Stark contrast in U.S., Canada & Mexico NAFTA 2.0 comments | Canada and dairy | Bannon fires off on China, trade and N. Korea | Seoul gets Trump pledge | Chicken imports from China | WOTUS Rule comment period extended | Heitkamp gets a challenger | Chinese takeovers of U.S. companies plunge | ECB worried about euro strength | ObamaCare subsidy payments | Trump becoming more isolated
— Trump wants major NAFTA changes; Canada and Mexico prefer tweaks. Officials from the U.S., Canada, and Mexico began talks to renegotiate the North American Free Trade Agreement in Washington on Wednesday. U.S. Trade Representative Robert Lighthizer said the initial NAFTA has been a failure for “countless Americans” and that the U.S. will be pushing for major changes. In stark contrast were comments from Canada and Mexico, who focused on the benefits for all parties involved. Bottom line: The U.S. offered a combative tone while Canada and Mexico made it clear they will be no easy pushovers. Expect contentious talks ahead with no guarantee one of the participants will not walk away from the process.
“I want to be clear that he (President Trump) is not interested in a mere tweaking of a few provisions and a couple of updated chapters,” Lighthizer said. “For countless Americans, this agreement has failed,” Lighthizer said. “We cannot ignore the huge trade deficits, the lost manufacturing jobs, the businesses that have closed or moved because of incentives, intended or not, in the current agreement.”
The U.S. is focused on trade imbalances, and says it wants to boost rules that protect intellectual property, guard against currency manipulation and change dispute-resolution mechanisms. One way to accomplish that: tightening the “rules of origin” that govern how goods can qualify for tariff-free treatment. But officials from auto makers warn about risks to integrated supply chains if new trade rules make it harder to ship parts across borders.
Mexico and Canada are resisting U.S. pressure to agree to a new “national content” provision in NAFTA’s auto trade rules to encourage more parts to be made in the United States. “It will not be best practice to introduce that kind of rigidities into the industrial process,” Mexican Economy Minister Ildefonso Guajardo said. “It’s not good for American companies. It’s not good for Mexican companies.”
Canadian Foreign Minister Chrystia Freeland was also cool to the idea. “Canada is not in favor of specific national content in rules of origin,” she said. Both Freeland and Guajardo said the rules of origin must continue to be applicable on a regional basis and not be changed to benefit one single NAFTA country. “I think that we should find other policy tools to incentivize investment. ... Really getting into the subject of national content will be highly complicated,” Guajardo said.
Canada reacted to the U.S. goal to correct trade imbalances. “Canada does not view trade surpluses or deficits as a primary measure of whether a trading relationship works,” Freeland said. Freeland pointed out the U.S. actually runs a trade surplus with Canada when services trade is counted.
Trump has directed most of his ire at Mexico because the U.S. has a trade deficit with that country of about $60 billion a year. But Lighthizer noted that Canada is not off the hook despite the U.S. trade surplus in 2016. He noted a cumulative 10-year U.S. trade deficit of $365 billion with Canada. The U.S. Trade Representative’s Office put the goods and services surplus with Canada at $12.5 billion in 2016, but put the goods in a deficit of $12.1 billion. The $24 billion services surplus with Canada more than offset the goods deficit.
Lighthizer acknowledged many in the U.S. agriculture sectors have benefited from increased trade with Canada and Mexico, their two biggest export markets, under the pact. “But for countless Americans, this agreement has failed. We cannot ignore the huge trade deficits, the lost manufacturing jobs, the businesses that have closed or moved because of incentives, intended or not, in the current agreement,” Lighthizer said. The U.S. government “has certified that at least 700,000 Americans have lost their jobs due to changing trade flows resulting from NAFTA. Many people believe that the number is much, much bigger than that,” he said. The United States will push for changes to “assure the huge trade deficits do not continue and we have balance and reciprocity. This should be periodically reviewed,” Lighthizer said.
Some key U.S. priorities:
- Requiring higher NAFTA content and substantial U.S. content in goods made in the NAFTA countries, particularly vehicles and their parts and stricter verification of country of origin of content.
- Requiring strong, enforceable labor provisions in the main text of the revamped NAFTA.
- Requiring effective provisions to guard against currency manipulation.
- Ensuring U.S. sovereignty and laws are protected in dispute settlement provisions.
- Ensuring equal access and reciprocity in government procurement and agriculture.
Comments: A key topic is how the Trump administration’s aggressive public tone will translate into the details of the negotiations. The Trump administration in its early months has repeatedly talked tough and then sought to conciliate trading partners. Of note to the U.S. ag sector, the Trump team wants to do away with a system of independent arbitration that allows companies to seek the elimination of tariffs. The system has been used primarily by Mexican and Canadian companies to force the U.S. to abandon protectionist measures found to be in violation of the agreement. If the Trump team insists on their current position, NAFTA 2.0 talks could falter, sources advise. Also of note to the agribusiness sector is when Lighthizer said the U.S. will push for changes to “assure the huge trade deficits do not continue and we have balance and reciprocity. This should be periodically reviewed.” That suggests even if NAFTA 2.0 concludes, a NAFTA 3.0 could be the next push if the Trump team doesn’t like the results which follow.
— Canadian dairy farmers oppose major changes in policy via NAFTA 2.0. Canadian dairy producers said they will oppose any U.S. effort to duplicate in NAFTA the dairy concessions it secured from Ottawa through Trans-Pacific Partnership (TPP) negotiations. The Dairy Farmers of Canada told Politico that the small amount of dairy access Canada granted the U.S. during the TPP talks — equal to 3.25% of Canada’s domestic milk production — was balanced out by concessions Ottawa secured in negotiations involving all of the 11 other countries. Those circumstances do not apply to NAFTA. Link to the group’s comments.
— Bannon comments on his push for the U.S. to take a tougher stance on China trade. “The economic war with China is everything,” Steve Bannon, a chief strategist for President Donald Trump, said in an interview with The American Prospect posted online Wednesday (link). “And we have to be maniacally focused on that. If we continue to lose it, we’re five years away, I think, 10 years at the most, of hitting an inflection point from which we’ll never be able to recover.” During the interview with the leftist magazine, Bannon mocked Trump officials over trade policy.
Bannon undercut Trump on North Korea when he said, contrary to Trump’s threat of fire and fury, “There’s no military solution [to North Korea’s nuclear threats]. Forget it. Until somebody solves the part of the equation that shows me that 10 million people in Seoul don’t die in the first 30 minutes from conventional weapons, I don’t know what you’re talking about.”
Meanwhile, The Times Magazine offers an inside look at Breitbart News, the media company that Bannon once led (link).
— Trump agrees to seek Seoul’s OK before any action on North Korea: S. Korea President Moon. South Korea’s leader said President Donald Trump agreed to discuss options, including a U.S. military strike, with him before taking any action to rein in North Korea’s nuclear and missile programs. President Moon Jae-in’s remarks came following Pyongyang’s announcement that it would hold off on a threat to launch missiles at the U.S. Pacific territory of Guam. Trump has promised to consult with and secure consent from Seoul before acting to resolve the North Korean issue, Moon said at a news conference marking his 100th day in office, without providing details. “That is a firm agreement between South Korea and the U.S.,” Moon said.
— U.S. poultry trade groups back imports from China. Poultry trade groups filed a joint submission in support of USDA’s proposal to allow China to export cooked chicken to the U.S., contending regulators have sufficiently assessed China’s slaughter facilities and inspection system. Food safety advocates call the proposal “ill-conceived.” The National Chicken Council, National Turkey Federation, and the USA Poultry & Egg Export Council agree that the Food Safety and Inspection Services has done enough careful assessment of China’s slaughter facilities and inspection system to create a vigilant regulatory process for the import of their product. “Unfortunately, FSIS has at times received criticisms that its proposals to permit China to export to the U.S. market do not adequately protect the safety of U.S. consumers. Those criticisms are not, in our view, based on any scientific evidence or risk assessment,” the groups said in comments.
— EPA extends comment period 30 days on rescinding WOTUS rule. The public will get another month to comment on EPA’s proposal to repeal the Obama-era Waters of the U.S. (WOTUS) rule, with comments now due September 27, a 30-day extension (link to EPA announcement). When the proposal was officially released, the 30-day comment was a point of contention for supporters of the Obama-era rule. The original Obama rule, also called the Clean Water Rule, was open for more than 200 days.
In developing the replacement for the WOTUS rule as part of a two-step process, EPA and the U.S. Army Corps of Engineers “are consulting with state and local government officials, or their representative national organization” to gather information to develop that effort. It’s not clear what the Trump administration will propose to put in place but expectations are there will be a plan released some time yet in 2017.
EPA Administrator Scott Pruitt appeared in a video released Wednesday for the National Cattlemen’s Beef Association urging farmers and ranchers to make sure they formally submitted comments before the deadline. “This record being made is so important because it helps us make informed decisions,” Pruitt said.
— Sen. Heitkamp (D-N.D.) has a GOP challenger in 2018 re-election race. North Dakota Republican Sen. Tom Campbell announced via Twitter that he will try to oust Democratic Sen. Heidi Heitkamp in the 2018 elections. Campbell, the first candidate to formally jump in the race, told the Associated Press he wants to partner with President Donald Trump, who won the state by a 36% margin. Campbell’s first ad: “It’s time for a leader who knows how to grow something besides government.”
Heitkamp is well thought of throughout her state and is seen as being very competitive in the Republican state. Campbell’s campaign video focuses on how he started a potato farm, and describes him as a political outsider.
— Chinese takeovers of U.S. companies have plunged this year. According to Dealogic, Chinese dealmaking slid 65% in 2017 as of early August, following a peak of $65.2B last year, which included HNA’s acquisition of Hilton Worldwide. The drop comes as the Trump administration initiates an investigation into Chinese trade practices, as well as tough business and trade rhetoric aimed at Beijing.
— Euro zone’s top central bankers concerned about the strength of the euro, minutes of the European Central Bank’s July policy vote reveal. The single currency has hit a two-and-a-half year high vs the dollar in recent months and has risen by almost 5% against a basket of currencies since the middle of May. A strong euro complicates the ECB’s efforts to hit its inflation goal of just under 2% by making imports cheaper and weighing on export growth. The minutes of the ECB’s July policy vote showed that policymakers believed there was a risk that the currency could rise in value again. “Concerns were expressed about a possible overshooting in the repricing by … markets, notably the foreign exchange markets, in the future,” the minutes noted.
Reuters: ECB’s Draghi won’t delivery fresh policy guidance at Jackson Hole Fed confab. No new policy message is expected to be delivered by European Central Bank Chief Mario Draghi when he appears at the Kansas City Fed’s symposium in Jackson Hole, Wyoming, August 25, according to sources quoted by Reuters. An ECB spokesman said Draghi focus on the symposium theme of fostering a dynamic global economy in his remarks. The sources told the news service that he was going to hold off on any policy discussion until the fall as had been agreed at the last ECB rate-setting meeting in July. When Draghi addressed the symposium in 2014, he laid the groundwork for the ECB quantitative easing effort, prompting speculation he could make a similar policy pronouncement at the confab this year.
— The U.S. government will make crucial ObamaCare-related subsidy payments to health insurers in August, according to a White House spokesman, despite threats by President Trump to end them. The decision came a day after the Congressional Budget Office warned that ObamaCare premiums would soar an additional 20% above projected price increases if the payments are ended in 2018.
— Trump becoming more isolated following his remarks on Charlottesville events. More Republican lawmakers and others are distancing themselves from President Trump following his fiery remarks on yet another controversial topic.
In contrast, former President George W. Bush yesterday released a joint statement with his father, George H.W. Bush, from Kennebunkport. “America must always reject racial bigotry, anti-Semitism, and hatred in all forms,” they said. “As we pray for Charlottesville, we are reminded of the fundamental truths recorded by that city’s most prominent citizen in the Declaration of Independence: we are all created equal and endowed by our Creator with unalienable rights. We know these truths to be everlasting because we have seen the decency and greatness of our country.”
Two of President Trumps advisory groups, the American Manufacturing Council and Strategic and Policy Forum, have imploded as CEOs resigned over his response to the violent weekend rally in Charlottesville.
As for Trump… The New York Times reports that according to his close aides, the president said he felt liberated by his news conference and viewed it as his latest retort to a political establishment trying to tame his impulses.
— Also of note...
* Base metals on market fire. Zinc hit a 10-year high of over $3,000 a metric ton for the first time in almost a decade overnight, and soared by its daily limit in Shanghai trading. Aluminum hit a six-year high and iron ore futures gained 5.1 percent. Capacity curbs in China are one of the main catalysts for the rally, but optimism over global growth prospects is also driving renewed investor interest in base metals.
* The U.S. government filed a $400 billion Libor claim. The Federal Deposit Insurance Corporation’s $400 billion suit, filed on behalf of 39 banks rescued during the financial crisis, accuses banks including Barclays, Lloyds Banking Group, and Royal Bank of Scotland of keeping Libor rates artificially low, contributing to numerous bank failures during the financial crisis.
* Bitcoin is back near record highs. The cryptocurrency traded up 0.89% at $4,446 a coin, just below its all-time high.
