China US flags with hand signing agreement

(Bloomberg News) — China’s promises in its phase one trade deal to increase purchases from the U.S. will be even tougher to fulfill now that a new virus is hammering demand and interfering with supply chains.

In the first year of the deal, which takes effect in mid-February, China committed to buy an extra $76.7 billion worth of American goods beyond what it purchased in 2017, and an additional $123.3 billion in the second year. The agreement signed just over two weeks ago marked an easing in tensions that flared as the world’s two largest economies waged a trade war.

As the coronavirus spreads, however, attention is focusing on a part of the agreement which states the U.S. and China will consult “in the event that a natural disaster or other unforeseeable event” delays either nation from complying with the agreement.

“It obviously is going to have some ramifications economy-wide, which we hope will not inhibit the purchase goal that we have for this year,” U.S. Agriculture Secretary Sonny Perdue said Jan. 29. “We’ll have to look ahead and see.

“But the honest answer is we just don’t know yet. But we’re hoping for a very quick conclusion.”

The health crisis has hit financial and commodity markets in recent days.

Futures prices for soybeans — a key component of China’s import commitments in the deal — fell for an eighth straight day Jan. 29, the longest skid in almost two months.

Meanwhile, economists are ratcheting up their estimates of the blow to economic growth. Nomura International Ltd. says the drag could exceed that seen during the SARS outbreak of 2003.