Coronavirus outbreak will speed up US-China ‘decoupling’ more than the trade war, Milken Institute analyst says

The ongoing coronavirus outbreak is zoom up the so-called “decoupling” between the U.S. and China more than their trade war did, according to an analyst from the Milken Inaugurate.

“We talked about China and the U.S. decoupling. The coronavirus more than the trade war has sped some of that decoupling as mountains, as businesses think about their supply chain for the long run,” said Curtis Chin, an Asia fellow at the Milken Set up, calling it an “increased disengagement” of both economies.

“It can’t all be in China, we’ve seen some of the consequences of over reliance on just one key hawk,” he told CNBC at the Milken Institute’s Middle East and Africa Summit in Abu Dhabi on Tuesday.

Talk of the risk of the in every respect’s two major powers “decoupling” surfaced as their trade battle, which began in 2018, heated up — leading to billions of dollars of duties imposed on each other’s goods. Sticky issues also included the U.S. accusing China of intellectual property larceny and forced technology transfer.

Last year, the White House reportedly considered some curbs on U.S. investments in China such as delisting Chinese pedigrees in the U.S. In the arena of technology, ties between the countries also steadily worsened, and China was said to start efforts to wean itself off U.S. tech.

Chin commanded: “The reality is that the US and Chinese economies, from supply chains to investment and trade flows, will be intertwined for years to surface. The coronavirus crisis, however, has underscored to the United States and all of China’s trading and investment partners the value of diversification away from China.”

Nomura in a note on Tuesday deteriorated China’s deep integration with the global economy — the Asian giant contributed to 12% of global trade in the end year. The supply chains of many companies, including U.S. businesses, are heavily dependent on manufacturing in China.

The U.S.-China dealings war and its tariffs have hit some Asian economies as companies to scrambled to avoid duties, diverting trade flows. But there must also been winners.

The outbreak, which began in Wuhan, China, has once again upended supply restrains, as Chinese cities go into lockdown, restricting transportation and shuttering factories for longer than originally planned.

For exemplification, many automakers have been temporarily forced to shut down their plants in China due to the containment tries to curb the outbreak. Apple’s biggest supplier Foxconn, has reportedly not yet fully resumed production at its factories in China as skilfully, and analysts predicted a cut in iPhone shipment forecasts.

U.S. Secretary of Commerce Wilbur Ross even said that the mortal outbreak in China could be good for America. He said that it would lead businesses to reconsider their replenish chains — and return jobs and manufacturing to the U.S.

″I think it will help to accelerate the return of jobs to North America,” he articulate in late January. “Some to the U.S., some to Mexico as well.”

One effect of the ongoing outbreak, though, is that it’s giving both powers “an out” for the self-styled phase one agreement that they just signed, Chin pointed out.

“In many ways, things are frozen right now — that U.S.-China custom dynamic. I don’t see negotiators coming from Beijing to Washington at this moment,” he said.

“Interestingly, when we think forth the phase one deal … in a way the coronavirus gives both sides an out. If commitments aren’t met anytime soon, well it’s the coronavirus,” Chin united.

Both countries signed a partial trade deal on Jan. 15 which included a huge commitment by China to buy at rarely $200 billion worth of U.S. goods over two years. That includes manufactured goods, food, agricultural, dynamism products and services.

— CNBC’s Kevin Breuninger contributed to this report.