Bloomberg is reporting this week that Chinese government officials recently told major state-run agricultural companies to pause purchases of some American farm goods, including soybeans, as Beijing evaluates the ongoing escalation of tensions with the U.S. over Hong Kong.
For example, state-owned traders Cofco and Sinograin were ordered to suspend purchases, Bloomberg said, citing sources in China. Chinese buyers have also canceled an unspecified number of U.S. pork orders. However, Bloomberg also noted that private companies haven’t been told to halt imports. Reuters also reported a similar development.
However, Reuters reported later in the day that China’s state-owned grain buyers had bought some U.S. soybeans out of the Pacific Northwest for October-November delivery, more than raising questions about the accuracy of the reports on the purchase pause.
The possible halt is the latest sign that the hard won Phase One trade deal between the world’s two biggest economies is in jeopardy. While Chinese Premier Li Keqiang last week reiterated a pledge to implement the agreement that was signed in January, tensions have continued to escalate since then amid a standoff over Beijing’s move to tighten its grip on Hong Kong.
Beijing’s policy shift eroded the “risk-on” sentiment that had been prevailing over markets, Bloomberg said. The S&P 500 Index was little changed in recent days, while soybean futures in Chicago gained 0.4% after falling as much as 0.8% earlier. Shares of Archer-Daniels-Midland Co. were down 1.7% at $38.64.
“The market has already seen the deteriorating relationship between the China and the U.S. and many think that with the slow progress of Chinese commodity buying so far, the trade deal’s future was already in jeopardy,” said Michael McDougall, a managing director at Paragon Global Markets in New York.
Chinese steps to halt imports come after President Donald Trump on Friday lobbed “a barrage of criticism at Beijing after it moved to impose controversial new national security legislation on Hong Kong.” Critics say it will crack down on dissent and undermine the “one country, two systems” principle that has kept Hong Kong autonomous of the mainland since the 1997 handover from the British.
Cofco and Sinograin are China’s key importers of farm goods. They had been making pricing inquiries for 20 to 30 cargoes of U.S. soybeans on Friday but held off on going through with purchases after the U.S. administration indicated it would punish Chinese officials, Bloomberg said. Beijing is waiting to see what steps President Donald Trump takes before deciding its next move.
Trump said the U.S. would begin the process of stripping some of Hong Kong’s privileged trade status, without detailing how many changes would take effect and how many exemptions would apply. Nor did he signal how long that process would take. He also promised sanctions against Chinese and Hong Kong officials “directly or indirectly involved” in eroding Hong Kong’s autonomy, though stopped short of giving specifics.
Equity investors had reacted positively to the president’s remarks, as he didn’t provide any details or timeframe for what actions might come next. And the actions were far less onerous than many apparently had feared. It’s unclear how soon the U.S. would move on a range of options that could include sanctioning Chinese officials to imposing tariffs on Hong Kong to attacking the territory’s financial stability, Bloomberg said.
While the administration has periodically threatened to call off the “Phase One” trade deal, the top U.S. economic advisers have suggested that deal “would continue in force.” Larry Kudlow, director of the National Economic Council, told the press on Thursday that the trade agreement “does continue to go on for the moment and we may be making progress there.”
The two sides have traded blows over a range of issues from the coronavirus to Taiwan in recent weeks, and China’s Foreign Minister Wang Yi warned during high-profile legislative meetings in Beijing that some in America were pushing relations to a “new Cold War,” and urged the U.S. to give up its “wishful thinking” of changing China.
China had agreed to buy U.S. farm goods worth about $36.5 billion for 2020 as part of the Phase One trade deal that went into effect in February. However, the coronavirus outbreak roiled those plans, with China only managing to import $3.35 billion in American agricultural products in the first three months of the year, the lowest for that period since 2007, according to USDA.
Still, as China started to gradually reopen its economy from the virus-led lockdown, it had increased its pace of imports, including a more-than 1-million metric tons of American soybeans in just two weeks in May and rare purchases of U.S. soybean oil and ethanol.
But then tensions between the U.S. and China began escalating, with Trump blaming the Asian nation for misleading the world about the scale and risk of the coronavirus outbreak. The fallout filtered through to the commodities markets, with China opting to buy Brazilian soy instead of American beans.
So, we will see. Since this is an election year, it is possible that the U.S. will make some sort of overt move to revive the trade commitments. That same logic ups the ante on pushing back on issues with China, especially those centered on Hong Kong. Clearly, these are issues producers should watch closely as the season progresses, Washington Insider believes.
Welcome
