U.S./Japan ag/auto trade talks progress | Proposed changes to trucker work-hour rules
In today's updates:
* China says U.S. violates Trump-Xi accord
Late-night comedy: The hosts noted that John Hickenlooper was considering dropping his presidential bid. “When he broke the news to all his supporters, they were like, ‘Cool, Dad, thanks for telling us,’” Jimmy Fallon said.
— U.S./China trade policy update:
- China says U.S. violates Trump-Xi accord. Chinese authorities issued a statement (link) saying President Donald Trump’s planned additional 10% tariff violates the consensus reached between the leaders of both countries in Osaka. The release went on to say that China's finance ministry will have to take necessary countermeasures. China issued a statement warning they would take action if the U.S. moves ahead with 10% tariffs on some Chinese goods on Sept. 1. The China cabinet said they would take unspecified "necessary countermeasures” if the U.S. tariffs move ahead. The one-line statement did not indicate what the countermeasures would be nor did they mention the announcement by the U.S. that a portion of the tariffs would be delayed until Dec. 15. Originally, the Trump administration said 10% tariffs on $300 billion in Chinese goods would start Sept. 1, but Tuesday’s announcement pared the level of goods down to around $112 billion. The Chinese statement also made no mention of the in-person talks in September.
- Pointing fingers. President Donald Trump, seeking to deflect criticism that his trade war with China is harming the U.S. economic outlook as stocks tumble, lashed out again at Fed Chair Jerome “Jay” Powell. "We are winning, big time, against China. Companies & jobs are fleeing. Prices to us have not gone up, and in some cases, have come down. China is not our problem, though Hong Kong is not helping. Our problem is with the Fed. Raised too much & too fast. Now too slow to cut," he wrote on Twitter. Trump also said Powell was “clueless.” The most pessimistic forecasters predict that come 2020 election day, U.S. equities will be at or below the levels when Trump began his presidency. If so, that would take a considerable further plunge in stock markets. After all, even with Wall Street’s current volatility, major stock indexes are close to record levels. Others note that exports account for just 12% of the U.S. gross domestic product, while Germany and China are more dependent on international trade — exports are responsible for nearly half of Germany’s economic output and almost a fifth of China’s. On Wednesday, the Dow saw its worst drop of the year, 800 points or 3%. It's also tracking for its largest weekly decline of 2019. Going into today's trading session, the Dow was down 7% from its all-time highs in July.
- Trump took to Twitter after Wednesday's equities beating, suggesting there was room for compromise in the escalating trade war. “Of course China wants to make a deal,” he wrote. “Let them work humanely with Hong Kong first!” In a subsequent tweet, after praising China’s president, Xi Jinping, he wrote “Personal meeting?” The Trump change in tone on Hong Kong came amid growing concern within the administration that China would respond with military force to the antigovernment protests that have shut down Hong Kong’s major international airport. Trump did not, however, explicitly state that the outlook for the trade talks would depend on China’s response to the Hong Kong protests.
- China refused port visits to Hong Kong by two U.S. warships amid continued trade tensions and diplomatic spats between the two nations. Meanwhile, the government in the city announced plans to implement stimulus measures. It also cut its growth forecast to potentially flat for the rest of the year, down from already anemic expectations.
- Hundreds of China's People's Armed Police conducted exercises today at a sports complex in Shenzhen, just across the border from Hong Kong, Reuters reports (link). The U.S. State Department noted concern that the forces could be deployed to break up protests wracking the city. Satellite photos show what appear to be 500 or more armored personnel carriers and other Chinese military vehicles parked in the soccer stadium, according to the Associated Press (link). Chinese government advisers say Beijing has not reached direct intervention point but that could change if the violence continues, according to the South China Morning Post (link).
- Commerce Secretary Wilbur Ross denied that trade negotiations with Beijing were tempering the administration’s response to Hong Kong. “I don’t know if we would have done anything different in the past. What would we do? Invade Hong Kong?” Ross said on CNBC. “The president has made clear that he is watching very carefully what’s happening…This is an internal matter.”
- Sen. Marco Rubio (R- Fla.) described Beijing’s stance on Hong Kong as “a cautionary lesson for anyone thinking about any deal with them.” Rubio has introduced a bipartisan bill that threatens to revoke Hong Kong’s special trade status with the U.S. if Beijing intervenes in the city, a key trade gateway with the West for China. Beijing has reacted angrily to U.S. lawmakers’ comments, citing them as further evidence of American involvement in China’s internal affairs. Meanwhile, Sen. Ben Cardin (D-Md.) warned China that Hong Kong could lose its special U.S. trade status if Beijing steps in to crack down on the protests, Reuters reported (link). Senate Democratic Leader Chuck Schumer (D-N.Y.) also called for support for Hong Kong. “It is unacceptable that President @realDonaldTrump is not standing up to Beijing as it intensifies its crackdown on human rights in Hong Kong,” Schumer said in a tweet. “He needs to make it clear that America stands shoulder to shoulder with the people of Hong Kong who want democracy and freedom.”
- Still no date set for in-person meetings between U.S. and Chinese officials, according to Commerce Secretary Wilbur Ross. "I don’t believe a date has been set," Ross said in an interview on CNBC. Instead, the next step in the long-running negotiations is "perhaps another phone call in a couple of weeks." Perhaps? Ross also said Trump decided to delay some of the duties without getting any concessions from China in return. There was "no quid pro quo," Ross said. Ross was asked about a possibility in which China could agree to buy more farm goods and in exchange the U.S. could ease some sanctions on Chinese telecommunications firm Huawei — and bounce more difficult issues until after the 2020 presidential election. "Well, the president’s the ultimate arbiter of trade policy, obviously enough. But I haven’t come off the firm objective that we need structural reform," Ross responded.
- White House trade adviser Peter Navarro , asked whether a deal would be reached before the 2020 election, told Fox News: "I think what's going to happen is we're talking with them. We've got significant structural issues and I think speculating about that really doesn't help the negotiations along." He also said Trump decided to delay some tariffs "so that we have an inflation-free Christmas and give the Federal Reserve more room to run in terms of lowering rates."
- An influential but small rare-earths supplier is trying to wean U.S. businesses off their dependence on China. Malaysian-headquartered Lynas Corp. is expanding its capacity as trade tensions fan concerns that China, which dominates production of the obscure metals, could restrict exports. Lynas Chief Executive Amanda Lacaze tells the Wall Street Journal (link) that it will take time to build an alternative supply chain for important commodities needed in cell phones, jet fighters and other high-tech gear. “As recently as May, the U.S.’ only operating rare-earth mine was still sending its ore to China, whose grip on the metals could be a powerful negotiating tool as the trade dispute drags on,” the article notes.
- Bottom line: President Trump’s delay on tariffs on some Chinese imports is said to be seen by some officials in Beijing as an attempt to seek a “truce,” according to the Wall Street Journal (link). But U.S. stock futures swung to losses this morning after China threatened to take countermeasures if the Trump administration goes ahead with planned new tariffs on Sept. 1.
— U.S./Japan trade talks on track for a mini ag/auto deal, a senior Japanese trade official said. Senior Japanese trade official Kazuhisa Shibuya told reporters after a meeting that the two sides were engaging in a two-way discussion and that talks were on a good track. Shibuya said the talks, for the first time, also featured a general discussion about rules of origin. Meanwhile, U.S. Trade Representative Bob Lighthizer and Japanese Economic Revitalization Minister Toshimitsu Motegi are still expected to meet this month. The two countries are pushing to reach a deal by the end of September, when the leaders will be in New York for the United Nations General Assembly.
— DOT unveils proposed changes to hours of service regs for truck operators. Proposed changes to federal hours of service (HOS) regulations for truck operators were announced by the U.S. Department of Transportation (DOT). The proposed changes would allow drivers to pause their 14-hour clock for up to three consecutive hours and go off-duty in that time period, extending their on-duty window by the same amount.
Drivers would be required to take a 10-hour off-duty break at the conclusion of their 14-hour on-duty hours after using the proposed pause option. The break must be at least 30 minutes long, under the proposal.
Also, the 11-hour drive-time limit for an on-duty shift will remain.
Allowing drivers to pause the 14-hour clock would help them avoid peak traffic hours, weather events and help “mitigate the effect … of long detention times,” according to notes within the proposal, which was announced today by the Federal Motor Carrier Safety Administration (FMCSA).
Ray Martinez, administrator of FMCSA, says he expects the notice of proposed rulemaking to be published Monday, Aug. 19, in the Federal Register. Drivers and the public will have 45 days to file comments on the rule, and the agency will consider the comments in crafting a final HOS rule. A final rule will likely take months, if not a year or longer, to be finalized and published in the Federal Register. Once published, the final rule likely won’t take effect for another year or more. Martinez said he couldn’t provide a more specific timeline.
Bottom line: Highway safety regulators say the proposals would give drivers more flexibility and reap some $275 million in annual savings for motor carriers.
— Other items of note:
U.S. tries to seize Iranian oil tanker, just as the authorities there were considering whether to release the ship. The vessel, held for six weeks in the U.K. territory of Gibraltar, has been a source of tensions between Tehran and the West. Link to WSJ article.
Israel considers blocking Omar, Tlaib from West Bank. A planned visit by the two Democratic lawmakers has generated controversy over their criticism of Israeli policy toward Palestinians.
Britain’s opposition leader, Jeremy Corbyn, has proposed a no-confidence vote in Prime Minister Boris Johnson and the formation of a temporary government to prevent a no-deal Brexit. Link for details from Financial Times. Meanwhile, the European Central Bank criticized banks for slow-walking their Brexit preparations, telling them to move additional staff and resources to the European Union in case Britain leaves without a deal on Oct. 31.
House Speaker Nancy Pelosi said there would be “no chance” of a British-American trade deal passing through Congress if a no-deal Brexit harmed the Good Friday Agreement that ended the Troubles in Northern Ireland. With a no-deal Brexit on October 31, a hard border could reappear between the north and the Irish republic.
EPA holds a public hearing on its proposal to reverse a 24-year-old air policy and allow power plants, refineries, and other industrial sources to avoid stringent controls if they emit below a Clean Air Act mandated threshold. Environmental groups say reversing the policy would allow more toxic pollution into the air.
NPR: Most ICE detainees held in rural areas where deportation risks soar. NPR's analysis of Immigration and Customs Enforcement data show 52% of detainees in the last year were held in rural areas, and that number is increasing. That's a mounting concern for those who advocate on behalf of immigrants, because detainees in rural areas face higher barriers to obtaining a lawyer, are more likely to have their asylum cases denied, and are more likely to get deported to their home country, according to NPR.
T stands for trouble and Trudeau. Canada’s federal ethics commissioner found that Prime Minister Justin Trudeau had violated an ethics law in his handling of a corporate criminal case. He faces national elections in October. The parliamentary watchdog concluded that Trudeau breached ethics rules in trying to persuade his justice minister not to take SNC-Lavalin to trial. The Quebec-based construction firm has been accused of bribing officials in Libya. Trudeau, who faces an election in October, said he could not apologize for “standing up for Canadian jobs.”
— Markets. The Dow on Wednesday plummeted 800.49 points, 3.05%, at 25,479.42. The Nasdaq dropped 242.42 points, 2.42%, at 7,773.94. The S&P 500 fell 85.72 points, 2.93%, at 2,840.60.
Former Fed Chairwoman Janet Yellen said she doesn’t see a recession as the most likely outcome for the U.S. economy in a Wednesday interview recorded on the Fox Business Network. “The U.S. economy has enough strength to avoid that, but the odds have clearly risen, and they are higher than I’m frankly comfortable with,” she said.
Warren warns about recession. Democratic presidential candidate Sen. Elizabeth Warren (D-Mass.) tweeted “the warning signs for another recession are flashing. We need to pay attention and act now, while we still have time to avert a downturn.”
Capital flow watch in China. Capital outflows jumped to $85 billion in the second quarter of the year from about $21 billion in the first quarter. But there was only a small outflow in July from the country’s foreign exchange reserves, which remained relatively stable at $3.1 trillion. Observers note that tighter restrictions by China's State Administration of Foreign Exchange should temper the desire to flow capital out of the country. Others are watching companies making payments on hundreds of billions of dollars in offshore debt.
The world's biggest shipping company said the U.S./China trade war is crushing the global economy. "I guess in a way we have been expecting a slowdown all year, and global demand has grown so far, and we expect that to continue to grow 2-3% which is consistent with a slow growing economy and that's what we are planning for," Maersk's CEO said.
Saudi Arabia has significantly ramped up its oil exports to China in recent months, doubling in the span of a year. During the same period, the kingdom's oil exports to the U.S. dropped by nearly two-thirds.