- U.S. has yet to accept new face-to-face Chinese trade talks according to WSJ
- Markets wait to see if Hong Kong bill will hurt trade talks
- US may open new EU trade investigation
- Washington approves a new CR and pushes the government shutdown threat to Dec 20
- USMCA may have to wait until 2020
- U.S. consumer sentiment expected to hold steady
U.S. has yet to accept new face-to-face Chinese trade talks according to WSJ — The Wall Street Journal on Thursday reported that China has invited USTR Lighthizer and Treasury Secretary Mnuchin to China for another round of face-to-face talks, but that the U.S. is reluctant to agree unless China shows a stronger commitment for concessions on IP protection, forced technology transfers, and ag purchases. The report said that China had hoped that Lighthizer-Mnuchin could visit before next week’s Thanksgiving holiday, but there has been no public announcement about any such trip as yet. The report made it sound as though the two sides are still far apart on a deal.
In more positive trade news, Chinese Premier Liu late Wednesday night said that he is optimistic about a phase-one trade deal, although he did not provide any basis for his optimism.
Also, the South China Morning Post reported Thursday that the U.S. may delay tariffs set for Dec 15 if a trade deal hasn’t been reached by then. The markets are not likely to plunge if the trade talks bleed into 2020 as long as President Trump defers the 15% tariff on the last $160 billion of Chinese goods that is due to go into effect on Dec 15.
Markets wait to see if Hong Kong bill will hurt trade talks — The markets are waiting to see if President Trump signs the Hong Kong bill approved by Congress by almost unanimous consent on Wednesday. President Trump is expected to sign the bill soon.
China has warned that it will retaliate if the U.S. finalizes the bill. The bill provides for an annual review of Hong Kong’s special legal status and allows for sanctions against Chinese officials involved with human rights violations or curbs on Hong Kong’s autonomy.
The markets are worried that President Trump’s signature on the Hong Kong bill could result in some negative consequences for the US/China trade talks.
U.S. may open new EU trade investigation — Politico on Thursday reported that the Trump administration may open a new trade investigation against the EU on broader Section 301 grounds. A Section 301 trade inquiry would likely be broader than the recent auto inquiry and could involve multiple European industries. The Trump administration has used Section 301 as grounds for most of its tariffs against China. In a Section 301 case, the President can impose tariffs based on U.S. claims of trade practices that are unjustified or that hurt U.S. commerce.
President Trump may want a new tariff threat to wield against the EU as US/EU trade talks continue. The Trump administration let the last week’s deadline expire for the Section 232 threat of tariffs on EU autos based on national security grounds. EU officials believe that Mr. Trump under the 232 law can no longer impose the auto tariffs since he missed the deadline, although he could impose the tariffs anyway and then fight it out in court. Alternatively, Mr. Trump could simply start up a new 232 investigation into imported autos.
The good news is that the EU has dodged a bullet for now since there apparently won’t be any new U.S. tariffs on EU autos for now. A tariff on EU autos would be a major hit to the European manufacturing sector, which is already in a recession. In addition, the EU has promised to retaliate against any U.S. auto tariff with EU tariffs on $39 billion of U.S. goods, thus causing a significant counterpunch to the U.S. export sector.
Washington approves a new CR and pushes the government shutdown threat to Dec 20 — The Senate on Thursday approved a new continuing resolution through Dec 20, thus finalizing Congressional passage. President Trump then signed the new CR into law late Thursday afternoon, thus averting a U.S. government shutdown that would have otherwise occurred last night when the existing CR expired. Congress is now on recess until after the Thanksgiving holiday, giving the markets a partial respite from Washington politics.
USMCA may have to wait until 2020 — The odds appear to be slim that the House will pass the USMCA before recessing for the year. House Speaker Pelosi and House Democratic leaders met with USTR Lighthizer on Thursday but failed to finalize an agreement. Ms. Pelosi said that the two sides made progress in the meeting and that, “I think we are narrowing our differences.” Once a verbal agreement is reached, then the legislation has to be written and analyzed.
The markets are hoping that a USMCA deal can get done soon so that President Trump doesn’t activate his threat to exit from the current NAFTA treaty with 6 months’ notice, thus leaving North American trade in the lurch.
U.S. consumer sentiment expected to hold steady — The consensus is for today’s final-Oct University of Michigan U.S. consumer confidence index to be unchanged at 95.7, thus leaving intact the +0.2 point increase from September that was seen in the preliminary Nov report. The consumer sentiment index is currently mildly below the 24-month average of 97.0 but has at least recovered by +5.9 points from August’s 3-year low of 89.8.
U.S. consumer confidence is seeing support from (1) the strong labor market, (2) the record highs in the stock market that boost consumer 401k accounts and foster optimism about the economy, and (3) the continued rise in home prices that bolsters household wealth. However, confidence is being undercut by trade tariffs, political uncertainty in Washington, and the slowdown in U.S. GDP growth to +1.9% in Q3.
