USTR Lighthizer Makes Case for Trump Trade Policy

Posted on 06/09/2020 7:29 AM

EPA: Farmers can use existing dicamba stocks until July 31 if in possession on June 3

 


In Today’s Updates


 

* USTR Lighthizer details and defends Trump trade policy
* EPA: Farmers can use existing dicamba stocks until July 31 if in possession on June 3
* Biofuel supporters write another letter urging Trump to deny RFS waiver requests
* Equities more subdued after recent major rally
* U.S. entered a recession in February, ending a 128-month expansion...

* … The recession may already be over
* World Bank forecasts global economy would shrink by 5.2% this year
* U.S. federal budget deficit likely to hit $3.7 trillion in the fiscal year ending Sept. 30
* Dollar posts longest slide in almost a decade
* Argentina nationalizing one of the world’s top soy suppliers

* Australia’s farmers on mission to find new buyers for their barley following China exit
* FEMA pressed for strategy for hurricane season
* U.S. policy could hurt Hong Kong as trading hub
* U.S. will exempt more Chinese imports from tariffs
* Food supply update
* Nestlé selling the North American business of its Buitoni pasta brand
* WSJ: Fastest-rising food prices in decades drive consumers to hunt for value
* Update on reopening America... and around the world
* Americans are traveling again”
* NYC reopening includes more and faster bus service, mayor says
* Electric bikes see growth spurt
* Movie theater re-openings*
* Coronavirus update
* Some Americans are gargling beach to prevent coronavirus
* 3M filed a lawsuit against a merchant selling masks on Amazon

* Senate panel to vote on Menezes nomination for number DOE post
* North Korea severing all communications with South Korea
* Trump plans to resume campaign rallies
* WTO receives first nominee to be next director-general: Jesus Seade

 


MARKET FOCUS


 

Equities today: Asia stocks were mostly weaker while European stocks plunged after the continent reported its biggest ever GDP drop. U.S. equity futures signal a lower opening.

 

     U.S. equities yesterday: The Dow added 461.46 points, 1.7%, to 27,572.44, and the S&P 500 gained 38.46 points, 1.2%, to 3,232.39 (a 15-week high), leaving the broad index up nearly 0.1% over its 2019 close — it took just 53 sessions for the index to restore the nearly $10T in value that was erased since an intraday low on March 23. The Nasdaq turned positive after tumbling in early trading. The technology-laden index rose 110.66 points, 1.1%, to 9,924.74, its first record close since Feb. 19 when it hit its previous record of 9, 817.18. The Dow and the S&P 500 remain 6.7% and 4.5%, respectively, from their February highs. The S&P 500 returned to the level where it had started the year — about 44% higher than its low on March 23.

 

    V shape

 

     S&P

 

     Stocks performance

 

The U.S. entered a recession in February, ending a 128-month expansion, the National Bureau of Economic Research declared, the longest in records reaching back to 1854. “The committee recognizes that the pandemic and the public health response have resulted in a downturn with different characteristics and dynamics than prior recessions. Nonetheless, it concluded that the unprecedented magnitude of the decline in employment and production, and its broad reach across the entire economy, warrants the designation of this episode as a recession, even if it turns out to be briefer than earlier contractions.”

 

     Recession official

 

The recession may already be over. The common rule is that a recession is two consecutive quarters of contraction, and the U.S. will certainly experience that: The 5% fall in GDP in the first quarter is expected to be followed by a drop of more than 30%. But the downturn that began in March might have subsided by May, judging by last week’s employment report, according to Andrew Ross Sorkin. He notes the shortest recession on record is a six-month period in 1980. “This downturn may be shorter, but could be the most severe since World War II. Most economists don’t expect the economy to recover output levels before late 2021.”

 

The World Bank forecast that the global economy would shrink by 5.2% this year, marking the deepest recession since World War II. Output will fall most in rich countries, by 7% (led by a 9.1% decline in the Euro zone), whereas that of poor countries will decline by around 2.5%. The bank warned that the figures could be even worse if lockdown measures are not lifted by the second half of the year. Other GDP projections see the U.S. at -6.1%, China at up 1.0% and India -3.2%. “This is the first recession since 1870 triggered solely by a pandemic, and it continues to manifest itself… Given this uncertainty, further downgrades to the outlook are very likely,” the World Bank said. Global economic growth is due for a rebound in 2021, growing 4.2%, said the World Bank.

 

     World Bank Global

 

     World Bank recessions

 

The federal budget deficit is likely to hit $3.7 trillion in the fiscal year ending Sept. 30, fueled by stimulus spending and declining revenue and nearly quadruple the roughly $1 trillion deficit that the Congressional Budget Office (CBO) had projected in March before the pandemic spread.. The CBO estimated that the federal deficit in May was $424 billion, substantially lower than April's $738 billion but still the second-largest monthly shortfall since records have been kept. The deficit for the first eight months of fiscal 2020 was about $1.9 trillion, the CBO said, or $1.2 trillion greater than during the same period the previous year. The Treasury Department will release official figures later this week, but the CBO's preliminary estimates are typically very close to the official numbers. The budget office's deficit estimate for April was within $1 billion of the final Treasury figures.

 

     Deficit CBO

 

Crude prices fell after a deal by OPEC and its allies to extend production cuts was offset by the prospect of increased output from Libya and U.S. shale producers. Crude oil prices have reversed gains seen in early Asian activity and have moved solidly lower as a stronger US dollar and concerns on oversupply have pressured prices. U.S. crude was trading around $37.35 per barrel, down more than 2%, while Brent crude was trading around $40 per barrel, down 1.7%.

 

Focus shifts to restoration of Gulf oil, natural gas production. The Bureau of Safety and Environmental Enforcement (BSEE) said that as of midday Monday, approximately 34.02% of the current oil production in the Gulf of Mexico remains shut-in and approximately 35.14% of the natural gas production in the Gulf of Mexico is shut-in. They also said that personnel were still evacuated from 179 production platforms, or 22.84% of the 643 manned platforms in the Gulf of Mexico. With Cristobal now well inland and moving up into the Midwest, focus will quickly shift to bringing the shut-in production back on line.

 

Market perspectives:

 

     • The dollar posted its longest slide in almost a decade.
     • The Hong Kong Monetary Authority on Monday intervened to defend the local currency’s peg to the U.S. dollar, selling the Hong Kong dollar after it hit the strong end of the trading band against the greenback.
     • The Treasury is now holding $1.5 trillion in its cash account at the Fed.

     • Automobile sales are recovering from the lockdown, with the greatest improvements among younger buyers; more mature buyers are the weakest category. Meanwhile, wholesale prices of used cars have rebounded from the crisis lows, but retail prices continue to drift lower.
     • Markets have persistently over-predicted inflation over the last decade, according to Oxford Economics.
     • A backup of dry-bulk ships has grown at Brazil’s Port of Santos as carriers have rushed there fearing the deepening coronavirus crisis there will curtail sugar shipments.
     • Argentina is nationalizing one of the world’s top soy suppliers in a move that’ll ring alarm bells in markets and among investors in the country.
     • Australia’s farmers are on a mission to find new buyers for their barley, and are targeting bigger exports this year even after the country’s top customer, China, slapped tariffs of about 80% on the grain.
     • Cement shipments are up in China, signaling growth in infrastructure sector.
     • Copper is testing resistance.

    
Copper

 

FEMA pressed for strategy for hurricane season. Rep. Harley Rouda (D-Calif.), head of the House Oversight and Reform Subcommittee on Environment, led other subcommittee members in sending a letter (link) yesterday requesting a remote video hearing by June 22 so Federal Emergency Management Agency (FEMA) officials can relay their actions to prepare for the upcoming hurricane season and responses to other natural disasters amid ongoing efforts to combat the coronavirus crisis. “The Subcommittee’s concerns with FEMA’s preparations stem from past challenges in responding to hurricanes and other natural disasters as uncovered by this Committee’s investigation into the response to Hurricanes Irma and Maria, federal audits, and FEMA’s own after-action reports,” they wrote to agency Administrator Peter T. Gaynor.

 


POLICY FOCUS


 

USTR Lighthizer makes case for Trump trade policy. U.S. trade policy under the Trump administration has taken an aggressive stance in several areas, a stance that U.S. Trade Representative (USTR) Bob Lighthizer said is one that “has demonstrated it is possible to take targeted yet aggressive trade actions while managing the risk of escalation.”

 

     In a lengthy piece in Foreign Affairs magazine (link), Lighthizer argues that despite the “’sky is falling’ rhetoric that has greeted many of the administration’s policies, the United States has remained the most open of the world’s major economies” during the Trump administration. He details that even with tariffs on China along with those on steel, aluminum and solar products, the U.S. had a weighted average tariff of 2.85% in 2019 — 1.3% for countries other than China. “That’s slightly higher than the 1.5% rate that prevailed during the last year of the Obama administration but still lower than a comparable figure for the EU: the 3.0% weighted average rate it imposes on imports from other WTO members.”

 

     He also argues that trade deficits are unwise depending on the circumstances, especially when they are the result of policies by other governments. “And particularly when trade deficits are the result of currency manipulation, a lack of reciprocity in market access, unfair labor practices, or subsidies, the U.S. should try to change the rules of trade,” he argued.

 

     The lengthy item contains a lot of history on trade policy over centuries, noting that political aspects have produced less-than-favorable trade results, including the allowance of China into the WTO. He cited failures by the Obama and George W. Bush administrations to take on China actions at the world trade body. Past trade policies have resulted in manufacturing jobs leaving the U.S., a key factor when half of the 250 million adults in the U.S. do not have a college degree. Automation has also factored into those job shifts, he acknowledged.

 

     Considerable space is devoted to touting the U.S.-Mexico-Canada Agreement (USMCA) and provisions that updated the pact from the NAFTA accord in areas like auto content and worker provisions. While some call it “managed trade,” Lighthizer countered “rules of origin feature in all free trade agreements,” but the provisions in USMCA compared with NAFTA are ones that “have been designed to work.”

 

     Turning to China specifically, Lighthizer said the administration’s approach focused on investigating China’s “history of intellectual property theft and forced technology transfer.” The U.S. used the WTO where rules provided a remedy, but where those options were not available, the US used “remedies available under U.S. trade law.” Under the Phase 1 agreement inked Jan. 15, Lighthizer said, China will “stop forced technology transfer, refrain from manipulating its currency, strengthen protections for intellectual property, and eliminate a host of nontariff barriers to U.S. exports.” As Lighthizer has previously noted, “For the first time, these commitments are in writing and enforceable through a dispute-resolution mechanism.” But he cautions the agreement “by no means resolves all the outstanding issues.”

 

     In summing up the Phase 1 accord, Lighthizer said, “Most important is that the administration has maintained pressure on China through a 25% tariff that remains on half of its exports to the U.S., including nearly all high-tech products. These duties help offset the unfair advantage China has obtained through forced technology transfer and market-distorting subsidies.” He also touted the purchase commitments made by China “that will create long-term market access for U.S. exporters, particularly farmers.” As for a Phase 2 agreement with China, Lighthizer stated, that “depends on whether China complies with the terms of Phase 1 and whether it is willing to fundamentally change its model of state-run capitalism.”

 

     Regarding the WTO, Lighthizer stated “it has become chiefly a litigation society.” He pointed to the U.S. actions to halt the Appellate Body as it had become “the promulgator of a new common law of free trade, one that was largely untethered from the actual rules agreed to by the WTO’s members.” The Appellate Body also “routinely issued rulings that made it harder for states to combat unfair trade practices and safeguard jobs,” Lighthizer said. Reviving or replacing the Appellate Body should not take place “until it is clear that the WTO’s dispute-resolution process can ensure members’ flexibility to pursue a balanced, worker-focused trade policy,” he stated. “Until then, the United States is better off resolving disputes with trading partners through negotiations.”

 

     The path ahead. Based on these and other challenges to trade, Lighthizer concluded, “The path forward lies somewhere between the openness of the 1990s and the barriers of the 1930s. Navigating it successfully will require flexibility, pragmatism, a willingness to break with past practice, and the courage to take positions that sometimes are unpopular with international elites.” The U.S. must “avoid the stale, reductionist paradigm of free trade versus protectionism, which oversimplifies complex issues and stifles creative policymaking,” he stated. “This almost religious approach to trade policy also obscures the fact that trade is an issue on which it is possible to achieve broad, bipartisan consensus in an otherwise divided time.”

 

     Pointing to the 90% support USMCA had in the U.S. House and Senate, Lighthizer said the “powerful consensus should last, because it is rooted in deeply held values.” Most Americans want “balanced outcomes that keep trade flows strong while ensuring that working people have access to steady, well-paying jobs. Neither old-school protectionism nor unbridled globalism will achieve that.”

 

     Lighthizer's conclusion: “As the United States confronts future trade challenges, it should chart a sensible middle course — one that, at long last, prizes the dignity of work.”

 

EPA: Farmers can use existing dicamba stocks until July 31 if in possession on June 3. EPA on Monday evening said it is canceling registrations for dicamba formulations in line with a Ninth U.S. Circuit Court of Appeals ruling. However, EPA said farmers and commercial applicators can still spray dicamba on crops, but only if they had the chemicals in their possession on June 3, the date of the ruling. The chemical can only be used until July 31. Link to EPA cancelation order.

 

     “At the height of the growing season, the Court’s decision has threatened the livelihood of our nation’s farmers and the global food supply,” said EPA Administrator Andrew Wheeler. Canceling the registration and allowing farmers to use existing stocks “is consistent with EPA’s standard practice following registration invalidation, and is designed to advance compliance, ensure regulatory certainty, and to prevent the misuse of existing stocks,” Wheeler said.

 

     Since the court ruling June 3, EPA said it has been “overwhelmed with letters and calls from farmers citing the devastation of this decision on the millions of acres of crops, millions of dollars already invested by farmers, and threat to America’s food supply.”

 

Lawmakers urge Trump to deny requests to waive RFS requirements. Requests by governors of several states to waive requirements under the Renewable Fuel Standard (RFS) should be rejected as they would “only compound the challenges facing rural America and weaken one of the most successful clean air policies in the U.S.,” a bipartisan coalition of House members said in a letter (link) to President Donald Trump. The requests do not meet the criteria under law for waivers of the RFS as the “recent oil market volatility is the result of Covid-19 impacts on travel and lower demand for fuel combined with high production levels in Russia and Saudi Arabia, not the RFS,” the letter said. “RFS regulations and requirements account for a drop in the demand for fuel with a proportional change in the volume of renewable fuel required.” They also point out that there “is an excess supply of RINs (Renewable identification Numbers) currently on the market and available to refiners, offering flexibility for RFS compliance.” House Ag Committee Chairman Collin Peterson (D-Minn.) is among the 44 House members signing the letter.

 

Update on China:

  • The Brazilian real has strengthened nearly 15% against the U.S. dollar in half a month and Brazilian soybean premium has risen obviously, making US soybean more competitive. China bought nearly 15 U.S. soybean shipments last week and about 10 Brazilian shipments, according to JCI. According to USDA data, as of May 28, 2019-20 U.S. soybean export sales had declined 8.6% year on year to 42.6573 million MT that were the lowest in the same period of seven years and 93.55% of USDA projection of 45.58 million MT for 2019-20 U.S. soybean export sales. By comparison, export sales achieved 96%-102% of USDA projection by the end of May in eight years of past nine years except 2015-16. 2019-20 U.S. soybean exports were still 2.9 million MT from USDA projection and “average weekly sales should reach 0.22 million MT to achieve the goal by the end of Aug. Market worries that soybean exports may fall short of the projection. China/U.S. relations are still the biggest uncertainty affecting U.S. soybean exports to China,” according to JCI.
     
  • U.S. policy could hurt Hong Kong as trading hub. President Trump has said he plans to remove trading privileges, jeopardizing a sizable partnership. The U.S. decision to rescind Hong Kong’s status as a largely autonomous Chinese territory opens the way for a range of punitive measures from Washington that may damage Hong Kong’s status as a trading and finance hub, the Wall Street Journal reports (link). The U.S. is Hong Kong’s second-largest trading partner, after China, according to the latest available data. By contrast, the tiny territory was America’s 21st-largest trading partner. Meanwhile, several hedge funds are reportedly considering leaving Hong Kong after Beijing’s moves to tighten control of the territory, the Financial Times reported (link).

    HK 1

    HK 2

    HK 3

     
  • U.S. will exempt more Chinese imports from tariffs, including certain television LCD main-board assemblies and lithium-ion batteries, the Office of the U.S. Trade Representative said in a Federal Register notice (link).

Food supply/industry update:

  • Nestlé is selling the North American business of its Buitoni pasta brand to a private-equity firm as the Swiss consumer-goods giant focuses on higher performing frozen brands like Hot Pockets, Stouffer’s and Lean Cuisine. The deal with Brynwood Partners is part of Nestlé’s broader strategy to focus on businesses where the food manufacturer can be a “strong number one or two” leader in a product category, Nestlé USA Chairman and Chief Executive Steve Presley said in an interview with the WSJ. The deal values the Buitoni North American business at $115 million, according to a person familiar with the situation. The company will be known as Buitoni Food Company after the transaction. The deal includes the rights to the brand in the U.S., Canada and the Caribbean.
     
  • Fastest-rising food prices in decades drive consumers to hunt for value. While food companies and supermarkets say they have reopened plants and resolved supply constraints that contributed to higher prices, they also expect prices to remain elevated because of increased costs for labor and transportation, the Wall Street Journal reports (link). Companies are buying equipment and reconfiguring factories and stores to keep people safe from the new coronavirus. Some of those changes are adding costs that are trickling down to shoppers. Food makers and retailers are restoring promotions and bundling products to help offset the biggest price jump since the 1970s.

    Food spending

Update on reopening America... and around the world:

  • Americans are traveling again. The TSA screened 440,000 travelers at airports on Sunday, compared with fewer than 90,000 on April 14.
     
  • NYC reopening includes more and faster bus service, mayor says. The first stage of New York City’s reopening will feature expanded and faster bus service with 20 miles of either restricted traffic or dedicated lanes on congested roads throughout the city, to increase capacity and reduce overall crowding. “Less crowding equals more health and safety,” Mayor Bill de Blasio said, announcing the changes yesterday at a news briefing.
     
  • Electric bikes see growth spurt. The electric bike generates zero emissions, often in less time than the comparable car trip and, thanks to a battery-powered, pedal-activated motor, without breaking a sweat. Demand for e-bikes is rising sharply. Sales in April were up almost 300% over the same month a year ago.
     
  • Movie theater re-openings. New industry guidance in California allows for theaters in the state to start reopening as soon as this weekend with strict measures. Cinemas will need to limit capacity to 25% or 100 people per auditorium (whichever is fewer) at first, though the rule is expected to be relaxed after two weeks.
     
  • Europe and Asia have so far avoided a significant resurgence of Covid-19 cases even though most countries have loosened restriction. However, more than a dozen U.S. states have seen confirmed cases increase in the past week at a pace faster than in the week prior, according to Johns Hopkins data.

    Trending down

Coronavirus update:

  • Summary: The level of global cases of Covid-19 is at 7,131,261 with deaths at 406,913, according to data from the Center for Systems Science and Engineering (CSSE) at Johns Hopkins University (JHU). U.S. cases now total 1,961,185 with deaths at 111,007.
     
  • The number of new coronavirus cases around the world hit a daily high on Sunday. The World Health Organization said the 136,000 new cases reported on Sunday showed the pandemic appeared to be worsening, and it urged countries to remain vigilant. Three-quarters came from just 10 countries, mostly in the Americas and South Asia.

    The WHO had some potentially positive news, saying that it now seemed "very rare" for asymptotic Covid-19 carriers to spread the disease, a major revision from earlier thinking.

     
  • Some Americans are gargling beach to prevent coronavirus. Results of a survey commissioned by the CDC found that nearly 40% of respondents had engaged in "high-risk" practices, such as cleaning fruits with bleach solutions or applying household cleaners directly to their skin, in an effort to ward off Covid-19.
     
  • 3M filed a lawsuit against a merchant selling masks on Amazon, the manufacturer’s latest attempt to bring some order to the chaotic market for protective equipment. In a lawsuit filed Monday in federal court in California, 3M said Mao Yu and his affiliated companies sold what he described as 3M masks for an average price of $23.21 each on Amazon. 3M’s N95 masks, which can block 95% of very small particles including droplets containing the new coronavirus, have a list price of around $1.25. Yu charged customers over $350,000 in total, 3M and Amazon said.
     

OTHER ITEMS OF NOTE


 

  • Senate panel to vote on Menezes nomination for number DOE post. The Senate Energy and Natural Resources Committee will vote today on the nomination of Mark Menezes to be deputy Energy secretary at the Department of Energy (DOE). He currently serves as undersecretary at DOE. He is expected to clear the panel, setting up for a vote by the full Senate. Menezes will be watched closely by biofuel interests in the wake of comments during his confirmation hearing on small refinery exemptions (SREs) under the Renewable Fuel Standard (RFS). Like EPA Administrator Andrew Wheeler, Menezes was involved as a Hill staffer during the development of the RFS as part of the Energy Policy Act of 2005.
     
  • North Korea announced that it is severing all communications with South Korea, including the hotline between the two countries’ leaders. The north said that it acted in retaliation for South Korea letting defectors smuggle leaflets into its territory. The sudden deterioration in relations between the two countries comes after a period of relative amity.
     
  • Trump plans to resume campaign rallies. President Trump plans to resume campaign rallies this month, reviving the raucous events at a time when he’s lagging Biden in the polls. Trump’s campaign is looking to restart his signature events in June, campaign officials say, according to Bloomberg. The campaign hasn’t yet determined where the first rally since the country locked down over the pandemic will be held, said the officials.
     
  • The WTO received the first official nominee to be its next director-general: Mexican trade veteran Jesus Seade. Seade was the Latin American nation’s lead negotiator for the United States-Mexico-Canada Agreement, a former WTO ambassador, and his country’s top moderator during the Uruguay round, which led to the creation of the WTO. Seade is the first of what is expected to be a steady tide of candidates interested in the WTO’s top post, according to Bloomberg, including:

    * Arancha Gonzalez, Spain’s foreign minister
    * Phil Hogan, the European Union’s trade commissioner
    * Eloi Laourou, Benin’s ambassador to the United Nations
    * Hamid Mamdouh, an Egyptian attorney at King & Spalding
    * Peter Mandelson, former U.K. politician and former EU trade chief
    * Amina Mohamed, Kenya’s cabinet secretary for sports, culture and heritage
    * Ngozi Okonjo-Iweala, Nigeria’s former finance minister

    More names are expected to emerge between now and the July 8 deadline to submit nominations.

    WTO leader

    Global trade

 

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