The Chinese government’s order to state-run agricultural companies to pause purchases of some US farm goods, including soyabeans, could threaten the trade deal between the two countries, Bloomberg reported sources as saying on 1 June.
State-owned traders Cofco and Sinograin had been ordered to suspend purchases, according to one of the sources, as China continued to evaluate the ongoing escalation of tensions with the USA over Hong Kong. Private companies, however, had not been told to halt imports, according to one of the sources.
The move followed President Donald Trump’s criticism of China after it proposed to impose new national security legislation on Hong Kong which critics claimed would undermine the ‘one country, two systems’ principle that had kept Hong Kong autonomous of the mainland since the 1997 handover from the UK.
China’s call to halt imports was the latest sign that the phase-one trade deal between the two countries was under threat, Bloomberg reported, and the move had already affected markets.
“The market has already seen the deteriorating relationship between China and the USA 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.
As part of the phase-one trade deal signed in January 2020, China had agreed to buy farm goods from the USA worth about US$36.5bn for 2020.
However, following the disruption caused by the COVID-19 pandemic, China had only managed to import US$3.35bn in US agricultural products in the first three months of this year, the lowest for that period since 2007, according to data from the US Department of Agriculture.
Following the gradual reopening of China’s economy, imports had increased including in excess of 1M tonnes of US soyabeans in a two week-period in May along with purchases of US soyabean oil and ethanol.
But following the escalation of tensions between the USA and China, with Trump blaming the country for misleading the world about the scale and risk of the COVID-19 outbreak, this had affected the markets with China turning to Brazilian soyabeans rather than the US equivalent.
Although Trump’s threats did not give specifics or time frames, they included beginning the process of stripping some of Hong Kong’s privileged trade status alongside the imposition of sanctions against Chinese and Hong Kong officials ‘directly or indirectly involved’ in the erosion of Hong Kong’s autonomy.
While Trump had threatened to call off the ‘phase one’ trade deal on numerous occasions, his top economic advisers had suggested it would continue.
Larry Kudlow, director of the National Economic Council, told CNBC that the trade agreement ‘does continue to go on for the moment and we may be making progress there.”