US/CHINA: No sign yet that COVID-19 will disrupt US-China phase-one trade deal

US officials have said that the COVID-19 outbreak has not yet shown an impact on the US-China phase-one trade deal. With China's economy progressing steadily towards full capacity, China is likely to be willing and able to meet its purchase commitments. The phase-one deal requires China to increase purchases of US goods and services by USD 200bn in 2020-21 against the 2017 baseline. The commitments are ambitious, but they are also backloaded: the total commitment for 2020 is a USD 76.7bn increase, compared to a USD 123.3bn increase in 2021. US Treasury Secretary Steven Mnuchin said on 23 February that Washington still expected Beijing to meet its purchase commitments under the phase-one deal despite the epidemic, though he also acknowledged that this expectation could change if the situation worsens. Separately, the US Department of Agriculture and the White House Office of the US Trade Representative on 25 February jointly announced that China has recently adopted a series of regulatory changes pursuant to commitments in phase one to lift import restrictions on US agricultural goods. Though regulatory changes are distinct from actual purchases, the joint statement indicates that US officials are not expecting delays and are satisfied with Beijing's progress. On agriculture specifically, the outbreak could actually increase China's genuine demand for imports. Transport restrictions and logistics bottlenecks have disrupted China's livestock industry, with some farmers unable to obtain animal feed. This blow to Chinese agriculture comes on top of the African swine fever outbreak last year, which caused pork and other meat prices to skyrocket. Pork prices rose by a record 116 percent in January. Much depends on how the epidemic develops, both in China and globally. Though the situation in China appears to be improving, there is still a possibility that new infections will re-accelerate as factories, offices, and public spaces re-open. That could, in turn, compromise China's ability to meet its commitments. If the US suffers widespread infections, the US economy could also find itself unable to supply the required exports to China. If the US stock market continues to decline in response to the epidemic, US President Donald Trump may avoid measures against China that would spark further market losses. Despite these uncertainties, the basic political calculus that will guide the White House stance towards China in various epidemic scenarios is probably relatively simple. Trump's main focus has long been the bilateral trade deficit with China. Therefore, if COVID-19 causes a severe drop in Chinese exports to the US, then he may be more willing to grant flexibility to China in meeting its import commitments. If, however, Chinese exports continue apace, then Trump will have less reason to be flexible.

February 28, 2020

US/CHINA: No sign yet that COVID-19 will disrupt US-China phase-one trade deal

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SOUTHEAST ASIA: An important month ahead for the continental countries

Key Developments & Chart of the week

EUROPE: Managing the pandemic – what we are watching

EUROPE: CEE PULSE

GERMANY: The greening of federal politics continues

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February 28, 2020

US/CHINA: No sign yet that COVID-19 will disrupt US-China phase-one trade deal

Report Contents

Registration

SOUTHEAST ASIA: An important month ahead for the continental countries

Key Developments & Chart of the week

EUROPE: Managing the pandemic – what we are watching

EUROPE: CEE PULSE

GERMANY: The greening of federal politics continues

COLOMBIA: Tax reform detonates major political crisis

SOUTH AFRICA: Labor battles about to get serious

CHINA: Politburo sees window of opportunity for painful reforms

GREECE: Seeking a return to normality