In USMCA Setback, House Dems Insist on Labor Inspections in Mexico

Posted on 12/04/2019 6:46 AM

Key to U.S./China trade talks is whether new Dec. 15 tariffs will be postponed


In today's updates:


* Mexico pushes back on House Dems’ labor inspections in Mexico re: USMCA
* China reacts strongly to House bill passed Tuesday
* China continues to balk at specific farm product purchases
* Another key to Phase 1 talks is tariff reductions
U.S.-China Cold War has started: Stanford University's Niall Ferguson
* No sunny outlook for solar business
* White House to curb states' control of food aid/food stamps
Grassley upbeat on coming RFS mandates
* House Democrats released an impeachment report
* Kamala Harris has ended her presidential campaign
* 2020 G7 summit will be held at Camp David
* New FDA chief nominee Stephen Hahn was approved by a Senate panel
* Trump announced next year's G7 summit will be held at Camp David
* Approval for banks to serve hemp companies
Iowa-owned state diesel vehicles must use at least 20% biodiesel
* As of Dec. 3, USDA/FSA has paid $10.330 billion in MFP2  payments to farmers
* Oil prices have been range-
* Europe’s economy is looking weak


Markets: Trade news is again the dominant factor in global equities this morning. Despite all the noise regarding ongoing U.S./China trade talks relative to Phase 1, a Bloomberg article (link) says both sides are moving closer to agreement, according to people familiar with the situation, and U.S. negotiators expect a phase one deal to be agreed before the Dec. 15 tariff deadline. U.S. futures are now suggesting gains of 0.5-0.7% at the open.

China targeted as next meat-alternative battleground. Beyond Meat and Impossible Foods are considering China as their next big market for plant-based meat products, but local startups aim to leverage their own knowledge of Chinese tastes to gain an edge over the U.S. companies. Link to WSJ article.


Chew to lose… Trying to turn around sales, gum makers are creating formulas they say can convey benefits like aiding sleep, boosting energy, relieving pain and aiding weight loss. Link for details from a WSJ item.



— Major setback for USMCA as House Dems force change that Mexico says goes too far. Mexico’s government and business leaders are fighting a major demand from Democratic-controlled U.S. House lawmakers. House Democrats asked U.S. Trade Representative Bob Lighthizer last year for changes to allow Washington to challenge Mexican labor practices that would involve cross-border inspections at Mexican factories. But Mexico’s business community rejects the idea.


     Mexico responds. President Andrés Manuel López Obrador said Tuesday that Mexico opposes such workplace inspections, but agrees to labor dispute panels under the trade agreement. He also recalled that Mexico changed its labor laws to meet new provisions of the USMCA, and has allocated funds in next year’s budget to ensure enforcement of the new labor laws. “We said no. That is, inspectors no,” López Obrador said. “But yes to resolving disputes through the creation of what are called panels involving specialists proposed by the countries under equal conditions.” López Obrador added that Mexican senators should be allowed to weigh in on the USMCA changes since they need to ratify any tweaks to the deal.


     The Mexican government’s trade negotiator, undersecretary for North America Jesús Seade, traveled to Washington Tuesday for further meetings. “We want the treaty to be approved and we don’t want more time to pass because of the effects of the [U.S.] electoral process,” López Obrador said. “I hope it can be resolved.” Lighthizer is expected to meet with Seade today as they look to strike a deal on USMCA changes.


     Mexico’s biggest business chamber, the CCE, said Monday “it would seem that some U.S. actors are putting the agreement at risk.”


     Democratic aides in the U.S. say some industries in Mexico are already subject to inspections, so Mexico City shouldn’t object to adding similar rules to other industries. But Mexican business leaders worry that too many rules on labor matters and inspections could scare aware foreign investment in manufacturing.


— U.S./China trade policy update:

  • China reacts angrily to a bill the U.S. House on Tuesday passed that would force the Trump administration to take a tougher stance on Beijing over the mass detention of Uighurs in the Chinese province of Xinjiang. The House voted 407-1 to approve the measure. The Senate must pass the new version before the bill can be sent to President Trump. The White House has not made clear whether the president would support the measure. In a statement, Chinese foreign ministry spokeswoman Hua Chunying said the bill “deliberately defames the human rights situation in Xinjiang and discredits Beijing’s efforts to fight against extremism and terrorism in the region.” “The core of the Xinjiang issue [in China] is not human rights, ethnic minority or religion; instead, the core is anti-terrorism and anti-separatism,” the statement said. “We warn the U.S. that Xinjiang is China’s internal affairs and has no room for foreign forces.”
  • Perspective: Some observers say President Trump’s comments that he could wait until after 2020 elections to complete a trade deal with China is simply his love of leverage in negotiations. On the upbeat side, the Wall Street Journal reports the recent involvement of White House adviser Jared Kushner, the president’s son-in-law, as evidence that the talks are nearing conclusion. Kushner acts as a kind of interpreter of what Trump would find acceptable in a deal and has worked well with U.S. and Chinese trade officials. Others say the longer the impasse continues, the more entrenched the negative impact on U.S. business sectors, especially agriculture. Latest key will be what President Trump does relative to the threatened imposition of tariffs come Dec. 15 on $160 billion of Chines products, which would impact the U.S. economy more than prior tariffs. Many think Trump administration officials will say enough substantive progress has been made and the Dec. 15 tariffs will be postponed pending further talks. Commerce Secretary Wilbur Ross said Tuesday that the tariffs could be postponed “if there were a little more time needed for talks.” But if those tariffs are implemented, the ongoing trade war would clearly be seen as accelerating. Meanwhile, Chinese commitments to purchase U.S. farm products is a major hurdle in Phase 1 talks. Chinese officials have never publicly acknowledged any Phase 1 accord could see a purchase commitment over time totaling $40 billion to $50 billion of U.S. farm products. Trump is seeking a firm commitment by China to fulfill the ag purchases with no conditions — but Beijing wants flexibility to buy farm goods based on market demand. Usually free-trading officials in the administration call that a “loophole” that China will use to renege on farm product purchases. If the Dec. 15 tariffs go into place, that would mean a deal will not likely happen since one of the other sticking points in the Phase 1 talks is on the removal of tariffs already in place — China is still pushing the U.S. to not only eliminate the coming threat of more tariffs but also roll back previous tranches of duties, including a round on Sept. 1 that hit about $110 billion worth of Chinese goods. Bloomberg reports (link) that the U.S. and China are moving closer to agreeing on the level of tariffs that would be removed under a Phase 1 trade deal.
  • U.S.-China Cold War has started. "China today poses a bigger economic challenge than the Soviet Union ever did. Historical estimates of gross domestic product show that at no point during the Cold War was the Soviet economy larger than 44% of the economy of the United States. China has already surpassed America by at least one measure since 2014: G.D.P. based on purchasing power parity, which adjusts for the fact that the cost of living is lower in China. The Soviet Union could never draw on the resources of a dynamic private sector. China can. In some markets—notably financial technology — China is already ahead of the United States. In short, 2019 is not 1949," Stanford University's Niall Ferguson writes in the New York Times (link).
  • China's economy looks a little better positioned to withstand potential tariffs. The Caixin China purchasing managers index for services rose to a seven-month high in November, signaling a pickup in growth as the year winds down.

    China economy

— No sunny outlook for solar business. The U.S. solar industry has lost 62,000 new jobs and $19 billion in investments because of the Trump administration's tariffs on imported panels imposed nearly two years ago, according to a new report from the U.S. Solar Industries Association. Despite the tariffs, global panel prices have continued to fall due to an oversupply in top producer China, while U.S. prices are among the highest in the world for solar. A meeting today at the International Trade Commission could decide whether President Trump makes changes to, or even cancels, the four-year tariff that was imposed in early 2018. The group has organized several events this week in Washington to press the administration to remove the solar tariffs.


— Trump administration is set to tighten work requirements for recipients of federal food aid, likely meaning hundreds of thousands of people ineligible for the food stamp/SNAP program by mid-2020. The administration said Wednesday that it had completed a new rule curbing states’ ability to shield adults without dependents from federal work requirements tied to receiving assistance through the program formerly administered via food stamps. Officials say the rule, which takes effect April 1, 2020, will save the government billions of dollars and encourage more people to work at a time when jobless rates are near a 50-year low.


     The rule will restrict access to the Supplemental Nutrition Assistance Program, or SNAP, which provides aid to 36.4 million people. USDA separately has proposed tightening eligibility requirements for low-income households and changing how utility costs factor into eligibility. “This rule lays the groundwork for the expectation that able-bodied Americans reenter the workforce where there are currently more job openings than people to fill them,” said USDA Secretary Sonny Perdue.


     Details. For able-bodied adults without dependents, U.S. law limits SNAP benefits to three months, unless recipients are working or in training for 20 hours a week. States can waive those limits in areas where unemployment runs 20% above the national rate, which was 3.6% in October. The new rule requires the unemployment rate to be 6% or higher for states to issue such waivers. The rule also curbs the amount of discretionary exemptions from federal work requirements that states can issue.


— Grassley upbeat on RFS mandates. Sen. Chuck Grassley (R-Iowa) said yesterday that a Nov. 19 conversation with President Trump gave him optimism that the EPA will alter its plan to account for refinery exemptions in setting biofuel-blending requirements to better reflect recent practice. “I’m very positive about what the president feels,” because “I heard him tell Wheeler it’s got to be 15 billion gallons,” Grassley said on a conference call with reporters referring to EPA Administrator Andrew Wheeler.


— Other items of note:

  • House Democrats released an impeachment report that found the president “placed his own personal and political interests above the national interests of the United States.” And they are debating whether to expand articles of impeachment to include charges beyond abuse of power in the Ukraine affair.

  • Kamala Harris has ended her presidential campaign, becoming the highest-profile Democrat so far to drop out of the race to take on Donald Trump in 2020. With just two months to go until the Iowa caucuses, Harris, 55, said in an email to supporters on Tuesday that her campaign “simply doesn’t have the financial resources we need to continue.” Some observers see the largest chunk of her supporters switching to Elizabeth Warren, followed by Joe Biden. Harris is likely to become a top-tier option for the party’s vice-presidential nomination.

  • President Trump announced next year's G7 summit will be held at Camp David after briefly planning to host the world leaders at one of his Florida resorts.

  • New FDA chief nominee Stephen Hahn was approved by a Senate panel and is ready for a confirmation vote by the full chamber.

  • Approval for banks to serve hemp companies. Federal regulators gave banks the go-ahead to serve industrial hemp customers without any enhanced anti-money laundering reporting requirements. The Federal Reserve, the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency and the Financial Crimes Enforcement Network said in guidance that banks would no longer have to file suspicious activity reports just because they conduct transactions or other services for hemp-related businesses. Banks had been slow to serve industrial hemp-related businesses despite the cousin to marijuana being removed from federal controlled substance scheduling in the 2018 Farm Bill. There was uncertainty over whether hemp would be subject to the same types of robust reporting requirements as marijuana. Meanwhile, hemp farmers in New York State have taken drastic measures to protect their crops from trespassers and from officials who think they’ve found marijuana. Link to NYT article.

  • Iowa-owned state diesel vehicles must use at least 20% biodiesel, Iowa Gov. Kim Reynolds said. The executive order covers cars, trucks, snowplows and other vehicles, Link to Des Moines Register article.

  • As of Dec. 3, USDA/FSA has paid $10.330 billion in MFP2  payments to farmers. The top five states were Iowa, Illinois, Minnesota, Texas, and Kansas.

— Markets. The Dow on Tuesday lost 280.23 points, 1.01%, at 27,502.81. The Nasdaq moved down 47.34 points, 0.55%, at 8,520.64. The S&P 500 fell 20.67 points, 0.66%, at 3,093.20.


     Oil prices have been range-bound. U.S. crude has generally stayed between $50 and $60 a barrel in the past six months and is on pace for its best year since 2016 following a sharp selloff late in 2018. Meanwhile, OPEC is set to meet with a 10-nation coalition led by Russia tomorrow and Friday, to debate whether to extend a pact to curb production by 1.2 million barrels a day beyond the agreed end of March 2020. The Iraqi oil minister told reporters that Iraq and other countries would support deepening ongoing production cuts by 400,000 barrels to 1.6 million barrels a day.

     Oil prices


     Europe's economy is looking weak. Service-sector activity softened slightly in November and overall economic activity remained near the lowest level in the past six-and-a-half years. "The survey data are indicating GDP growth of just 0.1% in the fourth quarter, with manufacturing continuing to act as a major drag. Worryingly, the service sector is also on course for its weakest quarterly expansion for five years, hinting strongly that the slowdown continues to spread," said IHS Markit economist Chris Williamson.



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