COVID-19 is Impacting the US-China Phase One Trade Deal

The COVID-19 pandemic has created an additional rift between the worlds to the largest economies. President Trump is frustrated with China and blames them for allowing the virus to spread outside of China and throughout the globe. In several speeches, President Trump has called the virus the Wuhan virus named for the city of its origination. Despite the impact the virus has had on global economic growth, China has continued to work toward implementing the phase-one trade deal it made with Washington which was announced in January 2020. Currency trading has been very volatile allowing the dollar to sink versus most major currencies, despite rising US yields.

Economic Growth has Tumbled

US economic growth contracted by nearly 5% during the Q1 of 2020. That is the first decline since 2014, and the worst quarterly contraction since 2008. Slowing growth has captured the attention of the White House, and has become the key focus for President Trump. While US jobs data did come in better than expected, the unemployment rate is still more than 13%. One of the issues that remain is how the US Labor Department will treat individuals who count themselves as temporarily unemployed. These are people that have been furloughed and believe they will return to work with their current employer. The Labor Department reported this anomaly. If people who reported that they have temporarily lost their job were counted into the US unemployment rate the unemployment rate would balloon to 20% from the reported 13%.

How Will China Comply with a Trade One Trade Deal

China continues to repeat that it will continue working toward implementing the phase one trade deal, even as experts have said that Beijing will not meet the requirements to significantly increase its purchase of U.S. goods and services. Unfortunately, the spread of the coronavirus pandemic will cause China’s purchases of U.S. goods this year to fall short of what was agreed to in phase one trade deal. Recall, China agreed to buy an additional $200 billion in U.S. goods and services by 2021 on top of 2017 levels. That means that imports of U.S. goods and services into China should climb to around $290 billion in 2020 and $330 billion in 2021

The Center for Strategic and International Studies projected that exports of U.S. goods to China could come in at only $60 billion for all of 2020,  much lower than the $186.6 billion needed to meet requirements in the agreement that both countries signed in January. China and the US can benefit from this as the Trump administration is focused on the economy right now and will not want to break the phase one deal, which would risk a renewed U.S.-China trade war hitting the global economy.

The forecasts for Chinese purchases

That forecast is likely a worst-case scenario because Chinese purchases of U.S. goods could rise later in the year as the economy recovers, but any increases still not change the overall picture. If the Chinese economy continues to pick up there will likely be continued purchases which should help push China closer to their Phase one goals. During the Q1 of 2020, U.S. goods exports to China fell by 10% year over year. Energy exports were hit the hardest falling by 33.3% during the Q1. Sales of commercial aircraft were tumbled and automobiles were down by 46.9%. Soybean exports were lower by 39.4%. While there is a huge demand for meat in China, the coronavirus caused many American meat-processing plants to halt production, creating a falloff in US exports of pork. The bottom line is that China is having a difficult time reaching the agreed levels, but part of the issue is that the US cannot export what China agreed to purchase.

All opinions expressed on USDR are those of the author and not necessarily those of US Daily Review.