USMCA 2020 | Biodiesel | Ethanol, Grassley and Trump | Trump, EU and Section 301
In today's updates:
* Xi: China wants a U.S. trade deal, but will fight back if necessary
Markets: The global economy is experiencing a shift driven mainly by emerging markets, Christine Lagarde said in her first speech as the European Central Bank president. “Ongoing trade tensions and geopolitical uncertainties are contributing to a slowdown in world trade growth, which has more than halved since last year. This has in turn depressed global growth to its lowest level since the great financial crisis,” she said in a debut speech at the European Banking Conference in Frankfurt, adding that there had been changes of a more structural nature. “We are starting to see a global shift — driven mainly by emerging markets — from external demand to domestic demand, from investment to consumption and from manufacturing to services.” Monetary policy should not be "the only game in town," she added, stating the central bank will undertake a "strategic review" in the near future. Uncertainties impacting euro zone growth have also "proven to be more persistent than expected," and increasing trade seen during decades of globalization is "no longer an absolute certainty."
“A Wet Year Causes Farm Woes Far Beyond the Floodplains” is a New York Times article (link) that chronicles the damage from the destructive spring flooding in the Midwest that has been followed in parts of the country by a miserable autumn that is making a bad farming year worse, with effects that could be felt into next spring.
Election timelines: 73 days until the 2020 Iowa caucuses. 347 days until Election Day 2020.
— U.S./China trade policy update:
- Xi: China wants a U.S. trade deal, but will fight back if necessary. Chinese leader Xi Jinping, in his first public comments on prospects for a Phase 1 agreement, told a Bloomberg New Economy Forum in Beijing that his country is working for an agreement on the basis of “mutual respect and equality” and that “we have been working actively not to have a trade war... We did not initiate this trade war and this is not something we want,” he said, according to a pool report. Reinforcing the upbeat tone adopted by China in recent days, Xi told a visiting U.S. business delegation that China holds a 'positive attitude' toward the trade talks.
- In a one-on-one meeting with former U.S. secretary of state Henry Kissinger, Xi said the relationship between China and the U.S. was at a crossroads and faced some difficulties and challenges, according to state news agency Xinhua. “China and the United States should step up communication on strategic concerns to avoid misjudgment and enhance mutual understanding,” Xi said.
- Vice Premier Liu He, the country’s top trade negotiator, wrote a lengthy op-ed in the Communist Party’s flagship People’s Daily highlighting the key role for the market and non-state players. Some observers say this is a possible attempt to address one of America’s long-standing criticisms of the country’s economic model.
- Hong Kong impact? The South China Morning Post quoted Ian Bremmer of the Eurasia Group political consulting firm as saying the Hong Kong issue will not impact the trade deal provided things to not escalate. “I was with Liu He two nights ago, it was very clear to me in his level of, not confidence but certainly hopefulness, and cautious optimism that we will move to a phase one deal and that Hong Kong was not going to play into that,” Bremmer stated. "President Trump has made it clear that he is not going to talk about Hong Kong, and not allow it to interfere as long as they are discussing trade."
- Election-year focus for Trump. Charlene Barshefsky, a former U.S. trade representative, told the forum that ultimately only President Trump could sign off on a deal, adding: “What I can safely say is that his eye is on the 2020 election and many of his decisions should be looked at in that light.” Barshefsky said the Trump administration is divided on what the focus of their demands should be. “Trump is interested in agricultural purchases. Period. Full stop. [US Trade Representative] Bob Lighthizer is interested in structural change in China, which is badly needed,” she said. “From Lighthizer’s point of view, structural changes are all important. From Trump’s point of view, agricultural purchases, with his eyes on farmers in the Midwest which are swing states for his re-election, is critical.”
- Walmart announced plans for 500 new stores in China, more than doubling its presence there. The expansion comes despite China’s economic slowdown and its ongoing trade war with the United States. In 2023, China is projected to be the world’s largest market for groceries — a key focus of Walmart’s expansion.
- Beef in Brazil is getting more expensive as Chinese demand for the product soars, Reuters reports (link).
- Bottom line: Rather than conjecture stories that Phase 1 talks may extend into 2020, we now have official comments from China's leader about the true status of a trade agreement. Attention now turns to President Trump and whether he signs the Hong Kong bill and then the likely response from Beijing.
— How Trump's trade war is hammering global growth. "Escalating conflict over tariffs ... has hit trade, is undermining business investment, and is putting jobs at risk," the OECD said in a report this week. As previously reported, OECD released a warning to the global economy — GDP growth is going to drop, and it's up to governments to stop fighting to fix it. OECD said that world GDP growth this year is expected to fall to 2.9%, "its lowest annual rate since the financial crisis," and is expected to hover at that level in 2020 and 2021. The OECD highlighted the U.S./China trade war as the reason for this decline.
— Extension for lapsed biodiesel tax incentive still possible as part of December package. A tax extenders package that would renew the expired $1-per-gallon tax subsidy for biodiesel is still possible, congressional leaders said. Rep. Kevin Brady (R-Texas) said the House-Senate negotiations have been moving “very slowly” and that House Republicans want “a tightly focused package with reforms. It remains to be seen whether we can bridge those gaps.”
Outlook: Some congressional sources say the odds have increased somewhat for an eventual including of a biodiesel tax incentive extension in an omnibus budget deal. However, whether that comes this calendar year or next depends on whether lawmakers need still another stopgap spending measures to finalize budget issues, something that could take until early next year if another continuing resolution (CR) is needed.
— Grassley waiting on EPA’s next move to know if agency has committed to conventional ethanol target. Sen. Chuck Grassley (R-Iowa) again met with President Donald Trump on the issue of biofuel policy, but said he wants to see EPA’s final plan before he’s willing to say that the agency will live up the pledge on making sure that 15 billion gallons of conventional ethanol get used.
“I left the meeting satisfied that the president was saying the same thing — and [EPA Administrator Andrew] Wheeler heard him say it — said we got to produce 15 billion gallons,” Grassley said.
Grassley said he told Trump that EPA’s actions since a September meeting on the topic “leaves a lot of questions whether or not we are going to get the 15 billion gallons that we said we were going to get.”
— Trump signs short-term spending measure. President Trump signed a four-week spending bill yesterday, a stopgap spending measure for fiscal year 2020 through Dec. 20. The Senate cleared the measure in a 74-20 vote, after it passed the House on a 231-192 vote Tuesday.
The measure keeps the Export-Import Bank open until Dec. 20 as lawmakers attempt to negotiate a long-term re-authorization of the export finance agency. It also averts a funding cliff for transportation spending next year.
Before voting on the continuing resolution, the Senate voted 73-20 to table an amendment from Sen. Rand Paul (R-Ky.) that would have reduced spending by 1%.
Details. The one-month stopgap generally continues current funding levels, with certain exceptions. The Census Bureau would be funded at an annualized rate of $7.3 billion due to needs associated with the 2020 decennial headcount, for instance. The measure will also prevent the cancellation of $7.6 billion in highway spending that was set to take place on July 1, 2020 under the 2015 surface transportation law. Lawmakers also opted to codify a 3.1 percent pay raise for U.S. troops that would take place on Jan. 1, after Republicans in recent weeks have blasted Democrats for holding up the Defense appropriations bill.
— USMCA update:
- Justifying a punt to 2020: House Speaker Nancy Pelosi (D-Calif.) on Thursday signaled procedural steps alone may punt a House vote on the U.S.-Mexico-Canada Agreement (USMCA) until 2020. "It will take time to write and then to bring to the floor, but one giant step would be if we could come to terms," she said. And for more evidence of passing the issue to 2020 was this: A spokesman for Pelosi issued a readout of the Thursday meeting that once again put the onus on U.S. Trade Representative Bob Lighthizer to move forward. “We can reach an agreement on USMCA when the Trade Representative makes the agreement enforceable for American workers,” the spokesman said.
- Still a chance for 2019: House Ways and Means Chairman Richard Neal (D-Mass.) left open the possibility of a House vote after talks Thursday narrowed the labor enforcement differences between Democrats and the Trump administration. Neal said there could be a vote in December, but added he did not know how long negotiations could continue before it became too late for floor action. He said the discussion on Thursday were “spirited, but it was candid... We’re looking at the big picture here. We’re looking at what it will look like in the end and how we have to sell this. With all seriousness, we do think we’re down to three, two-and-half, issues,” Neal said.
- The Trumka impact: Neal also said he planned to speak with AFL-CIO President Richard Trumka, who is telling Democrats to stand firm in their push for provisions to enforce new labor rights to protect workers who organize independent unions to seek better pay and work conditions. Trumka shared that message Tuesday with House freshmen Democrats.
- Mexican leaders have said they may be concerned by any enforcement changes they view as infringement on their sovereignty.
- Perspective on the USMCA timeline: President Donald Trump and his counterparts from Mexico and Canada signed the agreement on Nov. 30, 2018, and Mexico ratified it in June. The House has only eight official session days left in the 2019 calendar year, although lawmakers are expected to stay on an extra week in December to resolve budget issues.
— Hoeven wants USDA to avoid premature boost in sugar imports. Sen. John Hoeven (R-N.D.) is urging USDA to support American sugar producers and avoid taking any premature actions, including increasing sugar imports. He said the report shows 2019-20 beginning stocks at 14.5% — “a level more than adequate to meet domestic needs.”
The senator cited the November World Agriculture Supply and Demand (WASDE), which he said shows sugar stocks are more than adequate to meet domestic needs. “Our sugar growers are facing extreme harvest challenges this season, with many Midwest growers having to leave their crop in the fields due to the late season rainfall and early snow,” said Hoeven. “USDA should avoid taking any premature actions, like prematurely increasing sugar imports, which will only compound the challenges facing sugar growers.”
Hoeven made the case in a letter to USDA Secretary Sonny Perdue.
If USDA determines additional sugar is needed after the December WASDE, product should be sourced from Mexico in accordance with the procedures outlined in the 2017 agreements, Hoeven wrote. USDA predicted Mexico would export 750,000 short tons onto the world market in 2019-20, “more than enough to fulfill any potential shortfall. We are concerned that allowing additional imports from other nations — while an adequate supply of Mexican sugar exists — is unnecessary and would result in unintended harm to our farmers.”
— Other items of note:
Congress is off again, this time for Thanksgiving. The Senate returns Dec. 2. The House meets early this afternoon for a pro forma session; next roll call votes are expected on Tuesday, Dec. 3.
House Majority Leader Steny Hoyer (D-Md.) released the chamber's calendar for 2020, which can be found here.
President Trump and his top trade officials want to keep leverage on the EU and they reportedly are looking at a Section 301 investigation (Trade Act of 1974), the same mechanism the president used to impose tariffs on China. While the auto industry is puzzled over Trump’s lack of a decision about imposing tariffs on foreign auto imports despite a passed Nov. 13 deadline, the possible Section 301 investigation would keep one of Trump's favorite tactics in play going into 2020 elections: the threat of sanctions. Some observers say Trump might still seek to impose the tariffs despite the missed deadline, but such an action would be vulnerable to a strong legal challenge for not complying with Section 232 of the Trade Expansion Act of 1962.
California's top court strikes down election law requiring Trump's tax returns. President Trump may appear on California’s primary ballot without having to disclose his tax returns, the state’s highest court decided. In a unanimous ruling, the California Supreme Court struck down a new state law requiring the disclosures if they had not filed income tax returns for the five most recent taxable years.
Regulators working on hemp banking guidance. Banking regulators will likely provide banks with guidance on how to service the hemp industry in the coming weeks or months, a top Federal Reserve official said. Richard Ashton, the Fed’s deputy general counsel for litigation, enforcement, and systemic matters, told a banking conference that “there might be some guidance issued relatively soon” to help financial institutions that want to serve the growing hemp industry. “The hottest of the hot topics at the Fed right now and the other regulators is hemp,” Ashton said at a Bank Policy Institute conference in New York. Meanwhile, banks are dropping farmers who are growing hemp, the New Food Economy reports (link).
Propane shortage looms as strike at Canada's biggest railroad continues. Shippers scrambled to shift freight onto trucks as a strike at Canadian National Railway, entered its fourth day and left many goods stranded.
Michigan became the fifth state with a law mandating egg-laying hens be housed in cage-free systems. The law will also ban non-cage-free eggs to be sold in the state starting in 2025. Link to Associated Press article.
— Markets. The Dow on Thursday edged down 54.80 points, 0.2%, to 27,766.29. The S&P 500 slipped 4.92 points, 0.2%, to 3,103.54, and the Nasdaq Composite slid 20.52 points, 0.2%, to 8,506.21. All three indexes remain within 1% of their records set earlier in the week.
As expected, China boosted its 2018 GDP. China raised its estimate for last year’s gross domestic product by 2.1%, putting the size of the world’s second-largest economy at 91.928 trillion yuan ($13.078 trillion). That's one of the smaller revisions in recent years: China’s GDP was raised by 16.8%, 4.4% and 3.4% following the previous three national economic censuses. China's official goal is to double GDP from 2010 to 2020. "Despite [the National Bureau of Statistics] stressing that the current round of revisions is the result of the census uncovering previously unrecorded activity, it’s hard to ignore the fact that it will also help them meet official growth targets," said Capital Economics economist Julian Evans-Pritchard.