“The China Trade Deal is fully intact. Hopefully they will continue to live up to the terms of the Agreement!” Tweeted Trump late Monday night. This came after Trump's trade advisor Navarro, and China hawk, apparently said “it’s over, yes” following a question on Fox news regarding the trade agreement. Backtracking, Navarro said his comments were taken out of context, adding, “They had nothing at all to do with the phase one trade deal, which continues in place,” and instead referred to “the lack of trust we now have in the Chinese Communist party”. Dow futures for example plummeted 400 points briefly following Navarro's interview.
The coronavirus outbreak and subsequent lockdown has been an obstacle for China reaching its Phase 1 target, especially in regard to the agricultural purchase agreement. According to the US Department of Agriculture (USDA) China has bought just USD 4.65bn in the initial four months of 2020. That is just 13% of the goal, and ~40% less than that achieved in 2017, before the trade war kicked off. China had in fact upped its purchases of soybean purchase from Brazil, as the real had depreciated somewhat making soy much cheaper; reports suggest Brazil’s soybean exports bounced as much as 45% in May following China’s robust orders. However, just last Thursday US Secretary of State Michael Pompeo said China’s top foreign policy official committed to honouring the trade commitments. China pledged to buy USD 36.5bn (up from USD 24bn, in 2017) worth of US agricultural products (soybeans, corn and ethanol), during the bi-lateral talks in Hawaii.
With the Phase 1 trade deal seemingly intact, that is the least of markets’ concerns as the relationship between US and China appears to be at the lowest point; not helped by Trump’s “Kung Flu” comments or China’s actions in Hong Kong, and ongoing human rights and technology issues. Clearly markets are spooked over any breakdown in relationships, as a decoupling of the world's two largest economies remains one of the biggest threats to the global economy.