It has been an interesting week. U.S. and Chinese trade tensions have not been this high in, what? Six months? The two top economic powers are back at it again. This time the fight is over Hong Kong. China plans to take greater control of the city which has enjoyed greater liberties than the mainland. This caused President Trump to threaten to end the special trade privileges that Hong Kong enjoys if the Chinese tighten their grip. This has caused the Chinese to retaliate by telling their state-run companies to stop buying U.S. Ag products as part of the Phase-One trade deal. What can all this mean for the U.S.?
Audio: Profit Matters 6-5-2020
Mike Zuzolo is the President of Global Commodity Analytics. He says commodity markets are hovering in ?wait and see mode.?
This is where the confusion lies. These purchases have continued throughout the week, even though China has ordered a halt to the purchases. So, are orders being defied, or is this posturing? Zuzolo says right now this tension is an ominous trend.
Zuzolo says even if China continues its purchases, we still have a large supply of soybeans. If China reverses course on buying, this could spell more trouble.
China has long been known for its calculation. It has history on its side. Business always comes back to China, no matter what they do. Tiananmen Square? The Hong Kong changeover in 1997? Always some sort of destabilization, and yet American companies return. China was not a fan of negotiating trade with the United States. Now with President Trump threatening more sanctions on the government and threatening to pull out of the deal, maybe China found a way out without having to live up to the agreement.
Great Britain has offered to take refugees from Hong Kong to help them get away from communist control. The UK, of course, had control of Hong Kong until 1997, and many residents resent Chinese control and may take the offer.
Again, what has China got to lose?
- They get tighter control of a global market hub.
- They get the dissenters to leave the city.
- They know commerce will come back, and…
- They possibly could get President Trump to back out the trade deal.
This could all happen before Trump faces another election. What would it mean for President Trump if his main support base in rural America faces another trade war with China? There is a possible, albeit serious, Chinese calculation that support for President Trump could erode, and they could deal with a Biden Administration.
Really think about it. It may not happen, but is it a risk China is willing to take? In the end, it could be a win-win-win-win situation for them. At this point, they don’t have a whole lot to lose and a whole lot to gain.
