NAFTA 2.0 talks | Hurricane damage | Studies on impact of RFS waivers | Kavanaugh
— New U.S. tariffs on China totaling $200 billion could be announced early this week. President. Donald Trump may announce tariffs of about 10% on $200 billion worth of Chinese goods as early as today. That is below the 25% tariffs the administration had been weighing. China’s stock markets today closed at their lowest level since 2014.
A big question: the effective date that the administration sets for the new tariffs. In the past round, the tariffs took effect less than three weeks after the final list was released. If the timeline follows that practice, the duties would be in place by early October.
Another question is whether or not China will pull back initial plans to send some officials to the U.S. for a resumption of talks with their U.S. counterparts. Link for more details.
— The European Central Bank pushed forward with its plan to gradually phase out its monetary stimulus, saying it is confident in the region’s growth. But its president, Mario Draghi, warned that the US' trade dispute with several major powers has become a key economic concern… The key threat to the global economy right now, Draghi said, is “uncertainties related to rising protectionism.”
— U.S. tariffs have yet to meaningfully affect the U.S. economy because of the relatively small amounts imposed so far, but trade tensions remain the biggest risk to the economic outlook, according to forecasters surveyed by the Wall Street Journal. More than three-quarters of economists surveyed, 78.4%, said the reason why tariffs on U.S. imports and exports so far don’t seem to be having much of an effect on the strength of the U.S. economy was because the amount hasn’t been significant. Still, nearly 70% of economists said there was a risk that economic growth would come in short of their forecasts in the next 12 months, compared with 22.6% who said growth might outperform their expectations and 7.5% who thought the risks to growth were evenly balanced.
— Canadian PM says he wants a good NAFTA deal as soon as possible. Canadian Prime Minister Justin Trudeau said he wanted a good NAFTA deal as soon as possible, but did not answer directly when asked if he agreed with Washington that Sept. 30 was the final deadline for talks. Canadian officials are reportedly willing to offer concessions relative to its dairy policy if they get language they are pressing on regarding dispute-resolution language. Link to a Wall Street Journal article on Canada's dairy policy.
Meanwhile, Mexican Economy Secretary Ildefonso Guajardo said negotiators need at least 10 days to put together “what’s going to be presented in any of the scenarios.” That suggests Thursday, Sept. 20, could be the last day for Canadian and American officials to announce a preliminary deal that offers enough time for the technical teams to prepare the text.
— Another topic that ethanol proponents will be upset about: a new study by University of Illinois economist Scott Irwin found that ethanol blend rates hadn’t budged when accounting for seasonal changes in consumption, despite the increase in refinery waivers that ethanol producers have said is undermining the biofuel mandate. Low costs have kept ethanol in the fuel system, despite EPA’s expansion of exemptions from the Renewable Fuel Standard, according to the study. Link for details.
Details. “Analysis of data on ethanol and gasoline consumption in the U.S. shows there is little if any evidence that the blend rate for ethanol has been reduced by" small refinery exemptions, Irwin wrote. “The reason for this counter-intuitive result is that all but a tiny sliver of ethanol in the U.S. is consumed in the form of E10 and the price of ethanol in recent months has been very low relative to gasoline. The price competitiveness of ethanol in E10 means that the conventional ethanol mandate is non-binding up to the E10 blend wall.“
Meanwhile, refining kingpin Valero late last week unveiled a study prepared by Charles River Associates that argued that as long the price of a particular compliance credit, called a Renewable Identification Number (RIN), stayed above a certain level, fuel would be blended at the usual rates. Link to study.
Where is the year-round E15 announcement? Observers keep wondering when and if the long-promised announcement of year-round E15 will be unveiled.
— Other items of note:
Former USTRs panel. The Center for Strategic & International Studies hosts a conversation today with six former U.S. Trade Representatives to discuss the current global trading system, its institutions, and the prospects for trade amid rising global tensions.
Flake threatens trouble for Kavanaugh’s SCOTUS nomination. Outgoing Sen. Jeff Flake (R-Ariz.) told Politico that he won’t support advancing Judge Brett Kavanaugh’s Supreme Court nomination until the Senate Judiciary committee hears more from Christine Blasey Ford, the woman who has accused Kavanaugh of sexual assault decades ago. Flake sits on the Judiciary Committee. Ford, a professor at Palo Alto University, confirmed she wrote a confidential letter alleging that Kavanaugh sexually assaulted her over 30 years ago. Kavanaugh has denied wrongdoing. Meanwhile, Sen. Chuck Grassley (R-Iowa), the chairman of the Judiciary Committee, is working to set up separate phone calls with Kavanaugh and his accuser,Ford, before a committee vote scheduled for Thursday. "Given the late addendum to the background file and revelations of Dr. Ford’s identity, Chairman Grassley is actively working to set up such follow-up calls with Judge Kavanaugh and Dr. Ford ahead of Thursday’s scheduled vote," a spokesman for Grassley said on Sunday. The aide added that "the Chairman and Ranking Member routinely hold bipartisan staff calls with nominees when updates are made to nominees’ background files." Sen. Lindsey Graham (R-S.C.) says he’s open to having Ford testify before the Judiciary Committee. Democrats have called on the Senate to postpone the Judiciary Committee vote, for this and other reasons.
— Markets. The Dow on Friday rose 8.68 points, less than 0.1%, to 26,154.67. The S&P 500 edged up 0.80 points, less than 0.1%, to 2,905.98, a day after the index notched its biggest gain in two weeks on Thursday. The Nasdaq Composite slipped 3.67 points, less than 0.1%, to 8,010.04.
For the week, the Dow rose about 1%, 238 points, to its highest close since Feb. 1. The S&P 500 also gained about 1%, 33 points, to its second-highest close. The Nasdaq Composite tacked on 107.50 points.
Interest-rate hikes are coming. There’s a 97.5% probability of a quarter-point boost in the federal-funds target rate, from 1.75% to 2% currently, at the Fed’s next policy meeting concluding Sept. 26, according to Bloomberg. The chance of an additional quarter-point move on Dec. 19 has risen to 79.2%.
Yellen backs ‘lower for longer’ rates plan. Former Federal Reserve Chair Janet Yellen says the central bank should consider deliberately courting an economic boom to make up for a bust by promising to keep interest rates “lower-for-longer” after they are cut to zero. In a presentation Friday at the Brookings Institution in Washington, Yellen said such an approach would commit the Federal Open Market Committee (FOMC) to compensate for its inability to reduce rates below zero by holding them at lower levels longer than would be otherwise justified after the economy recovers. “This strategy enables the Fed to provide substantial additional accommodation during zero lower bound episodes,” she said. It “promises, in effect, to allow the economy to boom” once the recession ends. Yellen joins another former Fed chairman, Ben Bernanke, in advocating for a strategy that would change central bank behavior temporarily when rates hit zero.
U.S. companies expect to begin delivering LNG to Germany in four years at the latest, according to deputy U.S. energy secretary Dan Brouillette, and will challenge Russia which now accounts for 60% of German gas imports. In July, President Trump accused Germany of being a "captive" of Russia due to its energy reliance and urged it to halt work on the $11 billion, Russian-led Nord Stream 2 gas pipeline.