White House RFS rethink? | Grassley upbeat on tax incentives extension | USMCA
In today's updates:
* Reuters: Taiwanese gov't to purchase U.S. military equipment, ag, oil & gas products
Markets: Equity markets are higher in Asia, in part because China is making a move that may move along trade negotiations with the U.S.: China will raise penalties on violations of intellectual property rights, and will also look into lowering the thresholds for criminal punishments for those who steal IP, according to government guidelines Sunday.
Declining viewers for Democratic presidential candidate debates. This past week’s Democratic debate in Atlanta — the fifth round of debates — was the least-watched so far. The debate between 10 candidates drew 6.6 million TV viewers, according to overnight Nielsen ratings. Back in June, the second of two initial debates in Miami drew 18.1 million viewers. As recently as last month, an Ohio debate pulled in 8.5 million viewers.
— Taiwanese government aims to purchase U.S. goods including military equipment, ag, oil and gas products to avoid being labeled a currency manipulator, Reuters reported, citing two unidentified people. Taiwan’s central bank and Ministry of Economic Affairs have set up a group to coordinate the increased purchases.
— U.S./China trade policy update:
- China and U.S. 'very close' to phase one trade deal: Global Times. China and the U.S. are very close to a Phase 1 trade deal, the Global Times, a tabloid run by the ruling Communist Party’s official People’s Daily, said today, discounting “negative” media reports from Reuters, Bloomberg and others. China also remains committed to continuing talks for a Phase 2 and even a Phase 3 deal with the U.S., the Global Times said on its Twitter feed, citing experts close to the Chinese government.
- Trump called antigovernment protests in Hong Kong a “complicating factor” in his bid for a trade accord with China. He did not say whether he would sign a bill passed by Congress supporting the protesters. “We have to stand with Hong Kong, but I’m also standing with President Xi,” President Donald Trump said of the Chinese leader in response to a question about the bill. “He’s a friend of mine, he’s an incredible guy.” The president, speaking on Fox News, said he supported Hong Kong, “but we are also in the process of making the largest trade deal in history and if we could do that it would be great.” A veto from Trump could set up a possible override. The Senate bill was passed through a unanimous consent vote, meaning no one objected. The House passed the bill in a 417-1 vote. Rep. Thomas Massie (R-Ky.) was the sole "no" vote. A veto override requires a two-thirds majority in each chamber. The congressional measure requires the administration to sanction Chinese and Hong Kong officials who commit human rights abuses. It would also require an annual review to determine if Hong Kong can maintain a special trade status.
- U.S. trade officials not going to Beijing this week, rejecting invitation. China’s chief trade negotiator has invited his American counterparts to Beijing for a new round of face-to-face talks in a bid to overcome the impasse, but U.S. negotiators aren’t expected to make the trek this week. They want clearer assurances that China will follow through on the commitments it has made on intellectual- property protection, forced technology transfers and agricultural purchases.
- Xi says more communication needed with United States. Chinese leader Xi Jinping, in a meeting with former U.S. Secretary of State Henry Kissinger, said that China and the U.S. should strengthen communication on strategic issues and strive for common goals, according to state media. “Right now, China/U.S. relations are at a critical juncture, and face some difficulties and challenges,” Xi said, according to China Central Television. The two sides should avoid misunderstandings and “push China/U.S. relations toward the right direction of forward development,” he said.
- China to hike penalties on IP theft in trade war compromise. China said it will raise penalties on violations of intellectual property rights to address one of the major undecided issues in trade talks with the U.S. The country will also look into lowering the thresholds for criminal punishments for those who steal IP, according to guidelines issued by the government on Sunday. It did not provide details. China said it’s aiming to reduce frequent IP violations by 2022 and plans to make it easier for victims of transgressions to receive compensation. “Strengthening IPR protection is the most important content of improving the IPR protection system and also the biggest incentive to boost China’s economic competitiveness,” according to the guidelines. Local governments will be required to implement the strengthening of IP rights, it said.
- China attacks U.S. at G20 as the world's biggest source of instability. The U.S. is the world's biggest source of instability and its politicians are going around the world baselessly smearing China, the Chinese government's top diplomat said on Saturday in a biting attack at a G20 meeting in Japan.
- U.S. takes steps to resume chicken exports to China. China authorized poultry imports from 172 facilities in the U.S. effective Friday, according to a notice on the nation’s customs website. The move follows China's lifting its ban on U.S. poultry shipments earlier this month as part of trade negotiations taking place between Washington and Beijing. China banned U.S. poultry imports in 2015 following an outbreak of highly pathogenic avian influenza. American poultry exports to China are projected to top $1 billion a year, according to U.S. Trade Representative Bob Lighthizer and USDA Secretary Sonny Perdue. At its peak, the annual value of poultry exports to China was $722 million for chicken and $71 million for turkey, according to the National Chicken Council, National Turkey Federation, USA Poultry and the Egg Export Council. Link to list of approved facilities.
- Bottom line on China is there is no bottom line: “Our view of U.S. and China is that it’s a competition that’s going to go on for a generation economically, diplomatically, militarily,” says CIBC Private Wealth Management Chief Investment Officer Dave Donabedian. “We don’t have very high expectations of a broad structural trade arrangement, but markets would be satisfied with a de-escalation that at least puts the trade issue on the back burner for 2020.”
— Pro-democracy camp wins big in Hong Kong elections. Hong Kong voters turned out in large numbers in district elections that are seen as a referendum on the street protests in the city. Pro-democracy forces won 86% of the seats on Hong Kong’s local district councils. The pro-government camp won about 12% of seats versus 65% four years ago. The pro-democracy camp won 17 of 18 districts — compared with zero in the last poll four years ago. Some of the most prominent pro-Beijing figures lost their seats while hardline democracy activists won theirs.
— EPA again signals December announcement for 2020 biofuel, 2021 biodiesel levels. EPA laid out the timeline for several renewable fuels decisions ahead in the release last week of the Unified Agenda by the Trump administration. The agency acknowledged the statutory deadline to finalize levels under the Renewable Fuel Standard (RFS) for 2020 biofuels and 2021 biodiesel is Nov. 30. However, with the notice of proposed rulemaking (NPRM) on the supplemental plan for the RFS levels having a comment period ending Nov. 29 (link for details), the agency will not be able to finalize the levels by the statutory deadline.
The regulatory agenda indicates a final rule will be issued in December 2019 on the matter. “We also intend to finalize changes to the percentage standard calculations to account for volumes of gasoline and diesel we project will be exempted from the renewable volume obligations,” EPA said in the regulatory agenda.
As for the RFS “reset” of RFS levels for the 2020 through 2022 period, EPA now signals it intends to release a NPRM on the plan yet this month. “In addition to the proposed volumes, we will also analyze and request comment on alternative reset volume options,” EPA said. The agency previously had indicated it intended to issue the NPRM in June and finalize the action in February 2020. However, there is no final rule target date listed in the updated unified agenda.
Meanwhile, Reuters reported on Friday that the White House has asked Iowa Sen. Chuck Grassley's (R-Iowa) office for input on the administration's latest proposal to boost the ethanol market in 2020. The request came after several conversations between President Donald Trump and corn-state advocates critical of the plan. Sen. Grassley recently met with the president regarding the RFS.
The White House request shows the Trump administration may be having second thoughts about the proposal, which the president had hoped would shore up his support in the Farm Belt, a crucial political constituency in his reelection bid, the Reuters item noted.
At issue is a plan outlined by Trump's EPA in October that was intended to ensure the administration's expanded use of waivers freeing refineries from their obligation to blend ethanol into gasoline does not hurt farmers by cutting into U.S. demand for the corn-based fuel. Under the RFS, refineries are required to blend 15 billion gallons of ethanol annually, but the EPA can exempt small facilities that demonstrate compliance would hurt them financially. The EPA has roughly quadrupled the number of waivers it has issued since Trump took office. EPA's plan would address that by increasing the amount some refineries must blend next year, using a three-year average of the volumes that the Department of Energy has advised the EPA to waive under the exemption program.
But the U.S. corn lobby and some farm-state lawmakers have lambasted the proposal since it was announced, saying it should instead account for actual amounts waived by the agency ‚since the EPA in recent years has been waiving higher volumes than the DOE advised.
White House economic advisor Larry Kudlow asked Grassley's office last week for an explanation of how the EPA's use of the so-called Small Refinery Exemptions (SREs) negatively impacts the ethanol industry, and how the administration's proposal fails to provide relief. Grassley's office responded to the questions on Thursday. Recall that President Trump passed the controversial RFS-related issues to Kudlow.
Terry Branstad, U.S. ambassador to China and former governor of Iowa, has also met with Kudlow and Trump recently. In those discussions, Branstad reportedly warned the current EPA proposal was not what was agreed to in negotiations between the administration and biofuels supporters before it was announced.
— USMCA update.
- Labor unions voicing skepticism about the updated North American trade agreement are the final obstacle to the deal that House Democrats and the White House are seeking. AFL-CIO President Richard Trumka and other labor leaders want to make sure that Mexico enforces new labor standards under the new U.S.-Mexico-Canada Free Trade Agreement (USMCA), and that there is a strong system of recourse if Mexico does not. Without such enforcement, Democrats and labor unions aligned with them worry Mexico will have an unfair advantage to compete with American companies.
- Trumka met with freshman Democrats on Capitol Hill last Tuesday at the invitation of Speaker Nancy Pelosi (D-Calif.), and lawmakers working on the agreement insisted unions and their party leadership is on the same page. “My takeaway from that meeting is, there is no daylight between Rich Trumka and Nancy Pelosi and there's no daylight between the labor movement and the Democratic Caucus on this,” said Rep. Andy Levin (D-Mich.) a freshman and former labor organizer who was at the meeting.
- President Trump said Trumka had played Pelosi “like a fiddle.” In remarks Friday on a Fox News program, Trump predicted Pelosi “won’t do USMCA because Richard Trumka — who's a good guy, but a big union guy, only cares about a union — Richard Trumka has her mortified," he said.
- Senate Majority Leader Mitch McConnell (R-Ky.) echoed Trump, saying “Democrats are considering outsourcing their judgment to Big Labor special interests — who, to my recollection, have not supported a single major trade deal in living memory.”
- Pelosi said the timeline for passing USMCA might stretch into 2020. House Ways & Means Chairman Richard Neal (D-Mass.) has said that a deal with labor is within reach, and that he wasn’t sure the USMCA could pass the House without it.
— Canada PM Trudeau pressured to end rail worker walkouts with legislation. Canadian prime minister Justin Trudeau is under pressure to end a weeklong strike by 3,200 CN Rail workers that has led to propane shortages and pain for oil and agriculture producers in the country. Workers belonging to the Teamsters union walked off the job last Tuesday morning over what they said were unsafe working conditions. CN Rail, the country’s largest railway, denied that claim. The strike has strangled shipments of propane gas and put exports of oil, steel and agricultural products at risk.
Quebec premier François Legault warned last week that the province was just days away from running out of propane because of the strike, creating an “emergency” for hospitals, nursing homes and farms. The province has since secured enough propane to carry it through to this week. Legault also urged Trudeau to force an end to the strike.
On Friday, Canada’s transport minister Marc Garneau rejected calls for the federal government to intervene. “We believe that mediation, collective bargaining, is the right way to do this,” he said. “The two sides need to be talking to each other.”
The Teamsters union, which represents the striking workers, said on Friday that “no substantive progress” had been made towards a resolution, despite round-the-clock talks.
Strike impact. If the strike continues until at least Dec. 5, the disruption could result in a $3.1bn hit to the economy and lower fourth-quarter growth by 0.2 percentage points, according to an analysis by TD Economics. Growth in the quarter is already expected to be sluggish at just 1.3%. “The longer the disruption lasts, the more likely spillover disruptions become, and the larger the resulting impact on economic activity,” wrote senior economist Brian DePratto, who described the analysis as a “fairly conservative estimate” of the strike’s impact. Canadian energy producers have become heavily dependent on rail to get their product to world markets because of a shortage of pipeline capacity. In September the equivalent of 9.6m barrels of crude oil exports were carried by rail, just shy of an all-time high set in October 2018, according to federal statistics.
Alberta energy minister Sonya Savage and agriculture minister Devin Dreeshen said if the strike was allowed to continue it “could result in serious damage not just to the Alberta economy, but to the Canadian economy as a whole.” Shipments of exports like wheat, crude oil and aluminum —largely from its inland prairies and bound for the U.S. and the world —are grinding to a halt. Freight traffic has clogged up at the border. And shortages of propane risk leaving thousands in the two largest provinces without heat.
Last year, more than C$92 billion ($69.3 billion) of exports were carried by rail in Canada, a fifth of total exports. CN Rail is one of its two main players and owns more than half of the nation’s tracks.
— Grassley thinks he can work tax incentive extenders bill out with key House leader. The tax extenders effort has bogged down in disputes over what provisions should be included and whether offsets are necessary. Senate Finance Chairman Chuck Grassley (R-Iowa) said he met last Wednesday with House Ways and Means Chairman Richard Neal (D-Mass.) to discuss tax extenders. Grassley said he believes the two can strike a deal but declined to give specifics. Grassley described his meeting with Neal as “very productive” and that he would signal Senate negotiators, who have been in talks with Neal’s staff for more than a month, to “embolden them to be more aggressive and to reach an agreement.”
— Supreme Court Justice Ruth Bader Ginsburg was released from hospital on Sunday. Ginsburg was admitted to Johns Hopkins Hospital in Baltimore Friday night after experiencing chills and a fever earlier in the day, the Supreme Court said in a statement Saturday. Ginsburg, 86, was initially evaluated at Sibley Memorial Hospital in Washington, DC, before being transferred to Hopkins for further evaluation and treatment. After Ginsburg's symptoms abated, she was released on Sunday. Ginsburg's health has become a recurring issue. News of the hospital trip comes just days after Ginsburg returned to the bench after missing a day in court due to a stomach bug. Ginsburg said earlier this year she'll "stay on the job" as long as she can "do it full steam."
The Supreme Court is scheduled to hear arguments on Dec. 2 and is privately considering several matters, including President Trump’s petitions to block subpoenas that New York state prosecutors and the House Oversight Committee issued to his accounting firm for his financial records.
— Other items of note:
- Next steps in House impeachment action on President Trump: House Intelligence Committee will write a report about President Trump pressing Ukraine to investigate his political rivals that will be presented to the House Judiciary Committee to weigh articles of impeachment (it is widely believed there will be three or four articles of impeachment ahead). Hearings and a vote in the Judiciary Committee are likely the first two weeks of December before articles of impeachment are sent to the House floor. The debate in the full House is expected to take the entire week of Dec. 15, culminating in a vote by that Friday, shortly before Christmas.
- Michael Bloomberg announced Sunday he is running for president, bringing a hefty bank account to the crowded Democratic primary. The 77-year-old former New York City mayor is positioning himself as a centrist alternative to Joe Biden. He launched his candidacy in an online video. "I'm running for president to defeat Donald Trump and rebuild America. We cannot afford four more years of President Trump's reckless and unethical actions. He represents an existential threat to our country and our values," Bloomberg said in a statement Sunday. "If he wins another term in office, we may never recover from the damage." Like candidates Joe Biden and Bernie Sanders, Bloomberg would become the oldest person ever to assume the presidency if elected.
- Agreement reached on spending bill allocations. Top appropriators in Congress have reached a deal on spending levels for a dozen bills that fund the day-to-day operations of the federal government, a tardy agreement since the 2020 fiscal year began Oct. 1. Appropriators have not yet begun discussing how to package the bills, but it's unlikely there would be a 12-bill omnibus. If negotiators can reach agreement on the full dozen bills, they'll likely pass in two or three packages, possibly on the same legislative day. If appropriators cannot agree to all 12 spending bills by Dec. 20, it's likely the measures they do reach consensus on will be packaged with a stopgap spending bill for the departments and agencies without full-year funding.
- USITC affirms Mexican tomato imports harming U.S. producers; decision leaves new suspension agreement in place. Mexican tomato imports being dumped in the U.S. market are causing harm to domestic tomato producers, the Department of Commerce’s U.S. International Trade Commission (ITC) affirmed Friday (Nov. 22). The USITC voted 4-0 in favor of an affirmative injury determination for tomatoes imported from Mexico. The move leaves in place the latest tomato suspension agreement reached between the U.S. and Mexico, so no new duties will be imposed at this time. “This action cements the strong suspension agreement that Commerce recently negotiated that protects the U.S. tomato industry from the damaging effects of unfair trade and provides certainty for the market,” Commerce Secretary Wilbur Ross said in a statement. Mexican tomato growers group AMHPAC said it is “disappointed” by the affirmative injury determination. “The calculations made by our team of lawyers based on the same computer programs used by [Commerce] show that we are not [causing dumping], so we will fight for the court to review the calculations” used by the department, AMHPAC said regarding the underlying dumping margin calculations.
- House Speaker Nancy Pelosi (D-Calif.) will participate in a CNN town hall Dec. 5, where she will take questions directly from a cross-section of voters as her colleagues consider articles of impeachment against President Donald Trump. CNN's Jake Tapper will moderate the event that will air live at 8 p.m. CT from Washington, DC.
— Markets. The Dow on Friday rose 109.33 points, 0.39%, at 27,875.62. The Nasdaq rose 13.67 points, 0.16%, at 8,519.88. The S&P 500 moved up 6.75 points, 0.22%, at 3,110.29.
For the week, the Dow lost 0.5%, the S&P 500 index fell 0.3%, and the Nasdaq slipped 0.2%. Each major index has returned well over 20%, including dividends, in 2019.
Fed Chairman Jerome Powell is set to deliver his final public remarks before the central bank's last meeting of the year during a dinnertime keynote address in Rhode Island today.
Black Friday kicks off the holiday shopping season. Holiday season sales are expected to grow by about 4%.