(Bloomberg) -- Imposing tariffs on Mexican goods next week may end hopes for a trade deal with China, according to BNP Paribas.
Implementing the duties on Mexico would be “very bad,” Xingdong Chen, the bank's Beijing-based chief China economist, said in a Wednesday interview. The U.S. moving against Mexico would likely erode trust, signaling to China's leaders that there's “no point” in forging an agreement, he said.
U.S. stocks climbed in mid-day trading on Wednesday, helped by optimism that Mexican tariffs will be avoided.
Read more: President Trump says Mexico wants to make a deal with the U.S., but “if they don't, tariffs will go on.”
Chen said he believes Presidents Trump and Xi will probably meet at the G-20 later this month in Osaka, Japan, regardless of how the situation with Mexican tariffs plays out. Xi has an interest in meeting the U.S. president and will see him if Trump agrees, he said.
Earlier, in materials for a press briefing, BNP Paribas had said that “U.S.-China trade talks seem to have broken down.” Reasons include the possibility China is overconfident in its negotiating leverage, with “misplaced conviction” that Trump is eager to reach a deal before his 2020 reelection campaign.
At the same time, the U.S. may be overestimating China's economic vulnerability, and underestimating China's willingness to endure higher tariffs. Chen noted that China hadn't initially anticipated a trade war, and had agreed with U.S. demands, including more openness, because those goals were in line with its own commitment to long-term change.
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There are generational differences in China too, as those born in the 1950's and 1960's appreciate the U.S. as “a teacher,” while people born in the 1970s want to focus on economic and tech development, and those from the 1980's and 1990's are “becoming more hostile,” Chen said.
History is also top-of-mind, he added. The recent 100th anniversary of the May Fourth Movement -- a popular revolt against the country's leaders, which led to the Communist Party's founding -- and the 30th anniversary of Tiananmen Square protests continue to inform policy today, Chen said.
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--With assistance from Sydney Maki.
To contact the reporter on this story: Felice Maranz in New York at fmaranz@bloomberg.net
To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Scott Schnipper
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