Actions or threatened actions on France, EU, Argentina, Brazil and China
In today's updates:
* France promises EU retaliation after U.S. tariff proposal
Markets: U.S. stock futures are signaling lower values, a day after the Dow sank 270 points and the S&P 500 posted its worst one-day decline since Oct. 8. "In some ways, I like the idea of waiting until after the election for the China deal, but they want to make a deal now and we will see whether or not the deal is going to be right," President Trump told reporters in London today. Meanwhile, the state-run Global Times said China will release an "unreliable entity list" soon — aimed at punishing businesses deemed harmful to Chinese interests — that reportedly includes U.S. entities.
Chicken sandwich wars. McDonald's began December by entering into the "Chicken Wars," a food fight Popeyes challenged Chick-fil-A with in August by releasing its Chicken Sandwich. The contender from the Golden Arches is reported to feature a fried chicken filet served on a buttery potato roll, with butter and pickles (a deluxe version also includes tomatoes, lettuce and mayo). McDonald's is testing the new sandwich in Houston, Texas and Knoxville, Tennessee until Jan. 26.
Ninety thousand packages disappear in New York each day, and package theft has soared in other cities as well, leading to some creative measures to thwart thieves. Link to NYT article.
— In President Trump's trade policy battles, no steps forward and several big steps back. President Donald Trump’s move to propose duties on up to $2.4 billion of French goods, including wine, cheese, Champagne and handbags) over a tech tax, restore tariffs on steel from Brazil and Argentina, plus a threat to increase levies on Chinese goods if a Phase 1 deal can't be reached between the two.
- Trump and France: A report from the Office of the United States Trade Representative (USTR) declared a French tax on technology onerous and that retaliatory tariffs as high as 100% on French wines, cheeses and handbags would be justified. The report did not impose such tariffs but cleared the way for Trump to do so if he chooses. The U.S. said the digital revenue tax France has proposed “discriminates” against U.S. companies and it is exploring whether to open investigations into similar digital levies in Austria, Italy and Turkey. While threatening levies on new categories of imports from France, the Trump administration said it would consider whether to impose “fees or restrictions” on French services. The new tariffs will not be imposed until after a public comment period that includes a hearing in Washington on Jan. 7, where producers and consumers of the affected goods can argue against them, and a Jan. 14 deadline for rebuttal comments. (The U.S. has already targeted French wines and many other ag products in a separate dispute over European subsidies for Airbus.)
- Trump and the EU: The U.S. Trade Representative’s office said it was looking at broadening a range of punitive tariffs on EU products, including goods from the U.K., France, Spain and Germany, because of subsidies to Airbus, the aircraft maker, that have been judged as illegal by the World Trade Organization (WTO).
France reacts. French finance minister Bruno Le Maire called the Trump administration’s latest threat “unacceptable” and said the EU would retaliate with “a strong riposte.” “If there should be new sanctions from the Americans, the EU is ready to retaliate,” Le Maire said on Radio Classique. The U.S. proposals, he said, were not actions worthy of an ally. “It’s in no one’s interest, it’s not in the interest of growth, or of political stability,” he said.
- Trump targets Argentina and Brazil: On Monday, Trump made a surprise announcement that he would restore tariffs on imports of steel and aluminum from Brazil and Argentina, jolting markets and accelerating his global trade war. He accused both countries of currency manipulation. The Trump administration exempted Brazil, Argentina and other countries from the president’s metal tariffs in March 2018, with the Trump administration saying it would continue negotiations with those countries to improve their trade terms. In May 2018, the U.S. announced that it had reached an agreement with Brazil and Argentina that would cap their metal shipments (export quotas) at a specific volume each year. Argentina makes up less than 1% of U.S. steel imports. Imports from Brazil have increased by nearly 50% this year, making up for lower imports from Turkey, Canada and other countries that were hit with the Section 232 tariffs.
Currency wars. Last week the Brazilian currency, the real, fell to a record low against the dollar after the country’s economic minister signaled that he was not concerned about exchange-rate fluctuations. Trade tensions and domestic concerns about unrealized tax and public-sector reforms have pulled the real to a record low of 4.27 to the dollar. Currency movements have made Brazilian and Argentine goods cheaper to purchase abroad, particularly important for the agricultural sector and the U.S.’ trade war with China. China has shifted to purchasing products from Brazil and Argentina instead, a move that has upset Trump and other American officials. “I gave them a big break on tariffs, but now I’m taking that break off because it’s very unfair to our manufacturers and very unfair to our farmers,” Trump told reporters on Monday. “Our steel companies will be very happy, and our farmers will be very happy.”
Were Brazilian officials surprised? Yes. Brazil’s conservative populist president, Jair Bolsonaro, had gone to great lengths to strengthen ties with the Trump administration. “Aluminum?” Bolsonaro asked when reporters presented him with Trump’s tweet. “If that’s the case, I’ll call Trump. I have an open channel with him.”
As for Argentina, Dante Sica, Argentina’s minister of production, called the move “completely unexpected... I was in Washington last week, and I talked to a lot of people, and there was no sign whatsoever that there would be any kind of change,” he said. Sica dismissed the claim that Brazil and Argentina have been deliberately devaluing their currencies. “Our currency has a flexible exchange rate and adapts itself to global changes,” he said.
- China: The ongoing U.S./China trade war: If the Trump administration and Chinese officials can’t finalize a partial trade deal by Dec. 15, the U.S. is prepared to drop the “hammer” on Beijing, said Commerce Secretary Wilbur Ross. Trump is threatening to slap 15% duties on another $156 billion in Chinese goods on that date. “If nothing happens between now and then, the president has made clear he’ll put the tariffs in,” Ross told Fox Business Network on Monday. Ross said the key questions regarding potential ag purchases is “how far do they go in this phase, and how enforceable” are the commitments.
President Trump suggested the trade war with China could drag on beyond the 2020 election. Trump said he had “no deadline" for a trade deal with China. He spoke at a meeting with the heat of NATO in London today. And giving some proof to what some observers have said for months, Trump added, “In some ways I like the idea of waiting until after the election for the China deal”... it is dependent on “Do I want to make it?” The president again stated the U.S. is “doing very well” with China. "And China is paying for it, and China is having by far the worst year that they have had in 57 years. So we'll see what happens,” Trump said.
Meanwhile, China may designate a list of “unreliable entities,” which could lead to restrictions on American firms. The state-run Global Times said China intends to punish America for passing a bill about human-rights abuses in Xinjiang, its north-western Muslim region.
— Perspective on escalating Trump trade battles: Here we go again is giving Dolly Parton the fits. Trump’s return to an aggressive stance on trade spooked investors, leading to a fall in equity indices. But it also likely shows Chinese officials, if they didn't have the feelings before, that even if they do reach any Phase 1 accord with the Trump administration, the agreement could become undone if something, however minor, upsets Trump. Other countries wanting to negotiate trade matters with the U.S. will also take note of the ups and downs of dealing with a volatile presidency.
The return of Trump's trade confrontations could significantly impact the economies of some countries and some sectors in the U.S., including farmers and agribusiness.
— China insists pork supplies relatively ample. Inventories of frozen pork in China in the fourth quarter are considered to be relatively ample, according to Yang Zhenhai, director of the ag ministry’s animal husbandry and veterinary bureau. Imports and commercial stocks have boosted state pork reserves, he noted. The focus is on making sure pork supplies are in place for the late-January Lunar New Year holiday.
— China has used up almost all of its waivers — about 10 million metric tons — to purchase American soybeans that are free of retaliatory tariffs, people familiar with the matter told Bloomberg News (link). Beijing is unlikely to issue new waivers for U.S. supplies before progress is made in trade negotiations with Washington, one of the people said. China has been issuing waivers that allow buyers to ship in U.S. soybeans without having to pay the 30% retaliatory tariffs Beijing adopted in response to American levies. Total export commitments to China for soybeans so far in the 2019-20 marketing year stand at 9.307 million tonnes, with outstanding sales of 3.75 million tonnes and 5.56 million tonnes already shipped.
— Grassley: USMCA deal needed this week for year-end ratification. If a deal on the U.S.-Mexico-Canada Agreement (USMCA) is not reached by the end of this week, “I do not see how the USMCA can be ratified in the year we’re in,” Sen. Chuck Grassley (R-Iowa) said yesterday on AgriTalk radio and on the Senate floor. “By all accounts, the deal is close,” Grassley said. “I urge House Democrats to act quickly and be reasonable so that we can finally deliver certainty on this issue to the American people.”
Grassley said he has recently been in touch with both House lawmakers and members of the Trump administration. “By all accounts,” he said, “a deal is close.”
The Trump administration is considering scaling back intellectual-property protections for drugmakers to help win Democratic support for a trade agreement with Mexico and Canada, the Wall Street Journal reported (link).
Note: Sen. Grassley had some rather explosive things to say on AgriTalk Monday morning. He was somewhat critical of the president over the reimposition of steel and aluminum tariffs today and he suggested that Andrew Wheeler may see his career at EPA end if the RFS rules are not changed. Listen to the audio.
— Growth Energy says EPA supplemental plan ‘fails’ to deliver on biofuels. Formal comments filed by Growth Energy on EPA’s supplemental plan under the Renewable Fuel Standard (RFS) to account for obligations waived via small refinery waivers (SREs) “fails to provide the certainty and stability that America’s farmers and biofuel producers need to rebuild after years of demand destruction,” said Growth Energy CEO Emily Skor. “It offers a solution based on outdated and inaccurate estimates, potentially keeping billions of gallons of biofuels off the market.”
As other biofuel backers said in their comments on EPA’s supplemental plan, Skor stated the EPA plan runs counter to commitments on the RFS by President Donald Trump. She reiterated their call for the SREs to be accounted for via a rolling average of those actually exempted from the three most recent compliance years, not the plan to use an average of the exemptions recommended by the Department of Energy.
The final rule from EPA on the 2020 biofuel and 2021 biodiesel levels is expected to come “this winter,” according to an agency spokesman, with the agency’s regulatory guidance indicating it is expected yet this month.
— Other items of note:
House on Monday extended its legislative schedule by one week, so lawmakers will remain in town until Dec. 20, when a continuing resolution expires. The move was expected.
North Korea threatened the U.S. with a bad 'Christmas gift.' A top official said that the U.S. needs to find a new approach to denuclearization talks. Previous “gifts” from Pyongyang have included a short-range rocket test on Thanksgiving, and an intercontinental ballistic missile test on the Fourth of July two years ago.
Progress on FY20 spending bills. Senate Democratic Leader Chuck Schumer (D-N.Y.) said lawmakers are working to finish fiscal 2020 government spending bills by the end of the year, after reaching an agreement on the top-line amounts for the 12 bills. Schumer said Democrats will insist on investments in infrastructure and will continue to oppose any effort to take money from military projects to pay for President Donald Trump’s border wall.
Senate confirmed Dan Brouillette on a 70-15 vote to succeed Rick Perry as Energy secretary. Brouillette has been deputy secretary since August 2017.
The water wars that defined the American west head east. Urban growth and a surge in crop irrigation are taxing water supplies and fueling interstate legal fights, such as one in which Georgia and Florida battle over how much should be drawn from a river basin they share. Link to Wall Street Journal article. “Farmers’ rising thirst, together with urban growth and climate change, is now taxing supplies and fueling legal fights pitting states against one another. The shift has exposed the region to water-supply changes occurring globally — as swelling populations, surging industrial demand and warmer temperatures turn a resource long viewed as a natural right into a contested one,” the article notes.
Treasury Department issued new rules on two major pieces of the 2017 tax law that will lessen the exposure of U.S.-based multinationals. Link to WSJ article.
A shortage of french fries? Cold, wet weather damaged potato crops in the U.S. and Canada, leading to tight supplies. Link to Bloomberg article.
Trump strikes back at Bloomberg News. Bloomberg News announced that it would not investigate the presidential candidates in the Democratic field. In retaliation, Trump’s re-election campaign said on Monday that it would bar Bloomberg News journalists from attending its rallies and political events.
— Markets. The Dow on Monday fell 268.37 points, 0.96%, at 27,783.04. The Nasdaq dropped 97.48 points, 1.12%, at 8,567.99. The S&P 500 lost 27.11 points, 0.86%, at 3,113.87.
Cyber Monday sales were on course to bring in a record $9.2 billion for U.S. retailers, according to estimates, up 16.9% from a year ago.