Trump Makes Clear: Has Not Agreed to Roll Back Tariffs on Chinese Goods

Posted on 11/11/2019 5:54 AM

Dept. of Justice seeks stay of sugar order re: Mexico | Hong Kong chaos rattles stocks

In today's updates:

* Trump has not agreed to roll back tariffs on Chinese goods
* Trump: Have not yet approved Phase 1 deal
* Navarro bests Kudlow in sizing up Trump's position on China tariffs
* Schumer urges Trump to keep the pressure on China
* DOJ seeks stay of sugar order re: Mexico
* Iran says it discovered a massive new oil field with over 50 billion barrels of crude
* Pork prices continue to boost China consumer inflation
* Northeast China attempts pork production recovery
* Hoeven & USDA's Northey announce disaster declarations for 47 of 53 N.D. counties
* Ala., Fla. & Ga. will receive combined $800 million in block grants from USDA
* Australia’s bushfires mount as Australia experiences its worst drought in decades
* Farmers turn to high-interest loans as banks pull back
* Senators note concerns re: steel and aluminum tariffs exemptions
* New kind of suburbanization is sweeping through politics: NYT
* Incoming president of EC: Europe must not be 'collateral damage' of U.S./China tiff
* Britain avoids a recession
* Saudi Aramco released its IPO prospectus

Markets: Iran said it discovered a massive new oil field in the country’s south with over 50 billion barrels of crude, its president said Sunday, a development if realized could boost the country’s proven reserves by a third as it struggles to sell energy abroad over U.S. sanctions. Some 53 billion barrels would be added to Iran’s proven reserves of roughly 150 billion. Iran has the world’s fourth-largest deposits of oil, but American sanctions hamper its sale abroad.

 

U.S./China trade policy update:

  • Trump says he has not agreed to roll back tariffs on Chinese goods. President Donald Trump on Friday said he has not agreed to rollbacks of U.S. tariffs sought by China, sparking fresh doubts about when the world's two largest economies may end a 16-month trade war that has slowed global growth.
  • Trump said he not yet approved the Phase 1 deal that is being hammered out by his trade negotiators. “I haven’t agreed to anything,” Trump said. “China would like to get somewhat of a rollback, [but] not a complete rollback because they know I won’t do it. The Financial Times reported last Monday that the White House was considering rolling back levies on $112 billion of Chinese goods.
  • White House officials differ and Navarro again captures Trump's position and Kudlow does not. Larry Kudlow, National Economic Council director, told Bloomberg that any Phase 1 deal would include “tariff agreements and concessions.” Peter Navarro, a White House trade adviser hawk who opposes any concessions, slammed the media for reporting comments in line with the views of Kudlow. In an email to reporters titled “To the Fourth Estate,” Navarro said the media was relying on sources “without direct knowledge of the negotiations” — even though Kudlow publicly mentioned the possibility of concessions. Navarro, perhaps with some truth, said some reporters were being duped by “propagandists within the Chinese government.”
  • Navarro accused China of trying to “negotiate in public” and said that if the U.S. gave up any existing tariffs, Washington would not have leverage ahead of further phases of the talks.
  • Senate Minority Leader Chuck Schumer (D-N.Y.), a longtime China critic, urged Trump to keep the pressure on China. “President Trump shouldn’t be giving in to China unless we get something big in return,” Schumer said on Twitter.
  • Trump said that if a signing ceremony with Chinese leader Xi Jinping takes place, he would like it to be held in the United States. He suggested that Iowa or somewhere in “farm country” would be preferable. “It will be in our country,” Trump said. Still, the president said that an agreement was not a sure thing and insisted, as he had before, that China was more interested in a deal than he was. “I never like to talk about things before we have them,” Trump said, a comment that would not likely be the reality test.
  • Former Chinese trade negotiator: China would welcome another four years of Trump because he is “easy to read,” the South China Morning Post reports (link).
  • Hong Kong police shoot two protesters. Two pro-democracy protesters were injured by live fire in Hong Kong after a confrontation with police, with both activists taken to the hospital. The city was already preparing for a general strike called after the death of another young protester who fell from a parking garage last weekend. The strike follows another weekend of violent anti-government demonstrations, and seven universities remain suspended across Hong Kong. The Hang Seng Index lost almost 3% after the turmoil.

DOJ seeks stay of sugar order re: Mexico. The Department of Justice (DOJ) on Friday filed a motion at the U.S. Court of International Trade requesting the court to stay its previous ruling regarding suspension agreements on sugar between the U.S. and Mexico and maintain such agreements with Mexico for 90 days to provide time needed to cure a procedural error that led to the court’s earlier ruling to vacate the agreements. The court did not recognize complaints about the legality of the agreement. The Trump administration’s action is favorable news to U.S. sugar farmers who are focusing on the topic.

Background: Changes the Trump administration previously negotiated to a pair of deals with Mexican industry to forestall U.S. duties on Mexican sugar must be invalidated, the U.S. Court of International Trade ruled Oct. 18. The Commerce Department’s failure to maintain contemporaneous records of meetings it held with interested parties during negotiations violated the law and prejudiced CSC Sugar LLC, a refiner that wasn’t in on these conversations, the trade court said. Under “suspension agreements” signed in 2014, the Commerce Dept. agreed not to impose antidumping or countervailing duties on sugar imported from Mexico. In return, the Mexican industry agreed to minimum prices on different categories of sugar, designed to eliminate the injurious impact these imports were purportedly having on competing U.S. producers. In 2017, the Trump administration negotiated certain amendments to these agreements. The deals in part altered the definition of “refined sugar,” moving from a purity level of 99.5% to 99.2%. “The result of these changes was to give a competitive advantage to one segment of the U.S. domestic sugar industry,” U.S. refiner CSC Sugar claimed. The changes benefited refiners with older mills built to handle lower-purity raw sugar, like cane sugar, while refiners like CSC with newer mills would face much higher processing costs, the company claimed. CSC filed two lawsuits in the trade court, arguing Commerce officials including Secretary Wilbur Ross engaged in ex parte talks with representatives of the U.S. sugar industry during the renegotiation. “A disproportionate number of those meetings were with representatives from the industry segments that later received preferential treatment in the amended agreement, while CSC Sugar’s interests were sidelined,” the company claimed. The government of Mexico; the Camara Nacional de las Industrias Azucarera y Alcoholera, a group of Mexican producers and exporters; the American Sugar Coalition and its members; and Imperial Sugar Co. joined the cases in opposition to CSC. The 2017 amendments must be vacated, the trade court ruled in a pair of Oct. 18 opinions. Commerce’s failure to follow the recordkeeping law “effectively prevented CSC Sugar from commenting on the ex parte materials and discussions Commerce engaged in” while the negotiations were ongoing, the court said.

Phillip Hayes, Director of Media Relations at the American Sugar Alliance, said: “The court never addressed any of CSC’s complaints about the merits of the amendments. The court’s decision was purely on recordkeeping procedure. The court did not recognize CSC’s complaints about the legality of the agreement. Meanwhile, the Mexican government and Mexican sugar industry have both asked the U.S. government to reinstate the suspension agreements without change — a stance that U.S. producers support. The Department of Commerce (DOC) has now published the suspension agreements without change as the basis for moving forward and is asking for comments from interested parties.” Hayes added that the U.S. sugar producers, the Mexican sugar industry, and the Mexican government all support the U.S. government’s request for a stay. “This stay is necessary to ensure that everyone has ample time to make their comments and for the DOC to follow proper procedure while it makes a decision,” Hayes noted in an emailed statement.

Pork prices continue to boost China consumer inflation. Inflation at the consumer level in China hit 3.8% in October compared with year-ago levels, above expectations and at a faster pace than the 3.0% mark registered in September, according to the National Bureau of Statistics.

Food price inflation hit an 11-year high on the rise in pork prices.

Inflation at the wholesale level, however, fell 1.6% in October compared with year ago, a steeper decline than the 1.2% registered in September. The wholesale inflation data is raising further concerns about domestic demand in China.

In other economic updates, new bank loans fell to 661.3 billion yuan ($94.55 billion) in October, the lowest since December 2017, according to data from the People’s Bank of China.

Northeast China attempts pork production recovery. On-the-ground investigations emphasize that northeastern farms have begun to restore hog production after at least half of the region's swine were lost to last year's African swine fever (ASF) virus and panic-selling, according to Dim Sums: Rural China Economics and Policy. “The region is still severely short of pigs, but its slaughterhouses are shipping thousands of carcasses to southern regions where production has not rebounded at all. But the facts and figures the report cites suggest there has been only marginal progress, and individual farmers who accounted for the bulk of production pre-ASF are mostly still on the sidelines or raising chickens now.”

A report from Huatai Futures (link; use Google Chrome to translate) is based on interviews with farmers, breeding companies, traders and slaughterhouses in northeastern provinces of Liaoning, Jilin, and Heilongjiang — apparently in October 2019. Another online article and an assessment of a drop in hog prices in early November report similar information.

The northeastern provinces were the first in China to be hit by ASF in August 2018 and the epidemic peaked last fall and winter, the publication noted. “All farms were severely impacted, especially individually-operated farms. In districts of Liaoning and Jilin provinces hog inventories fell to varying degrees — from 50% to 80%. In Liaoning the number of swine held by small, independent farmers is down 60% to 80% from last year, while swine held by large-scale farms is down 30% to 50%.”

The publication also noted:

  • Breeding animals were especially vulnerable to ASF.
  • Meat companies are offsetting losses from slaughtering expensive hogs by selling frozen meat from inventory. “The Jilin company says it loses 30-to-40 yuan on each hog it slaughters, but its three plants have been selling 50 metric tons of frozen meat from storage each month.”
  • Hogs are highly profitable. “Farms in the northeast that feel confident of low disease risk are expanding. These include mainly large farms confident in their strong biosecurity measures and newly built farms in regions that were not hit by ASF. Individual farmers who used to raise 500 to 1,000 hogs at a time have mostly stayed on the sidelines because sporadic outbreaks of ASF continue in some areas. About half of the carcasses produced by the northeast region's slaughterhouses are shipped south, where prices are higher.”

Hoeven and USDA Undersecretary Northey announce approval of disaster declaration for 47 of 53 North Dakota counties as a result of extreme rain and snow this fall. In an appearance Friday on the DC Signal to Noise podcast (link), Sen. John Hoeven (R-N.D.) and USDA Undersecretary Bill Northey discussed the approval. This sets up the WHIP+ disaster assistance for eligible North Dakota farmers in those disaster counties. The Wildfire and Hurricane Indemnity Program Plus, or WHIP+ was approved by Congress earlier this year and provides disaster payments to producers to offset losses from hurricanes, wildfires, and other qualifying natural disaster sin 2018 and 2019. WHIP+ covers losses of crops, trees, bushes, and vines that occurred as a result of those disaster events. Payments from the program will take into account a producer's crop insurance coverage and size of the loss. No one will receive more than 100% the value of their crop. The disaster designation also allows for implementation of FSA’s Emergency Farm Loan Program and the SBA’s Economic Injury Loan Program for farm-related business.

Farmers in counties that are not under the disaster declaration can still apply on a case-by-case basis. Hoeven pointed to the significant amount of corn in North Dakota that is not yet harvested, and a similar situation for the state's soybeans. Sugar beets and potatoes are now “a real problem.”

North Dakota Gov. Doug Burgum and Agriculture Commissioner Doug Goehring sent a letter recently to USDA Secretary Sonny Perdue requesting the declaration. This was in response to farmers dealing with excessive moisture this harvest season, on top of near-continuous international market disputes.

Hoeven hosted Northey, USDA's undersecretary for farm production and conservation, to hear from producers at a roundtable and see the impacts of flooding and the early blizzard during a field tour in the Red River Valley. Northey said programs enabled by the disaster declaration won’t make producers whole given the difficult situation, but the effort is to “do as much as we can to get you through to next year.”

Hoeven did rule out getting additional disaster funding for WHIP+, but it looks like an issue for next year. “I think we do have to look at that, but we have to kind of see what the assessment is and that will drive the timing... but I do think there's significantly more damage out there than people anticipated. And that's the case we'd make, just as we do for other disaster or emergency funding, whether it's wildfires or hurricanes or whatever it may be.” At the roundtable hosted by Hoeven, Mark Watne, president of North Dakota Farmers Union, expressed concern about whether there will be sufficient funding for disaster programs. “I think you’re going to find you’re way short at $3 billion,” he said.

Undersecretary Northey confirmed other states have or soon will be under disaster-declaration review, adding he was in Minnesota last week. Last Thursday, Minnesota Governor Tim Walz made a similar disaster request for twelve counties in the northwest part of that state.

Northey was asked about the logistical and other propane issues in some states. “We are reaching out and heard from a lot of folks,” Northey said, noting he heard concerns about the matter when he was n Minnesota and late last week in North Dakota as well. “If there is something that USDA can do, we'd be very interested in being able to help,” Northey said, noting that some governors have already helped via hours of service announcements. North Dakota Gov. Burgum was also in attendance at the Hoeven-Northey listening event. Burgum said that on the state level, he has expanded the hours for hauling hay, livestock and propane. Challenges will continue across the state, with billions of dollars in crops still in the field and a dismal outlook for spring flooding. “The Army Corps of Engineers literally has no, they have no hydrology models for reservoirs like a Jamestown that are going up right now,” he said. “Usually they’ve been drawn down before freeze up to lower levels.”

Alabama, Florida and Georgia will receive a combined $800 million in block grants from USDA to help their agriculture industries recover from 2018 hurricanes, USDA announced Friday (link for details). Florida will get $380.7 million, Georgia $347 million and Alabama $24.9 million.

Florida officials said the funds will compensate timber producers for lost value of their crop damaged by Hurricane Michael, helping them clear downed trees and replant. Block grant funding will also help producers repair and replace irrigation infrastructure damage from Hurricane Michael. Timber is the leading industry in the Florida Panhandle, and suffered a $1.3 billion economic blow from Hurricane Michael. Officials say an estimated 550 million trees, weighing 72 million tons, were damaged or destroyed by the massive Category 5 hurricane.

In Georgia, the funding is expected to reach pecan growers, timberland owners and poultry and cattle farmers who suffered heavy damage but had some operations that weren't covered by an earlier federal disaster aid program.

USDA is aiming to wrap everything up and disburse the funds by Thanksgiving. But that is not likely the timeframe for when the money will reach farmers.

Other items of note:

  • Farmers turn to high-interest loans as banks pull back. Some of the alternative lender loans come with higher to much higher interest rates than farmers' normal bankers. Link to Wall Street Journal article. Meanwhile, the Washington Post has an article on how a farm family struggles after rising debt pushed a husband to suicide (link).

  • Senators note concerns re: steel and aluminum tariffs exemptions. Sens. Patrick Toomey (R-Pa.), Doug Jones (D-Ala.), and Thomas Carper (D-Del.) wrote to Commerce Secretary Wilbur Ross expressing "serious concern" over a lack of transparency in the process for granting exemptions to steel and aluminum tariffs identified by the agency's inspector general.

  • Catastrophic” bushfires burn in Australia. The Australian states of New South Wales and Queensland have declared a state of emergency as more than 120 bushfires threaten communities there. In New South Wales, a “catastrophic” warning has been put in place for the first time, including for the Sydney metropolitan area. Thousands of people have been evacuated, and conditions are expected to worsen over the next few days. The fires come a year after Australia’s hottest summer on record.

  • "A new kind of suburbanization is sweeping through politics, from Richmond to Atlanta, Houston, Denver and elsewhere, and Democrats are starting to breach Republicans’ firewalls in elections," the New York Times reports (link). “Around the advent of the modern immigration system, in 1965, foreign-born people made up only about five percent of the American population. Now they are nearly 14%, almost as high as the last peak in the early 20th century... The concentrations used to be in larger gateway cities, but immigrants have spread out considerably since then."

  • The incoming president of the European Council, Charles Michel, tells the Financial Times (link/pay wall) that Europe has to try not to be “collateral damage” of the U.S./China tensions.

Markets. The Dow on Friday edged up 6.44 points, 0.02%, at 27,681.24. The Nasdaq gained 40.80 points, 0.48%, at 8,475.31. The S&P 500 rose 7.90 points, 0.26%, at 3,093.09.

For the year, the Dow is up 18.7%, the S&P 500 23.4% and the Nasdaq 27.7%.

U.S. bond markets are closed in observance of Veterans Day. On Friday, Treasury yields traded mostly below three-month highs. The dollar index rose, with the euro down.

Fed sees climate change shaping economy, policy. The U.S. central bank signaled it may be getting ready to join some others in incorporating climate change risk into its assessments of financial stability and may even take it into account when setting monetary policy.

Boeing has robbed the economy of about 0.3% to 0.5% of economic growth since the two accidents and to date it is still uncertain when the Max can return to service,” says Dr. Vince Malanga, president of LaSalle Economics. “If Boeing is forced to redesign and cut production schedules it will reverberate through the economy and cost more than 0.5% of economic growth.”

Britain avoids a recession. The U.K. economy welcomed a return to growth in the third quarter as GDP expanded 0.3% following a 0.2% contraction in Q2. On an annual basis, U.K. GDP only rose by 1%, marking the lowest rate since the first quarter of 2010, following the financial crisis. "Manufacturing, the largest sub-sector of production, was also flat in the three months to September 2019," according to the Office for National Statistics.

Saudi Aramco released its IPO prospectus. The world’s largest oil company announced that its IPO will kick off on Nov. 17, and that it will offer up to 0.5% of its shares to individual investors. The oil giant revealed a steep drop in profit related to attacks on its facilities in September that briefly halved its oil output.


 

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