China-US trade deal could threaten Beijing’s other trading partners, IMF says

Any trade deal between China and the United States must comply with multilateral rules, as not doing so may create economic risks for the Asian nation’s other major trading partners, the International Monetary Fund said.

Committing to buying more goods from the US could have “a negative impact on third [party] countries whose exports to China would be crowded out”, IMF Asia-Pacific director Changyong Rhee said at a briefing in Washington on Friday.

““The agreement should be consistent with multilateralism, rather than bilateral,” he said. “If the deal involved preferential access for the US to Chinese markets, this could lead to broader worries about the future of the multilateral trading system.”

The world’s two largest economies are still ironing out the details of an agreement, which would likely include China making major purchases of American agricultural, energy and other products to reduce the trade gap with the US.

Potential purchase commitments already worry major trading partners such as Australia amid signs that its coal was being delayed at Chinese ports as relations recently soured.

IMF Asia-Pacific deputy director Jonathan Ostry said the fund’s research showed that if China agreed to buy an additional US$50 billion worth of goods from the US, the spillover effect of the possible diversion on Australia would be relatively small.

“But if the deal involves more purchases of goods in commodities that are very high in the China-Australia trading relationship, then the impact on Australian growth could be more substantial,” he said.

Rhee also warned of risks from a failure of Washington and Beijing to forge an agreement, especially in global financial markets that have already factored in reports of progress.