Senate Finance leaders create task forces on expired tax incentives
Canadian soybeans may be the next to feel China’s wrath. Meanwhile, Thursday’s USDA Export Sales report showed China canceling the most U.S. pork sales in more than a year. One commodity is seeing positive developments in China trade: Australian beef, as China confronts its African swine disease, which it described this week as a national crisis needing more government assistance.
U.S./China trade policy update:
- China says no scheduled talks with the United States. The U.S. is not sincere about wanting to resume trade talks with China and has damaged the atmosphere for negotiations with its recent moves, a state media social media account alleged. Without sincerity there was no point in coming for talks and nothing to talk about, Taoran Notes, a WeChat account run by the Economic Daily, said in a post late on Thursday that was re-posted by the ruling Communist Party's official People's Daily. In today's commentary, the ruling party's official newspaper described China's determination to protect its national interests and dignity as being as "firm as a boulder… The trade war can't bring China down. It will only harden us to grow stronger," it said. "What kind of storms have not been seen, what bumps have not experienced for China, with its more than 5,000 years of civilization? In the face of hurricanes, the nearly 1.4 billion Chinese people have confidence and stamina."
- China is prepared to suspend trade talks with the U.S. if Washington continues its tough action against Beijing, according to Chinese state media. A commentary published by Taoran Notes, a social media account affiliated with Economic Daily, said China would not give an “effective response” to the U.S. if Washington did not show sincerity in resolving the two countries’ trade disputes. “If there is no real concrete action by the United States, it will be meaningless for you to come and talk,” it said, referring to U.S. Treasury Secretary Steven Mnuchin’s announcement on Wednesday that he would go to Beijing to continue talks. “It is better to suspend the consultation completely and return to the normal working track.”
- “The Chinese government is preparing the public for a protracted and costly trade war, while remaining open to a face-saving deal,” Jessica Chen Weiss, an associate professor of government at Cornell University who studies Chinese foreign policy and public opinion, told the New York Times (link).
- Next focus: If China leader Xi Jinping personally comments on the latest U.S./China trade talk glitch. Recent Chinese editorials generally avoid personal attacks on President Trump, say China watchers, and Xi has not publicly commented on the trade tensions, leaving room to alter his demands.
- Politburo Standing Committee member Wang Yang revealed a “worst case scenario” at a forum for Taiwanese business people in Beijing but says the dispute will not do any long-term damage. He said firms should not relocate away from Chinese mainland as it still offers huge development opportunities. Firms should not relocate away from Chinese mainland as it still offers huge development opportunities. The U.S./China trade war could slash one percentage point off Beijing’s economic growth this year, the senior Chinese policymaker said.
- China continues to focus on its economy. China’s National Development and Reform Commission — China’s top economic planning agency — said it would continue to use measures to support growth in the private sector and among small- to medium-sized enterprises, as well as stimulating consumption in rural areas. “We will provide more help for key groups like college graduates [to find jobs] … and focus on solving the problem of structural unemployment,” spokeswoman Meng Wei said. “We will also strengthen vocational skills training and implement a plan to enroll 1 million people in higher vocational colleges,” she said.
- China cancelled some U.S. pork buys. The same week U.S. President Donald Trump announced sweeping increases on tariffs against Chinese goods, Chinese buyers dropped orders for 3,247 metric tonnes of U.S. pork — the biggest cancellation in more than a year, according to USDA’s Thursday-released Export Sales report.
- Canadian soybeans may be caught in cross-hairs with China. Chinese customs authorities have escalated their inspections of Canadian soybean imports, with at least two shipments rejected this week. A memo raises the possibility that soybeans could be the next Canadian export targeted by the Chinese government. China revoked import licenses for Canadian canola seeds in March, a move Canadian Prime Minister Justin Trudeau last week linked to the geopolitical dispute between the U.S. and China because of Canada’s decision to arrest senior Huawei Technologies Co. executive Meng Wanzhou at the request of the U.S. under terms of an extradition treaty. The memo, reviewed by the Wall Street Journal, said customs authorities are delaying inspections of soybean imports and casting a wider net for possible contaminants, some of which are not tested for by Canadian food inspectors before receiving approval for shipment to China. The memo didn’t indicate that import licenses for Canadian soybeans have been revoked. “As of this moment, it is known—as reported by Canadian exporters—that two separate shipments have been rejected this week, both occurring at the Yantian port of entry,” the memo said. It urged members to be aware of the enhanced testing for an increased number of pests, and the risk of shipment rejection. China is the top export market for Canadian soybean growers, with the most recent annual data indicating sales of nearly 1 billion Canadian dollars ($743 million) in 2017.
- Australian beef exports to China could hit a new record this year, largely due to African swine fever (ASF) decimating China’s supply of pork, boosting prices and sparking demand for shipments of meat from abroad. The China Animal Agriculture Association described ASF as a national crisis this week that needs more government assistance.
- Walmart says higher China tariffs will increase prices for U.S. shoppers. Walmart said prices for shoppers will rise due to higher tariffs on goods from China as the world's largest retailer reported its best comparable sales growth for the first quarter in nine years. Walmart Chief Financial Officer Brett Biggs said higher tariffs will result in increased prices for consumers. He said the company will seek to ease the pain, in part by trying to obtain products from different countries and working with suppliers' "costs structures to manage higher tariffs."
— Senate Finance panel leaders create task forces to study 42 tax incentive breaks, including biodiesel. Leaders of the Senate Finance Committee who want to tax extenders announced task forces to study the breaks. A half-dozen groups comprised of panel members will examine areas like energy, health and cost recovery. “They will be asked with finding possible solutions that would provide long-term certainty in these areas,” the offices of Chairman Chuck Grassley (R-Iowa) and ranking Democrat Ron Wyden (Ore.) said. One group “will examine whether there is a core package of tax relief provisions that should be available when natural disasters strike.”
Grassley said the task force is charged with coming up with solutions by the end of June, including whether to consolidate or change certain provisions, make them permanent or allow them to lapse. “It’s past time for Congress to end its bad habit of waiting until the last minute to extend temporary tax policy," Grassley said. "This type of tax policy is meant to encourage long-term growth and investment. By definition, that must be done deliberately and ahead of time to be successful.”
Movement needed by key House panel. Grassley and Wyden have urged the House Ways and Means Committee, where tax legislation must originate, to move an extenders package. But Ways and Means Chairman Richard Neal (D-Mass.) has been cool toward the suggestion, noting tax extenders should be part of a more comprehensive tax package. Neal has suggested including an expansion of the Earned Income Tax Credit in a House tax bill, and paying for part of a package by eliminating the preferential tax treatment of investment fund managers' share of profits on their clients' capital gains, known as "carried interest."
Details. The task forces will look at 26 tax breaks that expired at the end of 2017, three that expired at the end of 2018 and 13 that are set to expire at the end of this year.
A likely legislative vehicle to extend the lapsed incentives include must-pass budget measures.
— USDA to step up testing for ASF. USDA will add testing for African swine fever (ASF) to their existing classical swine fever surveillance and will test samples from the same high-risk animals, USDA announced.
The effort will start "within weeks" and will implement the full surveillance plan over the course of the spring.
Details. USDA will test samples from "high-risk" animals, which USDA said includes "sick pig submissions to veterinary diagnostic laboratories; sick or dead pigs at slaughter; and pigs from herds that are at greater risk for disease through such factors as exposure to feral swine or garbage feeding." USDA said it will also work with state and federal partners to "identify and investigate incidents involving sick or dead feral swine" to see if they should be tested for ASF or other foreign animal diseases.
— Other items of note:
USDA purchased $62 million worth of pork products from Brazilian-owned JBS USA as part of its trade aid package, New York Daily News reported (link). The Justice Department is investigating the company, whose owners have admitted to bribing Brazilian officials.
Cotton AWP falls under 60 cents. The Adjusted World Price (AWP) for cotton declined to 59.51 cents per pound, effective today, the lowest since it was 59.20 cents per pound the week of Nov. 18, 2016. Meanwhile, USDA said that it will establish Special Import Quota #4 for 55,304 bales of upland cotton on May 23, applying to cotton purchased not later than August 20 and entered into the U.S. not later than Nov. 18.
— Markets. The Dow on Thursday gained 214.66 points, 0.84%, at 25,862.68. The Nasdaq rose 75.90 points, 0.97%, at 7,896.05. The S&P 500 advanced 25.36 points, 0.89%, at 2,876.32.
Deere & Company is expected to report a rise in second-quarter revenue. Investors will look for an update on Deere's full-year financial forecast, as the trade war between the U.S. and China intensifies.