Uncertainty Prevails Re: U.S./China Trade Talks Held Saturday and Ahead

Posted on 12/04/2018 7:04 AM

Farm bill | Market Facilitation Program payments | No votes in Congress this week

More uncertainty than known facts surround U.S./China trade talks held Saturday with still more unknowns in talks ahead. The murkiness is leading some markets to yank back some of their Monday gains. President Trump continues to call the trade true with China a success, but little is known about a deal or potential deal.
     None of the commitments that U.S. officials said had been given by China were agreed to in writing, while there was initial confusion on when the three-month negotiating window would start. Meanwhile, a staunch China skeptic, Bob Lighthizer, will lead the American negotiating team.
     Kudlow gets another timeline wrong. The White House issued a correction stating that a truce between the U.S. and China actually began on December 1. The statement came hours after Trump's chief economic advisor Larry Kudlow said it would begin on January 1.
     The new farm bill is done but will be officially released next week and the votes will come either late next week or the following.
     House Majority Whip's office announced that votes are no longer expected in the House this week. The next votes in the House are planned for Dec. 10.
     House lawmakers filed a two-week stopgap bill that would ensure the government remains fully funded as the nation mourns former President Bush this week. The measure would push a showdown over funding for President Trump’s border wall to just before Christmas — if the stop-gap measure passes, it will give lawmakers until Dec. 21 to reach a spending deal..
     The age of robots. The automation revolution continues as robot janitors come to Walmart. Hundreds of the Zamboni-style floor scrubbers, made by San Diego-based startup Brain Corp., will begin cleaning in stores... even when customers are around... by the end of January. Walmart has already been experimenting with automation, such as the scanning of shelves for out-of-stock items and hauling products from storage for online orders.


U.S./China trade update:

  • President Trump named U.S. Trade Rep (USTR) Bob Lighthizer, a China hard-liner, to lead negotiations with Beijing. The move signals Trump will pursue a tough stance in upcoming talks. Lighthizer helped Trump ditch potential deals with Beijing over the past two years and has been pressing for more tariffs on China to build leverage. Chinese leadership wanted to deal with Treasury Secretary Steven Mnuchin, who had led initial rounds of talks, but failed to resolve prior disputes.
  • "We expect to make a lot of progress" on trade negotiations within the first 90 days, Treasury Sec. Steven Mnuchin said on Fox Business, while acknowledging U.S. and China won’t accomplish everything in that timeframe. Mnuchin said agriculture will be first up in trade talks with China. "Our expectation is that there will be specific deliverables" and timelines from China, and "without reciprocal tariffs.” Mnuchin confirmed that U.S. Trade Representative Bob Lighthizer will serve as the lead negotiator though President Trump will remain involved in negotiations and will receive weekly updates from his team. He said Trump has been focused on the "structural" issues such as forced transfers and IP protections. Agriculture, LNG and the auto industry have been given commitments as part of the deal, Mnuchin said, adding there are 142 structural changes being discussed. “It will be the structural changes that lead to U.S. companies being able to compete fairly.”
  • USDA Secretary Sonny Perdue on Monday said China could return to the U.S. market for soybeans around Jan. 1, but there are still questions about tariffs that China put in place on soybeans and other products that still remain in place. "We have to have more details about what did happen in Argentina," Perdue said in Chicago. "China has committed to immediately purchasing ag products. I frankly had hoped that the markets would be up higher today [Monday] than they had been. We will see. I think everyone is waiting to see exactly what was said and flesh out the details of that very important, promising announcement." China has shifted its soybean purchases to South America, Brazil in particular, a situation which Perdue said USDA has been assessing. "We do not think there's enough soybean supply in South America to tide them over to the new crop (in) South America," he commented. However, some have indicated soybean harvest in Brazil could start yet this month in some areas.
  • Beyond soybeans, Perdue said that U.S. rice, poultry, beef, grain sorghum and wheat could also see purchases by China. However, the issue of China's tariffs put in place in response to U.S. tariffs is still unresolved. "I have been talking with our negotiators and those are the issues that are going to be fleshed out here in the next few days," Perdue said. He also pointed out that China has started buying U.S. pork again, reflecting sales of 3,348 tonnes of U.S. pork to China for 2018 and 9,384 tonnes of pork to China in 2019 for the week ended Nov. 22 that were announced in the Weekly Export Sales report. Perdue said the pork sales was mostly because of African swine fever hog disease in China.
  • Increasing uncertainty on U.S./China talks ahead was fueled by Larry Kudlow, director of the White House’s National Economic Council. Kudlow said China had committed to roll back tariffs on automobiles and agricultural goods. He claimed the two sides were “pretty close to some agreements “ on two of their most intractable issues — protection of intellectual property and halting alleged Chinese pressure on U.S. companies to transfer technology to their Chinese partners. But others said China made no firm commitments to act before negotiations were complete. Kudlow also said the 90-day reprieve from U.S. tariff increases on China will begin on Jan. 1, when the tariff rate on $250 billion worth of Chinese goods was set to jump from 10% to 25%, and not immediately. The White House later issued a correction, updating Kudlow's remarks to reflect the Dec. 1 start point.
  • Kudlow said he expects China would "quickly" roll back the retaliatory tariffs it has placed on U.S. agricultural products as it begins ramping up its purchases of those goods. “Much of the credibility of this discussion will hinge on rapid movement and implementation of the Chinese commitments, and they know that,” Kudlow said. “This is something we explicitly talked about.”
  • Kudlow is optimistic talks ahead would be different and he believed China's Xi and his team were fully committed. The latest round of potential outcomes was far more detailed and wide-ranging than others, Kudlow said, and also included rare hands-on participation from Xi. He added that during the dinner in Argentina, Xi "engaged in a level of detail you could even say he was selling this... He wasn’t winging it... he was well prepared,” Kudlow said. “I felt that bolstered the Chinese commitment.”
  • White House trade adviser Peter Navarro, in an interview on NPR, stressed that the Trump administration is focused on seeing structural changes and that it will not hesitate to impose higher tariffs if China does not meet the deadline. "At the end of the day the understanding coming out of that room was very clear: 90 days," Navarro said. "At the end of the 90 days we have actual structural changes that will yield actual, immediate, verifiable results."
  • Treasury Secretary Steven Mnuchin, in an interview Monday on CNBC, said a more permanent deal could be achieved, saying the weekend's meetings yielded sufficient groundwork for negotiators to build upon. He also emphasized that Trump and Xi had made specific agreements. Mnuchin indicated there could be multiple phases of talks if “concrete” progress is made. But he said the administration is confident it would avoid a cycle of extending talks based off soft commitments from Beijing that never pan out. "I think one of the things that's very important is there was very specific understanding between President Trump and President Xi," he said. "Now it's the team's job to turn this into a real agreement that will have deliverables, dates and real commitments."
  • The Chinese response has been very cautious, with bureaucrats from various government offices in Beijing awaiting the return of President Xi Jinping to the country before commenting or taking any action. In Beijing, a foreign ministry spokesman declined to provide specifics and referred queries to the commerce ministry, which is not scheduled to hold a press availability until later this week.

Farm bill update:

  • Official release of the farm bill will be next week, due to memorials and the funeral of former President George H.W. Bush. Congressional leaders have still not determined when the House and Senate will vote on the measure.
  • The farm bill is done, including most if not all estimates from the Congressional Budget Office, despite reports to the contrary.
  • Most farm program crops will get a boost in loan rates, but not upland cotton, peanuts and minor oilseeds. Soybean growers will likely see an almost 25% increase in loan rates beginning with the 2019 crop. A slight increase is also likely for sugar.
  • Food stamps. USDA Sec. Perdue said he plans to proceed with a proposed rule that would make it harder for states to get waivers from the current food stamp work requirements. Perdue said the rule will appeal to conservative lawmakers who are frustrated that House Republicans came up short in their push for stronger work requirements for millions of Supplemental Nutrition Assistance Program (SNAP) recipients. USDA will issue the proposed rule after the farm bill is passed, the secretary said.
  • Food stamps. The coming farm bill will instruct USDA to gather information on all facets of food stamps. This would likely aid in helping reform the program ahead.

House GOP unveils two-week funding stopgap. The House Appropriations Committee released a two-week stopgap bill that punts the next government funding deadline to Dec. 21. White House and congressional leaders have agreed to the stopgap that would extend until the Friday before Christmas. The bill would also extend funding for the National Flood Insurance Program. It would also continue an extension for the Violence Against Women Act, which was extended through Dec. 7 in the current stopgap spending law.

President Trump said he's likely to sign the short-term CR into law, which would prevent a partial shutdown of operations at the nine Cabinet departments and dozens of smaller agencies still without full-year appropriations. “If they [lawmakers] come, which they have, to talk about an extension because of President Bush's passing, I would absolutely consider it and probably give it,” Trump told reporters aboard Air Force One on Saturday night. George Bush, the nation's 41st president, died Friday at the age of 94.

Five fiscal 2019 spending bills have already been enacted. Trump signed one package covering the Energy-Water, Military Construction-VA and Legislation Branch measures and another containing the Defense and Labor-HHS-Education measures, as well as the current stopgap bill, before the start of the new fiscal year on Oct. 1. Those bills comprise three-quarters of this year's discretionary spending allotted under a February law raising budget caps.

Other items of note:

  • CIA Director Gina Haspel will brief Senate leaders this morning on what the agency knows about the death of Saudi journalist Jamal Khashoggi. President Trump has previously said the findings weren't conclusive and there was no direct evidence of Mohammed bin Salman's involvement, but many lawmakers are unhappy about his response. Their anger has resulted in an upcoming vote on pulling U.S. support for Saudi forces in Yemen.

  • USDA negotiating with OMB on second and final installment of farmer aid. USDA is in discussions with the Office of Management and Budget (OMB) on a second round of farmer aid payments under the Market Facilitation Program (MFP), with USDA Secretary Sonny Perdue indicating the announcement on the payments could come at the end of this week or early next week. USDA previously said an announcement on the second round of payments would come on or around Dec. 3. "From my perspective, nothing has changed from the tariff damage that farmers experience," Perdue said. USDA had tentatively planned to release the details on Monday, but the department wanted to asses the potential impact of the U.S.-China truce, though the halt in trade hostilities did not immediately include a lifting of Beijing's retaliatory duties on U.S. agriculture products.

  • ERS/NIFA relocation. USDA Sec. Perdue said that under an “aggressive timeline,” USDA wants to announce the research agencies’ new location by the end of the first quarter next year. But he quickly added, “We want to do it right rather than fast.”

  • JBS Tolleson boosts Salmonella-linked beef recall. JBS Tolleson is now recalling approximately 12.09 million pounds of ground beef that could be contaminated with Salmonella Newport, according to USDA's Food Safety and Inspection Service (FSIS). The agency said the recall, initially announced Oct. 4, has been expanded to include another 5.156 million pounds of raw beef products that were produced and packed from July 26 to Sept. 7, 2018. "FSIS is concerned that some product may now be frozen and in consumers' freezers," the agency stated in announcing the expansion of the recall.

  • GOP Sen. Kennedy opts against 2019 bid to oust Louisiana Gov. Edwards. The Associated Press reports that in “a surprise,” Sen. John Kennedy (R) on Monday announced that he will not seek to take on Louisiana Gov. John Bel Edwards (D) next year, “leaving Republicans scrambling without a well-known contender.” In a statement, Kennedy said, “I love being in the United States Senate. I will not be a candidate for governor in 2019.” Currently, businessman Eddie Rispone (R) is the only announced GOP candidate in the governor’s race, though Rep. Ralph Abraham (R) has “said he’s leaning toward running and will have a decision ‘very soon.’” The New Orleans Times-Picayune reports that Kennedy’s “decision has left a hole — some might say a crater — in the Republican field of gubernatorial candidates.” In the wake of the announcement, state Treasurer John Schroder (R) “is contemplating his own run for governor against Edwards, in part because of a ‘concern that we don’t have anybody right now ready to roll’ in the race.”

Markets. The Dow on Monday gained 287.97 points, 1.13%, at 25,826.43. The Nasdaq rose 110.97 points, 1.51%, at 7,441.51. The S&P 500 moved up 30.20 points, 1.09%, at 2,790.37.

The curve between U.S. three-year and five-year and between two-year and five-year paper inverted on Monday for the first time since the financial crisis, and analysts expect the two-year, 10-year yield curve —seen as a predictor of a U.S. recession — to follow suit.

"As a matter of our policy, we want to end all those [electric vehicle] subsidies," White House economic adviser Larry Kudlow told reporters. "And by the way, other subsidies imposed during the Obama administration... renewables, etc. We are a free market." The subsidies are expected to end in 2020 or 2021, he added, when asked about the actions planned following GM's U.S. plant closings and layoffs. It is unclear what, exactly, the administration can do without Congress.

Energy Secretary Rick Perry will address the energy industry this morning at a meeting of the National Petroleum Council. Perry is expected to talk about "record-breaking" U.S. oil and gas production; energy infrastructure development and modernization; and carbon capture, utilization, and storage technologies, according to the Energy Department.

Britain can still cancel Brexit by revoking Article 50 without the consent of other EU member states, according to the ECJ's top legal advisor. While the decision is not binding, in around 75% of cases ECJ judges will follow the advice of their Advocate General's opinion. The news is a win for Remainers hoping to reverse Brexit when MPs vote on Theresa May’s controversial withdrawal agreement on Dec. 11. Sterling rose against the U.S. dollar after the opinion was released.

The French government is reportedly ready to suspend a controversial rise in fuel tax that has triggered protests by the gilets jaunes — or yellow vests — throughout the country and scenes of violence and civil unrest. Initial demonstrations have now morphed into wider anger at a perceived drop in living standards, price rises and a rallying cry for those who say Emmanuel Macron's policies favor the elite and wealthy.


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