Trump predicts 'relatively quick' USMCA passage, but House Dems signal otherwise
— Media reports note President Trump approved military strikes against Iran in retaliation for downing an American surveillance drone, but pulled back from launching them on Thursday night. The New York Times, Washington Post and ABC News said Trump approved attacks on targets such as radar and missile installations and that U.S. aircraft were en route when a decision was taken to abort the mission.
Until the initial decision to strike, it appeared the situation was being cooled down. Trump earlier Thursday warned that the U.S. would “not stand for it,” but offered a way out of escalation by blaming someone “loose and stupid” in Iran. Trump told reporters of the drone shootdown: “I find it hard to believe that it was intentional.” Those comments came just hours after he said in a tweet that Iran had made a “very big mistake.”
Oil prices edged up today, with Brent crude rising 0.3% to $64.59, having jumped 4.5% on Thursday after a drone was shot down; WTO surged 6% yesterday.
The White House held a classified briefing for lawmakers on Thursday. Afterwards, House Speaker Nancy Pelosi (D-Calif.) urged the administration to work with allies and avoid taking a “reckless” approach to the crisis. “This is a dangerous, high-tension situation that requires a strong, smart and strategic, not reckless, approach,” she said.
Senate Minority Leader Chuck Schumer (D-N.Y.) said he told Trump that he needed congressional approval for any attack on Iran. “The president may not intend to go to war here. But we’re worried that he and the administration may bumble into a war,” he said.
— Trump predicts 'relatively quick' passage of USMCA. President Donald Trump, hosting Canadian Prime Minister Justin Trudeau on Thursday at the White House, signaled optimism to reporters that Congress will approve the U.S.-Mexico-Canada Agreement (USMCA) relatively quickly. “I really do believe that Nancy Pelosi and the House, the Senate will approve it rapidly,” Trump said. “It's going to be very bipartisan. It's great for the farmers, manufacturers. Great for everybody. And great for unions.”
Trudeau said he is optimistic about the prospects of the USMCA, but added he hoped obstacles in the U.S. don't lead to reopening negotiations. Trudeau lauded the “very strong and positive relationship with the United States” that he said came out of USMCA negotiations that were “contentious at times.” He spoke at a news conference at the Canadian embassy. Trudeau cited concerns about the possible reopening of negotiations as the U.S. Congress works on the agreement. “Any reopening of NAFTA could lead to not just lengthy further negotiations that we all were quite pleased were behind us, but also may lead to worse outcomes for Canadians and for Canada," he said. The USMCA is the replacement for NAFTA.
“We can’t overstate how important free trade is to the Canada-U.S. relationship,” Trudeau said. “Millions of people and businesses depend on a strong economic partnership between our two countries to make ends meet. That’s why we worked incredibly hard with our North American partners to secure a new NAFTA.”
Canada USMCA timeline. Trudeau was in Washington the day after the Mexican Senate ratified the agreement 114-4. President Trump said Thursday that Canada is doing “very well” at approving the new agreement, an assertion Trudeau endorsed. The Canadian House of Commons, which adjourned Thursday until Sept. 16 with the implementing legislation still in committee, could return before then for a ratification vote. The House's website shows a notice saying the date of return is subject to change without notice.
In the U.S., the USMCA timeline is murky as the final text of the agreement is not yet settled. Speaking in the West Wing alongside Trudeau on Thursday, Trump was cautious, but said he thought Pelosi would advance the deal. Democrats are most concerned about enforcement of labor and environmental provisions, and by a 10-year pricing monopoly on biologics. “We all agree that we must replace NAFTA, but without real enforcement mechanisms we would be locking American workers into another bad deal,” Pelosi said in a statement last month. “A new trade agreement without enforcement is not progress for the American worker, just a press release for the President.” U.S. Trade Representative Bob Lighthizer said Wednesday he is confident he can negotiate compromises with a working group appointed by Pelosi to address Democratic concerns about provisions in the proposed accord. Before her meeting with Trudeau, Pelosi said she was "optimistic and hopeful" about the future of the USMCA. "We want to get on a path to yes," she said.
— Crop insurance superior to ad hoc disaster aid, House Ag panel told. Crop insurance witnesses during a House Ag subcommittee hearing stressed that crop insurance is a better policy approach than ad hoc disaster bills. “Ad hoc aid is frequently inefficient and often an inequitable method to deliver assistance,” said Brandon Willis, a former administrator of the Risk Management Agency. “It is slow and uncertain, with payments sometimes coming years after losses occur and frequently in a measure that does not reflect actual losses.” Link to Willis testimony.
Respected crop insurance agent Ruth Gerdes said farmers “understand they cannot rely” on disaster payments. “We went from 2005 to 2016 with no ad hoc disaster … we've already paid farmers for their 2019 prevent plant.” Link to Gerdes testimony.
Gerdes said USDA’s decision to lower prevent plant coverage in 2017 was “a bad idea.” Testifying on behalf of the Crop Insurance Professionals Association (CIPA), Gerdes said, “The Office of Inspector General at USDA conducted an audit and concluded that, based solely on high price-election years when crop prices are high, the guarantees provided in the prevented planted portion of the coverage were too high. As a result, RMA lowered the guarantee anywhere from 5 to 15 percentage points across various major commodities beginning in 2016, and reduced buy-up options for producers. The problem is that prices have been dropping dramatically and so, therefore, did prevented planting (PP) coverage. In simple terms, a 65% PP factor of a 200-bushel corn yield with a $5.68 per bushel price election and 75% coverage level provides a PP guarantee of $553.80 per acre. In contrast, a 55% PP factor on the same farm but with a $4.00 price election provides a PP guarantee of just $330.00 per acre. You see the problem. Not surprisingly, as a result of these changes, prevented planting supplemental support had to be added to the disaster package. This means the cost is borne solely by the government rather than through premiums paid by farmers under crop insurance with companies sharing in the risk of losses. I think we can and should learn from this,” Gerdes said.
“I know that it is not within the jurisdiction of this Committee,” Gerdes stressed, “but I would add that I am deeply concerned that unless levees are repaired in short order that this same tragedy will unfold again, adding billions of dollars more in losses.”
— U.S./China trade policy update:
- Chinese officials negotiating a trade deal with the United States might have offered concessions beyond their mandate, U.S. Trade Representative Robert Lighthizer said on Wednesday when questioned about why the talks might have faltered last month. Asked at a congressional committee meeting in Washington why the Chinese side walked away from the latest negotiations, Lighthizer said: “My speculation is that some forces in China decided that they had gone too far, went out beyond their mandate.”
- Condoleezza Rice: China hurt itself by saying it wanted to dominate tech world: CNBC. “The Chinese, I think, made a bit of a mistake when they went out and said we’re going to surpass the U.S. in quantum computing and AI [artificial intelligence] by 2030, ” said Rice, who was secretary of State and national security adviser under former President George W. Bush. “I told some of my Chinese friends that it was a big mistake” because the U.S. and other nations were already nervous about how China might use technology for spying.
- U.S. fines firms transshipping via Cambodia to dodge Trump's China tariffs: Reuters. “The Department of Homeland Security has inspected and fined a number of companies for evading tariffs in the United States by routing goods through Cambodia,” U.S. Embassy spokesman Arend Zwartjes told Reuters in an emailed statement. “These companies are located in Cambodia’s Sihanoukville Special Economic Zone,” said Zwartjes, who did not name or say how many companies had been fined for avoiding the tariffs, how large the fines were, or what goods the companies had been exporting.
- Romney leads effort to stop Trump from using Huawei to get China trade deal. In an amendment to the National Defense Authorization Act, Sen. Mitt Romney (R-Utah) set specific conditions for the commerce secretary to remove Huawei from a U.S. blacklist. Romney’s amendment says the ban can only be lifted if Huawei and its senior officers haven’t violated U.S. or United Nations sanctions, or the company hasn’t engaged in the theft of U.S. intellectual property in the preceding five years. Another condition is that the Commerce Department should rule Huawei isn’t a threat to American telecommunications systems or critical infrastructure of the U.S. and its allies. Meanwhile, Russian President Vladimir Putin said on Thursday that U.S. moves against Huawei aimed to weaken China, while U.S. tariffs sought to hold the Chinese economy back.
- Apple has said that U.S. tariffs on its products would reduce its contribution to the American economy. It is also reportedly weighing moving some production out of China.
— Reuters latest to report White House asking for review of “small” refiner exemptions. The White House is ordering a look at the use of small refiner exemptions (SREs) relative to Renewable Fuel Standard (RFS) obligations, Reuters reported, echoing news first reported by the Wall Street Journal earlier this week that said President Trump asked for additional actions to be looked at for the ethanol industry.
The use of the SREs has continued to be a point of contention within the ag/ethanol industry who maintain they are tempering moves like the recent finalized decision to allow E15 sales year-round. Trump was surprised at the recent Iowa visit he made when farmers were not more excited about the E15 action.
The report said EPA was now looking at limiting the SRE use. The agency approved 19 SREs for the 2016 compliance year, up from seven for the 2015 compliance year. The SRE approvals surged to 35 for the 2017 compliance year with one still pending and one either withdrawn or declared ineligible. For the 2018 compliance year, there are 39 pending with one that has been withdrawn or declared ineligible.
In a statement to Reuters Thursday, EPA said it “will continue to work with the White House, USDA, members of Congress and other stakeholders to ensure the Renewable Fuel Standard's continued stability."
Outlook. Various options are under review at EPA, including reallocating gallons lost to the mandate from the exemptions, issuing partial exemptions, and reducing the number of exemptions granted. This issue is not expected to impact the 2020 blending requirements rule and the rule to reset volumes for the next three years, both of which are at the Office of Management and Budget for review.
— RFS contact's response when asked what EPA could do relative to RFS waivers: “They could. I know that within the past two weeks there have been several high-level discussions including on Air Force One between the President and EPA leadership on the way to Council Bluffs, Iowa. I’ve heard anything from no SREs granted, to 7, to 13. BUT while everyone is focused on the shiny SRE object, be careful to watch the proposed reset coming as part or separate from the 2020 RVOs. Hard for me to imagine that the biofuels industry pulls off the improbable: which is E15, without any significant RIN reforms, completely turn the tide against SREs and maintain current mandated levels through a reset. They would truly run the table and the refining industry would get nothing?”
Another contact added, “One thing to watch: Brazilian ethanol imports qualifying as Advanced Biofuel starting to stream into California to comply with the LCFS. Modest levels this year...could explode next year.” LCFS is the Low Carbon Fuel Standard (LCFS) Program pursuant to California.
— RMA allows early haying/grazing of cover crops on prevent-plant acres. Cover crops on prevented-plant acres can be hayed or grazed earlier than the normal Nov. 1 deadline, USDA's Risk Management Agency (RMA) announced Thursday, bowing to concerns most recently conveyed by farmers and a group of farm-state lawmakers. USDA Secretary Sonny Perdue previously said the agency was reviewing whether they could adjust the haying and grazing date.
Details. Farmers may now hay or graze cover crops on prevented-plant acres as early as Sept. 1, instead of the previous date of Nov. 1. The change will "help farmers who were prevented from planting because of flooding and excess rainfall this spring," RMA said in a release. The move allows farmers to hay or graze prevented plant acres earlier while still maintaining eligibility for their full 2019 prevented planting indemnity, the agency said.
Lawmaker pressure. RMA's decision came almost two weeks after a group of lawmakers, led by Sens. John Thune (R-S.D.) and Dick Durbin (D-Ill.), asked the agency to give farmers more haying and grazing flexibility. USDA should “modify the Nov. 1 grazing/harvest date for northern states more subject to snow, ice, and other adverse fall weather” to allow farmers in the region to hay or graze earlier than that date, the lawmakers urged in a June 7 letter to USDA Undersecretary for Farm Production and Conservation Bill Northey.
"We recognize farmers were greatly impacted by some of the unprecedented flooding and excessive rain this spring, and we made this one-year adjustment to help farmers with the tough decisions they are facing this year," Northey said in a statement. "This change will make good stewardship of the land easier to accomplish while also providing an opportunity to ensure quality forage is available for livestock this fall."
Besides adjusting the haying/grazing date, RMA also announced "silage, haylage and baleage should be treated in the same manner as haying and grazing for this year." That means cover crops harvested on or after September 1 may also be used for silage, haylage or baleage without jeopardizing eligibility for full 2019 prevented plant indemnity.
"These adjustments have been made for 2019 only," stressed RMA Administrator Martin Barbre. "RMA will evaluate the prudence of a permanent adjustment moving forward."
— House panel approves bill to renew lapsed tax incentives, including biodiesel, but changes needed to get Senate okay. The House Ways & Means Committee on Thursday approved, 25-17, a bill (HR 3301) to renew tax breaks that expired at the end of 2017 and 2018 (biodiesel tax incentive) and some that expire at the end of this year.
The $42.5 billion extender measure is largely paid for with a proposal to end the doubling of the estate tax exemption three years earlier than was set in the 2017 tax code overhaul, but an offset that will find little if any support among Senate Republicans.
The committee rejected on a party-line, 16-23 vote a GOP amendment to make all the tax extenders permanent. Democrats balked at the cost. Thomas Barthold, the Joint Committee on Taxation’s chief of staff, said a “rough” estimate would be “over $300 billion” for a decade to make all of the tax extenders permanent.
The cost of the extenders was less than it would have been had panel Democrats not made one major change: removing the eligibility of liquefied petroleum gases, chiefly butane and propane, for the 50-cents-per-gallon credit for mixing alternative fuels with gasoline and diesel. That change brought the cost of renewing that credit, and its companion credit for pure, unmixed alternative fuels, for three years down to $2.2 billion. Otherwise it would have been much more costly. Democrats said based on information from the IRS, simply allowing retroactive credits for 2018 and through the end of the last quarter before the bill is enacted would cost $10 billion.
— Other items of note:
President Trump is so focused on winning a bipartisan deal to rebuild America’s transportation infrastructure that it dominates discussions with Democratic leaders, according to House Speaker Nancy Pelosi (D-Calif.). “Eighty percent of the time that I’ve spoken to the president by phone or in person since his election, he’s talked about infrastructure,” Pelosi said in a breakfast meeting with reporters Wednesday. She said that only a “few times” has the president not raised the topic in their meetings and calls. “So I think he would really like to do that,” she added. And, she said, the reason she believes the president is so focused on infrastructure is because the White House is searching for wins to show off in the 2020 election.
If WTO cannot be fixed, a new body could be created, ex-central bank chief says. If the U.S. doesn’t support reforms to the World Trade Organization (WTO) or prevents the body from properly functioning, other major economies could look to create an alternative body, former Chinese central bank chief Zhou Xiaochuan said. If a consensus on WTO reforms can’t be reached, one solution could be a new organization including China and the EU based on the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), Zhou suggested at a roundtable jointly held by Caixin and Spanish think tank Elcano Royal Institute in Madrid in late May.
Mexico launched a plan to curb migration. President Andres Manuel Lopez Obrador pledged $30 million to El Salvador, part of a $100 billion program he’s hoping to create with international backing. The program would provide support for economic development projects and tackle the root causes behind why Central American migrants are fleeing poverty and violence to the U.S.
Container lines are shopping for mega-ships again despite the gloomy outlook for global shipping. Evergreen Marine Corp. of Taiwan and Germany’s Hapag-Lloyd AG are asking Asian shipyards to build up to 15 supersize vessels worth about $2.2 billion combined, the Wall Street Journal reports (link), in separate requests that could widen the gulf between capacity and demand on critical Asia-to-Europe trade lanes. The proposals from two members of competing shipping alliances mark an end to a months-long lull in orders even as demand for trans-Pacific shipments of retail and manufacturing goods is waning amid trade tensions and the slowing global economy. Operators say many older ships must be scrapped to meet 2020 limits on sulfur-emissions, and Taiwan’s Yang Ming Marine Transport Corp. and China’s Cosco Shipping Holdings Co. are also looking for new vessels.
Roy Moore to run for Alabama Senate seat, potentially costing Republicans a political victory in Alabama. The former chief justice of the Alabama Supreme Court wants a rematch with Doug Jones, who defeated him in a special election in 2017. Many Republicans, including President Trump, oppose his plans.
If you think the U.S. Congress is dysfunctional, look at the EU. At a summit, European Union leaders failed to agree on whom to appoint to the bloc’s top jobs, including a replacement for Jean-Claude Juncker, the president of the Commission. Emmanuel Macron, the French president, and Angela Merkel, the German chancellor, have been bickering about who should land Europe’s plum role. They will try again at a new summit next week.
— Markets. The Dow on Thursday rose 249.17 points, 0.94%, at 26,753.17. The Nasdaq retook the 8,000-point plateau, rising 64.03 points, 0.80%, at 8,051.34. The S&P 500 finished up 27.72 points, 0.95%, at a record 2,954.18. The S&P 500 has advanced 7.3% so far this month and is heading toward its best June since 1955.
The yield on the 10-year Treasury fell below 2% for the first time since November 2016, a day after the Federal Reserve paved the way for interest rate cuts next month. The yield has fallen 70 basis points since the start of this year.
The dollar took a hit against other major currencies. The dollar index dropped 0.5% to 96.65, led by a 0.6% slide in the euro. The yen and Canadian dollar also rose against the U.S. currency.
Central banks want to regulate Facebook's Libra cryptocurrency. "It has to be safe, or it's not going to happen," said Bank of England Governor Mark Carney.
Gold prices rose again today, putting the metal on track for its best week in over three years, as the dollar weakened following dovish signals from the U.S. Federal Reserve and developments between the U.S. and Iran. Gold climbed 1.3% to $1,406 per troy ounce, its highest level since August 2013.