China Warns U.S. ‘Meddling’ In Hong Kong Could Derail Phase One Trade Deal

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Chinese officials recently expressed “strong dissatisfaction” with U.S. sanctions that came in response to a new national security bill on Hong Kong, warning that crossing “red lines” and meddling in what China considers its own internal affairs could put the trade deal at risk, The Wall Street Journal first reported on Friday.

KEY FACTS

Although the phase one trade deal is still alive on paper, if the United States continues to pressure China over “sensitive issues” that it considers off limits—such as Hong Kong, Taiwan and other matters—then the latter could halt its purchases of certain American exports.

Under the trade deal, China pledged to buy $200 billion of U.S. goods including soybeans and pork, but many experts have doubts about the agreement: “It is unlikely that China will manage to meet its purchase obligations under the phase one deal, which were largely unrealistic to begin with,” says Evan Rees, an Asia-Pacific analyst for Stratfor, a RANE company. 

“While still intact, the longevity of the phase one trade deal is increasingly in question for a host of reasons, with numerous triggers that could derail the agreement, including Hong Kong, Huawei, Taiwan, the South China Sea and several human rights issues,” he says.

On Thursday, in response to China’s sweeping national security bill for Hong Kong, the U.S. Senate unanimously passed a new bill that places sanctions on Chinese officials and businesses who undermine Hong Kong’s autonomy from Beijing.

During a meeting with U.S. Secretary of State Mike Pompeo in Hawaii last week, top Chinese diplomat Yang Jiechi reiterated Beijing’s dissatisfaction with new U.S. sanctions in response to the Hong Kong bill and China’s detention of Uighur Muslims in the Xinjiang region.

While Yang stressed that China remains committed to carrying out the trade deal and both sides have to “work together,” that message also carried a cautionary tone, sources told The Wall Street Journal.

One Chinese official said Yang implied that “the U.S. side should refrain from going too far with meddling,” and if “red lines” are crossed, that could jeopardize the phase one trade deal entirely.

Chinese Vice Premier Liu He, Beijing’s top trade negotiator, delivered a similar message after the meeting on June 18, suggesting that China’s ability to carry out its purchasing commitments under the trade agreement will require the United States to ease pressure on other fronts.

U.S. President Donald Trump, for his part, said earlier this week that the trade deal remains “fully intact,” despite earlier comments from trade advisor Peter Navarro which seemed to suggest that the deal was “over.” 

Crucial quote

“Beijing is making it clear that its compliance with the deal is contingent on the U.S. refraining from interference in issues of near-term critical strategic importance, chiefly its efforts to rein in Hong Kong’s autonomy and constrain Taiwan,” says Rees. But given the global economic disruptions caused by the coronavirus pandemic, China’s ability to dramatically increase purchases will be “somewhat limited” to begin with.

Key background

The long-awaited phase one deal was signed back in January, following months of prolonged negotiations which took a toll on market sentiment for much of 2019. The centerpiece of the agreement was China’s pledge to buy $200 billion of U.S. goods like soybeans and pork, but experts initially questioned whether those targets were realistic—and now, amid rising tensions and the economic fallout from coronavirus, they appear even less likely

What to watch for

“As the November presidential elections approach, the trade dynamic is likely to become increasingly volatile as the White House calculates whether it is an asset or a liability going into polls,” says Rees. 

Further reading

Trump Announces New Sanctions On Chinese Officials, But Won’t Scrap Phase One Trade Deal (Forbes)

Stocks Turn Positive After Trump Keeps Phase One China Trade Deal Intact (Forbes)

China Pledges To Uphold Phase One Trade Deal That Includes $200 Billion Purchase Of U.S. Goods (Forbes)

Stocks Hit Record Highs As U.S. Signs Phase One Trade Deal With China (Forbes)

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