Trump upbeat on reaching deal with China | Trump officials in Mexico | Farm bill update
— Treasury Secretary Steven Mnuchin told lawmakers that trade talks between the U.S. and China had broken down. “Is there a master plan?” one Republican representative asked. “I implore you to work to end this thing soon.” (For President Trump's comments, see related item below.)
U.S. available for negotiations. Mnuchin told the House Financial Services Committee Thursday that he and administration officials are “available” for negotiations, as he called U.S. tariffs imposed on China a “modest” step aimed at leveling the playing the field. “To the extent to that China wants to make structural changes, I and the administration are available,” Mnuchin said. “We are not advocating tariffs. We are advocating fair trade.”
China made its best efforts to avoid escalation of economic frictions with the U.S. and it’s Washington’s responsibility now that the matter has reached this point, according to a statement from the Commerce Ministry late Thursday in Beijing, adding that it’s been sincere in pushing to settle differences through dialog and consultation.
China’s Vice Minister of Commerce Wang Shouwen said in an interview on Tuesday in Geneva that China and the U.S. “should sit down and try to find a solution to this trade problem.” (Note: For more comments from China, see the next item.)
China's trade surplus with the U.S. swelled to a record in June, a result that could further inflame trade tensions with Washington. Exports to the U.S. 5.7%, while imports from the U.S. rose 4%, resulting in a trade surplus of $28.97 billion.
Mnuchin dismissed the idea that the U.S. and China are locked in a trade war, and instead described it as a dispute, and said he’s not concerned that China will bring its holdings of U.S. Treasuries into the fight. “Exports create enormous job opportunities,” he said. “We should be doing things to make sure that our companies can compete fairly.”
The Trump administration is closely monitoring the domestic economic effect of tariffs, including on uncertainty for businesses, and it hasn’t yet found “any negative impact,” said Mnuchin.
Rep. Ann Wagner (R-Mo.) said constituents in her soybean-producing state of Missouri are feeling the “present-day" impact of the trade war. Soybean futures have been spiraling lower since late May, just as the trade dispute was gearing up. Mnuchin assured Wagner that he’s following soybean prices daily, calling China’s targeting of the commodity “unfair.”
Perhaps no state has more to lose from the trade war than Michigan, where China’s ties to the auto industry run deep, according to the New York Times. Link to article.
Rep. Maxine Waters (D-Calif.) said the administration “appears to be flying by the seat of its pants with no plan for how to address the possibility of a recession, the higher prices consumers will pay and the resulting losses of millions of American jobs.” Panel Chairman Jeb Hensarling (R-Texas) said he’s worried the administration isn’t focusing on knocking down barriers to U.S. exports.
Meanwhile, Republican and Democratic senators yesterday grilled a State Department official on whether the Trump administration has an exit strategy should its tariffs on goods from U.S. allies and China fail. Senators on the Foreign Relations Committee hearing pressed Manisha Singh, assistant secretary of state for economic and business affairs, for administration contingency plans should the tariffs fail. They argued that tariffs could undermine U.S. coalitions with allies. Tariffs have been imposed in recent months on Canada, Mexico, the European Union, as well as China. “The president has very carefully laid out an economic strategy,” Singh said. “It is contained within the national security strategy, which is our blueprint to how our administration is operating.” “That enlightens us in no way,” Sen. Bob Corker (R-Tenn.) said.
China’s retaliatory 25% tariff on U.S. soybeans would “severely, negatively affect” soybean farmers, Sen. Coons (D-Del.), together with Sen. Tom Carper (D-Del.) and Rep. Lisa Blunt Rochester (D-Del.), wrote in a letter (link) to USDA Secretary Sonny Perdue July 12. “We urge you to ensure that the Administration takes actions to mitigate the effects of the tariffs on farmers and resolve its trade dispute with China,” they wrote. A weakened U.S. economy as a result of the tariffs would undermine national security, and the administration is not listening enough to its agencies’ recommendations and feedback from foreign leaders, the senators said.
Canada is not a national security threat, Singh said during the committee hearing. But China, with its “market-distorting practices,” poses a threat, she said. The administration should prioritize teaming up with its allies, such as Canada, Mexico, and the EU, in combating China’s “unfair market practices,” Sen. Marco Rubio (R-Fla.) said, as “none of these nations seem to displace the United States.”
Sen. Jeff Flake (R-Ariz.) said the Department of Defense is responsible for determining what constitutes a national security threat, and the department has yet to deem steel and aluminum imports as a threat. Singh did not name specific countries when asked by Sen. Ben Cardin (D-Md.) to state the countries that have expressed support for the administration’s tariff actions. “Probably Russia,” Corker quipped. “There are many countries,” Singh replied to Cardin. “I’m hesitant to speak for another country. But I can tell you confidently that I’ve had conversations with many different government officials who share our concerns about China.”
On the broader U.S. economic outlook, the Treasury secretary said he doesn’t consider the flatter yield curve — which lately is showing a narrowing in the spread between short- and long-term government debt yields — as indicative of an impending recession.
— China says U.S. to blame for trade skirmishes. China’s Commerce Ministry on Thursday said Washington is “fully responsible” for the escalating trade war between the world’s two largest economies. While the statement came in response to Trump’s plan to slap tariffs on another $200 billion worth of Chinese goods, the Chinese government said, “When the U.S. willfully exits from groups based on its own interests under the pretext of 'American First,' it becomes an enemy to all.”
Beijing also called out the U.S. for making “groundless” accusations of unfair trade practices and not moving forward in negotiations. “From February to June this year alone, China engaged in four rounds of high-level economic talks with the U.S. and has announced the China-U.S. Joint Statement with important consensus reached on strengthening trade and economic cooperation and avoiding a trade war,” the ministry said. “But due to domestic politics, the U.S. has gone back on its words, brazenly abandoned the bilateral consensus, and insisted on fighting a trade war with China."
— President Trump confident of a happy ending to China trade conflicts. “I think we're going to end up doing something very good with China,” Trump said at the NATO summit closing press conference in Brussels. “Right now, we're in a pretty nasty trade battle, but I think ultimately that will work out. I really think we have a big advantage.”
In Washington, a leading China expert predicted there could be a deal by mid-August that would allow Trump to declare victory on reducing the trade deficit and to lift the duties before the congressional midterm elections. "My opinion is ... in the middle of August or so, we will have some sort of deal announced,” said Derek Scissors, a resident scholar on China and India at the American Enterprise Institute, according to Politico. Scissors said the two sides are already negotiating the “logistics” of the next meeting. “They’re not at the level of talking about the offers and what to do. They’re at the level of how to do this. Those talks have started, I know,” Scissors said during a discussion hosted by the Information Technology and Innovation Foundation.
— Fed chairman comments on Trump trade policy. “The (Trump) administration says that what it's trying to achieve is lower tariffs. So if it works out that way, then that'll be a good thing for our economy," Fed Chair Jerome Powell told the ECB Forum. "If it works out other ways, so that we wind up having high tariffs on a lot of products, goods and services... and that they become sustained for a long period of time, then yes, that could be a negative for our economy." In an interview on American Public Media’s Marketplace program, he said the economy is in a “good place” with unemployment at its lowest level in years and inflation close to the central bank’s 2% target.
A Federal Reserve Bank of St. Louis economist warned that Trump’s tariffs on Chinese goods may backfire, causing job cuts and plant shutdowns. Higher tariffs have affected mostly intermediate goods from China -- supplies used by U.S. manufacturers in producing final products -- so they have the effect of raising costs and resulting in higher prices, economist Fernando Leibovici wrote in an On The Economy blog published on the bank’s website yesterday. That will hurt their competitiveness compared with the rest of the world, he said. “This evidence suggests that raising tariffs on intermediate inputs may have a significant negative impact on U.S. manufacturers,” Leibovici wrote.
— House Speaker Paul Ryan (R-Wis.) trade policy vision far different from President Trump's. Ryan in remarks Thursday drew a stark difference between his vision for trade and that of Trump, rejecting tariffs and warning that pulling out of trade agreements is a threat to the U.S. economy. “We risk having American products locked out of new markets, jobs moved overseas, and a decline in American influence,” Ryan said yesterday at the Economic Club of Washington. “As our generals will tell you, these agreements are just as important for our national security as they are for our economy.”
Ryan said he hopes Trump’s tariff moves are just a negotiating tactic to get countries to make trade deals. If the U.S. does not begin new trade talks, "we risk having American products locked out of these new markets," Ryan said. "We risk having jobs being moved overseas and we risk a decline in American influence. All of this matters. As our generals will tell you, these agreements are just as important for our national security as they are for our economy."
Ryan urged the Trump administration to go after new deals instead of new tariffs. "The other [Trans-Pacific Partnership] nations have moved forward with that agreement," Ryan said, referring to the 12-nation pact that Trump pulled out of on his third day in office. "Any day now the EU will sign a new trade agreement with Japan. The EU has also recently initiated negotiations with Australia and New Zealand. So the point is, the world is moving ahead. They're getting preferential agreements between themselves."
— Despite all the high anxiety in farm country over the Trump trade tariffs, the president's polling improves in key farm states. According to the latest Morning Consult tracking poll, President Trump’s net approval rating has improved in Indiana, Missouri, and Montana since the first of the year. Trump also has a net positive approval rating in North Dakota and Florida, two states with close Senate election contests. Link to latest tracking poll.
— USDA made its first assessments from President Trump's trade tariffs via the supply/demand updates released Thursday. In a note, USDA said: “Consistent with established practices, this report only considers those trade actions which are in place or have had formal announcement of effective dates as of the time of publication. Further, unless a formal end date is specified, this report also assumes such actions are in place throughout the time period covered by these forecasts.”
Some comments on individual crops from USDA's WASDE report:
Soybean exports are reduced 250 million bushels to 2.040 billion reflecting the impact of China’s import duties. Despite losing market share in China, soybean exports are supported in other markets as lower U.S. prices increase demand and market share. Soybean ending stocks for 2018/19 are projected at 580 million bushels, up 195 million from last month.
The tariff that China recently imposed on U.S. soybeans is expected to cause higher prices for soybeans in China and slower protein meal consumption growth. Lower demand and a year-over-year drawdown in stocks for China are forecast to result in reduced crush and an 8-million-ton decline for imports to 95 million. Parallel to this change is a 6.8-million-ton decline for U.S. exports that is partly offset by a 2.1-million-ton increase for Brazil. Planted area for Brazil for 2018/19 is expected to expand with higher prices resulting from increased trade with China, leading to a 2.5-million-ton increase in production to 120.5 million.
Soybean crush for 2018/19 is raised 45 million bushels to 2.045 billion reflecting an increase in projected soybean meal domestic disappearance and exports. Domestic soybean meal disappearance is raised on lower soybean meal prices and increased livestock production. Soybean and product trade changes reflect the impact of China’s recently imposed soybean import duties in addition to other global oilseed supply and demand changes this month. U.S. soybean meal exports are raised to offset reduced meal exports from South America where higher soybean exports displace crush.
Cotton: The 1.0-million-bale decrease in the crop projection is due to higher expected abandonment based on current conditions. Beginning stocks are 200,000 bales lower due to an increase in 2017/18 exports. 2018/19 exports are reduced 500,000 bales based on lower supplies and increased foreign competition. With no change in domestic consumption, 2018/19 ending stocks are projected at 4.0 million bales, down 700,000 bales from the June estimate and unchanged from the revised 2017/18 level.
— Trade tensions are triggering turmoil in one of agriculture’s cornerstone supply chains, according to the Wall Street Journal (link). Soybean prices are at their lowest point in nearly a decade as Chinese buyers shift their purchasing to Brazil and businesses in other countries rush to U.S. suppliers for heavily discounted shipments. “The shifting trade in a food-industry staple is the most visible sign yet of the tit-for-tat tariffs flying between the U.S. and China,” the article noted, adding the financial impact on American farmers could grow with new predictions of a record U.S. harvest in the current crop year. U.S. officials say they expect soybean exports to China to fall by 11% next year now that Beijing has enacted retaliatory tariffs on American soybeans. Growing purchases from other countries will offset lost China trade, potentially providing high shipment volumes for bulk shipping carriers that also come with diminished value.
— Farm bill warning shot by White House as it declared the long-running war on poverty “is largely over and a success,” making a case for new work requirements on Americans who benefit from federal assistance.
The White House Council of Economic Advisers released an 88-page report (link) outlining the administration’s case for requiring able-bodied welfare recipients to work, including those getting SNAP/food stamp benefits. “As was the case in the period of welfare reform in the mid-1990s, current labor markets are extremely tight and unemployment rates are at very low levels, even for low-skilled workers,” making it a perfect time to tighten work rules, the report says.
— House likely to vote on farm bill conference next week: Conaway. A vote on a motion to proceed to conference on the farm bill is expected next week in the House, according to House Agriculture Chairman Mike Conaway (R-Texas). “It’s my understanding that the speaker will trigger that motion next week,” Conaway told reporters, referring to House Speaker Paul Ryan (R-Wis.).
Conaway said is currently working on the list of conferees and is “putting together all the committees that might have jurisdictional linkage to the deal.”
Conaway said he's anticipating that Democrats will offer at least one motion to instruct conferees to consider a particular position as negotiations get underway. Ag Committee Ranking Member Collin Peterson (D-Minn.) is aiming to make that non-binding suggestion be the establishment of baseline funding for a vaccine disease bank at USDA.
Conaway and Peterson met Wednesday for the first time in eight weeks, according to Peterson. Peterson indicated to reporters that the face-to-face got heated. "I was not easy on him, and I told him bluntly what I think, which I always do,” he said. “He didn't like it, but I said I'm just telling what I think and I'm trying to be helpful... We get this thing into conference next week and if people become sensible it won't take long to do this,” Peterson said.
A top Democratic farm senator said the House bill includes food stamp work requirements the Senate won’t accept. Senate Agriculture Ranking Member Debbie Stabenow (D-Mich.) said Thursday she wants the House to understand current law and that there are already work requirements in place for recipients of the Supplemental Nutrition Assistance Program (SNAP), formerly known as food stamps. “They want more older people to work, they want more moms with smaller children to work, and that is a disagreement the Senate has,” she said.
— EPA granted 49 RFS exemptions for 2016, 2017 to small refiners, according to a letter the agency sent Thursday to Sen. Chuck Grassley (R-Iowa). The pace was about double the 10-12 annual exemptions typically granted by the Obama administration. Link to letter.
Details. Under departed EPA Administrator Scott Pruitt, EPA granted 20 exemptions for the 2016 compliance year representing 790 billion Renewable Identification Numbers (RINs) in blending, and it denied one. The agency granted 29 exemptions for the 2017 compliance year, and it is considering four more, according to the letter.
The letter said the agency has received no applications for 2018.
EPA would not reveal the names of companies getting the exemptions, saying that information is confidential, though reports have indicated that Andeavor and HollyFrontier have received them.
Grassley reacts. “The idea that disclosing to Congress the names of waiver recipients somehow reveals confidential business information doesn’t make any sense and isn’t acceptable,” Grassley said in a statement. “Providing Congress with the names of recipients wouldn’t reveal any details about their operations or finances. It’s a necessary first step to making sure the law is being followed.“ Grassley said he looks forward to meeting with acting Administrator Andrew Wheeler to discuss this and other RFS issues.
— President Trump described the forthcoming summit with Russian President Vladimir Putin as a “loose meeting” that may last only a short time. The following is what Trump said he plans to speak with Putin about:
* Election meddling: “He may deny it … all I can do is say, ‘did you?’ and ‘don’t do it again,’ but he may deny it.”
* Russia’s annexation of Crimea: “That was on Barack Obama's watch. That was not on Trump's watch. Would I have allowed it to happen? No, I would not have allowed it to happen. But he did allow it to happen, so that was his determination … What will happen with Crimea from this point on? That I can't tell you. But I'm not happy about Crimea.”
* A new arms reduction treaty.
* U.S. military exercises in the Baltics, and whether they will continue NATO, which represents a check on Putin’s power.
* Russian support for Syrian leader Bashar Assad, who has used chemical weapons on his own people, and wages civil war to stay in power.
* Russia’s efforts to destabilize Ukraine.
— Other items of note:
Trump deals double blow to U.K. Prime Minister Theresa May. In an interview in The Sun newspaper to be published today, President Donald Trump said May's plans for a soft Brexit would likely end hopes of a trade deal with the U.S. and that Boris Johnson, who quit her cabinet this week, would be a “great” leader. “If they do a deal like that, we would be dealing with the European Union instead of dealing with the U.K., so it will probably kill the deal,” Trump said. “I would have done it much differently,” Trump said. “I actually told Theresa May how to do it, but she didn’t listen to me.” Trump is scheduled to have a working lunch with May today, and to have tea with Queen Elizabeth II.
American officials are on their way to Mexico to meet president-elect Andrés Manuel López Obrador (AMLO) and the current administration, adding to speculation that the U.S. may be looking for a NAFTA 2.0 victory while trade tensions escalate with China. Ahead of the meeting, Mexico reportedly opposed a deal known as a "Safe Third Country Agreement," which would make people seeking asylum in the U.S. apply in Mexico instead. Treasury Secretary Steven Mnuchin will be in Mexico City today with Secretary of State Mike Pompeo, Homeland Security Secretary Kirstjen Nielsen and White House senior adviser Jared Kushner to discuss the bilateral relationship with Mexico’s incoming leftist president and his team. “NAFTA is now a big priority since we have the Mexican election behind us,” Mnuchin said at a House Financial Services Committee hearing Thursday.
Italy will not ratify the EU's free trade agreement with Canada, which needs to be approved by all 28 member states in order for it to take effect. "If so much as one Italian official ... continues to defend treaties like CETA (the Comprehensive Economic and Trade Agreement) they will be removed," added deputy Prime Minister Luigi Di Maio.
The U.S. has rejected a French waiver request for companies operating in Iran, according to Finance Minister Bruno Le Maire, adding that "Europe must provide itself with the tools it needs to defend itself against extra-territorial sanctions." The exemptions would be critical for Total to continue a multi-billion-dollar gas project in Iran and PSA Group to pursue its joint venture.
USDA announces 13 appointments to Dairy Board. The appointment of 13 members to fill vacancies on the 37-member National Dairy Promotion and Research Board (NDB) were announced July 12 by USDA Secretary Sonny Perdue. According to USDA, 12 of the appointees will serve three-year terms that start Nov. 1, 2018. An additional appointee will serve the remaining portion of a vacant position, effective immediately, for a term expiring Oct. 31, 2019.
— Markets. The Dow on Thursday rose 224.44 points, 0.91%, at 24,924.89. The Nasdaq gained 107.31 points, 1.39%, at 7,823.92. The S&P 500 moved up 24.27 points, 0.87%, at 2,798.29.
DOJ to appeal ruling allowing AT&T-Time Warner merger. The Justice Department (DOJ) said Thursday it will appeal a judge’s decision last month that cleared the way for the $85 billion merger between AT&T and Time Warner to proceed. The two companies have since completed the merger.