Mexico mulls retaliation countermeasures but prefers engagement and resolution
— The House late Monday easily approved, 354-58, a $19.1 billion disaster aid package, exceeding the two-thirds threshold required under a fast-track procedure. The Senate passed the measure in an 85-8 vote in late-May. It now heads to President Trump's desk for his expected signature. “Farmers, Puerto Rico and all will be very happy,” Trump tweeted shortly after the vote. All of the House members who opposed it were Republicans — every House Democrat in attendance, along with 132 Republicans, supported the measure. “Today we are rejecting the political stunts and grandstanding that have made it difficult to deliver much-needed disaster relief to families and communities across America,” House Appropriations Chairwoman Nita Lowey (D-N.Y.) said.
The measure will address disasters from hurricanes in Florida, Georgia, Alabama and the Carolinas, wildfires in California, and floods in the Midwest.
The bill provides more than $3 billion to farmers whose crops and livestock were destroyed by storms and flooding. Most of the farmer disaster aid will be administered through the Wildfires and Hurricanes Indemnity Program (WHIP) that was used in response to 2017 hurricane losses. However, the bill includes some important enhancements to WHIP and although murky, the language includes assistance for prevented planted acres. Farmers and ranchers would get $558 million for conservation programs to rehabilitate damaged farmlands, while $480 million would go towards forest restoration efforts. Rural communities would receive $150 million for facilities offering health care, education and other services, and Puerto Rico would get $600 million in nutrition benefits.
The legislation also allows producers making more than $900,000 per year to receive trade aid payments from USDA as long as 75% of their income comes from farming, ranching or forestry.
Summary of Disaster Bill
Emergency Forest Restoration Program - $480 million
• Maintains the $900,000 AGI for eligibility, but the AGI does not apply if at least 75% of the AGI is derived from farming, ranching, or forestry related activities.
— USDA Sec. Sonny Perdue wants to make a decision this week on whether unplanted crop acres could be covered under USDA’s $16 billion MFP 2 package. “I don’t know, frankly, whether we can legally do it or not,” Perdue told reporters Monday. “We are investigating that as we speak. You have to have something to sell or to trade for a tariff impact. I hope to have a definite answer to those producers very soon, hopefully by the end of the week.”
Perspective: When Perdue was governor of Georgia and Tom Vilsack was USDA secretary, both got very creative when they were doing cotton ginning cost share. They had to get creative because the appropriators had limited USDA’s authority to support farmer incomes (under Section 32) and to make payments to farmers (under Section 5 of the CCC Charter Act). Those riders apparently no longer exist and Perdue enjoys full access to all the authorities offered under Section 32 and the CCC Charter Act, including “Section 5(a): Support the prices of agricultural commodities (other than tobacco) through loans, purchases, payments, and other operations.” So Perdue should not be citing lack of authority as the reason for failing to solve the problem. What is needed, many say, is clarity from Perdue. But for now, Perdue and other USDA officials are stressing that for MFP, there has to be an element of impact to use the CCC Charter Act for that purpose. The Trump administration has shown in other areas they have lawyers very capable of making new determinations — for example, the new interpretation of the RVP rules under the Clean Air Act relative to year-round E15 sales. So, in Perdue's case, lawyers need to reinterpret.
Meanwhile, there may be another reason why USDA has not been so forthcoming in detailing how the MFP 2 will work. Apparently, there is some more work being done on “fine-tuning” the county payment system. That reportedly has not gone as smoothly as USDA initially thought.
— USMCA update:
- The White House is sending an official to the Senate Republicans’ policy lunch today to answer questions about the pending Mexico tariffs. Meanwhile, U.S. Trade Representative Bob Lighthizer is scheduled to hold calls and meetings with five lawmakers this week as part of his push to sell the USMCA. Vice President Mike Pence will focus on the topic during a speech in Pennsylvania on Thursday.
— While extreme trader focus is on the wet weather in the U.S., India needs a lot of rain. India’s meteorological department predicts that monsoons will arrive later this week in the southern state of Kerala. Over two-fifths of the country’s land area is facing drought, affecting some 500 million people. Ten cities in north India were among the world’s 15 hottest places on June 2-3. Pre-monsoon showers have been the lowest in a decade, making this the second-driest spell in 65 years.
An ample dose of water would please farmers still recovering from last year’s below-normal rains. Over two-thirds of India’s farmland has no irrigation and relies on rainfall, 70% of which comes between June and September. Reservoirs are running dry. The western state of Maharashtra, among the worst afflicted, has deployed over 6,000 trucks to drip-feed 15,000 villages.
— U.S./Mexico update:
- Mexico calls for comprehensive plan to address border surge. To head off new U.S. tariffs, Mexican officials are noting economic development in Central America is needed to curb migration to the southern U.S. border. A solution that only relies on immigration enforcement “is not going to work. It’s not working,” Foreign Secretary Marcelo Ebrard said Monday at a press conference at the Mexican embassy in Washington. “We should work together. It is the reasonable thing to do. It is the efficient thing to do.”
- Ebrard and other members of a Mexican delegation in Washington met Monday with Commerce Secretary Wilbur Ross and USDA Secretary Sonny Perdue, and on Wednesday will meet with Secretary of State Mike Pompeo.
- Mexico is weighing tariffs reprisal and is exploring possible retaliation to the threat of U.S. tariffs on all of its exports but as previously noted, would rather convince the Trump administration that a negotiated solution is in both countries’ best interest, officials said.
- Mexico would reject a U.S. idea to take in all Central American asylum seekers if it is raised at talks this week with the Trump administration, which has threatened to impose tariffs if Mexico does not crack down on illegal immigration. The Mexican economy, which is heavily reliant on exports to the U.S., shrank in the first quarter and would reel under U.S. levies. Goldman Sachs economists on Monday gave a 70% chance of the tariffs on Mexican imports coming into effect on June 10.
- Congressional Republicans have started to discuss whether they may have to vote to block Trump’s pending tariffs on Mexico, the Washington Post reports (link). Trump's ongoing trade war is intensifying without any resolution in sight and the stock market is dropping steadily as Morgan Stanley warns of a recession in three quarters if Trump stays on course, putting more pressure on Republicans to act. Senate Finance Committee Chairman Chuck Grassley (R-Iowa) is working on legislation to restrain Trump's trade powers, however it has yet to get an endorsement from Senate Majority Leader Mitch McConnell (R-Ky.).
- Since Mexico beefed up enforcement in December 2018, the government says it has returned 80,537 people to their home countries, detained 400 people for criminal migrant smuggling and accepted 8,835 migrants that the U.S. returned to wait in Mexico while their asylum cases are heard in U.S. courts. The government also said another 18,778 Central Americans are in Mexico awaiting their turn to go to a U.S. border port of entry to file claims for U.S. asylum. Due to more enforcement efforts, the government said there were 250,000 fewer people trying to cross the U.S. border. The housing, feeding and transport for migrants is an additional cost for Mexico, the delegation said Monday.
- A federal judge on Monday rejected a House lawsuit seeking to stop Trump from using emergency powers to build a border wall. The ruling won’t have an immediate practical effect since there’s already an order blocking the president from proceeding, but it could narrow the House’s legal options.
— U.S./China trade policy update:
- The U.S. is “disappointed” that the Chinese have chosen to “pursue a blame game misrepresenting the nature and history of trade negotiations between the two countries,” according to a Trump administration statement in response to China’s White Paper (link) on its trade talks with the U.S. Link to statement from the Treasury Dept. and Office of the U.S. Trade Representative. The statement outlined the actions which led up to recent negotiations, noting that after "months hard work and candid and constructive discussions, the parties had reached agreement on a number of important matters," the statement said. "In wrapping up the final important issues, however, the Chinese moved away from previously agreed-upon provisions." The statement pointed out that the negotiations were prompted in part by "China’s long history of unfair trade practices." The U.S. negotiating positions during the months of talks has been "consistent," with China being the party who "back-pedaled on important elements of what the parties had agreed to," the statement said, with a key one being "the need for enforceability, a position necessitated by China’s history of making commitments that it fails to keep." The U.S. insisting on "detailed and enforceable commitments from the Chinese in no way constitutes a threat to Chinese sovereignty," the statement said. "Rather, the issues discussed are common to trade agreements and are necessary to address the systemic issues that have contributed to persistent and unsustainable trade deficits."
- VP Pence speech on China policy moved to late June, from today. Vice President Mike Pence will give a speech on U.S. policy toward China at the end of June, a White House official said Monday. The coming remarks could set the tone for a possible meeting between President Trump and Chinese President Xi Jinping at the G20 leaders meeting in Osaka, Japan, on June 28-29.
- The U.S. Trade Representative’s office announced more Chinese imports that will be excluded from a 25% tariff. The exclusions apply to products found on an initial list of goods hit by penalties as a result of the administration’s Section 301 investigation. Link to Federal Register notice.
— Other items of note:
EPA Administrator Andrew Wheeler said the agency plans later this month to finalize its Affordable Clean Energy rule, which would replace the Obama administration’s Clean Power Plan that set limits on carbon emissions from power plants across the country.
Key GOP senator against congressional pay hike. Senate Appropriations Chairman Richard Shelby (R-Ala.) said he's unlikely to support a provision in the House Appropriations Committee's fiscal 2020 Financial Services spending bill that would provide a pay raise for members of Congress. House Democrats are proposing a 3.1% pay increase for federal workers in 2020.
Agency: Coffee doesn't warrant a cancer warning in California. The coffee industry scored a win in California on Monday with the passage of a new rule clarifying that the popular beverage doesn’t require a cancer warning. The safety of coffee has been in dispute in California since a state court judge ruled last spring that coffee must carry a cancer warning because of the presence of acrylamide, a potentially carcinogenic chemical created during the roasting process. A branch of the World Health Organization came out with a conflicting decision in June 2018, finding inadequate evidence that drinking coffee causes cancer, based on a review of more than 1,000 studies. The California Office of Environmental Health Hazard Assessment released its own finding that coffee doesn’t pose a significant cancer risk, proposing an exemption from a warning under a state law known as Proposition 65. That rule got the final signoff Monday and will become effective Oct. 1. William Murray, the president and chief executive of the National Coffee Association, said the approved rule means “coffee drinkers around the world can wake up and enjoy the smell and taste of their coffee without hesitation.” More in the Wall Street Journal.
Michigan farmers can build solar panels on their land via a change to a preservation program that state officials boast will allow producers to generate additional income and boost the local economy. Link to details from Michigan Live.
— Markets. After a volatile trading day Monday, the Dow closed up 4.74 points, 0.02%, at 24,819.78. The Nasdaq dropped 120.13 points, 1.61%, at 7,333.02, and has dropped more than 10% from its record, as potential antitrust probes weighed on shares of major tech companies. The S&P 500 was down 7.61 points, 0.28%, at 2,744.45.
What could knock the economy off course? The U.S. economy reaches a 10-year milestone this summer, but trade wars, ballooning budget deficit and a central bank mistake with interest rates could knock the economy off course. Link to WSJ article.
The Federal Reserve may cut interest rates to offset the economic risk of the trade war, St. Louis Federal Reserve President James Bullard said, adding “the direct effects of trade restrictions on the U.S. economy are relatively small, but the effects through global financial markets may be larger." Meanwhile, economists are projecting that uncertainty created by the administration’s actions on tariffs will prompt the Fed to deliver rate cuts later this year. The forecast comes as Australia became the biggest developed economy to lower borrowing costs this year. While Bullard and others are now being noted for commenting about the trade war and the potential need for the Fed to adjust its policy, Fed officials — including Chairman Powell — have been clear that the Fed would adjust monetary policy to respond to changes/events that occur. Recall that the FOMC meeting April 30-May 1 took place before the recent stall in the U.S./China trade talks. And since that has happened, more Fed officials have been commenting on the trade situation and they are watching it to determine if it reaches the point to where they would need to respond with a monetary policy move. So that makes the coming weeks important for whether or not Fed officials maintain their apparently rising optimism about the economic conditions ahead.
Economists in Chicago today will discuss the results of a year-long investigation, organized by the Federal Reserve, into whether America’s central bank is ready for the next recession and its performance in the last one.
South Korea’s economy shrank more than expected, as demand for semiconductors and electronics slowed. Asia’s fourth-largest economy fell by 0.4% quarter-on-quarter in the first three months of 2019, more than the estimated 0.3%. It was the biggest decline since 2008. Core inflation in May fell to a near 20-year low.