UPDATE ON U.S.-CHINA TRADE AND IMPACT FROM COVID-19 - PNC ...
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TRE A SURY MANAGEMENT
UPDATE ON U.S.–CHINA TRADE AND IMPACT FROM COVID-19
WHAT’S NEXT — CONSIDERATIONS FOR COMPANIES
Prepared by the PNC Shanghai Representative Office
Updated March 2020
After a tumultuous and often tense period of U.S.–China trade negotiations in 2018–2019 that increased
the tariffs on goods traded between the countries; created much uncertainty for businesses; and
caused notable currency volatility for the RMB, China’s currency, the long-anticipated signing of Phase 1
of the U.S.–China Trade Deal finally took place on January 15, 2020. As the name implies, Phase 1 of the
trade agreement is a partial trade deal that addresses some of the items that have been under trade
dispute, though not all. Items not covered in Phase 1 of the trade agreement are planned to be resolved
in future phases.
HIGHLIGHTS IN PHASE 1 OF THE TRADE AGREEMENT ARE NOTED BELOW:
• Some Rolling Back of Tariffs: While not explicitly stated • Technology Transfer: According to the agreement,
in the Phase 1 agreement, the U.S. agreed to lower companies should be allowed to operate “without
the 9/1/2019 U.S. tranche of tariffs on approximately any force or pressure from the other Party to transfer
$120B worth of Chinese exports from 15% to 7.5%,1 and their technology to persons of the other Party.”
removed the tariff that was originally set to take place
on 12/15/2019 on consumer electronic products as a • Financial Services: The agreement discusses
result of the Phase 1 negotiation. However, other tariffs provisions that would increase market access to foreign
that have been imposed since the start of the trade financial services in China, specifically in the areas
escalation remain, and therefore, the tariffs for Chinese of banking, insurance, asset management, payment
goods overall are still higher than before. Meanwhile, and funds management.
China also agreed to roll back tariffs levied on certain,
• Currency: The deal prohibits either the U.S. or China
though not all, U.S. goods imported into China.2
from manipulating their respective currencies.
•D
ispute Resolution: The method by which both
sides will manage further trade disputes is discussed,
including further potential imposition of tariffs or other
measures.
For U.S. businesses based in China or doing business
with China (including importing from China), while the
Phase 1 deal is certainly welcome, there has been some
degree of trade tension de-escalation, tariff relief and a
consensus between the two countries, much uncertainty
remains as many existing tariffs are still in place. Many
U.S. industry groups are already calling for Phase 2’s
negotiation to begin right away (though negotiation may
be postponed given the coronavirus outbreak). Given the
• Purchases of U.S. Goods by China: Under the unpredictability of the trade negotiations leading up to the
agreement, China would be committed to purchasing signing of the Phase 1 agreement, how future phases of
$200B of U.S. goods in 2020 and 2021. trade negotiations will play out remain to be seen, though
Phase 1 agreement is still a positive development for U.S.
• Intellectual Property: The trade deal seeks China’s and Chinese businesses.
commitment to protect U.S. companies’ intellectual
property when they operate in China.
pnc.com/international
UPDATE ON U.S.–CHINA TRADE AND IMPACT FROM COVID-19 2
CORONAVIRUS OUTBREAK THE UNEXPECTED
UNCERTAINTY OF 2020 FOR CHINA’S BUSINESSES?
Leading up to the start of 2020, many discussions on • Operations of Businesses in China: The Chinese
the future of China’s economy and the state of U.S. government rolled out various measures to delay the
businesses doing business in/with China had been start of the business from the Lunar New Year holiday
focused on the U.S.–China trade uncertainty. With the and to encourage firms to allow their employees to
Phase 1 trade deal in place, it seemed that some of the work from home. Many manufacturers will have lost
uncertainty had been lifted and the U.S.–China trade days of production as workers delay returning to work,
relationship was moving in the right direction. and office workers’ productivity may be impacted,
especially since working from home is not a common
practice in China.
At this point it is too early to assess For U.S. businesses operating in China, it is imperative
the full impact of the coronavirus to stay on top of the government’s measures, which can
on China’s economy. roll out very quickly and impact a company’s operations.
It may also be worthwhile to evaluate different scenarios
of when the epidemic may be contained and what each
scenario means to a company’s operations, vendors,
At this point it is too early to assess the full impact of the supply chain, etc. On a positive note, China’s government
coronavirus on China’s economy, but there have been has been actively rolling out policies to support both
several observable effects this far from the outbreak domestic and foreign companies in China through this
and the resulting actions: difficult environment, and it appears that both the U.S.
• Consumption: The Lunar New Year holiday has been and China are still committed to the Phase 1 trade
a significant revenue driver for retail and restaurant agreement even in the midst of the outbreak, made
businesses, especially as more people in China prefer evident by China’s reduction of tariffs on $75B worth
to dine out and shop during this period compared of U.S. goods2 on February 14. The government policy
to in the past. With various measures in place to support and Phase 1 agreement still moving forward
discourage people from congregating, including forcing should reduce some uncertainty for companies, at least
retail shops and restaurants to close, depending on in the short term.
the local policy, retail and restaurant businesses have
taken a significant hit, especially for those that still have
to pay their employees while businesses are shut China’s economy is resilient, and
in accordance with the relevant labor laws. businesses should recover from
• Travel and Tourism: Outbound tourism from China this unfortunate and unforeseen
that many countries’ economies rely on has come
to a screeching halt as Chinese travelers stay home. event, especially as employees
Many airlines have canceled flights to and from China, return to work, and business and
straining airline and hospitality profitability.
manufacturing activities rebound.
pnc.com/international
UPDATE ON U.S.–CHINA TRADE AND IMPACT FROM COVID-19 3
China’s economy is resilient, and businesses should
recover from this unfortunate and unforeseen event,
especially as employees return to work, and business
and manufacturing activities rebound. Certain industries
such as e-commerce and logistics may buoy the
economy in the short term as shoppers stay indoors
through the outbreak and do more of their shopping
online, and companies may become more creative
in conducting more of their businesses online where
possible. How long the epidemic will last and when
businesses will fully return to normal is too early to
determine. Indeed, with all the analyses and discussions
in 2019 about the uncertainties facing businesses and
world economies in 2020, the coronavirus outbreak may
end up being the most unexpected uncertainty in 2020.
READY TO HELP
Established in 2008, PNC’s Shanghai Representative Office (SRO) is available as a resource to PNC clients
who are doing business with China or in China.The SRO can provide assistance and guidance on:
• Corporate Establishment • Market Information
• Obtaining Local Banking Services • Introductions to Local Resources
Should you have any questions, please contact the International Advisory Team:
Grace Zhu, Chief Representative, at grace.zhu@pnc.com, or Chris Chen, Representative,
at chris.chen@pnc.com, in the PNC Shanghai Representative Office
1 https://ustr.gov/about-us/policy-offices/press-office/press-releases/2019/december/united-states-and-china-reach
2 China Daily: https://www.chinadaily.com.cn/a/202002/06/WS5e3b9419a31012821727574c.html
This article was prepared for general information purposes only and is not intended as legal, tax or accounting advice or as recommendations to engage in any specific transaction, including with
respect to any securities of PNC, and do not purport to be comprehensive. Under no circumstances should any information contained in this article be used or considered as an offer or commitment,
or a solicitation of an offer or commitment to participate in any particular transaction or strategy. Any reliance upon any such information is solely and exclusively at your own risk. Please consult your
own counsel, accountant or other advisor regarding your specific situation. Any opinions expressed in these materials are subject to change without notice.
PNC is a registered mark of The PNC Financial Services Group, Inc. (“PNC”).
PNC Bank, NA’s (“PNC”) Shanghai Representative Office was approved by the China Banking Regulatory Commission on April 16, 2008. PNC’s Shanghai office is prohibited from engaging in any form
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