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The Legacy of Covid-19: What Now for the Sino-US Trade War?
28 May 2020
The Covid-19 pandemic and its repercussions seem destined to have long-lasting impacts on Sino-US trade and economic relations. According to a non-partisan Congressional Research Service (CRS) report released on 8 May 2020, the pandemic could be a “world-changing event with potentially profound and long-lasting implications for the international security environment and the US role in the world”, although some believe the pandemic will have more modest effects only.
Covid-19’s Potential Repercussions on Sino-US Relations
Most experts opine that the world economy will suffer a substantial recession this year, with depression-like reverses in most, if not all, economies, both developed and developing. While China, among a very few others, is likely to end the year with a positive, though much reduced rate of growth, the US – which faces a large amount of uncertainty, not least around the pace at which its economy will be re-opened and whether any future waves of infection will result in further partial or total shutdowns – is expected to see a decline of 6%.
How extensively economic globalisation might be slowed, halted or reversed as a result of the pandemic remains to be seen; but the US and many other countries are expected to reduce their dependence on imports of critical products and inputs, beginning with medical supplies, personal protective equipment (PPE), pharmaceuticals and pharmaceutical ingredients needed to fight off the virus.
The current health and economic shakeup has exposed the risks of global interdependence and the fragility of global supply chains. International responses to the pandemic have been haphazard and generally uncoordinated, with some countries erecting new restrictions on key medical exports. There are increasing calls for global supply chains to be diversified, for manufacturing to be re-shored or near-shored home to the US or at least North America or Latin America, and for dependence on mainland China’s manufacturing prowess to be significantly reduced.
The Phase One Trade Deal: To Be or Not to Be
On 15 January, 2020, the US and mainland China signed a phase one trade agreement under which the US suspended some tariff increases and rolled back others in return for what the White House called “structural reforms and other changes to China’s economic and trade regime.” As part of the deal, the US agreed to reduce from 15% to 7.5%, effective from 14 February 2020, the Section 301 additional tariff on List 4A goods imported from mainland China. Additionally, it refrained from imposing Section 301 tariffs on List 4B products and kept the additional tariffs on List 1, 2 and 3 goods at 25%.
Other important commitments made by the US included authorising, from 15 April, the import of five types of commercially produced fresh citrus fruit (pomelos, Nanfeng honey mandarins, ponkans, sweet oranges and Satsuma mandarins) from mainland China, the import of mainland Chinese fresh jujube fruit, from 12 March, and the expansion and revision of phytosanitary requirements for imports of mainland Chinese fresh fragrant pears from 27 March.
In a similar vein, mainland China made significant commitments in a number of areas, including intellectual property; trade in food and agricultural products; technology transfers; financial services; macroeconomic policies, exchange rate matters and transparency and bilateral dispute resolution. It also agreed to import various US goods and services over the course of this year and next in total amounts exceeding, by no less than US$200 billion, its imports of those goods and services in 2017. This was to be achieved in accordance with the following parameters:
- Additional US exports of specified manufactured goods (i.e., industrial machinery, electrical equipment and machinery, pharmaceutical products, aircraft, vehicles, optical and medical instruments, iron and steel, and other manufactured goods) should be at least US$32.9 billion in 2020 and at least US$44.8 billion in 2021;
- Additional US exports of specified agricultural goods (i.e., oilseeds, meat, cereals, cotton, other agricultural commodities and seafood) should be at least US$12.5 billion in 2020 and at least US$19.5 billion in 2021;
- Additional US exports of specified energy goods (i.e., liquefied natural gas, crude oil, refined products and coal) should be at least US$18.5 billion in 2020 and at least US$33.9 billion in 2021; and
- Additional US exports of specified services (i.e., charges for use of intellectual property, business travel and tourism, financial services and insurance, other services, and cloud and related services) should be at least US$12.8 billion in 2020 and at least US$25.1 billion in 2021.
It is worth noting that in late February 2020 the US Department of Agriculture and US Trade Representative (USTR) indicated that mainland China had taken a number of actions, on schedule, to begin implementing its agriculture-related commitments under the phase one trade agreement. At the time, there had been some concern that the Covid-19 outbreak could hinder this process, but the US statement indicated that this had not been the case up to that point. However, concerns regarding mainland China’s ability to comply with its purchasing commitments have since intensified in light of the severity of the economic crisis caused by the pandemic, not to mention the fact that the two sides had been expected to begin phase two negotiations following the signing of the phase one deal and to pursue a phase three deal if necessary.
Since the signing of the phase one agreement, the Trump administration has (i) kept its commitment to freezing the Section 301 tariffs on mainland Chinese products at current levels and not apply those tariffs on List 4B goods, (ii) continued to exclude products from the tariffs, and (iii) renewed the exclusions in place for a range of products. At the same time, the administration has blamed mainland China for the Covid-19 pandemic and continued to adopt restrictions aimed directly or indirectly at Beijing.
A summary of US trade-related actions since the signing of the phase one deal | |
8 Feb 2020 |
Effective date of expansion of Section 232 tariffs on steel and aluminium products to include certain derivative articles. |
6 Mar 2020 |
President Trump orders the divestiture of the 2018 purchase of StayNTouch, a mobile hotel property management system, by mainland China-based Beijing Shiji Information Technology Co. Ltd. and its Hong Kong subsidiary Shiji (Hong Kong) Ltd, based on national security concerns. |
6 April 2020 |
Effective date of modifications to two US Department of Commerce (DOC) rules pertaining to the determination of benefit and specificity in countervailing (CV) duty proceedings. In practical terms, these changes allow the US to impose CV duties on countries that act to undervalue their currencies relative to the US dollar, resulting in a subsidy to their exports. |
10 April 2020 |
The US Department of Homeland Security issues a temporary rule prohibiting, from 7 April to 10 August, exports of certain types of PPE being used to cope with Covid-19 without explicit approval by the Federal Emergency Management Agency. |
24 April 2020 |
The US Department of State decertifies mainland China as meeting the requirements of Section 609 of Public Law 101-162, which prohibits imports of wild-caught shrimp or products made from shrimp that have been harvested with commercial fishing technologies not certified by the State Department. As a result, wild-caught shrimp from mainland China is now ineligible to enter the US for sale. |
29 April 2020 |
A final rule by the US Bureau of Industry and Security (BIS) will remove licence exception CIVs (civil end users) from its Export Administration Regulations (EAR), from 29 June, 2020. A separate final rule will expand licence requirements on exports, re-exports and transfers (in-country) of items intended for military end-use or military end-users in mainland China, from the same date. BIS is also proposing to modify licence exceptions for additional permissive re-exports (APR) to prohibit the use of such exceptions for re-exports of items included, for national security reasons, on the Commerce Control List (CCL). It will maintain a short list of countries (D:1 destinations) subject to strict export control from various locations, including Hong Kong. Taken as a whole, these actions will further restrict US exports to mainland China and certain other economies, particularly of goods in the high-technology, electronics and telecommunications sectors. |
1 May 2020 |
President Trump issues an executive order prohibiting any acquisition, import, transfer or installation of any bulk-power system electric equipment designed, developed, manufactured or supplied by persons owned or controlled by, or subject to the jurisdiction or direction of, a foreign adversary, provided any such transaction poses an undue risk of sabotage or subversion, catastrophic effects on the security or resiliency of US critical infrastructure or the US economy, or any other unacceptable national security risk. While no specific foreign adversaries are named in the executive order, mainland China and Russia are widely considered to be two of the primary targets. |
Effective date of a new withhold release order issued by US Customs and Border Protection targeting imported goods made wholly or in part with hair products manufactured by Hetian Haolin Hair Accessories Co. Ltd., which operates in the Xinjiang region of mainland China. | |
4 May 2020 |
The DOC announces its intention to initiate an investigation, under Section 232 of the Trade Expansion Act of 1962, to determine whether imports of laminations for stacked cores for incorporation into transformers, stacked and wound cores for incorporation into transformers, electrical transformers, and transformer regulators, are being imported into the US in such quantities or under such circumstances as to threaten US national security. |
6 May 2020 |
The DOC announces that it will initiate an investigation, under Section 232 of the Trade Expansion Act of 1962, to determine whether imports of mobile cranes into the United States threaten US national security. |
15 May 2020 |
BIS announces changes to its long-standing foreign-produced direct product rule and the Entity List to “narrowly and strategically target Huawei’s acquisition of semiconductors that are the direct product of certain US software and technology.” |
US authorities have also continued to take tough action against mainland Chinese imports that are seen to be trans-shipped through third countries in order to evade anti-dumping (AD) and/or countervailing (CV) duties, including stainless steel flat-rolled products and butt-weld pipe fittings allegedly trans-shipped through Vietnam, as well as xanthan gum and steel wire garment hangers allegedly trans-shipped through India.
Meanwhile, BIS announced on 15 May that it will extend, for another 90 days, through 13 August, a temporary general licence (TGL) authorising certain exports to Huawei Technologies Co. Ltd. and 114 of its non-US affiliates on the Entity List. BIS cautioned, however, that activities authorised in the TGL may be revised and possibly eliminated after 13 August. BIS added that companies and persons relying on TGL authorisations should begin preparations to quantify the impacts of elimination.
Sino-US trade friction has intensified in recent weeks as a result of the Covid-19 pandemic. President Trump has blamed mainland China for the pandemic and the ensuing economic crisis. The president suggested in a Fox Business Network interview that aired on 14 May that the US “could cut off the whole relationship” with China, while suggesting ways the US could punish Beijing for the way it has handled the Covid-19 outbreak. One of the options under consideration would compel mainland Chinese companies to follow US accounting rules in order to be listed on US stock exchanges, although Trump did caution that mainland Chinese firms could move to the London or Hong Kong stock exchanges should more stringent requirements be implemented in the US.
White House trade advisor Peter Navarro has also been critical of mainland China in recent weeks, stating in an 11 May interview with CNBC that “a bill has come due for China” and “it’s not a question of punishing them, it’s a question of holding China accountable”.
Notwithstanding President Trump’s outbursts, the eventual fate of the phase one agreement and the phase two negotiations remains uncertain. An 11 May article in mainland China’s Global Times asserted that “advisors close to the trade talks have suggested Chinese officials are rekindling the possibility of invalidating the trade pact and negotiating a new one to tilt the scales more to the Chinese side”, especially in light of “US President Donald Trump’s hyping of an anti-China conspiracy that aims to cover up his mishandling of the COVID-19 pandemic”.
According to an Inside US Trade piece, President Trump said on 8 May that he was “very torn” on whether the phase one deal should remain in place, just hours after US Trade Representative Robert Lighthizer and US Treasury Secretary Steve Mnuchin declared that Beijing “was still expected to meet all of the terms of the pact”, following a conversation with mainland Chinese Vice Premier Liu He. Moreover, a 12 May report also by Inside U.S. Trade quoted White House spokeswoman Kayleigh McEnany as stating that renegotiating the deal was “out of the question”, while mainland Chinese Ministry of Foreign Affairs spokesman Zhao Lijian reportedly said the deal “would be implemented as it is.”
In an apparent sign of goodwill towards the US, mainland China announced on 12 May a second round of exclusions from its additional 25% tariff on imports of US goods. These exclusions will be in place from 19 May 2020 to 18 May 2021, and apply to 79 products, including rare earth mineral ores, aircraft radar equipment, semiconductor parts, medical disinfectants, and various precious metals and chemical and petrochemical products.
Meanwhile, there have been questions about whether Beijing will be able to comply with the purchasing commitments of the phase one agreement even if it remains in place. In a 21 April report titled Cascading Economic Impact of the COVID-19 Outbreak in China, the US-China Economic and Security Review Commission observed that while officials in Washington and Beijing have said implementation of the phase one agreement will continue as scheduled, “Covid-19’s impact on US exporters and Chinese consumer demand raises the possibility that implementation could be disrupted.” The Commission added that while the phase one deal makes no specific reference to force majeure exemptions, it includes a provision allowing for consultations “in the event that a natural disaster or other unforeseeable event” were to delay compliance, while noting that the China Council for the Promotion of International Trade issued 3,325 force majeure certificates, covering US$38.5 billion and “exempting exporters from contractual obligations in the wake of the outbreak,” in the first three weeks of February.
Similarly, Rhodium Group founder Daniel Rosen and former Australian prime minister Kevin Rudd declared in a SCMP Research piece dated 15 April that mainland China’s “high debt levels going into the pandemic and the likelihood that its GDP will contract as the private sector struggles to regain momentum after many businesses were closed to contain the coronavirus has sapped consumption to a degree that will make it nearly impossible for Beijing to fulfil its buying commitments” under the phase one deal.
Congressional Concerns
A number of US lawmakers have also expressed strong concerns about mainland China’s handling of the Covid-19 pandemic, including restrictions imposed by mainland Chinese authorities on exports of medical goods and PPE destined for the US. Other lawmakers have urged caution when adopting restrictions on mainland China because they could unintentionally harm US companies.
As shown in the table below, more than 30 bills have been introduced in the US Congress since late January aimed directly or indirectly at mainland China. Some of these bills seek to address more traditional concerns such as mainland Chinese investments in the US or Huawei’s involvement in the US telecom sector, while more recent measures have tended to focus on Covid-19-related matters such as Beijing’s alleged mishandling of the pandemic as well as reducing the dependence of the US pharmaceutical and medical supply chain on mainland China.
Bill Number/Sponsor |
Date Introduced |
Description |
Action |
Gallagher |
30/01/2020 |
To impose sanctions under the Global Magnitsky Human Rights Accountability Act to combat the suppression of the freedoms of speech, association, assembly, procession and demonstration of the people of Hong Kong |
Referred to House Foreign Affairs and Judiciary committees |
McCaul |
03/02/2020 |
Affirming that all mainland Chinese companies, private and state-owned, are under the effective control of the Chinese Communist Party |
Referred to House Foreign Affairs Committee |
Sullivan |
10/02/2020 |
To state the policy of the US regarding the need for reciprocity in the relationship between the US and mainland China |
Referred to Senate Foreign Relations Committee |
Posey |
18/02/2020 |
To direct the Secretary of Health and Human Services to study American dependence on unsafe mainland Chinese pharmaceuticals and to empower the FDA to mandate drug recalls in the case of critical contamination |
Referred to House Energy and Commerce Committee |
French |
21/02/2020 |
To ensure greater transparency about the terms and conditions of financing provided by mainland China to member states of international financial institutions |
Passed by House 02/03/2020 |
Cotton Gallagher |
04/03/2020 |
To require the Committee on Foreign Investment in the United States (CFIUS) to consider whether a foreign person party to a transaction undergoing review by the committee may be connected to a foreign country which has installed information and communications technology designed, developed, manufactured or supplied by persons owned or controlled by, or subject to the jurisdiction or direction of, a foreign adversary |
Referred to Senate Banking, Housing and Urban Affairs and House Financial Services, Foreign Affairs, and Energy and Commerce committees |
Gallagher Cotton |
12/03/2020 |
To impose sanctions with respect to foreign telecom companies engaged in economic or industrial espionage against US persons |
Referred to House Foreign Affairs and Senate Banking, Housing and Urban Affairs committees |
Rubio |
12/03/2020 |
To ensure that goods made with forced labour in mainland China’s Xinjiang Uyghur autonomous region do not enter the US market |
Referred to Senate Foreign Relations Committee |
Maloney |
13/03/2020 |
To amend the Securities Exchange Act of 1934 to require certain companies to disclose information describing any measures taken to identify and address conditions of forced labour, slavery, human trafficking and the worst forms of child labour within their supply chains |
Referred to House Financial Services Committee |
Cotton Gallagher |
19/03/2020 10/04/2020 |
To require the Secretary of Health and Human Services to maintain a list of the countries of origin of all drugs marketed in the US and ban the use of federal funds for the purchase of drugs manufactured in mainland China |
Referred to Senate Finance and House Energy and Commerce, Ways and Means, Armed Services, and Veterans’ Affairs committees |
Rubio |
19/03/2020 |
To require the Secretary of Defense to submit to Congress a report on the reliance by the Department of Defense on imports of certain pharmaceutical products made in part or in whole in certain countries, to establish post-market reporting requirements for pharmaceuticals |
Referred to Senate Finance Committee |
Velazquez |
23/03/2020 |
To amend the Securities Exchange Act of 1934 to require issuers to make disclosures related to supply chain disruption risk |
Referred to House Financial Services Committee |
Banks Blackburn |
25/03/2020 |
Expressing the sense of the House that the mainland Chinese government made multiple, serious mistakes in the early stages of the Covid-19 outbreak that heightened the severity and spread of the on-going pandemic |
Referred to House Foreign Affairs and Senate Foreign Relations committees |
Stefanik Hawley |
25/03/2020 |
Supporting an international investigation into the handling by the mainland Chinese government of Covid-19 and the impact thereof on the people of the US and other nations |
Referred to House Foreign Affairs and Senate Foreign Relations committees |
Gaetz |
25/03/2020 |
To restrict the use of funds made available in appropriations Acts for fiscal year 2020 for the benefit of any US or foreign person subject to the control of mainland China |
Referred to House Foreign Affairs Committee |
Steube |
26/03/2020 |
To direct the president, in consultation with the secretary of the Treasury, to develop and carry out a strategy to seek reimbursement from mainland China of funds made available by the US government to address Covid-19 |
Referred to House Foreign Affairs Committee |
Chabot |
14/04/2020 |
Expressing the sense of the House that all nations should permanently close live wildlife markets and that mainland China should cease spreading disinformation regarding the origins of Covid-19 |
Referred to House Foreign Affairs, Natural Resources, Agriculture, and Energy and Commerce committees |
Barr |
17/04/2020 |
Establishing the joint select committee on the events and activities surrounding mainland China's handling of Covid-19 |
Referred to House Rules Committee |
Crenshaw |
17/04/2020 |
Holding the Chinese Communist Party Accountable for Infecting Americans Act of 2020 |
Referred to House Judiciary Committee |
Mast |
28/04/2020 |
Expressing the sense of the House that mainland China should be held accountable for its handling of Covid-19 |
Referred to House Foreign Affairs Committee |
Blunt Rochester |
01/05/2020 |
To amend the Federal Food, Drug, and Cosmetic Act to require the holders of approved applications for drugs to conduct risk assessments to identify and evaluate risks to their supply chains and develop, maintain, and implement risk mitigation plans to address such risks |
Referred to House Energy and Commerce Committee |
Banks |
05/05/2020 |
To place temporary restrictions on acquisitions by mainland China |
Referred to House Financial Services, Energy and Commerce and Foreign Affairs committees |
Stauber |
05/05/2020 |
To require executive agencies to purchase pharmaceuticals from the US |
Referred to House Ways and Means and Oversight and Reform committees |
Ernst |
06/05/2020 |
To prohibit the use of federal funds for purchasing dogs and cats from wet markets in mainland China |
Referred to Senate Foreign Relations Committee |
Cotton |
06/05/2020 |
To require the Secretary of Health and Human Services to maintain a list of the countries of origin of all drugs marketed in the US and to ban the use of federal funds for the purchase of, or reimbursement for, drugs manufactured in mainland China |
Referred to Senate Finance Committee |
Hawley |
11/05/2020 |
To investigate the role of the Chinese Communist Party in the novel coronavirus global pandemic and to secure damages on behalf of victims in the US and abroad |
Referred to Senate Foreign Relations Committee |
Graham Collins |
11/05/2020 14/05/2020 |
To authorise the imposition of sanctions with respect to mainland China for its obstruction or failure to co-operate in investigations relating to the outbreak of Covid-19 |
Referred to Senate Finance and House Foreign Affairs, Judiciary, Financial Services, Ways and Means, and Energy and Commerce committees |
Rubio |
14/05/2020 |
To condemn gross human rights violations of ethnic Turkic Muslims in Xinjiang, and calling for an end to arbitrary detention, torture and harassment of these communities inside and outside mainland China |
Passed by Senate 14/05/2020 |
Flores |
15/05/2020 |
To amend the Federal Food, Drug, and Cosmetic Act to prohibit the importation of a drug or device that was manufactured at a banned foreign facility and to create incentives for pharmaceutical or device companies to increase manufacturing capacity in the US |
Referred to House Energy and Commerce and Ways and Means committees |
Green |
15/05/2020 |
To allow expensing of amounts paid to move business property from mainland China to the US |
Referred to House Ways and Means Committee |
Walker |
15/05/2020 |
To prohibit the listing of certain firms on national securities exchanges, to provide for expensing of costs directly connected with moving manufacturing from mainland China to the US, and to establish a counterintelligence vetting task force |
Referred to House Ways and Means, Financial Services and Homeland Security committees |
Of these bills, only two (H.R. 5932 and S. 3744) had been approved by the House or Senate as of 15 May. Among other things, H.R. 5932 would require the US Treasury Secretary to instruct the US executive director at each international financial institution that it is the policy of the US to seek to secure greater transparency with respect to financing provided by the mainland Chinese government to any member state of the respective institution in receipt of financing from the institution, consistent with the rules and principles of the Paris Club [1].
S. 3744 would, among other things, require the president to submit a report to various congressional committees identifying each foreign person, including any official of the mainland Chinese government, that the president determines to be responsible for torture, inhuman treatment or any other targeted actions with respect to Uyghurs, ethnic Kazakhs, Kyrgyz, members of other Muslim minority groups, or other persons in the Xinjiang Uyghur Autonomous Region. The president would also be required to impose certain sanctions on any identified persons, including blocking assets and denying US visas and admission.
Lawmakers have also expressed concern about mainland China’s restrictions on exports of medical goods and PPE to the US. In 20 April letters to mainland China’s ambassador to the US, Cui Tiankai, nearly 30 Democratic and Republican lawmakers expressed “deep concern” about “broad restrictions” adopted by mainland Chinese authorities on 31 March with regard to Covid-19 testing kits and other medical supplies, which “appear to have the unintended consequence of blocking critical, high-quality medical products from reaching the US in a timely manner.”
The lawmakers are asking Beijing to work with the Department of State and other US authorities to “consider exempting products that may be lawfully distributed in the US from the National Medical Products Administration (NMPA) registration requirement, automatically allowing these products to receive the NMPA certification, or expediting the review process for these products in a manner that is appropriate to the ongoing emergency.”
At the same time, six Republican senators sent a letter to President Trump on 6 May expressing concern about new DOC rules that make it harder for US semiconductor firms to compete for customers in mainland China. Specifically, the lawmakers asked the Trump administration to “follow a transparent and deliberate process, consistent with congressional intent”, in implementing the 2018 Export Control Reform Act (ECRA). They argued that the policy of the US should be to “use export controls only after full consideration of the impact on the economy of the US”, noting that the ECRA calls for greater transparency.
A CRS report dated 6 April laid out several options the US Congress could consider to respond to the on-going pandemic and avoid potential shortages of products typically imported from mainland China, including raw materials, intermediate industrial inputs and consumer products. However, the report acknowledged that these options would likely increase cost and other burdens on US companies and could affect sectors beyond medical supplies.
For example, the report said, Congress may consider the potential longer-term advantages and disadvantages of diversifying US supply and incentivising production of health supplies in the US, possibly in collaboration with other countries. Similarly, US firms with operations in mainland China, or that depend on production in the mainland, may be prompted to diversify away from mainland China and begin establishing new supply chains.
In addition, the report states, Congress might consider requesting that the president invoke his authority over the US government’s collection of data on corporate activity abroad for statistical and analytic purposes. These corporate surveys could provide information about, for example, the predicament of US companies involved in the production, distribution and export of PPE and medical supplies overseas, including in mainland China.
Importantly, the report notes that such surveys could also cover other sectors of potential congressional concern beyond those associated with the Covid-19 pandemic. This information could inform legislation that Congress has already passed or is considering with regard to overseas supply chains, including sourcing from mainland China.
Congress may also want to consider additional policy measures to defend against the potential for mainland China to overwhelm global markets as it leans on exports for economic recovery, the report states. Rather than waiting until market injury has occurred to seek damages, for example, Congress may want to watch trade patterns for signs of import surges and oversee the administration’s potential use of safeguard measures. Similarly, the report states, a broader liberalisation of US tariffs on mainland Chinese goods could further expose the US economy to mainland Chinese excess industrial capacity at a point of economic downturn.
Looking Further Ahead
The trade-related measures affecting mainland China that were implemented by the US following the signing of the phase one trade deal through mid-May are in line with the Trump administration’s general trade strategy and its efforts to reduce economic dependence on the mainland Chinese economy and decouple from it. Indeed, most would have likely been taken even if the pandemic had not occurred. However, Covid-19 has unquestionably increased frictions between the two economic giants and additional actions against mainland China by the Trump administration are expected as a result.
The intensity of these frictions may well depend on the severity of the economic downturn in the US and on how aggressively the president chooses to blame mainland China for the pandemic and the ensuing economic crisis during his re-election campaign. On a similar note, the phase one deal is one of the president’s primary “wins” on the trade front and it remains to be seen whether he believes sacrificing that win would increase his odds of prevailing in the November presidential election.
In this regard, a March survey by the Pew Research Center shows that US views of mainland China are increasingly negative amid the Covid-19 pandemic. Of those polled, 66% said they have an unfavourable opinion of mainland China, the most negative rating since Pew began asking this question in 2005 and up nearly 20 percentage points since the onset of the Trump administration. Only 26% said they have a favourable opinion of the mainland. Furthermore, 72% of Republicans had an unfavourable view of mainland China, while 62% of Democrats shared that view.
Mainland China is expected to play a pivotal role in the 2020 presidential campaign and these results suggest that both Trump and Democratic candidate Joe Biden will take an adversarial approach towards Beijing, clouding the Sino-US trade and economic relationship further. With respect to the elections, both the Trump and Biden campaigns have released ads squarely aimed at making mainland China the “fall guy” on the pandemic and a key component of the election.
That said, it remains to be seen how the Sino-US relationship will develop after the elections. If Trump wins a second term, it is likely that he will feel emboldened with his policies and, because he does not have to run for office again, will continue perhaps even more aggressively on the same path. If Biden were to win, it is possible that public perceptions of mainland China may make it very difficult to transition quickly to a more productive relationship, although many believe that a different president will work more predictably and consistently for business. In either direction, 2020 will prove to be a bumpy year for the already tense Sino-US relationship, as it bears the fallout from an unprecedented global health and economic crisis.
Complicating matters further is the 2019 Hong Kong Human Rights and Democracy Act, which amended the 1992 United States-Hong Kong Policy Act – the legislation governing the distinct relationships between Hong Kong and the US. This was followed by the US Secretary of State testifying to Congress on 27 May 2020 that Hong Kong is no longer sufficiently autonomous from mainland China as to warrant preferential treatment under US laws in the same manner as it enjoyed prior to 1 July 1997. With any subsequent moves likely to take time to implement, among the options open to the Trump administration are reducing the privileges currently extended to Hong Kong with regard to US export controls, visa applications and technology transfer.
In the longer term – and in the most extreme and unlikely scenario – should the US ultimately opt to treat Hong Kong and mainland China as one and the same with regard to trade and other legislative issues, the impact could be multi-fold. In all likelihood, this would see Hong Kong facing stricter US export controls (especially in the case of sensitive, dual-use technologies), additional tariffs under Section 301, possible non-market economy treatment under US AD and CV duty laws and more stringent scrutiny of any US investments by Hong Kong-related parties.
As it is now increasingly unclear just how Sino-US relations will evolve and whether or not January’s phase one trade deal will survive relatively intact, Hong Kong companies should continue to diversify their export markets, while exploring new manufacturing bases and innovative (or even disruptive) supply chain management solutions in order to optimise their operations in preparation for the anticipated global production rebound.
[1] The Paris Club is an informal group of official creditors whose role is to find coordinated and sustainable solutions to the payment difficulties experienced by debtor countries. The origin of the Paris Club dates back to 1956 when Argentina agreed to meet its public creditors in Paris. Since then, the Paris Club has reached 434 agreements with 90 different debtor countries.
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