- The trade conflict between the two largest economies in the world has had investors in limbo since July 2018.
- Coronavirus is affecting U.S. companies.
- The IMF has revised China’s economic growth outlook.
The U.S.-China trade war has, for some time now, put enormous pressure on global markets, and the Phase 1 agreement, signed in mid-January, was a much-needed band-aid to a long-term problem. The coronavirus epidemic is, however, threatening to reverse progress made in the past year.
The trade conflict between the two largest economies in the world has had investors in limbo since July 2018. Many expected that the January 15 trade-deal signing would mitigate the issue. The situation is, unfortunately, turning into a rough-and-tumble rumpus that is extremely hard to predict.
China Unable to Contain the Situation?
Initially, there was hope that China would have the coronavirus situation under control, but the number of deaths and infections keeps rising. There are currently over 70,000 confirmed infection cases in mainland China, and over 2,000 people have died from the disease.
In January, the Chinese economy was projected to reach 6.1 percent. This is according to IMF estimates. The figure has since been revised to 5.6 percent because of the Covid-19 impact. According to the IMF, “many scenarios can play out, depending on how quickly the virus is contained and how fast the Chinese and other affected economies return to normal.”
Risk of Decoupling
Trade between the U.S. and China is grinding to a halt due to Covid-19. The virus has affected major Chinese supply chains and made it harder for U.S. companies to obtain supplies from the nation. Many American companies are also unable to reach their clientele in China due to health-related concerns.
Apple has already issued a revision of its growth projection in a statement that reads in part as follows.
“iPhone supply will be temporarily constrained. While our iPhone manufacturing partner sites are located outside the Hubei province — and while all of these facilities have reopened — they are ramping up more slowly than we had anticipated.”
The company has also underscored that there will be a sales decline. This is because all of its stores in China are closed at the moment. The reality is that the U.S. and Chinese economies have been intertwined for years and will struggle to maintain strong trade ties during these trying times.
Coronavirus will affect the January Trade Agreement
There are pressing questions on how the U.S.–China trade war will play out after the coronavirus development. In any case, the virus could have a massive impact on the Phase 1 agreement. There is currently a ceasefire in place between China and the United States, but there’s no progress in sight. In many ways, the trade dynamics between the United States and China have just become more complicated.
Firstly, there is not likely to be any negotiators coming from Beijing to Washington until the scourge dies down. Additionally, the viral outbreak provides a good excuse for both parties not to comply with the partial trade agreement signed in mid-January.