U.S./China talks next week | MFP payouts | RFS package decisions coming Friday
In today's updates:
* RFS reform package announcement coming Friday as final decisions made
Markets: The Dow has slumped about 840 points, 3.1%, over the past two sessions and has now given up gains over the prior 12 months. The plunge occurred after data Tuesday showed a gauge of U.S. factory activity contracted for the second consecutive month, falling to its lowest level since June 2009. Wednesday’s private-sector jobs report, which showed the pace of job creation has slowed, added to the concerns about the health of the economy. All three major indexes are now negative for the past 12 months. U.S. stocks are off to their worst start to a quarter since 2008. Meanwhile, European stocks sank the most since early December.
— Trump administration earlier this week completed its “rollout discussion” of details of the coming RFS biofuel boost package. The initial decision was to have President Trump announce the package on Friday. The announcement is close to what has been speculated about the package in recent weeks. Keys will be how it is accepted or rejected by both biofuel proponents and the oil industry. An expected big boost in ethanol use will begin to impact starting with the 2020-21 corn marketing year.
— U.S./China trade policy update:
- Trade talks between the U.S. and China are expected to resume next week in Washington as the 13th round of negotiations unfolds. It is unclear whether either side is willing to make the concessions necessary for a deal, observers note.
- China analyst sizes up Oct. 10-11 talks. “If [Trump’s] goal is to contain China, the room for the concessions needed from the US to reach a deal is small. And many China analysts agree that the trade negotiations are not about addressing unfair trade, but rather about containment and decoupling to contain China’s rise,” Zhang Baohui, a professor of political science from Lingnan University in Hong Kong, told the South China Morning Post. “But his goal could also be competing with China strategically and diplomatically and pursuing fair trade economically. If that’s the case, he could be more flexible during the trade negotiations. But no one knows [about his goals]. He talks both ways.”
- Chinese officials and some media reports are still spinning a possible interim agreement that President Trump has made clear he does not support as he favors a comprehensive, enforceable agreement. However, an interim or small-scale deal centered around China buying more U.S. agriculture products and the U.S. postponing planned tariff increases set for Oct. 15 and Dec. 15 is seen as still being possible if the two sides show some flexibility, according to some reports. Unknown is whether the U.S. will demand more in return for postponing the tariff increases — such as specific protections for intellectual property — than China is willing to agree to.
- Hong Kong to ban masks at protests. The city’s government will invoke emergency powers for the first time in over 50 years, starting with a ban on people wearing masks that are used to protect themselves from tear gas or to hide their identities, local news channel TVB said. Meanwhile, Goldman Sachs says $4 billion flowed out of Hong Kong to Singapore because of the protests.
- Consumer spending in China is slowing. Chinese consumers are buying fewer cars, smartphones and appliances. They are going to the movies less and taking fewer trips abroad. “They would rather stick their money in the bank,” notes a New York Times article on the topic (link). “For China’s young people, who have never experienced a prolonged slump in their lives, the shift is especially stark. China has seen slowdowns before, but its consumers kept spending through most of those downturns.”
- This month, China will hold the fourth plenum or plenary session of the 19th Central Committee, where the Communist Party leadership will review and approve policies on internal party governance. It was expected to take place a year ago.
— U.S. will request an early DSB meeting (Oct. 14) at the WTO to impose $7.5 billion in tariffs Oct. 18 on EU; auto tariff decision ahead. While the WTO authorized the U.S. to slap 100% levies on $7.5 billion of goods, Washington is limiting the hit, at least for now. The U.S., when it implements its WTO-approved retaliation, will hit the EU with 10% levies on jetliners and 25% duties on other products including Irish and Scotch whiskies, cheeses and hand tools. The WTO announced its ruling Wednesday that will allow the U.S. to hit European countries with $7.5 billion worth of tariffs, annually, to retaliate for damages via European subsidies given to Airbus. This is the largest award in WTO history.
USTR statement. “For years, Europe has been providing massive subsidies to Airbus that have seriously injured the U.S. aerospace industry and our workers,” U.S. Trade Representative Robert Lighthizer said in a statement. “Finally, after 15 years of litigation, the WTO has confirmed that the United States is entitled to impose countermeasures in response to the EU’s illegal subsidies.” Link to USTR statement.
An eight-page list (link) of the goods facing 25% tariffs was published Wednesday by the USTR. It includes a wide assortment of popular European foodstuffs such as coffees, olives, cheeses, liqueurs and cordials. Industrial goods making the list include electromechanical tools and backhoes. The bulk of the tariffs will apply to products from the four countries that make up the Airbus consortium — France, Germany, Spain and the U.K.
The list of ag products impacted includes cheese, whey, butter and yogurt. The National Milk Producers Federation in a statement said: “The U.S. is running a $1.6 billion dairy trade deficit with Europe because of unfair EU trade practices that block our access to their market while they enjoy broad access to ours.”
The EU has previously said it was ready to enact countermeasures should the U.S. tariffs be implemented and has drawn up a list of $20 billion worth of American imports that it could tax. The WTO is set to rule on Boeing’s subsidies early next year, at which point the EU will be authorized to strike back with tariffs of its own. “If somebody is imposing tariffs on our aviation companies, we will do exactly the same,” European Commission President Jean-Claude Juncker said. Europe could consider imposing tariffs before pursuing a broader settlement and before the WTO rules on its case against Boeing. The EU is considering revoking a settlement with the U.S. from 2006 over tax exemptions for international sales structures used by Boeing and other U.S. companies known as foreign-sales corporations. Any such move could impact around $4 billion worth of U.S. exports. Cecilia Malmström, the EU trade commissioner, said in a statement that it would be “short-sighted and counterproductive” for the U.S. to impose the tariffs, highlighting the likelihood that the EU would soon be allowed to do the same in the Boeing case. “The mutual imposition of countermeasures . . . would only inflict damage on businesses and citizens on both sides of the Atlantic, and harm global trade and the broader aviation industry at a sensitive time,” she said.
President Trump hailed the ruling in a press conference with the president of Finland on Wednesday. “It was a big win for the United States,” Trump said at a news conference. When a reporter pointed out that the case was brought well before his presidency, he interjected: “The wins are now because they think I don’t like the WTO and they want to make sure I’m happy.”
Meanwhile, President Trump by Nov. 13 will decide whether to tax cars and auto parts from Europe, with potential duties on trans-Atlantic automotive trade worth some $100 billion.
— U.S. farmers receive $14.03 billion so far in government trade aid over two years of MFP. USDA has so far paid farmers $14.03 billion of a promised $28 billion as compensation for the effects of Washington's trade disputes with China, an agency official told Reuters on Wednesday. The agency has paid $5.43 billion from its latest round of trade aid — up from $4.07 billion in mid-September — as of Monday, USDA Communications Director Michawn Rich said in an email. The agency also has paid out $8.6 billion in the first round of its Market Facilitation Program (MFP) to date, she said.
— Other items of note:
The federal government now guarantees $7 trillion worth of mortgage-related debt, 33% more than it did before the housing crisis. Link to Washington Post article.
Sen. Bernie Sanders (I-Vt.) was hospitalized yesterday after treatment for blockage of an artery, raising uncertainty about his presidential campaign. It was unclear on when the Democratic presidential candidate would return to the campaign trail. In a tweet yesterday, Sanders said he is "feeling good." He used his situation to make the case for government-run universal health care, his signature campaign policy. Sanders turned 78 last month and will be 79 on inauguration day in January, 2021. Biden is 76, and will be 78 on inauguration day, while Warren turned 70 in June. President Trump is 73 and would be 74 at the outset of a potential second term.
Two Senate race changes via Sabato's Crystal Ball. There are two Senate ratings changes this week, one benefiting each side, according to Kyle Kondik, Managing Editor, Sabato's Crystal Ball. The most vulnerable senator, Sen. Doug Jones (D-Ala.), moves from Toss-up to Leans Republican, while Sen. Thom Tillis (R-N.C.) moves from Leans Republican to Toss-up.
British Prime Minister Boris Johnson brings his new Brexit plan to Parliament today, a day after he presented it to the European Union and received a guarded response. Johnson is expected in the House of Commons to explain the eleventh-hour plan to U.K. lawmakers. Link to Associated Press article for details. It is expected to be rejected by the EU Brexit steering group today. Johnson’s political game isn’t focused on striking a deal with Europe but rather on the snap general election expected after the Oct. 31 deadline, some reports note.
Auto makers Hyundai Motor Co. and its Kia affiliate are suing the top four U.S. railroads for allegedly conspiring to drive up shipping costs though coordinated fuel surcharges.
For the first time, the European Union will impose animal welfare rules on egg imports. Eggs from Brazil, Argentina, Paraguay, and Uruguay will be duty-free only if those keeping the hens follow EU standards — a victory for animal rights activists. The requirement could make eggs from EU producers more competitive. Link for details.
— Markets. The Dow on Wednesday dropped 494.42 points, 1.86%, at 26,078.62. The Nasdaq declined 123.44 points, 1.56%, at 7,785.25. The S&P 500 was down 52.64 points, 1.79%, at 2,887.61.
Saudis restore output. Saudi Arabia has fully restored oil output following attacks on its facilities last month that took half of its production offline at their peak. "We all rose to the challenge," Energy Minister Prince Abdulaziz bin Salman told an energy conference in Moscow, adding that the kingdom's focus is now on the listing of Saudi Aramco (ARMCO). "We have stabilized production capacity, we are at 11.3 million barrels per day. We still have the kit and the tools to overcome any future challenges." Meanwhile, U.S. crude-oil prices fell to a nearly two-month low amid new worries about a supply glut.