Trump Secures Approval from Labor Leader for Changes to USMCA

Posted on 12/10/2019 6:55 AM

Ross & Perdue on China | Next MFP 2 payout | China’s consumer price index jumped 4.5%

 

In today's updates:

 

* Odds of USMCA passing the House this year escalate
* President Trump reportedly gets key labor leader approval for USMCA changes
* U.S. and Canadian officials to Mexico City today to finalize changes to trade pact
* House leader says USMCA vote by year’s end; Senate timeline uncertain
* Commerce Sec. Ross talks about China trade talks, trade accord with U.K.
* USDA Sec. Perdue comments on potential China buys of U.S. farm products
* China’s consumer price index jumped 4.5% in November
* Pork prices doubling helped feed the increase in China’s consumer prices
* Third installment of MFP 2 payments… most say not if, but when
* WTO feeling the pain for not reforming its dispute settlement process
*
General, continuous CRP signup update
* Judiciary panel to vote on articles of impeachment by end of this week
* Klobuchar approaches her now-or-never Iowa moment
* Tyson Foods signs deal for beef plant in Kazakhstan
* Investment market is warming up to cold storage
* FOMC
begins a two-day meeting today; announcement and presser Wed.
* Former Fed chairman Volcker dies at 92

 

Markets: The Federal Open Market Committee meets today and tomorrow in its final meeting in a year that saw three interest rate cuts. No rate action is expected.

 

 

— USMCA update:

  • “I think we’re doing very well on USMCA,” President Donald Trump said Monday. “I’m hearing a lot of strides have been made over the last 24 hours… “If they put it up for a vote, it’ll pass,” he said.
  • President Trump secured approval for USMCA from a key U.S. labor leader, according to Trump administration officials, clearing one of the final hurdles for the deal to get a vote in the House by next week. Richard Trumka, the president of the AFL-CIO, the largest labor federation in the U.S., will support a compromise deal on the trade pact worked out in lengthy sessions between U.S. Trade Representative Bob Lighthizer, House Speaker Nancy Pelosi (D-Calif.) and the Mexican government, the officials said.
  • Next steps: Lighthizer and presidential adviser Jared Kushner will travel to Mexico City today to finalize the addendum with the changes, Mexico Foreign Minister Marcelo Ebrard said on Twitter Monday night. Canadian Prime Minister Justin Trudeau also spoke with Trump Monday, according to Trudeau’s office. Canada’s Deputy Prime Minister Chrystia Freeland is also heading to the Mexican capital.
  • Pelosi won’t consider the deal final until Congress writes the bill to implement the trade agreement. She later said the negotiators have made “great progress.” Pelosi said she expected the final language of the deal to be set by Tuesday, which would bring Democrats to a "moment of truth" on whether to proceed to passage. “The urgency of replacing NAFTA is very important,” Pelosi said at a Wall Street Journal event on Monday night. She said she’s not worried about giving Trump a political win, and when it comes to support from her House Democrats, “you don’t have to have unanimity, you just have to have consensus.“
  • The latest USMCA efforts signal the measure could at least pass the U.S. House before the December holiday break, and possibly the Senate, but that vote could be bumped to early 2020. "I think we should be able to have a vote by the end of the year," said House Ways & Means Committee Chairman Richard Neal (D-Mass.). In the Senate, some Republicans openly wonder about the latest changes to the trade accord. “What I’m a little concerned about is that [Lighthizer]’s spent all of his time trying to appease Democrats and how far they’ve moved on some of the key provisions, and I’m going to want some assurance that he hasn’t given away the store,” John Cornyn, the Republican senator from Texas, said, according to Politico.
  • Mexico’s economy minister Graciela Márque told reporters that if ratification comes in the next few days “then we would be talking of having USMCA up and running in the first half of 2020,” she added.

— U.S./China trade policy update:

  • Ross on China talks. U.S. Commerce Sec. Wilbur Ross, asked if the threatened Dec. 15 tariffs on Chinese imports will take effect, told Fox Business Network that it is more important to get a good deal for the U.S. Ross said after the U.S. completes a deal with China and the USMCA, it would be easy to turn attention to U.K. trade. He said the Phase 1 deal with China will be largely about agriculture and trade.
  • U.S. is unlikely to impose extra tariffs on a new $156 billion list of Chinese goods including toys and smartphones come Sunday, USDA Secretary Sonny Perdue said. “We have a deadline coming up on the Dec. 15 for another tranche of tariffs, I do not believe those will be implemented and I think we may see some backing away,” Purdue said at a conference in Indianapolis, Indiana Monday. U.S. and Chinese negotiators have signaled that they may be drawing closer to agreeing on Phase 1 of a broader accord that would resolve the trade dispute, with the sides in almost “around-the-clock” talks, White House economic adviser Larry Kudlow said.
  • Tony Katz interview on WIBC with Sonny Perdue: "First of all, the numbers we are talking are tremendous. It doubles what they have ever sent to China before over a two-year period and that’s really good. But the fact is, what [Commerce Secretary] Wilbur Ross and others say, ‘a deal is a deal is a deal.’ And China has not always been faithful in keeping the deal. The enforcement of that… that’s where we’re really haggling right now. If you’re going to say you’re going to do this, let’s put it in writing and let’s do that. And that’s where the difficulty sometimes comes in with China. They want soft agreements in order to remove tariffs because their economy is hurting. They’d like to get out of this trap where President Trump has reset this whole issue. As you know Tony, we’ve been in a trade war with China for 20 years, we just didn’t recognize it. That’s the worst kind of war to be in.”
  • Congress is taking aim at China with a bill that would bar the use of federal funds to buy buses and railcars from the country.

— China new bank loans rose more than expected in November; consumer inflation high. China extended 1.39 trillion yuan ($197.47 billion) in new yuan loans in November, up from the October mark and above expectations for around 1.2 trillion yen. In October, the new loan total was just 661.3 billion yuan. But the tempered October number was likely influenced by the week-long National Day holiday that month. The situation likely reflects what has been a relatively cautious easing in monetary policy.

 

     Meanwhile, China’s consumer price index jumped 4.5% in November, accelerating from the 3.8% level in October. Pork prices more than doubling (up 110%) helped feed the increase in consumer prices. However, the producer price index fell 1.4% compared with year-ago, a slight improvement from the 1.6% decline in October as the trade war with the U.S. likely subdued prices at the manufacturing level.

 

— USDA to decide in January on third installment of MFP 2; others believe decision has already been made but just not announced. USDA won’t decide until January whether to issue the third tranche of payments under the 2019 Market Facilitation Program (MFP 2). But most believe even if the Trump administration were to reach a Phase 1 trade deal with, that wouldn’t necessarily stop USDA from releasing the money. “We recognize that even if we have a trade agreement and things really get moving, we know that the farm income situation has been affected and can’t be turned around overnight. So there still is a great need for those payments, particularly this year,” Deputy Agriculture Secretary Steve Censky told members of the Illinois Farm Bureau meeting in Chicago on Monday.

 

— WTO now feeling the pain for not reforming its dispute settlement process. For many years, trade policy experts who supported the World Trade Organization (WTO) said it simply took considerably too long to get a final resolution through the trade body. After the Trump administration took office, its rather aggressive views on the WTO’s dispute resolution framework clashed with the views of other members, including the European Union and China. On Wednesday the dispute court will no longer have enough judges to rule on big trade disputes between countries. By blocking all new appointments to the WTO's dispute-resolution court, President Trump has allowed it to decline from seven members to three. After two more terms expire today, the court will be left with just one remaining judge.

That's not enough for the court to issue a binding ruling. Efforts to modernize WTO rules for challenges such as China’s market-distorting state capitalism have repeatedly failed. For more on this, link to WSJ article.

 

— General, continuous CRP signup update. The general signup for the Conservation Reserve Program (CRP) – signup 54 – started Monday, Dec. 9. Contracts enrolled via the general signup that runs through Feb. 28, 2020, will have an Oct. 1, 2020, contract start date. Some lawmakers had been pushing USDA to allow entry into the program prior to Oct. 1, 2020, under the general signup, but it appears USDA will not go that route.

 

     There is a maximum rent of $240 per acre on land offered during the general signup.

 

     The continuous signup (signup 53) also opened on Monday.

 

     For those with contracts that expired Sept. 30, 2017, Sept. 30, 2018, or Sept. 2019, they can submit offers to re-enroll from Dec. 9 through Aug. 21, 2020. For those with contracts that mature Sept. 30, 2020, they can submit offers to re-enroll starting April 1 through August 21 only.

 

     The maximum per acre rate for all continuous non-CREP (Conservation Reserve Enhancement Program) signup offers is $300 per acre. Contracts under the continuous signup for land not currently in the CRP will be effective the first day of the month following approval by the FSA County Committee, but a producer could defer that up to six months. Those contracts approved on or after April 1 could have an effective date of after Oct. 1, 2020. For those that have contracts that expired in 2017, 2018 or 2019 and are eligible re-enroll, those will have an effective date of no later than Oct. 1, 2020. For those with contracts expiring Sept. 30, 2020, that want to re-enroll those acres, the effective date for the contract cannot be deferred and will start Oct.1, 2020.

 

— Other items of note:

  • Judiciary Committee is likely to vote on articles of impeachment by the end of this week, recommending their adoption by the full House. That would set up a vote before Christmas to impeach President Trump, and a Senate trial early next year over whether to remove him from office. Most observers expect the House to have the votes for impeachment, but not enough in the Senate, which needs a two-thirds majority and very few Republicans if any likely voting to impeach. Democrats are expected to to draft at least two articles of impeachment. A third article on obstruction of justice is also being considered.

  • Klobuchar approaches her now-or-never Iowa moment. With eight weeks to go before the Iowa caucuses, Minnesota Democratic Sen. Amy Klobuchar has to do well in the state to carry on, the Wall Street Journal reports (link).

  • Tyson Foods signs deal for beef plant in Kazakhstan; U.S. meat producer hopes to boost sales to China, Russia and the Middle East. An agreement signed on Monday to collaborate with the government of Kazakhstan is part of the country’s efforts to raise a global livestock industry. Tyson hopes to boost its international business, which accounts for 3% of its $42.4 billion in annual revenue. The proposed 2,000 head-per-day slaughterhouse envisaged by the agreement would add an overseas beef plant to Tyson’s more than 20,000 head-per-day U.S. business. The Financial Times first reported Tyson’s interest in investing in Kazakhstan in May. Noel White, Tyson chief executive, said neither swine fever nor retaliatory tariffs were factors in the planned investment in Kazakhstan, however. Instead, Kazakhstan has sufficient water and land to breed livestock and good rail and road access to markets across the continent, he said. “It’s well-situated geographically with China, Russia, the Middle East. And they also have a transportation and distribution network going into central Europe,” he said.

  • Investment market is warming up to cold storage. Investors bought $1.9 billion worth of refrigerated warehouses during the first three quarters this year, the Wall Street Journal reports (link), up from $1.77 billion for the entire year of 2018 and higher than any year in the past decade. “The property investors are following big customers and big trends. The accelerating flow of money into the market comes as booming growth in online grocery sales and rising consumer demand for fresher produce is fueling more action in the so-called cold chain, including new construction and consolidation among top-tier operators,” the article notes. The top two refrigerated-warehouse owners control a big share of the market, and both are in acquisition mode. The properties come with high risk and high demands for specialized operators, but returns for cold storage have outperformed those of dry warehouses by key measures for the sector.

— Markets. The Dow on Tuesday declined 105.46 points, 0.38%, at 27,909.60. The Nasdaq lost 34.70 points, 0.40%, at 8,621.83. The S&P 500 fell 9.95 points, 0.32%, at 3,135.90.

 

     The Federal Reserve’s Open Market Committee begins a two-day meeting today. A press conference is scheduled for tomorrow.

 

     Volcker dies at 92. Paul Volcker — who defeated runaway inflation as Federal Reserve chairman in the 1980s, establishing the importance of an independent central bank — died Monday at 92. In his last official position, as chairman of President Barack Obama’s Economic Recovery Advisory Board, he persuaded lawmakers to impose new restrictions on big banks — a controversial measure known as the Volcker Rule. Volcker was not upbeat about the future when he talked to New York Times columnist  Andrew Ross Sorkin last year. “I’m not good,” he said as Sorkin walked into his Manhattan apartment, and he wasn’t referring only to his health. “We’re in a hell of a mess in every direction,” he said. “Respect for government, respect for the Supreme Court, respect for the president, it’s all gone.”


 

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