The US will want to protect its phase-one trade deal with China even as tensions flare, Morgan Stanley says

• The White House will likely keep its phase-one trade deal with China intact despite escalating tensions between the two countries, a Morgan Stanley economist told CNBC on Friday.
• The economic superpowers issued a spate of retaliatory measures throughout the week. The Chinese government told businesses to halt some imports of US farm products on Monday.
• The Trump administration fired back on Wednesday, banning Chinese airlines from operating passenger flights to the US.
• Even as the governments revive trade-war attacks, the White House "would be focused on economy right now and will not want to break the phase-one deal," Chetan Ahya, global head of economics at Morgan Stanley, said.
• The bank's global growth projections maintain that the countries will calm their relationship and instead look to recovering from the coronavirus pandemic, Ahya added.
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The White House won't easily give up on its phase-one deal with China despite new fears of a revived trade war, a Morgan Stanley economist said Friday.

The two economic superpowers kicked off a new stage of tit-for-tat measures through the first week of June. Chinese government officials told businesses to halt imports of some US agricultural products on Monday, threatening a key element of the January deal. The White House on Wednesday banned Chinese airlines from operating passenger flights to the US after accusing China of implementing a similar prohibition.

Investors and economists are growing increasingly worried the actions could spark a new phase of the global trade conflict, but Morgan Stanley said it believes the stressors will fade as each nation prioritizes its own recovery from the coronavirus pandemic.

The Trump administration "would be focused on economy right now and will not want to break the phase-one deal," Chetan Ahya, global head of economics at Morgan Stanley, said on CNBC.

"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," he added.

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Recent statements from White House officials suggest a calming of US-China tensions could be on the docket. US Trade Representative Robert Lighthizer said Thursday he felt "China has done a pretty good job" at meeting its trade-deal quotas, Bloomberg reported. While the pandemic will affect global trade relationships, "trade will come back," he added.

The optimistic remarks follow several instances of President Donald Trump accusing China of hiding the coronavirus outbreak and misleading other nations as to the pandemic's scope. The president has also noted a lack of confidence in the deal's future, saying in early May he was "very torn" on whether to end the agreement.

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