Will agricultural buys be weather vane of China-US trade deal?

The prospects of the phase one trade deal have never been more puzzling. Right after media reports said that the Chinese government had told major state-run agricultural companies to halt purchases of US farm goods including soybeans and pork, state-owned companies reportedly purchased three cargoes of US soybeans on Monday. Some people believe agricultural product purchases can be seen as a weather vane of Beijing’s attitude toward the phase one trade deal and even China-US relations.

How China will strike back after the US announced it would end its special treatment of Hong Kong has been hotly discussed, and there has been growing concern over the possibility that the phase one trade deal may fall victim to the rising tensions between China and the US.

To be clear, we still believe China will try its best to implement the phase one deal, and that even if there is any problem during the process, it will be resolved within the framework of the agreement.

Yet, given the US’ recent attacks and sanctions against China over Hong Kong, the coronavirus and Huawei, among other issues, it would be unreasonable to expect that China will not take any countermeasures to fight back. Nevertheless, any Chinese countermeasures in response to US sanctions do not necessarily mean the country has abandoned the phase one deal. Thus far, there isn’t sufficient cause to think the trade deal would be used as part of a countermeasure.

Now, due to the ongoing COVID-19 pandemic and nationwide violent protests in the US, American society is in a chaotic state. We are closely watching the latest developments in the situation, not to mock but out of deep concern for its subsequent impact on the country’s economy. This is because the worse the US economy performs, the more often US President Donald Trump will play the “China-blasting” card before the upcoming presidential election.

There are already scholars and experts in China analyzing the situation, predicting which “trump card” Trump may play next and suggesting what countermeasures China could take to strike back. We are confident that China has the ability to make the right judgment about the future and to prepare for countermeasures based on the principle of reciprocity. Of course, there is no guarantee that specific countermeasures will or will not conflict with certain content of the phase one trade deal in the future.

There’s no need to overinterpret specific countermeasures. Against the current backdrop, the development of the economic and trade relationship between the world’s two largest economies is bound to be complicated and to move forward with a multi-track approach. A single piece of information is no longer sufficient to speculate the whole picture. The market needs to learn to adapt to this new complex situation to avoid being misled by speculative hype and trends.

As US-China relations sour, some warn of a new Cold War, but we believe China’s willingness to continue pushing forward bilateral trade and economic ties with the US hasn’t changed. However, deep uncertainty surrounding the ChinaUS relationship remains, and it will be a test for the market to keep its focus and remain calm at the moment.