Iran | Minimum wage hike impacts | U.S. deficit, debt | Ag in the next decade
China still has not confirmed what President Trump said about commiting to purchase a substantial amount of U.S. farm products. The two sides will hold teleconference talks this week and a possible journey to Beijing by U.S. trade officials would follow if this week's talks show progress. And where is “The List”? There is no word on whether President Trump has presented Chinese officials with a list of goods the White House would like Beijing to buy, as the president said he would.
— U.S./China trade policy update:
- U.S. and China tentatively move to revive trade talks. Top negotiators from Washington and Beijing are set to speak this week to revive stalled trade talks, as disagreements over prior commitments and political considerations threaten to bog down discussions. If video conference talks this week are successful, that could lead to face-to-face talks, likely in Beijing, officials said.
- “Our hope is that both sides will come to the table in earnest as soon as practically possible,” said Myron Brilliant, head of international affairs at the U.S. Chamber of Commerce. “But each side has to consider its own political environment, and there are obstacles to a swift deal being done.”
- The Osaka summit “did little to clear the path for top negotiators to resolve an impasse that caused trade deal talks to break down in early May,” according to unnamed sources cited by Reuters. It’s also unclear what the starting point of this round of negotiations will be, and one source told Reuters that there’s no indication that it would be the draft agreement that China backtracked from in May. “The pressure for one side to give into the other is diffused right now,” Derek Scissors, a China expert at the American Enterprise Institute, told Reuters. “I expect this to drag out for months.” Link to Reuters article.
- Did China really commit to purchase a significant amount of U.S. farm products? U.S. demands for China to buy more American agricultural and industrial products is an issue as both sides are signaling different viewpoints on the matter. In his press conference in Osaka, Japan, President Trump said, “China is going to be buying a tremendous amount of food and agricultural product, and they’re going to start that very soon, almost immediately.” China, however, has made no official mention of a commitment to purchasing more U.S. agricultural products, and a person with knowledge of the event said Chinese leader Xi Jinping made no such promise during his meeting with Trump. White House trade adviser Peter Navarro said Beijing did make commitments. “The Chinese side promised to make immediate and significant purchase of our agricultural products,” Navarro told Fox Business Network last Thursday. “Let’s see if they keep that promise.” Shortly before the presidents’ meeting two weeks ago, China purchased 544,000 metric tons of U.S. soybeans, the largest Chinese purchase since March. Last week, the first-ever large-scale sale of U.S. rice to China was announced by USA Rice, a trade group of rice producers. A spokesman for China’s Commerce Ministry, asked about whether Beijing committed to making future farm purchases, said: “There’s huge room for cooperation,” spokesman Gao Feng said at a briefing last week. He said China doesn’t want to see agricultural trade hurt by the dispute so it is an issue for the two governments to discuss. Bottom line: Beijing has said U.S. demands for Chinese purchases of U.S. goods should be reasonable. Chinese officials say that meant they must be based on domestic Chinese demand, rather than requiring China to divert purchases it now makes from other countries.
- BNSF Railway Co. and Pacific Northwest ports are among those that have spent heavily to boost U.S. farm-commodity shipments, while commodities giants have built terminals and upgraded rail facilities along the Columbia River. Those sectors are also feeling the impacts of the lengthy U.S./China trade war.
- Nintendo has confirmed plans to shift a part of the manufacturing of its Switch to Vietnam from China, where it currently outsources almost all of the gaming console's production. A spokeswoman said the move was intended to diversify its supply lines and not to escape potential tariff hikes by the U.S. on products imported from China. Nintendo, which currently outsources almost all of the console production to contract manufacturers in China, plans to make the partial shift to Vietnam this summer.
- Another potential hot-button issue has surfaced between China and the U.S.: The U.S. approval of a major arms sale to Taiwan. It includes 108 General Dynamics M1A2T Abrams tanks, 250 Stinger missiles and related equipment at an estimated value of $2.2 billion. Chinese foreign ministry spokesman Geng Shuang said the deal was a serious violation of international law and a "crude interference in China’s internal affairs, harming China’s sovereignty and security interests."
- Trump's trade war could lead to a shortage of Bibles in the U.S. President Trump's trade war with China could result in a "Bible tax" and a shortage of Bibles, as most Bibles are made in China according to major publishers and religious charities.
— U.S. attaché in China outlines ‘historic’ shifts in China corn demand. China’s 2019-20 corn production is now put at 230 million tonnes by the U.S. ag attaché in Beijing, down 9.4% from USDA’s June WASDE, on lower harvested area, lower yield and government policies favoring soybean production. The USDA office noted that key corn areas in China experienced adverse planting and growing conditions and are “imminently threatened by the rapid spread and impact of the Fall armyworm.”
China corn consumption, however, is forecast at 259 million tonnes, down 7% from USDA’s June WASDE and the lowest forecast in nearly four years. Weakening feed demand is cited, “largely driven by the impact of African swine fever (ASF), the report noted. Rising poultry production is only partly offsetting declines in the hog sector, the USDA office noted, with corn feed use forecast at 170 million tonnes for 2019-20, down 11% from USDA’s June outlook and the lowest since 2015-16. However, the attaché said that corn imports are seen at six million tonnes, down 1 million from the USDA June mark.
Higher corn prices reflect tightening feed grain supplies, the report said, noting that “some feed manufacturers have turned to competitively priced government stocks of wheat and rice.” State-owned grain inventories are put at 50 million to 100 million tonnes by industry sources, down sharply from year ago.
— CBO: U.S. budget deficit up nearly $140 billion vs FY 2018. The federal budget deficit stands at $746 billion for the first nine months of Fiscal Year (FY) 2019, up $139 billion from the FY 2018 deficit at this point in the year, according to the monthly budget update from the Congressional Budget Office (CBO).
Federal government receipts are at $2.609 trillion, up $69 billion from the $2.541 billion at this point in FY 2018, while outlays are at $3.356 trillion compared with $3.148 trillion in FY 2018. The $69 billion increase in receipts reflects $60 billion more in individual income and payroll taxes while corporate tax receipts were up less than $1 billion from the same point in FY 2018.
Customs duties were up $22 billion because of new tariffs put in place.
On the outlay side, spending for Social Security, Medicare and Medicaid increased by a combined $86 billion (6%) with interest on the public debt rising $44 billion compared to year ago. CBO predicts the June deficit will come in at $8 billion. The U.S. Treasury will release the official monthly budget update Thursday afternoon.
— U.S. could exceed debt limit in September. The Bipartisan Policy Center, an independent think tank, said there’s a “significant risk” that the U.S. will breach its debt limit in September unless Congress acts. The group revised its previous projection of an October to November date at which the U.S. could default on payment obligations in the face of declining corporate tax revenue projections this fiscal year.
— CBO cites job losses as House leaders prep minimum wage bill. The Congressional Budget Office (CBO) said in a report released Monday (link) that nearly doubling the federal minimum wage to $15 per hour could cost 1.3 million jobs when fully implemented by 2025, though millions would see higher wages and the number of Americans living in poverty would decrease. The report stressed that its estimate of 1.3 million potential job losses, which would equal roughly 0.8% of the workforce, was a median forecast, and that job losses could be substantially smaller — or larger. In a worst-case scenario, some 3.7 million jobs could be lost, the agency said. On the other hand, wages could rise for as many as 27 million workers.
Background. The federal minimum wage has been set at $7.25 per hour for the past decade, though many states and localities have set their minimum wage above that level. Currently, 29 states, as well as Washington, D.C., Guam and the U.S. Virgin Islands, have higher minimum wages, though the federal increase would impact 21 other states as well as Puerto Rico and the Northern Mariana Islands.
Next steps: House Democrats led by Rep. Bobby Scott (D-Va.) have already introduced a bill to gradually raise the federal minimum wage to $15 per hour, called the Raise the Wage Act, and could vote on the legislation later this month. Rep. Steny Hoyer (D-Md.), the majority leader, said in a letter to Democrats that the legislation would be considered next week, signaling that the House leadership felt confident in its ability to secure enough votes to pass the measure. However, the GOP-held Senate won't likely take it up and President Trump could also oppose it.
— OECD and FAO look ahead to agriculture's next decade. The Organization for Economic Cooperation and Development and the FAO released a 10-year ag outlook (link), projecting commodity prices to remain at or below current levels over the next decade as increasing productivity slightly outpaces demand growth.
The groups noted several topics that “add to the traditionally high risks facing agriculture.”
On the supply side, these include “the spread of diseases such as African Swine Fever, growing resistance to antimicrobial substances, regulatory responses to new plant breeding techniques and responses to increasingly likely extreme climatic events.”
On the demand side, they include “evolving diets, reflecting perceptions with respect to health and sustainability issues, and policy responses to alarming trends in obesity. A further factor is the heightened uncertainty with respect to future trading agreements between several important players on world agricultural markets. An escalation of ongoing trade tensions has the potential to reduce and redirect trade, with repercussions for international and domestic markets.”
— Other items of note:
Barr sees route to citizenship question. Attorney General William Barr said that he believed the Trump administration could find a legal path to placing a citizenship question on the 2020 count. The development comes less than a week after the Justice Department said it would drop the attempt in the wake of a Supreme Court decision blocking it. President Trump is expected to issue a memorandum to the Commerce Department instructing it to include the question. Meanwhile, House Speaker Nancy Pelosi (D-Calif.) sent a "Dear Colleague" letter outlining planned action on border agencies and contempt againstBarr and Commerce Secretary Wilbur Ross tied to a probe into the addition of a citizenship question to the 2020 Census.
Trump's drug-advertising rule loses in court. U.S. District Judge Amit Mehta blocked an administration rule requiring drugmakers to put prices in TV ads, a major part of the president’s push to lower the cost of prescription drugs. The judge said the rule would violate free speech and exceeded the agency’s statutory authority. The lawsuit was brought by Merck and Amgen, which have long argued that list prices do not reflect the actual cost of drugs as they do not take into account discounts and rebates negotiated with health insurers and PBMs.
Shelby says no spending markups until caps deal. Senate Appropriations Chairman Richard Shelby (R-Ala.) said his panel won’t mark up any spending bills until there is a budget caps deal. Shelby said Republican leadership doesn’t want any committee markups without those final numbers. “If we get a number, we can move,” Shelby said.
Kris Kobach launches Senate bid. The former Kansas secretary of state launched a run for the U.S. Senate, vowing to make an aggressive response to illegal immigration the top issue in his campaign and triggering alarm in Republicans who fear his divisive candidacy could cost the party an otherwise solid seat currently held by retiring Sen. Pat Roberts (R-Kan.). Link to Washington Post article.
Voters in eastern North Carolina are heading to the polls today for a special election with a lot at stake. The outcome of the Republican primary runoff for the safe GOP seat could say a lot about how the party approaches identity politics heading into 2020. Link to article in Roll Call.
— Markets. The Dow on Monday fell 115.98 points, 0.43%, at 16,806.14. The Nasdaq declined 63.41 points, 0.78%, at 8,098.38. The S&P 500 fell 14.46 points, 0.48%, at 2,975.95.
The lira lost more than 3% of its value against the dollar in early trading in Asia on Monday, after President Recep Tayyip Erdogan abruptly dismissed the central bank governor over the weekend.
Boris Johnson and Jeremy Hunt, the two men vying to become the Conservative leader in the U.K., will face each other tonight in the first televised head-to-head debate of the race to become Britain’s next prime minister.