Morgan Stanley says the U.S. ‘will not want to break the phase one deal’ with China

CNBC reports that the U.S. will not likely want to “break” its so-called phase one trade deal with China, even though tensions between the two countries have escalated in recent weeks, a Morgan Stanley economist said on Friday.

U.S. President Donald Trump said last month he was “very torn” about whether to end the phase one deal. His comments raised concerns among investors and analysts that the world’s two largest economies would resume a tariff war that’s damaging to the global economy.

“At this point, our view from an economics standpoint ... is as long as we have the phase one deal going on and there is no renewed escalation in terms of tariffs, then the global growth projections that we have should be intact,” Chetan Ahya, Morgan Stanley’s chief economist and global head of economics, told CNBC.

He explained that the Trump administration “would be focused on economy right now and will not want to break the phase one deal,” so the risk of a renewed U.S.-China trade war hitting the global economy “is not likely to be happening in our forecast.”

Trump has not updated his stance on the trade deal, which was signed in January and put a pause in the tariff fight with China that lasted over a year.

But U.S. Trade Representative Robert Lighthizer, one of the key negotiators in the trade deal with Beijing, reportedly said Thursday he felt “very good” about the deal and that “China has done a pretty good job” in some structural changes.

China last week also repeated that it will continue working toward implementing the phase one trade deal, even as experts have said that Beijing is not likely to meet the requirements to significantly increase its purchase of U.S. goods and services.

China has predictably fallen short of its commitments so far due to the coronavirus pandemic.