U.S. Threatens 40% Tariffs on Chinese Autos in Strategy Move Ahead of Talks

Posted on 11/29/2018 6:46 AM

Farm bill coming | USMCA signing Friday, but Mexico pressing for lifting of metal tariffs


It's G20 time as world leaders and their chief officials start arriving in Buenos Aires. Be prepared for all sorts of jockeying for positions (called trade strategy) ahead of formal talks Saturday between President Donald Trump and Chinese leader Xi Jinping. For example, U.S. Trade Representative Bob Lighthizer threatened to raise tariffs on Chinese autos to 40%. China is hoping for "positive results" in resolving a trade dispute with the U.S. at the G20 confab, the commerce ministry said today.
     Canada, Mexico and U.S. officials are expected to sign the USMCA (NAFTA 2.0) tomorrow. But word has surfaced that Mexico is balking until the U.S. lifts metals tariffs on the country. Talks between the two nations on this topic have been going on for days.
     A new farm bill is coming, but it may take until early next week to get the final language, following putting it into legislative form and getting final CBO scoring. That will not likely stop farm bill conference bigwigs from issuing a joint statement celebrating the end of the lengthy and contentious process.
     Spending talks continue. Negotiations on the Agriculture, Commerce-Justice-Science, Financial Services, Interior-Environment, State-Foreign Operations and Transportation-HUD bills are mostly complete, and those bills could likely receive the support needed to pass the House and Senate before the stopgap spending bill expires at midnight next Friday. For now, funding for nine departments and a handful of agencies — representing about 25% of the $1.244 trillion in available discretionary dollars for this year — still are without full-year appropriations.
     U.S. life expectancy falls further. New data shows that life expectancy fell by one-tenth of a year, to 78.6 years, pushed down by the sharpest annual increase in suicides in nearly a decade and a continued rise in deaths from powerful opioid drugs like fentanyl. Influenza, pneumonia and diabetes also factored into the decline.
Link to Washington Post article.


USMCA expected to be officially signed Friday, but Mexico first wants the U.S. to lift its metals tariffs. Sen. Rob Portman (R-Ohio) said he is concerned outgoing Mexican President Enrique Peña Nieto will refuse to sign the replacement accord for NAFTA unless the U.S. first lifts its steel and aluminum tariffs on the country. Officials from both countries have been busy on that topic. The U.S. was expected to lift metals tariffs on Mexico, keeping them on for Canada, some contacts signal. According to the Canadian Press, The man tapped to head Mexico’s finance ministry after Dec. 1 says officials are expected to sign the USMCA at the Group of 20 summit in Argentina this week. Carlos Urzua said earlier this week that “all possibilities” point to a signing in Argentina. Mexico has said it will not remove the barriers it has on U.S. exports until President Trump removes steel and aluminum tariffs, something he did not do even after agreeing to the new U.S. Mexico Canada Agreement.

G20 update:

  • World leaders are starting to arrive in Buenos Aires for a meeting of the Group of 20 (GSO) industrialized nations that begins on Friday. President Trump is leaving for Argentina today.
  • President Trump is scheduled to meet President Xi Jinping of China on Saturday.
  • Russia’s seizure of three Ukrainian ships has complicated President Trump’s plan to meet with President Vladimir Putin of Russia this weekend. However, the Kremlin says Trump, Putin have agreed to meet on Saturday.
  • Lighthizer threatens to raise tariffs on Chinese autos to 40%. U.S. Trade Representative Robert Lighthizer on Wednesday lashed out at China's 40% tariff on U.S. automobiles and threatened to raise the U.S. tariff on Chinese cars to an equivalent level. He also said China has not made any "meaningful" offers to address broader U.S. trade concerns. “As the president has repeatedly noted, China’s aggressive, state-directed industrial policies are causing severe harm to U.S. workers and manufacturers," Lighthizer said. "We are continuing to raise these issues with China. As of yet, China has not come to the table with proposals for meaningful reform." Earlier this year, China lowered its tariffs on automobiles to 15%, from 25% previously. However, it later raised the rate on U.S. autos to 40% as part of the escalating trade war. That was in response to Trump raising the tariff on Chinese autos from 2.5% to 27.5%. "At the president’s direction, I will examine all available tools to equalize the tariffs applied to automobiles," he added. Lighthizer is expected to arrive in Buenos Aires today in preparation for the China talks and the signing of a revised NAFTA deal (USMCA) with Canada and Mexico.
  • Chinese manufacturers are feeling the pinch as import tariffs upend global supply chains. Big American retailers like Walmart Inc. and Amazon.com Inc. are trying to blunt the impact of levies on $200 billion in Chinese goods by cutting orders, switching product mix and engaging in drawn-out haggling over price, the Wall Street Journal reports (link). “The new demands are whipsawing Chinese suppliers, who are hustling to line up new customers outside the U.S. to make up for skidding sales. Some American companies are slashing orders for private-label products that are now unprofitable, and retailers have pulled some imports forward to avoid anticipated tariff increases. The back-and-forth on orders is delaying discussions on new products for the coming year, talks that usually take place in the fourth quarter. Toys could be the next flashpoint if the levies expand further.”
  • If you get too optimistic about possible results from the Trump/Xi talks ahead, consider this from a Wall Street Journal column: “China and the U.S. are on the brink of a new Cold War, with tensions over trade at the top of the agenda. Both are erecting increasingly punitive tariff barriers, putting into play their global reputations and the fate of major industries.”

EU ambassador: U.S.-EU talks can't include ag because quick deal is desired. EU Ambassador to the U.S. David O’Sullivan said that future trade talks between the U.S. and the European bloc can't include agriculture because doing so would hinder efforts to reach a deal quickly. “The reality is if you want to put agriculture in the mix, then you have to put government procurement 'Buy American' into the mix, you have to put geographic indications into the mix, and that’s going to make it a very long and complicated negotiation,” O’Sullivan said in remarks at the Hudson Institute.

U.S. officials have pushed to include agriculture in negotiations with the EU. Formal negotiations could start as soon as Jan. 14.

O’Sullivan said the EU would not be able to proceed with negotiations if the Trump administration were to impose tariffs on European autos and auto-part imports in the name of national security. Section 232 tariffs on European autos “would basically break off those talks, but we don’t believe that that’s going to happen,” he said. The U.S. and EU pledged in July to not impose any new trade-restricting measures as long as negotiations were making progress, an understanding that effectively exempts the EU from any possible auto tariffs.

But President Trump earlier this week again threatened an auto tax. He tweeted: "The reason that the small truck business in the U.S. is such a go to favorite is that, for many years, Tariffs of 25% have been put on small trucks coming into our country. It is called the 'chicken tax.' If we did that with cars coming in, many more cars would be built here and G.M. would not be closing their plants in Ohio, Michigan & Maryland. Get smart Congress. Also, the countries that send us cars have taken advantage of the U.S. for decades. The President has great power on this issue — Because of the G.M. event, it is being studied now!"

Sen. Chuck Grassley (R-Iowa) reacted to the EU envoy's statements. “Sounds like they are trying to pull one over on Pres Trump to the detriment of American farmers,” Grassley tweeted. “Pres Trump/USTR Lighthizer R too smart 4 that!”

Farm bill update:

  • We’ve reached an agreement in principle, but we’ve got more work to do,” House Agriculture Chairman Mike Conaway (R-Texas) said in a statement last evening.
  • The more work to do includes getting the specifics into legislative language and getting final budget scores from the Congressional Budget Office (CBO), where some ag sector analysts were busy yesterday meeting with selected industry analysts reviewing the crop supply and demand outlook.
  • A formal unveiling of the conference report could come Friday or early next week, contacts advise.
  • Some tentative details will likely include several changes to Title I farmer safety net programs that would please producers, including loan rate increases and an opportunity to make an annual election between modestly improved PLC and ARC safety net programs. They are also likely to get to updated yields. The maximum number of Conservation Reserve Program (CRP) acres, now set at 24 million acres, will likely be boosted to 27 million, paid for via capping payments based on local rental rates. Farmers who will lose payments on unplanted base acres will qualify for conservation incentives if they keep the acres in grass.
  • As for how and when the conference report will be voted on, Senate Agriculture Chairman Pat Roberts (R-Kan.) on Wednesday said he expects the legislation to be considered as a standalone bill rather than folded into a minibus spending measure. However, it is unclear if House leaders still prefer that approach or a solo farm bill vote.
  • What about the forestry management issues? Congressional leadership apparently settled the matter by punting most of the forestry title as a separate bill, a maneuver used in the past. Some minor forestry items could still be include in the coming farm bill conference report.
  • Food stamp provisions. Senate conferees got their way regarding the exiting of House-passed reform language dealing with work requirements, but there are some remaining reform efforts in the final conference report.

Big price tag for proposed House tax break extension. A package of tax break extensions (biodiesel, et.), fixes to the 2017 tax overhaul, disaster relief and retirement savings incentives would add $54.7 billion to deficits over the next 10 years, according to an estimate from the Congressional Budget Office (CBO). The tax package, to be added as an amendment to an unrelated bill (HR 88), is expected on the House floor this week.

House Rules ranking member Jim McGovern (D-Mass.) called House Ways and Means Chairman Kevin Brady’s (R-Texas) tax package a “300-page giveaway to the wealthy,” blasting Republicans for crafting the bill without Democrats. “So, I guess this is going to be a fight today,” responded Rules Chairman Pete Sessions (R-Texas).

The Senate is expected to modify the House proposal, and sources say Senate Democrats will likely stymie the effort. If so, an effort is likely to separate the biodiesel tax incentive extension to perhaps a simple retroactive extension (for 2018) and perhaps an additional year or two extension.

Sen. Chuck Grassley (R-Iowa) said he doesn’t believe there’s time to pass the House GOP's big tax package separately from a big year-end wrapup spending bill in the works. "Not if brought up separately, only if it's put in the funding bill," Grassley, the likely incoming Senate Finance chairman next year, said Wednesday about the House tax bill’s prospects in the Senate.

Brady sees his tax package as a separate bill that could make it through the House this week while discussions continue with senators about how the bill might gain 60 votes in that chamber. “My understanding is that this is moving as a standalone bill. It was designed for that purpose," Brady told reporters Tuesday.

Grassley said there is support for large components of the House bill, particularly for the extension of more than two dozen tax breaks for various interests ranging from underwater homeowners to biodiesel producers to regional railroad operators; the IRS overhaul pieces; and the disaster aid title. There are differences between House GOP and Senate positions on retirement savings provisions, such as whether to provide relief from rules requiring taxable retirement account distributions at age 70 1/2. Grassley has suggested a “pre-conference” on portions of the tax package where there are disagreements.

This isn’t our first end of the year tax extender bill, or package, and so we are working with Senate Finance members for agreement,” Brady said. “Obviously, it’s got to be something that is supported by 60 votes in the Senate and so we continue to have discussions with [Senate Minority Leader Chuck Schumer, D-N.Y.] and his team as well,” Brady said.

China said to mull stockpiling pork in bid to help hog producers. China could buy up pork for state reserves as the country battles African swine fever (ASF), according to reports from a meeting held by the Chinese Ministry of Agriculture and Rural Affairs this week. The meeting was called to talk about ways to make sure pork production remains stable during the ASF outbreak.

Timing of any purchases was not signaled at the meeting nor was any potential tonnage involved. However, some suggest that any such buys could come before the Lunar New Year holiday in early 2019.

The government called on major hog producers to diversify their slaughtering and increase processing capacity closer to their farms to prevent the need to transport live hogs.

Ukraine says Russia blocking two Azov Sea ports; Russia denies any such action. Russia is effectively blockading the Ukrainian ports of Berdyansk and Mariupol on the Azov Sea, preventing vessels from entering or leaving the port, Ukraine Infrastructure Minister Volodymyr Omelyan said. In a post on Facebook, Omelyan said that only vessels moving toward Russian ports are being allowed entry to the port. He said that 35 vessels have been blocked from carrying out normal operations, and some 18 were awaiting entry into the Azov Sea, and another nine are waiting to leave the Azov Sea with eight more standing by near port berths. "The goal is simple — by placing a blockade on Ukrainian ports on the Azov Sea, Russia hopes to drive Ukraine out of our own territory —territory that is ours in accordance with all relevant international laws," he said. The two ports are key grain and steel export locations.

However, Russia said it was not taking any such action to restrict shipping near Crimea. Kremlin spokesman Dmitry Peskov told reporters via telephone that he was unaware of any such problems and stated that shipping traffic was moving normally through the Kerch Strait which is controlled by Russia. The strait separates the Black Sea and the Azov Sea.

Other items of note:

  • Senators back effort to end U.S. support for Saudi-led campaign in Yemen. Senators from both parties defied the Trump administration and voted 63 to 37 to consider ending American military support for the Saudi-backed war in Yemen. The vote on Wednesday was a strong signal of disagreement with the Trump administration’s reaction to the death of the Washington Post columnist Jamal Khashoggi, and with its defense of the Saudi crown prince. Secretary of State Mike Pompeo said the vote would undermine the chances of a cease-fire agreement with Saudi Arabia.

  • Rep. Nancy Pelosi (D-Calif.), 78, overwhelmingly won the Democratic nomination for House speaker. However, 32 Democrats voted against her, suggesting that she could still face a fight to win a floor vote as the party assumes control in January, with a House chamber vote coming Jan. 3.

  • Rep. Barbara Lee (D-Calif.) lost her bid Wednesday to become the first black woman ever elected to a House leadership position and the first woman to lead the House Democratic Caucus. By a vote of 123 to 113, Rep. Hakeem Jeffries (D-N.Y.) won the race to lead the caucus for the next two years. Both are members of the Congressional Black Caucus. Jeffries, 48, is seen as a rising star among House Democrats, and frequently appears on the cable news shows to advance the Democrats’ message and push back against the GOP agenda.

  • Rep. David Valadao (R-Calif.), a dairy farmer, was defeated by Democratic challenger TJ Cox, giving Democrats their 40th House seat pick-up and their seventh in California. It was the last congressional race of the 2018 cycle to be decided. This makes the new Congress House ratio 235 Democrats and 200 Republicans, for a net gain of 40 for the Democrats. Link for more on the race via Los Angeles Times.

  • U.S. tariffs have sparked a flood of steel exports to Europe. The tariffs have scrambled the global steel trade, with countries that can no longer sell into the U.S. sending their products into Europe at a record rate. Link to Wall Street Journal article.

  • USDA allows CSP extensions. Farmers with existing Conservation Stewardship Program (CSP) contracts can renew them for 2019, USDA announced. The Natural Resources Conservation Service had not been authorized to extend CSP contracts since the 2014 farm bill expired Oct. 1.

  • USDA’s trade aid program is not doing much to offset financial losses in the dairy industry. The Wisconsin Farmers Union estimated that a 55-cow farm would receive a one-time payment of $725 from the program — while losing as much as $48,000 this year due to low milk prices, the Milwaukee Sentinel Journal reports. Link

Markets. The Dow on Wednesday rose 617.70 points, 2.50%, at 25,366.43. The Nasdaq gained 209.89 points, 2.95%, at 7,291.59. The S&P 500 rose 61.62 points, 2.30%, at 2,743,79.

Fed leader Powell's comments fueled Wednesday equity rally. The Federal Reserve chairman said interest rates are “just below” broad estimates of a level considered neutral, kicking off a surge in stocks that erased November's declines and lifted equities around the world. The announcement sent stocks up 2.3%, erasing this month’s losses. Analysts, however, warned that investors were overreacting and that there was little evidence in the rest of Powell’s speech that indicated a change in plans. Meanwhile, the Fed today will release minutes from the central bank's November meeting. They will provide more detail about how officials viewed the economy and their plans to raise interest rates to keep growth expanding at a sustainable pace.

Oil fell below $50 for the first time since Oct. 2017. WTI crude dropped amid a wave of heavy selling and mounting pressure on OPEC and its allies to reduce supply. The price plunge came amid data from the EIA showing U.S. crude stockpiles increasing for the tenth consecutive week. All eyes are now on this weekend's G20 summit, where Russia and Saudi Arabia will likely discuss how to coordinate oil policy. Shielded by a budget surplus and a weak ruble, Vladimir Putin said yesterday current prices are fine for Russia.


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