WASHINGTON- US 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 US goods purchase targets, people familiar with his administration’s deliberations say.
The US-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 US agricultural goods, manufactured products, energy and services – goals that many said were unrealistic 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 US purchases by $200 billion over two years.
But canceling the deal would reignite the nearly two-year US-China trade war at a time US unemployment is at its worst since the 1930s Great Depression.
The next US step would likely be reviving previously planned but canceled tariffs on some $165 billion worth of Chinese consumer goods, including Apple Inc cellphones and computers, toys and clothing – all ultimately paid by US companies and passed on to consumers. Beijing would retaliate with tariffs on US 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.
US goods exports to China in the first quarter were down $4 billion from the trade war-damaged levels a year earlier, according to US Census Bureau data.
The Peterson Institute of International Economics estimates that during the first quarter, China made only about 40 percent 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.
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 US 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.