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U.S. not likely to ‘break’ phase one trade deal with China, Morgan Stanley says


President Donald Trump and China’s President Xi Jinping shake hands at a press conference following their meeting at the Great Hall of the People in Beijing.

Artyom Ivanov | TASS | Getty Images

The U.S. will not likely want to “break” its so-called phase one trade deal with China, even though tensions between the two countries have escalated in recent weeks, a Morgan Stanley economist said on Friday.

U.S. President Donald Trump said last month he was “very torn” about whether to end the phase one deal. His comments raised concerns among investors and analysts that the world’s two largest economies would resume a tariff war that’s damaging to the global economy.

“At this point, our view from an economics standpoint … is as long as we have the phase one deal going on and there is no renewed escalation in terms of tariffs, then the global growth projections that we have should be intact,” Chetan Ahya, Morgan Stanley’s chief economist and global head of economics, told CNBC’s “Squawk Box Asia.”

He explained that the Trump administration “would be focused on economy right now and will not want to break the phase one deal,” so the risk of a renewed U.S.-China trade war hitting the global economy “is not likely to be happening in our forecast.”

Trump has not updated his stance on the trade deal, which was signed in January and put a pause in the tariff fight with China that lasted over a year.

But U.S. Trade Representative Robert Lighthizer, one of the key negotiators in the trade deal with Beijing, reportedly said Thursday he felt “very good” about the deal and that “China has done a pretty good job” in some structural changes.

China last week also repeated that it will continue working toward implementing the phase one trade deal, even as experts have said that Beijing is not likely to meet the requirements to significantly increase its purchase of U.S. goods and services.

China has predictably fallen short of its commitments so far due to the coronavirus pandemic.

U.S.-China ‘hot spots’

Tommy Xie, head of Greater China research at Singaporean bank, OCBC, said the status of the phase one trade deal hinges on whether the Trump administration is willing to allow China more time to beef up its purchases of U.S. goods.

But trade is not the only way in which U.S.-China tensions could play out in the coming months, noted Xie. He added that frictions between the two countries have expanded into areas including technology, the financial markets and Beijing’s handling of the coronavirus pandemic.

“Last year, the key concern was on the trade front,” Xie told CNBC’s “Street Signs Asia” on Friday.

“But this year … we’re seeing more and more hot spots right now between the U.S. and China. That’s why I think in the near term, there’s more for the market to be concerned at the moment.”

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