Virus Raises Worry China Won’t Meet U.S. Trade-Deal Pledges
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China’s promises in its phase-one trade deal to increase purchases from the U.S. -- which experts already were calling unrealistic -- will be even tougher to fulfill now that a new virus is hammering demand and interfering with supply chains.
In the first year of the deal, which takes effect in mid-February, China committed to buy an extra $76.7 billion worth of American goods beyond what it purchased in 2017, and an additional $123.3 billion in the second year. The agreement signed just over two weeks ago marked an easing in tensions that flared as the world’s two largest economies waged a trade war.
Bloomberg Economics: Virus May Drag China GDP to 4.5%, Ripple More Widely
As the novel coronavirus spreads, attention is focusing on a part of the agreement which states the U.S. and China will consult “in the event that a natural disaster or other unforeseeable event” delays either nation from complying with the agreement.
“It obviously is going to have some ramifications economy-wide, which we hope will not inhibit the purchase goal that we have for this year,” U.S. Agriculture Secretary Sonny Perdue said Wednesday. “We’ll have to look ahead and see.
But the honest answer is we just don’t know yet. But we’re hoping for a very quick conclusion.”
The deadly virus may push jobs back to the U.S., Commerce Secretary Wilbur Ross said.
“Well, first of all, every American’s heart has to go out to the victims of the coronavirus,” Ross said during an interview on Fox Business Network Thursday. “I don’t want to talk about a victory lap over a very unfortunate, very malignant disease. But the fact is, it does give businesses yet another thing to consider when they go through their review of their supply chain, on top of all the other things.”
“I think it will help to accelerate the return of jobs to North America. Some to U.S. Probably some to Mexico as well.”
The health crisis has hit financial and commodity markets in recent days.
China’s yuan sank through 7 per dollar Thursday, breaching that threshold for the first time this year. The spread between U.S. 10-year Treasury yields and three-month OIS rates turned negative, inverting the yield curve for the first time since October. Futures prices for soybeans -- a key component of China’s import commitments in the deal -- fell for an eighth straight day, the longest skid in almost two months.
Meanwhile, economists are ratcheting up their estimates of the blow to economic growth. Nomura International Ltd. says the drag could exceed that seen during the SARS outbreak of 2003.
|What Our Economists Say|
The widening outbreak will clearly be disruptive to Chinese economic activity via falling sentiment and lost production days. The viability of China actually being able to satisfy the import quotas which were part of the phase-one trade agreement were already largely untenable, weaker economic growth will make this even more so. Unless this becomes far worse, I don’t think Trump is going to give the Chinese a pass on this. He needs to run on strong economic growth.
So far, the world’s two biggest economies seem more focused on measures to prevent the spread of the disease.
“The U.S. and China are in close coordination on the coronavirus and protecting the public health of both countries,” White House spokesman Judd Deere said. “The president appreciates President Xi’s cooperation.”
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