Daily Times

As American officials hurl accusations at China, most of which are apocryphal at best as they stand now, Chinese tabloids are responding in kind. Letting these theatrics play their course, however, Robert Lighthizer and his team at the Office of the United States Trade Representative need to sharpen their pencils. The Phase One Trade Agreement was never meant to be a win-win; rather almost a state dependant memory. It was essentially an American project designed to retain support among the manufacturing and oil-producing states for Donald Trump’s re-election campaign. As the economic fallout of the pandemic unfolds and the disruption of supply chains decimates global manufacturing capacity, the fortunes might not favour the bold.

Bringing jobs back to America using tariffs on Chines products, effectively raising them to 30 per cent in October 2019, as means to that end, came at the expense of an already floundering retail sector. According to a report published in the Harvard Business School, big retailers were previously able to offset substantial price hikes resulting from these tariffs, insulating consumers from spending more through the distribution of inevitably rising price levels across a wide array of goods. Prices were said to increase by not more than two per cent.

That, however, was never going to be sustainable, even for the much less turbulent state of affairs late last year. The retail sector is home to almost one-fourth of the nation’s employed, which an emerging shift to online retail would not bode well for. Add to that increased prices from tariffs on Chinese imports trickling down to burden consumers, the retail sector was all set to lose out on profits. The biggest consumer market was all set to face depressed consumer confidence even before the loss of jobs after the pandemic hit American shores.

During the lockdown, fortunes within the retail sector have been conflicting, as was expected. Online retail saw a surge as physical retailers had to close down stores and furlough their workers

During the lockdown, fortunes within the retail sector have been conflicting, as was expected. Online retail saw a surge as physical retailers had to close down stores and furlough their workers. The retail sector will be cash strapped as it opens up in the face of uncertain consumer behaviour in times ahead, leaving many of the furloughed workers out of jobs. Easing tariffs will cushion retailers against letting price hikes affect consumers and might not be worth serving as an instrument for a re-election campaign over economic stability.

The predicament is a lot worse for the hospitality industry with 47 per cent of the employed force losing out on their jobs and with the sector still uncertain about their business models upon reopening, which will expectedly be a lot later than the retail sector, financial stimuli and consumer confidence will forge any semblance of a recovery.

Perhaps the more prominent, in terms of Donald Trump’s election re-run, which is as important a determinant in America’s economic realities as any, is the manufacturing sector, which played a major part in electing him into office in the first place. Wisconsin, for example, is a manufacturing state that Donald Trump won in 2016. It lost almost 6,900 jobs in the sector last year. Not surprisingly though, most jobs lost were in the vehicle and electronic manufacturing plants, industrial parts for which have had been placed on the list of Chinese tariffs subject to tariffs.

The plot will only thicken following a weakening demand in the United States for the said products in the coming months as both consumers and investors weigh in on fiscal robustness and spending on durable goods remains uncertain. Even if demand does increase, working regulations inside plants following protocols to avoid the spread of the virus will inhibit employment numbers from rising. Experts have not been shy in stating the relevance of tariffs on Chinese imports in the manufacturing sector, which have been retained in the Phase One Agreement. How Donald Trump responds to a major loss of jobs in a sector he owes and gravely needs remains to be seen but a shift in America’s tariff regime in the Agreement will probably help.

In line with the Phase One Agreement, American energy exports to China are scheduled to surpass $50 billion across the next two years. It is a far-fetched notion at this point in time, given not only weakening demand and the state of national economies in North African and Middle Eastern OPEC members depending on oil exports but also the price war between Russia and Saudi Arabia, which the US had weighed in as well. Mike Sommers, CEO of the American Petroleum Institute was quick to trust rally in market forces before American oil prices hit negative. Following the deed, he seems more open to the idea of a bailout.

It is important to note that China retained a five per cent tariff on crude oil and 25 per cent on liquefied natural gas as part of the Phase One Agreement, which, according to Sommers, was a move made in retaliation to the persistence of tariffs on Chinese imports. All factors combined, there will be a greater push among lawmakers and cabinet members to deter energy imports, aimed to damage OPEC’s prowess even more.

Stopping energy imports might just be counterproductive for American shale producers at a time when they are vying to increase shale’s international market share. Shale exporters have certainly given OPEC a run for their money and a block in energy imports might tempt OPEC to retaliate, which will not only hurt American shale’s market shares but allow OPEC to diversify energy flows. Russia, for instance, is already at an advantage given major Central Asian and Middle Eastern energy exporters are bracing for unprecedented economic fallout, followed by weakened extraction and exporting capacity. Given Russia’s proximity to a leading energy importer in China, and its sovereign wealth fund geared to cushion its financial losses, America is looking at losing a huge chunk of its share of the energy market to Russia. On a similar footing, China will not be as keen to expand its energy base now that global supply chain networks will not be running as efficiently as before the pandemic, for that will only incur more losses.

President Donald Trump is no stranger to scrapping international agreements and he usually makes no secret of his displeasure towards his preceding administration in signing deals that would not put “America First.” The Phase One Agreement is entirely his own project; one that he has repeatedly touted as a “Win.” To adapt to changing realities, however, America would find it fitting to rewrite the Phase One Agreement, perhaps even conceding a little more in the reduction of tariffs on Chinese imports.

The writer serves as an Assistant Research Officer at the Islamabad Policy Research Institute (IPRI)