Mnuchin: Washington Still Expects China To Meet Trade-Deal Commitments Despite Outbreak

After President Trump once again hinted that the Chinese might have trouble delivering on their trade deal commitments in a tweet last week, his Treasury Secretary, Steven Mnuchin, has apparently contradicted his boss.

Following this weekend’s G-20 meeting in Riyadh, where the world’s 20 largest economies promised to keep a close watch on the outbreak but stopped short of calling it a downside risk to the global economy, probably for fear of spooking the market (these are the finance ministers, after all), Mnuchin sat down for an interview with Reuters.

The contents of that interview were released overnight, and perhaps the most notable comments were related to trade.

Mnuchin struck an ‘optimistic’ tone about the outlook for a US-UK trade deal, something that has been the subject of much speculation following Boris Johnson’s decision to defy Washington and allow Huawei equipment to be used in the construction in the UK’s 5G networks.

Reports claimed that President Trump berated Johnson during a ‘diplomatic’ phone call over the decision, and even hinted that it could impact the trade deal (of course, we suspect Johnson knows what he’s doing, and will use Huawei as a chit during negotiations).

Trump’s personal feelings aside, the Treasury secretary, a noted dove on global trade, believes a deal will be struck soon.

“I’m quite optimistic. I think the prime minister and the president have a very good relationship,” Mnuchin told an audience at the Chatham House think tank in London.

Mnuchin said he ‘had breakfast’ with outgoing foreign secretary Sajid Javid, and “we’re focused on trying to get this done this year because we think it’s important to both of us” (though we suspect Javid is currently occupied by his job search).

And most importantly, when asked about the UK’s digital services tax which would effectively target US tech giants, Mnuchin said “the US feels very strongly that any tax that is designed specifically on digital companies is a discriminatory tax and is not appropriate,” Mnuchin said.

To us, that sounds like a Sphinx-like warning: When it comes to the US-UK trade negotiations “everything is on the table” (as Trump once said) – and nothing is assured.

Speaking of trade, Mnuchin told Reuters that he doesn’t expect the coronavirus outbreak to have a material impact on the ‘Phase 1’ trade deal, although – and this is key – “that could change as more data becomes available in coming weeks.”

In other words, the secretary seems to be saying that the US doesn’t expect China to have any trouble meeting its commitments, though that could change, given how things are going.

At any rate, Mnuchin didn’t offer any suggestion that the US would grant Beijing any flexibility. And furthermore, he said that the outbreak could halt negotiations for a ‘Phase 2’ deal, another nugget of bearish trade news.

Here’s more from Reuters’ writeup of the interview:

Mnuchin, in an interview with Reuters late on Sunday, cautioned against jumping to conclusions about the impact of what he called a “human tragedy” on the global economy, or on companies’ supply chain decisions, saying it was simply too soon to know.

China was focused on the virus for now, he said, but Washington still expected Beijing to live up to its commitments to buy more U.S. products and services under the trade deal.

“I don’t expect that this will have any ramifications on Phase 1. Based on everything that we know, and where the virus is now, I don’t expect that it’s going to be material,” he said.

“Obviously that could change as the situation develops. Within the next few more weeks, we’ll all have a better assessment as there’s more data around the rate of the virus spreading.”

Mnuchin met late on Sunday with Saudi Crown Prince Mohammed bin Salman, a senior U.S. administration official said, but gave no details about the meeting.

Mnuchin acknowledged the outbreak could also delay the start of negotiations on deepening the trade deal with Beijing and reaching a Phase 2 agreement, but said he was not worried about that at this point.

“If we get the right deal before the election, that’s great. If we get the right deal after the election, that’s great. We don’t feel any pressure one way or another,” he said, referring to the Nov. 3 U.S. presidential election, in which President Donald Trump is seeking reelection.

There’s some interesting stuff happening in the Trump administration right now, and the message on trade is certainly still being massaged. But the tensions we’re seeing here appear to be reflected in the broader US-China relationship since the outbreak began – that is to say, the virus seems to have eroded mutual trust even further.