U.S./China Trade Talks Bogged Down; Mnuchin Says Another Telephone Confab Today

Posted on 07/18/2019 6:59 AM

Ebola outbreak now emergency | USDA release coming | Small refiners threaten suit

U.S./China trade talks are bogged down, with the latest issue being how to address Beijing's demands to ease restrictions on Huawei technology. President Trump continues to complain about China’s lack of agricultural purchases. U.S. Treasury Secretary Steven Mnuchin says another telephone meeting will take place today.
     USDA is expected today or tomorrow to issue a release of importance to farmers. Topic is unknown but it could be on MPF 2, prevent plant and/or WHIP-Plus.
     Beyond Meat now, Beyond Dairy ahead? Dairy alternative firms are set to boom to a $38 billion market. Dairy-free cheese sales rose 20% in the year to April to $160 million in the US, and yogurt sales grew almost double that, by 39% to $230 million. Link for details.
     Russia is prepared to join an EU payments channel designed to circumvent U.S. sanctions banning trade with Iran but has called on Brussels to expand the new mechanism to cover oil exports. The vehicle, known as Instex, intends to allow for imports and exports without direct financial flows. "The more countries and continents involved, the more effective will the mechanism be as a whole," the Russian foreign ministry told the Financial Times.
     Iran says it seized a foreign tanker smuggling oil, state media reports. It is unclear where the tanker is from. The announcement on state television said the tanker and its 12 crew were seized on Sunday. The move comes amid heightened tensions between the United States and Iran in the Persian Gulf, which carries a significant portion of the world’s oil. Meanwhile, Iran’s Foreign Minister Mohammad Javad Zarif said his country could close the Straits of Hormuz if it wanted to — but that it doesn’t want to as it is a lifeline for the country’s economy. He also said than the U.S. had “shot itself in the foot” by withdrawing from the 2015 nuclear deal, dimming hopes of talks with the White House any time soon.
     The World Health Organization has declared the Ebola outbreak in Democratic Republic of Congo to be a "public health emergency of international concern" after the spread of the virus to the city of Goma and into Uganda.
     U.S./U.K. trade deal outlook. Boris Johnson, the favorite to succeed Theresa May as U.K. prime minister, said a trade deal won’t be reached with the U.S. soon after Brexit, predicting discussions will be “tough” and “robust.” “A deal with the U.S. is not going to be done in a trice,” Johnson said late yesterday at a Tory hustings event in London. “It’s not going to be something that adds several percentage points to U.K. GDP, but it will substantially boost our GDP over time,” he said, adding: “it’s not something that’s going to be done instantly.”
     Christmas in July? Kohl’s Corp. has started hiring for the holiday season.
     Axios detailed some demographics that should make GOP leaders concerned about elections ahead:
     * The Hispanic share of the population has grown in every state since 2000, according to Census data.
     * Hispanic people now make up a quarter of the population in Florida, almost a third of the population in Arizona and 39% of Texas — all Trump states in 2016 that are becoming more winnable by Democrats.
     * Florida and Texas, two of the big electoral giants that voted for Trump, are witnessing the fastest non-white population growth.
     Meanwhile, next year, the entire under-18 population will be majority non-white, according to Brookings demographer William Frey. In less than a decade, the under-30 population will be majority non-white.

 

U.S./China trade policy update:

  • Trade talks get stuck on Huawei. Progress toward a U.S.-China trade deal has stalled while the Trump administration determines how to address Beijing’s demands that it ease restrictions on Huawei technology. While President Trump has allowed companies to resume selling some American technology to Huawei, his administration still considers the Chinese tech giant a threat to national security. “So far administration officials haven’t reached consensus on which semiconductor chips and other products can be provided to Huawei without triggering security concerns or giving the company a strategic edge,” the Wall Street Journal reports (link).
  • Mnuchin signals trade call with China will take place today. U.S. Treasury Secretary Steve Mnuchin, in France for the G7 meeting of finance ministers, said that the next phone conversation with China on trade will come later today. “Ambassador [Robert] Lighthizer and I have a call scheduled for later today with our counterparts. This will be the second conversation we’ve had. There has been conversation at the staff level,” Mnuchin said on CNBC’s Squawk Box program. “We’re working under the direction of President Trump and President Xi from the meeting in Osaka and we’ll see where we get.” He signaled that in-person talks are still possible, depending on how the conversation later today goes. He said the U.S. is trying to get back to making a “lot of progress” in the talks. He also denied reports that the situation with Huawei is the sticking point in the U.S./China trade discussions.
  • Rep. Ron Kind (D-Wis.) wants more info on promised China purchases of U.S. farm products. Kind is calling on the Trump administration to provide more information about China's promised purchases of American agricultural goods, which President Trump said three weeks ago would be forthcoming but have yet to be seen. In a letter sent Wednesday to USDA Secretary Sonny Perdue and White House economic adviser Larry Kudlow, Kind pressed for details and emphasized that "farmers should be given clarity about what, if any, additional agriculture purchases will be made by China." Link to letter.
  • Grassley turns pessimistic. Asked this week by reporters if he was optimistic about a U.S./China deal this year, Sen. Chuck Grassley (R-Iowa) replied: “Just exactly the opposite.”
  • U.S. trade officials asked their counterparts a key question in their most recent telephone session. During the call, the U.S. sought to clarify whether the Chinese officials would be willing to go back to an earlier draft of the agreement as a basis for future negotiations. So far no one is saying how China responded, but most observers say the answer is clear: no.
  • A Chinese government spokesperson said Trump should “make up his mind” on whether he wants a trade deal or not, warning that his comments about slapping duties on another $325 billion in Chinese goods could derail progress, the South China Morning Post reports (link).
  • China may be signaling it’s going hard-line — but it still wants a trade deal, says ex-Trump negotiator. China may have just signaled it’s going more hardline on trade, but it could actually be a good thing, former top White House trade negotiator Clete Willems, told CNBC on Wednesday (link).

Small refiners threaten suit against EPA if agency fails to decide on RFS exemptions in 60 days. A group of small U.S. refiners have said they will sue EPA in 60 days if the agency fails to issue decisions on small refiner exemptions (SREs) under the Renewable Fuel Standard (RFS), according to a report from Reuters.

The coalition of small refiners said in a letter to EPA that the agency is required to act on SREs within 90 days after receiving the request, noting the agency did not issue decisions on requests for the 2018 compliance year by March 31, 2019, the date the group said was the compliance deadline. "This letter ... provides notice of our intent to sue in federal court 60 days after delivery of this letter ... The small refinery owners, however, urge the administrator to issue the 2018 decisions as soon as possible, so it will be unnecessary to file suit," it said.

EPA data continues to show 38 SREs are pending for the 2018 compliance year out of 40 submitted — two were declared ineligible or withdrawn. SREs continue as a controversial portion of the RFS with biofuel backers blasting them as reducing required biofuel use while refining interests say the law requires them to be used.

Other items of note:

  • House Democrats help repeal key tax provision in ObamaCare. The House voted almost unanimously on Wednesday to repeal the so-called Cadillac tax, which would have imposed a steep charge on high-cost health plans. Set to go into effect in 2022, the tax was expected to be one of the main ways that the Affordable Care Act, President Barack Obama’s signature health law, would pay for itself. The tax has already been delayed twice. Repealing it will increase deficits by nearly $200 billion over the next decade, according to the nonpartisan Congressional Budget Office.

  • The House killed an attempt to impeach President Trump, but the vote showed many Democrats are eager to pursue removing him from office despite party leaders’ calls for caution. In a 332-95 vote yesterday, the House refused to advance Rep. Al Green’s (D-Texas) impeachment resolution that cited the president’s tweets criticizing four freshman House Democrats, all women of color, and other comments denounced as racist. All of those who voted to move forward with the measure were Democrats.

  • Lawmakers voted to hold Attorney General William Barr and Commerce Secretary Wilbur Ross in criminal contempt over the administration’s push to add a citizenship question to the 2020 Census. The 230-198 vote was largely symbolic because there’s virtually no chance the Justice Department would move in court against the two.

  • Ebola emergency is declared. The World Health Organization’s formal designation adds urgency to the year-old outbreak in the Democratic Republic of Congo, where more than 1,600 people have died.

  • Russia has signaled its willingness to join an EU payments channel designed to circumvent US sanctions banning trade with Iran, but has called on Brussels to expand the new mechanism to cover oil exports, the Financial Times reports. Moscow’s involvement in the channel, known as Instex, would mark a major step forward in attempts by the EU and Russia to rescue a 2015 Iran nuclear deal that has been unravelling since the Trump administration abandoned it last year.

  • Pelosi sets debt-ceiling deadline. House Speaker Nancy Pelosi (D-Calif.) set a Friday deadline for Congress and the Trump administration to reach an agreement on raising the government's borrowing limit and setting new overall spending levels. Failure to agree on a package before the House leaves for recess next week could force Congress to settle for a short-term debt limit fix and delay discussion about spending levels.

  • Senate Ag Committee will hold a hearing next week on hemp production, which was legalized under the new farm bill. It’s set for next Thursday morning.

  • Pompeo indicates he has not closed door on possible Kansas Senate bid. The Washington Post reports (link) that Secretary of State Pompeo on Wednesday “signaled that he is open to considering a” a 2020 bid to succeed retiring Sen. Pat Roberts (R-Kan.), “months after he declared that he had ruled out a bid.” The Post says that “in an interview with KCMO Radio in Kansas City, Pompeo repeated his familiar refrain that he intends to continue as Secretary of State “so long as President Trump wants me to be engaged in this activity.” However, the WaPo says Pompeo “left himself more wiggle room than he has previously, suggesting that the door remains open to a potential” bid. Said Pompeo, “I always leave open the possibility that something will change and my path in life will change too.”

  • DNC reveals 20 Democrats will take part in second presidential debates. Reuters reports that Gov. Steve Bullock (D-Mont.) “will be the only new face on stage for the second round of Democratic presidential debates later this month in Detroit, the Democratic National Committee said on Wednesday.” Bullock will fill the slot that Rep. Eric Swalwell (D-Calif.) occupied in the first debate. Swalwell has since withdrawn from the race. Reuters adds, “The other 19 candidates will be the same as the participants in the first round of Democratic debates last month in Miami.”

Markets. The Dow on Wednesday lost 115.78 points, 0.42%, at 27,219.85. The Nasdaq declined 37.59 points, 0.46%, at 8,815.21. The S&P 500 was down 19.62 points, 0.65%, at 2,984.42.

IMF sees dangers from trade tensions, overvalued dollar. The International Monetary Fund said on Wednesday the U.S. dollar was overvalued by 6% to 12%, based on near-term economic fundamentals, while the euro, the Japanese yen and China’s yuan were seen as broadly in line with fundamentals.

Signs of a decelerating U.S. economy are showing up on the nation’s railways, as the carriers of bulk goods report falling freight volumes. An index of the biggest U.S. railway stocks fell more than 7% on Wednesday after a gloomy business prognosis from CSX, whose 21,000-mile network runs east of the Mississippi river. The company predicted a 1% to 2% decline in revenue this year, abandoning a previous forecast for growth, as its boss outlined a “slow, lazy, malaise-type drift down.” “The present economic backdrop is one of the most puzzling I have experienced in my career,” said Jim Foote, CSX chief executive, during a call to discuss second-quarter results. Meanwhile, the Cass Shipments Index, a measure of North American freight volumes moved by trains and trucks, has declined seven months in a row including a 5.3% drop in June, “signaling an economic contraction,” the index provider said.

Gold is best investment for global market, hedge fund expert says. Gold hasn’t lost its sheen as the go-to investment when markets start to tank or display erratic behavior due to reasons such as politics. Billionaire Ray Dalio, founder of Bridgewater Associates, one of the world’s largest hedge funds, said the frenzy among investors for stocks and other assets with equity-like returns is blinding them to the painful reality securities are in for a period of diminishing returns. Dalio’s hedge against this outcome — gold.

South Korea’s central bank unexpectedly cut interest rates. The Bank of Korea’s first interest rate cut in three years comes after almost a year of sluggish growth, held back by an unresolved trade dispute with Japan. The Bank of Korea lowered its key interest rate by 25 basis points to a mark of 1.5%, taking the action to offset a faltering economy as exports and domestic investment have both slowed, the bank said after the conclusion of its meeting. This marked the first action to cut rates by the Bank of Korea in three years. Volatility in financial markets caused by the U.S./China trade tensions and Japanese curbs on some technology exports to South Korea factored into the decision. The bank said it would “carefully monitor developments such as the U.S./China trade dispute, Japan’s export restrictions, any changes in the economies and monetary policies of major countries ... and geopolitical risks, while examining their effects on domestic growth and inflation.”

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