New Epidemic May Impair China’s Ability to Meet Trade Commitments

February 17, 2020 Updated: February 17, 2020
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WASHINGTON—The deepening fallout from the deadly coronavirus outbreak has raised questions as to whether China will be able to fulfill its commitments to make vast purchases of U.S. goods in the newly inked “phase one” trade deal.

Beijing has committed to buying $200 billion worth of additional U.S. goods and services over the next two years as part of the trade agreement, which went into effect on Feb. 14.

China’s ability to follow through on this commitment, however, has become a major concern.

“The Chinese economy is contracting now. And it doesn’t need very much of anything, in a sense,” author and China expert Gordon Chang told The Epoch Times.

Some Chinese companies that struggle with the epidemic began to invoke “force majeure” clauses to walk away from their supply contracts, he said.

A force majeure clause in a contract allows a party to suspend performing its obligations when certain circumstances beyond its control arise. For example, China National Offshore Oil Corp, the third-largest national oil company in China sent force majeure notices to suppliers including Shell and Total SA, according to media reports. The company declared that the virus is constraining its ability to import fuel.

Chang said that these force majeure notices show that “the Chinese economy is really ailing right now.”

However, China can still meet the commitments of the phase-one trade deal, he said. “The reason is that China runs a semi command economy, so Beijing can just force companies to buy products and warehouse them.”

According to the trade agreement, Beijing has committed to buying additional manufactured goods of more than $75 billion, energy products of over $50 billion, and services close to $38 billion from the United States over the next two years.

The agreement also includes purchases of U.S. agricultural goods worth $36.5 billion and $43.5 billion, in 2020 and 2021, respectively.

Whether China will fail to meet these pledges is as yet unknown, Agriculture Secretary Sonny Perdue told reporters on Feb. 5 at a cattle convention in Texas.

Asked whether the United States should grant Beijing some flexibility in the phase one trade deal, he said, “It remains to be seen.”

“I’m not aware of their request for flexibility, although I’m not surprised,” Perdue said, noting that if the United States were in a similar situation, it would be asking for some leeway.

However, given the size of the Chinese market, he said, Beijing has “got a lot of room to meet those goals.”

Will China Honor the Deal?

Chinese State Councilor and Foreign Minister Wang Yi told Reuters on Feb. 14 that there was no need to revisit the provisions of the phase one trade deal, in response to questions about China’s ability to honor purchase commitments.

However, he criticized Washington for taking drastic measures on the coronavirus outbreak, including restrictions on travelers from China.

“Objectively, this will bring some difficulties to implementing this agreement,” Wang Yi said.

Chang criticized the Chinese foreign minister’s statement and accused the regime of creating excuses not to honor the deal.

“China has quarantined tens of millions of people. How can it criticize other countries for restricting travel?” he said.

“They had no intention of honoring this deal. When they came to sign the deal on Jan. 15, they knew about the severity of the coronavirus outbreak.

“They had the Jan. 7 Politburo Standing Committee meeting. They run the world’s most effective surveillance state. They can’t see people dying in the streets?”

The Office of the U.S. Trade Representative has created a new “bilateral evaluation and dispute resolution office” to monitor China’s implementation of its commitments under the agreement. In case of a dispute, both sides will have to resolve differences in about 90 days, according to the agreement.

Farmers Face New Challenges

The China trade deal, which dramatically boosts farm exports, was welcome news for American farmers across the country. China’s retaliatory tariffs since the beginning of the trade war in 2018 affected a number farm products, including soybeans.

Soybean farmers have been among those hit hardest, as they accounted for nearly 10 percent of total U.S. exports to China before the trade war.

With the new trade deal, China will be buying soybeans from the United States at the expense of other countries, particularly Brazil, the world’s largest soybean producer.

According to estimates of a Brazilian industry association, the country’s exports will fall by 2 percent compared with previous forecasts, as a result of the phase one trade deal.

Despite the promise of the trade deal, U.S. farmers face uncertainty because of the coronavirus outbreak.

“Certainly all sectors of the world economy are already undergoing disruption as a result of the coronavirus,” Rep. John Garamendi (D-Calif.) told The Epoch Times. “Now, whether that’s going to be a long term problem for food remains to be seen.”

Garamendi said there might be greater demand for American food if the coronavirus epidemic disrupts the production of food in China. “So it’s really hard to say what the impact will be for American agriculture in the mid to long term.”

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