South China Morning Post: U.S. Trade Negotiators Likely to Visit China Next Week

Posted on 07/23/2019 5:36 AM

White House, congressional leaders reach two-year budget, debt limit deal; hurdles remain

White House and lawmakers reached a budget deal, agreeing to increase U.S. government spending by $320 billion. The agreement sets out equal growth in domestic and military spending, a key demand of House Speaker Nancy Pelosi (D-Calif.), offset by about $75 billion in spending cuts. If enacted before Congress leaves for its August recess, the arrangement would avert a default crisis this fall, putting the next showdown off until after the 2020 elections. The deal for more than $2.7 trillion in spending over two years would suspend the debt ceiling until the end of July 2021. With two months left in this fiscal year, the federal deficit has reached $747 billion — a 23% increase from last year. Federal debt has grown to $22 trillion.
     Face-to-face U.S./China trade talks will likely be held by the end of July, the South China Morning Post reported, citing sources. Meanwhile, more evidence surfaced that Chinese companies have asked for exemptions to purchase U.S. farm products.
     Prevent-plant total acres could be 15-20 million acres, according to comments reportedly made by USDA Risk Management Agency’s Thomas Worth to agricultural economists at their annual meeting Monday in Atlanta. That range is based on claims progress versus prior years and is in line with Pro Farmer reports last week that said prevent plant acres for all crops could exceed 15 million acres. Assessing the impact on total U.S. plantings is difficult because no information is available on how many farmers opted to plant another crop on the prevent-plant acreage. RMA has been doing a weekly projection of prevent-plant acres which in part will be looked at by NASS relative to the August Crop Production report.
     Trump pushes for faster deportations. The White House administration is moving to swiftly remove immigrants who cross the U.S. border illegally for as long as two years after their arrival, and from anywhere in the country. Advocates for immigrants vow to challenge the Trump initiatives in court.
     Some major changes are being proposed today by the Trump administration regarding food stamps. The proposed rule would tighten food stamp eligibility for people who receive certain noncash benefits from a federal welfare program, a move that could end food aid for up to 3 million people. Expect big pushback from Democratic lawmakers. USDA will take comments for 60 days starting Wednesday. Meanwhile, the Wall Street Journal reports (link) that government programs for adults often lead to more government spending, but programs for low-income children return taxpayer dollars over time, according to a new study.
     Ford accused of falsifying fuel tests. Ford was accused in a lawsuit of falsifying tests related to the fuel economy of F-150 trucks, the top-selling vehicle in the U.S., and the 2019 Ranger. The suit, filed in federal court in Michigan on Monday, seeks class action status.
     A real cat fight. New York became the first state in the country to ban the practice of cat declawing, which many consider cruel and unnecessary. Link for more.


White House and Congress reached a deal on spending, debt ceiling. Highlights (link for details):

  • Accord allows for more than $2.7 trillion in spending over two years (fiscal years 2020 and 2021).
  • Raises spending by nearly $50 billion next fiscal year above current levels. FY 2020 begins Oct. 1.
  • Provides for about $320 billion in spending over two years above limits set in a 2011 budget law that established automatic spending cuts, known as the sequester.
  • Would suspend the debt ceiling until the end of July 2021 — after Nov. 2020 elections.
  • Includes limited budget cuts. Deal extends small cuts to Medicare beyond fiscal year 2027 and extends fees collected by Customs and Border Protection, amounting to $77 billion worth of savings to offset the cost. Those moves fall short of the $150 billion in spending cuts originally sought by the Trump administration.
  • Must still pass both chambers of Congress and needs President Trump’s signature. Once the agreement on overall spending levels passes Congress, both chambers will still need to pass 12 individual bills to keep the government open after Sept. 30. Lawmakers signal they may need to pass some sort of stopgap funding measure to avoid a shutdown and negotiate agreements on all of the remaining bills.
  • Democratic leaders pledged support. In a joint statement House Speaker Nancy Pelosi and Sen. Chuck Schumer (D-N.Y.), the chamber’s Democratic leader, pledged that the House would bring the deal quickly to the floor. Pelosi wants the House to vote on the agreement on Thursday, before the chamber goes on recess on July 26. The Senate doesn’t take its break until Aug. 2.
  • Senate Majority Leader Mitch McConnell (R-Ky.) said he was encouraged by the deal, adding that it “secures the resources we need to keep rebuilding our armed forces.” He said he intended to have the Senate vote on it before the chamber departs for recess.
  • Win-win for both political parties. Republicans praised the increases in military spending. Democrats said the expiration of the fiscal controls enacted in 2011 was an important victory. Congressional leaders pledged to forgo any “poison pills,” or measures that lawmakers include in appropriations bills that advance partisan goals.
  • Some disgruntled lawmakers from both politicl parties. Some Republican lawmakers complained that it adds too much to the federal debt, while some House Democrats may be uneasy with giving concessions to the Trump administration.

U.S./China trade policy update:

  • South China Morning Post: U.S. trade negotiators likely to visit China next week for first face-to-face talk since the G20 confab in Osaka, Japan. The American delegation led by trade representative Bob Lighthizer and Treasury Secretary Steven Mnuchin are set to meet Vice-Premier Liu He and hardliner and Commerce Minister Zhong Shan.
  • Concessions by both U.S. and China led to next face-to-face sessions. The coming announcement came after the U.S. announced it would offer exemptions to 110 Chinese products, including medical equipment and key electronic components, from import tariffs. In a goodwill gesture of their own, China said that several companies would buy American agricultural products having already applied for exemptions from the tariffs imposed by Beijing. Some U.S. traders errantly speculated on Monday that the reports of exemptions were “fake news” but coming Chinese purchases appear to be a reality.
  • Taoran Notes, a social media account affiliated with state-owned Economic Daily, noted in a commentary on Sunday that the last two phone calls could lead to a resumption of negotiations soon “if there are no major changes in the situation.” The account also suggested that the negotiations could take place before the end of July.
  • President Trump met with major technology companies at the White House on Monday to discuss restrictions on Chinese telecom giant Huawei, a move regarded as a step toward softening the U.S. stance on the blacklisted firm. Trump agreed during the meeting to an industry request that the Commerce Department provide “timely licensing decisions” on sales to Huawei, White House spokesperson Judd Deere said. Trump’s Commerce Department in May added Huawei to a trade blacklist, requiring U.S. companies to get a special license before they can do business with the telecom company. The group that convened on Monday also discussed job numbers, international trade issues and 5G technology, Deere said. Treasury Secretary Steven Mnuchin, Commerce Secretary Wilbur Ross and U.S. Trade Representative Bob Lighthizer also attended. Meanwhile, Huawei reportedly helped North Korea build its wireless network, potentially in violation of U.S. export controls. The company has laid off 600 workers in the U.S. And Britain has delayed a decision on whether to allow Huawei hardware in its in 5G networks.
  • For the first time, the Trump administration is imposing economic penalties on a Chinese company for violating sanctions on Iranian oil.
  • China's pork imports in June surged 62.8% from the previous year, customs data showed today, as China increased supplies after African swine fever has decimated domestic pig herds. China brought in 160,467 tonnes of pork in June, up 62.8% from the same month last year, according to data from the General Administration of Customs. This was down 14% from 187,459 tonnes imported in May. China's pork imports for the first six months of the year came in at 818,703 tonnes, up 26.3% from a year earlier.
  • U.S. cotton farmers say retaliatory tariffs have severely hampered Chinese demand, but growers aren’t blaming Trump’s hardline trade tactics, the Wall Street Journal reports (link).

Trump administration moves to end food stamp benefits for 3 million people with proposed new regulations. The proposal would curtail the leeway of states to automatically enroll residents who receive welfare benefits. USDA Sec. Sonny Perdue said state governments “have misused this flexibility... We are changing the rules, preventing abuse of a critical safety net system, so those who need food assistance the most are the only ones who receive it.”

The rule would rein in states’ ability to enroll recipients earning more than 130% of the federal poverty guidelines — in most cases capping eligibility to an annual income of $32,640 for a family of four. Forty states and the District of Columbia currently use alternative eligibility criteria that allow participants in some federally funded welfare programs to automatically receive food stamps as long as their income is less than double the poverty level.

USDA official comments. Brandon Lipps, an acting deputy undersecretary at USDA, told reporters that in some cases states enroll residents for food stamps even though they are receiving federal welfare benefits of minimal value — including brochures. The proposed regulations, to be released today, would only allow automatic enrollment of people who receive welfare benefits worth at least $50 a month on an ongoing basis for at least six months. Other than cash, the only welfare benefits that would qualify are subsidized employment, work supports such as transportation, and child care, Lipps said.

Background. As of April, 36 million Americans received food stamps, with an average monthly benefit of $121 per person, according to USDA. Enrollment has declined as the economy has improved and was down 2.5 million from a year earlier.

Other items of note:

  • Trump administration accelerates swifter deportations. The Trump administration is moving to swiftly remove immigrants who cross the U.S. border illegally. Undocumented immigrants who cannot prove they have been in the U.S. for more than two years could be deported without a hearing before a judge.

  • Trucking companies don’t have to pay drivers for the time they spend in the sleeping compartment of their trucks, the U.S. Labor Department said in a non-binding opinion letter released Monday. The department’s Wage and Hour Division (WHD) said that the time drivers spend in their trucks’ sleeper berths relieved of all duties and allowed to sleep isn’t working time requiring compensation. The WHD’s prior position was that trucking companies could exclude sleeping time from a driver’s hours worked, but only eight hours for trips 24 hours or longer and no sleeping time could be excluded for trips under 24 hours.

  • Vice President Mike Pence will deliver remarks today in Ankeny, Iowa, on efforts to pass the USMCA. Meanwhile, USTR Bob Lighthzier will meet later this week with Democratic negotiators to discuss potential changes to the deal.

  • Hemp businesses are finding it difficult to get financing amid an uncertain regulatory outlook, the Houston Chronicle reports (link). Meanwhile, a Senate Banking Committee hearing today will focus on cannabis banking and how receptive Congress may be regarding enabling financial services for such companies. Witnesses at the hearing’s two panels will include senators from two states that have legalized the recreational and medical use of marijuana: Sens. Cory Gardner (R-Colo.) and Jeff Merkley (D-Ore.).

  • Senate surface transportation bill coming next week. The Senate Environment and Public Works Committee will release its draft surface transportation bill text next week. Committee Chairman John Barrasso (R-Wyo.) wants to have a markup by Aug. 1, before the Senate leaves town on recess for the month.

  • Ag commodity/livestock definitions in hours-of-service. Sen. Kevin Cramer (R-N.D.) is encouraging stakeholders to leave comments on the Federal Motor Carrier Safety Administration’s plans to revise agricultural commodity/livestock definitions in hours-of-service regulations. “The current regulations impose restrictions upon the agriculture industry that lack flexibility necessary for the unique realities of hauling agriculture commodities,” USDA Sec. Sonny Perdue said in a statement (link), referring to industry complaints that they shouldn’t be held to the same rest rules since it would endanger livestock.

Markets. The Dow on Monday edged up 17.70 points, 0.1%, to 27,171.90. The S&P 500 rose 8.42 points, 0.3%, to 2,985.03. The Nasdaq climbed 57.65 points, 0.7%, to 8204.14.

Brent crude climbed 1.58% to $63.46 a barrel. West Texas Intermediate crude rose 0.83% at $56.09 a barrel.

Boeing’s 737 MAX woes starts to spill over into economy. The grounding of the airplane is negatively impacting the nation’s trade balance and clouding the outlook for airlines, suppliers and their tens of thousands of workers. Link to Wall Street Journal article. Meanwhile, Boeing’s credit rating is at risk as the grounding of the company’s 737 Max jetliner drags into a fifth month, with Moody’s Investors Service joining Fitch Ratings in sounding a warning. The planemaker faces a $5 billion cash-flow drain this year as it continues to churn out aircraft it can’t deliver until regulators around the globe clear the Max to resume commercial flights, Moody’s said in a statement yesterday.

International Monetary Fund (IMF) will present an update to its World Economic Outlook at 8:00 a.m. CT, providing more info bout the state of the global economy after a downbeat growth assessment in April. The report is expected to provide a forecast of how the IMF sees issues such as the U.S.-China trade dispute and the U.K.'s departure from the EU affecting global growth.

Boris Johnson, the U.K.'s former foreign secretary and a fierce backer of Brexit, today won the Conservative Party's leadership contest setting him up to be named Prime Minister on Wednesday.


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