CHINA MONITOR
Date: 4 June 2020
Author: Paweł Paszak
The return of the US-China trade war?
On June 1, Bloomberg announced that the Chinese authorities ordered the state companies to stop importing soybean and meat from the USA. This move is contrary to the trade agreement (phase one deal) signed on January 15, 2020, which obliged China to increase its imports of agricultural products by an additional 32 billion dollars, taking 2017 as a starting point. The import quotas adopted by the Chinese party were assessed as unrealistic already at the time of signing the deal and the planned ban will mean the actual end of the agreement. The economic difficulties and growing tensions in relations between Washington and Beijing suggest that the upcoming months will bring a resumption of trade war.
In the period of January-February 2020, the Chinese side increased its purchases of US soybean by 500%, in comparison to the previous year, signaling its readiness to partially comply with the agreement. On May 24, during the first day of the Chinese parliament sitting, the Prime Minister Li Keqiang declared that China would cooperate with the US in order to fulfil its previously agreed commitments, but ultimately the Chinese authorities decided to take a more confrontational course. The change in attitude is a consequence of the continuous criticism by the US authorities of the CPC’s reaction to the emergence of coronavirus. Donald Trump’s administration aims to conduct an international investigation and clearly attribute responsibility for the pandemic to China. Deterioration of bilateral relations have also been adversely affected by the announcement of new sanctions against Huawei and depriving Hong Kong of its special economic status.
Halting soybean and meat imports is a deliberate action of Beijing, which has a chance to harm not only the agricultural sector, but also Donald Trump himself. Farmers in the Midwest region, which accounts for 85% of soya production, are the natural electorate of the Republican Party and will be the most affected by the implementation of new restrictions. The importance of this group for the policy of Trump’s administration is supported by the fact that the federal authorities have launched a special aid fund worth over USD 16 billion with its aim being to compensate for losses caused by the trade war. The support for rural regions will be crucial for Donald Trump if he wants to preserve his chances of victory in the November presidential election. Importing soybean from the US is only one of many available sources for China, the loss of which can be offset by increased purchases from Brazil or Argentina. This makes the issue of agricultural commodities an effective tool which, under the current conditions, allows to put pressure on the authorities in Washington.
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The introduction of the ban on US goods should be seen as a political response to Donald Trump’s declaration to deprive Hong Kong of its special trade status. The Chinese parliament, which met on May 24-28, decided to introduce the National Security Legislation, which will effectively deprive the metropolis of its autonomy. The deterioration of relations was influenced not only by the matter of Hong Kong’s status, but also by the narrative war which touched upon the origins of SARS-CoV-2, China’s influence on the World Health Organization (WHO) or the recent protests in the US after the death of George Floyd.
The US presidential election scheduled for November 2020 will encourage a more stringent policy towards China. President Trump will no longer be able to use favorable economic indicators to create a narrative about the effectiveness of his policy. One of the main arguments, cited as early as at the beginning of 2020, was the lowest unemployment rate since 1969, which fell to 3.6%. As a consequence of the pandemic it rose to 14.7% in April and the recession in the economy, according to IMF forecasts, is expected to reach 5.9%. In this case, the key element of Donald Trump’s campaign will be the effectiveness of his policy towards China. The incumbent President will strive to convince voters that only he is capable of maintaining an assertive policy towards Beijing and that electing Joe Biden is a “dream scenario” for China.
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