China requests WTO consultations with U.S. | China front-loaded soybean purchases
— President Donald Trump on Monday nominated Judge Brett M. Kavanaugh, 53, to fill Justice Anthony M. Kennedy’s seat on the Supreme Court, setting up a major confirmation battle and likely moving the court’s rightward tilt for a generation. He is a graduate of Yale and Yale Law School. He also was enthusiastically backed by the White House counsel, Donald F. McGahn II. As an ideological conservative, he's expected to push the court to the right on several issues, including business regulation.
Kavanaugh said he was first exposed to law by his mother, who practiced her closing arguments at the dinner table as a prosecutor before becoming a trial judge. “Her trademark line was, 'Use your common sense. What rings true? What rings false?' ... That's good advice for a juror and for a son.” His father, E. Edward Kavanaugh, was for more than two decades the president of the Cosmetic, Toiletry and Fragrance Association, a trade group.
He expressed pride and gratitude that he’d been hired to teach at Harvard Law School by liberal Justice Elena Kagan at a time when she served as dean. He also clerked for Kennedy. A former altar boy, Kavanaugh is Catholic and he talked about how he still serves the poor alongside his longtime priest.
For the past 12 years, Judge Kavanaugh has built a conservative record on the D.C. Circuit, responsible for handling cases involving the EPA and many other federal agencies, and where he has written more than 300 opinions. The Supreme Court has adopted the logic of 11 of his opinions in whole or part.
The Environmental Protection Agency has been a target of Kavanaugh opinions and dissents, including for how it has implemented air-pollution rules and for what he saw as a lack of attention to the costs of regulations — it held that regulators must consider the costs of their decisions (White Stallion Energy v. EPA).. The judge has also been concerned by the structure of government agencies, including the Consumer Financial Protection Bureau, whose setup he ruled unconstitutional in 2016 because its director couldn’t be easily removed by the president.
Kavanaugh has varied on cases involving the Renewable Fuel Standard (RFS). He wrote an opinion last year favorable to the ethanol industry on the restrictive approach EPA was taking to setting annual usage mandates. But in an earlier case, he argued that EPA had wrongly approved the sale of E15.
Kavanaugh sided against U.S. meatpackers in rejecting their arguments that USDA was violating the First Amendment by requiring labels disclosing where each step of the meat production process took place. In a concurring opinion, Kavanaugh he said the government has historically had an interest in supporting American manufacturers, farmers and ranchers against foreign competition — Congress eventually rescinded the regulation.
Judge Kavanaugh also was part of Independent Counsel Kenneth Starr’s team that investigated then-President Bill Clinton, a Democrat, and was tapped to write sections of the report that led to his impeachment by the GOP-led House. Before serving President George W. Bush in the White House, Judge Kavanaugh worked for him in the 2000 presidential vote recount in Florida.
For Democrats, the nomination sets up a political battle. Senate Democratic leader, Chuck Schumer of New York, said he “will oppose Judge Kavanaugh’s nomination with everything I have.” Schumer and other Democrats stressed that health care and access to abortion would be among the laws and civil rights at risk.
Ten Democratic incumbents are up for re-election in states Trump carried. Three of them — Heidi Heitkamp in North Dakota, Joe Donnelly in Indiana and Joe Manchin in West Virginia — voted to confirm Neil Gorsuch last year. Claire McCaskill is vulnerable in Missouri but, unlike the other three, she voted against Justice Gorsuch.
Democrats and their allies are targeting the votes of GOP Sens. Susan Collins of Maine and Sen. Lisa Murkowski of Alaska, because of their past views on the importance of health care and abortion rights.
Senate Majority Leader Mitch McConnell (R-Ky.) told President Trump that Judges Thomas M. Hardiman or Raymond M. Kethledge would have an easier path to confirmation. He worried about his independent-minded Kentucky colleague, Sen. Rand Paul, who has bitterly criticized the foreign policy of the Bush administration and might use that as grounds to hold up Judge Kavanaugh’s nomination.
Judge Kavanaugh now will embark on a schedule of courtesy calls to key members of the Senate Judiciary Committee and other senators. The White House named former Sen. Jon Kyl (R-Ariz.) to help shepherd the nominee during his confirmation hearing. Senate Judiciary Chairman Chuck Grassley (R-Iowa), who will run the confirmation hearings, called Kavanaugh a “superb mainstream candidate worthy of the Senate’s consideration.”
— China requests WTO consultation talks on U.S. 301 tariffs. China on Monday responded to Trump’s 25% tariff on $34 billion worth of Chinese exports with a renewed request at the World Trade Organization (WTO) for talks with the U.S. on the issue. “China looks forward to receiving your reply to the present consultations request and to scheduling a mutually convenient date for consultations,” the Chinese government said in a document post on the WTO website.
Beijing first asked for consultations on April 4, one day after U.S. Trade Representative (USTR) published its proposed list of around $50 billion worth of Chinese exports that could be hit with a 25%. China said it was updating its request now that the duty has actually been imposed, on top of its other response of retaliatory tariffs on $34 billion of U.S. exports.
Meanwhile, House Ways and Means Chairman Kevin Brady (R-Texas) made comments on the U.S./China trade clash on Fox News. “I think there is, in Congress, strong support for challenging China’s unfair trade practices,” Brady said. “But there is growing frustration that ... the exemptions and exclusions are not working, and the retaliation is hurting our farmers and our manufacturers in a big way and that’s where we’re continuing to engage with the White House.”
— China's temporary strategy to deal with soybean tariffs: buy more before they take effect. A sharp increase in soybean exports ahead of China’s retaliatory tariffs significantly boosted the second quarter U.S. GDP growth. This distortion will be reversed in the third quarter, according to the following comments from Capital Economics.
“The rush by U.S. exporters to beat the imposition of retaliatory tariffs on soybeans by China will provide an artificial boost to second-quarter GDP growth, but will become a potentially significant drag in the third quarter.
“U.S. soybean exports jumped to $4.1 billion in May, from $2.2 billion the month before. China is the biggest global buyer of soybeans, which are used to feed pigs, while the U.S., along with Brazil, is one of the key global producers. Corn exports, also subject to the tariffs China introduced at the end of last week, increased to $1.5 billion in May, from less than $1.0 billion a few months ago. Although overall exports increased by 1.9% m/m in May, half of that gain was due to the rush to ship soybeans and corn before the tariffs hit.”
Beijing’s retaliatory tariffs make American soybeans pricier. But the country’s huge demand for oil and animal feed makes it tough to stop importing overnight. Nearly 90% of the soybeans China consumed last year came from overseas — more than 100 million tons in total. (Mexico, the world’s No. 2 importer, bought just five million tons.) Link to New York Times article.
— Are new U.S. trade bilateral announcements coming? The U.S. is moving closer to trade deals with countries other than Mexico, Canada and China, Sen. Joni Ernst (R-Iowa) revealed Sunday. U.S. Trade Representative (USTR) Robert Lighthizer and Ernst spoke on Saturday, she said, during which he gave her “encouraging news” on how his office is working on a number of trade agreements. “I think there are a number of agreements that we’re very close on,” Ernst said on CBS News’ Face the Nation. “I believe that we can work to a point where we have Mexico and Canada on board. I think China will be a much longer haul. But there are other agreements that are being worked on as well... Sooner the better.”
Ernst did not detail which countries the U.S. is working with on new trade deals. Any confirmed bilaterals would take time to complete.
— Other items of note:
President Trump and first lady Melania Trump are to arrive in England on Thursday afternoon. They are to be fêted at a dinner outside London that night, will later meet with Queen Elizabeth II, and will also travel to Scotland.
North Korea connection to U.S./China trade clash? The Trump administration is struggling to move forward in negotiations with North Korea following Secretary of State Mike Pompeo’s visit to Pyongyang last week. The president called the document he signed in June with Kim Jong Un “a contract” and says he has “confidence” North Korea will honor the loosely constructed agreement. But he also again asserted that China may be a negative influence on achieving any denuclearization deal with North Korea.
Germany and China have reiterated their commitment to the multilateral rules that govern free trade at a meeting in Berlin as trade tariffs from the U.S. pushes the countries closer together. The nations signed €20 billion in deals, underlining the close economic ties between the world's two largest exporters of goods.
Shipping commodities around the world is getting more expensive just as trade worries are sending prices for raw industrial materials tumbling, the Wall Street Journal reports (link). The Baltic Dry Index measuring transportation rates in the bulk business has surged nearly 50% since the end of May, the article reports, and recently hit its highest level of the year. The index is rising as prices for commodities like copper and iron ore have been sliding, largely on worries that the escalating tariffs will tamp down global demand. “Experts say bulk carriers are benefiting so far from a push by companies to move the manufacturing materials before levies take effect. Operators of ocean-going bulk shipping vessels are responding by keeping vessels in the water. Industry analyst Alphabulk says 29 commodity-carrying ships were sent to scrap in the first six months of this year, the lowest six-month level since 1995.”
ITC votes today in Spanish ripe olive case. A case involving ripe olives is the focus today when the U.S. International Trade Commission (ITC) votes on whether imports from Spain have injured two California companies that account for nearly all of U.S. production. The California producers won a preliminary ITC vote, clearing the way for a Commerce Department investigation. Last month, Commerce officials set combined anti-dumping and countervailing duties ranging from about 30% to 45% on the Spanish imports, subject to a final injury determination by the ITC today. The ITC is scheduled to complete and file its determinations by Aug. 1.
A federal judge denied the Trump administration’s request to change the rules on detaining families that cross the American border illegally. The administration asked for permission to detain families for as long as their processing or criminal trials take. The judge upheld an older rule saying that the children must be let go within 20 days.
SNAP recipients to lose benefits at farmers markets. Many SNAP participants will no longer be able to redeem their money at more than 1,700 farmers markets after July 31, when an Austin-based software company that processes mobile transactions ends its service, FERN reports in partnership with the Washington Post (link).
Sen. Jim Inhofe (R-Okla.) said he “strongly recommends” that Andrew Wheeler be nominated to lead EPA permanently. Wheeler used to work for Inhofe. “He knows the job better than anyone in America knows that job,” Inhofe told reporters Monday. Meanwhile, Senate Environment and Public Works Chairman John Barrasso (R-Wyo.) said Monday he'll speak with Wheeler sometime this week
Southwest Airlines announced it will stop serving peanuts starting August 1. The decision comes after Southwest and other airlines have grappled with passenger allergies, which can cause severe and even life-threatening reactions.
— Markets. The Dow on Tuesday rose 320.11 points, 1.31%, at 24,776.59. The Nasdaq gained 67.61 points, 0.88%, at 7,756.20. The S&P 500 moved up 24.35 points, 0.88%, at 2,784.17.
U.S. consumer credit use jumped in May. Consumers expanded their use of credit $24.6 billion in May, above expectations, with revolving credit up a sharp $9.8 billion. That marks the biggest rise in the category where credit cards are included since November. Nonrevolving credit rose $14.8 billion in May, a 6.3% increase. The big rise in revolving credit could be a sign that consumers are finally starting to ramp up their spending after a subdued first quarter of the year. While a plus for consumer spending, the increase in debt could become an issue for consumer debt.
San Francisco Fed report downplays tax cut benefit to U.S. economy. The U.S. economy may not see the boost that some have predicted, according to a research paper from the San Francisco Fed, noting the "true boost is more likely to be less than one percentage point" as opposed to the forecasts for a 1.3 percentage point increase expected by the Congressional Budget Office (CBO) and others. The situation reflects the fact that fiscal stimulus has a much smaller impact when it is delivered when the economy is already strong. "Recent research finds that the effects of fiscal stimulus on overall economic activity are much smaller during expansions than during downturns," the paper said. Plus, the report indicated that deploying the tax cuts into a strong economy could potentially limit the government's ability to address future downturns. "Many analysts have forecast large increases in GDP growth over the next two to three years as a result" of the tax cuts, the report noted. "However, recent research finds that the effects of fiscal stimulus on overall economic activity are much smaller during expansions than during downturns. This suggests these forecasts may be overly optimistic." Link to paper.
China's consumer inflation accelerated in June after holding steady for two months, as food prices continued to gain strength after a long period of weakness, official data showed today. But the China inflation data is not yet showing any impact from tariff battles. The June Producer Price Index (PPI) was up 4.7% versus year-ago levels, ahead of the 4.5% expected and the 4.1% rate in May. Oil and gas production, coal mining and chemicals processing and manufacturing all contributed to the increase. But at the consumer level, price increases remain tame — the Consumer Price Index rose 1.9% from year ago, up slightly from 1.8% in May. The core rate was also up 1.9%, steady with the May increase.