Policy Updates: NAFTA Withdrawal Still a Possible Trump Decision, But NAFTA 2.0 Timeline Changing

Posted on 01/12/2018 6:54 AM

NCFC, NGFA release statement on tax provision snafu

Trump signals no decision on NAFTA exit until after Mexico elections. President Donald Trump said he is in "no rush" to exit the NAFTA agreement and there was no timetable on that decision given the July 1 presidential elections in Mexico. "I'm leaving it a little flexible because they have an election coming up," Trump told the Wall Street Journal in an interview. "I understand a lot of things are hard to negotiate prior to an election. They have an election coming up fairly shortly, and I understand that that makes it a little bit difficult for them."

However, Trump reiterated that if a "fair deal" is not found in NAFTA, "I will terminate. With that being said, I would rather be able to negotiate." He noted a lot of headway has been made in the negotiations so far.

Regarding any NAFTA termination, Trump made an observation that recent market activity could suggest is not accurate. "I'm not sure that markets would dip," Trump said of a NAFTA termination. "I'm not sure about world markets, but I can tell you I think the American market would go up if I terminated NAFTA and renegotiated a new deal." This comes after equity markets, the U.S. dollar index and U.S. government bond markets reacted this week to a Reuters report which quoted Canadian government sources as saying the country was convinced Trump would "soon" notify NAFTA partners of his intention to exit the deal.

PERSPECTIVE: The White House is analyzing the impact that walking away from NAFTA would have on the midterm prospects for Republican candidates in key battleground states, according to the U.S. Chamber of Commerce. Chamber President Thomas Donohue said Republicans and Democrats were focused on the potential for economic damage in Michigan, Wisconsin and Texas in particular — and would work to thwart any attempt by the administration to withdraw.

Trump on the southern border wall and who will pay for it. The president told the WSJ in an interview that Mexico would pay for the wall through NAFTA. "They can pay for it through ... they can pay for it indirectly through NAFTA. OK? You know, we make a good deal on NAFTA, say I'm going to take a small percentage of that money and it's going to go toward the wall. Guess what? Mexico's paying,” Trump said.

"Now Mexico may not want to make the NAFTA deal which is OK, then I'll terminate NAFTA ... which I think would be frankly a positive for our country. I don't think it's a positive for Mexico, I don't think it's a positive for the world. But it's a positive for our country because I'd make a much better deal. There is no deal that I can make on NAFTA that's as good as if I terminate NAFTA and make a new deal. OK? But I feel that we have a chance of making a reasonable deal, the way it is now."

NCFC, NGFA release joint statement on 199A tax provisions. A joint statement was released Thursday afternoon by the National Council of Farmer Cooperatives (NCFC) and the National Grain and Feed Association (NGFA), reflecting their mutual desire “to ensure farmers are able to participate in tax reform in a meaningful way.” Both organizations said they are “working collaboratively with key stakeholders in Congress to address potential unforeseen impacts on producers’ marketing decision.” The statement: of Chuck Conner, president & CEO, NCFC and Randy Gordon, president & CEO, NGFA, on Section 199A tax provisions:

We are aware of questions and concerns raised about the potential marketplace effects of the new section 199A of the Tax Cuts and Jobs Act as it relates to producers and agribusinesses. Congress’s intent in including this provision was to replicate the tax treatment previously available to co-op farmer-members, consistent with the bill’s overarching goal of creating jobs and economic growth including in rural America.

“We are working intensively with stakeholders, including cooperatives, non-cooperative-owned agribusinesses and Senate offices, including Senators Hoeven, Thune and Roberts. The goal of these discussions is to arrive at an equitable solution that preserves the benefits that cooperatives and their farmer patrons previously enjoyed under Section 199 of the tax code, while addressing any unforeseen impacts on producers’ marketing decisions. NCFC, NGFA and our stakeholders are committed to reaching a solution in a thoughtful and expeditious manner, and to working with Congress to address this issue promptly.”

The coming change would be included in any new omnibus budget agreement, which appears to be a February timeline.

Commerce delivers steel Section 232 report to White House. A report on the effect of steel mill product imports on U.S. national security has been sent to the White House by the U.S. Department of Commerce (DOC), the agency said late Thursday. The report's transmission starts a 90-day clock for President Donald Trump to decide on any potential actions based on the report.

DOC will release a summary of the report after Trump has announced a decision on the issue. The White House confirmed receipt of the report, with White House deputy press secretary Lindsay Walters saying, "The president has 90 days to make his decision and we will announce that decision at the appropriate time."

While no trade actions on the part of the U.S. are guaranteed, observers view the report being sent forward as potentially signaling there could be national security threat to the imports.

As for what could happen, DOC Secretary Wilbur Ross in 2017 indicated three basic options exist — tariffs, quotas or tariff-rate quotas as are used in some other areas.

Study: Foreign competitors boost export promotion, but U.S. effort more effective. The European Union, New Zealand and Australia are all spending more on promotion of farm products, but the U.S. approach led by USDA’s Foreign Agricultural Service (FAS) may be more effective, says an industry-commissioned study. The report by Informa Economics IEG says the EU is increasing its ag export promotion by 29% over three years. The report was commissioned by the U.S. Dairy Export Council, U.S. Grains Council, U.S. Meat Export Federation, Almond Board of California and Wine Institute. Link.

The report's analysts believe FAS programs are more effective because they encourage cooperation between industry and the government and are better focused on long-term export goals.

Other items of note:

  • As Beijing implemented new U.N. sanctions against Pyongyang, China reported a sharp drop in business with North Korea in 2017. Overall trade between the two nations fell 10.5% to about $5 billion, and the month of December showed trade diving 50.6% compared to 2016. While the U.S. may see that as a positive development, China posted a trade surplus with the country last year that climbed 10% to a record $275.8 billion.
  • Spending deal close. House Republicans said Thursday that a two-year budget deal on top-line spending levels could come together in the next few days, despite ongoing partisan disputes over defense and domestic priorities and other policy issues, including immigration. Appropriators have said they would need several more weeks to write a detailed omnibus spending bill. With all current funding (PL 115-96) set to expire on Jan. 19, another stopgap continuing resolution to extend funding — probably to Feb. 16 — would be required next week to avoid a government shutdown.
  • House mulls six-year children's health funding extension. The House is weighing a longer-term funding renewal of the Children's Health Insurance Program (CHIP) after a new preliminary estimate from the Congressional Budget Office revealed that the program would not have to be offset. The offsets had been a point of contention between both parties.
  • The IRS released guidance for employers about how much tax they should withhold from workers’ paychecks in 2018 -- and said it would soon offer an online calculator that employees can use to make sure the amounts are correct. Treasury Secretary Steven Mnuchin said the government expects about 90% of workers to see an increase in their take-home pay as a result of the new tax law. Workers will not have to fill out a new W-4 this year.
  • EPA workforce. Retirements and departures from the EPA have shrunk its workforce to levels not seen since the Reagan administration. As of Jan. 3, the agency employed 14,162 employees, down from about 15,000 people when Trump took office. If all employees who are eligible to opt to retire by the end of current term in 2021 then the workforce will have shrunk by nearly half.
  • Union Pacific Corp. estimates that changes in U.S. tax law will boost the railroad’s 2017 earnings by roughly $6 billion. Link.
  • Japan plans to cull thousands of chickens after detecting an outbreak of bird flu. Link.
  • Mexico's Guajardo to meet with USTR Lighthizer in DC. Mexican Economic Minister Ildefonso Guajardo is currently in Washington and has a meeting on tap with U.S. Trade Representative Robert Lighthizer to discuss the NAFTA 2.0 negotiations. The Mexican Economy Ministry said Guajardo will also meet with U.S. lawmakers "to discuss diver topics on the bilateral agenda; in particular, the advancement of negotiations for the NAFTA modernization." There were no times cited by the ministry and the visit will also include Guajardo signing Mexico on as a member-state of the International Center for Settlement of Investment Disputes at the World Bank. His visit comes as the sixth round of NAFTA 2.0 talks is set to take place January 23-28 in Montreal. A seventh round is being talked about for Mexico in February.
  • Rep. Cramer will not challenge Sen. Heitkamp in November. Sen. Heidi Heitkamp (D-N.D.) will not face Rep. Kevin Cramer (R-N.D.) as she seeks to retain her Senate seat in November, Cramer told a radio program in North Dakota. "We've decided that the best thing for our family and for me and I think, frankly, for North Dakota is for me to seek reelection to the House of Representatives," he said on the What's on Your Mind" program. "And while it's still a robust campaign — there's still a lot of work to do — it's far less intense than flying around the country for the next 10 months every weekend going to Chicago and New York and you know, someplace far away to raise adequate funds to, you know, to run." While being pressured by President Donald Trump and other top Republicans to challenge Heitkamp, indications are that the chance to move up the ranks on the House Energy and Commerce Committee also factored into Cramer's decision.
  • Cotton AWP rises again. The Adjusted World Price (AWP) for cotton rose to 71.21 cents per pound, effective today, the eighth weekly rise in a row and the third straight week it has been above 70 cents per pound. The current value marks the highest since May 19 when it was 72.44 cents per pound.

Markets. The Dow on Thursday advanced 205.60 points, 0.81%, at 25,574.73. The Nasdaq rose 58.21 points, 0.81%, at 7,211.78. The S&P 500 moved up 19.33 points, 0.70%, at 2,767.56.

The euro jumped to a three-year peak against the dollar overnight after German party leaders reached a breakthrough in talks to form a "grand coalition." The European Central Bank added to the bullishness on Thursday by signaling in minutes from its mid-December meeting that it's planning to slow its stimulus program more quickly than investors had expected.

Brent crude oil broke above $70/barrel yesterday for the first time since 2014, underpinned by the effectiveness of OPEC output cuts and geopolitical risk in producing countries like Iran. In the U.S., WTI crude climbed as high as $64.77 as domestic stockpiles posted their eighth straight week of declines.


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