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The phase one trade deal requires China to buy an additional $200 billion worth of U.S. products and services over the next two years compared to 2017 levels. However, the global pandemic has made it extremely unlikely that China will be able to fulfill its promises.
The coronavirus pandemic maybe has come to its peak but the political fallout from it just started its race and investors are getting worried. According to Zhiwei Zhang, president and chief economist of Pinpoint Asset Management, the virus situation has already peaked. Now there are other concerns, like U.S.-China deal development.
“On the margin, it’s gradually improving. There are always concerns about a second wave (but) as long as the general public as well as the governments are aware of that risk, the risk is contained to some extent.”
Crisis Halted U.S.-China Deal from Going On
Zhang added that political risks and U.S.-China trade tensions “look like something that will pick up.” Let’s not forget that a global crisis caused by the coronavirus outbreak has halted China’s efforts to stick to its commitments signed in the phase one trade deal with the United States, the Center for Strategic and International Studies (CSIS).
Commenting on China’s dedication to buying an extra $200 billion of U.S. goods, CSIS expert Scott Kennedy stated that “not only are the numbers unrealistic, but they’re unreal,” adding that “the likelihood of even just reaching last year’s exports is unlikely.”
Zhang says that these tensions are “the number one concern in the market when we talk to investors and sell-side analysts.” He also stressed that these tensions will possibly happen only in their early stages.
There is six months until the U.S. presidential election, and among the signs that U.S. officials may be transferring pressure on Beijing, said Zhang.
“We already started to see some signs of escalation over the last few days (with) the U.S. side pointing fingers to China.”
Trump Slams China for Hiding Information on Coronavirus
These tensions will probably impact the currency market the most and the Chinese yuan could probably weaken in volatile trade.
Zhang said the market is very concerned about the current U.S.-China quarrel over the origins of the virus, which was first reported from the Chinese city of Wuhan.
United States President Donald Trump recently slammed China for not letting American experts in the country to help it amid the outbreak of the coronavirus. He claimed China didn’t want the U.S. to see something that was going on. He stressed Beijing could have been hiding “incompetence” or “something else,” hinting China deliberately misled the world about the virus.
China, of course, has rejected many of those claims.
However, critics say Beijing wasn’t genuine about the exposure of the virus in the early stages of the outbreak. They say the government was too slow on responding and that it minimized the degree of the epidemic within its borders.
As we already mentioned, tensions between the U.S. and China have intensified during the recent weeks as the coronavirus ravages through the U.S., which also has the biggest number of reported cases and deaths, and sent the world’s largest economy to a dead end.
Start of a New Cold War?
Both America and China had signed the so-called “phase-one” trade deal in January, just when the coronavirus started to take its place in China’s Hubei province where the virus first emerged. The world’s two largest economies spent the last two years in a trade war that dragged down the global economy and saw both countries impose significant amounts of additional tariffs on each other’s products.
Trump said earlier the nation could impose further tariffs on China. He noted the country doesn’t have to avoid its debt obligation to Beijing as a punitive measure for the COVID-19 outbreak, adding: “I could do it differently, I can do the same thing for even more money, by putting on tariffs.”
A former White House trade negotiator Clete Willems is pretty pessimistic. “This is the start of a new Cold War and if we’re not careful, things could get much, much worse,” said he.