Trump wants trade agreement with EU before U.S. elections; EU wants sooner
In today's updates:
* China locks down two more cities over virus outbreak
Markets: Global stocks slumped as China grappled with a worsening viral outbreak, leading investors to reassess the potential economic fallout world-wide.
— Spreading coronavirus forces lockdown of more Chinese cities. Two more Chinese cities were put on lockdown by government authorities, expanding an unprecedented experiment to try to contain a fast-spreading virus that has killed at least 17 people and infected more than 570 — those who have died so far are mostly older people with other health problems. The authorities enacted strict travel bans for the central Chinese cities of Huanggang, Ezhou and Wuhan, collectively home to nearly 20 million people. In late December China alerted the World Health Organization of a cluster of pneumonia-like illnesses in Wuhan, a city of 11 million people. Officials suspected patients had picked up a coronavirus from wild animals at a food market. Chinese officials suggest the new coronavirus like SARS may be transmitted by coughing or saliva but while it appears less contagious and deadly than SARS, viruses can mutate.
The Centers for Disease Control and Prevention (CDC) is screening travelers from Wuhan at airports in San Francisco, Los Angeles, Chicago, Atlanta and New York for symptoms. The CDC says it expects additional cases. Because the coronavirus may take several days to incubate, individuals could transmit the disease without exhibiting symptoms, allowing it to spread undetected in concentrated populations.
The World Health Organization (WHO) delayed a decision Wednesday on whether to declare the situation a global health emergency, as officials said they needed more information to reach a consensus. The WHO is continuing their discussion today (Thursday).
— Farm Bureau sets policy, other goals for 2020, including:
- A third year of Market Facilitation Program (MFP) payments. “Our members are basically saying, ‘Show us results,’” said Scott VanderWal, the group’s national vice president. He noted that “no products have moved, implementation hasn’t happened yet, and it’s kind of a ‘prove it to me’ thing.”
- A review of USDA's National Agricultural Statistics Service’s crop reporting program, including its methodology and track record. “The June 2019 Acreage report was a debacle, and it seems like each NASS report this year has contained surprises and unexpected market impacts, etc.,” Farm Bureau said.
- Higher hemp limits. The group wants USDA to amend its hemp production framework to allow for plants with up to 1% tetrahydrocannabinol (THC, the chemical in cannabis), compared with the current limit of 0.3%. USDA's interim hemp rule requires “hot” crops to be destroyed at 0.5% THC levels.
— The United States could still apply tariffs on European carmakers, despite their aim to put together a new trade deal, Commerce Secretary Wilbur Ross told reporters in Davos today. President Trump has said that Europe is "possibly just as bad as China" when it comes to trade and called it a "brutal" trading partner.
— Trump wants new trade agreement with EU before 2020 elections, EU wants one earlier. After meeting European Commission president Ursula von der Leyen in Davos, President Trump started talking about a trade deal with the EU before November’s presidential election and threatened to levy tariffs if talks failed. Prior to his exit from Davos, Switzerland from the World Economic Forum (WEF), Trump told reporters he wants to get a trade deal with the EU soon, perhaps ahead of the U.S. November elections. Trump told reporters he had a “very specific date” in mind for a deal but did not signal what that date was. Asked if it would be prior to the U.S. November elections, Trump said he thought “we will have a deal before.”
EU president Ursula von der Leyen addressed the issue in her remarks to reporters. “We do not think it is a good idea to have trade disputes over months but that we sit down together, we negotiate and find solutions, we exchange some numbers and views on fairness,” von der Leyen said in Davos.. “And we are expecting in a few weeks to have an agreement that we can sign together.” She gave no indication, however, of what could be in such an agreement. She is expected to come to the U.S. soon, potentially in February. Some suggest the situation sets up the potential for the U.S. to ink another mini trade deal or one that is limited in scope.
Regarding threatened U.S. tariffs, France’s finance minister, Bruno Le Maire quickly shot back: “If we were to be hit by American tariffs, we would have no choice but to retaliate.”
Europe is less vulnerable to U.S. levies than China, the Wall Street Journal notes (link). The U.S. exports three times more to the EU than it does to China, giving Europe plenty of targets.
Meanwhile, EU Trade Commissioner Phil Hogan talked about reducing technical barriers to trade in agriculture last week, but only gave the example of U.S. restrictions on European exports of apples and pears.
The Financial Times writes that, “The EU will most probably try to put together another 2018-style package that will “satisfy Trump’s dealmaking instincts without actually meaning much in practice. It notes that Commission president Jean-Claude Juncker’s administration managed to defuse Trump’s threat of tariffs on cars in July 2018 by offering him a deal “including buying more of the U.S. president’s favorite commodities, soybeans and liquefied natural gas, plus talks on regulatory co-operation and eliminating industrial tariffs. In practice, these haven’t come to much. The industrial tariffs negotiations have basically stalled, not least because the EU won’t add in agriculture. The regulatory talks produced bits and pieces including conformity assessment — recognizing each other’s testing centers — but nothing dramatic.”
— Other items of note:
Grassley signs USMCA legislation. Sen. Chuck Grassley (R-Iowa) took to social media Wednesday to announce he has signed the U.S.-Mexico-Canada Agreement (USMCA) in his role in the Senate. “As President pro tem I had the honor of signing United States Mexico Canada Agreement Implementation Act w my colleagues. This trade agreement will greatly benefit Iowa. Now to Pres Trump for signature.” Some sources say President Trump wants a big signing ceremony at the White House that includes leaders of both Mexico and Canada. While Mexico has approved USMCA, Canada awaits return of its lawmakers on Jan. 27.
Another new WOTUS rule release possibility... perhaps today. EPA Administrator Andrew Wheeler this afternoon will address the National Association of Home Builders’ International Builders’ Show in Las Vegas and it didn't take long for some to predict unveiling of the much-delayed Waters of the U.S. (WOTUS) rule. The group has fought for decades to restrict the reach of the Clean Water Act. President Trump has portrayed farmers as the main beneficiaries of the rollback. There have been several false predictions of the WOTUS release in recent weeks. The new rule would replace the previous definition of protected waterways that has been on the books for more than 30 years with a much narrower definition. Environmental groups are widely expected to challenge the rule in the courts.
Senators are asking FDA Commissioner Stephen Hahn to crack down on the use of dairy terms like milk and butter for non-dairy products. Sens. led by Tammy Baldwin (D-Wis.) and Jim Risch (R-Idaho) said dairy farmers have been “waiting for action” since the agency launched a review of how to enforce dairy labeling rules under former Commissioner Scott Gottlieb. Link to letter.
Roberto Azevêdo, Director-General of the WTO, and Trump confer on WTO reform. President Trump requested a meeting with Azevêdo in Davos on Wednesday to discuss reform of the beleaguered international trade body. "We'll do something that will be very dramatic,” Trump told reporters. “He'll be coming with his representatives to Washington sometime next week, maybe the week after, and we'll start working on it.” Azevêdo said he was more than willing to dig into the issue with Trump. "I don't think anybody in Geneva misses the point, they understand the system has not been functioning properly in many areas. That's something that we are trying to address," Azevêdo said.
Brexit entrance. Britain’s Parliament passed the government’s European Union (Withdrawal Agreement) Bill, paving the way for Brexit on Jan. 31.
— Markets. The Dow on Wednesday closed down 9.77 points, less than 0.1%, to 29,186.27. The S&P 500 advanced 0.96 point, less than 0.1%, to 3,321.75 and the Nasdaq Composite inched up 12.96 points, 0.1%, to 9, 383.77, just below a record set Friday.
Unusually strong labor demand for a late-cycle environment will likely support ongoing wage and consumption growth, according to BlackRock. This following chart shows the annual change in the employee cost index and the yearly change of its components relative to their respective means.