Trump/Xi Signal Progress in Trade Talks, With Meetings Slated for Beijing, U.S.

Posted on 12/30/2018 7:21 PM

Trump issues executive order canceling federal workers’ pay increase for 2019

Signs of progress in ongoing U.S./China trade talks, if a Saturday tweet by President Trump is on the mark, even though some observers said the president may be overstating how close the two sides are to an agreement. Reports now signal another meeting will take place in Washington after the two sides meet in Beijing the week of Jan. 7.
     Trump stuck to his demands for border wall funding as the government shutdown entered its first full week, and he threatened to close down the southern border if the “obstructionist Democrats” didn’t budge.
     The U.S. ag sector will start to ramp up its opposition to the partial gov't shutdown as Trump tariff payments, government loans to farmers and other programs for the ag sector will increasingly become impacted by the USDA shutdown.


U.S./China trade policy update:

  • On Saturday, President Trump tweeted that he and Chinese President Xi Jinping had recently talked by phone and made “big progress” in talks, due to conclude on March 1. “Deal is moving along very well,” Trump tweeted. “If made, it will be very comprehensive, covering all subjects, areas and points of dispute.” Link for details. Chinese state media reported that Trump initiated the call.
  • Trump may be overstating how close the two sides are to an agreement, the Wall Street Journal reported, nothing the president has looked to calm markets because of concern that the trade fight between the U.S. and China could spin out of control.
  • Further talks slated for U.S. after early January Beijing-based confab.A team of U.S. trade officials, including Deputy Trade Representative Jeffrey Gerrish and Treasury Undersecretary David Malpass is expected in Beijing the week of Jan. 7 for several days of talks. If those negotiations make progress, Chinese trade officials, led by Vice Premier Liu He, will follow up with talks in Washington the following week, or soon after that with U.S. Trade Representative Robert Lighthizer and U.S. Treasury Secretary Steven Mnuchin.
  • Key to binding agreement is for Chinese officials to detail the kinds of changes they would make — and to assure that Beijing doesn’t use other means to restrict foreign firms. U.S. officials are also focusing on how such a deal would be enforced, with one option being keeping current tariffs on China, removing them only after Beijing has carried out its pledges. Bottom line: Beijing must specify the types of changes it will adopt, the schedule for implementing them and ways to enforce the pledges.
  • China buying spree ahead? Mnuchin has said that China is committing to buy an additional $1.2 trillion in U.S. goods and services, though he did not specify the time frame. Last year, the U.S. shipped $188 billion of goods and services to Beijing and ran a $336 billion deficit in total trade. U.S. negotiators want China to ease restrictions on agricultural imports, which could lead to U.S. exports of corn and other commodities. The two sides are discussing opening China’s rice market to U.S. imports.

China's pork imports through November 2018 were down from a year earlier, reflecting mainly lower offal imports from the United States. Imports of muscle cuts were down less than 1%, year-on-year, but imports of offal were down 21%. China's African swine fever epidemic has not affected its pork trade yet, according to Dim Sums: Rural China Economics and Policy, adding “the industry is reportedly shedding production capacity due to disruptions of internal hog marketing and gloomy prospects for controlling the virus.”

China's pork imports were likely impacted both by domestic market conditions (a plunge in domestic prices earlier in the year suppressed demand for imports) as well as the trade war, the service noted. The U.S. supplies predominantly offal (organs, feet, snouts, etc), and the decline in offal shipments from the U.S. accounts for most of the decline in offal imports. Imports of muscle cuts from other sources did not offset the 68,495 metric-ton decline in imports of U.S. muscle cuts.

China pork importsIn November 2018, the share of China's pork imported from the U.S. shrank to 3.6% as China imported from a number of other pork suppliers in Europe and the Americas. From April to November 2018 (when China's tariffs on U.S. pork were in place) China's largest pork suppliers were Spain (16% share), Germany (15%), and Canada (13%). The share of pork imported from the U.S. during those months (10%) was comparable to shares from Denmark (10%), the Netherlands (9%), and Brazil (8%). Other significant suppliers included France (6%), Ireland and Chile (3% each).

China pork imports by country

Outlook: China's overall domestic pork supplies “seem to be adequate at present, but supplies are expected to be tighter in 2019,” Dim Sums noted. notes that big companies and small farms both expanded production aggressively during the price-peak in 2016, “but this year tumbling prices, disruption of cash flow and biosecurity requirements are pushing small-scale producers out of production, while remaining producers are cautious about adding capacity.” Restrictions on inter-provincial shipments have hurt big companies specialized in breeding and propagation, but the Ministry of Agriculture recently loosened restrictions on shipments of piglets.

Week-two of partial gov't shutdown will impact Trump tariff payments and loans. Direct payments for farmers who haven't certified production as part of the Market Facilitation Program (Trump tariff aid payments), as well as farm loans and disaster assistance programs, will be put on hold beginning this week, and won't start up again until the government reopens.

Food stamp payments for eligible recipients are guaranteed benefits through January. Other feeding programs, including WIC, which provides food aid and nutrition counseling for pregnant women, new mothers and children, and food distribution programs on Indian reservations, will continue on a local level, but additional federal funding won't be provided. School lunch programs will continue through February.

Trump issues executive order canceling federal workers’ pay increase for 2019. President Donald Trump issued an executive order Friday freezing federal workers' pay for 2019, following through on a proposal he announced earlier in the year. The move nixes a 2.1% across-the-board pay raise that was set to take effect in January. Trump told lawmakers he planned to scrap the 2019 pay bump for federal workers in August, saying the federal budget couldn't support it.

The executive order also cancels a yearly adjustment of paychecks based on the region of the country where workers are posted, called the "locality pay increase," that was due to take effect in January.

The move does not affect a 2.6% pay increase for U.S. troops in 2019 that was passed as part of the big defense spending bill Trump signed in August.

Lawmakers could include a pay raise for 2019 in a spending bill to reopen the government. About 380,000 federal employees are on furlough and 420,000 are working without pay as the new year approaches.

Other items of note:

  • New EPA regulation uses different approach than Obama administration. The Trump administration on Friday proposed major changes to the way the federal government calculates the benefits of restricting mercury emissions from coal-burning power plants. The Environmental Protection Agency, using a different formula, declared that the federal rules imposed on mercury by the Obama administration are too costly to justify.

  • Judge who ruled Obamacare unconstitutional will let it stay in place pending appeal. U.S. District Judge Reed O’Connor in the Northern District of Texas, who said the law was not constitutional because Congress had zeroed out the fine on the uninsured, stayed the law in an order issued Sunday. The ruling is likely to face an appeal to the U.S. Court of Appeals for the 5th Circuit in New Orleans. It may make its way to the Supreme Court.

  • Kelly speaks to L.A. Times. In an exclusive interview, outgoing White House Chief of Staff John F. Kelly defended his 18-month tenure, saying it should be measured by what he stopped President Trump from doing as much as what he did. Kelly, who departs his position on Wednesday, described the post as a “bone-crushing hard job,” but said he made sure the president was fully briefed before he made what often appeared to be impulsive decisions. “It’s never been: The president just wants to make a decision based on no knowledge and ignorance,” Kelly said. “You may not like his decision, but at least he was fully informed on the impact.” Link to Los Angeles Times interview with Kelly.

Markets. The Dow on Friday slipped 76.42 points, 0.3%, to 23,062.40. The S&P 500 fell 3.09 points, 0.1%, to 2,485.74, and the Nasdaq climbed 5.03 points, 0.1%, to 6,584.52.

Last week saw the worst-ever Christmas Eve selloff, followed by Wednesday’s 1,086-point climb — the biggest one-day point gain on record — and an 871-point swing Thursday. But all three of the major indices closed the week higher. The S&P 500 climbed 2.86% and the Dow jumped 617.03, 2.75%, while the Nasdaq gained 3.97% to close out the week. It was the best weekly performance in a month for all three of the major indices.

The Dow has posted a 6.7% decline for 2018, while the S&P 500 is off 7%. The technology-heavy Nasdaq has slumped 4.6% this year but has suffered a steeper fall over the past three months. It is the only one of the major U.S. indexes in a bear market, which is typically defined as a 20% fall from a recent peak. The S&P 500 index reached 2,346.58 intraday on Dec. 26, off 19.93% from the Sept. 20 closing high of 2,930.75, and less than two points from 2,344.60, which would be down 20%.

Investors have pulled $75.5 billion from mutual funds and exchange-traded funds that track stocks this month, the biggest exodus from stock funds in a single month ever, according to Lipper data going back to 1992.

In China, the benchmark Shanghai Composite Index is down 24.6% this year. The economy is set to see its slowest rate of growth in 28 years, with the median forecast for expansion at just 6.6% in 2018, according to 15 economists polled by Wind, a Chinese data provider. Bloomberg LP plans to add Chinese bonds to a flagship global index over 20 months from April 2019. The bonds will eventually make up nearly 5.5% of the index. JPMorgan estimates this will bring about $6 billion a month into China’s bond market, which at $12 trillion is the world’s third largest.


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