North Korea | Tax reform | National debt | Irma update | Disaster aid | Logistics update | KORUS | Sen. Hatch | ObamaCare | Transportation safety | Brexit | La Niña | China corn | Markets
— North Korea sanctions. The United Nations Security Council approved new sanctions on North Korea after the U.S. dropped demands to impose an oil embargo on the country to win support from China and Russia. The sanctions aim to deprive Pyongyang of more than $1.3 billion in annual revenues to increase pressure on Kim Jong Un’s regime following its recent nuclear test. North Koreans can also no longer open new accounts, after China’s big banks made an unprecedented move to clamp down on financial flows from the North Korea.
The measures include reducing gasoline and diesel imports to the country by 56% and capping oil supply at current levels, while banning textile exports. Other nations are barred from authorizing new work permits for North Korean workers, putting a squeeze on two key sources of hard currency. The U.S. unsuccessfully tried to get a travel ban and freezes on the assets of North Korean leader Kim Jong Un and Air Koryo, the North’s flagship airline. The U.S. proposed slashing projects employing North Korean workers abroad, but instead accepted sanctions aimed at gradually scaling them back.
Details. The sanctions that punish North Korea for its sixth nuclear test cap Pyongyang’s annual imports of crude oil at the same level they have been for the past 12 months: an estimated 4 million barrels. (According to Chinese customs data, North Korea imports nearly 2.2 million barrels a year in petroleum products, but some U.S. officials believe the true number is much higher: about 4.5 million barrels. So the 2 million barrel cap could be cutting existing imports 10 percent, or slashing them by more than half.)
China’s U.N. Ambassador called on North Korea to “take seriously the expectations and will of the international community” to halt its nuclear and ballistic missile development. He also called on all parties to remain “cool-headed” and not stoke tensions.
North Korean trade is kept alive by a shifting network of ships and shipowners, many based in Hong Kong, a Financial Times investigation has found. The web of ships, people and businesses perpetuating trade flows suggest the international community faces a huge challenge if its clampdown is to succeed, the newspaper concludes.
“Russian smugglers are scurrying to the aid of North Korea,” the Washington Post reported, “with shipments of petroleum and other vital supplies that could help that country weather harsh new economic sanctions, U.S. officials say in an assessment that casts further doubt on whether financial measures alone can force dictator Kim Jong Un to abandon his nuclear weapons program. The spike in Russian exports is occurring as China — by far North Korea’s biggest trading partner — is beginning to dramatically ratchet up the economic pressure on its troublesome neighbor in the face of provocative behavior such as last week’s test of a powerful nuclear bomb. Official documents and interviews point to a rise in tanker traffic this spring between North Korean ports and Vladivostok, the far-eastern Russian city near the small land border shared by the two countries. With international trade with North Korea increasingly constrained by U.N. sanctions, Russian entrepreneurs are seizing opportunities to make a quick profit, setting up a maze of front companies to conceal -transactions and launder payments, according to U.S. law enforcement officials who monitor sanction-busting activity.” Link for details.
North Korea responds. North Korea’s ambassador, Han Tae Song, told the U.N.-sponsored Conference on Disarmament in Geneva on Tuesday the U.S. was “fired up for political, economic, and military confrontation.” The North regularly threatens to destroy the South and its main ally, the United States, which it accuses of continual preparation for invasion. “My delegation condemns in the strongest terms, and categorically rejects, the latest illegal and unlawful U.N. Security Council resolution,” he said. The Democratic People’s Republic of Korea (DPRK) was “ready to use a form of ultimate means,” Han said, without elaborating. “The forthcoming measures by DPRK will make the U.S. suffer the greatest pain it ever experienced in its history.”
— GOP lawmakers clash on tax reform strategy. Uncertainty over the tax plan, primarily over the corporate tax level and whether the plan should be deficit or revenue neutral, is holding up a House floor vote on a fiscal 2018 budget resolution that would be needed to get any tax code overhaul on a legislative fast track. The GOP plans to advance a tax overhaul through the budget reconciliation process, but doing so requires both chambers to adopt a common fiscal 2018 budget resolution that contains reconciliation instructions. The House Budget Committee approved a budget (HConRes 71) in July, but so far the plan doesn’t have enough support to be adopted on the floor.
To get a tax reform deal uniting Republicans, Treasury Secretary Steven Mnuchin and National Economic Council Director Gary Cohn plan will meet today with GOP tax writers and Senate Budget Committee Republicans. Their aim is to advance a budget resolution and tax code overhaul. The key issue remains: How and whether to pay for tax cuts.
Repealing the estate tax through tax reform wouldn’t eliminate valuation abuses addressed in proposed rules that may not survive the Trump administration’s review, a Treasury official warned.
— Total value of the U.S. national debt has surpassed the $20 trillion mark for the first time in the history of the nation. The problem isn’t likely to get better anytime soon; the 2017 fiscal year budget ends Sept. 30, and is slated to add another $700 billion deficit. U.S. debt also exceeds GDP, which was estimated to be roughly $19.23 trillion in the second quarter of 2017.
— Irma now a post-tropical cyclone. Irma has become a Post-Tropical Cyclone and will slowly wind down on Tuesday and Wednesday, according to the U.S. Weather Prediction Center (WPC), with the remnants to make their way to southern Illinois by Wednesday evening. The system will still produce rain over areas of the southern Ohio Valley and Tennessee/lower Mississippi Valleys, WPC said, that will also reach into areas of the northern Ohio valley. “Overnight Tuesday, the rain will expand into parts of the Great Lakes and the Middle Mississippi Valley that will end over the Middle Mississippi Valley by Wednesday evening,” WPC said. But there will also be more precip in store for Florida as tropical moisture will move into southern Florida overnight and help produce scattered showers and thunderstorms over southeastern and southern Florida Wednesday. Six deaths in Florida have been blamed on Irma, along with three in Georgia and one in South Carolina. At least 35 people were killed in the Caribbean.
Florida’s agriculture industry took a big hit from Hurricane Irma, with early estimates showing up to 30% of some major crops had losses. There are no official reports of damage totals but the value of Florida’s citrus last year exceeded $1 billion and sugar cane topped $561 million — the Florida Department of Agriculture and Consumer Services said information on crop damage wasn’t yet available.
Besides whipping orange trees in the Sunshine State, Irma has prompted Tyson Foods to shut its meat plants in the region. Tyson Foods said that it halted operations at its chicken plants in Cumming, Dawson and Vienna, Georgia, and a beef facility in Jacksonville, Florida, spokesman Derek Burleson said. Cal-Maine Foods said some egg farms and production facilities in Florida and Georgia were impacted by flooding and had minor damage from the storm, but no material loss in egg production was expected. The Port of Savannah in Georgia is to remain closed through today, according to the Georgia Ports Authority, a port which accounts for nearly one-third of US poultry exports. The Port of Charleston in South Carolina halted operations Monday but was expected to resume operations today (Tuesday). Mosaic Co. indicated it has incurred damage, including at a fertilizer warehouse in Bartow, Florida, and there are disruptions in the supply chain with the firm no longer making phosphate price offers to domestic and international customers due uncertain product availability.
The lack of crop insurance by many of Florida’s fresh produce growers will likely be a factor in the coming new U.S. farm bill debate. Efforts could be made to bring down the high cost of insuring fruits, vegetables and tree nuts that have led many growers to forgo coverage. Others note the specialty crops they grow are not eligible under the program.
— Additional aid for disaster recovery may be needed sooner than expected. Congress last week passed a $15.25 billion aid package (HR 601) in the wake of Hurricane Harvey’s attack on Texas and Louisiana. Part of that money could also get used in Florida, but it’s not clear how long it will last.
Thomas Bossert, the White House homeland security adviser, suggested Monday that a second aid package could come as early as late this month. The recovery effort will be so massive that a long line of supplemental spending bills may be required in the coming months. He declined to speculate on how much money may ultimately be required, though officials in Texas and Florida and analysts have suggested the total damage from the two hurricanes combined could easily top $200 billion.
Mexico pulls back offer. Meanwhile, after a devastating earthquake and hurricane (and some observers note after President Donald Trump failed to send condolences), Mexico has rescinded its offer of aid to the U.S. Mexico is dealing with its own efforts to rebuild after an earthquake killed nearly 100 people late last week and left millions of others in need of assistance. “Given these circumstances, the Mexican government will channel all available logistical support to serve the families and communities affected in the national territory,” the foreign ministry said in a statement.
— Several seaports in the Southeast U.S. are preparing to reopen as soon as today as the gateways assess damage and flooding from Hurricane Irma. The rapid recovery at ports including Tampa and Miami in Florida and Savannah in Georgia is aimed at opening distribution channels for badly needed shipments of fuel, food and other goods, the Wall Street Journal reported, along with restoring commercial operations that have been on hold.
Officials say 10 cargo vessels were queued up northeast of Savannah, waiting out the storm, and supply lines for tankers are forming to get fuel into a region that’s been hit by gasoline and fuel shortages. That’s partly the result of the impact of Hurricane Harvey on the Texas coast, where oil refineries shut down for several days. Three tankers were waiting to bring fuel into Tampa on Monday, providing critical supplies for a state where 64% of utility customers are without power and dozens of nursing homes and hospitals are running on backup generators.
Meanwhile, Canadian Pacific Railway Ltd. and the Teamsters union agreed to a one-year renewal of their existing contract.
The White House named former Iowa transportation chief Paul Trombino as head of the Federal Highway Administration.
— Former House Speaker John Boehner to President Trump: Don’t withdraw from South Korea trade deal. Boehner — a big proponent of fairer trade — is urging Trump to bolster ties with Seoul: “For our strategic endeavors to succeed, however, the United States must strengthen — not weaken — its already vital economic relationships in the Pacific, from South Korea and Japan to Australia and China. We cannot isolate the regime in Pyongyang by isolating ourselves. Withdrawing from the Korea-U.S. Trade Agreement ... would undermine America’s strategic objectives in the Pacific region and undercut our own workers and employers, who continue to depend on the free flow of goods and services between the US and the Republic of Korea. Instead of pulling back from our current engagements and commitments, we must renew and strengthen our relationships in the Pacific region, not just with South Korea, but with China, as reflected in the joint commitment to economic cooperation that was expressed by President Trump and President Xi in April; and with Australia and Japan, our long-standing allies, whose alliances and friendships with America are now more important than ever.” Link for full statement.
— South Korean Envoy: U.S. likely to remain in KORUS. South Korean Ambassador Anh Ho-young expects the U.S. to continue trade talks on the concerns about the 2012 trade agreement, despite reports that President Donald Trump is considering taking America out of the pact. Ahn said Monday at a forum that he does not have a date for a second special session of talks with the U.S., but he said he is taking Trade Representative Robert Lighthizer at his word that further talks will be held. Lighthizer called for the session under a provision in the trade agreement, generally referred to as KORUS. Ahn said South Korea is keeping the lines of communications open with the administration. It is unclear whether Lighthizer wants to narrowly focus the talks or expand them to a renegotiation of the trade pact. “Let us be patient and go step-by-step rather than jumping the gun,” Ahn said when asked if South Korea would be amenable to the United States opening KORUS for renegotiations — as it has done with the North American Free Trade Agreement.
Ahn said South Korea and the U.S. had each benefited under the trade agreement. South Korea has seen its exports to the United States increase, while South Korean companies’ investment in the U.S. has grown by 60% over the life of KORUS, Ahn said. But Washington notes that U.S. exports in goods to Korea were down 2.7% in 2016 from 2011. The ambassador also detailed that the U.S. has an $11 billion trade surplus in transportation, tourism and legal services, an area where he said Americans have the expertise to make even bigger inroads into his country. Ahn argued that when the U.S. service surplus is factored in, the U.S. trade deficit with his country drops to $16 billion. According to the Census Bureau, the U.S trade deficit in goods with South Korea the year before the trade agreement took effect was $13.2 billion.
Ahn said he recently addressed the National Cattlemen’s Beef Association, which credits KORUS for $1 billion a year in beef sales to South Korea. He said the cattlemen knew Japan bought more overall, at $1.5 billion, but were quick to calculate that Koreans bought more beef per capita than Japanese consumers.
— Sen. Hatch to decide on reelection run by year-end. Senate Finance Chairman Orrin Hatch (R-Utah) said Monday he will decide by year-end whether or not he will seek an eighth term in the U.S. Senate in 2018. “Right now, I tend to run again. But who knows?” Hatch said told Politico. “By the end of the year, I’ll make that determination.” UtahPolicy.com reported that former Republican presidential candidate Mitt Romney was readying a run for Hatch’s seat should he opt not to run. If Hatch does not run,, it would mark the first Senator up for reelection in 2018 that would not seek to return to the chamber.
— A new plan to repeal and replace major parts of ObamaCare is set to be unveiled by two Republican senators. NBC News reports that it had obtained a 23-page summary draft of the bill to be proposed by Lindsey Graham of South Carolina and Bill Cassidy of Louisiana.
— The U.S. Transportation Department will unveil streamlined safety guidelines today for automakers that want to deploy self-driving vehicles, as members of Congress push to remove regulatory barriers for the technology. A Reuters source said the new document is titled A Vision for Safety, and will be less “burdensome” and half the length of the Obama administration guidelines released in September 2016.
— Brexit vote in U.K. The U.K. parliament voted 326 to 290 to let the prime minister’s Brexit law advance, meaning the government’s strategy for leaving the European Union remains on track. However, the government is likely to face a tougher test as the legislation moves to a more detailed examination in the committee stage. One of the biggest arguments is over so-called Henry VIII powers, the rewriting of laws without consulting parliament.
— La Niña set to appear? Most international climate models surveyed suggest the tropical Pacific Ocean may cool further, according to the Australian Bureau of Meteorology, but still are seen at neutral levels relative to El Niño/Southern Oscillation (ENSO). “Two of the eight models approach La Niña thresholds around the end of the year, which is typically when ENSO events reach their peak,” the agency said. One model suggests the potential for La Niña by November with another signaling by January, the agency detailed. “Thus, ENSO is likely to remain neutral until at least early 2018.”
— China ups corn crop, imports. Chinese 2017/18 corn production is put at 212.48 million tonnes in the monthly Chinese Agricultural Supply and Demand Estimates (CASDE) report from the country’s agriculture ministry, up from a prior outlook of 210.7 million tonnes. Imports are now forecast at 1.5 million tonnes for 2017-18 compared to a prior outlook of one million tonnes. That has trimmed their forecast corn deficit to 890,000 tonnes for 2017-18 compared to their month-ago outlook that the country would have a deficit of 3.17 million tonnes. The CASDE update also included a higher soybean import level for 2017-18 of 94.5 million tonnes, up from 93.16 million tonnes a month ago.
— Markets. Monday’s record-high close in U.S. stocks helped lift equities across the globe — the Dow, S&P and Nasdaq all closed higher by over 1% on Monday, for only the second time this year. Today, the MSCI Asia Pacific Index gained 0.3%, while Japan’s Topix index added 0.9% as the yen weakened further against the dollar. In Europe, the Stoxx 600 Index was higher, while S&P 500 futures climbed slightly. Apple shares were higher this morning in premarket trading before it holds its long-anticipated product launch event today beginning at 1 p.m. ET, at which new versions of the iPhone are widely expected to be unveiled. 10-year Treasury yields were at 2.151% and gold was lower. Crude futures are heading lower, dipping 0.5% to $47.81/bbl, as refiners in the U.S. continue to come back online after Hurricane Harvey forced them to shut down two weeks ago.
