen on deaf ears, particularly with China,
00:50as they raised their tariffs to 125%.
00:53The question now is which side is going to blink, if either.
00:58And Matt was just talking about consumer confidence.
01:00The prices are going to go up.
01:02There's no question about it.
01:03That's what the White House is bracing for.
01:05That's what the administration is bracing for.
01:07It's one of the big reasons the president had a dramatic pullback
01:10on a sweeping tariff plan just a couple days ago.
01:13And the market, of course, reacted very well in the moment.
01:16But in a couple days since, it certainly has not.
01:19The bond market also has not to strengthening.
01:21So this is going to be one of the central questions here.
01:24But, Wolf, we are also learning just inside the White House,
01:26the president, as he embarks on this three-month pause on a sweeping tariff plan,
01:32there's competing views from his team of economic rivals, if you will.
01:36Scott Besson, the Treasury Secretary, a long history on Wall Street,
01:40he is one of the people the president is listening to the most on this, of course.
01:44Kevin Hassett is as well.
01:45But Peter Navarro, the man right in the middle of the screen there,
01:48he is someone who has been very pro-supportive of these tariffs,
01:53and the president did not heed his advice this week.
01:56So as the president goes forward on this, as the consumer sentiment prices rise,
02:02which advisor is going to sort of win out on this?
02:06So there's no doubt the president at the center of all these new trade negotiations
02:10now has to negotiate with some 90 countries or so.
02:13So, Wolf, all of this is coming front and center here, is the economy.
02:18That inflation report, the rising inflation, is one of the biggest challenges,
02:21one of the biggest worries for this administration.
02:24I do want to bring in CNN's Kylie Atwood.
02:26She has some new reporting on how President Trump in the U.S.,
02:31the Chinese president, Xi Jinping, have interacted.
02:36And I guess the best way to say it, have not interacted, Kylie, since this trade war began.
02:41And you have some great new reporting on why that is.
02:45Dana, just hours before these new retaliatory tariffs came out from China this morning,
02:51the Trump administration had privately warned Chinese officials of two things.
02:56First of all, not to retaliate, which we heard from Trump time and time again over the last few weeks,
03:00but also that China should be requesting a phone call between President Trump and President Xi.
03:06China has not done that so far.
03:09They've been telling China to do this for months now, according to a source familiar with that working level dialogue between the two sides.
03:16We know that Xi and Trump spoke before inauguration.
03:19They haven't had a conversation as this trade war has escalated.
03:23And senior White House officials tell Elena Treen that Trump is waiting for Xi to make the first move here.
03:29He thinks the onus is on the Chinese leader to do so.
03:31But when you talk to folks, there's a fundamental disagreement about how this could all come together.
03:38And that is one of the challenges as there is this remaining question, an urgent question, really,
03:43as to how they're going to create an off-ramp for this escalating trade war.
03:47Here is where the trade war stands right now.
03:49$145 going up against $125.
03:52These are the tariffs between the world's two biggest economies.
03:56And here's another number, $4,700, or about $400 per month.
04:02That is how much more money Yale's now estimating, the Yale Budget Lab,
04:07that President Trump's tariffs are going to cost average households each year.
04:11And with just hours left in trading, the Dow right now up.
04:15You're seeing that swing here going into the afternoon, up almost 650 points.
04:20But it was up and down there throughout earlier in the day.
04:23With us now, we have CNN business editor at large, Richard Quest.
04:26We have CNN chief national security analyst, Jim Sciutto, as well.
04:30Richard, a key economic gauge, the consumer sentiment now at its second lowest level on record,
04:36going back to 1952. Why?
04:39We shouldn't be surprised with all that's coming out and all the worries about tariffs.
04:44It's not just that. It's the complexity of everything else as well.
04:47The changes within the federal government, the worries about job losses,
04:51the worries about a slowing economy, higher inflation.
04:55And eventually you get these what's known as soft data.
04:58They're surveys like the Michigan survey consumer sentiment.
05:02And it's a really worrying number because at some point,
05:06these sentiment surveys feed into hard data of real consumer spending.
05:12And we know this from history and precedent.
05:14That's what happens.
05:15So when we see a number as bad as this one, it is only a matter of time.
05:21Unless anything else changes that would suddenly make people more cheerful.
05:25Look at that chart. I mean, just look at it.
05:27Unless people suddenly become more cheerful, why would this not translate into spending?
05:33You see, that consumer lab, the lab from Yale, that number of 4,700, that is providing you don't start substituting goods.
05:47In other words, pre-substitution.
05:49If we just continue as we are now.
05:52But of course, people will start to substitute.
05:55They will find other goods.
05:57And as the Christmas Tree Association said a moment or two ago, it's going to be very difficult to find substitution of many things that we currently get from China.
06:07Yeah, you'll be surprised just how much we get exclusively from China.
06:11And Jim, I'm really curious to get your perspective on the White House's handling of this situation.
06:16Not so much the tariffs that have been announced, but this reporting that the White House, that officials have made clear to Beijing that they want Xi to ask for a call with Trump.
06:28Trump hasn't reached out directly.
06:31What do you make of that approach?
06:32And the White House saying they want Xi to reach out for it.
06:34Can you get any more high school in matters of state?
06:38He's got to call me, Jim.
06:40Yeah, and listen, what's interesting is, as I was reporting yesterday, the Chinese impression is that they are willing to at least negotiate, not necessarily on Donald Trump's terms, but to talk.
06:50But their impression is that the U.S. has not opened channels and not made an effort to open up channels to allow that.
06:55So now you have the U.S. president say, well, you know, I'm not going to open those channels.
06:59China has to open them first.
07:01It's kind of ridiculous at the end of the day because you are playing with the interests of American consumers, Chinese consumers, et cetera.
07:09The other point I would make about China's reaction today in not quite meeting the U.S. tariffs, 145 percent, U.S., China goes to 125.
07:18And in Xi's statement, he says, we're going to 125 in response.
07:23That's as high as we're going because this is getting a little ridiculous, right?
07:26And that's both a signal to say we're not going to get caught up in this tit for tat to the degree that the president is.
07:34But it's also an opening to say, okay, we're capping this for now.
07:38And that perhaps offers a way forward that we could begin talking about how to bring these down.
07:45You've lived in China.
07:47You've covered China for some time now.
07:49As we're looking at this question of who's going to blink first, with two very different political systems, what is your gauge on this?
07:58Well, different systems, listen, one's a democracy, one is not.
08:01One's a single-party state, very much not a democracy.
08:04But China does have politics, and Chinese leaders do not want to be seen, we were talking about this yesterday, I believe, do not want to be seen as capitulating to America.
08:15That is not good politics for a Chinese leader.
08:20Long colonial history to go back until we could talk for hours, but they don't want to be seen as kowtowing to the West here.
08:26So the browbeating is not a great diplomatic strategy.
08:30And we've seen that in the past as well.
08:32Now, we should say Donald Trump mixes in with the tariff browbeating, some comments about how good a friend he is with Xi.
08:39But we'll see if the door has been closed for now or if there's a little bit of an opening and perhaps they start opening those channels.
08:47Richard, it's interesting to explore the power that the EU has now because they can tip the scales in terms of how impactful these tariffs will be for either nation, depending on where negotiations land.
09:01So you've got the Spanish prime minister in Beijing, you've got the EU basically saying, well, we're going to start looking at other markets.
09:09I think this will most certainly give a huge boost to China-EU relations to try and complete some form of trade agreement because everybody is now wanting to circumnavigate the United States.
09:26Now, you can't up to a point.
09:28There are certain things, there are certain inalienable bonds of trade between the EU and the US.
09:35That doesn't mean to say you can't reduce it, your reliance.
09:39And just as much as the US is now saying, we want to reduce our reliance on China, we want to make sure we are no longer strategically dependent.
09:50The EU absolutely is saying, is there a deal to be done with Brazil and Mercosur?
09:56Is there a deal to be done with ASEAN, a stronger one?
09:59Jim, can I ask you, can I just ask Jim, do you think, sorry guys, but do you think that the Xi statement is actually a sort of a, not a white flag, but just a sort of an olive branch that both sides can now take to move forward?
10:16I think it has two sides to it.
10:18One, it's a bit of a message to the US to say, this is silly.
10:21This is getting silly.
10:22We're not going to play this game of chicken.
10:25But Xi Jinping, also by not going right up to the level of US tariffs, I think one can look at that as a small opening for discussions.
10:35Both of them want to talk.
10:36Now the question is, I suppose, who picks up the phone first?
10:39That's where we are.
10:40You see, Boris, that's what happens when you get two anchors who are also your guests.
10:44We'll just hijack the whole thing.
10:47She did it, by the way, just so you know.
10:50I only answered.
10:51No objections here over who calls who first or who asks what question.
10:55We're all friends.
10:55It's a fun conversation and we appreciate it.
10:57Richard Quest, Jim Shuto, thank you both.