Trump labels any short-term pain from trade war with China 'irrelevant'
In today's updates:
* Rep. Cindy Axne (D-Iowa) to call for investigation into EPA’s decision re: SREs
Markets: Minutes from the Fed's July 30-31 policy meeting, when officials voted to lower interest rates for the first time since 2008, will be released today. Traders will look for signs of disagreement on the FOMC, and clues to what the central bank might do next.
— Iowa lawmaker to call for federal investigation into EPA's decision re: SREs. Rep. Cindy Axne (D-Iowa) today will call for a federal investigation into the EPA’s decision to waive refineries from biofuel-blending requirements under the Renewable Fuel Standard (RFS) program. Axne will make the announcement during an event at Southwest Iowa Renewable Energy in Council Bluffs, Iowa; the same ethanol plant President Trump visited in June.
Axne will discuss a letter she plans to send to the EPA’s acting inspector general, seeking a probe into “highly questionable decision-making and misuse” of the EPA’s authority to grant the waivers, according to a press release. On Aug. 9, EPA said it exempted 31 oil refineries from 2018 biofuel-blending requirements, prompting criticism from farmers, ethanol producers, lawmakers and several Democratic presidential candidates.
— What can President Trump and his team do to temper the livid corn producers re: SREs? Bloomberg reports that Trump suggested rescinding the recent 31 exemptions from the RFS. But the president was advised that they may not be reversible. That prompted a discussion on what could be done, with suggestions including expanding environmental credits that encourage production of “flex-fuel” vehicles that can use higher levels of ethanol blended into gasoline. The suggestion was also made that the administration could also require more use of those vehicles in their agencies.
Expand market for corn-based ethanol. The discussion in the Oval Office on Monday and in at least one follow-up phone conversation, according to Bloomberg, focused on ways to expand the market for corn-based ethanol, including making E15 fuel the new nationwide standard instead of the current E10 fuel found in most locations.
Reallocating the gallons of ethanol covered by the SREs could be another option. Bloomberg reported that increasing the level of biodiesel and conventional ethanol in EPA requirements over the next two years could also compensate for the SREs.
Sen. Chuck Grassley (R-Iowa) said there is little lawmakers can do to stop the administration from issuing the waivers because trying to curb EPA’s wavier authority legislatively “might bury the whole RFS,” Grassley told reporters.
EPA is pushing back that the SREs are causing a negative impact on U.S. corn ethanol production. “There is zero evidence that EPA’s congressionally mandated small refinery exemption program —which provides regulatory relief to small refineries around the country — has had any negative impact on domestic corn ethanol producers,” the agency said in an emailed statement to both Bloomberg and Reuters. “In fact, the Trump administration has overseen year-over-year increases in domestic fuel ethanol production, to the highest level in history and the United States exported a record volume of ethanol in 2018 for the second consecutive year.”
Poet, the largest U.S. ethanol producer, said Tuesday it was forced to idle an Indiana plant due to the waivers: “Our industry invested billions of dollars based on the belief that oil could not restrict access to the market and EPA would stand behind the intent of the Renewable Fuel Standard,” CEO Jeff Broin said in a statement. “Unfortunately, the oil industry is manipulating the EPA and is now using the RFS to destroy demand for biofuels.”
Perspective: Internal White House polling shows the waiver situation is impacting farmer support for the president, a development that likely led to President Trump's renewed attention on the topic.
— U.S./China trade policy update:
- President Trump said, “China wants to make a deal and that’s good, but it has to be a fair deal to us. It can’t be a deal that’s not fair to us. This is something that has to be done.”
- Trump defended his trade war with China, calling any short-term pain the U.S. has to pay from the trade war “irrelevant.” He added, “My life would be a lot easier if I hadn’t taken China on, but I like doing it because I have to do it.”
- The decision to defer until Dec. 15 the 10% tariffs on around $150 billion of Chinese products was temporary, Trump said, suggesting Apple and other companies should get out of China. “If I didn’t help them, they’d have a very big problem,” Trump said.
- Beijing acknowledged today that it was holding an employee of Britain’s consulate in Hong Kong who had disappeared this month. The case has added to fears that the police in mainland China were arresting people to temper support for antigovernment protests.
— China will speed up subsidies on pigs culled due to ASF. China’s cabinet said in a brief announcement today they will speed up payouts of subsidies on pigs that have been culled due to African swine fever (ASF). The subsidies amount to 1,200 yuan ($170) per pig culled in a bid to stop the spread of ASF. Reuters reported that some farmers maintain they are not receiving the subsidies.
Meanwhile, scientists are working to develop a vaccine to help guard the world's pork supply as the deadly virus ravages Asia's pig herds, killing millions of pigs. Farmers have long contained its spread by quarantining and killing infected animals, but the disease's devastating march into East Asia is intensifying the search for another solution. Link for more via the Associated Press.
— TASS: Russia to continue sales from grain intervention fund. Russia will continue selling grain from its federal intervention fund, according to a report from TASS quoting a Russian ag ministry spokesman. "At present, the Agriculture Ministry does not plan to suspend sales of grain from the federal intervention fund. Under the ruling of the Russian government, up to 1.5 million tonnes of grain can be sold from the fund in 2018-2019," the official said.
As of August 19, those sales totaled about 1.2 million tonnes. Russia primarily sells the grain from the intervention fund into the domestic market to food and feed enterprises and ag producers.
— Top Japanese and American negotiators will meet in Washington over the next two days in an attempt to compromise on beef and car exports to conclude a trade deal by September. U.S. Trade Representative Bob Lighthizer will meet today with Japanese Economic Revitalization Minister Toshimitsu Motegi to talk trade ahead of this weekend’s G7 meeting in France. President Trump is eager for a swift deal with benefits to American farmers (not limited to beef) ahead of the U.S. presidential campaign in 2020. Japan also needs the final text of a deal by September in order to obtain parliamentary approval to put any trade pact into effect this year. The two-day talks in Washington D.C. will be their second meeting this month.
Sen. Chuck Grassley (R-Iowa), asked Tuesday about the prospects of a trade deal with Japan, said he expects an announcement “within the next couple months” — even sooner than the USMCA is likely to come up for a vote in Congress. But he added that he does not expect the Japan deal to require any congressional action. That’s likely because the two sides are working to produce a smaller-scale agreement focused on autos and agriculture first before moving on to a full-fledged trade deal. A provision in U.S. law allows the president to cut tariffs where they are below 5%. It would, however, have to get the green light from the Japanese Diet.
The mini-deal will apparently involve Japan further opening up its agricultural market to American goods in exchange for some cuts to U.S. industrial tariffs. Japan is also expecting some form of an exemption from possible tariffs on automotive imports that President Trump has threatened to impose on national security grounds later this year. A reduced agreement could also face criticism from trading partners of the U.s. and Japan on the basis that it violates World Trade Organization rules that “substantially all trade” must be covered in any deal.
“The administration recognizes the political situation it finds itself in” said Tom Vilsack, the former governor of Iowa, former USDA secretary under the Obama administration and president of the U.S. Dairy Export Council. “Producers are looking for good news and the administration understands they’ve got to deliver.”
— U.S., Mexico reach deal on tomatoes. Mexican tomato producers and the U.S. government have reached agreement on tomato trade in a deal that will avoid an antidumping investigation, according to Mexican Economy Minister Graciela Marquez.
Details. While 92% of Mexican tomatoes coming into the U.S. will be inspected at the border — a “controversial proposal,” according to a statement from several Mexican agricultural organizations — the deal would also raise the reference price of specialty tomatoes and an increase in the price of organic tomatoes that would amount to a 40% increase compared with conventional tomatoes. The groups releasing the statement included the SPTN tomato producers group. The deal calls for a “sunset review” of the agreement by September 2024.
Mexico’s Marquez said on social media that the accord was “good news” that will keep the U.S. market open to Mexican tomatoes, noting the deal was reached just before midnight Aug. 20. That will allow for a 30-day comment period before a Sept. 19 deadline from the U.S. Department of Commerce to complete its antidumping investigation.
Resolution of the issue could help ease concerns about vegetable imports from Mexico that some lawmakers have cited, and it could help build further support for the U.S.-Mexico-Canada Agreement (USMCA) in Congress.
— Other items of note:
Trump canceled a state visit to Denmark after his offer to buy Greenland was refused. Trump had been due to make his first visit to Denmark, a founding member of NATO and a U.S. ally in the Iraq war, on Sept. 2-3. Reports last week indicated he wanted to purchase Greenland, the world’s biggest island and site of a strategic American base. The island is part of the Kingdom of Denmark, though it has extensive home rule. Trump previously said the idea to purchase Greenland was not on his list of priorities and that it was not the sole basis for his visit to Denmark.
Departments of Homeland Security and HHS plan to release a final rule that would allow immigration agencies to hold families in detention longer than current standards while awaiting their court proceedings.
Eighteen of the Democratic presidential candidates will speak to union members at the Iowa Federation Labor Convention today. Candidates speaking include John Delaney, Elizabeth Warren, Jay Inslee, Cory Booker, Pete Buttigieg, Bernie Sanders, Bill De Blasio, Joe Biden, Tulsi Gabbard, Julian Castro, Steve Bullock, Tim Ryan, Amy Klobuchar, Michael Benet, Beto O’Rourke, John Hickenlooper, Joe Sestak and Ben Gleib. Marianne Williamson was scheduled to speak but dropped out at the last-minute due to a scheduling issue. Each candidate will have 10 minutes to speak to union members. This time the AFL-CIO will not make an endorsement for a candidate.
USDA cuts buyout amount to researchers declining to move. The buyout for USDA researchers deciding not to transfer when their agencies are moved to Kansas City has been cut by 60% from the original estimated payment promised, according to an employee union. Employees are now being told they will only be getting $10,000 if they choose to take the USDA’s Voluntary Separation Incentive Payment, down from $25,000, according to a document obtained by the union. The document says the response whether to take the payment or not has to be received by Aug. 26.
President Trump is expected to name Deputy Sec. of State John Sullivan to be the next ambassador to Russia, the New York Times reported (link), citing a senior administration official.
Australia is joining a U.S.-led naval coalition to protect shipping in the Gulf, where tensions have mounted after Iran seized a British-flagged tanker in the Strait of Hormuz in July. The country will contribute defense planning and operations staff to the coalition, including a Royal Australian Air Force P8 Poseidon surveillance aircraft and a Royal Australian Navy frigate. About 15% of crude oil and 25%-30% of refined oil destined for Australia transits through the Gulf.
Greece will not assist Iranian oil tanker in delivering oil to Syria. Greece will not provide help the Adrian Darya 1 oil tanker to deliver oil to Syria, according to Greek Deputy Foreign Minister Miltiadis Varvitsiotis. "We have sent a clear message that we would not want to facilitate the trafficking of this oil to Syria in any instance," Varvitsiotis told Greece's ANT1 television network. The tanker, carrying two million barrels of Iranian crude, departed Gibraltar and is headed for the Greek port of Kalamata. However, Varvitsiotis said the Greek port cannot handle a ship that large. "This is a VLCC, a very large crude carrier ... There is no Greek port that could accommodate a VLCC,” he noted.
— Markets. The Dow on Tuesday fell 173.35 points, 0.66%, at 25,962.44. The Nasdaq lost 54.25 points, 0.68%, at 7,948.56. The S&P 500 declined 23.14 points, 0.79%, at 2,900.51.
FOMC minutes arrive today. Minutes from the July 30-31 Federal Open Market Committee (FOMC) — the meeting where the Fed reduced the target range for the Fed funds rate for the first time in some 10 years — will be released today. Focus will be on how much of a push for a greater reduction may have been discussed by participants and what signals there are in the recap on their expectations for future monetary policy moves. Recall Fed Chairman Jerome Powell characterized the move as a mid-cycle adjustment as opposed to the start of a easing cycle. Expectations are the minutes will still reflect Fed concerns on trade issues, a lack of inflation and tempered business investment. Given rising concerns about the potential for a recession in the U.S., any mention of economic concerns on the part of the FOMC would be of note.
Nearly three of four economists surveyed by the National Association for Business Economics predict a recession in the United States by 2021. The outlook reflects concerns that the U.S. economy will be able to withstand a protracted trade war with China without serious harm amid a weakening global outlook. The survey of 226 economists was conducted from July 14 to Aug. 1, before President Trump announced the latest round of tariffs against China and before the boost in market volatility. The share of economists expecting a recession this year dropped to 2% from 10% in February. Meanwhile, 34% now expect a recession in 2021, up from 25% in February. Still, about four out of 10 economists expect a slowdown in 2020, roughly unchanged from the prior report.
San Francisco Fed’s Daly does not see U.S. headed to recession right now. A recession in the U.S. is not something that San Francisco Fed President Mary Daly sees coming at this point. “When I look at the data coming in, I see solid domestic momentum that points to a continued economic expansion,” Daly said in responses to questions in a session on the Quora website. Acknowledging there are “considerable headwinds” facing the U.S. economy, Daly said she is concerned that those issues start creeping into rising recession fears. “So one thing I’m looking closely at is whether the mood gets so out of sync with the data that the fear of recession becomes a self-fulfilling prophecy,” she added. While not a voter until 2021 on monetary policy, Daly said she supported the rate reduction at the July meeting as she viewed it as an “appropriate recalibration of policy” based on current conditions. “However, I should stress that my support for this cut is based around my desire to see our economic expansion continue — not because I see an impending downturn on the horizon,” she stated.
Daly also addressed the issue of Fed independence, saying it is a critical factor. “The Fed isn’t motivated by politics,” she wrote. “It looks at data and feedback from across the country. And it has the long-term health of the economy in mind. This sometimes means making short-term decisions that aren't popular — especially since monetary policy adjustments can take 12 — 18 months to fully play out.”
President Trump on Tuesday said he’s open to a range of possible actions to stimulate the U.S. economy, including a payroll tax cut or bypassing Congress to reduce taxes by indexing capital gains. A "payroll tax is something that we think about," he told reporters, adding that he would not need Congressional approval to link capital gains taxes to inflation. "I'm not talking about doing anything at this moment, but indexing is something that a lot of people have liked for a long time." Meanwhile, he repeated his demand that the Federal Reserve slash interest rates to bolster the economy. Yet he also suggested those actions aren’t necessary. “We’re very far from a recession,” Trump said.
Democratic presidential candidate Joe Biden dismissed Trump’s idea of lowering the capital gains tax as a way to stave off an economic downtown. Biden said he would not speculate on whether the U.S. is headed toward a recession, but said lowering the capital gains tax would not stimulate economic growth. “What we should be doing is we should be focusing on how you re-empower the middle class,” he told reporters in Prole, Iowa. “We should be rewarding work, not just wealth. We should be raising the capital gains tax and cutting taxes for middle class people.”
The Congressional Budget Office today updates its latest 10-year budget and economic forecasts.
Mercedes-Benz is preparing to join an agreement between California and four automakers in opposition to the Trump administration’s efforts to roll back regulation of vehicle emissions. President Trump was described as “enraged” by the deal.