Coronavirus is impacting trade shipments into China
In today's updates:
* Trump, Pelosi tensions flared at State of Union address
Markets: Global stocks rose today and oil posted its biggest gain in more than a month, further erasing earlier losses. U.S. stock futures are indicating another big day of gains, with the Dow pointing to a big advance at the open to retake the 29,000 level.
— U.S./China trade policy update:
- National Economic Council (NEC) chief Larry Kudlow told CNBC that the impact on the U.S. economy is expected to be “minimal,” and the U.S. was ready to help China. “We would like to make them as healthy as we can,” he said. Expectations are the situation could trim U.S. GDP by 0.2 percentage points in the first quarter and another 0.2 percentage point later in the year. “It is not a catastrophe. It is not a disaster. I think people should be very calm about this,” Kudlow said. “This is not going to be that big a deal for us.” Bottom line on China’s imports ahead: The extent of the hit to demand depends heavily on how soon factories and shippers can resume work.
- Kudlow said the coronavirus situation will delay U.S. exports to China under the Phase 1 trade deal. “The export boom from that trade deal will take longer because of the Chinese virus.” The trade deal referenced by China is the Phase 1 agreement signed Jan. 15 which called for China to boost its purchases of U.S. ag, energy, services and manufactured goods. The office of the U.S. Trade Representative said on Monday that it had “not received any requests from China’s government to discuss changes in China’s purchase commitments due to the coronavirus outbreak.” There is a clause in the agreement that provides consultations between the two countries in the event of a natural disaster or other unforeseen shock.
- Former White House aide Clete Willems said the U.S. would need to show some understanding with China on the trade front as the country confronts the coronavirus situation. "We simply don't know the scope of this and what the economic impact is going to be. It does mean that in the short term it's going to make it difficult to make progress on Phase 2, and there will be a conversation with respect to implementation,” Willems told Reuters in Washington.
- Wendy Cutler, the former senior U.S. trade negotiator now at the Asia Society Policy Institute, urged the Trump administration to take the high road. “U.S. should recognize and accept that the . . . virus is going to slow down China implementation of Phase 1 trade deal. Living up to purchasing targets and other commitments will need to take back seat to taking care of sick citizens and stopping the spread of the virus,” she wrote on Twitter.
- Former USTR Zoellick criticizes Trump’s Phase 1 deal with China. Former U.S. Trade Representative Robert Zoellick doesn’t like President Trump’s bilateral trade deal with China. “I don’t think it will work, but it’s got political spin,” Zoellick, who’s also a former head of the World Bank, said at a Washington International Trade Association event. Zoellick, who served as trade representative under George W. Bush, identified several big hurdles in the U.S./China relationship: Beijing’s market access barriers, its use of state capitalism, its ambitions to dominate future technologies, its Belt-and-Road initiative, its foreign security policy and the “creepy” ways it keeps tabs on its own citizens. The tariffs imposed by Trump “are not the right wrench” for dealing with any of those issues, but they do have the political advantage of resonating with Trump’s base, Zoellick said.
- China’s purchases of liquefied natural gas from the U.S. have dropped off in recent quarters while the EU and India have stepped up their purchases, the Financial Times notes. China is supposed to buy an extra $52 billion of U.S. energy supplies, including LNG, over the next two years as part of the Phase 1 trade deal with the U.S.
— Coronavirus update:
- The Wuhan coronavirus spread continues, with cases inside China totaling 24,324 and 490 deaths, according to the Chinese National Health Commission. The virus has now been reported in 27 countries, with nearly 230 cases. Ten passengers on a cruise ship docked near Tokyo have also tested positive for the virus. A second, 1,600-bed hospital for coronavirus patients in Wuhan is set to be completed today as the virus spreads. Health experts are still unable to say definitively how lethal the virus is, but the mortality rate so far — about 2% — is lower than that of SARS.
- Hong Kong will quarantine all arrivals from mainland China for 14 days, a backdown by Hong Kong’s leader, who had resisted calls to further tighten entry to travelers from mainland China amid concern about the spread of coronavirus and a strike by medical workers. It also came as Taiwan suspended entry for Chinese citizens who live on the mainland and warned Taiwanese against non-essential travel to Hong Kong.
- Trade implications. The situation in China with the government restricting travel and extending the Lunar New Year holiday has resulted in shipments of some 250,000 bales of Indian cotton to China being delayed. Reuters reported. Meanwhile, EU and U.S. carmakers warn they are “weeks away” from a China parts shortage, after Hyundai closes its South Korea plants as the coronavirus outbreak ripples through supply chains.
- The World Health Organization (WHO) is expected to put out new recommendations today to protect international airline staff so that they can resume flights to China. Dozens of airlines have suspended or reduced flights to the mainland as the outbreak spreads beyond China. The WHO has already urged countries not to impose unnecessary travel restrictions on China.
- Chinese cities and ecommerce platforms are taking steps to help businesses hurt by the coronavirus situation, according to Xinhua. Cities such as Shanghai, Beijing, Qingdao and Suzhou have deployed actions to help small- and medium-sized businesses by trimming loans, rent and social security payments. Beijing will delay until the end of July the collection of social security payments for companies involved in tourism, catering and other hard-hit industries, the news service said. Suzhou, Shanghai have proposed returning half of unemployment insurance premiums paid by businesses in the previous year for firms that do not lay off workers. MYbank, backed by Alibaba, said from Feb. 2 it would trim interest rates on loans for 1.5 million shops and 300,000 pharmaceutical shops in Hubei province.
- The SEC is warning investors about fraudulent claims tied to coronavirus treatments. And critics of Beijing are mocking the government’s response as a game of “tossing the wok.”
— House Speaker Pelosi rips up Trump State of Union speech; Trump turns away from hand shake with the speaker. Tuesday’s State of the Union address from President Donald Trump, as expected, brought different emotions from party leaders and others. But the scorn between Trump and Pelosi was evident at the beginning and end of the speech. display of hatred and ill will. As he arrived at the rostrum, Trump turned to hand copies of his speech to Pelosi and Vice President Mike Pence. But when Pelosi (D-Calif.) offered her hand to shake, the president pointedly turned away without taking it. Pelosi then did not introduce Trump in the usual manner.
Seated just behind the president, Pelosi shook her head several times during his address. Moments after Trump finished and was hearing loud applause from Republicans, the speaker ripped up the pages of his speech, holding them high for the cameras to catch her unmistakable statement of scorn. Asked by reporters why she ripped up the speech, Pelosi said, “Because it was a manifesto of mistruths.”
With his anticipated acquittal today in his impeachment trial in the Senate, Trump never mentioned the impeachment inquiry that has consumed Washington.
The president proclaimed he was building “a long, tall and very powerful wall” across the southwestern border and vowed to oppose what he called a “socialist takeover” of the health care system by Democrats in Washington and those running to replace him in the White House. “To those watching at home tonight, I want you to know: We will never let socialism destroy American health care!” Trump declared.
The president called on Congress to pass bills to encourage school choice, lower prescription drug prices, provide a small amount of funding for neonatal research, ban late-term abortions and work toward improving the nation’s roads, bridges and tunnels — while Trump said lawmakers should pass the bipartisan Senate surface transportation bill, he didn’t offer a way to pay for the $287 billion proposal.
Regarding trade policy, the president said he had succeed in revising the North American Free Trade Agreement (NAFTA), something supported by many Democrats as well as Republicans. “Many politicians came and went, pledging to change or replace NAFTA, only to do absolutely nothing,” Trump said. “But unlike so many who came before me, I keep my promises.” As for the Phase 1 deal with China, Trump lauded the interim trade deal, calling it a “groundbreaking” agreement that would force China to stop its trade malpractices. The deal would “defend our workers, protect our intellectual property, bring billions of dollars into our treasury, and open vast new markets for products made and grown right here in the USA,” Trump said. Trump said the strategy to impose tariffs to “confront China’s theft of American jobs” had worked, but that he had developed an improved relationship with China, including with Chinese President Xi Jinping. “For decades, China has taken advantage of the United States; now we have changed that, but at the same time we have perhaps the best relationship we have ever had with China, including with President Xi,” Trump said. “They respect what we have done because, quite frankly, they could never believe what they were able to get away with year after year, decade after decade, without someone in our country stepping up and saying ‘enough’.”
Trump cited his "bold regulatory reduction campaign" for turning the U.S. into the world's top oil and gas producer.
Trump had a few words on environmental concerns, touting the Trillion Trees Initiative he pledged the U.S. would join last month in Davos at the World Economic Forum. House Republicans also plan to push legislation to plant more trees, which absorb carbon dioxide. Trump did not mention climate change.
The address included a few theatrical touches, including the surprise reunion of a military family. Trump also awarded the Presidential Medal of Freedom to the radio talk show host Rush Limbaugh, who was seated next to the first lady, Melania Trump. Limbaugh recently announced that he has advanced lung cancer.
Bottom line of speech: Trump declared America’s “future is blazing bright” and that “the state of our union is stronger than ever before.” With a U.S. unemployment rate of 3.5%, the lowest since 1969, the president took credit for what he called a “blue-collar boom.” He struck an upbeat tone while making a case for his re-election, focusing on the "great American comeback" of economic growth in the 78-minute speech. The president trumpeted the economic effects of a pair of recent trade agreements: newly approved U.S.-Mexico-Canada deal and a Phase 1 deal with China. “Our military is completely rebuilt with its power being unmatched anywhere in the world,” he said, celebrating the U.S. missions that killed Isis leader Abu Bakr al-Baghdadi and Iran’s top military commander Qassem Soleimani.
The Democratic governor of Michigan, Gretchen Whitmer, gave the Democratic response to the speech and U.S. Rep. Veronica Escobar (D-Texas) delivered a Democratic response in Spanish. Whitmer said that people were being left behind in Trump’s economy. “It doesn’t matter what the president says about the stock market,” she said. “What matters is that millions of people struggle to get by or don’t have enough money at the end of the month after paying for transportation, student loans, or prescription drugs.”
— Other items of note:
- Buttigieg leads in delegates, Sanders leads raw vote in Iowa caucuses. With 71% of precincts counted, here’s where the delayed results from Iowa’s Democratic caucuses stand:
■ Pete Buttigieg has 26.8%of state delegate equivalents, followed by Bernie Sanders, with 25.2%.
■ Elizabeth Warren (18.4%), Joe Biden (15.4%) and Amy Klobuchar (12.6%) round out the top of the field.
Iowa Democratic Party Chair Troy Price said in a press conference that the delayed release of the caucus results was due to a reporting issue and the underlying data from the precinct locations was accurate. He did not provide a timetable as to when further results would be released.
- Some Democrats call for end of Iowa caucuses. The Iowa caucus results debacle is threatening to end the decadeslong tradition of starting the nomination race in a state already long criticized for having such an outsize role despite its small, mostly white population. Link to WSJ article for details.
- Trump mulls exiting from WTO’s purchasing pact. The Trump administration is mulling a plan to withdraw from a global pact worth $1.7 trillion in government contracts, a person familiar with the matter told Bloomberg. Officials are circulating a draft executive order that would trigger a U.S. exit from the World Trade Organization’s Government Procurement Agreement, or GPA, if the pact isn’t reformed in line with American views, according to the person, who asked not to be identified because discussions are ongoing. U.S. withdrawal from the pact would effectively block most foreign, non-defense contractors from bidding on the tenders. Currently companies based in GPA member states — like the U.K., Japan, South Korea, Canada and the European Union — have preferential access to U.S. public procurement tenders.
- WTO reform talk from top WTO official. WTO Director-General Roberto Azevêdo said there is a growing realization in Geneva that structural changes are needed to respond to U.S. complaints over the operation of the dispute settlement system. “The reality is we need very significant changes,” Azevêdo said. “A few coats of paint will not be enough.” In remarks to the Washington International Trade Association (WITA), Azevêdo touched on the dispute settlement process at the WTO and the appellate body, the source of U.S. complaints about the WTO process. “In my mind, I can see a much better functioning dispute settlement system, but my mind is not enough,” Azevêdo said. While he did not meet with either U.S. Trade Representative Robert Lighthizer nor President Donald Trump in his visit this week, Azevêdo noted he has been engaging with U.S. officials on a consistent basis. But he emphasized, “What we need to do is transform those ideas into concrete action.” As for not meeting with Lighthizer or Trump, the WTO chief said, “It does not mean that I cannot come back. I need somebody to tell me — ‘This is the time.’”
- Wayne Stoskopf joined the National Corn Growers Association’s D.C. office as director for public policy on risk management and taxes. Stoskopf was previously a senior staff member for the Senate Agriculture Committee, where he worked on commodity and disaster programs, crop insurance and other issues.
- Sales of new gasoline, diesel and hybrid cars are to be banned in Britain from 2035 — five years earlier than originally planned. The country is due to host COP26, the next big UN climate summit, later this year and wants to assert its environmentalist credentials. Britain is already committed to a target of net-zero carbon emissions by 2050.
— Markets. The Dow on Tuesday surged 407.82 points, 1.4%, bringing the blue-chip index to 28,807.63, returning it to positive territory for the year. The S&P 500 advanced 48.67 points, 1.5%, to 3,297.59, within 1% of its record close on Jan. 17. The Nasdaq added 194.57 points, 2.1%, to 9,467.97, a record close for the index.
A U.S. construction boom is driving up lumber prices. Lumber futures are up more than a third from lows reached last June, when bad building weather and overstocked yards caused an unseasonable slump.