The phase one trade deal was officially signed on 15 January (Bloomberg) with Donald Trump hosting a celebratory lunch for the Chinese delegation in the White House, declaring relations to be “better than ever” and the Dow Jones finishing the day at a record high. The deal officially went into effect on 14 February. How things have changed in such a short period of time shows us just how volatile our world can be. So, what happened to the deal?
In a word, Coronavirus. The virus has ripped through the global economy causing chaos, as the prescribed antidote by governments around the world has been to lockdown populations to save lives but in the process strangling economies. The below chart shows how trade targets set out in the phase one deal for U.S. total exports and Chinese imports are on course to be dramatically missed by the year end. It is important to state that no targets have currently been breached as the legal text of the agreement states that targets must be met by calendar year end. The below data uses those agreed annual figures and pro-rata’s them to a monthly basis. Using data from Chinese Customs and the U.S. Census Bureau we can track the current import and export levels of good that the deal covers. What is clear is that the current year end targets look completely out of reach. Even before the full effects of the virus were felt, the chart below shows how the estimated trade activity needed to meet year end targets were being missed by both sides in January as factories across China closed down to a halt. This gap has only continued to widen over time reflecting the new economic reality of our post pandemic world.
Of course, when this deal was signed no one knew the implications that COVID-19 would have on the global economy. And now, in a post pandemic world, these targets seem to have no place in the new economic reality the global economy finds itself in. Many of the world’s major economies are experiencing recession and the U.S. economy has not looked more vulnerable in a very long time. It has only been as a result of the vast stimulus provided by the Federal Reserve that some signs of recovery are beginning to emerge, but the situation remains perilous.