Mnuchin plays down how central U.S. soybean exports are in U.S.-China trade dispute
— U.S./China trade policy update:
- U.S. Trade Representative Robert Lighthizer won’t make “sweeping statements” in support of a subpar trade deal with China, Senate Finance Chairman Chuck Grassley (R-Iowa) said. But is is not so confident about President Donald Trump. “I’d pay more attention to what Lighthizer says about the agreement than what the president says,” Grassley said. “I think I’d be more concerned about the president reading more accomplishments in it than I would Lighthizer.” Grassley noted he has had conversations with Lighthizer, who made it clear that enforcing any commitments by China is “very important.”
- Lighthizer is pressing Beijing to make structural changes that would end policies that force U.S. companies to hand over technology or intellectual property to do business there. The administration has argued that such policies are a direct attack on U.S. innovation and represent an organized campaign by Beijing to dominate high-tech sectors.
- Lighthizer met Wednesday with the Senate Finance Committee and Senate Advisory Group on Negotiations to discuss U.S.-China negotiations and other issues. Lawmakers called for an end to steel and aluminum duties before Congress takes up the new NAFTA 2.0 deal (USMCA). Lighthizer told lawmakers the administration could use the same Section 301 provision it has used against China to enforce the new agreement, three Senate aides who attended the meeting told Politico. Meanwhile, more than 100 business reps and farmers came to Capitol hill Wednesday to pressure lawmakers and the Trump administration to end the trade war.
- A final deal will come down to a meeting between Trump and Chinese President Xi Jinping when they meet later this month. China hardliners fear that Trump might accept a weak deal based more on China’s willingness to purchase more U.S. goods rather than one that makes fundamental changes to its state-led economic system.
- Soybean futures have fallen after the recent daily export sales announcements of Chinese purchases. Last week's Chinese commitments to purchase 5 million metric tons of U.S. soybeans are “a positive development, but it’s only about 14% of what they would normally buy from us, so the tariffs are still hurting,” Grassley said. “Unfortunately, those announcements don’t come close to accounting for the loss of soybean exports prior to the tariffs.”
- Treasury Secretary Steven Mnuchin tried to play down how central U.S. soybean exports are in the U.S.-China trade dispute, even though the soybean sectors is one of the groups hit hardest by China's tariff retaliation. Mnuchin said Wednesday that soybean purchases alone wouldn’t coax the Trump administration into accepting a U.S.-China trade deal that doesn’t include substantial reforms by Beijing. “Soybeans are important to our farmers. We are a big supplier of soybeans,” Mnuchin said in a CNBC interview. “But let me just say, this soybean issue has been exaggerated and there’s a little too much focus on just the purchase of soybeans. That’s one of a lot of issues.” Both Washington and Beijing share a “big commitment” to strike an agreement by March 1, and negotiators are “working around the clock” to accomplish that, Mnuchin added.
- The first oil shipments from the United States to China in months are in transit, CNBC reports (link). The shipments, which left ports in Texas in late December, are among a handful bound for China or points near it currently as a March negotiating deadline on a new trade deal draws near. The amount of U.S. oil being shipped to China is well below what it was a year ago, when the trade war erupted. There aren't any ships currently leaving U.S. ports bound to China, where they would arrive after the March deadline for a U.S.-China trade agreement.
- China faces a March 1 deadline to come to an agreement or risk having a 10% tariff on roughly $200 billion worth of exports to the U.S. increase to 25%.
A wave of bankruptcies is sweeping across the U.S. Farm Belt as trade disputes take a toll on businesses already hurt by low commodity prices. Federal data shows that bankruptcies in the major farm states last year rose to the highest level in at least 10 years, the WSJ reports, representing a reckoning for rural America and businesses closely tied to the agriculture sector. A multiyear slump in prices for farm commodities has been made worse by growing competition from exporting powerhouses, and retaliation for U.S. steel and aluminum tariffs has slashed shipments to big buyers. “Mounting debts have sparked fears of more farm closures among both large-scale farms and small family-run operations, and agribusinesses such as Archer Daniels Midland Co. and Cargill Inc. are also feeling the heat, with tariffs roiling the flow of goods and in some cases cutting into profits.”
"President Donald Trump's trade war is magnifying some of the toughest farm conditions since the crisis that bankrupted thousands of farmers in the 1980s — and threatening a constituency crucial to his reelection hopes,” according to the Politico account. "The president's trade policies have sent U.S. agricultural exports plunging, exacerbating already difficult economic conditions facing farmers. Average farm income has fallen to near 15-year lows under Trump, and in some areas of the country, farm bankruptcies are soaring."
USDA doesn’t plan to offer trade aid for 2019 production, but House Ag Chairman Collin Peterson (D-Minn.) has indicated his committee — which meets today for organizational business — will monitor whether Congress needs to offer additional support.
A new study commissioned by Tariffs Hurt the Heartland estimates the U.S. economy could shed 2.2 million jobs if Trump’s trade war expands, and the average family of four could end up paying an extra $2,400 for goods and services annually. The report (link) was prepared by the firm Trade Partnership Worldwide.
— Water quality trading plan revealed. While in Georgia Wednesday, acting EPA Administrator Andrew Wheeler and water chief David Ross unveiled a new policy on water quality trading aimed at dealing with the country's major pollution woes without a regulatory hit. EPA favors such programs, which allow entities like farmers to implement practices that reduce pollution run-off and receive credits that can be sold to downstream players like wastewater treatment plants in order to meet permit requirements. The new policy, contained in a memorandum (link), aims to remove some of the hurdles that such programs have faced, for instance by allowing credits to be banked for future use and programs to be operated on a watershed scale.
— Pelosi to Politico: 'GOP won't trigger another shutdown'. House Speaker Nancy Pelosi (D-Calif.) is vowing that the federal government will not shut down again, even as President Donald Trump keeps pressuring for border wall funding ahead of a Feb. 15 deadline. “There will not be another shutdown,” Pelosi asserted during a half-hour interview Wednesday with Politico in her Capitol office. “No, it's not going to happen.” Pelosi predicted GOP leaders won't go down that road again. “I have a club that I started, it's called the 'Too Hot to Handle Club.' And this is a too-hot-to-handle issue,” Pelosi quipped.
Meanwhile, lawmakers hope to have a tentative deal by Friday or soon thereafter, to allow time for it to pass the House and Senate by Feb. 15. House Appropriations Chairwoman Nita Lowey (D-N.Y.), who is leading the conference committee negotiations, said Wednesday that ‘‘everything is on the table.’’
A bipartisan committee of House and Senate lawmakers traded offers, with committee Democrats saying money for border barriers was on the table, and Republicans acknowledging they won’t get Trump the $5.7 billion he has sought for his wall. ‘‘We got to find some place in the middle,’’ said Rep. Steven Palazzo (R-Miss.), who sits on the 17-member conference committee that is trying to produce a deal. ‘‘We know the Dems are absolutely not going to do $5.7. But what can they do — and what can we accept?’’
Senate Majority Leader Mitch McConnell (R-Ky.) argued in a private meeting with senators Wednesday against passage of another short-term funding bill.
Acting White House Chief of Staff Mick Mulvaney said if Congress doesn’t agree to Trump’s request for $5.7 billion for a wall on the U.S.-Mexico border “we’ll figure out a way to do it with executive authority.” Mulvaney, in an interview with Fox News’ Sean Hannity yesterday, said officials are looking at multiple options and that the approach may be to “find the money that we can spend with the lowest threat of litigation and then move from that pot of money to the next pot that maybe brings a little bit more threat of litigation and then go through the budget like that.” He did not say how the executive authority would be used.
Meanwhile, President Trump will travel to El Paso, Texas next week to further his State of the Union call for funding for a US-Mexico border wall. The Associated Press reports Trump’s “first campaign rally of the year” will be in “a city he’s cited numerous times – including in his State of the Union address – in arguing for the wall he wants built along the U.S.-Mexico border.” Link.
— Grassley likely to support Wheeler for EPA administrator when the full Senate takes a vote in the coming weeks. Grassley keeps urging EPA to scale back economic hardship waivers that allowed dozens of small refineries to waive Renewable Fuel Standard (RFS) mandates to blend biofuels with gasoline and diesel, or to buy credits instead. Grassley said Wheeler seemed to be “trying to accomplish what we want, but with no certainty” in terms of biofuel waivers. Environment and Public Works Chairman John Barrasso (R-Wyo.) said Wheeler likely won’t receive a Senate floor vote until the end of February, at the earliest.
— U.S. food price inflation in 2018 up vs 2017, but still well below 20-year average. U.S. food price inflation in 2018 is put at 1.4% by USDA's Economic Research Service (ERS), up from 0.9% in 2017 and the highest since prices rose 1.9% in 2015. However, the level remains under the 20-year average of 2.3%.
Food at home (grocery store) price inflation was at 0.4%, just below the midpoint of USDA's prior forecast for prices to be steady to up 1%. The 2018 level is also well below the 20-year average of 2% and marks the first increase in food price inflation at the grocery store since 2015 —prices declined in both 2016 and 2017.
Food away from home (restaurant) prices moved up 2.6%, nearly on track with the 2.7% 20-year average.
For 2019, USDA has left its outlook steady at an increase of 1.5% to 2.5% overall, with grocery store prices seen rising between 1% and 2% and restaurant prices are seen increasing 2% to 3%. The all food and grocery store price inflation outlooks also remain under the 20-year average for 2019. USDA expects consumers will pay less for pork, other meats, eggs, fats and oils, processed fruits and vegetables and non-alcoholic beverages in 2019 compared to 2018.
— Other items of note:
Senate trade legislation not likely to clear Congress. Sen. Rob Portman (R-Ohio) introduced legislation to limit President Trump’s powers under Section 232, providing an alternative to a bill from Sen. Pat Toomey (R-Pa.). Senate Finance Chairman Chuck Grassley (R-Iowa) hopes to find some compromise. Portman’s Trade Security Act would allow Congress to pass a joint resolution of disapproval that, if passed, would block presidential tariff action. The bill would only apply to future applications of the Section 232 trade statute and would not affect tariffs in place on steel and aluminum imports. Last week, Sen. Pat Toomey (R-Pa.) and nine other senators introduced a bill, S 287, that would require congressional approval of any Section 232 tariffs — and it could be applied four years retroactively. Grassley said Tuesday that aspects of the Toomey bill were “too blunt” and “something a little bit better would be an approach like Portman’s... haven’t endorsed any approach, but we’re going to do something on 232. I think we need a bipartisan agreement to do that because Congress has delegated too much authority to the president on trade,” Grassley said in a call with reporters on Tuesday.
Infrastructure is the focus of the first Transportation and Infrastructure Committee hearing under Chairman Peter DeFazio (D-Ore.) today. DeFazio wants to move an infrastructure package this year in addition to working on a new surface transportation bill to replace the FAST Act that expires at the end of 2020.
A public hearing on the Trump administration’s proposed rewrite of the Waters of the U.S. (WOTUS) rule has been rescheduled for Feb. 27-28 in Kansas City. The initial public hearing for the EPA and Army Corps of Engineers proposal was delayed by the shutdown last month.
The Senate Energy and Natural Resources Committee will hold a hearing on the outlook for energy innovation. Witnesses will include the Department of Energy’s Undersecretary for Science Paul Dabbar and former Energy Secretary Ernest Moniz.
CBO will not publish the Monthly Budget Review for January 2019 because some data that the agency would have used to produce the report were unavailable as a result of the federal government’s partial shutdown from Dec. 22, 2018, to Jan. 25, 2019.
Schultz presidential bid could help Trump. Howard Schultz is unlikely to land in the White House if he makes an independent bid for the presidency, but he would probably pull enough votes away from a Democratic candidate to strengthen Trump’s prospects for re-election, according to a survey (link) examining the former Starbucks Corp. CEO’s political ambitions conducted by Optimus, a data-science firm that’s studying the effects of independent candidates on the 2020 race.
— Markets. The Dow on Wednesday eased 21.22 points, 0.08%, at 25,390.30. The Nasdaq lost 26.88 points, 0.36%, at 7,375.28. The S&P 500 was down 6.09 points, 0.22%, at 2,731.61.
Federal Reserve Chairman Jerome “Jay” Powell gave a brief but positive assessment of the economy at an event organized for educators. “The U.S. economy is now in a good place,” Powell said last night in response to audience questions during a meeting with teachers at the central bank’s headquarters in Washington. “At the moment, unemployment is low, prices are near two percent inflation, so we’re in a good place now.” Fed Vice Chairman Randal Quarles, Dallas Fed President Rob Kaplan, and St. Louis Fed President James Bullard all have public appearances today. Bullard is a voting member of the FOMC for 2019, while Kaplan is not. As a Fed governor and vice chairman, Quarles is always a voting member.
Janet Yellen: Possible next Fed move is a cut if global growth continues to slow. Former Federal Reserve Chair Janet Yellen said the central bank may have to cut interest rates if a global growth slowdown starts to impact the U.S. Otherwise, she said the U.S. looks solid amid a thriving labor market, strong consumer demand and contained inflation. Link for details.
BB&T and SunTrust plan to combine. The banks said this morning that they would unite in an all-stock deal that values the combined lender at $66 billion. If completed, it would be the biggest bank merger since the 2008 financial crisis. The combined lender would be the sixth-biggest in the U.S., measured by assets and deposits. The two banks currently hold $442 billion in assets and $324 billion in deposits.
U.S. trade deficit fell 11.5% in November to 5-month low, delayed report shows. The trade deficit fell 11.5% in November to a five-month low, helped by the falling cost of oil and a decline in industrial imports that could be tied to U.S. tariffs. Yet the trade gap is still on track to post the biggest gap in 2018 in a decade. The deficit shrank to $49.3 billion from a revised $55.7 billion in October, according to a government report that was delayed for a month by the recently ended partial government shutdown. Imports dropped 2.9% to $259.2 billion, just a month after hitting a record high. Exports fell a smaller 0.6% to $209.9 billion. The deficit with China slid $2.8 billion to $35.4 billion in November, but it had hit a record high earlier this year. Trade data for the first 11 months of 2018 show a 10.9% surge in America’s trade deficit with China, to $382 billion. The uptick in goods imports was pushed by strong American consumer demand and came despite the imposition of stiff tariffs on China and a shrinkage in America’s overall trade deficit.
U.S. agricultural trade data signals FY 2019 off to potentially difficult start. U.S. agricultural exports in November were valued at $12.18 billion against imports of $10.32 billion for a trade surplus of $1.86 billion, according to data from USDA's Economic Research Service (ERS). U.S. ag exports for the first two months of fiscal year (FY) 2019 stand at $24.37 billion against imports of $21.22 billion for a cumulative trade surplus of $3.15 billion. By contrast, the first two months of FY 2018 saw those totals at $26.71 billion in exports, $20.58 billion in imports for a surplus of $6.12 billion. The troubling aspect is that since FY 2015, U.S. ag exports registered their highest levels of the fiscal year in the October-December period while imports usually have peaked in the March-May time frame. FY 2018 also saw U.S. agriculture register trade surpluses of less than $1 billion seven months. The last time U.S. agriculture registered more months with trade surpluses of less than $1 billion was in FY 2006 when the trade surplus was under that mark for 11 straight months, including three months where there was a trade deficit. USDA currently forecasts U.S. agricultural exports will be valued at $141.5 billion in FY 2019 with imports at $127 billion for a trade surplus of $14.5 billion.
The European Commission slashed its forecast for the euro-zone economy. A slowdown in Germany, Italy, and the Netherlands led the commission to cut its expectation for GDP growth in the bloc this year to 1.3%, down sharply from 1.9% just a few months ago. Meanwhile, Germany is drawing closer to a recession. Industrial output unexpectedly fell 0.4% in December, according to the federal statistics authority Destatis, short of the 0.3% increase that was expected.
Theresa May heads to Brussels today for meetings with EU leaders about potential Irish backstop concessions. The backstop allows Northern Ireland to remain tied to EU trading laws. If the talks aren't successful, the U.K. could be one step closer to a hard Brexit. EU leaders insist the withdrawal agreement, including the backstop, cannot be renegotiated. On Wednesday, the president of the European Council, Donald Tusk, said there was a “special place in hell” for those who pushed for Britain’s withdrawal without offering a credible plan. May reports back to MPs next week, after which she faces more Brexit votes. Brexit Day is just seven weeks away.