U.S./China Trade Deal Possible | Trade Pact Brewing with Japan | NAFTA 2.0

Posted on 05/15/2018 6:45 AM

House farm bill before Rules panel, while stakeholders blast their support, opposition

The focus is primarily on the potential U.S./China trade agreement, especially as China's chief economic envoy arrives in Washington. Talks could still fall apart, and some on the U.S. side are pushing for a tougher line against China, but for now it appears opening trade channels is the goal. Meanwhile, other things are on the news watch list, including a potential U.S./Japan trade pact, the search for House farm bill votes as both proponents and opponents blast their respective messages, which we will spare you. NAFTA 2.0 negotiations are following other important trade pacts as the last decisions take hard compromises and time, which is leading to reports that the three countries (U.S., Canada and Mexico) will not meet the informal deadline of May 17 to reach a final accord in order for Congress to debate and vote on it by year's end.

China’s vice-premier visits the U.S. for five days of trade talks. Liu He, China's top economic envoy, will meet Treasury secretary Steven Mnuchin amid reports of a possible U.S./China trade deal which could be announced this week and include China pulling back on existing tariffs on pork and sorghum and dousing threatened sanctions on other products, including U.S. soybeans. “China is willing to work with the U.S. to ensure positive and constructive outcomes from this upcoming round of trade talks,” ministry spokesman Lu Kang said at a press conference in Beijing. Link to our special report on the topic.

Larry Kudlow, White House economic adviser, is being interviewed early this morning by Axios. Kudlow will likely be asked about the possible U.S./China trade agreement.

USTR holds a public hearing on proposed tariffs as a result of the Section 301 investigation. The U.S. Trade Representative’s office today begins a hearing on a proposed list of products it has targeted with a 25% tariff. The three-day event will feature testimony from 124 witnesses defending and protesting the proposed tariffs. Expect a lot of comments from various U.S. ag groups.

Cargill Inc. is raising "significant concerns" about the U.S.-China trade strategy, according to comments the company filed with USTR ahead of the three days of hearings. "Cargill has significant concerns with the potential enactment of unilateral tariffs and investment restrictions against China, and threats of escalating tariffs," wrote Devry Boughner Vorwerk, Cargill's vice president of global corporate affairs. "While we understand the Administration’s intent is to generate substantive bilateral dialogue, we are concerned that this approach will not effectively advance the goal of addressing distortive trade practices."

U.S. and Japan moving toward a trade deal. Japan and the U.S. are moving toward an agreement on bilateral trade, U.S. Ambassador to Japan William Hagerty said at the Wall Street Journal CEO Council meeting in Tokyo today, noting an American trade delegation visited Tokyo this week. Hagerty provided no details or a time frame for a deal, but said U.S. Trade Representative Robert Lighthizer and Toshimitsu Motegi, Japan’s economy minister, were making “great advances.”

Trump urges quick conclusion to NAFTA 2.0 talks in call with Canada's Trudeau. President Donald Trump pushed for a quick conclusion to the NAFTA 2.0 renegotiation during a call Monday with Canadian Prime Minister Justin Trudeau, according to a White House readout of the conversation. “President Trump underscored the importance of quickly concluding an agreement,” the statement said. Trudeau’s office said the leaders discussed “the possibility of bringing the negotiations to a prompt conclusion.” The Wall Street Journal took a look at the unresolved issues (link).

As with any major negotiations, the talks have stalled over final agreements on the most contentious issues are the last remaining topics. Trade ministers from each country agreed to be “on call” for any potential meetings this week. Technical-level teams are working daily on the issues.

Ministers will convene as required once the teams are ready to provide us with some elements of solutions that we have indicated,” Mexican Economy Minister Ildefonso Guajardo said.

U.S. Commerce Secretary Wilbur Ross said Monday that all of the trickiest issues remain. The “big hot topics … are still a work in progress,” he said, listing rules of origin, the five-year sunset provision, dispute resolution mechanisms and labor under that category. “And those are very complex issues, particularly rules of origin, so it eventually will come down to every comma, every semi-colon, everything before we can figure out if it’s something that’s workable,” he said at a National Press Club event.

A last-minute U.S. dairy request. Regarding U.S. farm interests, lawmakers asked USTR Robert Lighthizer to ensure that Mexico will honor its trade commitments to the U.S. and not limit its imports of U.S. cheeses because of geographic indication restrictions. In a letter sent to Lighthizer, Sens. Tammy Baldwin (D-Wis.) and Pat Toomey (R-Pa.) led 22 of their colleagues in noting concerns that Mexico committed — in its recently completed trade deal with the EU — to grant European producers exclusive rights to use 340 food names known as geographical indications in the Mexican market. That includes cheese names like Parmesan, Muenster and feta, meaning that U.S. producers of those products could see a significant decrease in their exports to Mexico. “The United States must engage with Mexico on geographic indication restrictions to ensure that Mexico honors its existing trade commitments to the United States,” the 24 lawmakers wrote. “These commitments allow American cheese exporters to continue using food names that Mexican consumers are familiar with. Anything less would grant European producers market share that American producers took decades to build and unjustly award them the future growth opportunities of those products.” Link to letter.

Senate Appropriations spells out schedule ahead of July 4th. Work on major fiscal year (FY) 2019 spending bills is expected to be completed by July 4th, according to a scheduled released by Senate Appropriations Committee Chairman Richard Shelby (R-Ala.) and Ranking Member Pat Leahy (D-Vt.). The scheduled laid out for the panel would see work finished by June 29.

Markups are planned as follows: The week of Week of May 21-25: Energy-Water and Agriculture-FDA; week of June 4-8: Transportation-HUD and Military Construction-VA; week of June 11-15: Interior-Environment, Commerce-Justice-Science and Legislative Branch; week of June 18-22: State-Foreign Operations, Homeland Security and Financial Services; and the week of June 25-29: Defense and Labor-HHS-Education.

Other items of note:

  • Trump to meet today with Senate Republicans. President Trump will address Senate Republicans at a private party lunch and then head to the Capitol to discuss negotiations with North Korea as well as the economy.

  • House Rules Committee late this afternoon meets to discuss the terms of the debate for the new farm bill. Today's meeting will set the terms of the farm bill debate, and the panel will meet again tomorrow (Wednesday) to decide which amendments can be considered on the House floor.

  • Voters head to the polls today in crucial party primaries in Pennsylvania, a state that has become central to claiming control in the U.S. House of Representatives. The Pennsylvania Supreme Court previously found that the current congressional districts had been unconstitutionally tailored to favor Republicans and redrew the map to make some districts more competitive.

  • USDA Secretary Sonny Perdue is in Colorado, where he will tour several facilities and talk labor issues with local growers. This morning, Perdue will tour the Food Maven distribution center in Colorado Springs. This afternoon, he participates in a roundtable with fruit and vegetable growers to discuss labor issues, in Brighton, followed by a meeting with Leprino Foods President and CEO Mike Durkin and touring the company’s facility in Greeley.

  • First lady is hospitalized. Melania Trump underwent a medical procedure on Monday to treat what the White House called a “benign kidney condition.” Mrs. Trump, 48, is expected to spend the rest of the week recovering at a hospital outside Washington. “The procedure was successful, and there were no complications,” the first lady's communications director, Stephanie Grisham, said in a statement. “Mrs. Trump is at Walter Reed National Military Medical Center and will likely remain there for the duration of the week.”

  • Exports from California ports surged in April on trade unease. Outbound container volumes at the ports of Los Angeles and Long Beach reached a 13-month high, a sign shippers want to move goods "before the gates close."

  • Tim Cook revealed some information on last month's meeting with President Trump, stating the discussion focused on the importance of trade and how cooperation between two countries can boost the economy more than nations acting alone. "It's true that not everyone has been advantaged," the Apple CEO told Bloomberg TV. "But I felt that [Chinese] tariffs were not the right approach there, and I showed him some more analytical kinds of things to demonstrate why."

  • Seattle approved a new tax on the city’s biggest companies. The city council intends to use revenue from the “head tax” of $275 per employee to erect low-income homes to tackle the city’s housing crisis. With the head tax coming out less than originally proposed — roughly 14 cents per employee per hour worked within the city — Amazon said it would go ahead with a major downtown office building, called Block 18, that it earlier had put on hold.

  • Spending bill mandates USDA oversight of lab-grown meat. The FY 2019 Agriculture appropriations bill to be considered this week includes a provision that calls for USDA oversight of lab-grown meats.

  • A state-funded clinical trial will test whether the “food as medicine” approach of providing nutritious daily meals for low-income, chronically ill people on Medi-Cal could improve their health or lower their medical care costs. Link to New York Times article.

Markets. The Dow on Monday rose 68.24 points, 0.27%, at 24,899.41. The Nasdaq added 8.43 points, 0.11%, at 7,411.32. The S&P 500 moved up 2.41 points, 0.09%, at 2,730.13.

Two Fed nominees before Senate panel today. Appearing before the Senate Banking Committee are Richard Clarida (member and vice chairman), the Columbia University economist picked to serve as the Federal Reserve’s No. 2 official by President Donald Trump, and Michelle Bowman (member), the Kansas banking commissioner who has been picked for a seat on the Fed’s seven-member board reserved for a community banker or community bank regulator. Clarida would serve as a top lieutenant to Fed Chairman Jerome “Jay” Powell, who is the first Fed leader in more than 30 years who isn’t an economist.

China's pace of retail sales dropped to a four-month low in April, home sales fell, and fixed-asset investment was at its slowest since 1999. Retail sales grew by 9.4% in April, matching the weakest annual growth rate since early 2004, data from China’s National Bureau of Statistics showed. Is this the much-heralded slowdown in the Chinese economy?

Argentina's peso has fallen to a record low, tumbling almost 7% to 25 per U.S. dollar, as the the IMF said it won't set any exchange-rate targets for a stand-by arrangement. That pushes the currency's decline this year to 26%, the worst in emerging markets. President Mauricio Macri spoke by phone with President Trump on Monday, and said the U.S. supported his discussions with the IMF.


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