China Unlikely to Fulfill US Purchase Commitments, Due to Pandemic, Experts Say
China is unlikely to meet its purchase commitments under the phase one deal, due to the COVID-19 pandemic, which could lead to China invoking a force majeure clause and further postponing the prospects of a phase two agreement, China trade experts said. “Given the COVID-19 crisis, the target set in the phase one deal will be very hard to achieve,” Xu Gao, chief economist at Bank of China International, said during a May 13 webinar hosted by the National Committee on U.S.-China Relations.
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U.S. officials, including President Donald Trump, have expressed doubts about whether China will be able to fulfill the commitments due to the pandemic, despite optimism from the U.S. trade representative (see 2005080010 and 2002120043). Tu Xinquan, dean of the China Institute for World Trade Organizations Studies at the University of International Business and Economics, said China first began to question its ability to fulfill the purchases earlier this year when it was one of the initial regions to be hit hard by the pandemic. Chinese officials believe they can invoke a force majeure clause (see 2005120031) to nullify the commitments, Tu said.
Even if a force majeure clause is not invoked, neither country has the “capacity” to meet the purchases, Daniel Rosen, co-founder of the research firm Rhodium Group, said during the webinar. Despite increasing Chinese demand for pork due to African swine fever, U.S. companies are struggling to fulfill those orders. “American meat packers are not really in a position, because of the virus, to be a part of the export boom to meet China's needs,” Rosen said.
As long as the pandemic impacts trade, the commitments are “not achievable,” said Barry Naughton, a Chinese economics expert and professor at the University of California, San Diego. Naughton said China would need a “significant effort to step up the purchases,” which is unlikely. “It's not going to be enough for the Chinese government to just say, ‘it's OK to buy American soybeans again,’” he said. “It's really going to take a significant effort and clear and coordinated action on the part of the Chinese government.” Trump has threatened to cancel the deal if the commitments are not met (see 2005040012).
Both Tu and Xu said the two countries will not reach a phase two deal this year because of issues implementing the first phase. They also said rising tensions are complicating the relationship, especially as the U.S. pushes its companies to move supply chains out of China and return to the U.S. “That kind of policy sends out signals that the United States wants to break up with China,” Xu said. “I think that is harmful to the bilateral relationship.” Xu added that the policy is unlikely to work, especially in the short term, when companies are struggling to maintain operations during an economic crisis. “If you want to rebuild factories in the United States, that means you have to invest,” he said. “Economically, it's not something that factories or enterprises want to do when there is insufficient demand and overcapacity.”