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.


Make or break days for global oil ahead of OPEC crunch meeting

Updated 15 min 18 sec ago

Make or break days for global oil ahead of OPEC crunch meeting

  • OPEC, led by Saudi Arabia, were on Thursday scheduled to take part in virtual discussions with non-OPEC members, led by Russia, about a possible deal to revive the OPEC+ alliance
  • On Friday, energy ministers from the G20 nations, under the presidency of Saudi Arabia, will convene in another digital forum that will bring in the third part of the global oil equation – the US

DUBAI: The global energy world, in the midst of crisis as demand slumps to unprecedented levels due to the coronavirus disease (COVID-19) pandemic, faces two days that could make – or break – the oil industry for months to come.
Leading producers from the Organization of the Petroleum Exporting Countries (OPEC), led by Saudi Arabia, were on Thursday scheduled to take part in virtual discussions with non-OPEC members, led by Russia, about a possible deal to revive the OPEC+ alliance that fell apart in Vienna at the beginning of last month.
Then, on Friday, energy ministers from the G20 nations, under the presidency of Saudi Arabia, will convene in another digital forum that will bring in the third important part of the global oil equation – the US, currently the biggest oil producer in the world.
If no deal is reached from the two days of oil summits, the immediate prospect looms of a further fall in crude prices and, with global storage facilities already filling rapidly, the possibility of major exporters “shutting in” oil fields, jeopardizing future production.
Energy experts say the purpose of the meetings is two-fold: To reach agreement on how to limit the vast quantities of oil that are still being produced even as demand collapses; and to present some kind of united front in geopolitical terms in the face of the biggest economic recession since the 1930s.
The most visible immediate sign of any success from the meetings will be an increase in the price of crude oil on global markets. Brent crude, the Middle East benchmark, has lost nearly half its value in the past month.
The first aim – to try to balance oil supply and demand – is the more difficult. Global demand has fallen by at least 20 per cent from the usual daily consumption of around 100 million barrels, oil economists have calculated.
But, following the collapse of the OPEC+ deal that was putting a lid on supply, all producers have been pumping more crude. Saudi Arabia is producing more than 12 million barrels per day (bpd), a bigger volume than at any time in its history. All OPEC members, as well as Russia, have said they will increase output.
In this stand-off, US President Donald Trump intervened last week to say that he had spoken to Saudi and Russian leaders and that he “expected” a cut of 10 million, possibly even 15 million, bpd.
That looks like wishful thinking. For one thing, it would not rebalance markets. Anas Al-Hajji, managing partner of US-based Energy Outlook Advisers, said: “The amount of the cut is relatively small given the major drop in demand.”
There are also some difficult relationships to smooth over in the OPEC+ alliance. Saudi Arabia and Russia exchanged angry statements last weekend, each accusing the other of starting the oil price war. Iran, with big reserves but hampered by US sanctions from exporting in large quantities, said that it might not take part in the conference.
The choreography of the two meetings also presents hurdles. The US will not be present at the OPEC+ meeting, but American Secretary of Energy Dan Brouillette said he would take part in the G20 event.
Because it is a free-market industry, America cannot order its oil producers to reduce output, but most analysts are agreed any attempt to rebalance global supply would be impossible without a US contribution.
By going first, Saudi Arabia and Russia are “playing blind” without knowing what the Americans are thinking. Neither would want to agree big price-restoring cuts only for US producers – under big financial pressure at current levels – to swoop back into the market.
This week there have been some signs that the Americans are considering their own versions of cutbacks. The biggest US company, Exxon Mobil, said it would reduce capital expenditure on future projects by 30 percent; the US Energy Information Administration said oil production would fall by nearly 1 million bpd this year, in response to falling demand and financial pressures.
But even if the Saudis and Russians cut substantially alongside other big OPEC producers such as the UAE, and the Americans enter a long-term pattern of falling demand, it is still hard to see how cuts could reach the 10 million barrels Trump “expects,” let alone 15 million.
J. P. Morgan, the big US investment bank, said that it expects OPEC+ to come up with combined cuts of about 4.3 million barrels, most of that coming from Saudi Arabia, Russia and the UAE. “If it’s 4.3 million it only puts off the day when global storage gets filled completely,” said Robin Mills, CEO of Qamar Energy consultancy.
Storage facilities are nearly at the brim. Malek Azizeh, director of the premium facilities at the Fujairah Oil Terminal in the UAE, joked that he was going to hang a sign on the terminal gates: “Thanks, but no tanks.”