Partial U.S. gov't shutout continues as White House offers concessions; Trump mulls emergency action
— U.S./China update:
U.S./China negotiators begin two days of talks in Beijing. Envoys will have “positive and constructive discussions” during meetings in Beijing today and Tuesday, said Chinese Foreign Ministry spokesman Lu Kang. President Trump expressed optimism about the trade negotiations Sunday, saying he spoke recently to Xi. “I really believe they want to make a deal. The tariffs have absolutely hurt China very badly,” Trump said.
The new round of negotiations follows a trade truce agreed by President Donald Trump and Chinese leader Xi Jinping in Argentina in December. Under that agreement, the U.S. is suspending tariff increases on $200 billion of Chinese imports until March, while China lifted tariffs Jan. 1 on U.S. automobiles. China further pledged to increase access for foreign-owned financial firms. Observers said that if this week's talks went well, more discussions between senior leaders would follow, likely in Washington.
Negotiators and the agenda. The two days of meetings are aimed at carrying out the Dec. 1 truce by Presidents Trump and Xi, China's Ministry of Commerce announced Friday. It said the American delegation will be led by a deputy U.S. trade representative, Jeffrey D. Gerrish. Bloomberg reported the negotiations will address issues including intellectual property, agriculture and industrial purchases. Preliminary discussions have been “a little more optimistic than usual,” White House economic adviser Larry Kudlow told Bloomberg TV on Friday.
Other American officials at the talks include Gregg Doud, the USTR’s chief agricultural negotiator; David Malpass, the Treasury Department’s undersecretary for international affairs; Gil Kaplan, undersecretary of commerce for international trade; Ted McKinney, undersecretary of agriculture for trade and foreign agricultural affairs; and Merry Lin, director for global and Asia economics at the National Security Council.
Some observers wonder why U.S. Trade Representative Bob Lighthizer was not in Beijing for the talks, but the sessions are more technical in nature. Lighthizer, who is in overall charge of trade talks with China, is expected to meet with Chinese vice-premier Liu He, Xi’s top economic adviser, later this month. Lighthizer and European Trade Commissioner Cecilia Malmström will meet in Washington Jan. 8, part of ongoing negotiations for a transatlantic trade pact.
The Chinese government gave no details of who would represent Beijing.
China has pledged to cut tariffs, buy more U.S. goods and services, ease restrictions on foreign firms operating in China and further open sectors for foreign capital. Chinese officials also indicate that Beijing is willing to put in place a mechanism for measuring how it implements those promises. Chinese officials may offer several concessions, including reducing some tariffs on American goods. Additional details of a full trade pact are on the agenda this week in Beijing.
China last week reportedly purchased additional U.S. soybeans and allegedly some U.S. wheat for government agencies, even thought conjectured amounts (up to 6 MMT) appeared high. No USDA confirmation was available due to the partial U.S. government shutout affecting portions of USDA. Key this week is whether China removes retaliatory tariffs on U.S. farm products which, if announced, could encourage private buyers to resume U.S. ag-product purchases. China may also remove its anti-dumping and anti-subsidy tariffs on U.S. distiller’s dried grains and allow imports of U.S. poultry after it gave the green light on U.S. rice purchases. Conversely, some observers wonder if China would cancel previously purchased U.S. soybeans if talks falter.
Both U.S. and China face economic/political pressure to reach a settlement. President Trump said on Friday that China’s weakening economic growth put the US in a strong position ahead of any negotiations. “I think we will make a deal with China. I really think they want to. I think they sort of have to,” he told reporters at the White House. “I hope we’re going to make a deal with China. And if we don’t, they’re paying us tens of billions of dollars worth of tariffs – not the worst thing in the world.”
Chinese economic growth fell to a post-global crisis of 6.5% in the quarter ending in September, with some reports conjecturing the growth figure was even lower and perhaps lower ahead. Chinese auto sales tumbled 16% in November over a year earlier and weak real estate sales are forcing developers to cut prices. China’s central bank moved to inject money into the world’s second-biggest economy on Friday, cutting the amount of cash reserves lenders must hold by 1 percentage point, which frees up liquidity ($116 billion) and shifts the focus from the MLF (medium-term lending facility), where loans maturing in Q1 will not be replaced. It was the first general cut in the required reserve ratio since March 2016. Also last week the central bank changed the definition of a small business to allow more firms to benefit from low borrowing rates. Economists estimate that this will result in the release of $210 billion into the economy in the form of cheap loans. China also approved $125 billion of rail projects in fiscal stimulus. The measure to boost the economy is the latest move to give the country breathing space in the trade war with the United States.
While third-quarter U.S. growth was 3.4% and unemployment is at a five-decade low, surveys show consumer confidence is weakening due to concern growth will moderate this year.
Likely catching China's attention is a report from the investment bank UBS who said Friday that 37% of 200 manufacturers surveyed said they have shifted out of China over the past 12 months. It said the threat of U.S. tariff hikes was the "dominating factor" for nearly half, while others moved due to higher costs or tighter environmental regulation. Another 33% of companies said they plan to move out of China in the next six to 12 months, according to the UBS report.
President Trump is likely to hold talks with Wang Qishan, China’s vice president, at the World Economic Forum which runs from Jan. 22-25, the South China Morning Post reported (link), citing a person familiar with the matter. Wang is expected to lead China’s team to the annual forum in Davos, Switzerland. The talk with Trump would take place on the sidelines of the meeting, the newspaper said.
— Weekend talks fail to resolve U.S. gov't spending disputes. Vice President Mike Pence led the administration’s weekend negotiating team, which included Homeland Security Secretary Kirstjen Nielsen and White House adviser Jared Kushner, the president's son-in-law. No legislators were involved, and Pence was reportedly not empowered to change President Trump’s demand for $5.6 billion for a wall. Trump was at Camp David for what he called “meetings on Border Security and many other topics with White House senior staff.”
The White House signaled flexibility on a concrete border. White House acting chief of staff Mick Mulvaney reiterated that President Trump is willing to yield on building a concrete wall along the U.S.-Mexico border to advance negotiations to end the partial government shutout that’s entering its third week, saying Trump would accept a barrier made of steel. In comments Sunday on NBC's Meet the Press, Mulvaney signaled President Trump could “take a concrete wall off the table” in talks with Democratic leaders over the shutout. He added that lawmakers are talking about “whether or not a 20-foot-high, 30 foot high steel bollard, steel slat barrier is a wall or not.”
“If he has to give up a concrete wall, replace it with a steel fence in order to do that so that Democrats can say, ‘See? He’s not building a wall anymore,’ that should help us move in the right direction,” Mulvaney said.
The White House formally asked lawmakers Sunday to provide an additional $7 billion beyond what Senate appropriators proposed in their bipartisan Homeland Security spending bill last year, with more than half earmarked for a "steel barrier" along the southwest border. At $5.7 billion for border barriers, or $4.1 billion more than the Senate's fiscal 2019 bill, President Trump proposes more than he'd requested earlier for a concrete wall. And the proposal reiterates some of Trump's earlier requests rejected by Senate appropriators, including nearly $800 million to support 52,000 detention beds for immigrant detainees.
The letter shows White House openness to Democratic priorities, including $800 million to respond to the "urgent humanitarian needs" of migrants taken into custody, as well as restoring the Obama-era Central American Minors program so asylum-seeking children can be screened in their home countries.
A spending bill passed by the House on Thursday for the Department of Homeland Security (DHS) included money to repair fences along the wall, along with bollard barriers, levees and technology improvements, but didn’t allow for a concrete wall.
Two-days of talks between White House officials and congressional staffers concluded Sunday without a deal to end the impasse.
House Speaker Nancy Pelosi (D-Calif.) said in a statement late Saturday that House Democrats this week would start passing individual spending bills to reopen government agencies, starting with the Treasury Department and the Internal Revenue Service to ensure tax refunds go out on schedule. Those bills will then need to be passed in the Senate and signed by the president, who has indicated he will keep the government closed until Congress approves border wall funding. The White House agreed to provide a list outlining how much money the administration was requesting for border security, what it would be used for and what would be cut to fit the wall into the Homeland Security budget.
Trump on Friday after meeting with congressional leaders said that he told them the impasse could last for months or even years if Democrats don’t agree to fund the border wall. He also said he was considering declaring a national emergency to build a border wall if Congress doesn’t fund it.
Mulvaney said that if lawmakers don’t reach an agreement by Tuesday, then federal employees will miss their first full paycheck on Friday.
The longest shutdown in U.S. history under current rules lasted 21 days in 1995. The latest stalemate is now in its 17th day.
The White House moved late Friday to stop administration officials from receiving pay raises resulting from a pay freeze that was set to expire due to the shutdown while federal workers are furloughed. Margaret Weichert, the acting director of the Office of Personnel Management, in a memo Friday said the agency “believes it would be prudent for agencies to continue to pay these senior political officials at the frozen rate until appropriations legislation is enacted that would clarify the status of the freeze.”
On the tax front, House Ways and Means Chairman Richard E. Neal (D-Mass.) wrote to Treasury Secretary Steven Mnuchin and IRS Commissioner Charles Rettig asking for explanations about how the furloughing of 70,000 IRS employees, or 87.5% of its workforce, would affect the agency's ability to process tax returns, provide refunds and address backlogs.
Senate Appropriations Chairman Richard Shelby (R-Ala.) expressed frustration Sunday that the matter hasn't been resolved yet. "We could settle it. We should. But this has become a political circus," Shelby said on Fox's Sunday Morning Futures. Shelby said the prospect of some 800,000 federal workers missing their paychecks would "have a profound effect" and that it ought to drive the parties to compromise. "I hope it's pressure on both sides," he said, while adding that he's unsure of what exactly the Democrats want. "You're going to have to give the Democrats something, but right now they're against everything," Shelby said.
Trump said Sunday that his patience may run out soon and start using existing authorities to finance portions of the wall. "I may decide a national emergency depending on what happens over the next few days," Trump said. "The shutdown could end tomorrow, or it can go on for a very long time," he said. "It's really dependent on the Democrats."
One option is anti-narcotics trafficking legislation codified as part of the fiscal 2017 defense authorization law, which allows the Secretary of Defense to "provide support" for activities including "construction of roads and fences and installation of lighting to block drug smuggling corridors across international boundaries of the United States."
Bottom line: Consensus in Washington is that the impasse could continue until near the State of the Union address on Jan. 29; if no agreement is reached by then, the timeline is quite murky. Pressure points will start increasing at the end of this week if the next previously scheduled checks on Jan. 11 are not released.
— Other items of note:
Key to understanding impact of new Democratic-controlled House: They can stop things proposed by President Trump and the GOP-controlled Senate, but their own initiatives will not go anywhere without GOP and Trump approval. That is why most of what House Democrats propose will be political in nature, designed to get GOP lawmakers to vote against the Democratic goals ahead of 2020 elections. Compromise is possible on some topics, including health care, trade deals (USMCA, etc.) and perhaps infrastructure reform. Meanwhile, House Democrats will aggressively pursue oversight of the Trump administration and key issues like implementation of the 2018 Farm Bill and administration of the Renewable Fuel Standard program.
Bolton: U.S. withdrawal from Syria is conditional. The Trump administration won’t withdraw U.S. forces from northern Syria unless Turkey offers a firm commitment not to target America’s Kurdish allies, underscoring the challenges in executing the president’s wishes to put an end to the military campaign, according to National Security Adviser John Bolton. Bolton this week will visit leaders in Israel and then Turkey, where he’ll be joined by Gen. Joseph Dunford, chairman of the Joint Chiefs of Staff, and James Jeffrey, the U.S. special representative for Syria engagement.
Why Beef Prices Are Primed to Sizzle is the title of a Barron's outlook item in its recent edition (link). Reasons: African swine flu, possibly brutal winter weather, and falling beef production could propel prices for cattle futures more than 15% higher over the next two quarters or so, the article notes.
The National Park Service will use recreation fees to clean up restrooms, pick up trash and maintain roads that have been left unattended during the partial government shutdown, according to a directive issued by Acting Interior Secretary David Bernhardt. He disclosed this in a letter to GOP Sen. Steve Daines of Montana.
As many of his close associates expected, Sen. Pat Roberts (R-Kan.), 82, said he would not seek re-election after his latest term ends in 2020. Roberts served in the House for 16 years and 22 years thus far in the Senate. Kansas has not elected a Democratic for one of their U.S. Senate seats since 1932.
— Markets. The Dow on Friday closed up 746.94 points, 3.29%, at 23,433.16. The Nasdaq gained 275.35 points, 4.26%, at 6,738.86. The S&P 500 added 84.05 points, 3.43%, at 2,531.94.
Friday's equities surge was fueled by a stronger-than-expected jobs report — Friday’s Labor Department report showed the U.S. economy added 312,000 jobs in December, the fastest pace since February — and Federal Reserve Chairman Jerome Powell suggesting the central bank would be flexible with its policy plans. The central bank is willing to change its rate path if economic data takes a sustained turn for the worse; currently it has two rate rises penciled in for this year.
Last week, the Dow rose 370.76 points, 1.6%, while the S&P 500 gained 1.9%. The Nasdaq Composite climbed 2.3%.