- Optimism grows about US/Chinese trade deal
- France delays the mandate to begin US/EU trade talks, risking Trump auto tariffs
- No-deal Brexit fears fade as Parliament approves bill while May-Corbyn negotiating teams meet today
- Claims expected to remain favorable
Optimism grows about US/Chinese trade deal — The Liu/Lighthizer/Mnuchin trade talks that began yesterday will continue today. In addition, Chinese Vice Premier Liu is scheduled to meet with President Trump today. Bloomberg yesterday reported that a Trump/Xi meeting date could be announced as soon as today. Bloomberg also reported that the U.S. is willing to give China until 2025 to fulfill its trade pledges.
However, the Wall Street Journal’s reporting is more cautious and says that the biggest sticking point that could yet upend the deal is that China wants the U.S. and China to remove all the penalty tariffs they have on each other’s goods. President Trump and USTR Lighthizer have taken the view that at least some penalty tariffs must remain in place to ensure that China meets its commitments. It remains unclear whether continued tariffs would be a deal breaker for China. The WSJ says the tariff question will have to be decided by the U.S. and Chinese presidents and not by negotiators. WSJ also said that there is not likely to be a final agreement this week because Mr. Liu needs to first return to China to seek approval from President Xi.
France delays the mandate to begin US/EU trade talks, risking Trump auto tariffs — Bloomberg reported that EU ambassadors at their meeting yesterday delayed a decision on whether to give the mandate to EU Trade Commissioner Malmstrom that she needs to begin the formal US/EU trade talks that Trump-Juncker agreed to last July. Bloomberg said that France is holding up the mandate because of wording in the mandate regarding the environment and other issues. WSJ said the mandate may still be approved within the next few days. If approved by the Ambassadors, then the mandate will need to be approved by trade ministers, which could happen at their next meeting on April 15.
There is concern that President Trump may go ahead with auto tariffs if the EU does not begin trade talks with the U.S. very soon. Mr. Trump is already upset that the talks have taken this long to get going and also that the EU is also refusing to include agriculture in the talks.
President Trump could announce tariffs on imported autos at any time if he wishes. The Commerce Department’s recommendation on whether President Trump should impose tariffs on imported autos based on national security grounds has not yet been made public. However, there is virtually no doubt that the recommendation is that the tariffs should be imposed, in line with Mr. Trump’s guidance.
As we mentioned yesterday, the global stock markets would undoubtedly react very negatively if President Trump announces tariffs on imported autos, which would draw retaliatory tariffs very quickly. The US/Chinese tariffs have already put a chill into global trade and the global economy. The impact of tariffs on autos would be larger than that of the US/Chinese tariffs, according to WTO Chief Economist, who points out that US/Chinese trade accounts for only 3% of global trade whereas global automobile trade accounts for 8% of world trade.
No-deal Brexit fears fade as Parliament approves bill while May-Corbyn negotiating teams meet today — The odds of a no-deal Brexit fell further towards zero yesterday after Parliament by a 1-vote margin approved a bill that would require Prime Minister May to request a Brexit deadline extension beyond April 12 if Parliament does not approve the Brexit separation agreement. The bill now goes to the House of Lords, which is expected to approve the bill in a vote that could come as soon as today. The EU could refuse an extension, but that is not likely as long as the UK agrees to hold elections for the EU Parliament. The UK Parliament yesterday voted for the benefit of the country in avoiding a no-deal Brexit, which by all accounts would cause a big hit to the UK economy and its citizens.
Meanwhile, Prime Minister May and Labour leader Corbyn on Wednesday held talks to see whether the Labour Party could be convinced to support Ms. May’s Brexit separation agreement. If Parliament approves the Brexit separation agreement by next Friday’s April 12 deadline, then the UK will be home-free with a transition period through December 2020 during which the UK will remain a member of the Common Market and nothing will change. That would give the UK time to negotiate a new trade relationship with the EU.
By seeking the support of the Labor Party, which wants the UK to remain at least within the EU customs union, Ms. May is basically throwing the hardline Brexiteers in her party under the bus. Brexit hardliners had a bad day yesterday because Ms. May is opening up to the possibility of a softer Brexit and because they won’t be getting a cold-turkey no-deal Brexit next Friday.
Ms. May and Mr. Corbyn assigned negotiating teams to work all day today to see if they can come up with some type of change to the Political Declaration that would allow Mr. Corbyn to support passage of the overall Brexit separation agreement. Ms. May has only until next Wednesday to come up with some type of solution to present to the EU at the emergency summit that they have called to deal with Brexit.
Claims expected to remain favorable — The consensus is for today’s weekly initial unemployment claims report to show a +4,000 increase to 215,000, reversing most of last week’s -5,000 decline to 211,000. Continuing claims are expected to show a decline of -4,000 to 1.752 million after last week’s +13,000 increase to 1.756 million. Initial claims are currently only 3,000 above Sep’s 49-year low of 208,000 while continuing claims are a little elevated at 107,000 above October’s 45-year low of 1.649 million.
