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World The U.S.-China Trade Deal Risks Falling Victim to Spiraling Ties

14:11  24 july  2020
14:11  24 july  2020 Source:   bloomberg.com

US allies once seemed cowed by China. Now they're responding with rare coordination

  US allies once seemed cowed by China. Now they're responding with rare coordination In 2017, China's Xi Jinping made a speech in Davos calling for global cooperation on free trade and climate change. It was a sign he was ready to commmit China to the rules-based order. Three years later, the warmth in the room at Davos has gone.Today, the warmth in the room at Davos has all but gone.

China ' s foreign ministry said Washington had abruptly issued the demand on Tuesday and called it an U . S .- China ties have worsened sharply this year over issues ranging from the coronavirus and Please be fully informed regarding the risks and costs associated with trading the financial markets

China will inevitably retaliate over the United States' ordered closure of the mainland' s Houston consulate, adding to "escalating tit-for-tat" bilateral tensions, says Daniel Russel, vice president for international security and diplomacy at the Asia Society Policy Institute.

(Bloomberg) -- As U.S.-China ties have deteriorated since the Covid-19 pandemic devastated the globe, the trade deal they signed in January has served as sort of a linchpin in the relationship. Now that also could be coming undone.

a ship in a body of water: The Kota Cepat vessel loaded with shipping containers approaches the Yangshan Deepwater Port in this aerial photograph taken in Shanghai, China, on Sunday, July 12, 2020. U.S. President Donald Trump said Friday a phase two trade deal with China isn't under consideration, saying the relationship between Washington and Beijing has deteriorated too much. © Bloomberg The Kota Cepat vessel loaded with shipping containers approaches the Yangshan Deepwater Port in this aerial photograph taken in Shanghai, China, on Sunday, July 12, 2020. U.S. President Donald Trump said Friday a phase two trade deal with China isn't under consideration, saying the relationship between Washington and Beijing has deteriorated too much.

President Donald Trump, who has repeatedly blamed China for the virus’s spread ahead of the U.S. election in November, said Thursday the phase-one trade deal “means less to me now than when I made it.” He spoke shortly after the U.S. shut down China’s consulate in Houston for spying and theft of intellectual property, which prompted Beijing to retaliate Friday by ordering American diplomats to abandon their Chengdu outpost.

US-China relations are at an all time low, but Trump still seems unsure how to handle Beijing

  US-China relations are at an all time low, but Trump still seems unsure how to handle Beijing Throughout his time in office, US President Donald Trump has blown hot and cold on China. © Win McNamee/Getty Images President Donald Trump walks into the Rose Garden to make a statement about U.S. relations with China, at the White House May 29, 2020 in Washington, DC. Early in his tenure, he visited Beijing, where he schmoozed with Chinese leader Xi Jinping in the Forbidden City, and praised the "very good chemistry" the two men shared. The following year, however, Trump launched a trade war against China, while simultaneously holding out for an historic deal between the two countries.

President Donald Trump said that the trade accord with China means “much less to me” because of what he called that country’ s role in the spread The president, at a White House coronavirus briefing on Thursday evening, again complained that the U . S . had to shut down its economy to protect against

China strongly condemned the move, and a source said Beijing was considering shutting the U . S . consulate in Wuhan in retaliation. Despite those geopolitical concerns, Wall Street still found some cheer on hopes for another round of U . S . stimulus even as Republicans and Democrats remain far

“The phase-one trade deal between the U.S. and China hangs by a thread,” said Eswar Prasad, who once led the International Monetary Fund’s China team, and is now at Cornell University. “China has an incentive to keep the trade deal with the U.S. from crumbling, even as the bilateral relationship becomes more toxic, in order to try and limit damage to its economic recovery.”

The Trump administration has repeatedly upped the ante in its effort to pressure China, from imposing punitive tariffs to moving to kneecap Huawei Technologies Co. to shutting down the consulate -- one of the worst blows to diplomatic relations in four decades of relations. Secretary of State Michael Pompeo has cast the fight in ideological terms, saying Thursday that “securing our freedoms from the Chinese Communist Party is the mission of our time.”

As US and China force consulates to close, the risk of missteps and spiraling tensions rises

  As US and China force consulates to close, the risk of missteps and spiraling tensions rises The removal of diplomats creates a barrier to future deescalation -- and that could be dangerous."We treated each other as adversaries," former United States diplomat Henry Kissinger said last year, on the fortieth anniversary of the normalization of relations with China. "We had no normal way of contacting the Chinese government at all except there was an embassy in Warsaw in which both sides could communicate messages to each other and in which the ambassadors met occasionally. There were 152 meetings of the Warsaw Ambassadors who never reached an agreement on anything.

Risk appetite in currency markets diminished for around two hours, after China ’ s The headlines from Houston caught traders off-guard, said Westpac FX analyst Sean Callow, sparking fears that this latest dispute could be the one to halt the U . S .- China trade deal , although he considers that unlikely.

China said the U . S . move to close its Houston consulate this week had "severely harmed" relations and warned it "must" retaliate, after Washington ordered the office closed yesterday in a dramatic escalation of tension between the world' s two biggest economies.

The Major Flashpoints Between the U.S. and China Now: QuickTake

The heated rhetoric sparked panic buying in China on Friday, with the CSI 300 Index falling 4.4% at the close while the ChiNext Index dropped 6.1%, the most since Feb. 3. China’s yuan fell to the weakest since July 8.

Deal ‘Intact’

For China, the trade deal serves as important cushion for its own economic recovery. The truce agreed in January lifted the threat of higher tariffs on Chinese exports, which has been all the more critical given the collapse in shipments triggered by the pandemic. Both exports and imports improved in June, helping to solidify a broader recovery in the world’s second-biggest economy.

“China is working very hard to honor its promises,” said Jiang Yuechun, a senior research fellow with the China Institute of International Studies in Beijing, a research institute connected with the Foreign Ministry. “We always say that economic relations are actually the ballast for China-U.S. relations. Now the ballast is becoming weaker and weaker, and that is why now the ship of China-U.S. relations is going up and down.”

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  Trump wants an 'alliance of democracies' to oppose China. It's starting to take shape Moves by Britain, India and Australia signal an emerging if loose coalition against Beijing's expansionism, economic warfare and COVID-19 propaganda.From Britain to India, Japan to Australia, and even among the usually deferential nations of Southeast Asia, China’s aggressive expansionism, trade warfare, alleged espionage, cyberattacks and COVID-19 propaganda have provoked a growing pushback against President Xi Jinping’s ambition to build the world’s next superpower.

China vowed retaliation after the U . S . forced the closure of its Houston consulate, in one of the biggest threats to diplomatic ties between the countries in decades. Secretary of State Michael Pompeo said "We are setting out clear expectations for how the Chinese Communist Party is going to behave and

CNBC' s Kelly Evans discusses what the U . S . order to close the Chinese consulate in Houston, Texas means for U . S .- China relations with Dewardric McNeal of Longview Global and David Riedel of Riedel Research Group.

U.S. Move on Houston Consulate Risks American Footprint in China

At the January signing of the trade deal, in which China pledged to spend $200 billion to close the trade imbalance, Trump said the nations were “righting the wrongs of the past.” Even as the pandemic put China way behind on planned purchases, the U.S. president has still backed the deal. Last month, after one of his advisers made comments indicating the agreement was in jeopardy, Trump tweeted that the deal was “fully intact.”

One reason the deal has held up is because economic officials in both Washington and Beijing are more pragmatic in their approach given the economic consequences at play, according to Louis Kuijs, head of Asia Economics at Oxford Economics in Hong Kong.

“Compared to diplomacy and international relations, the economic portfolio is in the hands of less hawkish people on both sides,” Kuijs said. “The more that overall relations deteriorate, the more important the trade deal is as the one area where the two sides interact and discuss things relatively constructively, thereby providing a narrow pathway to maintaining dialogue between the world’s two largest economies.”

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China vowed retaliation after the U . S . forced the closure of its Houston consulate, in one of the biggest threats to diplomatic ties between the countries in decades. Secretary of State Michael Pompeo said "We are setting out clear expectations for how the Chinese Communist Party is going to behave and

China vowed retaliation after the U . S . forced the closure of its Houston consulate, in one of the biggest threats to diplomatic ties between the countries in decades. Secretary of State Michael Pompeo said "We are setting out clear expectations for how the Chinese Communist Party is going to behave and

Global banks and asset managers are ramping up investments in China even amid the political tensions. JPMorgan Chase & Co. was approved last month to take full ownership of its China futures unit, while Morgan Stanley and Goldman Sachs Group Inc. in March won clearance to take majority control of their onshore securities ventures.

Xi Reassures Global CEOs as Trump Steps Up Push to Isolate China

President Xi Jinping has made personal appeals to foreign companies to stay in China, telling global CEOs in a letter this month that his government would look to “provide a more sound business environment for Chinese and overseas investors.” His administration has also resisted slapping sanctions on a wide range of U.S. companies despite threatening more than a year ago to release an “unreliable entities” list.

‘Hot Tempers’

In shuttering the U.S.’s Chengdu consulate Friday, the Foreign Ministry said the downturn in ties “is not what China desires to see.” Those sentiments were echoed by Hu Xijin, editor of the Communist Party’s Global Times newspaper, who wrote that China had to take reciprocal action but “obviously does not want China-U.S. relations to fall in a free fall.”

China Orders U.S. to Close Chengdu Consulate in Retaliation Move

Scuppering the trade deal could lead to another round of tit-for-tat tariffs, sanctions and visa restrictions that will damage both economies even more as they look to recover from the pandemic, according to Kelsey Broderick, an analyst at Eurasia Group. Moreover, she said, “the risk of an accidental military clash goes up with hot tempers on both sides.”

Still, for now it looks like both Trump and Xi want to avoid that. Officials from both China and the U.S. have repeatedly reaffirmed the commitment to the trade deal, and neither side sees much advantage at the moment in giving it up, said James Green, a former U.S. trade official in Beijing who is now a senior adviser for geopolitical consulting firm McLarty Associates.

“For the U.S., there is little expectation at the cabinet secretary level that ending the agreement will lead to any additional advances, so best to stick with it,” he said. “On the Chinese side they will hunker down until November, moving tit-for-tat on non-trade areas and avoiding strategic choices until after the election.”

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