WASHINGTON / BEIJING (Reuters) – Top US and Chinese trade officials are expected to re-enter into a Phase 1 trade agreement during a review on Saturday, despite promising purchases from US exports of FS far according to schedule.
PHILO PHOTO: US and Chinese flags are seen before Secretary of Defense James Mattis welcomes Chinese National Defense Minister Gen. Wei Fenghe to the Pentagon in Arlington, Virginia, US, November 9, 2018. REUTERS / Yuri Gripas
Current and former U.S. government officials and trade experts in both countries say the Phase 1 deal, signed in January after nearly two years of time-to-tat tariffs and angry rhetoric, is the area where the two largest economies of the world still working together.
The Trump administration has sanctioned companies and individuals linked to a security outbreak in Hong Kong and human rights, banned a Chinese video app, penalized Chinese academics and closed the Beijing consulate in recent months.
Beijing has responded by closing the US consulate in Chengdu and sanctioning some members of Congress.
Despite the escalating conflict, the Phase 1 trade agreement will not be broken, US officials say.
“They have said they intend to carry out the plan and we are working on it,” White House economic adviser Larry Kudlow said Thursday. “We have big differences with China on other issues, but regarding the Phase 1 trade action, we are participating.”
Chinese trade advisers say the slowdown in both economies due to coronavirus-related lockdowns has made it difficult to meet purchasing targets, but they do not expect the White House to go away.
“Being able to sit down and communicate with each other is a good thing,” said a Chinese state think tank economist who advised Beijing on the trade contract, although he warned there was not much optimism about further trade breakthroughs.
“It’s difficult for things to get worse, while a best case scenario is difficult to achieve,” said the economist, who spoke on condition of anonymity. “How can flowers grow in such a bad environment?”
China falls far short of promising an additional $ 77 billion in purchases of U.S. farms and manufactured goods, energy and services, although it has revamped purchases of U.S. farm goods including soybeans and corn in recent weeks.
Imports of farm goods have been lower than 2017 levels, well behind the 50% increase needed to meet the $ 36.5 billion 2020 target.
Beijing has purchased only 5% of the energy products needed to meet the $ 25.3 billion Phase 1 first-year target.
How to close or explain this gap will be the biggest challenge for US Trade Representative (USTR) Robert Lighthizer and Chinese Vice Premier Liu He during Saturday’s video call.
BEST FAN A BAD SITUATION
Trade experts said there was not much political disadvantage for US President Donald Trump to leave the deal at this stage, which would indicate that one of his biggest trade initiatives – already hammered by Democratic rival Joe Biden – had failed.
And even some officials of the Trump administration were envious of re-launching a tariff war that would weigh markets and probably the S&P 500. SPPX, which traded near record highs this week.
“At present, the agreement serves the interests of the Trump administration and Chinese leaders,” said former acting USTR Miriam Sapiro, now a board member at communications company Sard Verbinnen, adding that the requirements set out in the deal “were never realistic. ”
Trump, who said the trade deal no longer meant anything to him because of China’s deal with the coronavirus pandemic, expressed support for the deal this week, saying it should continue and increase purchases in 2021.
Stephen Vaughn, a former attorney general of the USTR and a legal architect of punitive tariffs on Chinese goods, said compliance with the deal also benefits China by keeping its American relationship from disappearing further. Now that its economy is recovering strongly from the coronavirus pandemic, Beijing has little excuse not to increase its purchases, he added.
“I do not see what China would get from a non-compliance. My assessment is that this will not happen, ”said Vaughn, a trading partner at the King and Spalding law firm in Washington.
Claire Reade, a former USTR official and a senior colleague at the Center for Strategic and International Studies, said the agreement provides some incremental advances for U.S. companies seeking access to the lucrative Chinese market.
“If the administration lets the Phase 1 deal die, it will be difficult to condemn the pain caused by the long trade war,” she wrote in an essay this week.
Nearly 90% of the companies surveyed by the US-China Business Council have a positive view of the trade deal, but only 7% say its benefits outweigh the cost of fares along the way.
Report by Andrea Shalal and David Lawder in Washington, Yawen Chen in Beijing. Additional reporting by Sophie Yu in Beijing. Edited by Heather Timmons and Lincoln Feast.
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