Coronavirus: White House adviser says China virus to delay US export surge from trade deal

A January 2020 photo shows Kudlow speaking to the press at the White House in Washington.
A January 2020 photo shows Kudlow speaking to the press at the White House in Washington.PHOTO: AFP

WASHINGTON (REUTERS) - The White House's top economic adviser said on Tuesday (Feb 4) that China's coronavirus would delay a surge in US exports to China expected from the Phase 1 trade deal that was to take effect later this month.

Mr Larry Kudlow, in an interview with Fox Business Network, said the virus, which has virtually shut down many Chinese factories and cities and cut off much travel in and out of China, would not have a catastrophic effect on business supply chains.

His comments marked the first time a Trump administration official has said that the fast-spreading virus would hamper China's ability to increase purchases of US goods and services by US$200 billion (S$274 billion) over two years, at least in the near term.

"It is true the trade deal, the Phase 1 trade deal, the export boom from that trade deal will take longer because of the Chinese virus. That is true," Mr Kudlow said.

The Phase 1 agreement, signed on Jan. 15 and taking effect on Feb 15, suspended a new round of US tariffs in exchange for the Chinese purchases of agricultural, energy and manufactured goods and services. It also included reforms aimed at improving intellectual property rights and curbing the forced transfer of American technology to Chinese firms.

The deal envisioned that China would increase purchases by US$76 billion in the first year and US$123 billion in the second year, above a 2017 baseline of imports from the United States.

The text of the agreement contains a clause that calls for consultations "in the event that a natural disaster or other unforeseeable event outside the control of the parties delays a Party from timely complying with its obligations."

The US-China Economic and Security Review commission said in a briefing paper  on Tuesday that so far, China had not requested that its commitments be waved or suspended. 

"The ongoing spread of the coronavirus is taking a toll on China’s public health and economy, and may impact its ability and willingness to meet the commitments in the Phase 1 deal," the commission said.

The number of cases and deaths from the novel coronavirus has shown little sign of slowing - total cases have now surpassed 20,000 - spurring the United States to evacuate some of its citizens from China, issue a travel warning, and impose quarantines and a partial travel ban.

Beijing has criticised the measures as unnecessarily spreading fear.

Mr Clete Willems, a former White House trade adviser who took an active role in the US-China negotiations, said China’s short-term focus should be on defeating the virus, and the United States would need to show some understanding. 

"We simply don’t know the scope of this and what the economic impact is going to be. It does mean that in the short term it’s going to make it difficult to make progress on Phase 2, and there will be a conversation with respect to implementation," he told Reuters at a trade conference in Washington.

SUPPLY CHAINS

Mr Kudlow played down the potential wider impact of the virus outbreak on the US economy and on company supply chains that are being curtailed, saying: "It's not a catastrophe. It's not a disaster."

"We've been through this before and I just think the impact is minimal," he said later in the Fox Business interview.

China was the third largest US goods trading partner in 2019 through November, falling behind Mexico and Canada because of the US-China tariff war.

Mr Kudlow said he thought the virus outbreak could spur business investment and lead to increases in production in the United States.

Asked if component shortages could result from the outbreak, Mr Kudlow said: "Yes. To a point. It's not across the board." "Chipmakers are not going to be affected that much.

Pharmaceuticals probably will be affected much more. Some things are kind of in the middle, when you get to automobiles and auto parts."

Most of the active ingredients used to make prescription drugs sold in the United States are sourced from China.