Upcoming Trump Decision on Tariffs and China

Posted on 06/12/2018 6:58 AM

NAFTA 2.0 | Perdue visits Canada Friday | Larry Kudlow | CSX Corp.


U.S., North Korea relations have gone from confrontation to cooperation as the historic meeting between President Trump and Kim Jong Un signed a document that included four points: Establishing new U.S.-DPRK relations, building a lasting and stable peace regime, reaffirming commitments to work toward complete denuclearization and recovering POW/MIA remains. U.S. sanctions will remain in effect for the time being and American forces will not be reduced on the Korean peninsula, although Trump said war games with S. Korea would end unless the agreement with North Korea hits some snags. Trump said representatives from the two sides will hold further meetings as soon as next week. While the agreement signed by the leaders has no deadline for North Korea to give up its nuclear capability, the president said progress would be made quickly. Markets so far are taking a wait-and-see approach to the summit as investors look for concrete moves from either side.
     News about threatened U.S. sanctions on China could come this Friday or earlier, and U.S. soybean growers are very anxious about any tariff announcement because China has threatened to slap hefty tariffs on U.S. soybeans.
     Some U.S. ag stakeholders are hoping a visit to Canada this Friday by USDA Sec. Sonny Perdue will help ease the spiral in U.S./Canada trade relations.
     NAFTA 2.0 talks continue despite the up-and-down remarks from various Trump administration officials. President Trump spoke on the phone with Rep. Roger Marshall (R-Kan.) over the weekend to reassure farmers that they will end up winning in a renegotiated NAFTA, according to the lawmaker’s office.
     U.S. economic advisor Larry Kudlow suffered a "mild heart attack" overnight, but is in "good condition" at the Walter Reed Medical Center.

 

 

What will Trump and his trade team announce regarding threatened tariffs on China tariffs? Some U.S. farm groups especially soybean growers, are in high anxiety mode on what the Trump administration will decide Friday or before regarding more tariffs on China, with implementation “shortly thereafter.” The authorizing statute for the tariffs, Section 301 of the 1974 Trade Act, allows USTR to take up to 30 days to put the duties in place after a formal determination is published in the Federal Register. So far, the Trump administration has not published that determination.

Some observers previously signaled Trump could delay the tariffs if his summit with North Korea leader Kim Jong Un went well, but no word yet on that possible linkage. In fact, China suggested that sanctions relief could be considered for North Korea in remarks shortly after Trump and Kim pledged to work toward complete denuclearization of the Korean peninsula. Trump said sanctions would remain in place until “the nuke problem” is settled.

One option under Trump review would delay the duties for a maximum of another 180 days if USTR determines that substantial progress is being made in the talks with China, or that a delay would help to bring about a satisfactory solution.

U.S./Canada trade relations turn ugly. U.S. ag groups hope a coming trip to Canada by USDA Sec. Sonny Perdue will temper the current unstable situation between the two countries, but ag group lobbyists frequently have other events overtaking their priorities. Canadian Prime Minister Justin Trudeau rankled President Donald Trump after the president left the G7 confab, resulting in Trump going after the prime minister and several Trump trade officials getting very personal in their criticism of Trudeau.

Perdue on Friday will meet with his counterpart, Lawrence MacAulay, for a meeting planned for weeks.

President Trump, during comments early this morning in Singapore, said Trudeau's and Canada policies “will cost Canadians a lot of money.” Trump however said his relationships with G7 counterparts were strong despite differences on trade policy.

Mexico turns to Japan as NAFTA 2.0 talks uncertain. Mexico’s top trade official is traveling to Japan this week as the Latin American nation seeks to diversify exports and investment amid an impasse in talks on revising the North American Free Trade Agreement (NAFTA 2.0). Economy Minister Ildefonso Guajardo said he still sees a high chance of a deal to update NAFTA, but that the U.S., Canada and Mexico will need to show flexibility. The three sides will strongly engage next month, Guajardo was quoted by Reuters as saying on Monday in Tokyo, where he will meet Japanese officials and business leaders.

NAFTA 2.0 talks outlook. U.S. Trade Representative (USTR) Robert Lighthizer and Canadian Foreign Minister Chrystia Freeland on Sunday discussed the ongoing NAFTA 2.0 talks in a phone call that her office characterized as “productive and cordial.” Freeland will be in Washington on Wednesday to meet with members of the Senate Foreign Relations Committee at the request of Chairman Bob Corker (R-Tenn.).

Freeland told reporters Sunday in Quebec City that she remains optimistic that agreement on a revamped NAFTA is possible. However, she said the “ad hominem attacks” from Trump economic advisers Peter Navarro and Lawrence Kudlow “are not a particularly appropriate or useful way to conduct relations with other countries.”

A spokesman for Lighthizer said the U.S. is continuing negotiations with Canada and Mexico “both separately and together.” He added, “We are making progress and hope to reach agreement before too long.”

The Trump administration continues to insist on a sunset clause, under which it would expire if not explicitly renewed every five years.Trudeau has said Canada is “unequivocal” in its opposition to that but said he was open to alternatives to a sunset clause that “would not be entirely destabilizing for a trade deal.”

Trump tries to reassure farmers on NAFTA. Trump spoke on the phone with Rep. Roger Marshall (R-Kan.) over the weekend to reassure farmers that they will end up winning in a renegotiated NAFTA, according to the lawmaker’s office. In the call with Trump, Marshall emphasized the importance of striking a deal on a NAFTA 2.0. Trump, in response, said negotiations are ongoing and that he continues to look for ways to ensure the NAFTA partner nations treat U.S. farmers well. “I’m doing the best I can, as fast as I can, but I don’t want to rush it so much that we make a bad deal,” Trump told Marshall. “It’s a bad deal for the farmers and a bad deal for the country. I have to do the right thing, I’ll do the right thing, and it may take time, but they will make a lot of money because we’re going to take down trade barriers.”

Other items of note:

  • U.S. economic advisor Larry Kudlow suffered a "mild heart attack" overnight but is in "good condition" at the Walter Reed Medical Center. Kudlow plays a leading role in crafting trade policy on the White House's National Economic Council. He was tapped less than three months ago following the resignation of Gary Cohn over steel and aluminum tariffs.

  • CSX Corp.’s drive to make its freight rail business more efficient is starting to bump up against other railroad operations, the Wall Street Journal reports (link). The company’s decision about a year ago to pull out of the industry’s decades-old boxcar pool is straining the country’s shrinking boxcar fleet, the article noted, adding costs and complexity for some large shippers like International Paper Co. CSX says its decision came down to the fraying promise of shared resources, which left the railroad shipping empty cars on tracks past its own customers to shippers on other rail lines. “The go-it-alone strategy is triggering tensions among railroads, with other operators saying the pool depends on broad participation. The bigger problem is that the number of boxcars in North American operations has declined dramatically over the years, leaving fewer of the cars nearby for the shippers that still use them.”

  • Commerce decision on olive imports from Spain due today. Final antidumping and countervailing duty calculations on ripe olive imports from Spain are due today from the U.S. Dept. of Commerce. Previously, the agency set preliminary countervailing duties of 2.5% to 7.25% with antidumping duties of 15% to 20%. The U.S. International Trade Commission (ITC) still has to issue their determination on whether U.S. producers have been materially injured or are threatened with injury by the imports. Expectations are that will likely happen yet this month.

  • Five states will be choosing nominees today, including North Dakota and Nevada — states that will help determine if if Republicans hold their Senate majority in November. A South Carolina congressman faces a tough primary, Virginia Democrats may nominate women in three competitive districts, and Maine is asking voters to figure out their second-choice candidates for the first time in a congressional election. The five states holding primaries today bring the number of states that have held 2018 primaries to 21.

  • In a town hall meeting planned for this morning, McDonald's will detail changes to its organizational structure in the U.S., which will provide more resources to franchisees. The decision will also include layoffs, as well as form a single point of contact to help each franchisee build business plans and create a new executive position called Chief Transformation Officer.

Markets. The Dow on Monday edged up 5.78 points, 0.02%, at 25,322.31. The Nasdaq added 14.41 points, 0.19 %, at 7,659.93. The S&P 500 rose 2.97 points, 0.11%, at 2,782.00.

IMF says clouds over the global economy are “darker by the day.” The International Monetary Fund (IMF) head, Christine Lagarde, on Monday said the "biggest and darkest cloud" over the global economy was the risk of eroded confidence "by attempts to challenge the way in which trade has been conducted, in which relationships have been handled, and the way in which multilateral organizations have been operating."

 


 

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