North Korea | DACA | Heitkamp | Tax reform | Infrastructure reform | SNAP hearing | Canada rail | EU and GMOs | Trump blocks China firm | Nominees | Ross trade mission to China | EU trade outlook | NAFTA 2.0 | Grain shipping costs | China economic data | Markets
— North Korea is threatening to “sink” Japan with nuclear weapons. North Korea threatened to use a nuclear weapon against Japan and turn the U.S. into “ashes and darkness” for passing fresh United Nations sanctions earlier this week. “Japan is no longer needed to exist near us,” the state-run Korean Central News Agency said today, citing a statement by the Korea Asia-Pacific Peace Committee. “The four islands of the archipelago should be sunken into the sea by the nuclear bomb of Juche,” it said, a reference to the regime’s ideology of self-reliance. Japanese Chief Cabinet Secretary Yoshihide Suga called the comments, which sent the Korean won lower, “extremely provocative.”
“If North Korea stays the course that it is on, it will increasingly become isolated from the world,” Suga said in Tokyo. “Through implementing the new United Nations Security Council resolution and related agreements, the international community as a whole needs to maximize pressure on North Korea so that it will change its policy.”
Treasury Secretary Steven Mnuchin warned the U.S. may impose additional sanctions on China — potentially cutting off access to the U.S. financial system — if it doesn’t follow through on a fresh round of United Nations restrictions against North Korea.
Mnuchin is leaving the door open on the threat, first issued by Trump last month, of cutting off all trade with China to pressure it to help with North Korea, Fox News reports. “I’ve worked on an executive order that’s ready if the president wants to use it,” Mnuchin said.
North Korea faces food shortages after intense drought and ‘very bad harvest.’ Link for details.
— Trump, Democrats shape agreement to protect ‘Dreamers.’ President Donald Trump and congressional Democrats closed in on a deal to give legal status to undocumented immigrants who were brought to the U.S. as children. The president’s “Dream Team” move is partly out of frustration with GOP lawmakers, rather than a bid to shift to the center.
Democratic Party leaders said Wednesday night that they had reached an agreement with Trump to extend protections for young undocumented immigrants. After a “very productive” dinner at the White House, Sen. Chuck Schumer (D-N.Y.) and Rep. Nancy Pelosi (D-Calif.) said the deal would also finalize border security measures that would not include the president’s proposed wall.
The White House released a statement that didn’t mention a deal. Trump tweets this morning: “No deal was made last night on DACA. Massive border security would have to be agreed to in exchange for consent. Would be subject to vote. ... The WALL, which is already under construction in the form of new renovation of old and existing fences and walls, will continue to be built.”
— Heitkamp will run for re-election in 2018. Sen. Heidi Heitkamp (D-N.D.) cited agricultural trade as one of the top six reasons she is running for re-election, an announcement she made on Wednesday. “Who will fight to make sure policies support farmers and ranchers who need to export their products?” the Democrat said on her campaign Twitter feed after revealing the news on her brother’s radio show.
— Tax reform timeline. President Trump made clear Wednesday in tweets that he wants Congress to begin work now on major tax reform. Republican leaders are now giving themselves until mid-October to come up with tax-cutting legislation and a fiscal 2018 budget resolution — GOP leaders, who are hoping to overhaul the nation’s tax code by year’s end, signaled they will release a more detailed framework for the high-priority initiative during the week of Sept. 25.
A “template” to guide tax legislation, based on a GOP consensus among congressional tax writers and the Trump administration, will be released in the final week of September, House Speaker Paul Ryan (R-Wis.) said. Detailed tax legislation — and a budget resolution to support it — would come in following weeks. Rep. Kevin Brady (R-Texas), chairman of the House Ways and Means Committee, outlined the fall schedule Wednesday. Republicans hope to finish the budget process — a prerequisite for fast-tracking a tax bill through the Senate without Democratic votes — by mid-October. The tax bill would come after that.
A budget resolution would set the size of any tax cut. Under the fast-track rules known as reconciliation, the tax bill can’t increase deficits beyond the length of the budget, typically 10 years. Getting an agreement could be a particular challenge in the Senate, where Republicans control 52 of the 100 seats.
Trump said Wednesday the emerging Republican tax proposal won’t cut taxes for the wealthy, and they may go up, differing from the plan that his administration and GOP leaders are drafting.
Republicans are divided over the size and shape of tax cuts—and whether to pay for them all or just enlarge the deficit. But Ryan suggested that recent talks have helped narrow the differences so that a consensus will be reached by the end of this month. “The whole point of all of this is the House, the Senate and the White House are starting from the same page and the same outline, and then the tax writers are going to take it from there on the details,” Ryan said.
The strategy is at least partly a response to the health care debacle over the summer, when Republican disputes over how to replace ObamaCare led to a collapse of GOP legislation. “It is a lesson learned from health care,” Ryan said at an Associated Press forum streamed on Facebook. “We don’t want to repeat that again.”
While Ryan insisted a tax plan would still become law by the end of this year, he made clear that some major policy decisions have yet to be ironed out, with some details to be worked out by the tax-writing committees.
President Trump has begun openly courting Democrats to test the feasibility of a bipartisan plan. Such a move away from a Republican-only strategy would avoid the need to pass a budget resolution as a preliminary step. The resolution would include a procedural tool known as reconciliation, which would let Republicans pass tax legislation with a simple majority vote in the Senate, avoiding a filibuster. But Ryan said congressional leaders still intend to use reconciliation to pass their tax plan. “If we have a process that allows us for avoiding filibusters, shame on us for not using that process,” he said.
The revised timeline means the House is unlikely to vote on a budget resolution before October. “We’re still finalizing some discussions with individual members who have questions,” said Rep. Todd Rokita (R-Ind.), vice chairman of the House Budget Committee, which passed the resolution in July on a party-line vote. “There are a lot of moving parts.” The Senate Budget Committee, by contrast, has yet to draft its own budget blueprint and now appears unlikely to do so before next month.
— Trump administration infrastructure plans waiting on tax overhaul. More-detailed plans on infrastructure legislation are being readied by the White House for Congress to use in putting together such a package, but an administration told Politico the package will not come until after there is progress on tax overhaul. “Our position is to be ready to go when the president decides to transition” to infrastructure, the official said. Congress will take the lead in the effort, the official said, noting lawmakers have asked for more specific on how the administration envisions bringing state and private money into the mix. “We’ll do the principles, they’ll do the drafting,” the official said. Savings via cuts to other programs is where the $200 billion in federal money will come from for the infrastructure effort.
— SNAP/food stamps focus of Senate Ag panel hearing today, with spotlight on error-rate issues. The Senate Agriculture Committee today holds a hearing on SNAP ahead of the effort to renew the farm bill. Chairman Pat Roberts (R-Kan.) plans to focus on how USDA calculates the error rate for the food stamp program. Error rates include underpayments and overpayments to beneficiaries.
USDA’s Office of Inspector General (OIG) has previously issue reports on the matter. It found that states had purposefully weakened the integrity of the quality-control process in order to lower error rates. In Virginia and Wisconsin, the Justice Department and the OIG found the states had excluded questionable case determinations from review and tilted their findings to lower their error rates. The states, said DOJ, tailored official documents to smooth over any problems or missing information to win federal bonuses. Under the False Claims Act, each state agreed to pay the federal government $7 million in civil fines. The settlements were announced in April. The Justice Department said it was reviewing 18 other states that employed the same consultant that Virginia and Wisconsin officials say coached state workers on how to keep error rates low. Justice Department documents identified the consultant as Julie Osnes, who ran the South Dakota food stamp program for 20 years.
Congressional supporters of SNAP defend it as an effective program that as of June helped 41.5 million poor Americans feed their families. And they often cite the 3.7% annual error rate as an indicator of a well-managed program.
— Canada rail firms optimistic on grain volumes despite drought. Canada’s two main railroads — Canadian Pacific and Canadian National — expect grain volumes the remainder of the year will not be affected by drought that has trimmed wheat and canola production. “I’m cautiously optimistic, that if the weather cooperates with us, there’s actually some upside there,” Canadian Pacific Railway Chief Executive Keith Creel said at a Morgan Stanley conference on Wednesday. Canadian National Railway CFO Ghislain Houle said some customers were seeing an “upside” in the grains business with drought impacts in southern areas and Saskatchewan. “As you know we’re in the north,” he noted.
— Dow soybeans opposed in EU; Monsanto corn wins in Italy. The European Union could stop importing Dow AgroSciences’ genetically modified soybean products because it encourages greater use of hazardous herbicides in non-EU countries, the European Parliament said Sept. 13. Lawmakers voted 433-216 in favor of the nonbinding resolution to halt imports of food and feed derived from the Dow soybeans.
The Parliament doesn’t have the authority to block the approval of the soybean — that power rests with regulatory committees of member states — but regularly adopts resolutions objecting to approved genetically modified crops on the grounds that the bloc’s system for authorizations is flawed and undemocratic.
Background. The regulatory committees frequently deadlock on whether to go ahead with approvals because EU countries are divided on genetically modified crops. In such cases, the European Commission, the EU’s executive arm, adopts the authorizations if the European Food Safety Authority has found the genetically modified crops to be safe.
Dow said it “regrets” that the Parliament continues to adopt nonbinding resolutions “against biotech products,” even though the European Food Safety Authority has cleared the products’ safety.
In a separate development, the EU Court of Justice ruled that Italy wrongly adopted emergency measures in 2013 that blocked the country’s cultivation of Monsanto’s MON810 genetically modified corn. Italian authorities adopted an emergency ban on environmental and health grounds, despite the European Food Safety Authority finding MON810 to be safe. Italian farmers that subsequently cultivated MON810 were prosecuted. The EU Court of Justice said in a Sept. 13 statement that such an emergency ban could not be implemented “where it is not evident that genetically modified products are likely to constitute a serious risk to human health, animal health, or the environment.” The EU updated its rules on cultivation of genetically modified crops in 2015 to allow EU countries to opt-out of EU-level authorizations, thus making use of emergency measures to block cultivation redundant. Subsequently, 19 EU countries including Italy implemented opt-outs for all or part of their territory.
— Trump blocks China purchase of U.S. firm. President Donald Trump has blocked the purchase of Lattice Semiconductor Corporation by China Venture Capital Fund Corporation Limited (CVCF) which manages industrial investments and venture capital. U.S. regulatory scrutiny grew after reports in November suggested that Canyon Bridge was funded partly by capital from China’s central government and had indirect links to its space program.
The decision came in response to a recommendation from the Committee on Foreign Investment in the United States (CFIUS). White House officials said there were concerns about the potential transfer of intellectual property to CVCF, Beijing’s role in supporting the transaction and the importance of the semiconductor supply chain and Lattice products in particular by the U.S. government. The administration has recently been considering making changes to the agency and some lawmakers are also pushing to change the agency. The decision also came after the U.S. firm reached out directly to Trump, urging him to approve the deal despite the CFIUS recommendation to the contrary.
— Senate Energy panel delays vote on Trump nominees. The Senate Energy and Natural Resources Committee said the scheduled vote Thursday on several nominees for posts at the Department of Energy, Department of Interior and the Federal Energy Regulatory Commission (FERC) would be postponed. The panel was slated to consider Kevin McIntyre for chairman of FERC, Richard Glick for FERC commissioner, David Jonas for DOE general counsel, and Ryan Nelson and Joseph Balash for solicitor and assistant secretary for land and minerals management at DOI. The vote will now happen Sept. 19 as a committee spokesperson said the delay was due to “member availability.”
— Commerce’s Ross to lead trade mission to China in conjunction with Trump visit. Commerce Secretary Wilbur Ross will lead a trade mission to China in mid-November in conjunction with President Donald Trump’s first visit to the country, according to a notice posted on the Department of Commerce website. “This multi-sector mission will promote U.S. exports to China by supporting U.S. companies in launching or increasing their business in the marketplace, as well as address trade policy issues with high-level Chinese officials,” the notice said. “The mission will take place as part of President Trump’s first visit to China.”
DOC said the trade mission would be made up of senior executives from 12 to 25 U.S. companies and they clearly are wanting new deals to be struck between U.S. and Chinese firms as a way of addressing the U.S. trade deficit with China. Expectations are the Ross trip will be Sept. 24-25.
— EU could gain on U.S. trade policy stance. The European Union’s top executive thinks President Donald Trump’s “America First” policies could open trade opportunities around the world for Europe. European Commission President Jean-Claude Juncker said countries around the world “are knocking at our door in order to sign trade agreements with us,” the Wall Street Journal reported, and that trade deals with Mexico and South America’s Mercosur countries are in the works. The bloc’s toughest negotiation may come with China over foreign investment, and any pact on thorny issues of corporate ownership will likely have to involve the U.S.
— ‘Sunset’ proposal pushed for NAFTA 2.0. The Office of the U.S. Trade Representative (USTR) reportedly is considering a “sunset” proposal — a provision that would implement an automatic termination of the deal after five years unless all parties agree before then to renew it, according to Politico.
“Termination of NAFTA would be devastating for the U.S. agricultural economy, and making such termination automatic substantially increases its likelihood,” a USDA official said in an emailed reply to USTR. The USDA official said the primary benefit of a trade agreement is the certainty it provides, and “a sunset provision removes any such certainty and will significantly dampen investment and trade.”
Meanwhile, a top official at the National Milk Producers Foundation said the NAFTA rewrite will be a “failure” if U.S. officials do not address Canada’s national pricing program.
On another trade proposal matter, U.K. Environment Secretary Michael Gove said concerns over U.S. chlorine-washed chicken could delay a future U.S.-U.K. trade agreement, the Telegraph reports. Link.
— The cost of shipping grain down the lower Mississippi River could rise and have a “ripple effect” on the agricultural sector if the Trump administration were to place restrictions on steel imports, according to a new report prepared for the American Institute for International Steel. Link to report.
— China’s economic data raises fresh concerns about the remainder of 2017. Industrial output in China slowed to a 6.0% rise in August compared to year-ago, down from 6.4% in July, according to the National Bureau of Statistics. That compares to expectations for an increase of 6.6%. Fixed-asset investment rose 7.8% the first eight months of this year, down from the 8.3% level registered for the first seven months and under expectations for an 8.2% rise. This marks the first time this reading has been under 8% since 1999. Retail sales were up 10.1% from year-ago, slower than the annual increase of 10.4% registered in July. Expectations had been for an increase of 10.5%.
Chinese officials noted data was impacted by the weather, but others signal the tightening of credit, a slowing property market and dwindling impacts from stimulus efforts drove the slowing activity levels.
— Markets: Asian stocks inched down from 10-year highs overnight following a burst of Chinese data that was largely weaker than investors expected (see related item). Other stock markets around the world are mostly lower. The Bank of England voted 7-2 to keep rates on hold, but prepared the market for a rise. The BoE issued its strongest guidance in a decade that it is poised to raise interest rates, setting the stage for a nail-biting decision at the November meeting of the Monetary Policy Committee. U.S. stocks saw another record high close on Wednesday — the gains put the Dow and S&P 500 on track for their best weekly gain in nearly five months. Today, the 10-year Treasury yield was unchanged at 2.190% and gold added $1 an ounce.
