Hong Kong (CNN Business)Mutual blame over the coronavirus pandemic has reignited tensions between the United States and China, threatening to break what was already a fragile truce on trade between the world’s biggest economies.
But the pandemic has left the global economy in a much more precarious position than it was when the two countries began sparring over trade two years ago. And neither can afford the damage another full-blown trade war would inflict.
The virus has weighed heavily on both countries, plunging their economies into the deepest contractions for decades and destroying tens of millions of jobs. And while China, at least, has claimed that it is past the worst of the pandemic, the world is still far from a meaningful recovery.
Which makes President Donald Trump’s recent threat of new tariffs on China — and suggestions from Beijing that it could counter with other, dramatic punitive actions — 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 disrupt technology trade and investment, de-powering what still promises to be an engine for recovery in 2020.”
Unrealistic terms now made impossible
Even before the coronavirus outbreak became a pandemic, the trade ceasefire between the United States and China was fragile at best.
A “phase one” deal reached in January only reduced some of the tariffs each side had placed on the other, while allowing Beijing to avoid additional taxes on almost $160 billion worth of goods. China also committed to buying 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 annually before the trade war started, and analysts in January called the deal “highly challenging” unless China made sacrifices elsewhere.
“The targets for purchases in the phase one deal were always unrealistic, and now they are impossible,” 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 increase its
imports more than 6% each month for two years to honor the terms of the deal. Instead, US imports fell 6% during the first four months of 2020.
“With consumer demand down in the Chinese economy, it’s unlikely 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 commit … they will renege later” because of the lack of demand.