USDA reports on Friday: Low march to higher prices with more initial downturn expected
— U.S./China trade policy update:
- On Sunday, President Trump continued to prod Beijing. “We are right where we want to be with China,” he tweeted. “Remember, they broke the deal with us & tried to renegotiate. We will be taking in Tens of Billions of Dollars in Tariffs from China.”
- “The president is playing a negotiating battle with the Chinese and I think he feels that at this point they can’t really back out,” Sen. Rand Paul (R-Ky.) told ABC News on Sunday. “I . . . have advised the administration, get this done, because the longer we’re involved in a tariff battle or a trade war, the better chance there is that we could actually enter into a recession because of it,” he added.
- Markets await China's response to U.S. move to hike tariffs, and threats for more. China is a “kung fu master” and can deliver a “deadly punch” to the U.S. economy in a trade war, an ex official said, according to the South China Morning Post. Wei Jianguo, a former vice-minister in the Ministry of Commerce, says China has the “willingness to act to fight a prolonged war.” Wei said China still has abundant tools in its armory and has already prepared a contingency plan to deal with the escalation of the trade war. “China will not only act as a kung fu master in response to U.S. tricks, but also as an experienced boxer and can deliver a deadly punch at the end,” Wei told the South China Morning Post, adding that the world’s second largest economy is prepared for an extended trade war with the U.S. U.S. agriculture products would be a natural primary target for retaliation, especially wheat, corn and pork, Wei said. These would directly target a key part of President Trump's electoral base in the run-up to the 2020 election. China could also place sanctions on U.S. planes and vehicles, he said, making it more difficult for these products to enter the Chinese market.
- Jean-Claude Juncker, European Commission president, warned last week that he feared a “major part of the economic problems the world is facing have to be read in the context of these trade tensions between the U.S. and China.” He added: “If investors do not have the feeling that this problem can be solved soon, the appetite for investments on both sides of the Atlantic and throughout the world is weakening.”
- Any U.S./China trade accord could take still longer than most think. National Economic Council Director Larry Kudlow said Sunday said the potential additional tariffs on $300 billion of China's goods may take months to implement. “Call it a couple of months. Call it three months. I don’t know. That will take some time and then of course the president’s going to have to make the final decision on that." Kudlow said there would need to be a 60-day public comment period as well.
- China invites U.S. negotiators to continue trade talks. Kudlow said that Chinese officials had invited Bob Lighthizer, the U.S. trade representative, and Steven Mnuchin, the U.S. Treasury secretary, to Beijing for further talks. The U.S. officials hadn’t firmed up plans to travel, Kudlow said in an interview on Fox News Sunday.
- The Trump administration sometime today will release details of its plans for tariffs on an extra $300 billion of imports from China, U.S. Trade Representative Bob Lighthizer said.
- Lingering U.S./China agreement issues are substantial, according to reports from people who have talked with U.S. Trade Representative Bob Lighthizer, with some predicting the impasse could run until or after 2020 elections. A few of them are well known: Chinese negotiators have serious reservations with the around 150 pages of pending text and are no longer willing to commit to changing laws covering intellectual property, forced technology transfer, subsidies and other issues at the heart of the dispute, including enforcement mechanisms U.S. officials once thought were completed but China never fully agreed to — Chinese officials said enforcement procedures would need to go through Chinese law-enforcement channels and couldn’t be guaranteed at the negotiating table. China also reportedly objected to publication of all the details of the text, preferring a summary. Another major issue: China wants all U.S. tariffs lifted upon any agreement announcement while the U.S. insists on keeping some tariffs in place so China can “earn their way off tariffs.” U.S. officials also are insisting China pledge not to retaliate if the U.S. were to reimpose tariffs if it found China in violation of some provisions. But on Friday, Chinese Premier Liu He, the country's chief negotiator, said: “We are very clear that we cannot make concessions on matters of principle. We hope our U.S. colleagues understand this.”
- China is willing to publicly list and disclose subsidies from its central government, people familiar with the trade talks said, according to the New York Times (link). But instead of disclosing these subsidies to the United States, which might be seen by the Chinese public as humiliating, the Chinese government wants to disclose them through the WTO, which would then pass on the list to its members. Beijing has told American negotiators that it will end subsidies if they are breaking WTO rules. But the Chinese national government’s assistance to industries tends to fall into the categories that are hardest to prove as violating WTO rules, the article noted.
- Pro Farmer issued two weekend special reports on U.S./China trade policy issues: Link to the Saturday update and link to Sunday's dispatch.
- Chinese state media said Sunday that officials there are open to continuing discussions, but will not yield on issues important to state security, according to Reuters. In a commentary Saturday, the official People’s Daily said the text of any trade agreement “must be balanced and expressed in a way that is acceptable to the Chinese people and does not undermine the country’s sovereignty and dignity.”
- “Wielding tariffs like a cudgel because it makes the president look tough? That only hurts American families,” Rep. Seth Moulton (D-Mass.), a 2020 presidential campaign, told Fox News on Sunday, explaining that farmers are bearing the weight of Chinese tariffs. Sen. Michael Bennet (D-Colo.), another 2020 hopeful, said on CBS' Face The Nation that, "Putting tariffs on our allies, putting tariffs on even the Chinese that are actually taxes on American producers, taxes on American farmers…I think [is] completely the wrong way of doing this."
- Effects of U.S. tariffs are larger than previously expected: Goldman Sachs. It says “new evidence on the effects of the 2018 tariff rounds from two detailed academic studies points to larger effects on U.S. consumer prices than we had previously estimated, for two reasons. First, the costs of U.S. tariffs have fallen entirely on U.S. businesses and households, with no clear reduction in the prices charged by Chinese exporters. Second, the effects of the tariffs have spilled over noticeably to the prices charged by U.S. producers competing with tariff-affected goods."
- Bottom Line: Both sides seem to be hardening their positions. That is not a signal of a coming solution, but more discord ahead.
— Brazil and Mexico add rice and beans to their allowed imports. Mexico will allow imports of Brazilian rice and Brazil will allow imports of Mexican beans, the two countries said in a statement on Saturday as top agriculture officials from both countries met in Japan. "The decision reinforces Brazil's position as one of the top 10 global exporters of rice and represents an important step to diversify commercial relations with Mexico, a country with over 120 million people that imports over 80% of the rice it consumes," the Brazilian government said in a statement.
— Other items of note:
House Ag Committee Chairman Collin Peterson (D-Minn.) confirmed he is going to run for re-election in 2020. While Peterson has been in several close re-election races in recent years, he is a very popular lawmakers who is roundly supported by the many farmers in his district.
Mike Pompeo skipped Moscow for Brussels. The U.S. secretary of State canceled a visit to Moscow today to convene with French, German, and U.K. officials to discuss Iran’s partial withdrawal from the 2015 nuclear accord, which the U.S. pulled out of a year ago. Pompeo will meet as planned with Russian president Vladimir Putin in Sochi tomorrow.
Bayer hires law firm to investigate Monsanto stakeholder file issue. Bayer said on Sunday it was hiring an external law firm to investigate French media complaints that Monsanto, the U.S. seed maker it took over last year, had compiled a file of influential personalities. The German life sciences and pharmaceuticals group said that, following an internal review, it understood that this initiative had raised concerns and criticism.
— Markets. The Dow on Friday added 114.01 points, 0.4%, to 25,942.37, after earlier being down nearly 360 points. The S&P 500 closed up 10.68 points, 0.4%, at 2,881.40. The Nasdaq advanced 6.35 points, 0.1%, to 7,916.94.
For the week, the Dow was off 2.12%, while the broader S&P 500 index dropped 2.18% and the Nasdaq fell 3.03%, the worst weekly loss of the year for the last two indexes.
USDA Friday reports: Big crops in U.S. and world, and burdensome carryover = lower prices for many commodities. Chicago soybean futures dropped to their lowest in more than 10 years, pressured by concerns that an escalation in the trade war between Washington and Beijing would further hit U.S. exports of the oilseed. Many are waiting for the other shoe to fall as China is expected to retaliate against the U.S. for increasing its tariffs on $200 billion in Chinese goods to 25% from 10% early on Friday, and signaling it would take steps as soon as today to begin the process of putting tariffs on another $300 billion of Chinese products.
Pakistan agreed to accept a $6 billion bailout package from the International Monetary Fund over three years, to meet foreign-debt obligations. Prime Minister Imran Khan had campaigned against the IMF’s lending during his candidacy; the country’s record-breaking deficits and contracting economy seem to have changed his mind. One condition, a floating exchange rate, will likely send the rupee to new depths.