White House adviser says China virus to delay U.S. export surge from trade deal

By David Lawder and Makini Brice

WASHINGTON (Reuters) - The White House's top economic adviser said on Tuesday that China's coronavirus would delay a surge in U.S. exports to China expected from the Phase 1 trade deal that was to take effect later this month.

Larry Kudlow, in an interview with Fox Business Network, said the virus, which has virtually shut down many Chinese factories and cities and cut off much travel in and out of China, would not have a catastrophic effect on business supply chains.

His comments marked the first time a Trump administration official has said that the fast-spreading virus would hamper China's ability to increase purchases of U.S. goods and services by $200 billion over two years, at least in the near term.

"It is true the trade deal, the Phase 1 trade deal, the export boom from that trade deal will take longer because of the Chinese virus. That is true," Kudlow said.

The Phase 1 agreement, signed on Jan. 15 and taking effect on Feb. 15, suspended a new round of U.S. tariffs in exchange for the Chinese purchases of agricultural, energy and manufactured goods and services. It also included reforms aimed at improving intellectual property rights and curbing the forced transfer of American technology to Chinese firms.

The deal envisioned that China would increase purchases by $76 billion in the first year and $123 billion in the second year, above a 2017 baseline of imports from the United States.

The text of the agreement has a disaster clause that could be invoked, but how any delays could be resolved is not specified.

"In the event that a natural disaster or other unforeseeable event outside the control of the parties delays a Party from timely complying with its obligations under this Agreement, the Parties shall consult with each other," the text reads.

The number of cases and deaths from the novel coronavirus has shown little sign of slowing - total cases have now surpassed 20,000 - spurring the United States to evacuate some of its citizens from China, issue a travel warning, and impose quarantines and a partial travel ban. Beijing has criticized the measures as unnecessarily spreading fear.

SUPPLY CHAINS

Kudlow played down the potential wider impact of the virus outbreak on the U.S. economy and on company supply chains that are being curtailed, saying: "It's not a catastrophe. It's not a disaster."

"We've been through this before and I just think the impact is minimal," he said later in the Fox Business interview.

China was the third largest U.S. goods trading partner in 2019 through November, falling behind Mexico and Canada because of the U.S.-China tariff war.

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Kudlow said he thought the virus outbreak could spur business investment and lead to increases in production in the United States.

Asked if component shortages could result from the outbreak, Kudlow said: "Yes. To a point. It's not across the board."

"Chipmakers are not going to be affected that much. Pharmaceuticals probably will be affected much more. Some things are kind of in the middle, when you get to automobiles and auto parts."

Most of the active ingredients used to make prescription drugs sold in the United States are sourced from China.