Cold War Reboot or Electoral Rhetoric? There’s a lot to lose this time around?

And where would America’s traditional clients stand?

A Cold War could be emerging between the U.S. and China as the rhetoric out of Washington becomes increasingly belligerent according to media commentators. In fact, the relationship between the world’s two largest economies could be at its lowest point since the Nixon-Kissinger rapprochement of the 70s.  Luckily, so far, both have refrained from escalating to a major blow-up but the ongoing fallout from the Corona Virus might threaten that.

Some had last year referred to increasingly frosty U.S.-China ties as a new Cold War, but that is an entirely inaccurate description. Firstly, the original Cold War was premised on (the largely U.S) notion that the Soviet Union posed an existential threat to the existence of Western Europe as a democratic alley and the was intent on the spread of Communism as an ideology around the world.

The current situation between China and the U.S. is fundamentally different. The conflict between Washington and Beijing is counterbalanced by the two nations’ economic interdependence. A dependence Washington never had with Moscow.

This extensive web of trade and investment relationships developed over the last three decades force the U.S. to counterbalance more extreme positions.

In fact, until recently even officials of the Trump administration did their best to play down sometimes overblown rhetoric.

But unfortunately, those mitigating factors are dissipating somewhat in the wake of the Corona Virus and the talk from Washington is becoming increasingly hostile.

As the devastation from Covid-19 accumulates in the U.S., arguably exposing the failure of decades of underinvestment in infrastructure, healthcare and the growth of the wealth gap, the number American fatalities is now nearly double that of the Vietnam War – a conflict that lasted longer than a decade.

And increasingly, voices in the U.S. government are turning to blame China with the view that the CCP should be held accountable for the devastation gaining ground. Those that support the view distrust China’s narrative (and the CCP in general) of the outbreak.

The problem is, this line of arguing is increasingly looking like a direct assault on the very nature of the CCP not just its handling of the Covid-19 Crisis. Whether this is simply election-year rhetoric remains to be seen. But Washington looks, and more importantly sounds, serious.


 On the Chinese side, the accusations are providing ammunition for the propaganda machine that claims the communist regime is superior to the disorganized Western democracies, pointing out how Western nations are still struggling to get a handle on the crisis and how a panicked Trump administration is using the Virus as part of a blame game; deflecting from their own societal shortcomings.

Either way, these are alarming signs at a time when the world most needs to pull together to tackle a problem that has no interest in borders, nationalities or ideologies.


But so long as the two countries remain bound by the interlocking forces of globalization and their own interdependencies then there is a limit to how far this could go.

The problem is, the Pandemic could be at risk of undoing those ties and decoupling the economies. According to Reuters, the U.S. government is now considering all kinds of measures to lessen dependence on China including tax breaks for companies that relocate their production and procurement facilities across a broad range of sectors.

The US has already barred telecom provider Huawei from a stake in its 5G network and pressured its clients follow suite with varying degrees of success and looks like trying to push China out of all America considers ‘it’s sphere of influence.’ And could lead to serious consequences.

 Perhaps lurking in the back of some policy maker’s mind’s in the U.S. is Xi Jinping’s bold declaration at the that:

“China will be a global superpower by 2050.”

CCP congress in October 2017

Since then Beijing has rolled out a strategically ambitious project through massive spending on military and civilian technologies.

The perceived expansion of Xi’s power through the Belt and Road infrastructure project is undoubtedly another thorn in the side of foreign policy planners.

The Belt and Road Economies from its initial plan


One obvious problem this situation represents is for those caught in the middle; Washington’s traditional clients, especially in Europe. A recent survey shows that Germans are now almost equally divided on who represents a more important partner – Washington or Beijing? A significant shift over 2019 which put Washington 26 points ahead.

Although many Germans are unhappy about China’s handling of the Corona-Virus and have suspicions it could have been better handled they don’t wholesale blame all CCP for the chaos being wreaked around the world.

And while traditionally, the German attitude to the US usually reflects who is sitting in the white house the Trump administration’s current perceived mishandling of the crisis; increasing belligerence toward the CCP and the WHO; and the increasing calls for Europe to pay for its own defense are putting traditional allies in a difficult position.

If the U.S. escalates the current spat into a full-blown soft-reboot of the cold war it could find itself in a lonely place with former client states between a rock and a hard place.


More worryingly, a new Cold War between the U.S. and China could have a far larger global impact than that with the USSR.

China is far more economically powerful and technologically advanced than the Soviet Union was, and is catching up with the U.S. in other areas. That could make them dangerous rivals if some kind of accommodation can’t be reached and the world goes down that road.

With Factory Deflation Deepening, external demand wavering does China’s first real recession loom?

China’s Producer Price index, that measures the average changes in prices received by domestic producers for their output, fell at its sharpest rate in four years indicating a global slowdown in demand for Chinese goods, according to figures released last week.

That same data showed an unexpected growth in exports in April – perhaps helped by low oil prices – but also showed a stronger than unexpected decline in imports signaling weaker domestic demand.

Producer Prices in China decreased to 96.90 points in April from 98.50 points in March of 2020.

For China this is uncharted territory. It is the first time the NBS has released quarterly negative growth figures since they were first published in the 1990s. The January to March quarter was clearly a supply driven event as China closed down huge sectors of its economy to combat the lethal Coronavirus.

These figures, with the explosion of virus transmission and control measures beyond China’s border, the swelling ranks of unemployed in the US coupled with Washington’s increasingly belligerent stance toward Beijing could be signs of a potentially external demand driven recession could be looming.

China Producer Prices Change

The dire economic impact of the Corona-Virus has prompted the Vice-Premier, Li Keqiang, to to make the unprecedented measure to forgo issuing an annual GDP target.

Some analysts believe the rate at which the PPI are falling will give Beijing room to loosen fiscal measures to stimulate demand. But without the true cost of the epidemic yet known it is difficult to predict how those measures will work. However, with inflation fears diminishing now could be a good time for the BoC to cut borrowing rates.

As Global Pandemic Rages Global Commodity Prices Crash

As countries around the world contend with the health emergency of the COVID-19 pandemic, the economic effects of mitigation measures have immediately impacted the world’s commodity markets and are likely to continue to affect them in the longer term. 

The global economic shock of the pandemic has driven most commodity prices down and is expected to result in substantially lower prices over 2020, the April Commodity Markets Outlook reports. Here is a look at the outlook for commodity markets in six charts.

As countries around the world contend with the health emergency of the COVID-19 pandemic, the economic effects of mitigation measures have immediately impacted the world’s commodity markets and are likely to continue to affect them in the longer term. 

The global economic shock of the pandemic has driven most commodity prices down and is expected to result in substantially lower prices over 2020, the April Commodity Markets Outlook reports.

Here is a look at the outlook for commodity markets in six charts:

1. The pandemic has led to widespread commodity price declines

Mitigation measures taken to slow the spread of COVID-19 have resulted in an unprecedented collapse in economic activity and transport, resulting in widespread declines in commodity prices.  Most commodity prices are forecast to be lower in 2020 than 2019, with energy the most affected, and agriculture the least. The risks to the price forecasts are large in both directions and depend heavily on the speed at which the pandemic is contained and mitigation measures are lifted.

2. The crude oil market has been affected most by the pandemic

The outbreak of COVID-19 has had the largest impact on the crude oil market, as two-thirds of oil is used for transport.  Crude oil prices are forecast to average $35/bbl in 2020, reflecting an unprecedented collapse in oil demand. Brent crude oil prices have declined 70 percent from their January peak, and a historically large production cut by the Organization of the Petroleum Exporting Countries and other oil producers failed to lift prices in April. All crude oil benchmarks have seen sharp falls, with some briefly dropping to negative levels. Crude oil demand is expected to decline almost 10 percent (y/y) in 2020, more than twice as much as any previous fall.

3. Metals have fallen as industrial demand has collapsed

Most metal prices declined in the first quarter of 2020, reflecting a collapse in global industrial demand due to the COVID-19 pandemic. 

Stimulus measures and rising supply concerns have had a limited impact so far in supporting metal prices. The declines in metals prices resulting from the COVID-19 pandemic are—for now—less severe compared to the global financial crisis.

4. Prices for food commodities except rice fell

Most food commodity prices declined in response to mitigation measures to contain the spread of the COVID-19 pandemic, record production for some grains, and favorable weather conditions in key producing regions.  Rice prices, however, increased due to announcements of policy restrictions by some East Asian producers and weather-related production shortfalls.

5. Despite well-supplied markets, food security is a concern

Global food markets remain well supplied due to bumper harvests, especially in maize and wheat and major staple food commodities, stock-to-use ratios are very high by historical standards.

Nevertheless, hints of hoarding by some key exporters, and excess buying by some importers have raised concerns about food security

If concerns of shortages become widespread, hoarding may result leaving low-income countries vulnerable to food insecurity, as food accounts for a much larger proportion of their consumption than in more developed economies.

3bn RMB in Consumption vouchers?

In an effort to re-float the economy after the draconian – but effective – shutdown that all but rid China of the Covid-19 scourge, many local administrations have begun issuing digital consumption vouchers similar to Groupon style activities through the nations’s mobile payment platforms to boost the coronavirus-hit economy, but some experts seem skeptical.

Consumption vouchers, some of which are digital and accessible through platforms including Ant Financial Services Group’s Alipay and Tencent Holdings Ltd.’s WeChat Pay, have been distributed across 28 provincial-level regions and over 170 prefecture-level cities, according to Wang Bingnan, a deputy head of the Ministry of Commerce last week.

Wang said that the value of the already distributed vouchers, which can mainly be used for retail and catering spending, amounted to over 19 billion yuan ($2.7 billion). A sharp contrast to the trickle down stimulation efforts by western governments.