China trade hawks push for Phase One renegotiation
Risk assets saw some significant volatility today after the Chinese global times reported that “more hawkish voices have emerged within China on the phase one trade deal with Washington, with some calling for new negotiations and a tit-for-tat approach on spiraling trade issues”.
The report added that the calls had been growing louder “after the US' malicious attacks on China ignited a tsunami of anger among Chinese trade insiders”.
The “malicious attacks” in question, noted the report, is US President Trump's hyping of an anti-China conspiracy that aims to cover up his mishandling of the COVID-19 pandemic.
The report adds that advisors close to the trade talks have suggested that Chinese officials might rekindle the possibility of invalidating the trade pact and negotiating a new one to tilt the scales more to the Chinese side.
This highlights growing tensions between the US and China, who only signed their Phase One trade deal in January, ever since the Covid-19 pandemic put most of the world into lockdown.
US President Trump is angered by the way the Chinese attempted to cover up the outbreak in its initial stages and then refused to share intelligence and cooperate with international agencies. He is also angered at the way the US economy has been impacted and how that is reducing his reelection chances in November.
Given widespread distrust of the Chinese state amongst American voters, the President likely sees attacking/blaming China for the outbreak as a good pre-election tactic.
As the Global Times report noted above, the Chinese are angered by the way Trump has blamed China for the outbreak.
I should note; there is no need to panic just yet - these are just “hawkish voices” in China talking about renegotiation (i.e. Chinese officials who want to be tougher on trade), not the actual Chinese leadership. I would think that the possibility that China will actually try to renegotiate the Phase One pact is still low; after all, this would lead to a full-blown reignition of the trade war which China probably does not want right now (the US would never accept renegotiation on less favourable terms).
If it was a high-level official talking about renegotiation (like Vice Premier Lui He or President Xi Jinping himself) then we would have seen HUGE risk off flows.
However, as anti-US sentiment grows in China, this can only be bad news for the trade deal. Given that we still have a long road out of this global pandemic, US/China tensions look set to present an ever-present risk to risk assets.
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