China insists US trade agreement still stands: what next for Phase One?

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China has now spoken out to say it does intend to honour its commitments and continue with 'Phase One'.

Given US president Donald Trump's accusatory stance on coronavirus and China's role in the pandemic over recent weeks, the world might have been forgiven for thinking the two nations' fledgling free trade agreement was dead in the water.

Surely Beijing would eventually take offence at the outspoken Republican's comments and withdraw their backing of the terms of what had become known as the Phase One deal?

Actually, in surprising news to have emerged this month, this is not the case. In fact, China has now spoken out to say it does intend to honour its commitments and continue with Phase One as the coronavirus pandemic apparently recedes.

Steps towards a better relationship

The precursor to a free trade agreement was signed back in January after months of negotiations and a prolonged tit-for-tat trade war between the world's two largest economies.

As part of Phase One, China said it would buy billions of dollars' worth of US goods and services, concentrating in particular on agricultural products.

However, then came a completely unforeseen situation: a novel and deadly virus that forced much of China's manufacturing output to be all but lost overnight.

Such was the hit to the Asian nation's economy that, for the first time since it began publishing GDP figures in 1990, China abandoned its annual growth target due to uncertainty in the markets.

Trump blames China

The predicament worsened as coronavirus spread to the rest of the world. When the US was particularly badly affected by the disease, tensions arose as Mr Trump blamed China for the pandemic.

Just this month, he told a meeting of restaurant industry leaders the country's "incompetence" was behind "this mass worldwide killing".

"The whole world became infected by this horrible thing that they unleashed one way or the other," he added.

Republican senators also introduced the COVID-19 Accountability Act, which requires China to cooperate with an investigation into the origins of the pandemic or face US sanctions, while Mr Trump has repeatedly threatened to derail Phase One over China's alleged (but vehemently denied) involvement.

Speaking in an interview with Fox News Channel, White House economic adviser Larry Kudlow even suggested the FTA was not as important to the president as it once was and that he might not be too worried about pursuing it. 

Economic experts have expressed concern over this chain of events, as Harvard University political science professor Graham Allison told CNBC's Squawk Box Asia last week.

"The endgame will probably be lose-lose," the former assistant secretary of defence under Bill Clinton concluded.

Not taking the bait

However, in surprising news for the world at large, China has now responded not by taking an aggressive stance of its own, but by reiterating its desire to keep going ahead with the Phase One pact.

Premier of the State Council Li Keqiang told a meeting of Chinese lawmakers Beijing wishes to uphold its promise to purchase American goods such as pork and soybeans and intends to do this as soon as possible.

"We will work with the United States to implement the Phase One China-US economic and trade agreement. China will continue to boost economic and trade cooperation with other countries to deliver mutual benefits," Mr Keqiang said.

Zhang Yesui from the National People's Congress also said a "stable and growing relationship between China and the United States is in the best interest of the Chinese and American people", although he added that China may be forced to react if Mr Trump continues a Cold War mentality.

Indeed, the Asian powerhouse seems to be as good as its word, with a US shipment of ethanol already on its way to China and the US Department of Agriculture announcing fresh export sales of soybeans just this week.

Trouble ahead?

Unfortunately, though, Mr Trump doesn't seem to have received the memo. He has now begun to threaten the already-precarious situation by responding to recent Chinese restrictions on democracy in Hong Kong.

He told gathered media his administration is "doing something now", adding: "I think you'll find it very interesting but I won't be talking about it today. I'll be talking about it over the next couple of days."

Can Phase One withstand a further hammering as the US gets involved in another newsworthy event, or will China take umbrage and renege on its goodwill? Only time will tell.