Disaster aid movement | Pelosi to meet Lighthizer | CCC funding needs replenishment
— U.S./China trade policy update:
- China economy slows sharply in April, even before higher U.S. trade tariffs take effect. Industrial production growth fell to 5.4% from 8.5% in March. Retail sales, a measure of consumer demand in China, grew by 7.2% in April, below the 8.7% rate in March and the lowest in 13 years, when it grew 4.3%. Bottom line: these and other recent figures signal the U.S. tariffs are beginning to make a serious dent in the Chinese economy, just when trade pressures have risen. This is upping expectations that China may have to deploy additional economic stimulus efforts as it seeks to keep its economy on track to meet the GDP expectations for growth in a range of 6% to 6.5%. Meanwhile, the U.S. today reports on industrial production and retail sales. Numbers are expected to slow due to the U.S./China trade war.
- China's gov't for the first time introduced an exclusion mechanism in its latest round of tariffs on $60 billion of U.S. imports. These will take effect on June 1, but Chinese companies will have the chance to apply for an exemption, established to support key domestic industries and employers.
- Trump calls on Fed to help win the trade war with China. President Trump said “China will be pumping money into their system and probably reducing interest rates, as always, in order to make up for the business they are, and will be, losing. If the Federal Reserve ever did a ‘match’, it would be game over, we win! In any event, China wants a deal!” Speaking to reporters later on Tuesday, Trump said the U.S. economy was doing well “by every measure” and described the conflict with China over trade as “a little squabble.” “We’re in a very strong position,” said the president.
- President Trump is preparing to issue an executive order that could ban American companies from using any equipment made by Huawei, a giant of Chinese telecoms, and possibly other companies too. The president may regulate commerce in response to a “national emergency.”
- Trump is in no rush to back down. “When the time is right, we will make a deal with China,” Trump tweeted yesterday. The New York Times reports that Trump's close allies reportedly say backing down is not an option, as he sees the clash as helping his 2020 election prospects. But reaching a deal may be hard even if Trump wanted to. The U.S. and China “seem to be digging into their positions in ways that will be hard to resolve with the mutual face-saving that typically turns high-stakes negotiations into deals,” Neil Irwin of the NYT writes (link). “It is not clear what the offramps might be that would allow a de-escalation.” Meanwhile, the Washington Post reports (link) that Trump has told advisers and top allies “that he has no intention of pulling back on his escalating trade war with China, arguing that clashing with Beijing is highly popular with his political base and will help him win re-election in 2020 regardless of any immediate economic pain.” Some naysayers speculate this could be efforts by the White House to leak such “news” to the general media in order to get China's attention on the topic.
- Senate majority leader on the ongoing U.S./China trade war: “Ultimately, nobody wins a trade war unless there is an agreement at the end, after which tariffs go away,” said Majority Leader Mitch McConnell (R-Ky.).
- Container shipping lines may be in the line of fire in the escalating U.S./China tariff battle. The levies due to increase on June 1 include electronics, furniture and a long list of consumer goods that are the backbone of container transport, the Wall Street Journal reports (link), leaving operators in the sector bracing for a hit to trans-Pacific demand. London-based shipbroker Braemar ACM has already cut its forecast for container demand growth this year to roughly half of last year’s gain, and operators may reduce capacity if trade volumes turn downward. “Operators got a boost last year when importers pulled goods forward to get ahead of earlier tariff increases. But U.S. warehouses now are stocked up, with the retail inventory-to-sales ratio recently reaching its highest level in 21 months. Bulk carriers may see a shift in trade flows but expect overall demand to remain steady,” the article noted.
- Everyone knew this would happen: Trump was irritated on Sunday after National Economic Council Director Larry Kudlow acknowledged on Fox News Sunday that American consumers end up paying for the administration's tariffs on Chinese imports. “Trump called Larry, and they had it out,” according to the Washington Post (link), citing one White House official who was not authorized to speak publicly.
- China leader Xi Jinping, in a forum today called “Conference on Dialogue of Asian Civilizations,” called on China’s neighbors to work hard to continue “the glory of Asian civilizations.” But he stressed China is not one to force its own ideas on other nations, which is seen as a jab at Washington although he did not specifically mention the United States.
- A recap of U.S. tariffs on China:
— Bipartisan deal on a disaster aid package more likely after negotiations. Senate Majority Leader Mitch McConnell (R-Ky.) is planning for a vote on the disaster aid bill next week. The chances for a deal “have improved dramatically,” Senate Appropriations Chairman Richard Shelby (R-Ala.), said. “The next step is to try to wrap it up.”
Senate Republicans are nearing a demand by Democrats for Puerto Rico funding in the interest of passing a bill with major aid for various disasters. “I wouldn’t say it’s not an issue, but we’ve made a lot of progress there,” Shelby said of Puerto Rico funding. As part of the considerations, Senate Democrats were evaluating the White House request to add $4.5 billion in additional southern border-related money to the bill, something Vice President Mike Pence has insisted be included.
— Some GOP leaders are looking at a way to amend an unrelated disaster-relief package to free up billions of dollars in rescue money for U.S. farmers. Sen. John Hoeven (R-N.D.), chairman of the Senate Agriculture Appropriations Subcommittee, said he’s talking with the White House to determine if appropriators should include language in a disaster supplemental to replenish the Commodity Credit Corp. (CCC). USDA operates and uses the 1933 government entity to fund farm price and income support programs. The CCC has an annual cap of $30 billion and is replenished at the end of the year by customs or tariff receipts from the Treasury Department. USDA used the CCC as the funding source for a $12 billion aid program of direct payments to farmers harmed by retaliatory tariffs by China, purchases of surplus agricultural products and marketing U.S. farm exports. Hoeven said discussions with the Trump administration are an effort to determine if Congress can refill the fund faster through appropriations. “We're working on the supplemental because we may include something in there, but I don't know that we necessarily have to because it's reimbursed automatically at the end of the year,” Hoeven said Tuesday.
Hoeven said details about the new ag sector aid package could be ready in a week, but there’s no firm timeline. “If the Chinese are going to continue to delay negotiations, which they are, we need to help our farmers because our farmers are being targeted by the Chinese,” Hoeven said.
Senate Ag Chairman Pat Roberts (R-Kan.) said there would be a role for Congress if the CCC has reached its cap. “At least they are recognizing the fact that agriculture is hurting because of this policy,” Roberts said about the Trump administration’s plan to provide aid because of Chinese retaliation.
Senate Finance Committee Chairman Chuck Grassley (R-Iowa) said he planned to write a letter to Trump to explain the concerns of farmers because he felt the argument he had repeatedly made to the president in person was not registering. “I’m not sure if you talk to him face-to-face he hears everything you say,” said Grassley.
Vice President Mike Pence met with Senate Republicans on Tuesday to try to assure them that Trump’s approach would result in a comprehensive trade deal benefiting U.S. farmers and businesses. But key lawmakers said they were still waiting for more information. “We all want to know how this story ends,” Sen. John Cornyn (R-Tex.) told reporters.
“The question of how this (ag trade aid) would be done, whether it would apply to wheat and corn and other crops and not just soybeans, is going to be a question that’s going to have to be answered,” Sen. John Thune (R-S.D.) said.
White House officials and Senate Republicans are looking for new ideas because, some say, because of complaints from farmers and ranchers that the last aid package was not equitable and did not reflect overall harm Trump trade tariffs are inflicting on the ag sector.
Hoeven said there was a chance that White House officials could attempt to purchase U.S. farm products and then give them to poor countries, echoing a trial balloon Trump issued last Friday via tweets, only to have them vanish. A similar program was established under the Food for Peace Act. Sen. Grassley said there are strict limits on how U.S. officials could simply donate food to poor countries. He said the way Trump has discussed it could violate World Trade Organization rules. “It’s fair to say that I want to point out that there’s problems with what he’s planning to do, and he ought to take those into consideration,” Grassley said.
Trump on Monday mentioned how he planned to give assistance to farmers, but he did not offer specifics in part because White House officials have not decided exactly how to proceed. He estimated the total aid package would be around $15 billion, which would come in addition to the $12 billion the White House provided the ag sector last year.
Roberts said a U.S./China trade resolution needed to be reached soon and couldn’t wait until Trump and Chinese leader Xi Jinping meet in Japan next month. “I’m very hopeful we can get back to the table,” he said. “There’s too much at stake.”
— USDA's McKinney says ag aid plan coming in days, not weeks. The second package of aid for U.S. farmers is expected to be ready soon, with USDA Undersecretary for Trade and Foreign Agricultural Affairs Ted McKinney telling farm broadcasters in Washington, “I think it is more like days, not weeks or months." The intent for the second aid package is "to be quick because we want to send a powerful message to, first, our farmers, and ranchers, and the ag world, but also to our friends around the world that ag is not up for debate.” He emphasized the Trump administration's message to countries like China who target U.S. agriculture in trade disputes is to not target the sector as "we are going to watch their backs; we have got their backs.”
— U.S. is now a nation with the highest tariff rate among developed countries, outranking Canada, Germany and France, as well as China, Russia and Turkey. And with further trade confrontations ahead, the rate may only increase from here.
— Pelosi to meet with Lighthizer amid trade tensions. House Speaker Nancy Pelosi (D-Calif.) will meet with U.S. Trade Representative Robert Lighthizer this afternoon as the White House faces increasing bipartisan criticism over its aggressive trade policies. Two Democratic sources told Politico, the first to report the meeting, that the official topic of the meeting is President Trump’s new trade agreement with Mexico and Canada. But the meeting also comes amid an escalating trade war with China, which has resulted in additional tariffs from both sides over the past week. Majority Leader Steny Hoyer (D-Md.), Majority Whip Jim Clyburn (D-S.C.) and Ways and Means Committee Chairman Richard Neal (D-Mass.) will also reportedly be at the meeting.
— Other items of note:
U.S. evacuates diplomatic staff from Iraq as tensions mount with Iran. The U.S. is leaving just emergency staff from its embassy and consulate in Iraq, as tensions rise between the U.S. and Iraq’s neighbor Iran in the Gulf region. Unease is mounting days after Saudi Arabia said two of its oil tankers in the Gulf were attacked and Saudi oil installations were hit by drones sent by Iran-backed rebels from Yemen.
U.S. births fall to lowest rate since the 1980s. The number of babies born in the U.S. last year fell to a 32-year low, deepening a fertility slump that is reshaping America’s future workforce.
Sugary drink sales dropped 38% in Philadelphia after the city started taxing soda and other sweet beverages in 2017, a new study finds. Philadelphia introduced a 1.5-cents-per-ounce tax on sweetened drinks on Jan. 1, 2017.
Tim Hortons is adding Beyond Meat to its menu. The Canadian coffee chain said today that it is testing the Beyond Breakfast Sausage in three breakfast sandwiches in select markets.
The Alabama Senate voted 25-6 to pass a bill that would ban abortion except in cases to save the life of the mother. It would be the strictest anti-abortion law in the country. The ACLU announced it plans to sue if the governor signs the bill into law.
Swagel to replace Hall as CBO Director. Senate and House budget leaders have chosen Phillip L. Swagel, a University of Maryland economist and former Treasury official in the George W. Bush administration, as the next director of the Congressional Budget Office (CBO), Congressional Quarterly reported, citing several sources with knowledge of the discussions. Swagel will replace Keith Hall, the current CBO director whose four-year term officially ended Jan. 3. Hall continued on in a temporary capacity while Budget Committee leaders in both chambers deliberated on his successor. Swagel currently serves as professor of international economic policy at the university's School of Public Policy. He is also a nonresident scholar at the American Enterprise Institute, a conservative think tank.
CBO mourns the passing of its founding Director, Alice M. Rivlin, who led the agency from 1975 to 1983. “With vision, wisdom, and determination, she established CBO's structure and formulated procedures, standards, and goals that have guided it for more than four decades,” the Congressional Budget Office (CBO) said. Link to Washington Post article.
— Markets. The Dow on Tuesday rose 207.06 points, 0.82%, at 25,532.05. The Nasdaq gained 87.47 points, 1.14%, at 7.734.49. The S&P 500 was up 22.54 points, 0.80%, at 2,834.41.
Saudi Arabia oil installations hit in drone attacks. Saudi Arabia said two of its oil pumping stations were hit by drone attacks on Tuesday, after two of its tankers were struck. Saudi officials said Tuesday’s attacks caused limited damage. But a spokesman for the militants told al-Masirah, a Houthi-run television station, the group was “capable of carrying out qualitative operations on a larger scale deep inside aggressor countries.” Following Tuesday’s drone strikes, Riyadh said oil production and exports from the kingdom were continuing without disruptions. Brent crude, the international oil benchmark, rose $1.09 to $71.32 a barrel. The U.S. said last week it was deploying an aircraft carrier strike group and other military assets to the region, citing “escalatory” action by Iran. Tensions have been mounting since America reintroduced sanctions on Iran last year. Another impact: Shipping oil in the Middle East could get much more expensive — link to WSJ article.
This morning’s International Energy Agency report cut its demand growth forecast and coupled with an industry report that signaled a jump in U.S. inventories, a barrel of West Texas Crude for June delivery dropped as much as 1.2% in trading this morning. The surplus of supply over demand that the oil market saw in the first quarter could "flip" into a deficit in the second, according to the IEA's latest monthly report. "Considerable uncertainty" about global supplies looms - from Iran and Venezuela to Libya, as well as contaminated Russian crude flows to Europe and attacks on shipping vessels. Last year's oil demand growth estimate was revised downward by 70K barrels per day to 1.2M bpd, while the forecast for this year was cut by 90K.
The next stage of Brexit drama is set for the beginning of June, when Theresa May finally brings her divorce deal back to Parliament.