Trump: 'Very Good Chance' for Trade Deal with China

Posted on 06/19/2019 7:03 AM

Fed rate decision | Day two of Lighthizer on trade policy | Biodiesel


U.S./China trade policy talks went from downbeat to upbeat in a day, thanks to President Trump's tweet Tuesday about “extended” talks next week in Japan.
     A crucial Fed meeting ends this afternoon with the focus on any signals of rate cuts later this year, against a backdrop of trade tensions, conflicting data signals and growing worries about the economy. Asked by reporters outside the White House yesterday if he wanted to demote Fed Chairman Jerome Powell, Trump said "let's see what he does."
     A rocket struck the site of the residential and operational headquarters of several global major oil companies in southern Iraq early today, including ExxonMobil, but had no effect on oil fields or exports, sources told Bloomberg. The incident in the Basra province injured three Iraqi workers, however, prompting Exxon to evacuate 20 foreign employees.
     U.S. Trade Representative Bob Lighthizer signals a trade agreement with Japan is likely soon. He made the remarks on that and other trade policy topics during an appearance Tuesday before the Senate Finance Committee. He will appear today before a House panel.
     New York, New Green Deal... New York's Senate passed its own version of the Green New Deal — a climate bill that will set the most aggressive clean energy target in the country. The legislation would more than triple the amount of solar power in New York to 6 gigawatts by 2025 (from about 1.7 gigawatts currently) and unleash wind power off the coast. The bill also codifies New York’s goal of getting all of its electricity from emission-free sources by 2040, putting the state ahead of all others that have set clean-energy standards.
     Allied gator... Wally (below) is an alligator that was approved by his owner’s doctor in York, Pa., as an alternative to taking medication for depression. Most emotional support animals are dogs, but some Americans turn to a wide variety of species.
 Alligator

 

U.S./China trade policy update:

  • Trump very upbeat on getting trade deal with China. President Trump accelerated expectations for positive results of a now-scheduled meeting with Chinese President Xi Jinping at the G20 summit next week in Osaka, Japan. Trump, who revealed he had a “long talk” with Xi on the phone Tuesday morning, said “China very much wants to discuss the future and so do we.” Trump predicted a “very good chance” of working out a trade agreement and that some lower-level discussions would begin today. “I think China wants to make a deal. They don't like the tariffs. A lot of companies are leaving China in order to avoid the tariffs,” Trump said.
  • U.S. equities surged on the news of a Trump/Xi confab. “You look at the rally, the stock market, I think the market says talk is better than no talk,” White House adviser Larry Kudlow said. Chinese shares were also boosted by the development overnight.
  • China confirmed the talks, with state media quoting President Xi as saying, “The key is to show consideration to each other's legitimate concerns. We also hope that the United States treats Chinese companies fairly. I agree that the economic and trade teams of the two countries will maintain communication on how to resolve differences.” Chinese Foreign Ministry spokesman Lu Kang said it was better for the two sides to talk. “I'm not getting ahead of myself, but communication over four decades shows it is possible to achieve positive outcomes," he said.
  • Regarding the agenda for the meeting, Lu said, "The two leaders will talk about whatever they want. A deal is not only in the interests of the two peoples but meets the aspirations of the whole world."
  • U.S. Trade Representative Robert Lighthizer was yesterday told a Senate hearing that talks alone were not enough. “I don’t know if it will get them to stop cheating, tariffs alone. I think you don’t have any other option," he stated. “I know one thing that won’t work and that is talking to them. Because we’ve done that for 20 years."
  • No final agreement is expected when Trump/Xi meet. Sources say a plan for new high-level talks, along with a delay in imposing U.S. tariffs on the $300 billion in goods from China, is the best outcome of next week's sessions between the two leaders. Trump agreed to delay tariffs on $200 billion in imports from China after last year’s G20 summit in Buenos Aires, Argentina. Trump later imposed those duties and raised the level to 25% last month when the countries reached the current impasse.
  • Trump may give China a big request. Chinese officials want the tariffs lifted at the time a deal is signed and are insisting the text of any agreement should be “balanced.” Trump reportedly will agree to lift all U.S. tariffs if China shows “balance” on U.S. requests. Meanwhile, Chinese state media reported Xi told Trump in their conversation Tuesday that China hopes “the U.S. will treat Chinese companies fairly,” in what was widely seen as a reference to Huawei. But any Trump give on that topic is being watched closely by U.S. Democratic lawmakers. “The president seems at least to open the opportunity that he might back off Huawei” as a part of trade negotiations, Sen. Mark Warner (D-Va.), the top Democrat on the Senate Intelligence Committee, told reporters Tuesday. “If that’s traded away, it will be a disaster.” Meanwhile, Huawei CEO and founder Ren Zhengfei downplayed the impact of the U.S. ban on the company, in an interview with CNBC today, just days after the Chinese telecom giant said it expects $30 billion less revenue for the year. Ren said he's not concerned since Huawei will still book more than $100 billion in revenue this year.
  • Beijing has over the past year lowered duties on goods from countries that compete with America, according to the Peterson Institute for International Economics. "Americans are likely suffering more than President Trump thinks" as a result of the trade war, the report said.
  • China’s Commerce Ministry says antidumping duties on U.S. DDGs to stay. China's Ministry of Commerce today announced that antidumping and anti-subsidy tariffs on imports of U.S. distillers’ dried grains (DDGs) will remain in place after reviewing the issue. The ministry said that it was keeping the antidumping duties of 42.2% and 52.7% in place along with anti-subsidy tariffs of 11.2% to 12% on U.S. DDGs on a finding that there could be potential damage to domestic firms if the duties were removed. The agency undertook the review in April.
  • Apple has asked its major suppliers to evaluate the cost implications of shifting 15% to 30% of their production capacity from China to Southeast Asia as it prepares for a fundamental restructuring of its supply chain, Nikkei Asian Review reports. The tech giant's request was triggered by the protracted trade tensions between Washington and Beijing, but reports note that even if the spat is resolved there will be no turning back as risks are too great and even rising. The countries being considered for diversification include Mexico, India, Vietnam, Indonesia and Malaysia. Suppliers were not given a deadline to formulate their plans, the report noted.

Key comments USTR Lighthizer made Tuesday at Senate Finance Committee:

  • On China talks, Lighthizer emphasized the importance of confronting Beijing over its trade practices: ...”if China steals your intellectual property, you’re not going to have jobs in the future.”
  • Enforcement of provisions in the U.S.-Mexico-Canada Agreement (USMCA) —especially related to labor and the environment — was a key topic. Enforcement of provisions regarding labor and environmental issues have been a focus for USTR since the deal was being actively negotiated, Lighthizer said in response to a question from committee Ranking Member Ron Wyden (D-Ore.). Lighthizer emphasized that new requirements included in USMCA are "very specific," and that strong dispute settlement provisions exist to ensure Canada and Mexico are held to those commitments. "There never has been a trade agreement with this much impact for workers," Lighthizer stated, referencing new labor provisions included in the pact. "The key is enforcement," agreed Wyden, who referenced his long-running discussions with Lighthizer on the topic. Wyden suggested that the "heavy lifting" on enforcement and implementation of the deal is still ahead, prompting him to question whether Lighthizer was willing "to do whatever it takes" to make sure the agreement's enforcement "has teeth? That prompted a quick “Yes” response from the top trade official. Support for a labor enforcement framework laid out by Wyden and Sen. Sherrod Brown (D-Ohio) was voiced by several committee Democrats. The Wyden-Brown proposal calls for more personnel devoted to enforcement of labor rules, and seeks a mechanism to audit Mexican facilities thought to be violating the requirements. "I'm not endorsing any proposa,l" Lighthizer said when pressed to weigh in on the framework. However, he vowed to work closely with Wyden, Brown and other lawmakers to "come to a solution" that met their expectations.
  • Mexico's ability to follow through with new labor and environmental commitments was a common concern expressed in questions from lawmakers. Asked by Sen. Maria Cantwell (D-Wash.) about what Congress can do to support USTR's efforts to build "enforcement capacity" in Mexico, Lighthizer said adequate funding is key. "We need the money," he observed.
  • Pressed again on the issue of capacity by Sen. Ben Cardin (D-Md.), Lighthizer agreed the US has "to make an effort on capacity building with Mexico," adding that Canada was also working with Mexico on the issue. Getting it right is vital, Cardin responded, noting USMCA will serve as a framework for new deals with partners like the EU and Vietnam.
  • The Trump administration's record on trade enforcement was a point Lighthizer repeatedly emphasized. "We've brought more cases" at WTO "than anyone," he said, calling the Trump administration "very enforcement oriented." Congress plays a key role, too, he noted. "These agreements are best not only when they have strong bipartisan support" but also buy-in from individual lawmakers, he remarked.
  • USMCA ratification timeline. "I have dealt from the beginning with Democrats as much as Republicans," Lighthizer stressed, adding that work with House lawmakers has been productive. "Speaker has been completely fair and above board," Lighthizer said, referring to House Speaker Nancy Pelosi (D-Calif.). He also expressed a progress can be made on that front “over the course of the next several weeks.” Sen. John Cornyn (R-Texas) welcomed that news, adding that moving quickly to approve USMCA "could provide a lot of reassurance" for the U.S. economy. Ensuring USMCA is handled this year was a point emphasized by Sen. John Thune (R-S.D.), who said he worries that if the process is delayed, it could fall off the agenda as the 2020 elections approach. Lighthizer responded that the administration is keen to see USMCA approval "dealt with as soon as possible," but added, "I don’t want to set a deadline."
  • Lighthizer backs Trump on Mexico tariff threat. President Donald Trump's threat to impose tariffs on Mexico over immigration surfaced during lawmaker questioning. Sen. Bob Menendez (D-N.J.) said using tariffs for non-trade policy goals was "clearly wrong," and asked Lighthizer where he stood on the issue. President Trump was "absolutely" right in his actions, Lighthizer responded, but he added, "immigration is not my area" of expertise. "From the president's point of view he had a crisis... and something had to be done." Lighthizer argued. Lighthizer said he had not thought extensively on the matter, seeking to keep the issue at arm's length, "I'm a trade person," he reiterated.
  • Republicans note USMCA gains over NAFTA "status quo.” Highlighting the benefits USMCA brings to the table compared with its predecessor, the North American Free Trade Agreement (NAFTA), was a common theme in remarks from Republicans on the panel. Sen. Rob Portman (R-Ohio), who served as USTR in the George W. Bush administration, praised USMCA as "a high quality 21st century agreement." The question facing lawmakers, Portman said is "Do we want to move forward or do we want to continue with the status quo that’s not going to work for us?" Asked to elaborate on some of the advances included in the new agreement, Lighthizer first pointed out "environmental and labor standards are essentially nonexistent under NAFTA." He added that provisions on digital trade and ag market access are other areas substantially improved under the new pact. "USMCA is substantially better,” Lighthizer stated. “There are egg and poultry improvements, there are wheat improvements there are SPS improvements.” Portman agreed with that assessment, noting while USMCA "may not be perfect," he views it as a solid improvement over the status quo under NAFTA.
  • Ag gains under USMCA were a focus of Sen. Jim Lankford (R-Okla.). For dairy, Lighthizer pointed out the deal eliminates Canada's Class 7 pricing scheme for milk, and he also touted new limitations the agreement places on the use of geographic indicators (GIs) used by partners like the European Union (EU) to protect certain common food names like "parmesan" cheese.
  • Lighthizer said USMCA is "a remarkably better agreement, even given agriculture did well under the old NAFTA."
  • China tariff exclusion process. On the U.S./China trade front, lawmakers in both parties emphasized the importance of the exclusion process for the recently increased tariffs imposed on $200 billion in Chinese goods. Companies need "an exclusion process that is useable and workable,” said Thune, noting manufacturers are being harmed by the tariffs. "There are unintended consequences" from current tariffs, he observed, and having an exclusion process in place is vital. "I would convey to you the sense of urgency... of putting in place a [exclusion] process that is useable and navigable for our companies," he concluded. USTR is carefully considering requests from the business community for exclusions, Lighthizer said. He also promised that if new tariffs are imposed on an additional $300 billion in Chinese goods – as President Trump has threatened – USTR would also provide an exclusion process for those. "I'm not even sure yet there will be tariffs" on the $300 billion in goods, Lighthizer cautioned, noting it will hinge on whether talks with China progress and that the final decision about whether to levy new duties is Trump's call. USTR Monday started seven days of gathering public input on the proposed tariffs.
  • Getting additional engagement from USTR on the exclusion process has been "difficult," complained Sen. Tom Carper (D-Del.). Lighthizer told the lawmaker he would be sure to consult with the panel as his office considers any plans for new duties and on the current exclusion process.
  • Questions were raised on whether TPP is still a viable option. While he acknowledged the Trump administration's position favoring bilateral trade agreements over multilateral ones, Sen. Cornyn asked if the need to confront China might be a reason to revisit U.S. participation in the Trans-Pacific Partnership (TPP). The U.S. withdrew from TPP on the third day of President Trump's presidency, fulfilling a campaign promise. The remaining 11 TPP members moved forward with the pact, now renamed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Do "you think it's appropriate at some point to revisit the TPP to counterbalance China" Cornyn asked, adding it "seems to me we would do better working with our friends and allies" by being in the agreement. “No” was the response from Lighthizer, who reiterated the long-standing administration view that TPP is "a bad agreement." He noted the U.S. already has bilateral agreements with many CPTPP countries and said USTR is working hard to reach a deal with one member, Japan. "I think the president's strategy of dealing individually [with partners] is a far better approach," Lighthizer said.
  • Now that CPTPP has entered into force, several US ag competitors are benefitting from lower tariffs — particularly to the Japanese market, Cantwell pointed out. The "hit to our farmers... is troubling to me," Lighthizer acknowledged. He said the situation that U.S. exporters are at a disadvantage is "unacceptable," but said progress is being made in bilateral talks with Japan. U.S. and Japanese negotiators are going to meet on the sidelines of the G20 summit, and Lighthizer said securing an early harvest-type agreement covering agriculture remains a priority. He noted concerns that U.S. beef and pork exporters have over long-term market share losses if an agreement is not reached soon. "My hope is in the next few months we'll have an agreement" covering agriculture, he told lawmakers.

Lapsed biodiesel tax incentive part of bill pushed by House Democrats. House Democrats introduced legislation that would extend dozens of tax breaks, including for biodiesel fuel and for medical expenses. An extension of the lapsed biodiesel tax credit is part of the tax extender legislation released Tuesday by House Ways & Means Committee Chairman Richard Neal (D-Mass.).

The biodiesel renewable diesel tax credits and others would be retroactively put in place for 2018 and extended through 2020. It would also revive tax credits for railroad track maintenance, two-wheeled plug-in electric vehicles and energy-efficient home construction would also be extended.

As for how to pay for the extenders, Neal is proposing ending higher exemption levels for the estate tax at the end of 2022, instead of 2025 as currently scheduled. But Senate Republicans will not go along with the estate tax budget offset.

Bottom line: The outlook on the biodiesel tax credit remains linked to tax extenders being included in a must-pass measure like a spending plan to keep the government operation.

Other items of note:

  • Shanahan drops out of process to become Defense Secretary. Acting Defense Secretary Patrick Shanahan said Tuesday he would not pursue being confirmed as Defense Secretary as reports of events in his personal life triggered the decision, including a physical altercation in 2010 between he and his then-wife. Secretary of the Army Mark Esper will become acting Defense Secretary, President Donald Trump said. Trump said he did not ask Shanahan to withdraw from consideration for the Pentagon post. Esper, 55, is a former lobbyist for Raytheon, one of the largest U.S. military contractors.
  • U.S. wants allies to help keep oil lanes open. Top White House officials signaled the U.S. didn’t intend to assume sole responsibility for safeguarding tankers in the Persian Gulf after attacks Washington blames on Iran, because America has become less dependent on oil supplies from the region. Meanwhile, Iran is looking for support from Russia, China and other countries to help counter a U.S. campaign that has included crippling economic sanctions and thousands of additional troops committed to the Middle East.
  • Immigration and Customs Enforcement is preparing for the mass arrests of undocumented immigrants in the coming weeks, two Department of Homeland Security officials said. They noted that the agency could not immediately deport “millions of illegal aliens” as President Trump has promised.
  • U.N. expert finds ‘credible evidence’ of Saudi prince role in Khashoggi case. A United Nations expert has concluded that there is “credible evidence” that demands further investigation regarding the responsibility of Saudi Crown Prince Mohammed bin Salman and other senior officials for the grisly murder of journalist Jamal Khashoggi, the Financial Times reported.
  • Democratic presidential candidates face off in their first debates next week. Here are the list of the candidates and when they will face off in the first two debates:
    Day One Dems

          Day Two Dems

Markets. The Dow on Tuesday surged 353.01 points, 1.35%, at 26,465.54. The Nasdaq rose 108.86 points, 1.39%, at 7,953.88. The S&P 500 gained 28.08 points, 0.97%, at 2,917,75.

The Federal Reserve concludes discussions this afternoon on whether it will need to lower the benchmark interest rate, if not now, then in summer. Investors increasingly more than one rate cut this year, in part due to concerns that President Trump’s trade policies are hurting global growth. Today’s conclusion of the Federal Open Market Committee (FOMC) meeting arrives with an unusual amount of uncertainty and speculation. While markets have been expecting two rate reductions from the U.S. central bank this year, market expectations are only at 25% that the Fed will cut rates at this meeting. That opens the door for a surprise should the Fed opt to take a proactive move. Attention will first be on the post-meeting statement and whether the Fed ends the use of “patient” relative its stance on monetary policy. Some expect that will be jettisoned to signal the Fed is closer to acting to lower rates ahead, potentially at the July FOMC session. The statement could more reflect what Fed Chairman Jerome Powell signaled recently, that the Fed would take whatever actions are necessary to keep the U.S. economy on track. The projections from the Fed will also be key, but the “dot plot” may not provide the clear signals markets are looking for. Rather, their projections on inflation, the economy and the longer-term path for rates could be more telling of what lies ahead from the Fed. And the post-meeting presser will likely see reporters trying to get Powell to commit to a rate reduction or a timing for such a step. However, his history is not one of being pulled into making such predictions. The session arrives with President Donald Trump ratcheting up pressure on the U.S. central bank, suggesting he might consider demoting Powell depending on the Fed’s actions. This sets the stage for a potentially volatile end to the financial market day with the events unfolding from 1 p.m. (CT) forward this afternoon.

CME Group lifts force majeure on Illinois, Mississippi Rivers. The CME Group announced that force majeure declared May 2 on corn and soybeans is no longer effect at Chicago Board of Trade shipping stations on the Illinois and Mississippi Rivers. Most stations have regained the ability to load corn and soybeans and that prompted the decision to lift the force majeure, effective immediately.

Boris Johnson took a step closer to becoming Britain’s next prime minister on Tuesday, winning 40% of votes in the second round of a contest on a firm promise to leave the European Union. "We must come out on the 31st of October because, otherwise I am afraid we face a catastrophic loss of confidence in politics," he declared. By Thursday, Conservative lawmakers will have whittled the list of candidates to a final two. Then 160,000 Conservative members will vote to choose the winner, with a result expected in July.


 

Add new comment