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Coronavirus could put phase one on ice

Lachlan Maddock
— 1 minute read

With China’s economy already on edge, the spread of the coronavirus could see the country go back on its commitment to purchase billions in American goods.

Under the phase one trade deal, signed into effect on 15 January, China was obligated to buy $200 billion of American agricultural goods over the next two years. But the deal contained no concrete details on how China would go about purchasing the goods, and doubts remained that they actually would. 

Now, with the epidemic likely to kneecap Chinese GDP growth by between 1 and 2 per cent, markets closed until 3 February (at least) and a quarantine that’s effectively ended the biggest holiday of the year, it’s even less certain that China will abide by the terms of the agreement.

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“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,” US agriculture secretary Sonny Perdue told reporters on Thursday.

However, the coronavirus could also force China to abide by the purchase agreements in the future. The country’s capacity to withstand further tariffs would be substantially weakened by a protracted emergency, and that could mean renegotiation. Article 7.6 of the final deal does give both parties some wriggle room. 

“In the event that a natural disaster or other unforeseeable event outside the control of the parties delays a party from timely complying with its obligations under this agreement, the parties shall consult with each other,” he said.

Meanwhile, Department of Commerce secretary Wilbur Ross has been able to find a bit of good news in the bad. 

“I don’t want to talk about a victory lap over a very unfortunate, very malignant disease,” Mr Ross said. 

“The fact is, it does give business yet another thing to consider when they go through their review of their supply chain…It’s another risk factor that people need to take into account. So I think it will [help accelerate] the return of jobs to North America. Some to the US, probably some to Mexico as well.”

Every cloud has a silver lining, it seems.

 

Coronavirus could put phase one on ice
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