Newsletter 19 - May 11, 2020
This week the realization the “phase one” trade deal may be a bust went mainstream. The occasion for this was Trump publicly questioning whether China is on track to meet the deal commitments. Never mind that the possibility of China meeting the inflated purchase promises was something that no one knowledgeable expected even before COVID-19 came around.
‘Very hard time with China’
“Look, I’m having a very hard time with China,” Trump said in an interview on Fox Television. “I made a great trade deal months before this whole thing happened. And it was kicking in, you know, a month ago and starting to kick in and starting to produce and then this happens and it sort of overrides so much,” reports Bloomberg News in a May 7 article.
Or ‘good progress is being made’?
Trump’s negative statements however contradict more positive ones made by his top trade negotiators U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin following a call they had with Chinese Vice Premier Liu He, earlier that same day. “Both sides agreed that good progress is being made,” according to a USTR statement. (For the record, I find the assertion that “good progress” is being made hard to believe and refer you to the following commentary.)
‘The pandemic made the unrealistic the impossible’
“The pandemic made the unrealistic the impossible,” when it comes to the purchases promised in the “phase one” trade deal, CSIS economist Scott Kennedy argues in a commentary.
Getting tough on China
The timing of Trump publicly questioning “phase one” is hardly a surprise. It seems that Trump and some in his administration have decided to use a failed “phase one” deal as more pumped-up proof of Chinese malfeasance in the run-up to the November presidential election. “Now it might be an excuse to "get tough on China," throw deal out,” tweets Riley Walters, an Asia economist at the Heritage Foundation.
Jennifer Jacobs @JenniferJJacobsNEW: Trump cast doubt on future of his “phase 1” trade deal with China, one of biggest accomplishments of his 1st term, saying he’s struggling with Beijing amid coronavirus. Contradicts positive remarks of his top negotiators. @josh_wingrove @jendeben https://t.co/EXsa6IJGCV
The sudden refocus on the trade deal may also aim to serve as a distracting mechanism from economic problems at home. "Trump is basically trying to distract the American public from focusing too much on the unemployment rate, employment figures and so on," Keith Wade, chief economist at Schroders, said recently, reports Axios.
Highest since the Great Depression
Speaking of the unemployment rate, the latest jobs report was one for the history books. “The Labor Department delivered a historically bad employment report Friday, showing 20.5 million jobs lost last month as the nation locked down against the coronavirus,” reported NPR. “The jobless rate soared to 14.7% — the highest level since the Great Depression.”
And for a real shocker, take a look at this graph showing the precipitous fall in prime age labor force participation, or those from 25 to 54 years old.
Meanwhile in China news…
“China has joined 18 other members including the European Union, Canada, Australia, Singapore and Hong Kong in launching a temporary system for trade disputes at the World Trade Organization,” reports the South China Morning Post.
This comes after the WTO appeal body “ceased to function in December after the United States blocked appointments of new judges to the top trade court.” Notable non-members: the U.S., along with the U.K., Japan, and India.
Positive GDP Growth?
Here’s an interesting chart from the IMF that predicts China may be one of the only major countries to report positive GDP growth for all of 2020. (We shall see..)
Liu He: Expert on Great Depressions?
Take a look at this fascinating tweet thread and story from the Washington Post’s Eva Dou, examining how China’s top trade negotiator earlier worked on a massive study on how China should avoid a major economic crisis.
A chart from Goldman, via a tweet by Bloomberg’s Tracy Alloway, showing how regional economies around the world are expected to be hit by COVID-19 containment efforts.
“What started as a wave of de facto furloughs is turning into a wave of outright layoffs” tweets Bloomberg’s Joe Weisenthal referencing a must read article from his colleagues Shawn Donnan and Joe Deaux.
ICYMI, here is a link to video of a book talk I just gave at the Center for Strategy and International Studies.
And a personal announcement: I have joined the Atlantic Council’s Asia Security Initiative as a Nonresident Senior Fellow. ASI is part of the Scowcroft Center for Strategy and Security. Amongst many topics, I will be looking into evolving supply chains and trade.