The Trade Deal May Be Dead, Trump Says China Relationship ‘Severely Damaged’

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President Donald Trump told reporters on Friday that he isn’t even considering a phase two trade deal with China, saying that the relationship between the two countries has been “severely damaged” by the coronavirus pandemic. 

KEY FACTS

With Sino-American relations continuing to deteriorate in recent months, Trump indicated that a phase two trade agreement between the two countries is now looking very unlikely.

“I don’t think about it now,” Trump responded when asked if a phase two deal with China was still on the table. “The relationship with China has been severely damaged.”

Trump’s comments come as the countries continue to clash on a wide range of issues: The president has blamed the Chinese government for failing to contain the coronavirus outbreak, while U.S. lawmakers have also increasingly pushed back on China increasing its grip over Hong Kong.

The stock market held onto its gains Friday despite the bad news, signalling that investors may have already been skeptical about the prospects for a phase two deal. 

Indeed, Wall Street analysts have for quite some time expressed substantial doubts over the execution of the phase one trade deal, and further progress on trade negotiations.

Under the phase one deal signed in January, 2020, China pledged to buy $200 billion of U.S. goods including soybeans and pork, but many experts quickly pointed out that these targets were unrealistic; that skepticism is rising amid increasing tensions, and economic fallout from the coronavirus pandemic.

Crucial quote

“They could have stopped the plague, they could have stopped it, they didn’t stop it,” Trump said on Friday about China’s handling of the pandemic. 

What to watch for

It is highly unlikely that China will even meet its purchase obligations under the phase one agreement, Evan Rees, an Asia-Pacific analyst for Stratfor, a RANE company, told Forbes last month. “While still intact, the longevity of the phase one trade deal is increasingly in question for a host of reasons, with numerous triggers that could derail the agreement, including Hong Kong, Huawei, Taiwan, the South China Sea and several human rights issues,” he said.

Key background

The U.S.-China trade war began in 2018, with trade talks later falling apart in May of 2019. That initially resulted in more tariffs, but negotiators revived talks in the fall. Following months of prolonged negotiations which took a toll on market sentiment, the long-awaited phase one deal was signed in January, 2020. The centerpiece of the agreement was China’s pledge to buy $200 billion of U.S. goods like soybeans and pork, but experts initially questioned whether those targets were realistic—and now, amid rising tensions and the economic fallout from coronavirus, they appear even less likely to be met. Trump, for his part, said last month that the phase one trade deal remains “fully intact,” following earlier comments from trade advisor Peter Navarro which seemed to suggest that the deal was “over.” 

Further reading

China Warns U.S. ‘Meddling’ In Hong Kong Could Derail Phase One Trade Deal v

Trump Announces New Sanctions On Chinese Officials, But Won’t Scrap Phase One Trade Deal (Forbes)

Stocks Turn Positive After Trump Keeps Phase One China Trade Deal Intact (Forbes)

China Pledges To Uphold Phase One Trade Deal That Includes $200 Billion Purchase Of U.S. Goods (Forbes)

Stocks Hit Record Highs As U.S. Signs Phase One Trade Deal With China (Forbes)

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