US-China trade truce at risk as virus hits global economy

Huge waves of business closures have not only disrupted China’s consumer spending and manufacturing but also the world’s supply chains. (AFP)
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Updated 16 March 2020

US-China trade truce at risk as virus hits global economy

  • Outbreak threatens Beijing’s import commitments as mandated by deal

BEIJING: A hard-won trade war truce between the US and China is at risk as the coronavirus pandemic rocks the global economy, making it tough for Beijing to fulfill its commitments.

The US also faces huge disruptions from the deadly virus while a diplomatic spat between Beijing and Washington threatens to derail the phase one deal that came after more than a year of escalating tensions between the world’s two biggest economies.
In the pact signed in January, China agreed to buy $200 billion more in US goods over two years than it did in 2017 — before the trade war erupted and triggered tariffs on billions of dollars of two-way trade.
But concerns are mounting that the conditions of the deal cannot be met as the world economy is threatened by governments taking drastic measures to contain the outbreak, including quarantines, travel bans and closures of public spaces.
“(The coronavirus) is likely to be a huge distraction for both governments,” said Steve Tsang, head of the China Institute at the School of Oriental and African Studies in London.
Global markets have plummeted, oil prices have slid, and the International Monetary Fund warned this week that 2020 growth will drop below last year’s 2.9 percent under “any scenario.”
“I would be surprised if they can now fulfill the terms of the phase one deal,” said Tsang.
Huge waves of business closures have not only disrupted China’s consumer spending and manufacturing but also the world’s supply chains.
Companies told AFP the past year has brought disarray first from the trade war, then the virus outbreak.
Qingzhou Ruiyuan Trading Company restarted importing soybeans from the US this month, but sales were down at least 20 percent from last year, said the general manager surnamed Li.
He was uncertain how quickly they would be able to boost the business once the health crisis is over.
“We’re affected by the epidemic, and the impact is rather big,” Li said, blaming a drop in domestic demand.

BACKGROUND

In the pact signed in January, China agreed to buy $200 billion more in US goods over two years than it did in 2017 — before the trade war erupted and triggered tariffs on billions of dollars of two-way trade.

“We can’t control the market.”
China’s exports plummeted in the first two months of this year on the back of the new coronavirus, falling 17.2 percent from a year ago, while imports slipped 4 percent.
The virus threatens “China’s import commitments as mandated by the phase one trade deal,” said Rory Green, an economist at research firm TS Lombard.
China has agreed to buy more US farm commodities and seafood, manufactured goods such as aircraft, machinery and steel, and energy products.
But there are provisions “to allow a delay in compliance, and both nations are likely to accept this, given the global nature of the coronavirus outbreak,” Green added.
“There is now no chance of China fulfilling its import targets within the time frame set by the text of the agreement.”
The US economy is also taking a hit from the virus, with the government introducing sweeping restrictions on arrivals from Europe and huge stock market falls.
Diplomatic tensions between the US and China have also flared up during the outbreak.
Washington ordered Chinese state-run media to cut the number of Chinese nationals employed in the US after Beijing expelled three Wall Street Journal reporters.
The two countries have also sparred over the pandemic, with a US ban on arrivals from China angering Beijing.
More recently, Washington blamed Beijing for the disease and China — where the virus was first detected in December — promoted conspiracy theories that it started in the US.
“I doubt that either has considered fully the implications (that) the measures taken to counter the spread of the virus have for their bilateral relations,” said Tsang.
But he said that given the upcoming US election, President Donald Trump was unlikely to highlight any failure by China to meet all the terms of the deal.
Instead, Trump will use the agreement to score political points.
But the trade war has fuelled distrust among farmers in both countries that could undermine the deal’s success.
In the Federal Reserve’s latest “beige book” survey, some US farmers said purchases of agricultural goods by China had “not yet materialized” and expressed worries that the virus “would be used as an excuse for missing future trade targets.”
Liu Lingxue, general manager of agricultural trading firm Guangzhou Liangnian, said her profits have fallen by at least a third during the virus outbreak.
But she does not want to import sorghum and soybeans from the US.
“We would first consider other countries that have been friendlier to China,” she said.


Bailout will keep Air France-KLM afloat for less than year: CEO

Updated 21 September 2020

Bailout will keep Air France-KLM afloat for less than year: CEO

  • ‘If we base it upon the past few weeks, it is clear that the recovery in traffic will be slower than expected’
  • Governments are coming under pressure to tie airline bailouts to environmental commitments

PARIS: Bailouts provided to Air France-KLM by the French and Dutch governments will keep the airline flying less than a year, its CEO Benjamin Smith said Monday and evoked the possibility of injecting new capital.
In an interview with the French daily l’Opinion, Smith also warned that calls for airlines to contribute more to fight climate change could be catastrophic for their survival which is already under threat due to the coronavirus pandemic.
When countries imposed lockdowns earlier this year to stem the spread of the coronavirus airlines faced steep drops in revenue that have claimed several carriers.
A number of countries stepped in with support, including France which provided $8.2 billion to Air France and the Netherlands which received a $2.9 billion package.
“This support will permit us to hold on less than 12 months,” said Smith.
The reason is that air traffic is picking up very slowly as many northern hemisphere countries are now fearing a second wave of infections.
“If we base it upon the past few weeks, it is clear that the recovery in traffic will be slower than expected,” according to Smith, who said when the bailout was put together the airline was expecting a return to 2019 levels only in 2024.
Smith said discussions were already underway with shareholders on shoring up the airline group, and steps would be taken before the next regular annual meeting in the second quarter of next year.
“One, three or five billion euros? It is too early to put a figure on a possible recapitalization,” he said.
The airline group had $12.12 billion in cash or available under credit lines.
Major shareholders include the French government with a 14.3 percent stake, the Dutch government at 14 percent, as well as Delta and China Eastern airlines which each hold an 8 percent stake.
Governments are coming under pressure to tie airline bailouts to environmental commitments.
One proposal that has come from a citizen’s convention convoked by President Emmanuel Macron would cost airlines an estimated $3.6 billion.
Smith said the imposition of environmental charges on the industry would be “irresponsible and catastrophic” for Air France-KLM.