Trump continues two-prong approach with China: tariffs and talks
President Trump charged China and the EU of manipulating their currencies in an interview with Reuters, while he again criticized the Fed for raising interest rates. Trump also said he would "most likely" meet with North Korean dictator Kim Jong Un again.
— Trump team’s two-prong approach on China tariffs continues. Keeping implementing threatened tariffs until China offers a major response to improving trade relations appears to be the continued stance of the Trump administration, despite talks Wednesday and Thursday between the two nations to find a way to resolve the lingering disputes ahead of two meetings in November involving the leaders of both countries.
So far, the administration has levied 25% tariffs on $34 billion in Chinese goods — mainly machinery and electronic components — which was matched dollar for dollar by Beijing. On Thursday, 25% tariffs are set to go in place on another $16 billion of Chinese imports, which Beijing also promises to match. Now the Trump administration is considering $200 billion in tariffs of either 10% or 25% on thousands of categories of products, including for the first time a substantial number of consumer goods. The possible tariffs are the subject of six days of hearings that started Monday.
To date, the U.S. has announced decisions to levy tariffs several weeks after the end of the public hearings. Tariffs might be divided into tranches, similar to an approach with its first round of China levies. That would provide time for more comments, and also for more negotiations with Beijing.
Chinese negotiators are slated for talks with their U.S. counterparts this Wednesday and Thursday in Washington. The U.S. team is led by Treasury Undersecretary David Malpass. The negotiations are aimed at finding a way for both sides to address the trade disputes, officials have noted, and could lead to more rounds of talks. The primary goal is to figure out a way to end the trade dispute ahead of planned meetings between President Donald Trump and Chinese leader Xi Jinping at multilateral summits in November.
Complicating coming talks would be if the U.S. implements tariffs and China announces countermeasures, as it has threatened, with tariffs on U.S. goods.
The Wall Street Journal reports today that the Trump administration is moving closer ... to levying tariffs on nearly half of Chinese imports despite broad opposition from U.S. business." Reasons why, according to Axios:
- A member of Congress who recently spoke at length with Trump about trade said: "He thinks he’s right and he thinks he’s winning."
- "He's resolved to be the guy that changes the world trading system. ... He's willing to take some pain to do it."
- "Trade is the one policy issue he feels comfortable with: He owns it, and he's 100% convinced he's right."
President Trump told Reuters in an interview he’s dubious about the potential for progress with China on trade this week.
Meanwhile, most administration aides and congressional Republicans oppose the imposition of auto tariffs, although Trump remains warm to the idea. Meanwhile, eight auto associations have formed what they say is an unprecedented coalition, called the Driving American Jobs Coalition, to oppose proposed tariffs on foreign autos, which they say represent a “significant threat” to the U.S. economy.
— Update on Trump tariff aid plan. The following are some of the possible details of the upcoming effort to limit the damage in the U.S. ag sector caused by the Trump tariffs.
- Details of the Trump effort, totaling $10 billion to $12 billion, are designed to limit the damage of ongoing trade tariffs is expected to be released as soon as this Friday.
- USDA has been given total control over the coming package, which is now at the Office of Management and Budget for final review.
- Final details of the package may still change, but the overall structure of the program is clearly in place.
- Payment rates, who is eligible and payment limits and other details are expected to be revealed in a Federal Register filing.
- Signup for the assistance is slated to begin Sep. 4.
- Farmers have to file 2018 crop production data with USDA. That means wheat producers will be the first eligible for payments after revealing production levels.
- Payment rates will be based on actual 2018 production and not on average yields over the past few years. The plan is limited to 2018 production and not existing 2017 crop still to be marketed.
- USDA will not ask for “hedge accounts” of farmers who may have marketed crops previously.
- While no final decisions have been made on all issues, it appears there will be a separate payment limit for payouts under the program, including an Adjusted Gross Income (AGI) of $900,000. No exemptions to pay caps or the AGI test is likely, but again, no final decisions on this have been made.
- Hog producers qualifying will likely be asked to certify production and/or inventory to USDA. If producers do not want to provide the information, they can refrain from applying for any aid.
- Contract hog producers would not qualify for aid payments because they do not own the hogs.
- Companies offering contracts to hog producers would at least qualify for potential payments, but many would likely hit payment caps and/or the AGI test.
- Groups seeking trade promotion funds would request funding from USDA, providing information regarding plans for export promotion efforts.
— Release of glyphosate data urged by Senate Democratic leader. Senate Minority Leader Chuck Schumer (D-N.Y.) is calling on FDA to release the results of its two-year study looking at glyphosate residues in foods. The urging came in response to media coverage of the Environmental Working Group's report finding very low-levels of the popular herbicide in oatmeal as well as cereals. "Simply put, the FDA must not only weed out the facts on glyphosate, but they must update the public on their progress," Schumer said. "I have full confidence in their ability to effectively continue this study, but we are here to send them a message: get going.”
FDA said that between 2016 and 2017 it began "preliminary testing" of samples of soybeans, corn, milk and eggs. The agency said it completed this preliminary testing in fiscal year 2017 with plans to expand testing to other foods in fiscal year 2018. “Preliminary results for glyphosate testing showed no pesticide residue violations for glyphosate in all four commodities tested (soybeans, corn, milk, and eggs)," FDA said. The agency plans to include its results for glyphosate testing in future reports on pesticide residues.
— Other items of note:
- The Russian military intelligence unit that sought to influence the 2016 election has recently focused on conservative American think tanks that have been critical of Moscow, according to a report by Microsoft. The company said it had seized websites in recent weeks that sought to trick people into thinking they were clicking on links managed by the Hudson Institute and the International Republican Institute. The sites redirected to web pages to steal passwords and other data.
- China is hoping to secure a free trade deal with Canada amid rising tensions with the U.S., the Associated Press reports (link).
- Trump said he would "most likely" meet with North Korean dictator Kim Jong Un again. “I like him. He likes me ... There's no ballistic missiles going up, there's a lot of silence ... I have very good personal relations with Chairman Kim, and I think that's what holds it together” Link to Reuters interview with Trump.
- NAFTA 2.0 talks between the U.S. and Mexico will resume today in Washington, with many expecting the two sides to finalize an agreement in principle on a range of bilateral issues. That would pave the way for Canada, which has been sidelined for weeks from the negotiations, to return to the bargaining table.
- ConocoPhillips accepted a $2 billion settlement with Venezuela’s state oil giant, PDVSA, ending a long-running dispute. An international arbitration panel had awarded ConocoPhillips that amount in April in compensation for asset seizures in 2007 ordered by Hugo Chávez, Venezuela’s former president. PDVSA will pay up over four and a half years. Conoco will end moves to seize PDVSA’s Caribbean facilities.
- The Department of Energy is offering 11 million barrels of crude for sale from the nation's Strategic Petroleum Reserve (SPR) ahead of sanctions on Iran that are expected to reduce global oil supplies and increase prices. The SPR was established in the 1970s after the U.S. economy was paralyzed by an oil embargo. As recently as 2011 it contained 727 million barrels in caverns along the Texas and Louisiana coasts.
- Election update. Writing in the New York Times, David Wasserman, the House editor for the Cook Political Report, noted the disparity between the House and Senate races this cycle, explaining that while the GOP faces potentially steep losses in densely populated House districts, Republicans could pick up several seats in the Senate with candidates running in red and rural states where the president’s policies are popular. Said Wasserman: “These are two truly different universes: The median competitive Senate seat gave Mr. Trump 56% in 2016, has a population density of 88 people per square mile and falls below the national average in educational attainment and income. But the median competitive House district gave Mr. Trump 49% of the vote, has a population density of 407 people per square mile and ranks above the national average in college graduates and income.” Meanwhile, Wasserman’s boss, Charlie Cook, predicts more gridlock. "Anything short of a Democratic gain of 60 or more seats [in the House] means that it would a real challenge for House Democrats to get much out of the chamber (a 60-plus seat gain for Democrats is possible, but very unlikely given current congressional-district boundaries and natural-population patterns).” In the Senate, Cook said, “The reality is that no party is going to exceed 53 or 54 seats, making for a tough legislative sled given the rules and practices of the Senate.” Link to National Journal article.
— Markets. The Dow on Monday rose to its highest level since early February, lifted by optimism about deal activity and trade policy developments. The Dow climbed 89.37 points, 0.3%, to 25,758.69 — their highest close since Feb. 1. The S&P 500 added 6.92 points, 0.2%, to 2,857.05, bringing it 0.6% below its January record. The tech-heavy Nasdaq Composite edged up 4.68 points, less than 0.1%, to 7,821.01.
Trump accuses China, EU of currency manipulation. President Trump accused China and the European Union of manipulating their currencies as he tries to wrestle concessions from two of the U.S.’s largest trade partners. “I think China’s manipulating their currency, absolutely. And I think the euro is being manipulated also,” Trump said in the interview with Reuters. The president’s accusation does not square with the findings of his own administration. The Treasury Department stopped short of naming China, the EU or any other country as a currency manipulator in April, in a semi-annual report on foreign-exchange policy. The U.S. hasn’t officially accused another country of currency manipulation since 1994. Link to Reuters interview with Trump.
The dollar weakened after President Trump said he was “not thrilled” with the Fed for raising interest rates. Trump last complained about the Fed in July. The bank, which is meant to operate independently, has been raising rates gradually. The president’s aides said that he is not trying to influence policy. Link to Reuters interview with Trump.
Germany's current account surplus will remain the world's largest for the third year running in 2018 at $299 billion, followed by Japan with $200 billion, according to the Ifo institute. "On the other end of the spectrum, the U.S. is set to remain the country with the largest current account deficit with roughly $420 billion." The situation is set to spark criticism of Germany's export strength and Chancellor Angela Merkel's fiscal policies.