COVID-19 THREATENS PHASE I US-CHINA DEAL By Omar Nashashibi, The Franklin Partnership, LLC
IChina, Beijing negotiators asked their counterparts in Washington n December 2019, just as the coronavirus had begun to emerge in
to include a force majeure provision in the US-China Phase I agreement that President Trump went on to sign in January 2020.
The language – “in the event that a natural disaster or other unforeseeable event” – allowing either party to exit the agreement is not only about what did China know and when did they know it? It also has implications for trade and the agreement President Trump signed, committing China to purchase $200 billion of US goods and services over the next two years, including $77 billion from US manufacturers. Will China live up to its part of the deal or use this provision as a reason to back out? April 14, 2020, marked the two-month anniversary of the entry into force of the US-China Phase I trade deal, and recent Chinese trade data shows imports into China for the first quarter of this year fell by 2.9% over 2019. Even once Chinese demand picks up, US exporters will face challenges shipping the amount of goods specified in the agreement as parts of the US begin to reopen. The two sides set timelines for milestones on subjects from the easing of agricultural restrictions to purchasing schedules. However, China missed the March 27 deadline to provide a detailed action plan on its intellectual property commitments, and Beijing has not taken steps in addressing forced technology transfer or enforcing a crackdown on IP theft. Some of the challenges China faces are that many of the needed reforms require legislative or regulatory changes at a time when limitations on government officials congregating remain in place. China has taken some steps to increase purchases of American goods, largely by excluding some US products from tariffs the government imposed in retaliation to President Trump’s 301 tariffs on Chinese imports. 22
the american MOLD BUILDER | Issue 2 2020
These steps clearly are not enough for President Trump, who in April expressed his frustration and threatened to, himself, back out of the deal. The political climate in the US also may decide the fate of the Phase I agreement as much as COVID-19. The Trump 2020 campaign recently created a video criticizing former Vice President Biden for being too soft on China, while the president began publicly placing the blame on Beijing for not acting sooner on COVID-19. Sources in Washington indicate that the White House is exploring ways to incentivize manufacturers to reshore business from China to the US. On behalf of the American Mold Builders Association, we are working with the White House and Congress on how to develop policies that strengthen manufacturing in America. AMBA submitted a list of ten recommendations to the policymakers drafting the CARES Act, securing eight – including several tax provisions. The government is limited in the type of preferential treatment it may give US manufacturers for fear of violating domestic and international subsidy rules. For example, Washington State provided aerospace giant Boeing with more than $1 billion in tax credits in recent years, leading to a trade war with the European Union. One proposal under consideration is a 100% expensing for companies that bring back to the US the manufacture of PPE, drugs or other critical infrastructure from China. Another topic of discussion is lowering the corporate tax rate for certain manufacturers; however, again, this raises concern over illegal subsidies targeting specific industries. Regardless of the approach, the AMBA strongly supports the goal of bringing the supply chains for critical infrastructure back to the US. We have been in contact with the White House about different ways to promote the US supply chain and connect American businesses with medical device manufacturers.
