One step away from a new trade war

For more than a month, Trump has been accusing Beijing of intentionally concealing the severity of the coronavirus and blamed for an inadequate response to the COVID-19 epidemic, which became a global pandemic. At times, Trump even threatened to “cut off the whole relationship” with China and terminate their trade deal, signed at the beginning of the year. The news that Beijing was looking to lay its hands on Hong Kong and attempt to impose “complete-control governance” over the city added fuel to the flames. Tempers were running so high that market participants were already expecting a new confrontation between the two superpowers.

But then, last Friday, Donald Trump only weakly scolded Beijing for its national security bill that violates Hong Kong’s autonomy. As traders realized that there would be no new conflict between the United States and China, positive sentiment returned to the markets and US stocks and oil quotes went up.

While the markets breathed a sigh of relief, Beijing held a grudge against the White House and decided to remind it that it wasn’t some “rag doll”. In response to the US president’s attacks, China ordered the main state companies to cancel large-scale purchases of U.S. farm products, particularly soybeans and pork. China has also suspended state purchases of bulk volumes of U.S. corn and cotton.

According to several sources, following Trump’s comments on the situation with Hong Kong, Chinese importers have canceled about 10-20 thousand tons of American pork shipments, which equals roughly one week’s orders in recent months. Some sources report that China may suspend imports of more American agricultural products if Washington keeps meddling in China-Hong Kong affairs.

Having lost its main soybeans suppliers, Beijing had to look for alternatives. The choice fell on Brazil. China wanted to express disregard for the United States and independence from its products so badly, that even higher prices didn’t stop it.  In the last week of May alone, China imported over 10 shipments from Brazil. Looks like China wants to replenish its stocks as fast as it can to depend less on the United States, as the relations between the two countries are still shaky.

Let’s recall that according to the trade deal, Beijing committed to increasing the purchases of U.S. farm products by $ 32 billion. In the first quarter of 2020, China purchased more than 1 bln USD worth of soybeans from the United States and more than $ 691 million of pork. But now these purchases may come to an end. Of course, some of the experts remain optimistic, believing that Beijing is only “flexing its muscles” and will soon resume soy purchases from the United States. The fact that China has asked only state firms to suspend purchases of US products and gave no such instructions to the private companies says in favor of this assumption. So, this time there will be no new trade war. Although there is no guarantee that the White House will not come up with yet another reason to aggravate the situation, “where there’s a will, there’s a way”, as they say.

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