U.S./China Trade Deal Could Take Six More Weeks to Complete

Posted on 04/05/2019 6:54 AM

Trump backs off threats to close southern border; gives Mexico a year to deliver

Six more weeks? No final U.S./China trade agreement this week... No summit was announced between President Trump and Chinese leader Xi Jinping. But both Trump and Xi said major progress on the final text has been made. But major issues remain and that could take up to four to six weeks to get to the end zone. Why up to six weeks? Trump said that while swift progress had been made, "we'll know over the next four weeks" whether a deal can be reached. But U.S. negotiators have told industry officials that even after reaching a preliminary deal, they will need an additional two weeks beyond that to review the fine print. Drafts of the U.S./China trade agreement give China until 2025 to meet commitments on commodity purchases and open the way to full takeovers of its companies by U.S. bidders; some other provisions would expire in 2029.
     “This is an epic deal, historic, if it happens,” Trump told reporters. “Some of the toughest things have been agreed to,” he said, but confirmed that enforcement provisions remain a sticking point with China. “We have some ways to go.” Trump also noted that, “Whether it’s our farmers or technology people, all of them will be really happy and I think China is going to be very happy too.”
     President Trump retreated from recent threats to close the U.S.’ southern border, telling reporters he will grant the Mexican government another year to block migrant caravans and drug trafficking before deciding whether to levy a different punishment, which he described as 25% tariffs on Mexican cars coming into the United States. Asked if his comments suggested the border will remain open for at least a year, Trump responded: "No, I didn't say that... We would start with the tariffs and we'll see what happens... The only thing, frankly, better and less drastic than closing the border is tariff the cars coming in, and I will do it,” Trump said. “I don’t play games.”
     The Iowa Farm Bureau Federation said the state’s economic damage from last month’s catastrophic flooding will likely surpass $2 billion; farmers there will struggle to plant as many as 145,000 flooded acres along the Missouri River. As for disaster aid, an impasse continues in the Senate. And, Congress is scheduled to take a two-week recess in mid-April.
     British Prime Minister Theresa May asked the European Union for an extension to the Brexit deadline to June 30 to give time to reach an agreement with opposition leader Jeremy Corbyn on a way forward. The date would avoid forcing Britain to take part in European Parliament elections. Should no agreement on a new deadline be reached next week, the U.K. is still on track to leave on April 12 without any deal at all. European Council President Donald Tusk proposed allowing the U.K. a 12-month "flexible" extension to leave the EU, according to the BBC.
     Herman Cain is a nominee for a Federal Reserve board seat, President Trump announced.
     You know those “top doctor” awards? “Turns out they are just scams to make money. We know that partly because one just went to a journalist at ProPublica with no medical degree. The only requirement was paying a $99 fee. So if you’re looking for a brain surgeon, maybe a 'top doctor' award isn’t the way to choose the one wielding a scalpel,” according to New York Times columnist Nicholas Kristof (link).


U.S./China trade policy update:

  • President Trump said he would know within four weeks whether a summit with China's leader will take place. President Donald Trump on Thursday met with China's special envoy Liu He at the White House. Before the meeting, Trump said that the two countries were headed toward an agreement that might be “the biggest deal ever made.” While some reports earlier Thursday said that a summit meeting would be announced between Trump and China President Xi Jinping of China, that was not part of Thursday's comments. Trump says if the U.S. and China forge a trade deal then there will be a summit with Chinese leader Xi. Trump said he would know within four weeks whether there will be a summit, which he said would be in the U.S. According to the New York Times, Trump “was poised to announce a summit meeting with China. But those plans spurred a backlash among some of the president’s trade advisers, who argued that announcing a meeting before the deal was struck would weaken the United States’ hand and give it less leverage to force changes it is seeking.”
  • Xi sent Trump a message saying substantial progress has been made in the text of the trade deal, according to China’s Xinhua news agency.
  • Talks are expected to continue for weeks... perhaps four. U.S. negotiators have told industry officials that even after reaching a preliminary deal, they will need an additional two weeks beyond that to review the fine print. Talks will continue today.
  • Trump continued his back-and-forth assessment of a potential deal: “This is an epic deal, historic — if it happens,” Trump said. “We’ll see what happens.”
  • Negotiations are in their final stages, but complex issues remain — including when to lift punitive tariffs against Chinese imports, protection of U.S. intellectual property and enforcement of the pact’s provisions. There are “major, major issues left,” U.S. Trade Representative Robert Lighthizer said. “We’re certainly making more progress than we would have thought when we started.”
  • Enforcement differences remain between the two countries. U.S. trade negotiators want to keep some tariffs on as a way to make sure China lives up to its commitments in a trade deal. They want to roll levies back slowly. The U.S. is also pressing China to agree to a no-retaliation clause in a trade deal, meaning the U.S. could impose tariffs on China in the case of an unresolved dispute under the deal and China would forgo the right to retaliate. China has opposed that strategy so far.
  • Other issues include purchases of U.S. goods and services, removal of other barriers to U.S. exports, and an end to the forced transfer of technology from U.S. companies to their Chinese counterparts. Sources signal drafts of the U.S./China trade agreement give China until 2025 to meet commitments on commodity purchases and open the way to full takeovers of its companies by U.S. bidders; some other provisions would expire in 2029.
  • Second guessing has already begun as some senators fear agreement could fall short. Some U.S. senators are urging the White House to ensure the pact mandates a level playing field for U.S. companies and has a strong enforcement mechanism. The deal “must allow us to do in China what they can do in the U.S. & it must have real enforcement mechanisms,” Sen. Marco Rubio (R-Fla.) tweeted Thursday. “In practical terms, China is already in violation of things they’ve either implicitly or explicitly agreed to in the past, and the enforcement mechanisms don’t exist for it,” he said in a recent interview. Rubio wants the Trump administration to retain U.S. import tariffs aimed at blunting China’s ability to compete in key industries as a part of its “Made in China 2025” program. Meanwhile, Sen. Sherrod Brown (D-Ohio) said he wants to “see the details of any agreement and how we are going to enforce it to make sure there are long-lasting structural changes that will really stop China’s cheating.”
  • The Asian Development Bank warned the U.S./China conflict poses the biggest current risk to the economy of Asia as its chief economist sharply lowered the region's growth forecasts for this year and next. "Prolonged negotiations," he wrote, "is the biggest risk."

Trump backs off border shutdown. President Trump on Thursday backed away from threats to close the U.S. border with Mexico to stop immigrant crossings, while also raising the possibility of imposing tariffs on cars. In remarks to reporters at the White House, Trump said Mexico wasn’t doing enough to stop the cross-border flow of illegal immigrants and illicit drugs. He said if the drug flow didn’t stop, he would level tariffs on cars coming into the U.S. from Mexico — followed by closing the border.

But Trump also said he planned to give Mexico a year to satisfy his demands. “We’re going to give them a one-year warning and if the drugs don’t stop, or largely stop, we’re going to put tariffs” on cars, he told reporters. “And if that doesn’t stop the drugs, we close the border.”

Asked later if his comments meant he wouldn’t close the border for at least a year, Trump responded: “I didn’t say that. We’ll start with the tariffs and see what happens.”

The president said he believed Mexico, fearing he would follow through and close U.S. border entry, heeded his warnings in the last week and deported or expelled migrants from Central American countries moving across its own southern border. “Mexico took a big chunk of our car business, which I don’t like,” the president added. “I don’t think we’ll ever have to close the border [because] tariffs would be massive.”

Mexican Economy Minister Graciela Márquez, whose department handles trade, said Mexico believed trade and migration issues should be kept separate. “Indeed, the U.S. government sometimes mixes up the two subjects. For us it’s important to keep on one track the ratification of the free trade agreement and on other issues that have to do with migration,” she said at a press conference. “As to new tariffs we will have to be discussing them in terms of the relations between trade partners.”

Pelosi invites House Democrats to Trumka talk on USMCA. House Speaker Nancy Pelosi (D-Calif.) has invited House Democrats to a presentation from AFL-CIO President Richard Trumka on the USMCA. The meeting is scheduled for next Wednesday morning.

The labor union has emphasized that USMCA has to improve the labor provisions in the NAFTA agreement that it is to replace, saying earlier this week that while some of their concerns could be addressed in the implementing language, other areas would need to be renegotiated. But Mexico and Canada, along with U.S. Trade Representative Bob Lighthizer have said that is not an option.

Pelosi has indicated she will not consider the trade pact until after Mexico has passed and implemented labor reform law, which is required under the new deal. Beyond that, she wants any changes to be made to the text of USMCA, rather than via implementing legislation. Pelosi said Thursday that she will not use support for USMCA as leverage to get White House backing on Democratic policy priorities like infrastructure or raising the minimum wage. “It would stand on its own,” she said.

Mexico and Canada both do not want to reopen USMCA. Mexican President Andrés Manuel López Obrador promised that his government would pass legislation to implement labor obligations it made in USMCA but opposed reopening talks. “We don’t want there to be any excuse to reopen the negotiations for the deal," he said. Canadian Foreign Minister Chrystia Freeland said Canada has “sympathy” for Democrats’ concerns but does not want to go back to the negotiating table. "Canada has done its share. … Now it’s up to each country to work on ratification through its own domestic processes,” she said in Washington.

Other items of note:

  • USDA has paid $8.24 billion to producers affected by retaliatory tariffs through the Trump administration’s Market Facilitation Program, a USDA spokesperson told Politico.

  • Senate panel advances Interior Secretary nominee Bernhardt. The Senate Energy and Natural Resources Committee voted to approve President Trump’s pick for Interior secretary, over objections of Democrats who sought a delay amid a federal investigation into the former oil lobbyist’s recusals from matters involving previous clients.

Markets. The Dow on Thursday gained 166.50 points, 0.64%, at 26,384.63. The Nasdaq eased 3.77 points, 0.05%, at 7,891.78. The S&P 500 rose 5.99 points, 0.21%, at 2,879.78.

Jobs report coming this morning. Economists have forecast nonfarm payrolls to bounce back by 175,000 in March, after a shockingly low 20,000 last month. Hopes for a solid number were boosted by jobless claims data, which fell to a 49-year low last week. Also being eyed are average hourly wages, which likely rose 0.3%, and an unemployment rate that's expected to hold steady at 3.8%.

Key jobs update ahead. The March Employment report arrives this morning and the update will be eyed in particular on whether it reflects a recovery from the downbeat February update. Expectations are for the U.S. economy to have created 175,000 jobs in March, a sharp up-move from 20,000 in February. At least the expectation is that the February update will be an anomaly in the data flow as opposed to a new trend. Indications are that if the jobs created do not come in above 100,000, it could set off fresh concerns about the U.S. economy. Wages are another watchpoint, having moved up 3.4% year-over-year in February. The tight jobs market is expected at some point to put upward pressure on wages as employers work to attract workers from the tight labor force. The unemployment rate could also remain at low levels, likely remaining at the current 3.8%, but if there are more workers that come back into looking for work, that could send the rate back higher.

Trump picks Herman Cain for Federal Reserve Board. The president's selection of Cain, following his decision to nominate former campaign adviser Stephen Moore, marks an effort to install two Fed critics and loyal Trump supporters on the central bank’s powerful seven-seat board.

Brexit update 86... Theresa May seeks to buy more time for a Brexit deal. The British government has requested an extension until June 30 to get a divorce deal through Parliament. The request, if granted, would mean that the U.K. would hold elections for the European Parliament on May 23 if it hasn’t left the bloc by May 22.


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