WSJ, NYT Note Big Remaining Hurdles for U.S./China Agreement; No Summit Date Set

Posted on 03/08/2019 6:11 AM

EU readies $22.4 billion retaliation package against U.S. if Trump puts tariffs on EU autos

Trade agreement talks have patterns, with upbeat meetings followed by more negative assessments. We are now in the more downbeat period when it comes to U.S./China trade negotiations as updates from the Wall Street Journal and the New York Times are detailing similar hurdles, with the WSJ quoting a U.S. envoy as saying because no trade is imminent, no summit date between President Donald Trump and Chinese leader Xi Jinping has been set. There were also other signs this week that a deal may take some time yet, including a former Chinese finance minister saying that Beijing isn't ready to make big concessions.
     Any U.S. tariffs on car imports would be a blow to the global economy and Europe will retaliate if they’re imposed, European Trade Commissioner Cecilia Malmström told Bloomberg TV. She revealed the EU has a $22.4 billion retaliation list of American-made products if President Trump follows through on car tariffs.
     To continue the bad-news-Friday, FY 2019 U.S. ag export values off to slowest start since FY 2010 and history shows there could be more negative news ahead.
     China also got some negative news as its exports fell 20.7% in February. The unexpectedly weak figures also showed China’s overall trade surplus at $4.1 billion, far short of the predicted $26.4 billion. Even though this data is likely skewed by the Chinese New Year, aggregating January and February figures still show a 5% decline. Asian stocks plunged lower overnight on the trade news, with losses of 4.4% seen on the Shanghai Composite.
     It's not all negative news... China made its first significant purchase of U.S. sorghum since the trade war and tariffs began. A sale of 2.6 million bushels was reported by USDA’s export sales report for the week of Feb. 28.
     This just in... Reuters reports that over 100 people have applied to become Sri Lanka’s new hangman. President Maithripala Sirisena wants to reintroduce execution for drug dealers, after a four-decade moratorium. The last hangman quit without hanging anyone, citing stress. An American is among those keen on the grisly job. Reports suggest that 20 current convicts could be in line for the gallows.


U.S./China trade policy update:

  • Ambassador Branstad: U.S.-China trade deal is not imminent, so no summit date set. The U.S. and China have yet to set a date for a summit to resolve their trade dispute, the U.S. ambassador to China said today, as neither side feels an agreement is imminent. “A date hasn’t been finalized” for a meeting between President Trump and Chinese leader Xi Jinping, Terry Branstad, the U.S. envoy to Beijing, said in an interview with the Wall Street Journal. He said preparations for such a meeting aren’t yet under way either. Branstad said negotiators need to further narrow the gap in their positions, including over the enforcement of a potential deal, before summit arrangements are made. “Both sides agree that there has to be significant progress, meaning a feeling that they’re very close before that happens,” Branstad told the WSJ. “We’re not there yet. But we’re closer than we’ve been for a very long time.” The newspaper previously reported that the talks have progressed such that both sides have discussed holding the summit this month, possibly around March 27 in Florida, after President Xi finishes a trip to Italy and France.
  • NYT: Chinese officials becoming wary of a quick trade deal. While President Donald Trump remains upbeat that a major trade deal with China is close, “Chinese officials are not so sure, according to an article in the New York Times (link). As others have noted, big hurdles remain, including an enforcement mechanism to ensure China complies and the timing for the removal of tariffs. “Beijing officials are wary that the final terms may be less favorable, especially given Trump’s propensity for last-minute changes,” the NYT article said, citing two people familiar with China’s position. “The work team is still continuing to negotiate because we still have a lot to do,” Commerce Minister Zhong Shan said on the sidelines of the 11-day annual session of the National People’s Congress, which began on Tuesday. “At the legislative meeting, senior Chinese officials have been taking turns warning that challenges remain,” the article said. The remaining differences are “starting to put in doubt plans for President Xi Jinping to meet with Trump in late March or early April to sign a deal.” But the item added that the “Chinese also recognize that a presidential summit meeting may be the only path to completing a deal, since Trump has a tendency to undercut his advisers.” Michael Pillsbury, a China scholar at the Hudson Institute who advises the Trump administration, is quoted as saying that Xi’s silence on the trade talks “was an ominous sign,” and that several of the points that the United States thought China had agreed to were far from settled. “There may be the need for another round of talks before the signing summit,” Pillsbury said.
  • U.S./China trade decline leads to 20.7% plunge in China’s total exports in February. China imported 19.9% less from the United States last month and exported 14.1% fewer U.S. goods, suggesting that the U.S.-China trade war is having impacts. Front-loading to avoid anticipated tariff rises and the Lunar New Year holiday are possible factors as exports posted the largest percentage drop since February 2016. China’s overall trade surplus narrowed significantly in February, down to $4.1 billion from $39.16 billion in January. “We’re at the end of peak growth in the U.S., the European Central Bank has cut its growth forecasts, this is all bad for China. It all adds to the trade war, but we have not felt the full effect of that yet,” Carlos Casanova, Asia-Pacific economist at Coface, told the South China Morning Post.
  • China’s Foreign Minister Wang Yi calls for cooperation amid escalating world tensions. In a two-hour briefing, Wang tried to put a positive spin on China’s deteriorating ties with the U.S. amid the lingering trade war and the escalating tussle over Chinese tech giant Huawei. He hailed China’s relations with Russia, Japan, India, North Korea and Southeast Asian nations. And he sought to play down growing international concerns over China’s “Belt and Road Initiative,” Beijing’s expanding footprint in Africa, the Middle East and Latin America, as well as the increasingly assertive posture of Chinese diplomats around the world. On U.S./China relations, Wang dismissed the rising calls in Washington for economic and trade disengagement from Beijing amid frustrations among American political and think tank elites that decades-long economic, social and cultural engagement policies have failed to transform China into a liberal democracy. “Decoupling is apparently unrealistic. Decoupling from China means to decouple from opportunities, the future and even the world,” he said. Wang admitted that China/U.S. relations had faced a set of new and mounting challenges over the past two years, a move he said was “contrary to the historical trend.” Wang said the most important lesson from the past 40 years of the China/U.S. relationship was that both countries stood to gain from cooperation and lose from confrontation. Wang said he remained hopeful about the prospect of bilateral ties, despite the many challenges and difficulties. He said the months-long trade war talks had made substantial progress and cited the negotiations as a positive example for both sides on forging ties in the future.
  • China company says U.S. tariffs impacting their plans to export cars to United States. The Guangzhou Automotive Group has been hoping to export cars to the U.S., but its chairman, Zeng Qinghong, told reporters at the sidelines of the National People's Congress that their plans are being hampered by U.S. tariffs and requests from U.S. dealers to change the name of its brand — Trumpchi, according to Reuters.

U.S. tariffs on car imports would deal a blow to the global economy and Europe will retaliate if they’re imposed, European Trade Commissioner Cecilia Malmström said. “It would be very harmful for our economy, it would be harmful for the global economy, and it would be harmful for the U.S. economy, because many cars are produced here in the U.S. with car parts from Europe,” Malmstrom said Thursday in a Bloomberg TV interview.

A $22.4 billion retaliation list of American-made products is being prepared if President Trump follows through on car tariffs, said Malmström. The list, which isn’t public, still needs the approval of member states, she said.

Background. The Commerce Department last month submitted a report to President Donald Trump after investigating whether car imports imperil U.S. security, a move that could lead to the imposition of duties.

Meanwhile, the EU is in the final stages of preparing its negotiating mandate and “would begin to launch negotiations within some weeks,” Malmström said Thursday in Washington. She also repeated that discussions won’t touch agriculture.

FY 2019 U.S. ag export values off to slowest start since FY 2010. U.S. ag exports totaled $11.277 billion in December versus imports of $10.680 billion for a trade surplus of just $597 million. That puts exports for the opening quarter of Fiscal Year (FY) 2019 at $35.648 billion, well below the opening quarter of FY 2018 when exports totaled $39.319 billion and the smallest opening quarter of a fiscal year since FY 2010 when exports totaled $30.163 billion.

Imports, meanwhile, totaled $31.899 billion for the first three months of FY 2019 compared with $30.692 billion in the same period during FY 2018. That puts the cumulative ag trade surplus at $3.749 billion, down from $8.637 billion the first quarter of FY 2018.

Perspective: Going back to FY 2013, the strongest months for U.S. ag export values are in the first three months of the FY. Imports typically do not register their highest values until the March-May period. Imports have opened FY 2019 like they did in FY 2018 — at $10 billion or more each month and they have been at or above that mark 14 of the last 15 months. This suggests that more downbeat trade data is likely to come for U.S. agriculture in the months ahead.

Other items of note:

  • USDA & FDA reach agreement to regulate some cell-cultured food products. The U.S. federal agencies said the agreement covers the overseeing of production of human food products made from the cells of livestock and poultry. USDA’s FSIS will oversee the production and labeling of human food products from the cells of livestock and poultry; FDA will oversee cell collection, cell banks, and cell growth and differentiation. The two agencies pledged to come up with “joint principles” on labeling. The two agencies were given 60 days to come up with a deal on regulating cell-cultured meat via the FY 2019 appropriations package. Link for details. The National Cattlemen’s Beef Association praised the agreement, but it made its assessment clear by this statement: “Ensuring that all lab-grown fake meat products are safe and accurately labeled remains NCBA’s top priority.” It also released a primer on the agreement under the header “Fake Meat Facts” (link).

  • A court challenge is likely if President Donald Trump withdraws from NAFTA, according to a Congressional Research Service analysis (link). Trump has threatened to withdraw from NAFTA to pressure Congress to act on the new U.S.-Mexico-Canada Agreement (USMCA), though aides have said there were no immediate plans to back out of the existing deal.

  • The National Milk Producers Federation encouraged dairy farmers to sign up for maximum coverage under the new Dairy Margin Coverage program, which USDA intends to open on June 17. The group said a dairy operation with max coverage could receive a monthly payment for January alone that’s higher than the full-year premium, under the discounted five-year premium rate.

  • Grassley again blasts 'fired Pruitt' over small refiner RFS exemptions. Sen. Chuck Grassley (R-Iowa) angrily comments about former EPA Administrator Scott Pruitt's habit of handing out exemptions to the Renewable Fuel Standard (RFS). According to a report from Reuters (link). EPA made it easier for individual refineries, even those owned by highly profitable oil companies, to get out of complying with the program by widening the definition of economic hardship. EPA told Reuters it had made no changes. "Surprise surprise news reports confirm what we said all along abt fired Pruitt was true," Grassley tweeted Thursday night. "He said 1 thing&did another/EPA changed RFS waivers so BIG OIL got ridiculous hardship exemptions even tho they make billions $$$ EPA shld kno @realDonaldTrump supprts ethanol &act accordingly".

  • Cotton AWP moves higher. The Adjusted World Price (AWP) for cotton rose to 63.42 cents per pound, effective today, up from 62.67 cents per pound the prior week and the highest since the price effective the week of Feb. 8. Meanwhile, USDA said that Special Import Quota #20 for upland cotton would be established March 14 for 57,962 bales of upland cotton. The quota applies to cotton purchased not later than June 11 and entered into the U.S. not later than Sept. 9.

  • Justin Trudeau, Canada’s prime minister, defended his government in a scandal that has engulfed his party and administration mere months before an election. Trudeau said there had been a breakdown in communication with Jody Wilson-Raybould, who resigned as justice minister claiming she had been pressured to help a construction company settle a criminal bribery case.

Markets. The Dow on Thursday fell 200.23 points, 0.78%, at 25,473.23. The Nasdaq lost 84.46 points, 1.13%, at 7,421.46. The S&P 500 declined 22.52 points, 0.81%, at 2,748.93.

Jobs update arrives this morning. The February Employment report arrives this morning and is expected to show nonfarm payrolls rose 180,000 while the unemployment rate is expected to tick back down to 3.9%. The rise in nonfarm payrolls would be a slowing from 304,000 in January but not that far from the 222,000 in December. A rise around 200,000 would still signal a solid jobs market in the United States. The government shutdown impacts should disappear in this report as they affected some of the data from January. Attention will be on the usual areas — wage growth, participation rate and how much those fluctuate from the prior months. It will also be interesting to see if the pre-report expectations are as far off as they were with the January update — expectations were for just 158,000 jobs to be added while the 304,000 actual figure shocked many. Plus, revisions to the January and December figures are always another wildcard in the data. While signs of a tight labor market continue, Deutsche Bank notes that February has topped forecasts in each of the past five years with an average beat of 55,000.

An interview with Federal Reserve Chairman Jerome Powell will air on the CBS news show, 60 Minutes, the network said Thursday. The interview will be aired at 7 p.m. Eastern on Sunday. Powell joins Ben Bernanke and Janet Yellen as Fed chiefs who have had interviews on the program. Powell is scheduled to give a speech “Monetary Policy Normalization and Review” today at the 2019 Stanford Institute for Economic Policy Research.

Consumer use of credit continues to expand. U.S. consumer credit expanded $17 billion in January to a seasonally adjusted $4.03 trillion, according to the Federal Reserve, and annual increase rate of 5.1%. Expectations were for a rise of $16.6 billion. December was revised down to $15.4 billion after an initial report of $17 billion. Revolving credit (where credit and store cards are categorized) increased just $2.6 billion while nonrevolving credit expanded by $14.5 billion. The still-conservative use of credit cards may also explain the recent rise in the savings rate to 7.6 in shutdown-delayed data released last week. But the figures still are not flashing a warning that consumers are becoming overextended at this stage.

Germany is off to a weak economic start. Europe’s largest economy saw its steepest drop in industrial orders in seven months in January, with contracts for goods dipping by 2.6%. Concerns over a slowdown in major economies like Germany prompted the OECD earlier this week to once again cut its global growth forecast.

The European Central Bank unveiled surprise plans to stimulate the Continent’s flagging economy and said it would hold rates at their current levels months longer than it previously signaled. The bank pledged to keep interest rates on hold throughout 2019 and will begin a third round of cheap funding for banks in September. The news surprised financial markets, with the euro falling by 0.6% against the dollar.

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