Trump: China Contacts U.S. Trade Officials to Return to Negotiating Table

Posted on 08/26/2019 7:22 AM

U.S. and Japan reach tentative trade accord

In today's updates:

* Trump foresees a U.S./China trade deal, after two "very good calls" from Beijing
* U.S., Japan reach trade deal in principle with goal of finalizing details in September
* Will Congress have to approve a U.S./Japan accord?
* Equities rally on more upbeat trade policy developments
* Boris Johnson acknowledges quick U.S. trade deal will be a challenge
* Trump admin. will retain biofuel blending waivers but move to boost biofuel use
* Trump reveals U.S. is close to reaching a compromise over France's digital tax
* USDA food price forecasts hold mostly steady
* Next G7 confab in Miami
* President Trump has another primary opponent

Markets: Equities around the world rallied from previous lows on more upbeat news regarding U.S./China trade developments and on a tentative U.S./Japan trade accord. Meanwhile, Germany's Ifo business climate index fell to 94.3 in August, the weakest in almost seven years.

 

U.S./China trade policy update:

  • Trump: China wants new talks to end trade war. President Donald Trump said China is seeking talks for a deal to end the trade war between the countries that has impacted financial markets and increased fears of a global economic slowdown. Trump today said he was optimistic about the prospects for an agreement with Beijing, 24 hours after he appeared to initially suggest he was having second thoughts about imposing further tariff rises on China, and after the White House on Sunday suggested that Trump in fact wanted to raise tariffs on Chinese goods even higher. Stephen Miller, the president’s senior adviser, also made a rare appearance on Fox News to drive the point home. “The only second thoughts the president is having,” Miller said, “is whether to be even tougher and even more aggressive.”
  • China called last night our top trade people and said, ‘let’s get back to the table,' so we’ll be getting back to the table, and I think they want to do something,” Trump said on the margins of the G7 summit in the French coastal resort of Biarritz. “I have great respect for the fact that China called — they want to make a deal. This is the first time I've seen them where they really do want to make a deal, and I think that's a very positive step.” Beijing could not immediately confirm whether China had requested fresh talks, with the Chinese foreign ministry spokesman Geng Shuang saying he was not aware of the call.
  • China comments. Liu He, Chinese vice-premier, said China did not want further trade hostilities with the U.S. “China . . . resolutely opposes the escalation of the trade war,” he said. “An escalation of the trade war is not good for China, it’s not good for the U.S., and it’s also not good for the interests of people across the world.” China welcomes “calm negotiations,” he added. Liu, China’s chief trade negotiator, was responding to Friday’s announcement that the U.S. plans to raise the tariff rate on $250 billion of Chinese imports from 25% to 30% from Oct. 1, and the tariff on $300 billion of goods from 10% to 15% starting on Sept. 1. This had been in response to China’s move earlier on Friday for plans to impose additional retaliatory tariffs of 5% to 10% on $75 billion worth of American products, including soybeans, pork, and, for the first time, crude oil. China also reinstated the 25% penalty duty on imports of U.S.-made cars and car parts, bringing the total tariff to 40%. China themselves were responding to U.S. plans for new tariffs on $300 billion of Chinese imports.
  • On Friday, Trump angrily tweeted that he was ratcheting up tariffs on Chinese goods in response to Chinese retaliation for earlier levies. By Sunday morning, Trump was wavering about his threat to declare an emergency so that he could order American companies out of China. Trump claimed he could use the International Emergency Powers Act of 1977 to force companies to move their supply chains out of China, but he later said he has no plans to do so for now, a point emphasized on the Sunday TV talk shows by U.S. Treasury Secretary Mnuchin and economic advisor Larry Kudlow. The president has no authority to simply order companies out of China, but observers note the Act could allow him to block imports and freeze Chinese assets; such action would trigger an automatic override vote in Congress and prompt challenges in the courts.
  • Mnuchin: If China agreed to a fair relationship, we’d sign that deal “in a second.” Treasury Secretary Steven Mnuchin, on the sidelines of the G7 meeting in France, said, “We do not have free trade with them. It’s a one-way street: They have free entrance into our markets, our investments, our companies and we do not have the same thing there. That’s the only reason why we are in this situation with China. If China would agree to a fair and balanced relationship, we would sign that deal in a second.”
  • A wide array of business organizations warned over the weekend that American consumers and workers will soon be caught in the trade-war crossfire, the New York Times reported (link).
  • Escalating U.S.-China trade battle is reaching a point where it could lead to a broad and long-lasting restructuring of global supply chains. President Trump is doubling down on his attacks on what he calls Beijing’s “outrageous” trade practices, the Wall Street Journal reports (link). Those levies kicking in Sept. 1 will further change economic calculations companies are making as they reset China-based production to avoid tariffs, the article noted.
  • The editor of China's Global Times said the country is preparing for a "scenario in which China/U.S. trade relations deteriorate further, even much worse than now."
  • Yuan slumps to historic lows. China's yuan plunged to an 11-year low against the dollar in onshore trade and tumbled to a record low in offshore trade, as the U.S./China trade war sparks wild swings with a resolution unlikely to be reached soon.
  • Hong Kong police said today they arrested 36 people, the youngest aged 12, after violence during anti-government demonstrations escalated as protesters hurled Molotov cocktails at security forces who responded with water cannon and tear gas. Sunday's protests saw some of the fiercest clashes yet since protests escalated in mid-June.

Trump announced the U.S. and Japan had “agreed in principle” on a deal to avoid a trade dispute. The tentative agreement, announced by the country’s leaders at a meeting on the sidelines of the Group of 7 in France, would open Japan’s agricultural markets. It would allow American farmers and ranchers to compete on more equal footing with members of the Trans-Pacific Partnership (now dubbed the CPTPP), a multinational trade agreement concluded under the Obama administration but abandoned by Trump.

Japan has agreed to buy “hundreds of millions of dollars of corn,” Trump told reporters, adding that Prime Minister Shinzo Abe of Japan had promised to buy up “excess” corn that had once gone to China. Abe said Japanese grain buyers are public companies and not beholden to the government.

U.S. Trade Representative Bob Lighthizer said the new deal will eventually pave the way for an additional $7 billion in ag exports to Japan. “We’ll get into the details at another time, but generally, Japan is our third-largest agricultural market,” Lighthizer said. “They import about $14 billion worth of U.S. agricultural products. And this will open up markets to over $7 billion of those products. … In the agriculture area, it will be a major benefit for beef, pork, wheat, dairy products, wine, ethanol, and a variety of other products.”

Trump and Abe said they hope to finalize the deal in September during a general assembly of the United Nations.

We've agreed to every point, and now we're papering it and we'll be signing it at a formal ceremony,” said Trump.

U.S. tariffs on imported Japanese cars would remain but not increase, and other U.S. tariffs would be dropped. The deal also covers industrial tariffs and digital trade.

It is not clear if an agreement would require ratification by Congress, with previous reports signaling a mini-accord would not need a congressional okay.

U.S. commodity groups were positive about the tentative accord, as most thought an agreement would be coming. "We look forward to rapid implementation of the agreement as international competitors are currently taking U.S. pork market share through more favorable access," said David Herring, president of the National Pork Producers Council. “The United States produces the safest, highest-quality and most affordable pork in the world. It is the preference of many Japanese customers and we look forward to competing on a level playing field again." The National Cattlemen’s Beef Association said the agreement will sharply cut tariffs. “Last year, Japanese consumers purchased over $2 billion of U.S. beef, accounting for roughly one-quarter of overall U.S. beef exports,” said NCBA President Jennifer Houston. “Removing the massive 38.5 percent tariff on U.S. beef will level the playing field in Japan, and we are very thankful to President Trump and his trade team for continuing to fight on behalf of America’s ranching families.”

Link to wheat industry joint statement about the agreement in principle.

USDA Secretary Perdue said: “Japan is a significant market for United States agriculture exports, making today a good day for American agriculture. By removing existing barriers for our products, we will be able to sell more to the Japanese markets. At the same time we will able to close gaps to better allow us to compete on a level playing field with our competitors. I thank President Trump and Ambassador Lighthizer for their constant support of America’s farmers and ranchers and their hard work negotiating better trade deals around the globe.”

Boris Johnson acknowledges quick U.S. trade deal will be a challenge. U.S. Prime Minister Boris Johnson on Sunday played down expectations of concluding a quick U.K./U.S. trade deal after his first meeting as British prime minister with Donald Trump, saying any agreement would require America to make compromises. While Johnson said he would “love” to agree on a deal “within a year,” he acknowledged there would be significant challenges to overcome if an agreement was going to be finalized rapidly after Britain leaves the EU.

I don’t think people realize quite how protectionist sometimes the U.S. market can be, Johnson told ITV after he held a breakfast meeting with Trump at the G7 summit in Biarritz. “But what I’m saying to Donald . . . this is a big opportunity for both of us but we need some movement and we need to see movement from the U.S. side.” Johnson noted several areas where he wanted to see the U.S. curtail restrictions on U.K. companies selling goods and services to America — ranging from cauliflowers and “pork pies” to train carriages and shower trays. A pork pie is a round, tall pie with cooked pork inside, which is eaten cold.

President Trump and Cabinet officials decided to retain the biofuel blending waivers granted to small refineries but take steps to make up for lost biofuel volumes. The plan under development would encourage the use of gasoline that contains 15% ethanol and would increase by 500 million gallons the amount of conventional renewable fuels that have to be used in mandates. Some confusion has surfaced regarding when the mandates would be increased, either in 2020 or 2021 (likely 2020 for corn-based ethanol and 2021 for biodiesel).

Under the tentative plan, EPA will give a 500-million-gallon boost to the amount of conventional renewable fuel, such as ethanol, that must be used in 2020. A separate quota for biodiesel, typically made from soybeans, would get a 250 million gallon increase (apparently in 2021) Additionally, the administration will enhance a program meant to expand U.S. fueling infrastructure and get more ethanol into the system. EPA will adopt a USDA assessment of the greenhouse gas emissions associated with renewable fuel and will expand environmental credits encouraging automakers to produce “flex-fuel” vehicles that can run on high-ethanol gasoline.

USDA Secretary Sonny Perdue failed in his bid for the White House to rescind some of the recently issued waivers, at least those for refineries tied to “big” oil companies. EPA officials successfully argued that would be illegal.

Frank Macchiarola, a vice president at the American Petroleum Institute, called the drafted plan a “rushed, arbitrary policy.” “We hope the administration walks back from the brink of a disastrous political decision that punishes American drivers,” Macchiarola said. “Bad policy is bad politics.”

USDA food price forecasts hold mostly steady. USDA made few changes to its food price forecasts for 2019 and 2020, keeping the overall food price inflation outlook for both years at 1.5% to 2.5%. They also still see food away from home (restaurant) prices rising 2% to 3% for both years and grocery store food at home) costs are seen rising 0.5% to 1.5%.

The grocery price increase outlook remains well below the 20-year average and comes after prices at the store rose just 0.4% compared with 2017 when they declined 0.2%.

Compared to their prior outlooks, USDA edged down expectations in 2019 for poultry, fresh fruits and cereals and bakery products. While food prices are currently forecast to rise more than the increases for 2018, grocery store costs in particular remain below trend.

Other items of note:

  • President Trump said next year’s G7 summit will "probably" be held in Miami — at one of his golf resorts, Trump National Doral.

  • Joe Walsh, the conservative radio show host and former Republican lawmaker from Illinois, said he would challenge President Trump for the party’s nomination. He joins former Massachusetts governor Bill Weld in challenging Trump.

  • President Trump reiterated his threat to tax imports of French wine, but today said the U.S. is close to reaching a compromise over France's digital tax. Trump firmly thinks the French have singled out America’s big technology firms. A month ago France imposed a levy of 3% on the revenues generated from French users of online platforms and digital advertising. The tax’s thresholds conveniently exclude most French firms. The French nickname for the levy is “the GAFA tax” — Google, Apple, Facebook and Amazon. European Council President Donald Tusk warned the European Union will retaliate if Trump pushes forward with his threatened tariff on French wine.

  • Tensions in the Middle East are driving up the cost of shipping through the Persian Gulf. A Norway-based shipping insurance group says insurers have paid out more than $100 million in damages since a spate of tanker attacks and seizures in the region this summer, the Wall Street Journal reports (link), and premiums on transits are soaring. The group says war risk premiums are up 10-fold this year, with ships crossing the Strait of Hormuz paying between $300,000 and $400,000 per sailing. That is leaving profit margins for ship owners razor-thin at best while adding complications to an oil market already troubled by tumbling crude prices. Some 20% of the world’s oil supply passes on tankers through the Strait of Hormuz. Tensions remain high as an Iranian supertanker previously held in Gibraltar roams the Mediterranean in search of a port where it can resupply.

  • Link to USDA details about MFP 2.

  • Nearly 100 companies are moving to the Netherlands ahead of Brexit. A Dutch government agency said on Monday that another 325 companies worried about losing access to the European market are also considering a move.

Markets. The Dow on Friday plummeted 623.34 points, 2.37%, at 25,628.90. The Nasdaq dropped 239.62 points, 3.00%, at 7.751.77. The S&P lost 75.84 points, 2.59%, at 2,847.11.

In his speech at the Federal Reserve's Jackson Hole, Wyo., symposium, Fed chief Powell signaled that the Fed is prepared to offer another rate cut soon if an international economic slowdown threatens the U.S. economy, but he did not go as far to indicate how much stimulus the central bank would offer beyond that. In response to Powell's speech, Trump said on Twitter that the Fed is "very weak" and questioned whether the "bigger enemy" to the United States is Powell or Chinese President Xi Jinping. Policymakers closed ranks around Powell at the annual conference.

Fed’s Clarida downplays recession risk. As the Dow suffered a dramatic decline amid trade news and economic worries, Fed Vice Chairman Richard Clarida on Friday sought to temper recession worries in comments to CNBC. "You have to look at a broad range of indicators, but the ones I focus on are not signaling an elevated risk of a recession," Clarida said. "I just don't see it, but we need to be vigilant and alert to the data flow, for sure.” His outlook ahead for the U.S. economy is that next year it “will be at or above trend growth under appropriate policy.” As expected, Clarida shied away from a question about Trump’s tweet on Fed Chief Jerome Powell, replying, "I didn't see the tweet and I'm here focusing on the conference," he said, referring to the now-completed Jackson Hole meeting hosted by the Kansas City Fed. Expect Fed officials to continue to downplay recession risks as some others have been over the last several days.

The Financial Times has seen an internal European Union “brainstorming document” on loosening EU fiscal rules, which forbid deficits of over 3% of GDP and set an overall 60% target for accumulated debt. The rules, inconsistently enforced, can push already weakening economies further into recession by forcing them to cut budgets when they need stimulus instead.

Germany's Ifo business climate index fell to 94.3 in August, the weakest in almost seven years.


 

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