President Donald Trump, and Chinas Vice Premier Liu He(L), the countrys top trade negotiator, shake hands after signing trade agreements between the US and China during a ceremony in the East Room of the White House in Washington, DC on January 15, 2020.
Saul Loeb | AFP | Getty Images
There’s a 50% chance the U.S.-China “phase one” trade deal could survive its first year — but that probability falls to 25% in the second year, a business consultant said on Monday.
Richard Martin, managing director at management consulting firm IMA Asia, said there are two reasons why the agreement could fall apart within those time frames: Limited success stories of government-mandated trade in the past, and provisions that allow the U.S. and China to walk away from their deal.
“There’s a very poor track record on government-mandated trade flows working out and that’s what we got right now,” he told CNBC’s “Squawk Box Asia.”
“We don’t like governments to go out and say this is the volume of trade and this is the price point we want done at — that’s meant to be said at the markets,” he said.
Martin added that if there are disputes between the two sides, the deal allows the U.S. Trade Representative, currently Robert Lighthizer, to “pretty much determine when China’s breaking the rules and inflict any penalty he wants.” In return, China could walk away from the agreement, he explained.
“So that’s not a very robust adjudication process. It says that if there’s a problem, it could well end in the phase one package being dead,” he said.
One main aspect of the “phase one” trade deal signed by U.S. President Donald Trump and Chinese Vice Premier Liu He involves China increasing its purchase of American goods and services by at least $200 billion over two years. Some trade experts and analysts have questioned whether that’s a realistic target, especially when Beijing may have to more than double its purchases of some products.
Still, Martin said the agreement has — for now — lifted some uncertainty in the global economy. That will allow companies to carry out business decisions that were put on hold over the past year when it wasn’t clear where the U.S.-China trade war was headed.
“A lot of people paused on sourcing decisions as we went through 2019. They just didn’t know where tariffs were going. No, they’ll go forward with those decisions,” he said.
“But long term, what does it mean? Well, longer term, a lot of our clients don’t think this trade deal will hold.”