Final Details on U.S./China Accord Near, but Trump/Xi Meeting Date is Not

Posted on 03/15/2019 6:26 AM

EPA and European Commission rile biofuel proponents in separate announcements


Final details on any U.S./China trade agreement are increasingly boiling down to (1) when will an accord be announced and (2) will the country's leaders announce any agreement together at a summit or meet after an accord is unveiled. The answer to the first point is three to four weeks, based on comments Thursday from President Donald Trump. The answer to the second question has no definite conclusion.
     North Korea threatened today to suspend negotiations over its nuclear arms program with the U.S. and said its leader, Kim Jong-un, would soon decide whether to resume nuclear and missile tests. Choe Son Hui, the vice-foreign minister, told reporters in Pyongyang that the country was disappointed by the failure of the summit in Hanoi and would not return to the table unless America made a better offer.
     Senate rejects President Trump's border emergency. A dozen Senate Republicans joined Democrats to reject the president's emergency declaration at the southern border. After the vote, Trump tweeted that he looked “forward to VETOING the just passed Democrat inspired Resolution.”
     Biofuel 'how dare they” number one: EPA on Thursday announced additional ethanol waivers to the Renewable Fuel Standard (RFS), news that brought expected comments from the corn and biofuel industry.
     Biofuel “how dare they” number two: The EU labeled biofuel from palm oil as unsustainable and banned subsidies, with a warning also to soy-based product.
     Get ready for the next trade war even if a deal is worked out with China. President Trump always make things clear even if you don't like what he says sometimes, and he is making very clear that trouble is ahead when it comes to U.S./EU trade policy if agriculture is not included in ongoing talks. For now, it's just a Trump warning, but we know how those go....
     A campaign that has a lot of smoke... Democrat Beto O’Rourke of Texas urged full legalization of marijuana in the U.S. in remarks on the first day of his 2020 presidential run. But he also called for stigmatizing the drug like tobacco to discourage children from using it. Speaking in Iowa, O’Rourke acknowledged that Trump is correct to want to address China’s unfair trading practices. “But, as I was reminded by a fellow Iowan, when have we ever gone to a war, including a trade war, without allies? When have we ever first alienated every single trading partner we have … before confronting one of the largest economies in the world today?” he said. O’Rourke said he’s concerned that American farmers and growers will lose access to foreign markets even after the trade war is over. “Yes, let’s make sure that we hold other countries of the world accountable, but let’s not do it at the expense of our farmers, our growers, our producers,” he added. Meanwhile, O’Rourke’s past GOP ties could complicate his primary run. Wealthy Republicans helped finance O’Rourke’s earlier career in El Paso, at a time when he opposed Obamacare, voted against Nancy Pelosi as the House Democratic leader and called for a raise in the Social Security eligibility age. Link to Wall Street Journal article.

 

U.S./China trade policy update:

  • A meeting between President Donald Trump and Chinese President Xi Jinping will not happen by the end of March, Treasury Secretary Steven Mnuchin said. "There had been some discussion about a presidential meeting at the end of this month. We're not going to do it at the end of this month given the timing because we still have more work to do," he told reporters Thursday after a Senate Finance Committee hearing. "I think if we have an agreement, the presidents are prepared to meet." Mnunchin repeated what others have said recently, noting “There’s still a lot of work to do, but we’re very comfortable with where we are. I don’t think there’s anything significantly different on the currency issue from where we were last time.” Mnuchin said he expected elements of the discussions to be resolved in the near future, as the two sides go over a 150-page document they are working on. Mnuchin promised that any deal would have a “very clear enforcement mechanism.”
  • Chinese negotiators had suggested combining a long-discussed state visit by China leader Xi Jinping to the U.S. with the announcement of any forthcoming trade deal, CNBC reported, citing three sources briefed on discussions. If confirmed, the state visit to the U.S. would reciprocate Trump’s visit to Beijing in November 2017. The report said discussion of Xi’s state visit had been under way since last year. It was unclear how receptive the White House had been to Beijing’s informal proposal, the report added.
  • Timeline for accord: three to four weeks. President Donald Trump said Washington would know where things stood regarding a possible trade deal with China in the next three or four weeks. He said the U.S. is "getting what we have to get" out of the talks. “We’ll have news on China. Probably one way or the other, we’re going to know over the next three to four weeks,” Trump said during a St. Patrick’s Day reception in the White House’s East Room. He said China had been “very responsible and very reasonable... If that one gets done, it will be something that people will be talking about for a long time,” Trump said.
  • U.S. talks have continued with China’s top trade negotiator, Liu He. Mnuchin said he suspects “we’ll have it resolved in the near future.” Both countries have made “concrete progress” on the text of their trade agreement, Chinese state media reported today.
  • China made some U.S.-pushed changes to law banning theft of trade secrets. “This is very positive,” Jacob Parker, Beijing-based vice president at the U.S.-China Business Council, said of recent changes in language to a pending China law banning theft of foreign trade secrets. “Criminal penalties for commercial IP infringement is universally supported by U.S. industry.” The law will come into effect next year.
  • China Premier Li Keqiang refutes spying suggestion, saying it is “not how China behaves” and that Beijing would never require Chinese companies to do so. He says “the whole world would like to see” a resolution to the tariff war with mutually beneficial outcomes. During a news conference in Beijing at the end of the annual legislative meetings, Li admitted relations between China and the U.S. had recently seen “twists and turns,” particularly over trade, but said he hoped ongoing negotiations to resolve the tariff war would deliver mutually beneficial outcomes. “I believe that result is also what the whole world would like to see,” he said. “As two large economies, China and the U.S. have become closely entwined through years of growing their relationship and years of cooperation. It is neither realistic nor possible to decouple the two economies.”

Trump warns EU on trade deal; expresses surprise at Brexit developments. President Donald Trump Thursday warned the European Union (EU) on coming trade negotiations, saying if they don't negotiate in good faith the U.S. will impose economic pain on the bloc.

"They are willing to talk to us and if they don’t talk to us, we’re going to do something that’s going to be pretty severe economically," Trump said in remarks in the Oval Office. "We’re going to tariff a lot of their products.”

Most expect that involves levying auto tariffs against the EU.

Trump also said he expected there will be a "large scale" trade deal worked out with the U.K. Trump said he was "surprised at how badly" Brexit negotiations have gone. "I hate to see everything being ripped apart right now," he said. "I don't think another vote would be possible because it would be very unfair to the people who won, who say, 'What do you mean you're going to take another vote?' That will be tough."

Trump offered his remarks as he met with Irish Prime Minister Leo Varadkar who said he had a "different opinion" on Brexit. "I regret that Brexit's happening," Varadkar said, "and the U.K. was a really important part of the European Union.” He also predicted things will take a while to sort out. “I think it’ll be a few years until the United Kingdom sorts itself out,” Vradakar said.

Mnuchin: Steel tariffs will be resolved as part of USMCA passage. Treasury Secretary Steven Mnuchin told lawmakers Thursday the Trump administration will work out a solution on steel and aluminum tariffs with Canada and Mexico as part of its efforts to get the new USMCA passed through Congress. "The idea is, one, we'd like to pass the USMCA as quickly as we can," Mnuchin said. "And as part of that, we'd like to reach a resolution on the steel and aluminum tariffs with Canada and Mexico."

Mnuchin did not say whether a metal tariffs solution will involve, as most think, Canada and Mexico agreeing to quotas or other import restrictions.

U.S. Trade Representative Bob Lighthizer earlier this week acknowledged that import quotas could be the answer to the tariffs. He told the Senate Finance Committee that there are a “variety of tools” available to address the continued tariffs while upholding Trump’s goal of protecting the U.S. metals industry. “There’s a sweet spot there. Quotas are not necessarily good or bad. It depends on the level of the quota. If the quota is at the right level it’s not troubling for your downstream people,” Lighthizer said during the hearing. Lighthizer met with top Mexican officials on Thursday. He met with Mexican Economy Secretary Graciela Márquez and Labor Secretary Luisa María Alcalde to talk about the path forward for USMCA, including a look at the new pact’s labor provisions.

Senate Finance Chairman Chuck Grassley (R-Iowa) again asked for the administration to "promptly" remove the penalties. "This will help clear the path for USMCA ratification in all three countries," the Iowa Republican said. "USMCA is supposed to be a free trade agreement. But we don’t have free trade with these tariffs in place."

As for Canada, its leader Justin Trudeau said on Thursday that he talked on the phone with Canadian steel and aluminum industry leaders to reassure them of his government’s work to figure out a solution. “We’re doing everything we can to support Canadian steel & aluminum, while working to get U.S. tariffs removed. I had some good calls today with industry leaders on the work we’re doing to stand up for our workers and their families,” Trudeau posted on Twitter.

AFL-CIO comes out against USMCA in its current form. The AFL-CIO announced their stance on the U.S.-Mexico-Canada (USMCA) agreement, saying if the Trump administration seeks to push ahead with what they call a "premature vote" on the plan to update NAFTA, "we will have no choice but to oppose it."

The union said the USMCA fails on three fronts as it won't raise the "living standards and improve the well-being of its citizens," the plan imposes burdens on people in other countries and it does not prioritize the public interest over private interests. "The agreement to date does not meet those expectations," the union said.

Their biggest gripe: "The new NAFTA does little to stop the continued outsourcing of U.S. jobs to Mexico across all sectors." Even though they admit USMCA does have improvements, the labor rules in the plan "repeat the flaws of past trade agreements." The group said that "consideration of it must wait until Mexico has enacted and fully and effectively implemented labor law reform that ensures that working people are free to join unions and negotiate better wages." But if the push to approve the pact continues, the union warned, "we will be forced to mobilize to defeat it, just as we mobilized to kill the Trans-Pacific Partnership."

More U.S. trade trouble with Mexico ahead? Mexico’s booming U.S. tomato trade may go splat. The Commerce Department’s decision to resurrect antidumping tariffs on Mexican imports could disrupt the flow of some $2 billion worth of tomatoes to the U.S., the Wall Street Journal reports (link). Mexico’s tomato exports to the U.S. have more than doubled since a 1996 agreement that set minimum prices for imported Mexican tomatoes, and the country now sends half its national product across the border. U.S. growers can’t meet domestic demand on their own, but a Florida industry group asked for the deal to be terminated, saying it had too many loopholes. Mexican producers say if a new accord isn’t reached the levies will drive up costs and put them at risk of losing exports to other nations.

EU labels biofuel from palm oil as unsustainable, bans subsidies. The European Commission concluded that the cultivation of palm oil, mostly undertaken in Indonesia and Malaysia, results in excessive deforestation and it should not be eligible to count toward EU renewable transport targets for national governments. The ban is expected to result in a phase-out of the fuel’s use in Europe.

More action ahead? Bas Eickhout, a Dutch Green member of the European Parliament who is running to replace Jean-Claude Juncker as the next Commission president, has been on the forefront of the campaign to ditch first-generation biofuels. "Burning food for fuel is nonsense and has a huge impact on climate change and biodiversity. Today's decision sets the tone that Europeans want to shift away from unsustainable biofuels.” He added that should he win the presidency in May’s European election, he would go further by banning more crop-based biofuels from the EU’s renewable energy scheme. “Soy oil is the new palm oil. The Commission's own estimates show that at least 8% of global soybean expansion caused direct deforestation since 2008. This is in complete contradiction with the EU's commitment to halt deforestation by 2020."

But the Commission’s analysis concluded that soy is far less harmful. While 45% of the expansion of palm oil production since 2008 led to destruction of forests, wetlands or peatlands, this was true for only 8% of soybeans and 1% of sunflowers and rapeseed. The EC determination said that 10% was the threshold for expansion of a product to be considered to be a harmful feedstock

Push back on the Commission’s decision is expected from the governments of Indonesia and Malaysia. The former has threatened a World Trade Organization challenge, and the latter has threatened to restrict European imports if palm oil is banned. To address the concerns of these two countries, the Commission has added several exemptions which mean some palm oil could still be promoted as a green fuel, under certain conditions. For example, the Commission would allow additional palm oil production coming from yield increases or produced on so-called unused land to still qualify as green. The text also provides a derogation for palm oil produced by small farmers. Under the new criteria, small holders were identified as those who were independent and had less than 2 hectares (around 4.9 acres) of land.

The European Biodiesel Board, which represents producers of the fuel, has complained that the Commission has not engaged in enough conclusive research before restricting the fuel. “A proper impact assessment is needed from the Commission together with the delegated act, since this element is a crucial one to understand what quantities of low ILUC-risk biofuels may be certified in the future,” the association said in a statement.

The EC received some 68,000 comments on its initial proposal, considering those as it developed the final provisions released March 13. EU governments and the European Parliament now have two months to decide whether to accept or reject the EC plan.

EPA approves more 2017 small refinery RFS exemptions. EPA data now shows the agency has approved 34 requests for small refinery exemptions relative to their Renewable Fuel Standard (RFS) requirements, with two requests still pending, based on data from EPA as of March 14. That marked an increase of five from the levels that were listed by the agency as being approved for the 2017 compliance year. There has been one waiver request that was either withdrawn or declared ineligible. Link for EPA details.

EPA Administrator Andy Wheeler said March 11 in remarks at the CERAWeek event that the agency would make a decision on the remaining requests in coming days and then would shift its attention to requests received for the 2018 compliance year. As of March 14, EPA data now shows that 39 requests have been received, up two from the prior level of 37 as of Feb. 21.

The RFS law authorizes EPA to exempt small refineries using no more than 75,000 barrels of crude oil per day as long as they face significant economic hardship.

Sen. Chuck Grassley (R-Iowa) was clearly irritated by the EPA move, tweeting, "5 more ridiculous RFS waivers for big oil cos from EPA for 2017 That’s nearly a billion bushels of corn demand lost from policies fired Pruitt put in place Important for new Admin Wheeler 2put in new process 4 2018/future yrs Pres Trumps commitmnts to Iowa/Midwest hang in balance."

Update: Note this Univ. of Illinois analysis on the impacts of the waivers... more for bio-based biodiesel than on corn-based ethanol. Link

Senate votes to terminate border emergency. The Senate on Thursday voted to overturn President Donald Trump's national emergency declaration. In a 59-41 vote, the Senate approved a House-passed resolution to block Trump from unilaterally funding his border wall over congressional objections. Twelve Republicans bucked Trump and voted with Democrats. Trump has vowed to veto the legislation — the first of his presidency — and it is unlikely that either the House or the Senate has enough votes to override a veto.

The 12 Republicans who voted against Trump's national emergency:

Lamar Alexander (Tenn.)
Roy Blunt (Mo.)
Susan Collins (Maine)
Mike Lee (Utah)
Jerry Moran (Kan.)
Lisa Murkowski (Alaska)
Rand Paul (Ky.)
Rob Portman (Ohio)
Mitt Romney (Utah)
Marco Rubio (Fla.)
Patrick Toomey (Pa.)
Roger Wicker (Miss.)

Other items of note:

  • About President Trump…We never know who he’s talking to or what he’s agreed to.” Heads of state are bypassing standard government processes and going to the president himself to discuss policy. Donald Trump has embraced the one-on-one discussions, drawing on his business background, but aides worry the approach can sow confusion. Link to WSJ article.

  • Trump tweets about trade deal with U.K. President Trump on Twitter: "My Administration looks forward to negotiating a large scale Trade Deal with the United Kingdom. The potential is unlimited!"

  • Why Texas is nearing battleground status is an article written by Nate Cohn in the New York Times. He notes that He notes that “Hispanics represent the (elusive) upside for Democrats, but it’s a shift in white voters that is making the biggest difference.” Link.

  • Pelosi explains her remarks earlier this week about no impeachment move on Trump. Asked about her comments to the Washington Post this week cautioning against impeachment, House Speaker Nancy Pelsoi (D-Calif.) said: "I made the comment that I made because I make it every week. ... It didn't seem to catch on until I added a gimmick. 'He's not worth it.' Boom."

  • Cotton AWP rises in latest week. The Adjusted World Price (AWP) for cotton will be at 64.10 cents per pound, effective today (March 15), up from 63.42 cents per pound the prior week. This would be the highest mark for the AWP since the week of Feb. 8. Meanwhile, Special Import Quota #21 will be established March 21 for 58,171 bales of upland cotton purchased not later than June 18 and entered into the U.S. not later than Sept. 16. The quota is equivalent to one week's consumption of cotton by domestic mills at a seasonally adjusted average rate for the period November 2018 through January 2019, the most recent three months for which data are available.

Markets. The Dow on Thursday edged up 7.05 points, 0.03%, at 25,709.94. The Nasdaq fell 12.50 points, 0.16%, at 7,630.91. The S&P 500 was down 2.44 points, 0.09%, at 2,808.48.

New home sales fell 6.9% in January to a 607,000-unit pace. Sales for the prior three months were revised significantly higher, however, mostly due to updated seasonal adjustment-not stronger sales. Prices continue to moderate.

Brexit vote: Parliament has voted to postpone Britain’s departure from the European Union but, in a rare victory for Prime Minister Theresa May, narrowly failed to wrest control of the process from her. It remains unclear how long the delay will be. Parliament also rejected holding a second referendum on Brexit, though Labor leader Jeremy Corbyn said his team is still working on plans for another public vote.

China will not resort to quantitative easing as it sets policies to support the economy, Premier Li Keqiang said. Li’s comments come at the end of the annual gathering of leaders in Beijing for their policy summit, which included new measures on tackling off-balance sheet debt, foreign investments and trade.

Italy is considering borrowing from China's Asian Infrastructure Investment Bank as part of plans to become the first G7 country to endorse Beijing's controversial "Belt and Road Initiative." An MoU will likely be signed on March 22. Until now, the majority of BRI infrastructure loans have come from the China Development Bank and the Export-Import Bank of China, but the AIIB lends according to international standards required inside the EU.


 

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