President Trump Tweets on China Talks as Subdued Tone Continues in Shanghai

Posted on 07/30/2019 6:37 AM

Axios: Mnuchin says Pelosi committed to vote on USMCA by October; Pelosi denies

The first of two days of U.S./China talks in Shanghai is about over. Expectations are low for any resolutions to be reached from this round of discussions. And of course early this morning President Donald Trump tweeted on the topic (see below for details).
     USMCA vote by October? Treasury Secretary Steven Mnuchin has reportedly told colleagues that House Speaker Nancy Pelosi (D-Calif.) has committed to a vote on the revised NAFTA trade deal by October, according to Axios, something she denies. The Trump administration, Axios reported, asked Pelosi to allow a vote on the USMCA as a side agreement to the budget deal, but she refused to put anything in writing. Mnuchin told colleagues, however, that Pelosi made a verbal commitment to bringing up USMCA for a vote by October.
     EPA currently expects to make decisions on small refiner exemptions (SREs) under the Renewable Fuel Standard (RFS) for the 2018 compliance year in the next few weeks, according to Administrator Andrew Wheeler.
     Democratic presidential candidates debate in Detroit tonight and Wednesday. The first of two debates in this latest round, hosted by CNN, will kick off at 7 pm CST. This evening, front-runner senators Elizabeth Warren of Massachusetts and Bernie Sanders of Vermont will face off alongside eight other candidates. About half the field is at risk of not qualifying for the next round, which is scheduled for September. Of note, CNN pledged not to ask questions that require a show of hands by the politicians or that confine all the contenders to a one-word "yes" or "no" answer, Associated Press media writer David Bauder reported.
     Late night humor... James Corden: Outgoing Director of National Intelligence Dan Coats “reportedly angered Trump with his critical assessments of Russia and North Korea. Now, that is on him, you know. If you want your boss to like you, don’t insult his closest friends.”


U.S./China trade policy update:

  • Twelfth round of talks in Shanghai have a decided low-key tone as officials from both countries dampened any expectations of potential breakthroughs. Both sides appeared more focused on preventing tensions from escalating before the 2020 presidential election, according to the New York Times (link). President Trump on Friday suggested China was trying to drag out the negotiations in the hope that someone else might occupy the Oval Office come January 2021. “Meeting after meeting,” Trump told reporters at the White House. “I think that China will probably say: ‘Let’s wait. It’s 14, 15 months till the election. Let’s see if one of these people that give the United States away, let’s see if one of them could possibly get elected.’” Trump then went into a favorite refrain: “I don’t know if they’re going to make a deal. Maybe they will, maybe they won’t. I don’t care, because we’re taking in tens of billions of dollars’ worth of tariffs.”
  • Trump enters the U.S./China talks via an early morning tweet: “China is doing very badly, worst year in 27 — was supposed to start buying our agricultural product now —no signs that they are doing so. That is the problem with China, they just don’t come through. Our Economy has become MUCH larger than the Chinese Economy is last 3 years.... ...My team is negotiating with them now, but they always change the deal in the end to their benefit. They should probably wait out our Election to see if we get one of the Democrat stiffs like Sleepy Joe. Then they could make a GREAT deal, like in past 30 years, and ripoff the USA, even bigger and better than ever before. The problem with them waiting, however, is that if & when I win, the deal that they get will be much tougher than what we are negotiating now...or no deal at all. We have all the cards, our past leaders never got it!”
  • Top issues remain the same: Major differences over how China would codify new protections for American intellectual property, how many American products China would agree to buy and how many of Trump’s tariffs on $250 billion in Chinese goods would remain in place. Instead, China reportedly is pushing for a vaguely worded text.
  • Trouble ahead even if there is a U.S./China trade accord and the enforcement language is vague. That's according to Michael Pillsbury, a China expert at the Hudson Institute, and a key China advisor that President Trump frequently consults. He told the NYT that leaving more uncertainty in the agreement could foster more trade fights between the world’s two largest economies, particularly given a complex enforcement mechanism the two sides previously agreed to establish to ensure both countries lived up the agreement. “If there are loopholes and gray areas subject to interpretation, then the extensive appeal process the Trump administration has designed will be a recipe for a decade of acrimony,” he said.
  • Key to talks this week according to the Trump administration is whether China will return to the language in a 150-page document before talks hit an impasse in late May. “Will they go back to where we were before they changed their mind?” Wilbur Ross, the Commerce Secretary, said in an interview on Fox Business Network on Friday. “That’s what’s the important thing, because we were very close to a transaction before.” But objections to the agreement appear to have come directly from China’s president, Xi Jinping (link).
  • Lawmakers fear that the Trump administration has delayed the sale of F-16 fighter jets to Taiwan in hopes of securing a trade deal with China. Link for more.
  • Commodity traders scoff at reports about coming Chinese purchases of U.S. farm products, having been fooled on the topic several times previously. Latest on that topic shows why traders and others are confused. Reports note that China has been preparing to make agricultural purchases, and on Sunday the state-run Xinhua News Agency reported that millions of tons of American soybeans had been shipped to China. But elsewhere, Chinese officials have continued to insist that they are not making purchases as a condition of the talks. A spokesman from the Chinese Commerce Ministry said in a briefing on Thursday that “to better meet the needs of the domestic market, some Chinese enterprises are willing to purchase some agricultural produce from the United States.” But he then added that there was “no direct relationship” between the resumption of trade talks and the purchases.
  • USTR Lighthizer comments on key issues in answers to questions from Senate Finance panel. The Senate panel responsible for trade released a series of questions they submitted to Lighthizer and his responses at a June hearing on trade issues. Key remarks:

    * Question of purchases of U.S. ag goods by China as the two sides negotiate remains an open issue, with Lighthizer not signaling any specific commodities or tonnages involved in answers to questions from members of the Senate Finance Committee. “As you know, the United States is demanding that China make substantial purchases of U.S. agricultural products, in addition to making structural changes across a wide range of unfair policies and practices.”

    * U.S. is pushing to get China to change its ways. Asked again about the purchase commitments, Lighthizer said the U.S. focus continues on getting China to change how it treats imported products. “The United States has been negotiating with China to resolve a large number of unwarranted and longstanding trade barriers to U.S. agricultural exports,” he observed. “We are encouraging China to demonstrate real structural changes across a wide range of unfair policies and practices that will yield actual, verifiable, and enforceable results. The administration has been clear in demanding that China make substantial purchases of U.S. agricultural products and remove technical and regulatory barriers that impede U.S. agricultural exports to China.”

    * Dairy and cotton in focus. Regarding whether the U.S. dairy sector will be a priority in future talks with China, Lighthizer made clear that will be the case. “U.S. dairy producers face a great number of structural issues that limit their access to China's dairy market, including complicated registration, import licensing, and labeling requirements,” he stated. “We have discussed dairy extensively with China over the course of our conversations this year. We are committed to addressing issues that impede market access in China for US dairy producers.” Cotton will be another commodity focused on with China, as Lighthizer noted the negotiations on removing barriers in China will help “secure a result that provides real benefits to U.S. cotton producers.”

    * Will trade flow shifts cost U.S. farmers a market in China? Lighthizer was also questioned on the potential that U.S. farmers could permanently lose market access in China as the country has shifted their purchases of ag goods to some other countries. Lighthizer did not specifically address the products or areas where U.S. marketshare could be permanently changed, saying, “The U.S.-China economic relationship is very important, and the Trump administration is committed to reaching meaningful, fully enforceable commitments to resolve structural issues and address our persistent trade deficit. This of course includes removing impediments to trade in agriculture with China. U.S. agricultural producers face a great number of barriers that limit their access to China's agricultural markets. We are encouraging China to make real structural changes, across a wide range of unfair policies and practices that will yield actual, verifiable, and enforceable results.”

    * Regarding the state-owned enterprises (SOEs) China has in place, Lighthizer indicated the U.S. would prefer to see China to make structural changes in this area. “While in an ideal world Chinese buyers would use market mechanisms, China has historically purchased many agricultural goods from U.S. producers through state-owned trading companies, including before our negotiations ever started,” Lighthizer observed. “We are encouraging China to demonstrate real structural changes across a wide range of unfair policies and practices that will yield actual, verifiable, and enforceable results for American farmers, ranchers, workers, and businesses.”

    * No deadline for tariff removal. Several lawmakers expressed concerns on U.S. tariffs put in place on imports of Chinese goods, but Lighthizer did not provide any assurances those tariffs will be lifted or when they may be removed. “In the current negotiations with China, we are seeking to address a wide range of unfair trade practices, including those that support non-market forces in order to create conditions for fair competition, including through structural reforms,” he noted. “China should have responded to the findings in the Section 301 investigation and the U.S. tariff actions by undertaking the necessary economic and policy reforms needed to end its trade-distortive practices. Instead, China retaliated with tariffs on U.S. products.” Lighthizer sounded a familiar theme relative to the tariffs, stating they were “an important source of leverage to bring China to the table to negotiate an enforceable agreement that will address China’s unfair trade practices.” However, he also stressed in several responses to lawmakers that the administration “does not have a predetermined timetable for how long it will be necessary to leave these tariffs in place.”

    * Regarding the issue of economic harm created by tariffs on U.S. businesses, Lighthizer explained USTR considers “information that each requester has submitted about the effect of the additional tariffs. If appropriate, we may conduct additional research about the requestor’s size, revenues, number of employees, base of operations, and other market information.”

EPA’s Wheeler says small refiner exemption actions still coming. EPA currently expects to make decisions on small refiner exemptions (SREs) under the Renewable Fuel Standard (RFS) for the 2018 compliance year in the next few weeks, according to Administrator Andrew Wheeler. “We’re going through them,” Wheeler said as he visited a refinery in Pennsylvania Monday. “We hope to be processing them and making decisions in the next few weeks and month at the most.”

EPA received the recommendations from the Department of Energy (DOE) in April relative to the SREs for the 2018 compliance year. However, no action has been taken yet on most of the requests.

Data shows 40 SRE requests were received for the 2018 compliance year with two being declared ineligible or withdrawn, leaving 38 still pending.

President Donald Trump asked EPA and USDA to come up with a resolution on the controversial topic after he was surprised by criticism of the SREs when he made a stop in Iowa in June to tout the allowance of year-round sales of E15 fuel. That order by Trump prompted a firestorm of criticism from those on both sides of the issue. Sources signal an eventual decision to reduce the number of SREs, but not an and to them. No movement on corn industry’s request to reallocate.

Proposed RFS levels finally were published in the Federal Register Monday (July 29)... the proposed levels for 2020 biofuels and 2021 biodiesel under the Renewable Fuel Standard (RFS).

Renewable Identification Number (RIN) market reforms were also proposed, but the changes do not go as far as some had expected.

EPA’s response to a court order to reassess its RFS levels for 2016 is also included in the rule, with comments due Aug. 30.

Action reflects EPA’s reset of the RFS for 2020 biofuel & 2021 biodiesel, though the rule that covers the full period of 2020-2022 has yet to be sent back to EPA from the Office of Management and Budget (OMB), with meetings on the RFS reset taking place last week.

EPA still signals the 2020 RFS levels will be finalized by Nov. 30, the statutory deadline. The RFS reset plan, however, is listed as being targeted to be finalized in February 2020.

Other items of note:

  • The Senate as expected failed to override a presidential veto allowing arms sales to Saudi Arabia. Lawmakers had previously passed resolutions blocking American-made weapons going to the Gulf kingdom, which they feared could be misused in the war in Yemen. President Donald Trump vetoed the motion, citing Saudi Arabia’s importance in subduing Iran.

  • Sen. Elizabeth Warren (D-Mass.) called for an overhaul of American trade negotiating rules and said it would include consumer representatives in discussions. Link for details at CNBC. The Democratic presidential candidate is clearly aiming at trade-impacted states relative to President Trump's trade policies.

  • Global trade is bringing bitter results to U.S. tart cherry farmers. Producers in northern Michigan say they’re faltering financially under a flood of low-price dried cherries from Turkey, the Wall Street Journal reports (link), highlighting a trade dispute that falls far outside the bigger debates between the U.S. and China but is critical to a sliver of the American agriculture sector. The tart cherry business is smaller than the sweet cherry farming of the Pacific Northwest, but it’s critical to food companies that use the cherries in pie filling, cereal and other products. Federal data shows the value of Michigan’s crop has fallen by nearly half since 2014, crushing producers’ profits. The industry wants the U.S. to use duties to stem the flow of cheaper imports they say are subsidized by the Turkish government, and American regulators are going forward with an investigation.

Markets. The Dow on Monday edged up 28.90 points, 0.11%, at 27,221.35. The Nasdaq fell 36.88 points, 0.44%, at 8,293.33. The S&P 500 lost 4.89 points, 0.16%, at 3,020.97.

Borrowing by the federal government is set to top $1 trillion for the second year in a row as the Treasury expects to issue $814 billion in net marketable debt in the second half of this calendar year, bringing total debt issuance to $1.23 trillion in 2019. That would represent a slight decline from borrowing in 2018, when the Treasury issued $1.34 trillion in debt, but more than twice as much as the $546 billion it issued in 2017. Low borrowing costs, meanwhile, suggest that markets remain unfazed by all the red ink. While government debt has soared since the financial crisis, 10-year Treasury yields have fallen to near 2% from more than 5% in 2006, holding down government interest payments.

Capital One breach impacts 106 million applicants. The fifth-largest credit-card issuer in the U.S. said a hacker accessed the personal information of card customers and applicants in one of the largest data breaches of a big bank. FBI agents in Seattle arrested a woman, a self-identified hacker who used to work for Amazon Web Services, in connection with the crime. The bank claimed it was unlikely that the data, including 140,000 Social Security numbers and 80,000 bank account numbers stolen, had been disseminated. The information came from credit card applications submitted as early as 2005 and as recently as this year, according to Capital One. The breach was discovered this month.

U.S. farmers face a lean year, hard decisions; pain spreads to ag retailers. U.S. farmers are reeling after unrelenting rain delayed planting across the Midwest while trade battles continue to drag down exports and crop prices. Now, the farmers’ pain is spreading to the suppliers, traders and food makers that depend on them. Link to Wall Street Journal article on the situation.

Across much of the Great Plains, this growing season has seemed cursed, starting with the disruptions caused by the trade war, followed by flooding in the spring. Now, an irrigation tunnel has collapsed, and across more than 100,000 acres of Nebraska and Wyoming, there is no water. Link to New York Times article for details.

Huawei’s revenue for the first half of 2019 rose by 23% year-on-year, to 401bn yuan ($59 billion), despite political snafus. The U.S. Commerce Department has banned American firms from doing business with the Chinese telecoms giant, claiming it might spy for the Chinese government. Huawei, which denies the charge, estimates the sanction could cost it $30 billion in revenue.

Beyond Meat shares tumbled on Monday amid plans for another stock offering (to boost production) just three months after its IPO, while demand for its plant-based burgers and sausages prompted an increase in its full-year sales forecast.


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