Trump says USMCA notification coming, but no clear timeline for congressional votes
— U.S./China trade policy update:
- National Economic Council Director Larry Kudlow Sunday morning said he remains “bullish” on the prospect of a U.S.-China trade deal being finalized sometime in April. “I think we're making great progress,” Kudlow said on Fox News Sunday. But Kudlow noted that however optimistic he is about the possibility of a deal, ultimately, the decision is up to President Donald Trump. “I don't want to predict,” he said. "It's up to the president and not to me, but I think the headway has been good.” Kudlow downplayed a report that Chinese leader Xi Jinping canceled plans to meet with Trump at Mar-a-Lago in Florida, saying Sunday that "you can’t cancel something that wasn’t scheduled."
- Kudlow on Friday said the emerging U.S./China deal would provide “an end to the theft of intellectual property” through forced technology transfers and hacking of computer networks. “We will get substantially lower tariffs, or maybe an end to tariffs on cars, commodities, agriculture, industrial supplies. We will get an enforcement procedure,” he said. “If the deal doesn’t work for the United States, and our long-term interests, whether it’s technology, IP, theft, enforcement, commodities, tariffs ... then it’s not our deal.”
- China official: U.S., China have reached consensus on many vital issues. Besides reaching consensus on many “crucial” issues, the two countries have discussed the need to observe the “autonomy” of each other’s monetary policy, People’s Bank of China Governor Yi Gang said. “The two sides discussed issues surrounding the yuan including the need to abide by previous commitments made by Group of 20 (G20) nations not to engage in competitive depreciation and to communicate closely on currency issues,” Yi said during a press conference in Beijing Sunday during the annual National People’s Congress. He didn’t provide details on which issues they had reached consensus. The negotiators also discussed the importance of a market-orientated foreign exchange mechanism and the need to disclose information to International Monetary Fund (IMF) standards, Yi said. He has been part of the Chinese team at the trade talks. Yi said he expects to reach more consensus in discussions with the U.S. on currency issues but provided no additional information.
- Both U.S. and Chinese officials are working on an agreement to eliminate Chinese and U.S. tariffs imposed since the start of a trade war between the two countries last year, Chinese Vice commerce minister Wang Shouwen, a member of the Chinese delegation, said on Saturday. Wang said he is optimistic about the next step in the trade war talks. “The two delegations are still working on the documents for a trade deal day and night now,” Wang noted. He said slapping tariffs on each other was bad for workers, farmers, exporters and manufacturers. "It hurts investor confidence and delays corporate investment decisions," said Wang. "Now, the economic and trade teams of the two sides are making full efforts to communicate and negotiate in order to reach an agreement in line with the principles and directions decided by the two heads of states," he added. "That is to remove all the tariffs imposed on each other, so that bilateral trade relations between China and the United States can return to normal." Wang did not answer questions from reporters on whether Xi would go to Mar-a-Lago.
- China's Wang stressed that any trade mechanism achieved must be equal and fair. He raised a possible compromise noting China would be amenable to an agreement that gave each side an equal right to take trade actions against the other side after an agreement was struck. “Any implementation mechanism must go in both directions, fair and equal,” Wang said, using China’s preferred term for an enforcement mechanism. While the Trump administration wants the right to reimpose tariffs unilaterally, China’s Commerce Ministry has favored creating a lengthy process of bilateral consultations if either side has a grievance. USTR Bob Lighthizer on Feb. 27 outlined to Congress a possible method for enforcing the deal under which the two sides would hold a regular series of meetings at multiple levels of government, and, if China violated the agreement, American tariffs would spring back into force. But some U.S. company officials have told the White House and top trade officials that having the main penalty for violating the agreement be the reimposition of tariffs risks would create lasting uncertainty. One suggestion has been to have an agreement on an enforcement provision that covers import surges.
- President Trump said on Friday that he was confident the U.S. could forge a trade deal with China, but his country would do very well with or without an agreement. “Sure, I’m confident [of a deal with China], but if we do not make a very good deal for our country, I wouldn’t make a deal,” he said. Asked about a report that China was not positive about a trade deal and that a meeting with Xi might not happen: “I haven’t heard that. I think we’re doing well ... We’ll do very well either way, with or without a deal.”
- In food-intake diplomacy, Wang provided some details by noting that during recent talks in Washington, China Vice Premier Liu He and U.S. Trade Representative Robert Lighthizer enjoyed take-out food. "Vice Premier Liu had a hamburger, and Lighthizer had eggplant and chicken," he detailed, describing a common Chinese dish. "Throughout the negotiations, there was coffee and tea, but the two of them did not drink any coffee, did not drink any tea. They both drank boiled water. This is to find common ground."
- White House trade adviser Clete Willems on Friday said there was much work still to do but Trump administration officials had not made any new plans to send a team to China for face-to-face trade talks. “We’re talking to [Chinese officials] every day, but no one’s got any trip plans,” Willems said.
- A final U.S./China deal is expected to include a big commitment from China to buy American goods but in an interesting comment, Commerce Minister Zhong Shan said China would try to maintain the level of foreign trade this year. “China’s foreign trade increased in scale and development and in quality last year, even though the foreign trade environment was very complex, with more uncertainties and instability,” Zhong said. “Our priority will be to maintain supportive policies to stabilize foreign trade this year.” He said the private sector was important to overseas trade, particularly in improving the quality of exports. “Exports by private enterprises accounted for 48% of the country’s total foreign trade exports,” Zhong said. “Many vehicles, machine tools and electronic exports are produced by private companies. “We need to further support the development of private companies, encouraging them to play a bigger role.”
- A new Chinese foreign investment law is set to go to a vote in the National People’s Congress this week and is thought to be a message that China wants out — that it will ensure a fairer playing field for foreign investors. China's Wang said the legislation would further protect intellectual property and currency exchanges easier for foreign companies in China. He said foreign investment in China rose 1.3% last year, as global cross-border capital investment dropped 19%, according to data from the United Nations. In the U.S., however, there is skepticism about how China will implement the law.
— USMCA notification coming from Trump administration to Congress, but congressional vote timeline murky. President Trump on Friday said he plans to send the new U.S.-Mexico-Canada Agreement (USMCA) to Congress very soon, which would start a 90-day clock for lawmakers to approve or reject the plan without any changes. "Mexico, Canada is done. We'll be submitting to Congress very shortly. And that's a great deal for the United States, so we're very happy about that," Trump told reporters at the White House before departing for an event in Alabama.
Congressional sources believe it will be the second half of this year before both chambers of Congress vote on USMCA. To allow lawmakers some input into the final implementing bill, previous administrations have worked with House Ways and Means and Senate Finance on draft legislation. Both panels hold what is known as "mock markups" where lawmakers can vote on suggested changes to the draft bill. Once that process is complete, the final bill is submitted to Congress, setting off a 90-day "fast track" clock for Congress to approve the trade deal without making any changes.
Of note, in 2008, House Speaker Nancy Pelosi (D-Calif.) pushed through a rule change to turn off the 90-day clock, when then-President George W. Bush submitted a Colombia free trade agreement to Congress over the objections of House Democrats. The trade deal languished until 2011, when it was finally approved along with pacts with South Korea and Panama. Pelosi could potentially do the same to USMCA if Trump ignored her advice about when and whether to submit the deal for a vote.
— China's pork reserve buy scaled back. The first round of China's pork reserve purchases has been scaled back from 100,000 metric tons to 10,000 metric tons, according to a China Feed Industry Information Network report. Stronger hog prices last week may have reduced the urgency of removing pork from the market, observers note. According to the report, the average hog price in China increased 3.85% last week. The average was 12.42 yuan/kg, up from 11.96 yuan/kg the previous week. However, the average price of pork fell 0.3% and the ex-factory price of a swine carcass fell 1.05%.
The report confirmed that pork reserve purchases were due to begin March 8, but "100,000 changed to 10,000." The 10,000 metric tons of pork translates to 143,000 hogs, the article said.
The analysis said the volume of swine being produced is shrinking slightly, but consumers are reducing purchases of pork and the overall market supply is adequate. The analysis said farmers have become reluctant to sell hogs and prices are rising, adding that price has become detached from basic supply and demand. Prices are expected to rise gradually, but regional imbalances remain prominent. Price declines are possible in some regions.
Concern about potential buys of U.S. corn. The feed industry report also raised concern that the conclusion of U.S.-China trade consultations could result in an agreement to import U.S. corn. The report warned that an influx of U.S. corn would put downward pressure on Chinese corn prices.
— Other items of note:
Biden tops 2020 Iowa presidential poll, Sanders second. Former U.S. Vice President Joe Biden topped an Iowa poll of the state's voters on Saturday that also showed Sen. Bernie Sanders (I-Vt.) gaining momentum against him in the No. 2 spot. Biden, who has not announced whether he is running in the 2020 election, is the first choice for president of likely Iowa Democratic caucus-goers with 27% in the Des Moines Register/CNN/Mediacom Iowa Poll. Sanders, 77, got 25%. Sen. Elizabeth Warren was third with 9% of voters, and Sen. Kamala Harris (D-Calif.) was fourth with 7%. Former Rep. Beto O'Rourke (D-Texas) got 5% of voters. New Jersey Sen. Cory Booker and Sen. Amy Klobuchar (D-Minn.) garnered 3% of the poll. Iowa will hold the first contest in the Democratic race in February 2020. Link for details.
Trump adviser: some time may pass before a third North Korea summit. President Donald Trump is open to a third summit with North Korean leader Kim Jong Un but some time may have to go by before this takes place, Trump’s national security adviser said on Sunday. Speaking on ABC, John Bolton said the United States has no illusions about North Korea’s capabilities, but Trump remains confident in his personal relationship with the North Korean leader. Bolton declined to discuss those reports or say whether a new North Korean missile launch would scuttle engagement with the United States. He said, however, that it was a mistake to assume North Korea would “automatically” comply with its obligations. “The president’s confident in his personal relationship with Kim Jong Un. He’s invested a lot of time in trying to develop that relationship,” Bolton told ABC’s This Week. “He said he’s open to a third summit, none has been scheduled, and some time may have to go by. But he’s prepared to engage again because he does think that the prospects for North Korea, which he’s been trying to persuade Kim Jong Un to accept if they denuclearized, are really quite spectacular,” Bolton said. Trump on Friday said he would be disappointed if Pyongyang were to resume weapons testing and reiterated his belief in his good relationship with the North Korean leader, despite the recent collapse of their second summit in Hanoi. Bottom line: Lower-level talks continue, but most say Kim will never fully give up his nuclear arsenal.
White House officially taps David Bernhardt for Interior chief. The White House Friday officially announced its intent to nominate Acting Interior Secretary David Bernhardt to run the agency overseeing the nation’s public lands. President Trump’s March 8 announcement follows his tweet Feb. 4 saying he would nominate Bernhardt to fill the post after Ryan Zinke resigned in December. Bernhardt has been the acting secretary since January.
— Markets. The Dow on Friday declined 22.99 points, 0.09%, at 25,450.24. The Nasdaq fell 13.32 points, 0.18%, at 7,408.14. The S&P 500 was down 5.86 points, 0.21%, at 2,743.07.
For the week, the Dow ended down 2.2%, the S&P 500 was down 2.2% and the Nasdaq lost 2.5%.
Treasury yields fell after U.S. job growth dropped unexpectedly in February, with the economy creating only 20,000 jobs, a 93% decline from the prior month, amid a contraction of payrolls in construction, among other sectors. The 10-year notes rose 3/32, yielding 2.63%. The 2-year notes were flat, yielding 2.46%. The 30-year bonds rose 10/32, yielding 3%.
The dollar fell against most major currencies. The dollar index was down 0.31% at 97.36. The euro rose 0.36% to $1.1232. The U.S. dollar was down 0.36% against its Canadian counterpart at C$1.3405.
Oil prices declined, as Brent crude fell 0.72% to $65.82 a barrel. U.S. crude fell 0.94% to $56.13 a barrel. U.S. crude production has increased by more than 2 million bpd since early 2018 to 12.1 million bpd, making America the world's biggest producer.
A quick look at last Friday's Jobs report showed nonfarm payrolls rose by only about 20,000 last month, far short of economists’ 180,000 consensus guess, but a payback for what most saw was exaggerated strength in previous months. February’s meager rise followed an upwardly revised 311,000 surge in jobs in January. The unemployment rate, which is calculated from a separate survey of households, fell last month to 3.8% from 4% in January. The underemployment rate (called U6 by the Bureau of Labor Statistics) fell sharply, to 7.3% in February from 8.1%, reflecting an 837,000 plunge in those working part-time for economic reasons. Average hourly earnings rose 0.4% last month, bringing the year-over-year gain to 3.4%, up from 3.1% in January — the highest in almost a decade. Many industry analysts expect average monthly job gains of 180,000 ahead, about the average of the past three months.
Odds of a lower federal-funds target range this year have climbed, according to the CME Group’s FedWatch tool. Futures point to a 19.8% chance of a cut of 25 basis points or more at the Federal Open Market Committee’s Dec. 11 meeting.
Federal Reserve Chair Jerome Powell signaled that there is no clear time limit to the current pause on interest-rates hikes in a wide-ranging interview on CBS News’ 60 Minutes yesterday. While he said the outlook for the U.S. economy is favorable, he highlighted risks to global growth from China, Europe and Brexit.
Christine Lagarde: An overhaul of the international tax system can wait no longer. The public perception that large multinational companies pay little tax has led to political demands for urgent action, the head of the IMF writes in the Financial Times. The call for a new approach is intense, and with good reason. The ease with which multinationals seem able to avoid tax and the three-decade-long decline in corporate tax rates compromise faith in the fairness of the international system. Link to IMF policy paper on the topic.