The phase one agreement signed last month quelled the protracted trade conflict that tied up the world’s two most powerful economies, imperiled global growth and caused chaos for multinational corporations. The terms required both nations to de-escalate tariffs, and compelled China to buy an additional $200 billion in American goods over the next two years.

Levies will be slashed from 10% to 5% or from 5% to 2.5% on hundreds of U.S. products starting Feb. 14, China’s finance ministry said. The tariffs on cars, oil, soybeans and other goods date back to September and had been implemented in response to additional tariffs the U.S. had applied in the fall.

The widely expected move comes as China is paralyzed by the coronavirus, which has infected more than 28,000 in the mainland and killed more than 500. It has also brought China’s powerful manufacturing industry to a standstill, as travel restrictions freeze China’s workforce and major companies such as Boeing, Apple and Nike have been forced to close factories until at least mid-February. McDonald’s, Starbucks, KFC, Levi Strauss, H & M and Samsung have closed stores across China. Casinos in Macao, the world’s biggest gambling market, are shutting down for two weeks.

“The recent cut in Chinese tariffs is more about containing the economic damage to China from the coronavirus than it is about trade relations between the two countries,” Brad McMillan, Chief Investment Officer for Commonwealth Financial Network, said in commentary Thursday. “Along with the recent moves by the PBOC to inject money to protect their markets, this is aimed at managing the risk.”

China is the world’s leading oil consumer, and the country’s lockdown has sent shock waves through crude markets. Brent crude prices hit a one-year low earlier this week, and BP has warned the virus could reduce global oil demand by as much as 80% this year. OPEC and its allies have been meeting to discuss oil output in the face of declining demand.

Even if the virus is contained soon, economists are predicting China’s growth rate will fall to between 3% and 4% this quarter.

“Reducing tariffs and importing more food from the U.S. makes a lot of sense for the Chinese. The Chinese government is facing a number of homegrown problems, the major one being the outbreak of the coronavirus,” said Ed Yardeni, president of Yardeni Research. “They are clearly in need of importing more food. The swine flu epidemic last year decimated their pork supply. Now there is evidence their chickens are facing a virus. They need our food. Food inflation is soaring in China. There have also been disruptions in their transportation system, further complicating the food supply.”

China’s ministry of agriculture and rural affairs announced an outbreak of the highly pathogenic H5N1 virus that wiped out 4,500 birds on a poultry farm in the Hunan province earlier this week. The World Health Organization said the virus “does not infect humans easily” and that the person-to-person spread is unusual. But H5N1 compounds dangers for China’s poultry industry, as the coronavirus has made it difficult for farmers to receive chicken feed. Hubei poultry farmers said they were “very distressed” about the situation in a letter to the China Animal Agriculture Association last week.

Experts are skeptical about China’s ability to deliver on the additional $200 billion in American purchases it is supposed to make, and the likelihood seems slimmer given the outbreak. But the pact includes a disaster clause which allows for some leniency in the event of a crisis like the coronavirus. The U.S. is slated to follow suit and cut tariffs on certain Chinese imports from 15% to 7.5%, also on Feb. 14.

In an interview with Fox Business earlier this week, White House National Economic Council director Larry Kudlow acknowledged that the outbreak could delay China’s purchases. But he said the effect on the U.S. economy would be minor.

“We’re just trying to help China right now,” Kudlow said Tuesday. “It’s not going to be that big a deal for us.”

China has agreed to buy an additional $76.7 billion in U.S. goods and services in the first year of the deal – a 41% jump from the $187.5 billion it spent in 2017, according to the office of the U.S. trade representative. The Chinese have agreed to dollar targets for services, as well as for farm goods, energy products and manufactured goods. New sales for American farmers alone are expected to near $40 billion in the first year, up from $24 billion.

U.S. Agriculture Secretary Sonny Perdue said Wednesday that the U.S. should be patient with China if it struggles to hit these targets amid the outbreak, Reuters reported.

“If they’re really trying and it really just blows the economy out of the water, then we would have to be understanding of that,” Perdue said, speaking to reporters at a cattle convention in Texas.”

Farmers were among those hit hardest by the trade war, and the U.S. government has tried to stem the losses with a $28 billion bailout. American farm bankruptcies jumped 20% in 2019, hitting an eight-year high, according to recent analysis from the American Farm Bureau.

Fresh data from the Commerce Department on Wednesday showed that the U.S. trade deficit with China narrowed in 2019 for the first time in three years, as both nations slapped tariffs on hundreds of billions of dollars worth of imports. The deficit with China fell $73.9 billion to $345.6 billion last year.

“China hopes that both sides will abide by bilateral agreements and make an effort to implement relevant provisions so that we can boost market confidence, promote bilateral trade relations and global economic growth,” China’s State Council Tariff Commission said in a statement.

The sign of de-escalation lifted overseas markets, with Hong Kong’s Hang Seng Index closing up 2.5% and Europe’s benchmark Stoxx 600 index on track for its best week of trading since 2016. But Wall Street, which has been on a tear all week, seemed to shrug, with the Dow Jones industrial average flat in early trading.

Exporters will be allowed to keep a larger amount of their profits in overseas accounts, up to one million dollar from the $200,000 currently allowed, he said.

It will lower cost for exporters and at the same time lessen pressure on the baht’s appreciation as exporters need not repatriate large sums of money back to the country.

It will also lead to more balance between capital outflows and inflows, he said.

The baht gained 8 per cent against the US dollar last year.

The currency was highly volatile in the first month of 2020, moving past the Bt30/dollar level and retreating below Bt31.

It weakened at the outbreak of the coronavirus, but has since regained strength.

At the close of trade on Thursday, the weighted-average interbank exchange rate stood at Bt31.078/ dollar, compared with Bt30.110 on January 2, the first day of trade this year, according to the Bank of Thailand.

High current account surplus and slowing investment were blamed for the strong baht.

Their move followed the policy rate reduction by the Bank of Thailand’s Monetary Policy Committee (MPC) on Wednesday (February 5).

Kasikornbank (KBank) was the first to announce a rate cut on Wednesday shortly after the MPC’s decision.

Effective today, KBank has reduced its minimum retail rate (MRR) for SMEs and individual customers to 6.62 per cent from 6.87 per cent.

Siam Commercial Bank (SCB) will lower its Minimum Loan Rate (MLR) to 5.775 per cent from 6.025 per cent, effective tomorrow.

Recently the bank launched a six-month grace period for repayment of the loan principal amount to existing customers in the hotel business as an urgent measure to help mitigate the impact on their business from the coronavirus crisis.

Government Housing Bank (GH Bank) will trim MLR, minimum retail rate (MRR) and Minimum Overdraft Rate (MOR), effective tomorrow.

It will cut MLR from 6 per cent a year to 5.875 per cent, MRR from 6.5 per cent a to 6.375 per cent and MOR from 6.750 per cent a year to 6.500 per cent.

Government Savings Bank (GSB) will cut both MRR and MOR from 6.745 per cent to 6.495 per cent tomorrow. Krungthai Bank (KTB) will also cut its minimum loan rate (MLR) from 6.025 per cent per year to 5.775 per cent, effective tomorrow.

The MPC on Wednesday voted unanimously to trim the policy rate by 0.25 percentage point from 1.25 per cent to 1 per cent, effective immediately.

The reduction was in line with MPC’s estimate that Thai economy growth would be lower than its previous forecast, due mainly to the new coronavirus outbreak, delay of the 2020 fiscal budget disbursement and drought.

For goods with 10 percent tariffs since Sept 1, 2019, the rate was decreased to 5 percent, and for those with 5 percent tariffs the rate was adjusted to 2.5 percent, per a statement from the commission.

The commission said subsequent adjustments depend on changes in the Sino-US economic and trade situation, and China hopes to work with the US to try to eliminate all additional tariffs.

In addition, China will continue to work on the exclusion of additional tariffs on US products. “The previous measures of tariff exclusion, which have been released, remain in effect,” according to the statement.

The move came as a response to US tariff adjustments starting Feb 14, the commission said. On Jan 16, the US government announced it would cut the additional tariffs on $120 billion in imported goods from China, down from 15 percent to 7.5 percent.

“China hopes the two sides can follow the agreement, implement relevant content, enhance market confidence, improve the bilateral economic and trade relations and promote global economic growth,” the commission said.

The measures also include incentives to help strengthen the grassroots economy and the tourism industry.

“The measures aim to support investment at all levels, from large projects with a significant economic impact to community-level businesses,” BOI secretary general Duangjai Asawachintachit told reporters after the meeting chaired by Prime Minister Prayut Chan-o-cha.

In a follow-up to the “Thailand Plus” package announced by the BOI in September, the first new measure aims to accelerate investment in large-scale projects eligible for corporate income tax-exemptions of 5-8 years by offering an additional 50 per cent corporate income-tax deduction for a period of five years if they realise an investment of not less than Bt500 million in 2020 or a total of not less than Bt1 billion by the end of 2021.

Qualified projects must submit applications before December 30 this year.

To encourage the private sector to participate more actively in improving the competitiveness of the grassroots economy in agriculture and agricultural processing, light industries and community tourism, the BOI approved an extension and improvement of a promotion measures allowing companies to enjoy tax benefits when they invest in such projects.

The revised definition of qualified applicants now includes businesses that have not previously received BOI promotional privileges, as long as they operate in sectors promoted by the BOI. Also, businesses currently enjoying corporate income-tax exemptions can claim additional tax benefits if they invest in or spend on the grassroots economy. Applications for this scheme must be submitted by the end of 2021.

To support the tourism sector and encourage the development of environmentally friendly infrastructure in tourist areas, as well as promoting tourism in less-visited provinces, the BOI extended tax privileges for investments in cable car projects at tourist sites to include electricity-powered tramways, with investments worth at least Bt100 million.

The BOI also relaxed conditions for the hotel business, particularly for SME operators.

Enhanced tax incentives are also given to hotels in 55 less-visited provinces.

In 2019, investment applications filed through the BOI were worth Bt756.1 billion, topping the government’s target.

Of the total value, Bt506.2 billion worth or 67 per cent were applications for foreign direct investment.

S&P Global Ratings believes loan growth and asset quality in the sector may weaken as economic activity further slows. While it’s too early to quantify the impact, the short-term impact should be absorbable since the sector has healthy profit levels, strong capital and good coverage ratios, it said.

“We believe the outbreak will have a greater impact on Thai banks than on any other banking system in the Association of Southeast Asian Nations, given the country’s high credit risk and high linkages with China for tourism and trade,” said S&P Global Ratings credit analyst Deepali Seth-Chhabria.

The Thai economy has rebounded strongly after previous crises, such as the global financial crisis in 2008 and severe flooding in 2011, and this limited the impact on Thai banks. However, this time around, the outbreak would exacerbate an economic slowdown already underway due to weak external demand.

“A prolonged delay in Thailand’s economic revival would deepen the downside scenario for domestic banks, given high household leverage, aggressive underwriting standards, and weakness in the small and midsize enterprise [SME] sector,” said Seth.

The drag on the hospitality and tourism sectors could be acute since the contribution of tourism exports to gross domestic product is high at about 11 per cent and China accounted for about 28 per cent of total visitors to Thailand in 2018. As multinational firms close their plants and offices in China, the impact will be felt by supply chains worldwide in the fields of high-tech, electronics, and auto and auto parts. China is a sizeable trading partner for Thailand, contributing about 20 per cent of its imports and 12 per cent of exports in the first 10 months of 2019.

Trade, which forms about 12.4 per cent of the loan book, may also be strained, as SMEs account for 74 per cent of this exposure, and will be more vulnerable in a weak economic environment, S&P said. As of September 30, 2019, restaurants, hotels, and transportation accounted for 4.4 per cent of the loan book in the Thai banking sector, and SME exposure is half of this.

Thailand’s household leverage, at 79 per cent, is one of the highest among emerging markets. If the economic weakness is accompanied by job losses in the tourism and general commercial sectors, it could lead to higher delinquencies with a severe impact on asset quality, S&P said.

At that time, steps taken by the government to correct the situation will be key. As seen in the past, the government may unveil supportive policies, including short-term economic stimulus packages targeting SMEs and the retail sector. These measures could provide some cushion for the economy and the banking sector. Earlier on Wednesday, the Bank of Thailand slashed its policy rate by 25 basis points to a record low of 1 per cent in an effort to shore up the economy.

Asset quality started to stabilise in 2019 after a few years of deterioration. Banks have been strengthening their balance sheets and maintaining healthy Tier-1 capital adequacy ratios of about 15 per cent. The overall creditworthiness of Thai banks will continue to benefit from government support, complementing their financial strength, S&P said.

Some bank ratings have limited buffers. If the outbreak is prolonged, these ratings could come under pressure should credit costs rise sharply, loan quality deteriorate severely, or capitalisation weaken significantly.

While the situation is obviously a fluid one, S&P’s base-case projection is that the coronavirus crisis will stabilise globally in April 2020, with virtually no new transmissions in May. Its worst-case projection is that the virus stops spreading in late May, and optimistically in March. However, in a black-swan event that authorities fail to contain the viral outbreak, the impact of a prolonged and acute epidemic could be more challenging, S&P said.

Global central bankers are mainly biding their time as the coronavirus fallout reverberates through the world economy, which they had hoped was stabilizing after its worst year since the financial turmoil of 2009.

While the Bank of Thailand on Wednesday cut its key interest rate to a record low, most monetary policymakers have stuck to expressing concern and signaling a willingness to act if the virus delivers a sustained triple blow to demand, inflation and financial markets.

On Wednesday, the Philippine central bank governor hinted a similar move to Thailand’s was imminent and the Monetary Authority of Singapore said there was “sufficient room” for its currency to ease if the virus weakens its economy.

At the Federal Reserve, Vice Chairman Richard Clarida last week described the impact of the virus as an economic “wild card.” Bank of Japan Governor Haruhiko Kuroda said Tuesday he wouldn’t hesitate to shield his economy. Reserve Bank Australia Governor Philip Lowe, the developed economy most exposed to China, said he’s prepared to lower rates if needed, while stressing that it’s important not to “catastrophize.”

The economic pain is playing out in real time. Nike Inc. became the latest company to warn of a hit, saying it had closed about half of its company-owned stores in China as a result of the outbreak, which it expects to have a “material impact” on its operations in the country. World Bank President David Malpass warned Tuesday of an enormous amount of uncertainty.

The upshot is that after racing to the rescue of swooning economies in 2019, central bankers are again having to assess a fresh downside risk to their outlook and a new disinflationary impulse. Their hope is that the virus will soon be contained, enabling a swift bounce back in global growth, without them having to ease already loose monetary policy even further.

“Typically, what’s happened in the past, there may be a short-term impact of an epidemic or a pandemic, but longer term it seems to have relatively little influence, and I think many observers are hoping that will be true this time,” former Fed Chair Janet Yellen said Tuesday in Washington. “But we don’t know where this is going, and to my mind it is clearly a source of uncertainty and risk to the global outlook.”

A dilemma for central banks is that their key rates are already at or near historical lows. Bloomberg Economics estimates show that benchmarks across major advanced economies are already back below neutral, the rate that balances full employment and low inflation.

That may leave central banks reluctant to cut for fear of using up ammunition they might need to fight a future downturn. But they also could choose to cut in hopes of warding off a renewed economic downturn.

The SARS experience 17 years ago may offer reason not to panic. According to James McCormick, a strategist at Natwest Markets, the 2003 “impact on growth and markets was short-lived and once it had passed, the global economy resumed its solid uptrend into the end of year.”

Less confident is Erik Nielsen, group chief economist at UniCredit Bank, who had already been among the few economists to predict the Fed would cut rates this year before the virus hit the headlines.

“If the outbreak does not dissipate soon, the authorities in both China and elsewhere are likely to extend travel bans, people will stay at home, and the increase in uncertainty will cause consumers to delay consumption and firms to defer investment,” said Nielsen. “In other words, we think it’s way too early to dismiss this outbreak as just a brief interruption of constructive markets — as much as we wish it is.”

The Fed’s Clarida stressed that it was too soon to take a firm view on the spillovers to the U.S., while making clear that the country could absorb a temporary stutter.

“If this were to result in, say, a one or two-quarter slowdown in growth, that’s probably not something that changes the big picture,” he said Friday in an interview on Bloomberg Television. “But I do agree it’s a challenging situation. We’re going to keep on top of it.”

The Fed kept rates steady last week after cutting three times in 2019 and signaling it would probably keep policy on hold through this year. Investors have responded to the virus’s spread by increasing bets that officials would cut rates in 2020, according to federal funds futures contracts, though they still only fully price one quarter-point cut.

“The odds of Fed cuts are surely going up, and cuts will happen if the consequences of the virus prove large enough,” said Roberto Perli, a partner at Cornerstone Macro LLC and a former Fed economist. His view is that if the Fed does cut, it will do so by more than the traditional 25 basis points.

“The idea of cuts is not far fetched at all — the bar for cutting rates was previously fairly high, but the coronavirus is bringing it down significantly,” Perli said.

European Central Bank Vice President Luis de Guindos said this week that it’s too early to jump to conclusions. “We are in the first stage of this outbreak and know very little about the characteristics of the virus so far,” he told Greek television station ERT. Bank of England Mark Carney described it last week as a “fast-moving issue.”

China’s central bank took its first concrete steps to cushion the economy and plunging markets this week, providing short-term funding to banks and cutting the interest rate it charges for the money. More measures may come in the weeks ahead, with much hinging on how quickly authorities can contain the virus.

“This remains for now a tail risk and a wildcard,” said Ben Emons, managing director of macro strategy at Medley Global Advisors. “But central banks will not lag in their response.”

A local TV station in China reported that researchers at Zhejiang University had discovered a treatment for the virus, which has spread to 28 countries according to the U.S. Centers for Disease Control and Prevention, sickened more than 2,400 people and killed nearly 500. And in Britain, researchers told Sky news that a vaccine could be tested by next week. The World Health Organization, however, did not confirm the reports and said in a statement that there are currently no known cures for the coronavirus. The WHO will hold a news conference at 10 a.m. to give an update on the outbreak.

The lack of WHO confirmation did not dampen the markets’ gleeful spirits. European markets have nearly erased the losses from last week’s panic about the outbreak, with the benchmark Stoxx 600 index up 1.3 percent and approaching an all-time high. The Shanghai Composite Index continued to crawl back from its recent brutal sell-off, also closing up 1.3 percent. Dow Jones industrial average futures are calling for a more than 250-point gain at open, suggesting it too will fully recover from last week’s losses.

“It seems, the world is nearing a cure for the coronavirus and that could mean markets may only need to price in only one bad quarter of data for China,” Ed Moya, an analyst with OANDA, wrote in commentary Wednesday. “Financial markets may get overly optimistic on these early headlines, but the playbook remains once Wall Street is beyond the virus, risky assets will remain supported on central bank stimulus and the global growth rebound story.”

U.S. markets were also buoyed by an ADP and Moody’s Analytics report showing the biggest monthly gain in private payrolls since May 2015. Private payrolls added 291,000 jobs in January, nearly double what experts had predicted.

Oil has staged a major recovery after prices fell to a one-year low earlier this week, with Brent crude trading up 2.8 percent at $55.46 a barrel Wednesday morning. The virus has all but halted travel in China, the world’s leading oil consumer, and prompted air carriers and tourism companies to announce widespread cancellations.

“While we do not yet know the severity of the coronavirus outbreak, which is still largely contained within China, a substantial increase in its scope globally would have significant negative implications for the energy market,” analysts at Moody’s wrote in commentary Wednesday. “Past virus outbreaks did not hurt oil and gas demand as much, and while investors should be cautious, whether this time is different still remains to be seen.”

Experts have been using the 2003 SARS outbreak to gauge the potential fallout from the coronavirus on global growth, and a 2004 study from the Brookings Institution, Korea University and the Australian National University estimated that the outbreak delivered a $40 billion hit to the global economy; that would amount to about $56 billion today, adjusting for inflation. But the stakes are far higher now, as China is now one of the world’s most vital economic engines: Its gross domestic product is roughly $13 trillion, compared with $1.6 trillion during the SARS outbreak. Even if the virus is contained quickly, economists are predicting China’s growth rate will fall to between 3 and 4 percent this quarter.

At a Bipartisan Policy Center event Tuesday, former Federal Reserve chair Janet Yellen said that though past epidemics such as SARS delivered a short-term economic blow that then faded, it is unclear whether that will be the case with the coronavirus.

“China is such a significant piece of the global economy that it’s bound to have spillover effects,” she said.

The outbreak has come at a pivotal moment, when the global economy was expected to rebound thanks to the trade truce between the United States and China. It’s brought China’s powerful manufacturing industry to a standstill, as most factories across the country have been idled until mid-February while travel restrictions have the Chinese workforce in lockdown.

Tesla, whose shares have soared past $900 and more than doubled this year, saw its stock slide Wednesday after it announced that it will delay highly anticipated Model 3 deliveries due to Chinese factory closures. Plane makers Airbus and Boeing have also announced closures, as have Samsung and Apple, which has suppliers in Wuhan, the center of the outbreak. McDonald’s, Starbucks, KFC, Levi Strauss, H & M and Nike have all shuttered stores across China, and many have revised first quarter revenue outlooks to account for losses tied to the virus.

The move follows apolicy-rate cut by the Bank of Thailand’s Monetary Policy Committee from 1.25 to 1 per cent on Wednesday, now in effect.

KBank president Predee Daochai said the move was also designed to help lift the economy.

He told the bank to devise an approach with the Bank of Thailand.

GSB president Chatchai Payuhanaveechai said it would complete a plan to that effect in about a month.

GSB has 1.18 million state officials among its customers with loans totalling a combined Bt629 billion, 2.65 per cent of which are considered non-performing loans.

Some 600,000 of those customers are civil servants and employees of state enterprises.

Chatchai said the bank would help only those who have good repayment records to restructure their debts, but these “disciplined customers” account for 90 per cent of the total.

The rest will have to improve their repayment records before receiving any assistance, he said.