How China's new virus could disrupt the phase one trade deal with the US

Chinese Vice Premier Liu He shakes hands with US President Donald Trump during a signing ceremony for trade agreement between the US and China in the East Room of the White House in Washington, DC, January 15, 2020.

Saul Loeb | AFP | Getty Images

A recent trade deal between Beijing and Washington could suffer “collateral damage” if the spread of coronavirus in China causes prolonged demand disruption, according to a recent report by Panjiva Research.

“China has committed to a 88.3% increase in imports of manufactured goods from the U.S. in 2021 versus 2017,” analysts at Panjiva Research wrote in a note dated Tuesday, referring to the partial trade deal signed between the two economic powerhouses in mid-January. “A prolonged demand interruption could make delivering those targets more difficult.”

Those comments come as China battles to contain a virus outbreak that has infected at least 5,900 and killed more than 100 people in the country, sending jitters across markets globally as investors weigh its potential economic impact.

The Chinese city of Wuhan, the capital of Hubei province, is the epicenter of the outbreak, and authorities have placed multiple cities in the province under partial or complete lockdown. Wuhan and the surrounding region of Hefei and Jiangsu — that have also been shut down due to the virus outbreak — are major manufacturing hubs that work with American firms.

“An analysis of Panjiva shipment data shows over 450 U.S. importers were supplied by companies located in Hubei province,” the report said.

To be clear, the Centers for Disease Control and Prevention said there is currently no evidence the virus can be transmitted through imported goods from China.

While a lot remains unknown about the new virus, coronaviruses are generally often spread by respiratory droplets, the CDC said, adding that there have not been any cases of the new virus in the U.S. that’s associated with imported products.

Global manufacturing powerhouse Hon Hai (also known as Foxconn) was among the top five companies importing to the U.S. from the Hubei region, according to Panjiva Research. Taiwan-based Foxxconn is the world’s biggest contract manufacturer of electronics and the largest assembler of Apple products.

Apple CEO Tim Cook said Tuesday the ongoing coronavirus outbreak in China has impacted the Cupertino-based tech giant’s operations in the country.

Cook told investors on Apple’s quarterly conference call on Tuesday that the firm has “some suppliers” in the Wuhan area, adding that at least some of its manufacturing facilities elsewhere in China will remain shuttered until Feb. 10, as recommended by the Chinese government.

Overall, managing the spread of the virus will be a “major distraction” from the trade deal, said Scott Kennedy, senior advisor and trustee chair in Chinese Business and Economics at the Center for Strategic and International Studies.

“Meeting targets in the trade deal would fade in comparison to managing the domestic politics and economics of this crisis,” he tweeted.

— CNBC’s Evelyn Cheng and William Feuer contributed to this report.

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