U.S., China Trade Officials Agree to Resume Trade Talks in Phone Call Ahead of Trump/Xi Confab

Posted on 06/25/2019 6:42 AM

Iran says new U.S. sanctions end any chance of diplomacy


China’s vice-premier Liu He held a phone call with top U.S. trade representatives, as the WTO warned that G20 countries are obstructing the global economy. U.S. officials are playing down expectations ahead of Saturday's meeting between President Donald Trump and China’s Xi Jinping at the G20 in Osaka, Japan.
     Iran's President Rouhani mocks President Trump, saying the White House is “afflicted by mental retardation,” the Associated Press reports. Iranian President Hassan Rouhani called the restrictions targeting the supreme leader “outrageous and idiotic” and said they showed “certain failure” on the part of the Trump administration to isolate Iran. “You sanction the foreign minister simultaneously with a request for talks?” Rouhani said on state television, referring to remarks by U.S. officials suggesting plans to sanction Foreign Minister Mohammad Javad Zarif later this month. Slapping sanctions on Iran's supreme leader marks the "permanent closure of the path of diplomacy," the Iranian government said. The comments come as White House national security adviser John Bolton renewed efforts to build a global alliance against Tehran at a meeting with his Russian and Israeli counterparts in Jerusalem today.
     U.S. Sec. of State Mike Pompeo arrived in New Delhi today for talks with Indian prime minister Narendra Modi ahead of the G20 summit amid frictions over trade protectionism and strategic ties.
     The House Ways and Means trade panel will hold a hearing on Mexico’s labor reform law today that will again likely show Democrats on the panel want more action regarding the topic as more Democrats have come out against the USMCA unless major changes are made. Rep. Earl Blumenauer (D-Ore.), Ways and Means Trade Subcommittee chairman, has previously stated the USMCA does not contain adequate tools to ensure that Mexico’s labor reform stays on track and that the U.S. must create “new and creative monitoring and enforcement tools” to ensure labor standards are upheld in Mexico.

 

U.S./China trade policy update:

  • U.S., China agree to resume trade talks in phone call ahead of Trump/Xi G20 confab. Chinese Vice-Premier Liu He spoke to U.S. Trade Representative Bob Lighthizer and Treasury Secretary Steven Mnuchin on Monday, Chinese state media reported. Presidents Xi Jinping and Donald Trump are expected to meet Saturday on the sidelines of this week’s G20 summit in Japan. A brief statement by state news agency Xinhua this morning said, “According to the instructions from the phone conversation of leaders of both countries, both sides exchanged views on economic and trade issues. Both sides agreed to continue communication.” In a statement, the Ministry of Commerce said Liu had exchanged views on trade with his U.S. counterparts and agreed to maintain communications.
  • The Trump/Xi meeting will aim to rebalance economic relations and move towards a deal for a trade war truce that was enforceable, a senior U.S. administration official said. “The purpose of the discussion is to rebalance the economic relations in a way that protects U.S. economic prosperity, workers, and of course that also means the kinds of structural changes that would need to take place to protect intellectual property,” the official said. Trump administration officials have played down prospects of a major deal at the G20 gathering.
  • Both countries need to compromise if they were to reach a trade deal, Vice-minister of Commerce Wang Shouwen said on Monday. Wang repeated that both sides should negotiate on the basis of equality, respect each other’s sovereignty and World Trade Organization (WTO) rules, and benefit both sides.
  • Trump/ Xi meeting eyed at G20; administration official signals Trump still wants structural changes in China. President Donald Trump and Chinese President Xi Jinping will meet Saturday during the G20 summit in Osaka, Japan, with a senior administration official not willing to commit to whether the talks are aimed at restarting the talks between the two sides that broke down in May or whether they are aimed at reaching a more formal agreement. "It is really just an opportunity for the president to maintain his engagement as he has very closely with his Chinese counterpart,” the official said. “Even as trade frictions persist, he has got the opportunity to see where the Chinese side is since the talks last left off. The president is quite comfortable with any outcome.” Trump remains insistent that there needs to be “structural real reform in China across a number of issues and a number of sectors, and nothing about that has changed," another administration official stated, noting the breakdown in talks have not changed the “ultimate goal” of the effort.
  • Hu Xijin, the editor-in-chief of the Chinese state-run tabloid Global Times, tweeted Monday that the current atmosphere between the two sides is “not good... What I have learned about China's stance now is: holding constructive and positive attitude toward upcoming China/U.S. summit, but fully preparing for its failure and an escalating trade war,” he wrote.
  • The Chinese drone maker DJI is shifting some production to the U.S. and changing product features to help allay American national security concerns.
  • FedEx is suing the U.S. Commerce Department, saying the Trump administration's export restrictions would require the company to "police the contents of the millions of packages it ships daily even though doing so is a virtually impossible task." FedEx had previously ignited Chinese ire over its business practices when a package containing a Huawei phone sent to the U.S. was returned last week to its sender in Britain, in what it said was an "operational error." Fears that China would blacklist the firm as a result sent FDX shares down 2.7% on Monday.
  • How International Business Times sees Trump/Xi confab:
    Trump/Xi possibles

Trump has several meetings on tap on sidelines of G20. President Donald Trump will meet with several world leaders at the sidelines of the G20 summit June 28-29 in Osaka, Japan, according to a senior administration official. The sessions include Australian Prime Minister Scott Morrison, Japanese Prime Minister Shinzo Abe, Prime Minister Modi of India, Chancellor Angela Merkel of Germany, Russian President Vladimir Putin, Saudi Crown Prince Mohammad bin Salman, Chinese President Xi Jinping and President Recep Tayyip Erdogan from Turkey, the official said.

The overall G20 session will be focused on modern challenges to the economy and ways to address them, the official noted. "The United States wants everyone to grow and we believe that our economic model is one that nations around the world should follow,” the official told reporters in a briefing. “So, we'll be spending a significant amount of time talking about policies that work including deregulation, tax reform, investment agendas, innovation and economic opportunities for all.”

Trump calls on Asian nations to protect oil passing through Strait of Hormuz. “China gets 91% of its Oil from the [Strait], Japan 62%, & many other countries likewise,” Trump said in a Twitter post. “So why are we protecting the shipping lanes for other countries (many years) for zero compensation?” Trump said. “All of these countries should be protecting their own ships on what has always been a dangerous journey. We don’t even need to be there in that the U.S. has just become (by far) the largest producer of Energy anywhere in the world!”

Of the 60% of global oil that travels by sea, about 30% of that traverses through the Strait of Hormuz. The U.S. has accused Iran of attacking two oil tankers in the Gulf of Oman near the Strait of Hormuz this month. While the U.S. is depending less on oil imports from the Middle East, it still imported more than 32,000 barrels of oil from Gulf countries in March, according to the Energy Information Administration.

U.S. and India hold trade talks. Secretary of State Mike Pompeo arrives in New Delhi ahead of a meeting between President Donald Trump and Indian Prime Minister Narendra Modi at the G20 summit. The two sides will talk tariffs, oil exports, U.S. visa restrictions, and India’s data storage requirements.

While bilateral trade has more than doubled to $142 billion in 2018, up from $66 billion a decade earlier, President Trump is upset by the US’ $24 billion trade deficit with India. The trade policy focus includes New Delhi’s price caps on medical devices such as stents; restrictions on U.S. dairy imports; restrictions on foreign companies operating in e-commerce and retail; and new data localization rules. Trump has repeatedly complained about India’s 50% import duties on Harley-Davidson motorcycles.

Other items of note:

  • President Trump imposed additional sanctions on Iran, including against supreme leader Ayatollah Ali Khamenei, in retaliation for last week’s downing of a U.S. drone. The restrictions would deny Khamenei access to financial resources, as he’s "the one who ultimately is responsible for the hostile conduct of the regime," the president said. The penalties effectively freeze the business operations of the Supreme Leader's office, which controls a global network of private companies that some experts estimate is worth between $100 billion to $200 billion. Tehran said the new penalties won’t force it to negotiate or capitulate. Rouhani today called the White House “mentally retarded” and dismissed as pointless the latest round of U.S. sanctions against his country.
  • Mexico's crackdown at its Southern border, prompted by Trump, scares migrants from crossing," is an article in the New York Times (link). "Mexico's mobilization of its security forces has been halting, and for most of the past two weeks it seemed to fall short of the dramatic show of force that the government had promised. Still, the deployment has already disrupted the usual flow of people and commerce passing over this historically porous border, and sown fear among migrants and their smugglers alike."
  • The border supplemental could get a vote soon, but that it is dependent on working through concerns from Congressional Progressive Caucus members regarding ensuring the funding is spent on humanitarian aid, according to Rep. Steny Hoyer (D-Md.). The House Rules Committee plans to resume its meeting on Democrats' $4.59 billion bill (HR 3401) this morning after deliberations went late Monday night without resolution. House Speaker Nancy Pelosi (D-Calif.) said Monday the bill would wait until it had enough support: "If we bring the bill to the floor, we will have the votes." The White House issued a veto threat on the House Democrats’ bill Monday evening, and Republicans aren’t expected to support it.
  • Senate Minority Leader Chuck Schumer (D-N.Y.) wants to delay action on completing the defense authorization (S 1790) until after this week's Democratic presidential debates. He suggested a vote on an amendment regarding the limitations on authorizing the use of military force against Iran should take place when all senators can be present.
  • G20 plays down climate change. Japan has watered down commitments to climate change in its draft G20 communiqué, omitting the phrase “global warming” in a sign of how Tokyo is bowing to Washington. Meanwhile, President Trump reassured Japan he's committed to their security treaty. The move came after Bloomberg reported the president had discussed withdrawing from the pact.
  • The Supreme Court handed a win to retailers in a legal dispute from USDA’s refusal to disclose store-level Supplemental Nutrition Assistance Program (SNAP/food stamps) data after a 2011 Freedom of Information Act request from the Argus Leader, a daily newspaper in Sioux Falls, S.D.
  • The Supreme Court declined to hear a challenge to the constitutionality of Trump’s steel tariffs. U.S. steel importers had asked SCOTUS to review a March ruling from the U.S. Court of International Trade that upheld Trump’s use f Section 232 to impose the duties for national security reasons.
  • Sales of 100 million barrels of crude oil out of the Strategic Petroleum Reserve (SPR) were authorized through fiscal 2027, raising almost $6.4 billion. Current projections show the reserve will be down to about 400 million barrels in storage at the end of fiscal 2027, or 60 million away from its statutory minimum, but sources say lawmakers could authorize selling off the remainder and generate more than $4 billion under the CBO’s current oil price forecasts for fiscal 2028 and 2029. But Senate Energy and Natural Resources Chairwoman Lisa Murkowski (R-Alaska) has opposed selling more of the oil unless to reinvest the proceeds in modernizing storage facilities, so this option may be a heavier lift.

Markets. The Dow on Monday edged up 8.41 points, 0.03%, at 26,727.54, The Nasdaq fell 26.01 points, 0.32%, at 8,005.70. The S&P 500 lost 5.11 points, 0.12%, at 2,945.35.

The U.S. dollar continued to lose ground today on rising expectations of rate cuts by the Federal Reserve, boosting other major currencies ahead of speeches by Federal Reserve officials today. The dollar index, which tracks the currency against a basket of its peers, fell 0.2% in Asian trading to 95.853, its lowest intraday level in more than three months.

Several Fed officials are set to make speeches this week, including chair Jerome Powell, who will discuss the U.S. economy at an event at the Council on Foreign Relations in New York today. Bank of England governor Mark Carney and other policymakers will address the House of Commons Treasury committee on Wednesday.

Powell Humphrey-Hawkins testimony set for July 10-11. Fed Chairman Jerome Powell will deliver the first of two days of the semiannual monetary policy report to Congress July 10 before the House Financial Services Committee, with the second day of testimony before the Senate Banking Committee July 11.

China’s purchases of crude oil from Iran fell by two-thirds in May to 1.08 million tons, from 3.24 million tons in April, dropping to the lowest since October 2018, according to data released today by the General Administration of Customs.

Philadelphia refinery declares force majeure on some gasoline deliveries in wake of refinery fire. Philadelphia Energy Solutions (PES) has declared force majeure on some gasoline deliveries in the wake of the fire that completely destroyed the alkylation unit at the refinery, according to market sources quoted by Reuters. The fire could mean the Girard Point section of the complex could remain closed for an extended period; that portion of the facility has a capacity of 200,000 barrels per day (bpd) with total capacity at the complex put at 335,000 bpd.

Global events are triggering upheaval in tanker markets and surging prices for hauling petroleum products. U.S. crude exports have surged surging to record levels, the Wall Street Journal reports (link), as strife along the Strait of Hormuz opens a window for U.S. producers to sell more oil abroad. Buyers are looking for secure supplies amid ramped up efforts to protect tankers near the Persian Gulf following the recent attacks that the U.S. has blamed on Iran. “That’s helped push up oil prices, and daily rates for transport on very large crude carriers have jumped about 69% since tensions flared in the Middle East this month.” Meantime, trans-Atlantic tanker rates for hauling gasoline are also soaring, according to Lloyd’s List, in the wake of a fire at a Philadelphia refinery that may threaten U.S. domestic gasoline supplies.


 

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