Treasury Secretary Mnuchin provides more info re: U.S./China talks | Trump tweets about autos
— U.S./China reach temporary trade policy truce; China agrees to purchase U.S. ag and energy products... “immediately”? Under the agreement, Trump will hold off for 90 days on his vow to increase U.S. tariffs on $200 billion worth of Chinese goods from 10% to 25% on Jan. 1. But if negotiators can't come to a broader agreement at the end of that time, the tariffs will rise, White House press secretary Sarah Sanders said in a statement. Under the agreement reached in Buenos Aires, the two countries have 90 days to resolve their differences over Beijing’s tech policies and other thorny issues. The truce, reached after a dinner of more than two hours Saturday, buys time, until around March 1, for the two countries to work out their differences. to background information on the U.S./China trade developments. to White House statement. to questions farmers and traders are asking regarding the developments.
In a tweet Sunday night, President Trump said China agreed to cut tariffs on American cars. “China has agreed to reduce and remove tariffs on cars coming into China from the U.S. Currently the tariff is 40%,” Trump said. China cut its tariff on non-U.S. imported vehicles from 25% to 15% in July. But within days it increased its tariff on cars made in the U.S. to 40% in retaliation for new U.S. tariffs on vehicle imports.
Link to a Bloomberg comparison of the White House readout and Beijing’s summary of the truce.
— Who will lead U.S. negotiations with China? White House adviser Jared Kushner, Trump’s son-in-law, argued to give U.S. Trade Representative Bob Lighthizer a larger role in China negotiations than he has played in prior rounds, the Wall Street Journal reported, based on people briefed on the talks. “That gave Trump greater confidence that he would have an experienced negotiator involved, one who has focused on technology transfer and intellectual property protection,” the WSJ noted. “Lighthizer was trying to get the president from going further and rolling back tariffs,” said Derek Scissors, an American Enterprise Institute China expert who consults with the administration, according to the WSJ. “He didn’t want the president to get caught up in the moment with his friend Xi.” The U.S. Trade Representative’s office declined to comment.
For the Chinese, Vice Premier Liu He, who is Xi’s economic envoy, will continue as top negotiator. He is considering leading a 30-member delegation to Washington in the coming weeks, according to people familiar with the matter.
— Reaction and more information regarding U.S./China trade policy developments:
- China’s foreign ministry in a statement characterized the meeting as “very successful,” adding, “The two sides proposed a series of constructive plans on how to properly resolve existing differences and problems.”
- China's foreign ministry said on Monday that the Chinese and U.S. presidents instructed their economic teams to work towards removing all tariffs, following a meeting in Argentina where the two leaders agreed to a truce in their trade war. Ministry spokesman Geng Shuang made the comment at a daily news briefing in Beijing.
- China’s Global Times on Sunday said in an English-language editorial the agreement has “momentous significance,” given rising Sino-U.S. trade frictions this year. A commentary from the government’s Xinhua News Agency in Chinese said that the relief was hard won but showed the two sides could work together to resolve their problems.
- In China, there was no mention of the 90-day deadline, with state media focusing instead on Beijing’s “strong” stand in the trade talks. A commentary posted on the social media account of state news agency Xinhua said Beijing had “stood firm in protecting its core interests” and struck back in a “strong and powerful manner... We can see that the Chinese side has not lost its rational thinking because of bullying, nor did it panic in the face of the unprecedented trade war,” the commentary said.
- Another big difference: The White House, which has accused China of “stealing” technology from American companies, said that Xi had agreed to “negotiate immediately on forced technology transfer, intellectual property protection, non-tariff barriers and cyber theft.” The statement from China said only that the two countries would “work together to reach a consensus on trade issues” but did not mention intellectual property. “The president has been clear that if there is a real deal, he’s willing to give some period of time to get this firmly negotiated — that’s the direction he’s given to the team,” Steven Mnuchin, the Treasury secretary, said in a telephone interview with the New York Times on Sunday. “On the other hand, if there’s not a real deal, he said he will proceed with the tariffs.”
- Will any U.S. tariffs be lifted? The agreement, according to the New York Times, “hints that the initial 25% tariffs that Trump placed on $50 billion in Chinese goods last summer could become permanent — if not in place for a protracted period.” Those initial tariffs were intended to largely spare American consumers while targeting imports that the administration sees as a threat to national security — like nuclear reactor parts, spacecraft and aeronautical gear. The tariffs were also imposed on a variety of other products, like agricultural equipment, that Beijing has made a priority with its Made in China 2025 industrial policies program. Mnuchin suggested, according to the NYT, “that all the tariffs could be phased out as China meets its commitments to make changes over a period of time. It is possible that the initial tariffs on $50 billion of Chinese imports could be in place longer, until it is clear that China has kept its promises of wholesale structural changes.” Mnuchin told the NYT that, “The proposal that came back and was discussed between the presidents included both reducing the trade deficit and also included very specific structural issues,” he said. “It includes commitments on technology, to currency to cyber. There are a lot of important issues to be addressed here.”
- A senior official at Chinese energy giant CNOOC told Reuters that China was not likely to increase energy and industrial product purchases from the United States by a significant amount in 90 days unless there are mandatory instructions from government forcing companies to buy. "Trump's policy has been so unpredictable that Chinese companies are being very cautious on buying U.S. commodities with or without tariffs. The risks are simply too big, and companies have become more averse to risks now," the official added. "I am expecting the United States to increase tariffs on China after 90 days despite the efforts and goodwill from China."
- Mnuchin also told the NYT that China put a significant number on the table that went beyond the $70 billion of American goods that Beijing promised to purchase in June if Trump halted his tariffs.
- Wang Yong, director of the Center for International Political Economy at Peking University, said China would still need to be ready to deal with an increasingly hawkish Trump administration. “China will still need to prepare for the worst scenario of a ‘decoupling’ of the Chinese and American economies, in particular in the hi-tech sector,” Wang said. “It is possible that China will make adjustments on its industrial policies including expanding market access and intellectual property protection, but a fundamental change to its economic structure will be difficult to achieve,” Wang said. “The US will need to adjust its expectations in the next round of talks.”
- The American Chamber of Commerce in China called the pause “as good as we could have expected.” In a note from its chairman William Zarit, the group said the commercial relationship between the nations won’t be sustainable without an end to discriminatory practices in China that hurt foreign companies. He said the most challenging area to resolve would be China’s discriminatory economic policies based on state support and protection of the domestic market. “[These] need to be addressed in order to level the playing field and have a sustainable commercial relationship based on fairness and reciprocal treatment.”
- China watcher Bill Bishop says, “At first glance the outcome looks like a win for Xi Jinping and China. The Chinese are always playing for time and any pause that involves more talking is a victory for Beijing, as it only adds to the chances they have for a shift to a more favorable U.S. domestic political environment and, as we have learned with the waning 'maximum pressure' campaign on North Korea, once you step back from the brink it is difficult to marshal the support to return to it if the talks do not bear fruit.”
- Sen. Roy Blunt (R-Mo.) said soybean sales, important to his state, “have gone to virtually zero” because of tariffs imposed by China. Speaking on Fox News Sunday, Blunt said “the president’s goal, to get China in a better and fairer place in trade, is the right goal.”
- The American Soybean Association (ASA) said it was pleased to hear positive reports. John Heisdorffer, ASA president said, “This is the first positive news we’ve seen after months of downturned prices and halted shipments. If this suspension of tariff increases leads to a longer-term agreement, it will be extremely positive for the soy industry. We want to begin repairing damage done to our trade relations with China, which has been essential to successful soybean exports for years.” ASA mpted tjat details have not been announced regarding the quantity of U.S. goods that China will purchase, but the White House statement indicated that purchases of ag products would begin immediately. “During the 90-day negotiating period, ASA hopes to see China reopen its market to significant U.S. soybean imports as a key confidence-building step that will help restore our trade relationship,” Heisdorffer said. “This is an important opportunity to demonstrate positive momentum that will strengthen efforts on both sides to restore economic relations that are mutually beneficial.”
- “The turn away from reliance on the U.S. for agricultural and industrial inputs will accelerate,” Charles W. Freeman Jr., a former U.S. diplomat said in an email cited by the Washington Post. “U.S. companies in China will hedge by continuing to move some of their facilities to Vietnam and other lower labor cost economies.”
— Argentina and China sign deals strengthening ties. China's president on Sunday signed new trade deals with Argentina as China expands its growing role in Latin American economies. Presidents Mauricio Macri of Argentina and Xi Jinping of China announced the more than 30 agriculture and investment deals during a state visit following the G20 summit of leaders in Buenos Aires. The deals include an agreement to export Argentine cherries to China and an expansion of a currency swap.
China is one of Argentina's biggest lenders, financing about $18.2 billion in infrastructure and other projects, according to the Inter-American Dialogue, a Washington-based think tank. "China's development benefits Argentina, our region and the world," Macri said during a ceremony at the presidential residence in the outskirts of the Argentine capital.
Xi is also visiting Panama, which has been negotiating a free-trade deal with China after shifting its diplomatic recognition to Beijing from Taiwan last year, a move that led to complaints from U.S. officials. Chinese companies operate ports on both ends of the Panama Canal, which for most of the 20th Century had been seen as a symbol of U.S. influence.
— President Trump said Saturday he will soon terminate the North American Free Trade Agreement (NAFTA) to pave the way for congressional consideration of the reworked agreement known as the USMCA. Termination would start a six-month withdrawal period and give lawmakers a deadline to choose between the new deal or nothing, the president told reporters aboard Air Force One. The move would put pressure on Congress to approve his new trade deal with the two U.S. neighbors.
“The president needs to take a look at the Constitution — it gives Congress authority over trade," Sen. Ron Wyden (D-Ore.) said in September. "The president cannot pull America out of NAFTA without Congress’s permission." A 2016 report from the Congressional Research Service (CRS) noted: "It could be argued that because international trade is an area of shared constitutional authority, Congress must have a role in any decision by the United States to terminate or withdraw from an FTA,” CRS said.
But some observers argue that Congress ceded authority to the executive branch long ago that would allow Trump to terminate trade deals. They say Section 125 of the Trade Act of 1974 provides the underlying legal basis for a president to terminate or withdraw from an agreement and revoke any tariff reductions.
The U.S. did $581.6 billion in business with Canada last year, and $557.6 billion with Mexico, making them the nation’s second- and third-largest trading partners.
Under the agreement, American dairy farmers would be allowed greater access to Canada’s market to sell their cheese, milk and other products. A higher percentage of cars would have to be manufactured in North America and factories must pay their workers an average of $16 an hour or more to be exempted from tariffs.
The deal also updates provisions on the digital economy, agriculture and labor unions, but it preserves an international dispute mechanism that Trump had sought to eliminate.
Sen. Chuck Schumer (D-N.Y.), a longtime critic of the original NAFTA, said the new agreement could not be “simply a rebranding of the same old policies that hurt our economy and workers for years” if it is to pass Congress. “It must prove to be a net benefit to middle-class families and working people in our country and must have strong labor and environmental protections, which in the present deal are too weak,” he said.
House Democrats, who will be in charge of the new Congress that convenes in January, have said they won’t accept the NAFTA revision in its present form. Among other things, they want stronger, more enforceable labor standards. NAFTA labor standards are addressed in a side agreement and aren’t fully enforceable. In the USMCA, labor standards, including new ones, are in the body of the agreement and are fully enforceable. But Democrats say there’s a big difference between “enforceable” and “enforced.” USMCA’s labor chapter also requires Mexico to enact laws or regulations mandating the “effective recognition of the right to collective bargaining,” and “the elimination of discrimination in respect of employment and occupation.”
“Right now, it’s a work in progress,” said Rep. Nancy Pelosi (D-Calif.), the likely speaker of the House in the next Congress. “Without enforcement you don’t have anything.”
Rep. Richard Neal (D-Mass.), the likely new chairman of the House Ways and Means Committee, said in a statement, “ We will need to assess whether this agreement makes real improvements to the terms of the existing NAFTA . . . especially when it comes to the enforcement and enforceability of the agreement’s provisions, including the provisions that have always been critical to Democratic support — the ones that provide for worker rights and environmental protections.”
If Congress does not ratify the USMCA, the existing NAFTA remains in place. However, President Trump as noted has indicated he will give six months’ notice that the U.S. is leaving NAFTA.
Meanwhile, USTR Bob Lighthizer told reporters Friday that the administration could include certain provisions in the implementing legislation to address lawmakers’ concerns and win their support.
— G20 communique: WTO reforms needed. At the G20 summit in Argentina, leaders of the world’s top economies called for WTO reform in their final summit statement (link). Officials expressed relief that agreement on the communique was reached after negotiators worked through the night to overcome differences over language on climate change. The final text recognized trade as an important engine of global growth but made only a passing reference to “the current trade issues” after the U.S. delegation won a battle to keep any mention of protectionism out of the statement.
The U.S. is unhappy with what it says is the WTO’s failure to hold China to account for not opening up its economy as envisioned when China joined the body in 2001. The European Union is also pushing for sweeping changes to how the WTO operates.
The compromise G20 text acknowledges that trade and investment are “important engines of growth, productivity, innovation, job-creation and development.” But it adds that “the system is currently falling short of its objectives and there is room for improvement. We therefore support the necessary reform of the WTO [World Trade Organization] to improve its function and we will review progress at our next summit.”
The document didn’t explain what WTO reforms should be sought, reflecting the differences among the nations. The U.S., for instance, has blocked appointments to the WTO’s appellate review body, which threatens to halt the organization’s ability to review trade complaints. The U.S. believes that the WTO unfairly restrains its ability to use tariffs to enforce trade actions. “The conversation about reform is just beginning,” said WTO Director-General Roberto Azevedo in an interview cited in the Wall Street Journal. “Before now, the conversation in the G-20 was whether the WTO needed reform or not. The G20 countries have taken a significant step forward.”
— Other items of note:
Trump announced that his next meeting with North Korea’s Kim Jong Un would likely happen in January or February. He said there were three sites under consideration, but he declined to name them.
A busy week for world ag numbers. China will release agriculture trade data for November at the end of the week. Australia’s crop report is due Tuesday, along with China’s grain supply and demand data. Brussels hosts an agricultural outlook conference and on Thursday comes Statistics Canada's report on wheat, barley, durum and canola production.
Another bleak farm income forecast was released by USDA Friday. Link for details.
GMO labeling rule clears OMB. USDA’s final rule detailing how companies label the presence of genetically modified ingredients in food will likely be released in the next few weeks. The Office of Management and Budget cleared the rule last Friday.
— Markets. The Dow on Friday closed up 199.62 points, 0.79%, at 25,538.46. The Nasdaq added 57.45 points, 0.82%, at 7,330.54. The S&P 500 gained 22.41 points, 0.82%, at 2,750.17.
For the month, the S&P 500 rose 1.8%, the Dow added 1.7% and the Nasdaq climbed 0.3%.
Stock markets around the world are in rally mode, posting big gains following a truce in the trade spat between the U.S. and China. The trade detente relies on progress in talks that both sides aim to complete in the next 90 days covering broader issues, including forced technology transfer, intellectual property and cyber theft.
U.S. Federal Reserve Vice Chairman Randal Quarles began his tenure as chairman of the Financial Stability Board on Sunday, Dec. 2.
Russia and Saudi Arabia agreed to extend into 2019 their deal to manage the oil market, although Moscow and Riyadh have yet to confirm any fresh output cuts. OPEC, along with some of its allies, will meet in Vienna to discuss possible production cuts for 2019. Oil prices have fallen more than 30% in the past two months on concerns of a slowdown of global economic growth.
Qatar said it would withdraw from OPEC in January, a move that will allow it to increase production. The energy minister said the decision wasn’t related to a Saudi-led boycott on Qatar.
Canada's largest oil producing province has ordered an unprecedented output cut, adding to global actions to combat a recent price crash. Facing a pipeline bottleneck and glut of oil in storage, Alberta will force producers to slash output by 8.7%, or 325,000 barrels per day, until excess crude is drawn down (the cuts will then drop to 95,000 bpd until Dec. 31, 2019).