GP Insights

GP Insights # 382, 11 July 2020

Trump rules out Phase-two trade talks with China
Harini Madhusudan

What happened?
On 10 July, the US President Donald Trump ended hopes of a phase-2 trade negotiation with China, during a press conference on his way to Florida aboard Air Force One. He said, "I don't think about it now," and referred to the soured relationship between the two countries which has turned worse due to the pandemic. "The relationship with China has been severely damaged, they could have stopped the plague, they didn't stop it," the US President stated.

What is the background?
First, the failure of the phase-one trade negotiations. The trade dispute that began in March 2018 led to the imposition of tariffs and counter-tariffs by both countries. The phase-one deal was signed in early January 2020, after almost two years of trade negotiations between the US and China. In phase-one deal, China had pledged to purchase 200 billion dollars of the US goods, including soybeans and pork. The deal in itself was unrealistic, and the commitments were not met mainly due to the pandemic that led to the disruption in global trade.

Second, deterioration of the Sino-American relations during the pandemic. The bilateral tensions between the US and China that started over trade has now expanded. Several factors that have contributed to the increase in tensions have been the protests in Hong Kong, human rights violations of the Uyghurs, the support to Taiwan and the election climate in the US. The coronavirus outbreak in China and the spread of the pandemic to the various parts of the world added fuel to the confrontation with Washington accusing Beijing of not doing enough to contain the spread. 

What does it mean?
First, these uncertainties surrounding the US-China relations will deepen further in the post-pandemic time. Diplomatic negotiations at various levels have been halted, but the two sides have continued to raise suspicions against each other, leading to more tensions. Further, the statement by Donald Trump comes when the number of cases in the US is the highest at 3.24 million. In all likelihood, the statement by Trump is a passing comment, but that does not sway away from the fears of the decoupling of the two economies when the pandemic ends.

Second, though China has been the first to offer the channel for negotiations in the past years, the current statement might test Beijing's patience in the US-China trade negotiations. At the same time, the statement also brings out Trump's weariness, including a fickleness in dealing with China. 

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