Insider Q&A: 'Everyone will suffer' from US-China spat Craig Allen, president of the U.S.-China Business Council, worries that “everyone will suffer'' if U.S.-China relations continue to deteriorate

WASHINGTON -- Two months ago, the United States and China signed an interim “Phase 1'' trade deal, signaling a cease-fire in the trade war between the world's two biggest economies. China agreed to import much more U.S. farm, energy and other products.

But the coronavirus changed everything. China expelled reporters from The Wall Street Journal after the paper's editorial page labeled China "the real sick man of Asia," leading to more tit-for-tat expulsions of reporters by the two countries. President Donald Trump has blamed Beijing for the outbreak, referring to it as the "Chinese virus."

The Associated Press spoke recently with Craig Allen, a former U.S. diplomat who is president of the U.S.-China Business Council, about the deteriorating relationship. The conversation was edited for clarity and length.

Q: What impact has the coronavirus outbreak had on U.S.-China relations, which appeared to be improving — or at least not deteriorating — after the Phase 1 trade deal?

A: We are concerned that the coronavirus outbreak is leading to a further distancing of the U.S.-China relationship. It has put the wind in the sails of those who advocate a decoupling of the two economies. The expulsion of American journalists from China, based on a single headline in a U.S. newspaper (which is not even available in China), is but one example. Further, both economies are under significant economic stress associated with a dramatic, precipitous slowdown of demand.

Q: Can China live up to the purchase commitments it made in the Phase 1 deal?

A: The purchase commitments by the Chinese were very aggressive, and they were based on 2017 exports – which were approximately 20% greater than 2019 exports. The dramatic reduction in Chinese economic growth in 2020 will make the commitments yet more difficult to fulfill. Energy prices have declined significantly. Further, the virus has virtually closed off tourism and education.

Q: What impact is the outbreak having on your members’ supply chains and ability to do business in China?

A: The supply chain impact is large and complex. While China is slowly getting back to work, many small and medium-size Chinese manufacturers are not yet back to full production. Chinese exports have been disrupted. Thus, some suppliers based in third countries have been unable to meet their commitments to American customers due to global disruptions.

Q: Overall, are you worried or optimistic about where U.S.-China relations go from here?

A: The United States and China together comprise as much as 40% of the global economy. If U.S.-China relations continue to deteriorate, everyone will suffer. In both countries, there is a danger that excessive nationalism or protectionism will distract us from pragmatic solutions to real problems. It would be helpful if both sides took measures to restore trust within the world’s most important bilateral relationship.