China deal ‘fully intact,’ Trump says after adviser roils markets

President Donald Trump said the first-phase trade deal with China is “fully intact” after his adviser Peter Navarro sowed confusion and spurred a temporary stock market drop with comments interpreted as a decision to end the agreement.

“The China Trade Deal is fully intact. Hopefully they will continue to live up to the terms of the Agreement!” Trump said in a Twitter post late Monday. Navarro had responded to a question by Fox News interviewer Martha MacCallum asking whether aspects of the deal were “over” by saying: “It’s over. Yes.”

U.S. futures swung wildly as the remarks caused concern that the deal signed in January, which paused the trade war between world’s two largest economies, was in jeopardy. Navarro later said he had been taken out of context.

Stocks headed higher in midday trading on Wall Street on Tuesday, adding to the market’s gains from a day earlier, as investors focused on the prospects for an economic recovery as more businesses reopen after being shut down due to the coronavirus pandemic. The S&P 500 was up 1% and on pace for its third straight monthly gain.

The market reaction and rapid response by Trump signal the sensitivity over the trade agreement at a time when the global economy is pummeled by the novel coronavirus and faces growing worries over the relationship between Washington, D.C., and Beijing. The two nations are locked in confrontation over the pandemic, Hong Kong, human rights and technology.

Contracts on the S&P 500 index fell as much as 1.6% before paring losses and the offshore yuan weakened 0.4% after media outlets reported the remarks.

Chinese officials have insisted that they intend to stick to the deal, which implies increasing imports from the U.S. by a total of $200 billion over two years. The economic slump caused by the coronavirus has made reaching those targets doubtful, though the U.S. had signaled some flexibility.

Navarro is not the decisive voice on the future of the trade deal. The architect of the agreement, Trade Representative Robert Lighthizer, said last week that the phase one agreement is “enforceable” and the U.S. fully intends to carry it through.

China’s foreign and commerce ministries did not immediately respond to a request for comments on Navarro’s Fox interview.

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