North Korea | Japan | Ross in Asia | U.S. China ag trade dispute | Steel trade | NAFTA 2.0 | Health care | Tax reform | Markets
— Kim Jong Un: ‘Deranged’ Trump will ‘pay dearly’ for threat. North Korean leader Kim Jong Un called President Donald Trump “deranged” and said he will “pay dearly’ for his threats,” a possible indication of more powerful weapons tests on the horizon. North Korea’s foreign minister reportedly said his country may test a hydrogen bomb in the Pacific Ocean to fulfill Kim’s vow to take the ‘highest-level’ action against the United States. The N.Y. Times said the remarks are “believed to be the first time a North Korean leader directly issued a statement to the world under his name.” Link for details.
As American bombers fly near North Korea, its envoy warns of ‘inevitable’ strike on U.S. Foreign Minister Ri Yong Ho said President Trump’s “rocket man” insult for Kim Jong Un makes a military clash more likely. Trump responded to Ri’s comments in a tweet Saturday night: “If he echoes thoughts of Little Rocket Man, they won’t be around much longer!”
The eight U.S. aircraft flew close to the North Korean coastline while remaining in international airspace, the Pentagon said in a statement, adding it was the farthest north of the demilitarized zone between North Korea and South Korea that American warplanes have flown since Pyongyang started testing ballistic missiles and nuclear weapons in the 1990s. “This mission is a demonstration of U.S. resolve and a clear message that the president has many military options to defeat any threat,” Pentagon spokeswoman Dana White said. “We are prepared to use the full range of military capabilities to defend the U.S. homeland and our allies.”
On Saturday, Ri suggested at the annual U.N. General Assembly gathering that military strikes by his country are inevitable. North Korea has been steadily advancing in both its missile and nuclear-warhead programs and is considered close to possessing the capability of an intercontinental strike. “Trump might not have been aware what is uttered from his mouth, but we will make sure that he bears consequences far beyond his words, far beyond the scope of what he can handle, even if he is ready to do so,” Ri said. “He committed an irreversible mistake of making our rockets’ visit to the entire U.S. mainland inevitable all the more,” he said.
Ri also said North Korea’s nuclear program had entered into the phase of completion and the country was a “responsible nuclear state” that would only use its weapons against nations that took military actions against Pyongyang.
On Saturday, China announced that it would limit exports of refined petroleum products and ban exports of condensates and liquefied natural gas to comply with the latest U.N. sanctions. It will also ban imports of textiles from North Korea. But China is not prepared to do anything that might bring down the North Korean regime, potentially bringing refugees streaming across its border and unifying the Korean Peninsula under a U.S.-friendly government.
Russian Foreign Minister Sergei Lavrov said North Korea’s atomic capabilities have effectively deterred the U.S. from a preemptive attack. The rogue state held an anti-U.S. rally in Pyongyang on Saturday.
— Abe calls snap Japan general election. Shinzo Abe today announced his intention to dissolve parliament and call a snap general election that will shape Japan’s future. With a huge lead in opinion polls, Japan’s prime minister called an election for October, focusing on a platform of higher education spending, constitutional reform and strong leadership against the missile threat from North Korea.
— Ross in trade journey through Asia. Commerce Secretary Wilbur Ross is in Beijing today to meet with Chinese Vice Premier Wang Yang and other high-level officials “to discuss a range of issues including increased market access for U.S. firms,” his office announced. Ross is leading efforts to address trade issues with China through a new “comprehensive economic dialogue.”
Ross will travel on to Hong Kong where he will participate in the Forbes Global CEO Conference. He also has plans to stop in Bangkok where he will meet with Prime Minister Prayut Chan-o-cha “to discuss strengthening bilateral trade.” Ross completes his trip to Asia with a stop in Vientiane, Laos where he will become the first U.S. Commerce secretary to visit. In Laos he will discuss ways to strengthen bilateral commercial relations, the Commerce Department said.
— U.S., China clash at WTO on Chinese ag subsidies. Alleged restrictions on Chinese imports of wheat, rice and corn via trade-limiting import quotas was the topic of a meeting of the WTO’s Dispute Settlement Body (DSB) in Geneva on Friday. The World Trade Organization (WTO) granted the Trump administration’s request to investigate whether Chinese trade policies violate international trade rules. The U.S. said China was “failing to live up to basic WTO commitments.” Beijingsaid it was “disappointed by the United States’ consecutive challenges to China’s legitimate measures with respect to vital agricultural staples including rice, wheat and corn.”
The WTO meeting was the second and final request by the U.S. to establish a panel of judges to consider the case. In December, the Obama administration first requested consultations with China — the first step in a WTO dispute. The Trump administration is also expected to continue another agriculture-related WTO case against China over allegations of excessive domestic subsidies for wheat, rice and corn. Link for more details.
Timeline. Over the next year, the WTO will evaluate U.S. allegations that China imposed “impermissible” restrictions on farm imports, failed to provide sufficient information about its import quantities, and didn’t disclose changes to those import quotas. Trade policy analysts predict a ruling in the case is unlikely to come until 2019 or 2020, due in part to a series of delays and staff shortages in the WTO dispute settlement system.
— Ross: Steel tariff decision to wait until after tax bill. Commerce Secretary Wilbur Ross said the Trump administration has decided to defer a decision on steel tariffs as it focuses on getting tax reforms through Congress. “The policy decision has been made to postpone that until the tax bill,” Ross said Friday in an interview on Bloomberg Television, when asked about his department’s review of the national-security implications of steel imports. Commerce will give President Donald Trump options when it reports its findings on the steel investigation, said Ross. But overhauling the tax system is the “single most important”’ thing on the administration’s agenda, one that will drive job creation, he said. “It’s not so much a question of backing away, it’s a question of timing,” Ross said earlier last Friday in an interview on CNBC. “Tax is extremely important because that’s the biggest single incremental factor in getting growth over 3%,” he said. The administration doesn’t want to “unnecessarily irritate” lawmakers as it builds support for a bill to overhaul taxes, Ross said.
Negative reaction to announcement from key Democrat. The top Democrat on the Senate Finance Committee slammed Trump and his team for the much-delayed announcement of the results of its national security probe examining whether to restrict steel imports. The foot-dragging has created a “crisis” for domestic industry, said Sen. Ron Wyden (D-Ore.). “The administration is creating a crisis for American steel of its own making. By prematurely announcing a poorly defined investigation into foreign steel imports, Commerce invited a flood of new imports looking to get ahead of new tariffs,” Wyden said in a statement. “Now, by delaying a decision, the administration is only amplifying the damage these imports will do to American steelworkers and mills already suffering from a global glut of foreign steel.”
— Some ag and food policy issues on NAFTA 2.0 agenda in Ottawa. NAFTA negotiators discussed food safety and animal and plant health issues on Saturday and Sunday as the third round of talks continue in Ottawa. “We’re having some constructive discussions,” Canadian chief NAFTA negotiator Steve Verheul said. “We’re looking at 28 different negotiating groups at the moment,” Verheul said. Officials from Canada, Mexico and the U.S. will discuss agricultural market access issues Tuesday and Wednesday, but Verheul said he did not expect the U.S. to offer a proposal during this round for increased access to Canada’s dairy market. Nor did Verheul think the U.S. would table proposals on auto rules of origin, investor-state dispute settlement and Chapter 19. Link for more details.
Trump team says March 21 is date it can sign renegotiated NAFTA. The Trump administration said that was the date set after it officially notified Congress on Friday evening of expected changes to the trade remedy law as a result of the negotiation. The notification is required under the Trade Promotion Authority (fast-track) law, which requires the U.S. Trade Representative (USTR) to notify key congressional committees of any potential changes to U.S. trade remedy law at least 180 days before a trade pact is signed.
The law also requires the administration to give Congress another notification 90 days before signing the agreement and to publish the text of the pact 60 days before signing. To have the deal ready to sign on March 22, USTR would also have to reach a deal in December and publish the text in January.
— Revised push on health care. With the Senate still expected to vote this week on a Republican proposal to repeal the Affordable Care Act (ObamaCare), Sens. Lindsey Graham (R-S.C.) and Bill Cassidy (R-La.) shifted more money to Alaska and Maine, whose senators have expressed reservations about it. Sens. John McCain (R-Ariz.) and Ted Cruz (R-Texas) announced their opposition to the bill, and it remained unclear if the changes would be enough to garner the needed votes — Cruz said before the new draft leaked that he does not yet support the bill, and that Sen. Mike Lee (R-Utah) might not, either. Sen. Susan Collins (R-Maine) said she wanted to see the final details before making a final decision, but in remarks on Sunday she definitely was not supporting the bill.
— Donald Trump and Republican leaders will release a tax plan this week that would slash the corporate tax rate to 20% from 35%, and cut the top individual rate to 35%. President Trump is planning to give a speech unveiling the framework in Indiana on Wednesday. Final details are expected to change substantially as it goes through the normal legislative processes in the House and Senate. Link for details.
— Other items of note:
- U.S. milk production is growing faster than dairy-processing capacity. Link.
- British Prime Minister Theresa May said the U.K. wants to retain current trade terms with the European Union for two years after its planned exit from the bloc in 2019. Link.
- Spot prices on major container shipping lanes out of Asia are falling despite announced rate increases. Meanwhile, the Baltic Dry Index edged over 1500 for the first time since April 2014.
- The White Castle burger chain is opening stores in China.
- President Donald Trump on Sunday issued a revised travel ban targeting citizens of eight countries, adding North Korea, Venezuela and Chad to a list of nations the administration says pose a threat to national security.
— Markets. World equities are rather quiet this morning with Asia slightly lower and Europe slightly higher, as markets showed a muted reaction to the German election. Winner Angela Merkel’s Democratic Union-led bloc is meeting to assess the fallout. Reason: The SPD, the party that came second in the vote, said they will not enter coalition talks with Merkel. That means the chancellor has the difficult task of trying to form a government with the business-friendly FDP and the Greens. Also of note: a bigger-than-expected success for her nationalist opponents — the anti-immigration Alternative for Germany. The AfD capitalized on Germany’s refugee crisis and will surge into the Bundestag as the first substantial rightwing populist party since the Nazis during the second world war, per the Financial Times.
Meanwhile, 10-year Treasury yields were at 2.236%.
