U.S., China Upbeat on Phase 1 Talks; Signing Could Take Place in Iowa

Posted on 11/04/2019 5:17 AM

Pelosi for first time mentions 2020 as possible USMCA timeline

In today's updates:

* Ross optimistic U.S. reaches Phase 1 trade deal w/China this month
* China says two countries able to reach a 'consensus on principles'
* China: Negotiators moved on to begin discussing Phase 2
* Iowa, Alaska, Hawaii and locations in China possible places for Phase 1 signing
* U.S. and China to release trade figures this week
* Xi Jinping to give a keynote speech on Tuesday
* NYT report on EU farm policy as it is up for renewal this year
* Pelosi for first time mentions 2020 as possible USMCA timeline
* Japan official: U.S./Japan trade deal offers route to elimination of U.S. car tariffs
* Saudi Aramco launched its long-awaited initial public offering on Sunday
* American officials to host “Indo-Pacific Business Forum” in Bangkok
* German manufacturing remains in recession
* McDonald’s fired its chief executive, Steve Easterbrook

Markets: China is on pace to be the world’s best-performing major stock market in 2019, with the benchmark CSI 300 index up by a third this year as investors largely dismissed the country’s slowing economy and trade war with the U.S. Even after accounting for weakness in China’s renminbi, the country’s stock benchmark is up more than 28% this year in dollar terms.

PG&E faces California state-takeover threat. California Gov. Gavin Newsom (D) has demanded that PG&E executives, investors and representatives for wildfire victims appear in Sacramento this week amid warnings that the state may intervene unless the company exits bankruptcy and overhauls its electric grid. “Every year, as the fire’s rage & California burns, it is the same thing-and then he (Gavin) comes to the Federal Government for $$$ help,” President Trump tweeted on Sunday: “No more. Get your act together governor.” Newsom responded, “You don’t believe in climate change. You are excused from this conversation.”


U.S./China trade policy update:

  • Commerce Secretary Wilbur Ross was optimistic the U.S. would reach a “Phase 1” trade deal with China this month and said licenses would be coming “very shortly” for American companies to sell components to Huawei Technologies Co., adding that the government received 260 requests. “You won’t have a deal on anything until you have a deal on everything,” Ross told the Financial Times in Bangkok, where he is part of a large delegation of U.S. officials attending a summit of ASEAN, the regional grouping, and associated meetings with Asian and Pacific leaders. “But we are quite optimistic that the remaining issues for the phase one can be closed out.”
  • China also upbeat. U.S. and Chinese trade officials were able to reach a “consensus on principles,” according to a statement released Friday by China’s Commerce Department. The negotiators moved on to begin discussing Phase 2, the Chinese said.
  • Possible locations for Trump/Xi meeting. Ross said Iowa, Alaska, Hawaii and locations in China are all possible places for Donald Trump and Xi Jinping to sign the deal after the cancellation of this month’s Asia-Pacific Economic Cooperation (APEC) summit in Chile due to unrest in the country. President Trump also mentioned the possibility of Iowa for the meeting in remarks on Friday — Trump reportedly wants to make sure the signing takes place in the U.S.
  • Ross called the agreement “particularly complicated” and said the U.S. was “making sure that each side has a very correct and clear, detailed understanding of what each side has agreed to.” “We’re in good shape, we’re making good progress, and there’s no natural reason why it couldn’t be,” Ross told Bloomberg Television in an interview on Sunday in Bangkok, when asked if the deal is on track to be signed this month. “But whether it will slip a little bit, who knows. It’s always possible.”
  • Ross said further phases of the deal would depend on things involving legislation on the part of China and an enforcement mechanism, without which “all you’ve got is a pile of paper.”
  • U.S. and China to release trade figures this week. The U.S. Commerce Department on Tuesday will issue international trade data for September, an update into whether the Trump administration is making any progress on the trade deficit. China will release its own numbers on Friday — shipments to the U.S. fell more than 10% year-on-year in September, helping drag total exports down more than 3%.
  • Chinese leader Xi Jinping is reportedly scheduled to give a keynote speech on Tuesday at a big import expo in Shanghai — a platform he used last year to promise China would boost purchases of foreign goods.

Other trade policy issues:

  • Pelosi for first time mentions 2020 as possible USMCA timeline. “We’re on a path to yes, and I think every day brings us closer to agreement,” Pelosi said in an interview with Bloomberg. “I’d like to have it done as soon as it’s ready. I wouldn’t rule it out next year. Hopefully we can do it sooner, but I said when it’s ready we’ll do it.”
  • The new U.S./Japan trade deal is a triumph for Japanese industry and offers a route to the elimination of U.S. car tariffs, Tokyo’s chief negotiator has said in an interview with the Financial Times. Toshimitsu Motegi, who became foreign minister in September after sealing the trade agreement with Washington, hailed it as a “major feat” and said the two countries will now consult on which sectors to tackle in a second round deal. The package reduces Japanese tariffs on beef and other agricultural imports from the U.S. without cutting U.S. tariffs on Japanese cars or automotive parts. Toshimitsu Motegi, who became foreign minister in September, said the U.S. had given “unusually clear” assurances it will not impose Section 232 national security tariffs or seek quotas on Japanese car imports. “For automobiles and parts, it’s clearly written into the agreement that we won’t just continue negotiations, but conduct a further negotiation to eliminate tariffs,” he said.

Other items of note:

  • NYT report on EU farm policy. The article, titled The Money Farmers: How Oligarchs and Populists Milk the EU for Millions, says the European Union (EU) spends $65 billion a year subsidizing agriculture, about three times as much as the United States. “But a chunk of that money emboldens strongmen, enriches politicians and finances corrupt dealing,” the article noted. In the Czech Republic, the highest-profile subsidy recipient is Prime Minister Andrej Babis. The EU farm bill is up for renewal this year. Link to article.

  • House Energy and Commerce ranking member Greg Walden (R-Ore.) said he will not run for re-election in 2020, joining the top Republicans on the Defense, Natural Resources and Agriculture committees who have also said they will retire from Congress. Rep. John Shimkus (R-Ill.) said he is "at least reconsidering" retirement after Walden's announcement. Shimkus is the second-most senior Republican on the committee after Fred Upton of Michigan, who is term-limited out of the chairmanship.

  • McDonald’s fired its chief executive, Steve Easterbrook, for dating an employee. The firm says the consensual relationship violated company policy. Easterbrook took the top job in 2015. He has been credited with boosting sales by improving menus and introducing online ordering and home delivery. The boss of the company’s American operations, Chris Kempczinski, will take over.

Markets. The Dow on Friday gained 301.13 points, 1.1%, to 27,347.36, less than 0.1% away from their July highs. The S&P rose 29.35 points, 1%, to 3,066.91 — its third record close of the week. The broad-based index has posted four consecutive weeks of gains. Nasdaq advanced 94.04 points, 1.1%, to 8,386.40, its first high since July.

All three indexes climbed more than 1.4% for the week.

Saudi Aramco launched its long-awaited initial public offering on Sunday, kicking off Crown Prince Mohammed bin Salman’s plan to overhaul the kingdom’s oil-addicted economy. Riyadh is hoping to raise as much as $60 billion with a sale of up to 3% of the company, but bankers believe a $1.2 trillion to $1.5 trillion valuation is more realistic. The company said it would issue the IPO prospectus on Nov. 9, with the final offer price, listing size and valuation to be determined at the end of the bookbuilding period. The announcement was delayed because of weak investor interest and drone attacks on two Aramco oil facilities.

Today, American officials will host an “Indo-Pacific Business Forum” in Bangkok, in which Washington will seek to present itself as an alternative business partner for countries living in China’s shadow that have questioned the financial, environmental and other costs of Beijing-backed projects. U.S. Commerce Secretary Wilbur Ross will travel to Indonesia and Vietnam later in the week. Ross, along with Robert O’Brien, the national security adviser, are leading the U.S. delegation to the ASEAN summit, which officials previously had said President Trump or Vice President Mike Pence might join. “This is a major effort on the part of the U.S. government,” Ross told the Financial Times, rejecting some regional analysts’ view that American economic power is being eclipsed by China’s, and adding that 24 senior government officials were in Bangkok, including 15 U.S. ambassadors and chiefs of mission.

German manufacturing, which accounts for a fifth of the euro zone’s largest economy, remains in recession. The manufacturing purchasing managers’ index edged slightly up to 42.1 in October, but still significantly below 50, which separates contraction from expansion. Orders fell for the 13th month running.


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