U.S. business leaders operating in China say President Trump’s “Phase One” trade deal can still work, despite the massive disruptions and economic anxiety sparked by the COVID-19 flu virus epidemic.
Set to go into effect Friday, the U.S.-China trade deal was supposed to kick off a reset of relations between the globe’s two largest economies, easing years of recriminations and rising tariffs and clearing the way for hundreds of billions of dollars of Chinese purchases of U.S. farm and manufacturing goods as Mr. Trump gears up for a difficult reelection campaign.
All that has been put in question by the virus outbreak, with Chinese officials struggling to keep growth rates up, companies postponing deals, and key indicators such as auto sales falling sharply in recent days.
But U.S.-China Business Council (USCBC) President Craig Allen said Thursday he sees the trade deal as a major stabilizer for bilateral business relations — so long as Beijing follows through on its commitments.
“The implementation of Phase One needs to be thorough and complete and systematic and rigorous,” Mr. Allen said. “We fully expect that to be the case, and the (virus) doesn’t change any of that.”
Under the trade accord, Chinese firms are supposed to increase imports of U.S. goods and services by at least $200 billion over the next two years and the U.S. will roll back some tariffs on Chinese exports. U.S. farmers and manufacturers in particular are hoping to recoup markets and customers lost in the war of tit-for-tat tariffs.
With the flu virus yet to peak, Chinese officials are battling increasing market fears that the domestic economy will be hurt and Beijing will not be able to meet the ambitious import purchasing targets in the U.S. trade deal. Some private analysts have raised the possibility of postponing China’s commitments under the agreement in light of the coronavirus crisis.
China’s GDP growth rate is expected to stay above 5% in the first quarter of 2020 despite the hit to areas such as tourism, transportation and education, Wei Jianguo, a former Chinese vice minister of commerce and executive deputy director of the China Center for International Economic Exchanges, wrote recently in the state-backed Global Times newspaper, predicting a “robust recovery” in the third and fourth quarters.
For USCBC companies with extensive Chinese operations, the primary concern right now is ensuring the health and safety of their employees, Senior Vice President Jake Parker said. Many are allowing employees to work from home when possible.
With the virus making an appearance around the Chinese New Year holiday, U.S. companies were already expecting a decline in productivity for a few weeks, Mr. Parker said, lessening the blow of the coronavirus initially.
The main impact of the COVID-19 has been on supply chains, although Mr. Parker said there will likely be a three-month lag before any negative flu effect shows up in the data.
The problem, for business executives as well as health officials, is the uncertainty over how long the crisis will last.
When it comes time to source for the “back to school” and year-end holiday buying seasons, American retailers may run into a problem if Chinese suppliers remain in shutdown mode..
“If the virus continues into those times, that will create much more real disruption that will be experienced both in the United States and around the world,” Mr. Parker said.
Despite the crisis, U.S. companies say they are bullish on the Trump trade deal, according to a USCBC survey of about 100 firms released Thursday.
Some 78% view the Phase One agreement as “positive for the commercial environment and bilateral relations,” the report said, compared to just 12% with a negative view. But more that half of the respondents said the trade accord was not a long-term solution for U.S.-China tensions, particularly because so many tariffs remain in place.