Advertisement

China reportedly pausing some U.S. farm imports

American Enterprise Institute Research Fellow Zack Cooper joins Yahoo FInance’s Zack Guzman to discuss the escalating U.S.-China tensions, as Bloomberg reports China is halting some U.S. farm imports.

Video Transcript

ZACK GUZMAN: Meantime, a lot more has been made, a lot more focus has shifted to the rising US tensions. We highlighted a few of that-- pieces of that last week, as we got the update from President Donald Trump in the Rose Garden mentioning new plans there to issue, I guess, talking about plans there to talk about what China's-- what the response against China will be in terms of reaching out and establishing their renewed power in Hong Kong.

And for more on that, I want to bring on an expert in that space. Zack Cooper, American Enterprise Institute Research Fellow, he joins us now. And Zack, when we look at that, I mean, there wasn't really necessarily a lot announced by President Trump on Friday when he stepped to the microphone, just kind of reiterating that this power grab can't happen. But what are you assessing in terms of what's on the table now as, I guess, the retaliation comes to the forefront? What should investors be bracing for?

ADVERTISEMENT

ZACK COOPER: Well, I think there's a lot of reason to be concerned over not just the next few weeks, but I think all the way until November. The immediate aftermath of the president's announcement is a lot of unsureness about actually what's going to happen. I think the path is pretty clear, though. We're likely to see sanctions against some leaders in Hong Kong and Beijing who are responsible for putting down protests, especially using force. And I think we'll see both travel bans, visa bans on those individuals, and potentially going after some of their banks. Whether that includes banks in China or just foreign banks operating in Hong Kong, we don't yet know.

I think the other shoe to drop is the one that's been rumored over the weekend. The Chinese are going to stop buying some of the purchases that they promised in the phase one trade deal. We've already seen suggestions that soybean, pork, some energy products, cotton, are already on the table for cuts. And I think we'll just hear more of that the next few months.

ZACK GUZMAN: Yeah, before I get attacked on Twitter for mentioning that not much came of it, you're right, I do want to point out there was that in terms of removing Hong Kong's preferential trade status with the US, talking about taking the US out of the World Health Organization and the support there, which we've heard from President Trump before. But you do mention a lot of the issues right now, in terms of that phase one trade deal and what could happen there, Bloomberg reporting that indeed the case, Chinese government telling major state-run agricultural companies to pause purchases on our farm goods.

When we look at that trade deal, I guess not a lot had really happened in terms of approaching the phase two piece of that trade deal, but investors-- I mean, the market rallied when we got phase one through. So I mean, if it does completely fall apart, what are the long-lasting ramifications of that, maybe beyond just what we're seeing play out on the farming front?

ZACK COOPER: Well, I've never believed that there was going to be a phase two deal. There was no agreement between the two sides on the core structural issues that the administration wanted to address. That's why we got, basically, some purchases from the Chinese for effectively a ceasefire on additional tariffs. And I just don't think there's a path forward for phase two. There hasn't been for the last three years.

I think now the question is whether phase one is in trouble. My view is I doubt phase one will be in effect in November. I think there's a lot of reason for the president to pull out. I don't think there's incentive for him to do that now, but when you get to September, October, a president that wants to look tough on China, and what's he have to offer? He has the trade deal which he can offer up. And I think it's going to be a very juicy political target. It would be very hard for him and his team not to go after that deal.

ZACK GUZMAN: Yeah, you mention the political implications of all this, but even when you look to the Democrats, I mean, increasingly hostile towards China, as well. So it's kind of a lose-lose in terms of positivity on the US-China front here. But what would be the different, I guess, policy agendas between Republicans and Democrats, as they both ramp up the issues of China increasingly asserting their power in Hong Kong?

ZACK COOPER: Well, that's right. You know, people used to say, Hank Paulson used to say that business is the ballast in the US-China relationship, and now that ballast seems to be gone. I think a lot of companies are wondering whether there's really a future for them in China. If they had outposts in Hong Kong, I've talked to a bunch of business people the last few days who are thinking about pulling their companies out of Hong Kong, or at least partially moving to Tokyo, Singapore, Taipei, elsewhere. I think we're just going to see that accelerate.

There's nothing to stop US-China tensions from growing from this point out. I think many in Beijing believe that there's no hope to improve ties with the Trump administration, so why bother trying. And for the Trump team, for the Biden team, it's pretty clear that the path to the election runs through some pretty tough China policies, or at least talking tough, up until November. So I think we're just going to see more tension. It's absolutely going to focus on Hong Kong, but I think we'll see more moves on Taiwan, you know, this India-China border stalemate, South China Sea. Just issue after issue I think is going to become more contentious.

ZACK GUZMAN: Well, critics of, I guess, this administration would point out that President Trump has been pretty isolationist in his dealings with China, not necessarily bringing on allies for the ride or using their power to get things done. So when you look at that, if that is an accurate criticism of the president's handling of the situation, what more could be done to bring on other allies? You look at the EU here maybe applying pressure. Is there anything on the table that a combined force might be able to accomplish in terms of getting China to back off its recent moves in Hong Kong and Taiwan, as you described?

ZACK COOPER: Yeah, I think the play here is something the British seem to be looking at, which is to push not just within a small group of countries, but maybe a group like 10 countries, 10 democracies, which is what the British were talking about over the weekend, bringing in not just the Five Eyes, which is the US, Canada, UK, Australia, and New Zealand, but also adding some other major democracies-- India, Germany, Japan, Korea-- the idea being that, if all of these major democracies push back simultaneously against China, that might work.

I think what we're seeing, though, is that President Trump is not someone who's able to bring those countries together. We saw over the weekend Angela Merkel decided not to come to a G7 meeting in Washington. And so I think what's going to happen is we'll see some of those other countries trying to push the administration to act jointly, but I doubt the initiative is going to come from the Trump administration.

ZACK GUZMAN: All right, so not a lot of reasons for optimism on the US-China front, at least through the end of this election year. But Zack Cooper, AEI Research Fellow, I want to appreciate you taking the time to share your insights.

ZACK COOPER: Thanks, Zack.