Trump Officials Spar on Tariff-lifting Links to Phase 1 Talks | USMCA Vote Coming

Posted on 11/08/2019 7:19 AM

Second MFP 2 installment authorized coming later this month or early December

In today's updates:

* Peterson: House could vote on USMCA as soon as next week
* Peter Navarro: no agreement to roll back tariffs re: Phase 1 U.S./China trade deal
* NEC Director Larry Kudlow: "tariff agreements" would be part of any pact
* USDA to allow Chinese processors to export chicken to the U.S.; Fed Register doc
* Chinese officials spinning latest Phase 1 talks to get as many tariffs lifted as possible
* Trump spin on tariffs does not meet the reality test
* Second round of MFP 2 installments authorized; Perdue murky on round three
* $500 million already paid out via WHIP+ top-up payments
* MFP 2 payments as of Nov. 4: $6.659 billion, out of $7.25 billion
* Perdue and Mexico upbeat on USMCA ratification
* Perdue talks ag labor/immigration issues
* EU official: U.S. tariff threat avoided on EU cars
* Gov. Rounds talks over lunch with Trump re: RFS
* Food-delivery craze getting a big financial injection: WSJ
Cotton AWP moves lower
* Mike Bloomberg preparing to enter the Democratic presidential primary
* S.F. Fed convenes central bank's conference on "Economics of Climate Change”
* Japan moves towards looser fiscal policy

China exports fell less than expected in October. China’s October exports fell 0.9% vs October 2018, an easing from the 3.2% decline in September, according to Chinese customs data. Expectations had been for a decline of more than 3%. Chinese imports in October were down 6.4% from year ago, a less-steep decline than the 8.5% fall registered in September. China’s overall trade surplus rose to $42.81 billion, a bigger figure than the September level of $39.65 billion in September.

The iconic Charging Bull sculpture will move from its current place in Bowling Green park near the New York Stock Exchange. City officials said that safety concerns were behind the move. The statue has seen controversy over the years, including Occupy Wall Street protests. Link for details.

Second MFP 2 installments authorized; likely disbursed later this month or early December. That's what USDA Secretary Sonny Perdue said Thursday during a presser. He revealed the White House and Office of Management and Budget (OMB) cleared another round of Market Facilitation Program (MFP 2) payments, and said the money should go out to eligible farmers later this month or in early December. The second installment will total $3.625 billion; the same figure for any third installment due January, early February.

While Perdue said the pending trade deal with China could make additional payments unnecessary, but most observers believe the third MFP 2 installment, due January, will be made.

The amount of Chinese purchasing under discussion “would be very beneficial to agricultural producers and we’re hopeful that trade would supplant any type of farm aid needed in 2020 in that regard,” Perdue told reporters. But others note even if a Phase 1 agreement is signed with China, the committed purchases of U.S. farm products will be over at least a two-year period and will likely come with caveats. The ramping-up will give proponents fodder for making sure the final installment of MFP 2 is made. It may be harder, but certainly not impossible, for an MFP 3 program in 2020 should China embark on an aggressive purchase program of U.S. farm goods.

Undersecretary Bill Northey provides latest payments under USDA programs, including MFP 2 and WHIP+/top-up. During a presentation Thursday afternoon in Minneapolis at the 2919 Minnesota Ag & Food Summit, hosted by the Minnesota AgriGrowth Council, Northey revealed:

  • $500 million in top-up payouts via WHIP+
  • MFP 2 first installment payments now total $6.7 billion to $6.8 billion, out of an expected $7.25 billion. (USDA said that as of Nov. 4, MFP 2 payments totaled $6.659 billion, with Iowa, Illinois, Minnesota, Texas and Kansas the top states.)
  • Northey mentioned hurdles in accelerating any third MFP 2 installment due to the cash-flow problems in agriculture. He said the MFP has “a schedule that is hard to disrupt as well as they're not supposed to be about disaster, they're supposed to be about trade and so in theory we need to be able to have a look at what the trade situation is come January... I think it's unlikely that we're going to be able to move that third payment forward.”

Other highlights from USDA Sec. Perdue's presser:

  • USMCA: “Mexico is as anxious as we are to have [USMCA] ratified… they're anxious for us to complete our task here and we discussed that as well,” he observed, referring to ratification of the trade deal by Congress. Asked if Mexico appeared open to any textual changes in USMCA to address concerns about enforcement of the agreement’s labor standards voiced by House Democrats, Perdue responded, “they don't expect any major changes.” U.S. Trade Representative (USTR) Robert Lighthizer, who has headed up negotiations with House Democrats aimed at addressing labor, environmental and other issues in USMCA, does not expect textual changes either, Perdue noted. He “feels that the issues that he's been negotiating with on the Democratic side are attainable and can be done and we're just anxious to get those things done sooner rather than later,” Perdue remarked.
  • Immigration and ag labor: Immigration was another area of discussion, namely modernization of the the U.S. H-2A foreign ag guestworker program. Perdue said Mexican officials “seem very interested” in the idea of pre-certifying H-2A applicants to help speed their entry into the U.S., something neighbors in Central American are doing. Under pre-certification, prospective H-2A visa recipients can be trained and taught what is expected of them, while providing U.S. producers a “reliable pool of people from which to draw from,” Perdue said. Having a functioning pre-certification program could also serve broader immigration policy goals, Perdue asserted. Both he and Mexican officials felt such a program “would also help to resolve the irregular immigration or illegal immigration that we've been plagued by — having an avenue for these people to come in a legitimate government certified program,” Perdue said. Besides efforts with Mexico on the guestworker program, “we're making progress on modernizing our H-2A rules and hopefully having some legislative input coming soon that can facilitate that,” Perdue added.

— Peterson: House could vote on USMCA as soon as next week. In an exclusive interview with Pro Farmer policy analyst Jim Wiesemeyer and Farm Journal news director John Herath for the DC Signal to Noise Podcast, House Ag Committee Chairman Collin Peterson (D-Minn.) said House Speaker Nancy Pelosi (D-Calif.) wants to get the USMCA vote on the fast track. “[USMCA Working Group chair] Richard [Neal] (D-Mass.) told me he is going to try to move it when we get back next week, or the week after, so he’s pushing hard,” Peterson said. “It’s going to get done. The question is, is it going to get done in those two weeks or is it going to get done in December?”

Peterson noted that Pelosi talked about the push to pass USMCA on a caucus conference call this week. “She was pushing and explaining the USMCA on that call, and she wouldn’t be doing that if she didn’t want to get this done,” Peterson explained. “So, this is going to get done.”

The USMCA working group has been meeting with U.S. Trade Representative Robert Lighthizer to negotiate changes to the trade agreement required to get votes from both sides of the aisle. Peterson said he anticipates that work will clear the way for rapid approval in all three countries. “They (the USMCA working group) were down there, they met with the Mexicans,” Peterson said.” They told the Mexicans what they were going to do, and if it’s going to require a re-vote (on the USMCA), I got the sense that the Mexican’s don’t think it’s a problem.”

Canadian leadership has indicated that Parliament will wait until the U.S. has a completed deal before voting on USMCA.

U.S. farm groups have presented a full-court press in support of a vote approving USMCA in recent weeks. Randy Russell of The Russell Group, who represents a number of ag organizations, said on the AgriTalk radio show that the agreement is crucial for farmers and ranchers. “The Mexican government [has] already signed off on it, Canada said they’re just waiting for us to pass it and they will pass it, and I just don’t know what kind of signal that sends to our trading partners around the world,” Russell said. “If we can’t approve a deal that on all levels…I don’t care what level you’re talking about, this agreement is better than NAFTA and NAFTA has been great for U.S. agriculture. I’m very hopeful we’ll get it done, and I think we’ll get it done before Christmas.”

Editor's note: We will have more on what Rep. Peterson told us in a future dispatch.

U.S./China trade policy update:

  • USDA will allow Chinese processors to export chicken to the U.S. according to a pending rule in today's Federal Register. Link The notice does not say when the final rule would be officially filed in the Federal Register. And reports in recent weeks, including Chinese state media, have signaled China is preparing to lift its four-year ban on U.S. chicken as part of the coming Phase 1 agreement. China's state news agency Xinhua reported late on Thursday that the Chinese customs and Ministry of Agriculture are considering removing restrictions on U.S. poultry imports. China has banned all U.S. poultry and eggs since January 2015 due to an avian influenza outbreak.
  • China says tariffs will go, but some U.S. official raised doubts. It appears Chinese officials are working the press to get what they want relative to getting some of the U.S. tariffs removed. Beijing’s announcement that the U.S. and China have mutually agreed to roll back tariffs lifted financial markets Thursday, adding to hope the trade war is beginning to wind down.

    But some U.S. officials expressed caution, while other U.S. officials essentially confirmed the Chinese accounts. It would be the first time the Trump administration has agreed to remove any of the tariffs it has placed on $360 billion worth of Chinese goods — Trump canceled a planned tariff increase in October. White House economic adviser Larry Kudlow confirmed to Bloomberg that tariff agreements and concessions would be part of a phase one trade deal.

    A White House spokesman this morning said: White House is optimistic about some kind of U.S./China trade deal, if deal is reached, then some tariffs could be lifted.

    Trump faces internal divisions, with more hawkish advisers warning removing tariffs without more substantial commitments from China will do little to resolve America’s concerns and amount to a capitulation. “There is no agreement at this time to remove any of the existing tariffs as a condition of the phase one deal,” Peter Navarro, a White House trade adviser, said during an interview on Fox Business Network. “The only person who can make that decision is President Donald J. Trump and it’s as simple as that.” Stephen Bannon, the president’s former chief strategist, said: “President Trump’s tariffs are the centerpiece of his confrontation with the Chinese Communist Party — and they have worked brilliantly, forcing the Chinese to the table. Now, China is trying to re-trade the president and remove the tariffs.”
  • How Michael Pillsbury, a Trump trade adviser, size up the tariff situation. “There is a difference between an ambiguous stage-by-stage tariff reduction agreement versus a specific list of which tariffs will be with withdrawn for what Chinese actions,” said Pillsbury, a China scholar at the Hudson Institute, in remarks to the New York Times. “Neither the Chinese nor the White House has developed a specific list or a series of quid pro quo — yet. That is the next task... If China and the U.S. States reach the first-phase agreement, according to the content of the agreement both sides should cancel added tariffs at the same time with the same proportion,” he said. “This is an important condition for reaching an agreement.”
  • Parsing China's comments on tariff lifting. Gao Feng, a spokesman for China’s Commerce Ministry, said at his weekly news conference in Beijing on Thursday that China was insisting any deal include tariff reductions and that the U.S. had agreed. Gao did not specify what tariffs might be dropped, or whether they might consist of higher tariffs Trump has threatened to impose but not done so yet. “In the past two weeks, the leaders of the two sides have conducted a serious and constructive discussion on properly addressing the concerns of both sides, and agreed to cancel the tariffs by stages in accordance with the development of the agreement,” he said.
  • The Trump spin on tariffs does not meet the reality test. President Trump keeps insisting that Americans are not paying the tariffs, but business and farmers’ groups say economic data shows otherwise. The lobbying group Tariffs Hurt the Heartland, in a report released this week, found that American consumers and businesses have paid an additional $38 billion in tariffs between February 2018 and September 2019. “This data offers concrete proof that tariffs are taxes paid by American businesses, farmers and consumers — not by China,” said Jonathan Gold, spokesman for Americans for Free Trade. “This is why removing tariffs must be a part of the phase one deal.”

Other items of note:

  • Tariff threat avoided on EU cars. Despite U.S. steel and aluminum tariffs on Europe, as well as $7.5 billion of duties on European goods, President Trump won't take the next step in imposing tariffs on European cars next week, according to Jean-Claude Juncker, the outgoing president of the European Commission. Trump has until Nov. 14 to decide whether to apply new duties on European carmakers, after arguing in May that American imports of European autos pose a national security threat to the U.S.

  • Michel Bloomberg, the billionaire former New York mayor, prepares to enter 2020 Democratic presidential race. He has dispatched staffers to Alabama to gather qualifying signatures for its primary — a sign that he may enter the Democratic race. His move comes as some in the party are upset about its leftward lurch, with Sen. Elizabeth Warren on the rise and former Vice President Joe Biden faltering in early states.

  • Rounds talks over lunch with Trump re: RFS. Sen. Mike Rounds (R-S.D.) had lunch with President Trump on Thursday. "I appreciated the opportunity to talk to him about the shortcomings of the EPA's proposed rule on the RFS," Rounds tweeted. "Glad he re-confirmed his commitment to assuring 15 billion gallons of ethanol is blended into gasoline annually."

  • The food-delivery craze is getting a big financial injection aimed at changing the menu for the business. Saudi Arabia’s sovereign-wealth fund is pumping $400 million into the new company of Uber Technologies Inc. co-founder Travis Kalanick, the Wall Street Journal reports (link), in a deal that could value his CloudKitchens startup at about $5 billion. CloudKitchens is a bet on the food-delivery boomlet. It buys cheap real estate, often near city centers, and builds commissary “ghost” kitchens for restaurants that can prepare food exclusively for delivery. “The attempt to add an industrial-production component to food delivery aims to solve key logistics hurdles by creating capacity that’s not tethered to restaurants also serving sit-in diners (link). But the idea still faces big challenges, and it’s unlikely to settle questions over the financial split between delivery specialists and the meal providers that has troubled restaurants.”

  • Cotton AWP moves lower. The Adjusted World Price (AWP) for cotton is at 56.63 cents per pound, effective today (Nov. 8), down from 57.33 cents per pound the prior week. This marks the first decline in the AWP since the week of Sept. 27.

Markets. The Dow on Thursday rose 182.24 points, 0.66%, at 27,674.80. The Nasdaq gained 23.89 points, 0.28%, at 8,434.52. The S&P 500 was up 8.40 points, 0.27%, at 3,085.18.

Climate change economics. A "green interest rate" is one of the topics on the calendar today as the San Francisco Fed convenes the U.S. central bank's first-ever conference on the "Economics of Climate Change." The event is so oversubscribed, a webcast has been created to meet demand. "It's important for us from a monetary policy perspective to know what the potential growth rate of the economy is and if climate events or climate risk is going to shave that off, even if it's over the long term," San Fran Fed chief Mary Daly said earlier this week.

Japan moves towards looser fiscal policy. "To speed up our recovery [from natural disasters], deal with risks from abroad and accelerate productivity growth, we are formulating an economic plan along the lines of a 15-month budget," said Yoshihide Suga, Japan's chief cabinet secretary. It would be Japan's first economic stimulus package since 2016. The Bank of Japan has already cut overnight interest rates to -0.1% and purchased trillions of yen worth of government bonds, but the flat yield curve now makes it hard for banks and insurers to turn a profit.


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