MNI EXCLUSIVE: Ex-Trade Staff: Phase 2 Before US Vote Unlikely

--US And China Want To See If Trump Re-Elected Before Tougher Talks

By Ryan Hauser and Evan Ryser

     WASHINGTON (MNI) - The U.S. and China probably won't reach a Phase Two

agreement before November's presidential election, and coronavirus uncertainty

compounds the problem of China meeting Phase One commitments, former trade

officials told MNI.

     Conflict could return sooner than expected as the coronavirus outbreak

hurts Chinese demand, weakening agricultural purchases from the U.S. Slower

Chinese growth could also rekindle protectionist instincts in Beijing according

to Christine McDaniel, a former USTR economist and deputy assistant secretary at

the Treasury Department.

     The People's Bank of China has said it will pump 150 billion yuan (USD22

billion) into the economy on Monday to provide liquidity and a stable currency

amid the outbreak. Bloomberg reported Chinese officials hope the U.S. will agree

to some flexibility on Phase One deal pledges.

     Asked about expectations for a Phase Two deal, former chief agriculture

negotiator for USTR Darci Vetter said, "I would not hold my breath," adding, "I

don't know that there is a lot of pressure to jump directly into Phase Two

talks."

     China may also be waiting to see if President Donald Trump loses his

re-election bid and if "they can revisit the whole agreement and maybe get off

the hook," said C. Fred Bergsten. He has worked at USTR and the Treasury

department, and said such a delay and reversal is likely China's "fundamental

objective."

     Phase Two with China "depends on if there will be a Trump 2020," said

McDaniel. While Trump "doesn't want to upset the markets too much leading into

an election," she said, if he returns to office next year there will be a lot of

"groundwork" and evidence to re-assess China trade. 

     Simon Lester, a former WTO officer, said "Trump wanted a big political

victory" and he achieved that with Phase One, meaning no rush for Phase Two.

Things could also be delayed because it will take months to figure out if Phase

One is meeting its targets, and new talks will involve harder issues like the

U.S. dropping tariffs and China curbing subsidies, he said.

     Bergsten is pessimistic about U.S.-Chinese trade relations improving after

Phase One. "We're going to get some bumps in the road within the three to six

months, and some doubts are going to start arising as to the implementation of

the agreement," he said. 

     "Trump would be more than happy to impose more tariffs or increase tariffs

on products that already have some tariffs on if there were indications that

China was not in compliance with Phase One," said McDaniel. Trump is "still a

tariff man," she said. 

--MNI Washington Bureau; +86 (10) 8532-5998; email: ryan.hauser@marketnews.com

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