Xi’s Top Trade Aide to Visit U.S. for Talks Jan. 30-31, Gov't Shutdown Permitting

Posted on 01/11/2019 6:18 AM

President Trump edging toward declaring national emergency over proposed border wall


The U.S. gov't shutdown, now in day 21 (tied for longest government closure, which stretched between 1995 and 1996), has no compromise in sight, and no additional negotiations are scheduled. President Trump appears to be edging toward declaring a national emergency over the proposed border wall. The Trump administration is considering diverting $13.9 billion allocated last year for areas damaged by hurricanes and wildfires to pay for a wall on the southwestern border. The New York Times reports that officials are debating whether they could make such a move without a declaration of a national emergency. Some observers caution any declaration of a national emergency in the current wall funding case would set a precedent for other president to use on other topics. Link to CRS report on prior gov't shutdowns.
     Majority Leader Mitch McConnell (R-Ky.) plans to adjourn the Senate today despite protests from Democrats that he take up the House-passed bills. An effort by a group of Senate Republicans to strike an immigration deal that might end the partial government shutdown has fallen apart.
     Farmers have generally stood by President Trump, but some say the loss of crucial loans, payments and other services during the shutdown is threatening their support. Link to New York Times article.
     President Trump on Thursday canceled a trip to the World Economic Forum summit in Davos, Switzerland. The president said the decision to scrub the Davos trip stemmed from “the Democrats’ intransigence” in the border-security debate and shutdown negotiations.
     The Senate cleared a back-pay bill for furloughed employees and Trump said he will sign it. The Senate voted unanimously Thursday evening to provide back pay to federal employees furloughed as a result of the ongoing partial government shutdown. Federal employees deemed excepted from the furloughs at affected agencies and who have been required to work during the shutdown are already guaranteed back pay when the agencies reopen. Furloughed workers, though, don’t get paid unless Congress acts to approve it. Federal employees at shuttered agencies will miss their first paychecks today. Bills to pay the Coast Guard during the shutdown have been introduced in both chambers.

 

Trump administration researching declaring national emergency to build wall, eyeing unused Army Corps money. The administration is searching for unused money in the Army Corps of Engineers budget. and President Trump has urged the Army Corps to determine how quickly contracts could be signed and whether construction could begin within 45 days, according to reports The administration is specifically eyeing a disaster spending bill passed by Congress last year that includes $13.9 billion in funding allocated for a variety of projects but not spent. Trump on Thursday again said he may declare a national emergency if Democrats don’t give him what he wants.

Compromise approach appears dead. Sen. Susan Collins (R-Maine) said a proposal from several GOP senators led by Sen. Lindsey Graham (R-S.C.) to end the shutdown and included an immigration proposal has “run into some difficulties... It’s very difficult when we’re dealing with people who do not want to budge at all in their positions and that’s the president and Speaker Pelosi (D-Calif.) and they are each very dug in on their positions and that’s made this very difficult to resolve,” Collins said. “I don’t see a way forward,” Senate Judiciary Chairman Graham, said. “I don’t know who to talk to and I don’t know what else to do.”

Vice President Mike Pence suggested that resolving the uncertainty around the fate of immigrants brought to the U.S. at a young age — the “dreamers” of the Deferred Action for Childhood Arrivals (DACA) program — likely wouldn’t be addressed in the current negotiations. Some centrist Republicans have hoped the DACA issue could be part of a bigger deal to break the impasse.

House clears mostly partisan fiscal year Agriculture spending bill, with only 10 Republican votes. The House on Thursday passed a fiscal year 2019 Agriculture spending bill by a vote of 243-183 with 10 Republicans voting with Democrats: Rodney Davis of Illinois, Brian Fitzpatrick of Pennsylvania, Jaime Herrera Beutler of Washington, Will Hurd of Texas, John Katko of New York, Adam Kinzinger of Illinois, Christopher H. Smith of New Jersey, Elise Stefanik of New York, Fred Upton of Michigan and Greg Walden of Oregon.

This is a sham. Everybody knows that it will not reopen the federal government,” appropriator Mario Diaz-Balart (R-Fla.) said. Democrats said they were trying to push the Senate to act to restore vital federal services and return thousands of federal employees to work, but Senate Majority Leader Mitch McConnell (R-Ky.) has said he will not put the bills on the floor for a vote. President Trump has threatened to veto the spending bills if Congress sends them to him without an agreement to provide more than $5 billion for a border wall.

The House on Thursday also passed, 244-180, a Senate-crafted $71.4 billion Transportation-HUD (THUD) spending bill, but like three other appropriations bills passed since Democrats assumed power, they did not draw many Republican votes — the THUD measure saw a dozen Republicans voting for it — the same group that supported the Agriculture bill, and Reps. Peter King of New York and Steve Stivers of Ohio.

The votes were part of a Democratic plan to increase pressure on Republicans to cave in and agree to open the government without any of the border wall funding Trump is demanding.

Democrats will call up the Interior Department funding bill today, which funds parks and the EPA. They will take up three additional spending bills next week in their effort to pressure the GOP to cave in on the fight over wall funding.

U.S./China update:

  • China's Vice Premier Liu He is planning to meet with his U.S. counterparts including U.S. Trade Representative Bob Lighthizer and Treasury Secretary Steven Mnuchin for negotiations on Jan. 30 and Jan. 31, the Wall Street Journal and Bloomberg reported, citing people briefed on the matter. These people cautioned that the plan could be delayed by the partial U.S. government shutdown.
  • Mnuchin comments. “The current intent is that the vice-premier Liu He will most likely come and visit us later in the month and I would expect the government shutdown would have no impact,” U.S. Treasury Secretary Steven Mnuchin told reporters on Capitol Hill. “We will continue with those meetings just as we sent a delegation to China.”
  • Chinese officials listened “politely” to U.S. grievances, they said, but responded by saying that the Americans had some issues wrong and misunderstood others, but that some other issues could be addressed, the South China Morning Post reported. “It was a cordial stand-off,” said one person familiar with the discussions. China has said it will not give ground on issues that it perceives as core.
  • Asked about China’s stance on issues such as forced technology transfers, intellectual property rights, non-tariff barriers and cyberattacks, and whether China was confident it could reach agreement with the United States, Commerce ministry spokesman Gao Feng said these issues were “an important part” of the Beijing talks. “There has been progress in these areas,” he said.
  • On Monday, traders said Chinese importers also made their third large soybean purchase from the U.S. in the last month. Chinese state-owned firms bought at least three cargoes of US soybeans on Monday morning, or about 180,000 tonnes, traders said. One said the total was closer to 15 cargoes, or about 900,000 tonnes.
  • The U.S. suspended planned tariff increases on $200 billion of Chinese goods until March 1. If a full trade deal isn’t concluded by then, the Trump administration has said it would increase those tariffs to 25% from the current 10%, a move that Chinese officials say could severely hurt China’s already-weakening growth.

Other items of note:

  • "A U.S. military official says U.S. troops have begun the process of withdrawing from Syria, declines to discuss details,” according to the Associated Press.

  • Dems continue to slow-walk Trump nominees. The Partnership for Public Service reports that 543 of President Trump’s 934 nominations had been confirmed by Dec. 19, 2018. At the same point in Barack Obama’s presidency, 809 of his 1,003 picks had Senate approval. Democrats usually object to a quick voice-vote confirmation and demand a cloture vote that requires 30 hours of floor debate. In the 115th Congress, there were 128 cloture votes for Trump judicial and executive nominees, versus 12 for Obama’s nominees in his first two years. Trump’s six most recent predecessors combined faced no more than two dozen cloture votes in their first two years. There are still 145 judicial vacancies, and Democrats will try to delay the nominations for every one in hopes of leaving many for what they expect to be a Democratic president in 2021. Some observers note that Republicans should negotiate a change in the cloture rule for non-controversial nominees to eight hours of debate from 30. The GOP granted that to Democrats from 2013-15. If Senate Minority Leader Chuck Schumer (D-N.Y.) won’t do the same, some say Republicans should unilaterally change the rule, at least for the executive branch.

  • Some food inspectors coming back to work? The Food and Drug Administration (FDA) has had to sharply reduce inspections of the nation’s food supply, suspending all routine inspections of domestic food-processing facilities because of the furloughing of hundreds of agency employees. FDA Commissioner Scott Gottlieb told the Washington Post that he was working on bringing inspectors back as soon as next week to resume inspecting food at high-risk facilities, such as those that involve soft cheese, seafood or that have a history of issues.

  • Trump's taxes. Senate Finance Committee Chairman Chuck Grassley (R-Iowa) said he’s looking into whether he could obtain Trump’s tax returns. Grassley said he’s planning to meet with nonpartisan congressional tax advisers to learn more about the process. Grassley cautioned that he hasn’t yet made a decision about whether he would ask Treasury to release the documents. “Don’t interpret this as looking into it, but I’m going to have a briefing by Joint Tax on what all of this involves before I answer any questions,” Grassley told reporters on Wednesday, referring to the nonpartisan Joint Committee on Taxation.

  • Polish authorities have charged a Chinese employee of Huawei, the telecommunications giant, and a Polish national with spying for China, officials said today. The arrests come as the U.S. and its allies have tried to restrict the use of Chinese technology based on espionage fears.

  • USDA is buying $5 million worth of JBS pork. A meatpacking firm owned by the Brazil-based company is getting the seven-figure sale through the Trump administration’s trade aid program, the Washington Post reported (link).

  • The threat of a trade war is helping reset supply chains as exporters in some countries find opportunities amid the disruption. Most Asia-Pacific nations support removing trade barriers, the Wall Street Journal reports (link), even as many are finding short-term opportunities to attract manufacturing exporters seeking to avoid U.S. tariffs on Chinese products. The trade battle is accelerating a trend of manufacturing shifting from China to Southeast Asia. “In Brazil, soybean farmers exported 10 million metric tons more of the product than forecast last year. Japan’s auto makers would stand to gain if the U.S. and China imposed reciprocal car tariffs. Still, many businesses say they prefer predictability and are eager to see the dispute end. For Southeast Asia’s manufacturing and shipping businesses, supply-chain disruptions and slower global growth are a larger threat. Logistics and transportation networks have contributed increasingly to the region’s economy as container-port traffic has expanded there in recent years.”

  • Senate Ag Chairman Pat Roberts (R-Kan.) talked farm bill and trade policy with Agri-Talk. Commenting on the challenging time in the U.S. ag sector, Roberts, who announced recently he will not seek re-election in 2020, said, “A lot of people don't realize just what a rough patch we're in with trade retaliation, low prices, bad weather and the list goes on. So, the biggest thing (with the 2018 Farm Bill) was to provide farmer certainty and predictability.” Regarding President Trump's trade policy, Roberts said the president “is pretty locked in with regards to the way he likes to handle trade issues one by one.” In talks with the president, Roberts said he and other farm-state lawmakers “get along with the president, but we try to point out that with imposing tariffs, maybe you get what you want down the road, but in the meantime, farmers, ranchers and growers shouldn't be used as a pawn if you ever should get it done, because there's irreparable damage done to our prices and losing markets.” You can hear the full interview with Roberts on AgriTalk this morning.

Markets. The Dow on Thursday closed up 122.80 points, 0.51%, at 24,001.92. The Nasdaq rose 28.99 points, 0.42%, at 6,986.64. The S&P 500 gained 11.68 points, 0.45%, at 2,596.64.

Energy prices continue to rise. A barrel of West Texas Intermediate traded over $53 a barrel this morning and Brent crude was over $62 as the commodity’s run of gains extended to a record 10th session. Futures already have entered a bull market after gaining more then 20% from the Dec. 26 low.

CME lowers corn, soybean futures margins. The CME Group announced it is lowering margins for soybean and corn futures, lowering soybean futures margins to $1,750 per contract, down 14.6% from the current $2,050 per contract for January 2019 and lowering corn futures margins to $700 per contract, down 12.5% from $800 per contract for March 2019 and September 2019. Initial margin rates remain at 110% of those levels with the new rates effective after the close of business today (Jan. 11).

Why does China need a higher GDP than the U.S.? With per capita gross domestic product just above $10,000, China must sustain far more rapid growth than the U.S., where GDP per person is about $62,000. The People’s Bank of China reported in October that economic growth had slowed to 6.5% — below expectations and the lowest rate since the financial crisis (next China GDP updates comes Jan. 20). Reuters reported that China expects its GDP to grow between 6% and 6.5% in 2019, down from last year’s goal of “around” 6.5%. China needs at least 6.2% growth to meet officials’ 2020 goal of doubling GDP over a decade. The proposed target will likely be unveiled at the annual parliamentary session in March. Meanwhile, December saw China’s first decrease in manufacturing activity since 2016 as new export orders declined for the seventh month in a row. Now there is a concern about the quality and accuracy of economic data coming out of China. Reason: Last September, Beijing sent a directive to journalists listing topics it intended to “manage,” including “worse-than-expected data that could show the economy is slowing” and “the impact of the trade war with the United States.”

Odds of a U.S. recession: less than 1%. The St. Louis Federal Reserve maintains an economic model that predicts the probability of a U.S. recession. The most recent update, in January, put the risk at less than 1%.

Fed Chairman Jerome “Jay” Powell said the U.S. economy "is solid," adding that he doesn't predict a recession in 2019, but “the principal worry I would have is global growth,” which is slowing somewhat. “The question would be how much does that affect us,” he added, noting that global economies are more interconnected today than in the past. The principal worry is global growth. The slowdown in China’s economy “is a concern, is something we’re watching,” Powell added. Increased tariffs between the U.S. and China haven’t left a visible mark on either economy, he said. Powell said the U.S. central bank can be patient before adjusting interest rates again as it waits to see how global risks impact the domestic economy. “We’re in a place where we can be patient and flexible and wait and see what does evolve, and I think for the meantime we’re waiting and watching,” Powell said in a question-and-answer session Thursday at the Economic Club of Washington, D.C. “You should anticipate that we’re going to be patient and watching and waiting and seeing.” Regarding interest rates, Powell said, “There is no preset path for rates” when asked about last month’s projection of two more rate increases this year. “We’ll take into account tightening financial conditions, which we’ve seen, and we’ll also lower our rate path and try to have monetary policy offset weakness before it even happens.”

Fed Vice Chairman Richard Clarida said in remarks to the New York Money Marketeers that recent developments in the global economy and financial markets "represent crosswinds to the U.S. economy." Like other Fed officials, Clarida pronounced that the U.S. central bank "can afford to be patient as we see how the data evolve in 2019 and as we assess what monetary policy stance is warranted to sustain strong growth and our dual-mandate objectives.” He also addressed the issue of the Fed's trimming of its balance sheet, noting, “If we find that the ongoing program of balance sheet normalization or any other aspect of normalization no longer promotes the achievement of our dual-mandate goals, we will not hesitate to make changes."

Saudi Arabia is now planning its long-delayed Aramco IPO for 2021 after undertaking a series of moves that may give more transparency to potential investors. The kingdom has released the results of an independent audit that confirmed it controls more than 260 billion barrels in oil reserves and announced that Aramco will issue bonds next quarter. In order to tap the debt market, the oil giant will need to release additional financial information.


 

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