China reaches trade deals with Canada, EU | U.S. ag exports miss USDA’s forecast
In today's updates:
* China insisting U.S. tariffs be removed, perhaps in stages, as part of Phase 1 talks
Markets: U.S. equity futures are holding steady, consolidating gains made over the last three sessions due to lingering concerns over the outcome of U.S./China trade talks. Traders are also preparing for the latest round of earnings, as FactSet data indicates that 75% of S&P 500 companies which reported thus far have topped analyst expectations.
Plant-based meat is beefing up. "Flavorists are the people who tinker with nacho cheese dust, Hot Pockets and pumpkin spice lattes ... driving consumer trends and making food craveable," according to a Washington Post article (link). Many of them across the globe "are bringing their alchemy to plant-based meat." Potential impact: The Swiss investment firm UBS predicts growth of plant-based protein and meat alternatives will increase from $4.6 billion in 2018 to $85 billion by 2030. Meanwhile, in China, fake meat is a sophisticated craft that dates back centuries, as CNN reported this week (link). Today, more than 300 restaurants in Beijing alone offer fake meat, and Chinese chefs are creating everything from “crabmeat” made with mashed potato and carrot to pork ribs made from lotus root.
— U.S./China trade policy update:
- China has made removing existing U.S. tariffs a key point for reaching a phase one deal. Taoran Notes, which given its author’s ties to China's top negotiator Liu He, is taken very seriously. It issued two pieces today reiterating that removing those tariffs is China's most core concern and saying that if the U.S. wants to keep on all existing tariffs there will be no deal, but the current tariffs do not have to come off all at once, just proportionately. Global Times editor in chief Hu Xijin pushed the same message on Twitter earlier today: “To reach a deal, China and the U.S. must simultaneously remove the existing additional tariffs at the same ratio, which means that tariffs to be removed should be in proportion to how much agreement has been reached.”
- Next week’s trip to Brazil by Chinese President Xi Jinping may come too soon for him to sign a Phase 1 trade deal with the U.S., the South China Morning Post reports, with work continuing on the details of the agreement. Xi will attend the Brazil summit with leaders from the host country, Russia, India and South Africa on Nov. 13 and 14. The paper said that one of the ideas was for Xi and his American counterpart Donald Trump to hold a summit in the U.S., but China would not agree to it.
- Phase 2 talks may start but may not end unless President Trump wins re-election. That is the conclusion of some China watchers.
- China lifts ban on Canadian pork and beef exports. The move ends a four-month long trade dispute that started soon after Huawei executive’s arrest. On Tuesday, Justin Trudeau, Canada’s prime minister, announced on Twitter: “Good news for Canadian farmers today: Canadian pork and beef exports to China will resume.” Trudeau credited Dominic Barton, the recently appointed Canadian ambassador to China, and the country’s meat industry for “reopening this important market for our meat producers and their families.”
— U.S. farmers will not like comments made by Sen. Grassley re: MFP 2 payments. Senate Finance Committee Chairman Chuck Grassley (R-Iowa) reportedly said USDA should discontinue its Market Facilitation Program if the U.S. and China reach a trade deal soon, but only if any accord results in a massive increase in trade President Donald Trump has promised.
Perspective: U.S. farm and commodity groups and other farm-state lawmakers say the payments should continue even if there is an agreement with China because it will take implementation time for Chinese purchases to unfold. Others note there could be further flare-ups between the two countries following any Phase 1 agreement.
— United Nations report says U.S./China trade war hurting both countries. “The U.S. tariffs on China are economically hurting both countries,” according to the U.N. report (link), which tries to measure the extent to which higher import taxes are causing a decline in trade between the world’s two largest economies.
U.S. tariffs on Chinese goods have led to a more than 25% drop in the imports of those goods during the first half of the year, according to a new analysis by the United Nations Conference on Trade and Development. The U.N. says that actually “shows the competitiveness of Chinese firms, which despite the substantial tariffs, were still able to maintain 75% of their exports to the U.S.”
Meanwhile, the paper calculates that President Donald Trump’s tariffs diverted trade amounting to about $21 billion for the first half of 2019, bringing “substantial benefits” to several non-combatants:
- Taiwan’s shipments to the U.S. rose almost $4.2 billion, which much of the increase tied to higher demand for office and communications equipment.
- Mexico’s exports to the U.S. increased $3.5 billion, spurred by demand for food, transport equipment and electrical machinery.
- The European Union’s exports gained $2.7 billion, largely due to demand for machinery.
- Vietnam’s rose by $2.6 billion, concentrated in communications equipment and furniture.
The hardest hit product category is office machinery, imports of which have plunged 65%, according to the U.N. Agriculture and food, communication equipment and precision instruments fell by more than 30%.
What’s been the effect on U.S. consumer prices? The analysis “finds implicit evidence that the cost of the tariffs has been generally passed down to U.S. consumers. However, it also finds some indication that Chinese firms may have only recently started to react to tariffs by reducing their export prices, thus absorbing part of the cost of the tariffs.”
— USMCA update:
- Sen. Majority Leader Mitch McConnell (R-Ky.) accused House Democrats of stalling on the U.S.-Mexico-Canada Agreement (USMCA).
- Ways and Means Chairman Richard Neal (D-Mass.) will meet today with Canadian Prime Minister Justin Trudeau and Foreign Affairs Minister Chrystia Freeland to discuss changes House Democrats say are necessary to the proposed USMCA. Neal and a working group are negotiating with the Trump administration on those changes.
— Tariff effects hold U.S. trade deficit down in September. Reflecting the global growth slowdown and the ongoing U.S./China trade war, the U.S. trade deficit narrowed in September, as activity in both exports and imports eased. The U.S. reported that its trade deficit fell in September to $52.5 billion, its lowest in five months. While tariffs on Chinese goods have reduced the deficit with America’s biggest supplier of imports, increased imports from the European Union, Mexico and other countries had previously kept the deficit growing.
Figures released by the Commerce Department yesterday show that it continues to grow. The trade deficit for goods and services in the first three quarters of the year increased 5.4%, to $481.3 billion, from the same period last year. Total American exports fell by $7 billion from the previous year, while imports grew by $17.8 billion.
Perspective: Economists say the gap has widened because the U.S. economy is growing faster than that of other countries, leading to greater purchases of foreign products by Americans and slowing sales abroad.
— U.S. ag exports miss USDA’s forecast for FY 2019. U.S. agriculture exports in September totaled $10.30 billion against imports of $10.08 billion for a monthly surplus of $219.8 million. That put U.S. ag exports for Fiscal Year (FY) 2019 at $135.57 billion against imports of $130.94 billion for a trade surplus of $4.63 billion. USDA’s forecast for exports was too robust at $137 billion while their import outlook was too conservative at $129 billion.
The level of imports still registered a new record even as the September result was the second lowest of FY 2019. But imports topped $11 billion four months in FY 2019 with one of those months seeing imports of more than $12 billion.
The September ag export total was the lowest of FY 2019 and the smallest monthly export total since June 2016.
The resulting trade surplus of $4.63 billion for FY 2019 is the smallest since it was $4.57 billion in FY 2006. The data show that there continues to be demand in the U.S. economy for imported ag products while U.S. ag exports are facing challenges via limited shipments to China and strength of the U.S. dollar.
— EU and China agree to protect regional food and beverage products. The EU and China agreed to protect specialty food and drink such as Greek feta and Anqiu ginger from imitation, but an investment treaty was not concluded. China will ensure that 100 different EU products — including Irish whiskey, champagne, Spanish Manchego cheese and Polish vodka — are not produced in China nor sold there unless they come from their place of origin. An equivalent number of Chinese goods, including Anji white tea and Panjin rice, will be safeguarded in Europe, according to the agreement. The agreement on “geographical indicators” for food and drink has been a core EU demand in its trade talk negotiations with countries such as Canada and Japan, and will be a major dispute topic in U.S./EU trade talks.
EU and China comment. Phil Hogan, the EU trade commissioner, and Zhong Shan, China’s commerce minister, announced the conclusion of the agreement in Beijing. The deal requires approval by the European Council and Parliament, which EU officials said would happen quickly.
— Farm Journal Pulse survey finds broad farmer support for Trump. The latest Farm Journal Pulse poll found that 78% of farmers they surveyed either strongly approved or somewhat approved of the job that Trump is doing as president. The poll found 20% either somewhat disapprove or strongly disapprove with Trump’s handling of the presidency. One month ago, the same poll found 76% either strongly approved or somewhat approved of the job Trump was doing as president.
Link to a state breakdown of the Pulse survey.
— Other items of note:
In Tuesday elections, Democrats took control of Virginia's legislature for the first time in 26 years (since 1993). In Kentucky, a gubernatorial race remained too close to call but the Democrat, Andy Beshear, claimed victory over Gov. Matt Bevin — Bevin refused to concede but lagged, 49.2% to 48.8%, with 100% of the vote in. In Mississippi, the GOP held on to the governorship.
Ballot Initiatives: Texans voted to make it harder to initiate a state income tax. Other elections. Tucson, Ariz., decided against becoming a “sanctuary city” for immigrants, and San Francisco overwhelmingly voted to keep its vaping ban.
The House may be in session the week of Dec. 16, House Majority Leader Steny Hoyer (D-Md.) told the Democratic Caucus on a conference call Tuesday. The House is currently scheduled to head out on recess Dec. 12.
White House open to scaled-back border wall funding. The Trump administration is backing off its demand for $8.6 billion in fiscal 2020 border wall spending in negotiations with top congressional leaders and appropriators, sources signal. Meanwhile, Senate Appropriations Chairman Richard Shelby (R-Ala.) said Tuesday he would support a second stopgap spending bill that lasts through much of December, if congressional leaders reach an agreement to work together on all 12 spending bills within that time frame.
Republicans say costs a hurdle to bipartisan tax deal, including extension of lapsed biodiesel tax incentive. GOP leaders said House Democrats are asking for too much in return for movement on a bill to renew 30-plus tax breaks known collectively as extenders. "I have great confidence in Chairman Neal of the Ways and Means Committee that he wants to move extenders," Senate Finance Chairman Chuck Grassley (R-Iowa) said of a package of 30-plus tax extenders.
Finance Chairman Chuck Grassley (R-Iowa) said any chairman's mark to give Congress authority over imposition of Section 232 tariffs under a 1962 trade law would keep those tariffs on imported steel and aluminum as a concession to ranking member Sen. Ron Wyden (D-Ore.). But Grassley said he’s no longer sure when he’ll be able to introduce a long-awaited bill to rein in the president’s tariff authority. Reason: Pushback from lawmakers who don’t want to upset President Donald Trump.
USDA Secretary Sonny Perdue will seek to “forge new opportunities” with Mexico on a trade mission Nov. 6-8, his department said in a statement. Perdue, who is traveling with more than 100 industry and gov't representatives, will hold a press conference on Nov. 7.
Farm country feeds America. but just try buying groceries there. An exodus of grocery stores is turning rural towns into food deserts. But some are fighting back by opening their own local markets. Link to New York Times article.
Trump urges war against Mexican cartels. After an attack by gunmen in Mexico killed nine American citizens on Monday, President Trump has offered to cooperate with the Mexican government to root out drug cartels in the country. On Tuesday, Trump spoke with Mexican President Andrés Manuel López Obrador by phone and urged him to do more to combat cartel violence. López Obrador declined the offer Trump made on Twitter, where Trump suggested an army may be needed to fight the gangs.
Former Environmental Protection Agency Administrator Gina McCarthy will join the environmental group Natural Resources Defense Council as its president and CEO starting in January. McCarthy, who served under President Barack Obama, helped write many of the environmental regulations being rolled back by the Trump administration.
— Markets. The Dow on Tuesday ended up 30.52 points, 0.11%, at 27,492.63. The Nasdaq moved up 1.48 points, 0.02%, at 8,434.68. The S&P 5t00 eased 3.65 points, 0.12%, at 3,074.62.
Saudis to press OPEC members for more production cuts, according to the Wall Street Journal. The move is aimed at bolstering oil prices. Saudi Arabia is expected to push OPEC countries to cut production by pressuring those in the cartel that are no living up to the output reductions OPEC has put in place. The expected Saudi push is viewed as a bid by the de facto leader of the cartel to keep oil prices high ahead of the IPO for state-owned Saudi Aramco. Saudi Arabia is expected to support the output reductions of 1.2 million barrels per day (bpd) in place. Indications are that if they were able to get countries like Iraq, Nigeria and non-OPEC countries to comply with the agreement, it would remove about 500,000 bpd from the market, according to the WSJ who cited Saudi sources.
Upbeat Germany factory orders. Economists are hailing today's 1.3% monthly rise in German factory orders, but some observers say it may not prevent the economy falling into recession (those figures come Nov. 14). Orders from other countries in the 28-nation Eurozone dropped 1.8% and manufacturing in the region on a whole is the weakest it’s been for seven years. Given two consecutive monthly declines in September and October, the latest results from Germany are helping the euro this morning, up slightly to $1.1082.