Four Challenges For Trump – What You Missed Over The Holidays

Most importantly, the U.S.-China trade deal is set to be signed on Jan. 15, according to President Trump, with the legal text set to be agreed as soon as Jan. 4, South China Morning Post reports. 

There have already been several signs of goodwill on the Chinese side, including a widening of exemptions for U.S. energy goods from retaliatory duties. That’s been extended with approvals by the Chinese Agriculture Ministry to allow imports that include Dow AgroScience’s pest-resistant soybeans and Monsanto’s glyphosate among others.

The exemptions are partly a matter of necessity. China’s total imports of soybeans climbed 40.9% year over year in November after an increase of just 5.5% in the prior three months Imports from the U.S. meanwhile have been steadily increasing after a precipitous drop in 2018. 

There’s still a long way to go though, with U.S. exports of soybeans to China in the three months to Oct. 31 still being 55.4% lower than the same period in 2017, Panjiva data shows. 

Yet, there are additionally still significant risks to completing a deal. President Xi Jinping has already warned President Trump in a Dec. 21 call to avoid interfering in affairs in Hong Kong, Taiwan and Tibet, Xinhua reports, lest their trade discussions be derailed.

One risk later in the year may be that President Trump ends up being less hawkish on China than Congress – which has passed a Hong Kong related bill recently – or his Democratic Party opponents.

BETTER THAN LAST YEAR, STILL A LONG WAY TO GO

President Trump‘s year-end declaration included a recap of policy successes since the start of the administration. Notably trade is the third item covered and includes the signing of USMCA, the mini-deal with Japan, KORUS, the phase 1 trade deal with China, the start of EU and UK trade deal negotiations, withdrawal from TPP, tariffs on metals and renewable energy equipment and support for farmers resulting from retaliatory duties relating to all the above.

The declaration may provide the underpinnings for the President’s re-election bid for 2020, though many of the points covered – including USMCA and the China trade deal as well as unmentioned trade measures such as relations with Turkey – have yet to be fully resolved.

The latest data shows the administration has started to be successful in terms of its main trade metric – the trade-in-goods deficit fell 13.3% year over year in November, Panjiva’s analysis of  official data shows. That marked the fifth straight decline, though that came at the cost of declining exports and imports with total trade down by 4.0% year over year. Furthermore the deficit in the 12 months to Nov. 30 was still up by 16.6% versus 2016 – the last year of the Obama administration – at $859.2 billion.

SUCCESS COMES AT A PRICE

The most likely outstanding item of business to be completed will be the final passage of the U.S.-Mexico-Canada Agreement, USMCA. While the Canadian parliament is unlikely to vote on the deal until February, as outlined in Panjiva’s research of Dec. 16. Passage through the U.S. Senate waiting until after President Trump’s impeachment trial is completed, again potentially not until February. Neither appear under any specific time constraints however.

Indeed, USMCA has only formally been passed by the Mexican government, which has had a strong economic incentive to do so since its export activity with the U.S. has continued to decline. That included a 0.7% year over year decline in November, Panjiva’s analysis of Inegi data shows, though trade with the rest of the world has declined including a 1.7% slide in non-petroleum exports and an 8.2% drop in non-petroleum imports.

MEXICAN TRADE SLIDES, USMCA BOOST AWAITED

Aside from the negotiations business of the EU, U.K. and Japanese trade deals, the administration’s practice of tying together geopolitics and trade policy also remains complex going into the new year. One example that could be an early challenge will be Turkey’s insistence, reported by Bloomberg, that it will not reverse its decision to purchase Russia’s S-400 missile system.

That’s come at the same time that the Turkish government has reportedly sought Parliamentary permission to start military actions in Libya and President Trump linked Turkey’s operations in Syria to challenges faced by the U.S. in Iraq.

While the Trump administration’s relations with Turkey have improved after the 2019 imposition of metals duties, an existing threat of sanctions may lead to a worsening of relations.

One solution for Turkey may be to increase military equipment imports outside of Raytheon’s Patriot missile system which competes with Almaz-Antey’s S-400. Indeed, U.S. exports of weapons systems and military jets to Turkey have fallen by 17.0% year over year in the 12 months to Oct. 30 and by 50.7% compared to 2016.

Another example comes from U.S. airstrikes in reprisal for Iranian-supported attacks on the U.S. embassy in Baghdad, Bloomberg reports. Threats of retaliation from Iran raise the prospect that oil and gas supplies from the region may be disrupted once more. The upheaval from such actions were previously seen in September with the attacks against Saudi Aramco facilities.

TURKEY CUTS MILITARY EQUIPMENT IMPORTS FROM AMERICA