Mexico president presses Pelosi, House Dems to vote on USMCA
In today's updates:
* Trump puts steel and aluminum tariffs back on Brazil and Argentina
Markets: Saudi Arabia is seeking extended oil-supply cuts to boost Aramco, according to the Wall Street Journal (link). The kingdom will push to curb output through mid-2020 when the Organization of the Petroleum Exporting Countries and its allies meet on Thursday. The two-day summit starts a day after state-owned Saudi energy giant Aramco prices its shares ahead of a public offering that is on course to break records.
I'll be home by Christmas? More than three million passengers had plans to fly with U.S. carriers on Sunday, in what could be a record day for air travel. But freezing rain and snow swept across the Northeast on Sunday, disrupting plans for millions returning home after the Thanksgiving holiday. The National Weather Service predicted more than a foot of snow in swaths of upstate New York and New England.
— Trump puts steel and aluminum tariffs back on Brazil and Argentina. In a tweet this morning, President Trump wrote: “Brazil and Argentina have been presiding over a massive devaluation of their currencies,. which is not good for our farmers. Therefore, effective immediately, I will restore the Tariffs on all Steel & Aluminum that is shipped into the U.S. from those countries.” He also called on the U.S. Federal Reserve to "likewise act so that countries, of which there are many, no longer take advantage of our strong dollar by further devaluing their currencies. This makes it very hard for our manufactures & farmers to fairly export their goods. Lower Rates & Loosen - Fed!"
— Mexico's president tries to get Pelosi to act on USMCA. In a letter dated Nov. 26 (link), Mexico’s President Andrés Manuel López Obrador again tried to persuade House Speaker Nancy Pelosi (D-Calif.) to take yes for an answer on the United States-Mexico-Canada Agreement (USMCA). “Following up on my letter dated October 8, I would like to inform you that, with approval of our 2020 federal budget, which includes appropriations for implementing the labor law reforms that I have promoted, we have fully met our commitments regarding USMCA,” Obrador wrote. “In the first place, and most importantly, you can be assured that we will fulfill these labor commitments because Mexico has raised them to the Constitutional level. In addition, the secondary rules needed to enforce these laws have been established and funds have been provided for their successful implementation,” according to the letter.
In a clear signal to get USMCA through this calendar year, López Obrador wrote, “Let us move forward with the USMCA promptly, to ensure that the electoral process in your country, with the debates and passions typical of all democracies, doesn’t prevent or delay the conclusion of such an important event. I am convinced that history will judge us favorably for approving this needed platform of friendship, cooperation and prosperity between our societies and nations.”
The final terms of USMCA could be completed this week, the top Mexican trade negotiator said Friday, making it still possible that Congress could approve the pact by the end of December. Jesús Seade, Mexico’s undersecretary for North America, spoke in Ottawa after meeting with Canadian Prime Minister Justin Trudeau and Canada’s top trade negotiator, Chrystia Freeland. Seade and Freeland also met recently in Washington with U.S. Trade Representative Bob Lighthizer. “There are important issues still being looked at, but a lot of issues have already been overcome,” Seade said. “If the amendments suggested are acceptable improvements, then there’s no reason why we should not be shaking hands [this] week,” he said.
“There’s no agreement yet,” said Henry Connelly, a spokesman for Pelosi.
Regarding enforcement, the major issue for House Democrats, Seade said enforcement “means lots of things and nothing, because nobody has ever defined it.” But he insisted that Mexico has agreed to implement “a major, deep labor reform.” Seade said that major improvements have also been negotiated to dispute settlement provisions, seen as weak in NAFTA.
Perspective: While USMCA has some positives for U.S. agriculture, notably improved market access for the U.S. dairy sector in Canada, the major changes would be in the auto/parts sector. The deal requires that 40% of each vehicle be produced by workers earning $16 per hour, a mandate that would draw jobs away from lower-wage Mexican workers. Meanwhile, with the Internet economy that has developed since NAFTA was inked in 1994, the new agreement also provides for the free flow of data among banks, airlines, online retailers and entertainment companies in the three countries. Meanwhile, a New York Times article (link) says the USMCA could be handing Democrats several things they’ve always wanted to see in a trade deal — requiring more of cars’ parts to be made in North America, rolling back a special system of arbitration for corporations and strengthening Mexican labor unions. But the New York Times article also notes that as lawmakers return to Washington today, “the question for Democrats is whether to back the deal and give President Trump a victory in the midst of the impeachment investigation.”
— U.S./China trade policy update:
- China avoided measures related to trade in its first actions retaliating against the U.S. over a law supporting Hong Kong’s protesters. China put Hong Kong port calls by U.S. military on hold and says it is sanctioning U.S.-based NGOs for supporting violence in the special administrative region of Hong Kong. China called on the U.S. to stop meddling in Hong Kong affairs, and Beijing could take further action to protect its national sovereignty and security, Foreign ministry spokeswoman Hua Chunying said. Beijing said last week that it would take strong countermeasures against Washington, and accused the U.S. of interfering in Hong Kong.
- A private survey today in China showed Chinese manufacturing activity expanded more than expected in November. Caixin/Markit manufacturing Purchasing Managers’ Index for November came in at 51.8; the index was expected to have fallen to 51.4 in November from 51.7 in October, according to economists polled by Reuters. Meanwhile, China’s official PMI was 50.2 in November at its highest level since March, China’s National Bureau of Statistics said on Saturday. The improving data suggests Beijing doesn't need to rush toward a trade deal with the United States. "If trade negotiations between China and the U.S. can progress in the next phase and business confidence can be repaired effectively, manufacturing production and investment is likely to see a solid improvement,” said CEBM Group's Zhengsheng Zhong.
- China and Russia cinch ties via gas pipeline. An 1,800-mile conduit is set to begin delivering Russian natural gas to China today, a physical bond in a new era of cooperation between two world powers that have separately challenged the U.S. Link to WSJ article on the topic. The $55 billion channel is a feat of energy infrastructure and political engineering. Beijing and Moscow, after years of rivalry and mutual suspicion, are expanding an economic and strategic partnership influencing global politics, trade and energy markets.
- Another barometer of U.S./China trade talks: gambling revenue. Las Vegas Sands and Wynn Resorts are on watch following new figures showing gambling revenue in Macau fell 8.5% in November compared to a year earlier, due to slower economic growth and the ongoing trade dispute between the U.S. and China.
- Update on U.S./China Phase 1 talks: Progress must be being made because the usual chatty people in the Trump administration have gone quiet. But China is speaking on what it wants in Phase 1. China wants tariffs rolled back as part of a Phase 1 deal, the Communist Party newspaper Global Times said. A pledge by Trump to scrap new levies looming on Dec. 15 can't be a substitute for rolling back existing ones, the state-controlled paper said. The Global Times today ran several articles and commentaries insisting there would be no agreement unless the U.S. commits to rolling back some tariffs the Trump administration has imposed on imports from China to pressure Beijing into altering its policies on trade and technology. “Rolling back tariffs is a must. The China/U.S. trade war (was) instigated by the U.S. with tariffs, so the tariffs have to be cut first,” the newspaper quoted Wei Jianguo, a former Chinese commerce minister as saying. It said there was a “reasonable choice” for Trump to roll back some tariffs for the first deal and leave others for later, to “save the optics of the deal in the U.S. political climate and save the phase one deal.” New U.S. tariffs are set to kick in on many Chinese-made products, including laptops and smartphones, as of Dec. 15. A preliminary deal could avert that. Promising to not implement the next tranche of tariffs would not suffice, the Global Times said.
— Corn and ethanol producers are not going to like this: Senate Environment and Public Works Chairman John Barrasso (R-Wyo.) believes EPA's decision regarding gallons lost to small refinery exemptions under the Renewable Fuel Standard (RFS) makes no sense. In a letter (link) to EPA Administrator Andrew Wheeler, Barrasso puzzled over EPA's action, particularly given Wheeler's own recent statements that ethanol demand has not been affected. "I can't help but view EPA's recent proposal as not only illegal and arbitrary, but incoherent and without any legitimate purpose," he wrote. "The agency should scrap it in its entirety."
— Other items of note:
- Trump administration says Trump to skip House impeachment hearing. The White House said President Trump’s administration wouldn’t participate in a House Judiciary Committee impeachment hearing this week.
- Tax writers continue to press for a package of tax incentive extenders that can be attached to must-pass legislation. A tax package could include the renewal of expired tax breaks including the $1 per gallon biodiesel tax incentive.
- Move USDA totally out of Washington? That's the topic of an op-ed in the Wall Street Journal, which says “it no longer makes sense to cluster federal agencies and their employees in Washington, D.C.” Link.
- Farmers rushed into hemp. Now they face a glut. Many sought to capitalize on surging demand for cannabidiol, which proponents say has medical benefits. But wholesale prices for plant matter used in CBD production fell as much as 53% between April and October, the Wall Street Journal reports (Link). Hemp — which is the same plant species as marijuana, but with a minimal amount of the psychoactive compound in pot — became legal because of a provision of the 2018 Farm Bill. It is mostly grown for cannabidiol, or CBD, which is used to treat seizures, pain, anxiety and other conditions. The projected growth of the CBD market has enticed farmers: Acres of cultivated hemp in the U.S. surged to more than 285,000 this year from 78,000 in 2018. The increased cultivation has contributed to a decline in prices. Wholesale prices for biomass, or harvested plant matter, used for CBD production fell between 42% and 53%, depending on the volume sold.
- India is considering imposing new restrictions on refined palm oil imports to curb purchases and boost the local edible oil industry, a move that may help the government fulfill its aim to double farmers’ incomes by 2022.
- Small farmers are facing extinction amid the worst farm downturn in decades, with bankruptcies rising and more borrowers falling behind on their loans. Link to article from Time magazine.
- Iraqi parliament approves prime minister's resignation. The country’s parliament voted to accept the resignation of Adel Abdul Mahdi after weeks of violent protests. The formation of a new government will probably take weeks, if not months. Abdul Mahdi’s decision to quit came on Friday after Grand Ayatollah Ali al-Sistani, Iraq’s top Shia Muslim cleric, asked parliament to consider withdrawing support for the prime minister’s government. At least 180 people — and possibly hundreds more — have been killed in the past few weeks in some of the worst political unrest in Iran since the Islamic Revolution 40 years ago. Protests erupted after a steep increase in the price of gas was announced on Nov. 15. In the resulting government crackdown, Iranian security forces opened fire on the demonstrators.
- The chair of a two-week climate summit attended by nearly 200 countries warned at its opening today that those refusing to adjust to the planet's rising temperatures "will be on the wrong side of history." Chile's environment minister said that the Dec. 2-13 meeting needs to lay the groundwork for moving toward carbon-neutral economies. Among those in Madrid: House Speaker Nancy Pelosi (D-Calif) and 14 other congressional Democrats.
- Energy secretary vote in Senate. The Senate today is expected to vote on Deputy Energy Secretary Dan Brouillette’s nomination to replace Rick Perry as secretary. Senators voted 74-18 before the Thanksgiving recess to send the nomination to a final vote.
- Georgia Gov. Brian Kemp (R) this week plans to pick financial executive Kelly Loeffler to fill a U.S. Senate seat, the Atlanta Journal-Constitution reported last week. The move would undercut Trump and others who wanted Rep. Doug Collins (R-Ga.) to be appointed instead. The seat is being vacated by Sen. Johnny Isakson (R-Ga.), who is exiting the Senate at the end of 2019 due to health issues.
- William Ruckelshaus, the first administrator of EPA, died last week at age 87. He served as administrator of EPA from its founding in 1970 through 1973, and then again from 1983 to early 1985.
- Bye-bye... Gov. Steve Bullock of Montana and former Rep. Joe Sestak of Pennsylvania have dropped out of the presidential race.
— Markets. The Dow on Friday dropped 112.59 points, 0.4%, to 28,051.41. The S&P 500 slipped 12.65 points, 0.4%, to 3,140.98, and the Nasdaq fell 39.70 points, 0.5%, to 8,665.47.
U.S. stocks closed out November with their largest monthly gains since June. The Dow, S&P 500 and the Nasdaq each rose more than 3% for the month.
Online sales rose more than 19.6% to $7.4 billion on Black Friday, marking the day's largest revenue grab ever, according to Adobe Analytics, which tracks transactions at 80 of the top 100 U.S. retailers. For Thanksgiving, it estimated web sales grew 14.5% to $4.2 billion, while Small Business Saturday and Super Sunday sales are projected to surpass $7.6 billion.
The U.S. posted its first full month as a net exporter of crude oil and petroleum products since government records began in 1949. The nation exported 89,000 barrels a day more than it imported in September, according to data from the Energy Information Administration. Analysts at Rystad Energy predict the U.S. is only months away from achieving total energy independence, citing surging oil and gas output, and the growth of renewables.
The world is deep in the red and the only way out is to borrow some more. That’s despite global debt at a record $250 trillion. Link to Bloomberg article for details.