How COVID-19 affects U.S.-China trade deal

OPINION:

With meetings planned for Aug. 15 to evaluate Beijing’s compliance with the bilateral trade agreement signed on Jan. 15 — the Phase One Trade Agreement — the Chinese regime’s suppression of information about the emergence of COVID-19 sheds new light on their behavior and tactics, a source of confusion and concern among American leaders.

The impact of the pandemic on trade negotiations has not gone unnoticed by American leaders; according to President Donald Trump, “We made a great trade deal. But as soon as the deal was done, the ink wasn’t even dry, and they hit us with the plague.” 

During a meeting with U.S. Secretary of State Mike Pompeo in Hawaii on June 17, top Chinese diplomat Yang Jiechi reiterated Beijing’s dissatisfaction with new U.S. “meddling” in Hong Kong, Taiwan, Xinjiang and other matters. One Chinese official said Mr. Yang implied that “the U.S. side should refrain from going too far with meddling,” and if “red lines” are crossed, that could jeopardize the phase one trade deal entirely.

China’s top trade negotiator, Vice Premier Liu He, delivered a similar message after the meeting on June 17, suggesting that China’s ability to carry out its purchasing commitments under the trade agreement will require the United States to ease pressure on other fronts.

How could China default on the agreement in broad daylight? In fact, the agreement includes a force majeure clause, inserted when Chinese authorities, but not Americans, knew a deadly pandemic lay ahead. How did the clause, which allows for noncompliance in the event of unforeseen circumstances, manage to get into the agreement? The following account, excerpted from the comprehensive research report “China and the Pandemic” by Citizens Power Initiatives for China, tells the story:

The U.S.-China “Phase One” trade deal was signed on Jan. 15, 2020 EST, the same exact day that the Chinese Center for Disease Control and Prevention (CCDC) internally declared a level-one emergency response. The coincidental timing of these two events should spark everyone’s curiosity. It is impossible that China’s top officials and trade agreement negotiators would not have known about these highest-level emergency measures taken by the CCDC.

Of course, the outbreak must have been serious enough for such measures to be taken, but the Chinese authorities failed to announce this news to the Chinese people, let alone the international community — nor did China’s trade delegation inform the United States about this situation. 

We cannot help but wonder: Did China understand that it would have an excuse to partially or fully suspend its fulfillment of any agreement in the event of an epidemic? Was this its motive for concealing the truth from the U.S. government and gladly signing the Phase One trade agreement? For the time being, we lack sufficient evidence to provide a definitive answer. However, it is our evaluative judgment that the aforesaid supposition comports closely with the truth.

Originally, China and the United States were supposed to sign the Phase One trade deal during the first week of 2020. On Dec. 13, 2019, U.S. Trade Representative Robert Lighthizer stated that the U.S. and China would sign the agreement in the first week of January 2020, but on Jan. 5, China indicated that since President Trump unilaterally announced on New Year’s Eve that the U.S. and China would sign the trade agreement on Jan. 15, the Chinese government decided to delay the visit of the Chinese trade delegation, led by Vice Premier Liu He, to the United States.

All of a sudden, the trade deal that had seemed all but certain appeared to be on shaky ground again, as if leaders Xi Jinping and Donald Trump had divergent perceptions. People worried that the negotiations would break down at the last minute, just like the last time.

On Jan. 6, the CCDC internally initiated a level-two emergency response. The following day, President Xi chaired a meeting of the Standing Committee of the Political Bureau of the CCP Central Committee. At the time, as we previously stated in Chapter 10, the Xinhua News Agency didn’t mention that an outbreak was part of the meeting’s content, let alone that Mr. Xi issued any orders regarding epidemic prevention and control. The meeting emphasized that:

“This year is the final year for our decisive victory in building a comprehensively prosperous society and implementing the 13th Five-Year Plan.” The focus of the discussion at the Politburo Standing Committee meeting should have been the U.S.-China trade agreement, which was to be signed imminently, and how to carry out last-minute bargaining to obtain more benefits for China. Clearly, Mr. Trump was glad to sign the deal, a fact that China could use to its advantage. 

Therefore, during this period, Chinese policymakers did not publicly announce that the CCDC had internally declared a level-two emergency response, nor did they inform the international community about the truth regarding the outbreak. China strategically chose not to show its weak hand to its opponent, thereby creating information asymmetry to China’s own advantage.

On Jan. 11, White House officials said that the Trump administration had sent at least 200 invitations to prominent individuals to attend the signing ceremony, even though the two countries had not yet finalized the specific content of the agreement. 

On Jan. 12, U.S. Treasury Secretary Steve Mnuchin stated that the commitments that China made in the first phase of the U.S.-China trade deal remained unmodified during the lengthy translation process; the agreement that was reached on Dec. 13, 2019, (that China would buy $40 billion to $50 billion worth of U.S. agricultural products each year, and import a total of $200 billion worth of U.S. goods within two years) remained unchanged. 

On Jan. 13, He led the Chinese delegation to Washington and expressed that he expected to sign the trade deal with the United States on January 15.

After arriving in Washington, Mr. Liu did not alter China’s commitment to purchase U.S. agricultural products and other U.S. commodities. However, he demanded that a force majeure clause be added to the agreement, stipulating that the two countries engage in consultations “in the event that a natural disaster or other unforeseeable, uncontrollable event postpones the ability of either party to honor its obligations in accordance with the timetable.”

Subsequently, China and the United States carried out further negotiations regarding this matter.

Because the Chinese government covered up the outbreak (as of Jan. 15, China announced only 41 cases of pneumonia resulting from novel coronavirus infections in Wuhan, the United States didn’t know that the CCDC had internally initiated a level-two emergency response on Jan. 6, or that the emergency response had been escalated to level one — the highest level — roughly 10 hours prior to signing of the trade deal. Nor was the United States aware that an “unforeseeable, uncontrollable event” had already occurred in China), the United States agreed to add the force majeure clause to the Sino-U.S. Phase One trade deal, without giving it much thought.

On Jan. 15, at the White House, President Trump and Chinese Vice Premier Liu He signed the U.S.-China Phase One trade deal in the presence of more than 200 guests from all walks of life.

Thus, the overwhelmingly probable reality is evident: The Chinese government meticulously covered up the outbreak in Wuhan; failed to disclose the CCDC’s initiation of level-one and level-two emergency responses; conned Mr. Trump into signing the Phase One trade agreement with Mr. Liu; and duped the United States into adding a force majeure clause to the agreement, laying the groundwork for China’s nonfulfillment (or incomplete fulfillment) of the agreement in the future.

• Jianli Yang is founder and president of Citizen Power Initiatives for China.