199A | Pruitt, Perdue to discuss RFS options | ADM | Coming U.S. sanctions on China
— Monday came and went with no text of omnibus spending measure. The details are now expected to be introduced today. The delay was from negotiations over unresolved provisions. A Monday evening move by the House Rules Committee cleared the way for today's expected bill release. The committee approved a rule (HRes 787) for floor debate on unrelated legislation (HR 4566, HR 5247) that would provide "same-day" authority through Friday, giving GOP leaders leeway to take up a continuing resolution quickly if necessary.
Timeline for omnibus spending bill. House GOP leaders briefed their members on the fiscal 2018 plan Monday night, with a tentative plan to vote Wednesday, leaving the Senate just a few days to pass the bill and avoid a government shutdown on Friday at midnight.
One of the outstanding issues is revising the 199A “grain glitch” that currently gives farmers and ranchers incentives to sell their products to agricultural cooperatives over other types of businesses. House Ways and Means Chairman Kevin Brady (R-Texas) said that addressing the issue, along with extending funding for the Federal Aviation Administration, is among his highest priorities.
Some Senate Democrats won’t support including the 199A change unless the omnibus also expands a low-income housing tax credit — something Brady refuses to do. And Rep. Collin Peterson (D-Minn.), ranking member of the House Agriculture Committee, said that he isn’t convinced the proposed change to the Section 199A deduction “works,” but declined to explain further, suggesting only a Certified Public Accountant would understand.
The National Grain and Feed Association on Monday sent an e-mail to the staff of the nearly 90 lawmakers who signed onto a letter asking House Speaker Paul Ryan (R-Wis.) and Senate Majority Leader Mitch McConnell (R-Ky.) to correct Section 199A. The e-mail said that a failure to act would do “real damage to rural America and force independent grain elevators to spend the time and money to re-organize as a cooperative just so they can compete,” and urged staff to talk to House leadership about ensuring the fix makes it in the omnibus. Link to letter.
Another lingering issue is whether the omnibus will include over $900 million for a rail and tunnel project that is critical to the Northeast corridor. President Trump has threatened to veto the spending bill if it contains money for the multi-billion dollar Gateway project, which is a top priority for Senate Minority Leader Chuck Schumer (D-N.Y.). While House Speaker Paul Ryan (R-Wis.) supports Gateway, he also pointed out the president’s opposition and urged lawmakers to work it out with the administration.
— USDA's Perdue, EPA's Pruitt to meet today to draw up biofuel policy options: Reuters. Narrowing down proposals on biofuels policy to bring down the cost of Renewable Identification Numbers (RINs) is the subject of a meeting today between EPA Administrator Scott Pruitt and USDA Secretary Sonny Perdue, according to Reuters. It is not clear if the meeting will see the two officials draw up a broad list of options or produce a narrower set of policies for President Donald Trump to consider. This comes as Midwestern lawmakers have requested a meeting with Trump to explain their position that any capping of RIN prices would be negative for the U.S. ethanol industry.
— Brady: Trump's China tariff announcement could come this week. House Ways and Means Chairman Kevin Brady (R-Texas) said the Trump administration could announce as soon as this week its decision to impose tariffs on Chinese products in response to concerns about intellectual property theft and forced technology transfers. "I don't know the timing. It certainly seems like it's fairly imminent," Brady said during his regular Monday afternoon question-and-answer session. He added that he has heard from administration officials that it could be unveiled "over the next week or two." (See related article, next item.)
Brady said the tariffs could be announced before Thursday, when Commerce Secretary Wilbur Ross is scheduled to testify before the committee. If so, Ross will face several questions on the topic, Brady said.
Brady repeated that he believes the administration is "right to go after China for its theft of intellectual property and forced technology transfer." But the challenge for any president in imposing tariffs, he added, "is to ensure that, ultimately, you don't punish Americans for China's misbehavior. That's the challenge anytime tariffs are imposed, plus [the prospect of] retaliation."
— "Trump prepared to hit China with $60 billion in annual tariffs," says an article in the Washington Post (link). It says Trump is preparing to impose a package of $60 billion in annual tariffs against Chinese products, following through on a longtime threat that he says will punish China for intellectual property theft and create more U.S. jobs. The tariff package, which Trump plans to unveil by Friday, was confirmed by four senior administration officials. the WaPo said.
"Senior aides had presented Trump with a $30 billion tariff package that would apply to a range of products, but Trump directed them to roughly double the scope of the new trade levies. The package could be applied to more than 100 products, which Trump argues were developed by using trade secrets that China stole from U.S. companies or forced them to hand over in exchange for access to its massive market. The situation remains fluid, and Trump has previously in his presidency backed off economic threats at the last minute."
The administration is said to be considering wide-ranging tariffs on everything from consumer electronics to shoes and clothing made in China, as well as restrictions on Chinese investments in the U.S., according to people briefed on the matter.
Reuters quoted a business source as saying the China tariffs may be subject to a public comment period, which would delay their effective date and allow industry groups and companies to lodge objections." Link to article.
China's Premier Li Keqiang sought to quell a full-blown trade war with the United States. Promising to protect intellectual property rights, he said China won’t force foreign companies to transfer technology to domestic counterparts in their investment plans. “There’s no winner in a trade war, and war is going against the rules of trade, which are based on negotiation, consultation and dialogue,” Li said. Those views were echoed by Group of 20 representatives who told U.S. Treasury Secretary Steven Mnuchin on Monday that tariffs on steel and aluminum threaten an essential pillar of the global economy.
— Commerce's Ross, Germany's Altmaier hold 'constructive' discussions on trade. Discussions on trade tensions between the U.S. and German were labeled "constructive" via a statement issued by US Commerce Secretary Wilbur Ross and German Economic Affairs and Energy Minister Peter Altmaier. "We had a very constructive preliminary exchange on all relevant matters in our economic relationships with an eye toward relaxing trade tensions," the joint statement said. "We anticipate further discussions over the next few days." As a member of the European Union (EU), the bloc is responsible for negotiating issues on trade and more, and EU Trade Commissioner Cecilia Malmström will be holding talks with U.S. officials today and Wednesday on the U.S. steel and aluminum import duties.
The EU is expected to obtain a full exemption from new U.S. steel and aluminum tariffs that are due to kick in on March 23, according to French finance minister Bruno Le Maire. The European Commission has said that, if the bloc is not exempted, it could set duties of 25% on a range of U.S. products, whose annual imports to the EU are worth €2.8 billion.
— Signs are growing for a global trade war that could trigger a recession: Deutsche Bank. There are four items in particular that raised the likelihood of a more adverse outcome: The tariffs President Donald Trump recently announced on imported steel and aluminum; National Economic Council head Gary Cohn's resignation over the levies; Trump's tweet that "trade wars are good and easy to win"; and White House saber rattling that more tariffs could be coming, this time on China.
The most likely scenario is still something considerably more benign, with a more measured response from both the U.S. and its key trading partners, China, Canada and Mexico, the bank said. The biggest fears come from the possible inflationary impacts of a trade war.
"While our base case remains that U.S. protectionist actions will be limited enough in scope not to invite economically significant retaliation or disruption of markets and macroeconomic activity, recent events have raised the odds of more adverse scenarios," Peter Hooper, the bank's chief economist, wrote in a 28-page breakdown of various scenarios.
"Protectionist policies can in theory succeed in gaining one country a larger slice of the global pie, but they inevitably invite retaliation that results in a substantial shrinking of the global pie, making all countries worse off," Hooper wrote. "A basic misunderstanding of this principle, and a failure of the beneficiaries of free and open trade to compensate the losers could doom us to repeat the errors of the past."
The biggest fears come from the possible inflationary impacts of a trade war. Should Trump continue to deem other nations' levies as a threat to national security and subsequently expand the tariffs, that would invite reciprocal moves. From there, inflationary pressures kick in as the added cost to imported goods push up consumer prices, slow down consumption and derail economic momentum.
The most glaring case is the Smoot-Hawley tariffs in 1930 which accelerated the damage from the Great Depression. More recent examples of failed tariffs came from Presidents George W. Bush and Barack Obama.
Hooper and his team at Deutsche worry that the U.S. will slap China with tariffs of some 45% on imports in retaliation for intellectual property theft, while hitting Mexico and Canada with 25% duties if they don't renegotiate NAFTA. "The severity of the impact results from a variety of channels: a sharp decline in trade flows, which disrupts supply chains; weaker consumer spending driven by a decline in disposable income as inflation rises; a tightening of financial conditions as equities decline, credit spreads rise, and volatility spikes," the report said.
— Railroad industry stresses impact of NAFTA on industry. The Association of American Railroads in a message to the House Ways and Means panel said NAFTA is good for U.S. trade and workers. In a letter to the committee, the group said that “the complex supply chains that facilitate trade across the continent, of which freight railroads play an outsized role in, have been shaped largely by the ability to move products tariff-free across borders.” The industry group stressed that changing that dynamic would hurt U.S. competitiveness and the railroad industry in particular. More than 35% of annual rail revenue and $5.5 billion in annual wages and benefits are tied to international trade, the letter said. Link to letter.
“U.S. policymakers should be focused on opening more global markets, not restricting existing ones,” Edward Hamberger, president and CEO of AAR, said in the letter, which was also sent to U.S. Trade Representative Robert Lighthizer, Commerce Sec. William Ross and White House trade adviser Peter Navarro ahead of the Ways and Means hearing Wednesday.
— Other items of note:
Vice President Mike Pence and USDA Sec. Sonny Perdue deliver remarks today commemorating National Agriculture Day at USDA.
President Trump's schedule today: The president is meeting and holding a working lunch with Saudi Arabian Crown Prince Mohammad bin Salman. Trump will then hold his roundtable on so-called sanctuary cities. In the evening, the president will attend the NRCC March fundraising dinner at the National Building Museum.
People close to Environmental Protection Agency Administrator Scott Pruitt say he is considering running for office in his home state of Oklahoma, where he is widely seen as a possible contender for senator or governor. But the ultimate goal, according to people who have spoken with Pruitt, is a presidential run in 2024 or later. Link to New York Times article.
Archer Daniels Midland (ADM) to restructure as grain profits fall. The Chicago-based food processing and commodities trading corporation announced it would restructure, as it continues to face declining profit margins in the grain industry, Financial Times reports. The company said it would shift its business operations into four new units at a time when major grain merchants are struggling with how to turn profits in the face of the global oversupply of food commodities such as corn and wheat.
USDA Sec. Sonny Perdue said U.S. agriculture exports could be at risk in any retaliation against U.S. tariffs, Reuters reports.
Nominations update. There are currently 144 nominees awaiting Senate action, according to data tracked by the Washington Post and the Partnership for Public Service. Link to date. So far this year, the Senate has confirmed 71 nominees, 54 of those by voice vote. Ten of the remaining floor votes were for judicial nominations, while the other seven were for executive branch positions. And since the start of the Trump administration, 393 civilian nominations have cleared the Senate, compared to 538 at this point of the Obama administration.
Political data firm Cambridge Analytica signaled a win for Donald Trump before the 2016 presidential election, says at least one election-year watcher. The source informed that in a meeting with the firm several days before the 2016 election, Cambridge Analytical presented the case for a Trump victory. Meanwhile, the New York Times profiles Cambridge Analytica in an article. It says it is registered in Delaware and almost wholly owned by the Mercer family, but it holds intellectual property rights to its so-called psychographic modeling tools, yet its clients are served by the staff at London-based SCL. The article says the political data firm that harvested information from more than 50 million Facebook profiles also sought to entrap politicians with women or bribes, according to an investigation in Britain that included a journalist posing as a prospective client. Link to New York Times article.
U.S. exported more natural gas than it imported in 2017, something the country has not hit since 1957, according to a report from the U.S. Energy Information Administration (EIA). The shift has come as the U.S. continues to increase capacity for production and exports through pipeline and liquefied natural gas while also scaling back pipeline imports from Canada. Looking ahead, EIA’s projections show that the U.S. will be a net exporter throughout the remaining months of 2018 and 2019. Link to report.
Proposals for a second part of the Republican tax-reform plan could be released as early as April 15, according to chairman of the House Freedom Caucus. "There's been real talks," declared North Carolina Rep. Mark Meadows. Possible tweaks unveiled on Tax Day could include making individual tax cuts permanent or indexing capital gains for inflation.
The average market value of farmland in Nebraska declined 3% versus the prior year to $2,745 per acre, according to the 2018 Nebraska Farm Real Estate Market Survey. This marks the fourth consecutive year of downward pressure as values have dropped 17% since reaching a high of $3,315 in 2014. Link for details.
— Markets. The Dow on Monday fell 335.60 points, 1.35%, at 24,610.91. The Nasdaq dropped 137.75 points, 1.84%, at 7,344.24. The S&P 500 moved down 39.09 points, 1.42%, at 2,712.92.
Federal Reserve Chairman Jerome Powell and his colleagues will end up raising interest rates four times this year, but are unlikely to signal that intention at this week’s policy meeting, according to economists surveyed by Bloomberg. The Federal Open Market Committee begins meeting today and will issue a statement at 1 p.m. CT tomorrow announcing its decision and assessment of the economy, along with a fresh series of projections for its benchmark overnight policy rate, U.S. economic growth, unemployment and inflation. Powell will appear at his first press conference as chairman 30 minutes later.
Millennials are finally moving out of their parents' basements. The most recent U.S. Census Bureau report shows the homeownership rate is increasing, with the largest gains in the under-35 cohort, JPMorgan says.