• Market Crumbs

Are Trade Deal Troubles Brewing?

Image via Simon Zhu on Unsplash

In January, U.S. President Donald Trump finally signed phase one of the trade deal with China after nearly two years of back and forth negotiating.

At the time, Trump called it "the biggest deal anybody has ever seen."

"The greatest impact may well be on American agriculture," Vice President Mike Pence said at the signing. "Some $40- to $50 billion in purchases secured in this deal that will result in greater prosperity for farmers all across the land."

Last week, Trump threw a wrench in the trade deal when he announced he would take steps to revoke Hong Kong’s favored trade status with the U.S. after China's parliament passed a law essentially banning protests in Hong Kong.

"I am directing my administration to begin the process of eliminating policy exemptions that give Hong Kong different and special treatment," Trump said.

"My announcement today will affect the full range of agreements that we have with Hong Kong, from our extradition treaty, to our export controls and technologies," Trump added. "We will take action to revoke Hong Kong’s preferential treatment as a separate customs and travel territory from the rest of China."

Markets shrugged off the news as they were expecting Trump to be tougher on the matter.

However, it appears China thought the move was drastic enough to balk at its commitment to purchase agricultural products as part of the trade deal.

China reportedly told state-owned companies to halt purchases of soybeans, pork, corn and cotton from the U.S. in retaliation for the administration's moves regarding Hong Kong. China will reportedly expand the order to additional agricultural products if the U.S. takes additional actions on Hong Kong.

"China has asked main state firms to suspend large scale purchases of major U.S. farm products like soybeans and pork, in response to U.S. reaction to Hong Kong," the source said. "Now we will watch and see what the U.S. does next."

A second source said a worst case scenario would be China walking from the phase one trade agreement altogether. "There’s no way Beijing can buy goods from the U.S. when receiving constant attacks from Trump," the source said.

It appears the largest beneficiary of the spat could be Brazil. The world's largest soybean exporter exported a record 16.3 million tonnes of soybeans in April.

While markets continue to rise on news of positive developments with China as they shrug off negative developments, it remains to be seen how they would react if the highly-touted trade agreement falls apart entirely.

Leftover Crumbs

  • CFOs are pessimistic. 48.8% of global CFOs believe the coronavirus will have a "negative" impact on their companies this year, while 39% believe it will have a "very negative" impact, according to CNBC's Global CFO Council Survey. CFOs from every region of the world said GDP is declining, marking the first time in the survey's history that U.S. CFOs have responded with this outlook. 64% of respondents said their companies are seeing a decline in demand for their company's products or services.

  • Tech M&A dries up. Technology mergers and acquisitions sank 68% in March from the same period a year ago, according to Bain & Co. During the first quarter, tech M&A fell by 43% compared to the first quarter of last year. "Deals in March largely dried up," Bain & Co. partner Adam Haller said. "We think it’s going to come back in quite a robust fashion — deal count will likely bounce back to historic levels, or above, given the opportunities."

  • Social media regulation faces obstacles. U.S. President Donald Trump’s push to regulate the content decisions of social media companies may face headwinds as regulators cannot oversee their conduct. Federal Communications Commission chairman Ajit Pai said the debate is an "important one" and the FCC "will carefully review any petition for rulemaking." However, Pai said in 2018 that the FCC may be powerless in the matter. "They are not going to be regulated in terms of free speech," Pai said. "The government is not here to regulate these platforms. We don’t have the power to do that."

  • Europe mulls shorter trading day. The London Stock Exchange says there is "broad backing" for reducing the trading day by 90 minutes across European exchanges. The European trading day is currently longer than in the U.S. and Asia. "There was also widespread consensus from respondents that any change to trading hours would ideally require a broadly aligned approach across European exchanges and other trading venues," LSE said.

  • Zuckerberg catches heat. Facebook co-founder and CEO Mark Zuckerberg is facing criticism from Facebook employees after deciding not to remove a post from U.S. President Donald Trump from the site. "Mark is wrong, and I will endeavor in the loudest possible way to change his mind," Facebook director of product design Ryan Freitas said. Freitas said he has support from "50+ likeminded folks" to push for changes.