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'Lemon' or not, Trump stuck with Phase 1 China trade deal for now

Published 06/01/2020, 06:03 AM
Updated 06/01/2020, 02:10 PM
© Reuters. FILE PHOTO: U.S. President Donald Trump shakes hands with Chinese Vice Premier Liu He during U.S.-China trade signing ceremony at the White House in Washington

© Reuters. FILE PHOTO: U.S. President Donald Trump shakes hands with Chinese Vice Premier Liu He during U.S.-China trade signing ceremony at the White House in Washington

By David Lawder

WASHINGTON (Reuters) - U.S. President Donald Trump has little choice but to stick with his Phase 1 China trade deal for now despite his anger at Beijing over the coronavirus pandemic, new Hong Kong security rules, and dwindling hopes China can meet U.S. goods purchase targets, people familiar with his administration's deliberations say.

The U.S.-China trade negotiations took more than two years, heaped tariffs on $370 billion of Chinese products, whipsawed financial markets and dimmed global growth prospects well before the coronavirus outbreak crushed them.

In recent weeks, suggestions that Trump may cancel the deal have emanated from the White House almost daily, and businesses, investors, and China trade watchers are hanging onto every word and tweet.

But on Friday, when Trump said the United States would start dismantling trade and travel privileges for Hong Kong, he did not mention the deal. Stock markets heaved a sigh of relief, with the S&P 500 reversing losses.

Talking tough on China and criticizing the Obama administration's more measured approach is a key part of Trump's re-election strategy. Sticking with the pact may mean accepting that China is likely to fall short of purchase commitments for U.S. agricultural goods, manufactured products, energy and services - goals that many said were unrealistic https://www.reuters.com/article/us-usa-trade-china/china-to-ramp-up-u-s-buys-under-trade-deal-but-skeptics-question-targets-idUSKBN1ZD0FN even before the pandemic.

In response to Trump's Hong Kong announcement, China told state-owned firms to suspend large-scale farm purchases including soybeans and pork, people familiar with the matter told Reuters.

Such a halt will put China further behind in making good on its pledges to boost U.S. purchases by $200 billion over two years.

But canceling the deal would reignite the nearly two-year U.S.-China trade war at a time U.S. unemployment is at its worst since the 1930s Great Depression.

The next U.S. step would likely be reviving previously planned but canceled tariffs on some $165 billion worth of Chinese consumer goods, including Apple Inc (NASDAQ:AAPL) cellphones and computers, toys and clothing - all ultimately paid by U.S. companies and passed on to consumers. Beijing would retaliate with tariffs on U.S. goods, fueling more market turmoil and delaying recovery.

"He's stuck with a lemon. He gets an empty agreement if he sticks with it, and he gets more actions that create an economic drag and more volatility if he abandons it," said one person briefed on the administration's trade deliberations.

U.S. goods exports https://www.census.gov/foreign-trade/balance/c5700.html to China in the first quarter were down $4 billion from the trade war-damaged levels a year earlier, according to U.S. Census Bureau data.

The Peterson Institute of International Economics estimates https://www.piie.com/research/piie-charts/us-china-phase-one-tracker-chinas-purchases-us-goods that during the first quarter, China made only about 40% of the purchases it needed to stay on target for a first-year increase of $77 billion over 2017 levels, implying an extremely steep climb in the second half.

Leaving the deal now would not buy a lasting political bounce for Trump in manufacturing-heavy swing states with five months to go before the presidential election, analysts say.

COMPLEX RELATIONSHIP

Trump said on Friday that China was "absolutely smothering Hong Kong’s freedom," but refrained from harsh sanctions that could put the trade deal in jeopardy, taking milder steps to revoke the territory's separate travel and customs benefits from China.

Claire Reade, a former U.S. trade negotiator, said Trump's "peripheral steps" would not deter Beijing from proceeding with the security law, as it regards Hong Kong as a core national security issue.

"Probably the most significant thing from the trade perspective is that the Phase 1 trade deal is – for now anyway - unaffected," said Reade, senior counsel with Arnold and Porter law firm in Washington.

U.S. Trade Representative Robert Lighthizer has recently cited https://ustr.gov/about-us/policy-offices/press-office/press-releases/2020/may/usda-and-ustr-announce-continued-progress-implementation-us-china-phase-one-agreement "continuing progress" in the deal, after China welcomed U.S. blueberries, barley, beef and dairy products.

U.S.-China flashpoints on Hong Kong, Taiwan and other issues did not derail negotiations that resulted in new concessions from China, said Jamieson Greer, who served as Lighthizer's chief of staff until April.

"Some of these security and human rights challenges have certainly complicated the atmosphere, but the trade agreement can still provide a set of rules governing important aspects of the trade relationship," said Greer, now an international trade partner at the King and Spalding law firm.

© Reuters. FILE PHOTO: U.S. President Trump makes announcement about China at the White House in Washington

Another person familiar with USTR thinking said the agency "needs to make Phase 1 look good. They want to show that progress is being made. The president looks at the China relationship much more broadly."

Latest comments

God I love how the fake news tries to paint Trump in a negative light all the time. So Trump is stuck with the deal he made and China wanted out of huh? LMAO
I love how Trump supporters 'paint the news' as being 'fake' just because they don't like it. Fake means something is completely untrue and made-up. Just because a particular story might highlight negative things rather than positive things, that doesn't make it 'fake'. Likewise, even when a particular writer chooses to slant their opinion piece one way or another, that just makes it opinionated, not 'fake'.
Yeah, I voted for him but he's a *****who's soft on China because he's obsessed with the stock market.
Trump the paper tiger
yeah because China would be behaving if we did nothing.... lol
I told you guys... Trump controls 320M consumer army, Xi controls 1.4B consumers army, when these two meets on the economic battlefield, who do you think will win?
If the 320M army has more piurchasing power then the comparison doesn't stand.... I live in China for 10 years now and the fairy tale of a gigantic market with a large middle class makes me always laugh.
Trump is just too weak and his priority is just to ensure the stock markets go up everyday only. China knows his weakeness and is winning the trade war handsomely.
do you copy and paste the same comment on every thread? working for the good old CCP?
The article is about the same... after reading this i having the same conclusion.. but this time i like to say the president name out...
that means that china did a good job
Trump starts to feel painful by hitting on China.
The China Empire strikes back!
you know the empire was a bunch of Nazis right
The Wumao army is back to work... If you're young enough, maybe you don't remember or don't know that in the 80s the same stories were told about Japan overthorwing US... Didn't happen. So, China should learn from this and stop bullying their neighbours and the whole world.
I am not sure that whole world hates them, but US deffinitely does
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