US & China Trade War: The Budding Tension On Economy Amid Coronavirus

Mutual attack over the coronavirus pandemic has reignited tensions between the United States and China, approaching to break what was already a delicate truce on trade between the world’s biggest economies.

But the pandemic had left the global economy in a much more uncertain position than it was when the two nations began sparring over trade two years ago. And neither can afford the damage another full-blown trade war would inflict.

The virus has hefted heavily on both nations, falling their economies into the deepest recessions for decades and ruining tens of millions of jobs. And while China, at least, has declared that it is past the worst of the pandemic, the world is still far from an essential recovery.

Which makes President Donald Trump’s current threat of new tariffs on China — and recommendations from Beijing that it could counter with other, dramatic punitive activities — all the more troubling.

“Clearly, the timing of renewed trade tension could not be worse,” wrote economists from S&P Global Ratings in a research note earlier this month. “The threat of higher tariffs and the intensifying technology cold war could yet disturb technology trade and investment, de-powering what still ensures to be an engine for recovery in 2020.”

Unrealistic Terms Now Made Impracticable

Yet before the coronavirus outbreak became a pandemic, the trade ceasefire within the United States and China was fragile at best.

A “phase one” deal led in January only decreased some of the tariffs each side had placed on the other while permitting Beijing to avoid additional taxes on almost $160 billion worth of goods. China also pledged to buy an additional $200 billion of US goods and services this year and next.

That would have been a tall order without the virus-induced slowdown: The value of that commitment was more than China was importing yearly before the trade war began, and analysts in January called the deal “highly challenging” unless China made sacrifices elsewhere.

“The targets for buying in the phase one deal were always unreliable, and now they are impracticable,” said David Dollar, a Washington-based senior fellow at the Brookings Institution’s John L. Thornton China Center.

According to the S&P economists, China would have had to raise its imports by more than 6% each month for two years to honor the terms of the deal. Somewhat, US imports fell 6% during the first four months of 2020.

“With consumer demand falling in the Chinese economy, it’s unpromising that Beijing will be able to commit to buying a lot more American goods,” said Alex Capri, a trade scholar and visiting senior fellow at the National University of Singapore Business School. “Or, if they do accept… they will renege later” due to the lack of demand.

Trump, too does not have the next two years to discover whether China will honor its contract. He fronts an election in November, which interpreters have explained as one reason for his increasingly harsh rhetoric toward Beijing.

“Look, I’m having a very hard time with China,” Trump said during a phone interview Friday with ‘Fox and Friends.’ “I made great trade deal months before this whole thing happened … and then this happens, and it sort of overrides so much.”

An ‘Internal Rift’ in China

Vice Premier and chief trade mediator Liu He lately spoke to top US trade officials — including Treasury Secretary Steven Mnuchin — about building a “beneficial environment” for seeing the deal through. On Tuesday, Chinese Premier Li Keqiang appreciated US conglomerate Honeywell (HON) for opening an office in Wuhan, the absolute epicenter of the virus, adding that he embraced global business in China.

But Beijing’s challenge isn’t just about honoring impossible promises. The pandemic — and who should be at fault for its global spread — has fired a growing anti-US sentiment in China, making it challenging for the country’s leaders to submit to demands from the United States.

“There’s an internal rift on trade policy within China to be sure,” said Marshall Meyer, professor emeritus of management at the University of Pennsylvania’s Wharton School.

Earlier this month, Trump, who has declared without presenting proof that the virus originated in a laboratory in Wuhan, hinted that the United States could enact more tariffs on China as punishment for the pandemic.

His administration is also moving to restrict further Huawei’s expertise to work with US companies. On Friday, the US Commerce Department declared it desires to stop the Chinese tech firm from manufacturing and to obtain semiconductor chips using American-made software and technology. This move restrains the company’s capability to operate with its suppliers.

The Global Times, one of the most contentious and blunt state media outlets in China, indicated that Beijing could soon revenge against Washington and its resolution to limit Huawei’s ability to produce and obtain semiconductor chips by exposing a long blacklist of foreign companies. American companies, such as Apple (AAPL), Qualcomm (QCOM), Cisco (CSCO), and Boeing (BA) could face restraints on doing marketing in China, it stated, quoting an unnamed origin close to the government.

The tabloid has also invited attention to more combative voices in China, reporting lately that some are calling for “a tit-for-tat program over trade matters.”

Such statements could describe a “trial balloon” for Beijing to reconsider, as per Malcolm McNeil, a partner at the Washington-based law and lobbying company Arent Fox. He said they could also be directing a “vocal minority” that is driving for a more aggressive move on the part of the government.

However, Beijing decides to move forward. McNeil accentuated that officials there need to manage trade “carefully.”

“The coronavirus has become a worldwide appearance with the negative focus on China and its administration at the outset,” he said, adding that backtracking from January’s trade deal would worsen reactions toward China.

The Threat to Economic Restoration

If tensions remain to intensify, the dispute could morph into a damaging dispute that not only fails the world’s recovery from Covid-19 but also risks slowing major technological innovations.

The global economy is already supposed to decline 3% this year, its deepest drop after the Great Depression, according to the International Monetary Fund. A restoration beyond that is far from certain and could take ages.

IMF Managing Director Kristalina Georgieva re-stated the risk of a trade war earlier this month.

“It is hugely significant for us to oppose what may be a natural inclination to retreat behind our borders,” she said while an event held by the European University Institute when questioned about US-China tensions.

Yet before the pandemic, economists and specialists predicted that a worsening relationship among the two countries could choke the growth of artificial intelligence and super-fast 5G mobile networks. Retired Federal Reserve Chair Janet Yellen said in January that wasting the ability to collaborate on such progressions would be serious for the world.

Another trade war would also take a toll on companies and consumers. American companies and farmers paid $3.9 billion in tariffs in March alone, mostly because of the trade war, as per the data from the US nonprofit Tariffs Hurt the Heartland, a coalition of trade associations.

“Covid-19 has wreaked unparalleled havoc on American businesses and farmers,” said Jonathan Gold, spokesperson for Americans for Free Trade. “Tariffs are the last thing that any business should have to worry about during this pandemic.”

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