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A US-China trade war is the last thing the world economy needs now

Hong Kong (CNN Business)Mutual blame over the coronavirus pandemic has reignited tensions between the United States and China, threatening to break what was already a fragile truce on trade between the world’s biggest economies.

But the pandemic has left the global economy in a much more precarious position than it was when the two countries began sparring over trade two years ago. And neither can afford the damage another full-blown trade war would inflict.

The virus has weighed heavily on both countries, plunging their economies into the deepest contractions for decades and destroying tens of millions of jobs. And while China, at least, has claimed that it is past the worst of the pandemic, the world is still far from a meaningful recovery.

    It's an insane time for Trump to pick (another) fight with China

    Which makes President Donald Trump’s recent threat of new tariffs on China — and suggestions from Beijing that it could counter with other, dramatic punitive actions — all the more troubling.

    “Clearly, the timing of renewed trade tension could not be worse,” wrote economists from S&P Global Ratings in a research note earlier this month. “The threat of higher tariffs and the intensifying technology cold war could yet disrupt technology trade and investment, de-powering what still promises to be an engine for recovery in 2020.”

    Unrealistic terms now made impossible

    Even before the coronavirus outbreak became a pandemic, the trade ceasefire between the United States and China was fragile at best.

    A “phase one” deal reached in January only reduced some of the tariffs each side had placed on the other, while allowing Beijing to avoid additional taxes on almost $160 billion worth of goods. China also committed to buying an additional $200 billion of US goods and services this year and next.

    That would have been a tall order without the virus-induced slowdown: The value of that commitment was more than China was importing annually before the trade war started, and analysts in January called the deal “highly challenging” unless China made sacrifices elsewhere.

    “The targets for purchases in the phase one deal were always unrealistic, and now they are impossible,” said David Dollar, a Washington-based senior fellow at the Brookings Institution’s John L. Thornton China Center.

    According to the S&P economists, China would have had to increase its imports more than 6% each month for two years to honor the terms of the deal. Instead, US imports fell 6% during the first four months of 2020.

    “With consumer demand down in the Chinese economy, it’s unlikely that Beijing will be able to commit to buying a lot more American goods,” said Alex Capri, a trade scholar and visiting senior fellow at the National University of Singapore Business School. “Or, if they do commit … they will renege later” because of the lack of demand.

    Trump also does not have the next two years to find out whether China will honor its agreement. He faces an election in November, which analysts have explained as one reason for his increasingly harsh rhetoric toward Beijing.

    “Look, I’m having a very hard time with China,” Trump said during a phone interview Friday with ‘Fox and Friends.’ “I made a great trade deal months before this whole thing happened … and then this happens, and it sort of overrides so much.”

    An ‘internal rift’ in China

    Experts who talked to CNN Business still believe that economic and trade officials in Beijing want to make the “phase one” deal work.

    Vice Premier and chief trade negotiator Liu He recently spoke to top US trade officials — including Treasury Secretary Steven Mnuchin — about creating a “beneficial environment” for seeing the deal through. On Tuesday, Chinese Premier Li Keqiang thanked US conglomerate Honeywell (HON) for opening an office in Wuhan, the original epicenter of the virus, adding that he welcomed global business in China.

    But Beijing’s challenge isn’t just about honoring impossible commitments. The pandemic — and who should be at fault for its global spread — has fueled a growing anti-US sentiment in China, making it difficult for the country’s leaders to capitulate to demands from the United States.

    “There’s an internal rift on trade policy within China to be sure,”

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