February 4, 2020 / 1:54 PM / in 18 days

China virus to delay U.S. export surge from trade deal: White House adviser

WASHINGTON (Reuters) - The White House’s top economic adviser said on Tuesday that China’s coronavirus would delay a surge in U.S. exports to China expected from the Phase 1 trade deal set to take effect later this month.

Larry Kudlow, in an interview with Fox Business Network, said the virus, which has virtually shut down many Chinese factories and cities and cut off much travel in and out of China, would not have a catastrophic effect on business supply chains.

His comments marked the first time a Trump administration official has said the fast-spreading virus would hamper China’s ability to increase purchases of U.S. goods and services by $200 billion over two years, at least in the near term.

“It is true the trade deal, the Phase 1 trade deal, the export boom from that trade deal will take longer because of the Chinese virus,” Kudlow said.

The Phase 1 agreement, signed on Jan. 15 and taking effect on Feb. 15, suspended a new round of U.S. tariffs in exchange for the Chinese purchases of agricultural, energy and manufactured goods and services. It also included reforms aimed at improving intellectual property rights and curbing the forced transfer of American technology to Chinese companies.

The deal envisioned that China would increase purchases by $76.7 billion in the first year and $123.3 billion in the second year, above a 2017 baseline of imports from the United States.

The text of the agreement contains a clause that calls for consultations “in the event that a natural disaster or other unforeseeable event outside the control of the parties delays a Party from timely complying with its obligations.”

ECONOMIC TOLL

The U.S.-China Economic and Security Review commission said in a briefing paper here on Tuesday that so far, China had not requested that its commitments be waved or suspended.

“The ongoing spread of the coronavirus is taking a toll on China’s public health and economy, and may impact its ability and willingness to meet the commitments in the Phase 1 deal,” the commission said.

The number of cases and deaths from the novel coronavirus has shown little sign of slowing - total cases have now surpassed 23,000 - spurring the United States to evacuate some of its citizens from China and issue a partial travel ban.

Clete Willems, a former White House trade adviser who took an active role in the U.S.-China negotiations, said China’s short-term focus should be on defeating the virus, and the United States would need to show some understanding.

“We simply don’t know the scope of this and what the economic impact is going to be. It does mean that in the short term it’s going to make it difficult to make progress on Phase 2, and there will be a conversation with respect to implementation,” he told Reuters at a trade conference in Washington.

SUPPLY CHAINS

Kudlow played down the potential wider impact of the virus outbreak on the U.S. economy and on company supply chains that are being curtailed, saying: “It’s not a catastrophe. It’s not a disaster.”

China was the third largest U.S. goods trading partner in 2019 through November, falling behind Mexico and Canada because of the U.S.-China tariff war.

FILE PHOTO: White House economic advisor Larry Kudlow speaks during a TV interview at the White House in Washington, U.S., January 30, 2020. REUTERS/Yuri Gripas

Kudlow said he thought the virus outbreak could spur business investment and lead to increases in production in the United States.

Asked if component shortages could result from the outbreak, Kudlow said: “Yes. To a point. It’s not across the board.”

He said semiconductor makers, which have global supply chains, may be affected less, while pharmaceutical makers, which rely heavily on Chinese ingredients, will be more affected.

Reporting by David Lawder, Andrea Shalal, Susan Heavey and Makini Brice; Editing by Bill Berkrot and Jonathan Oatis

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