Biden Slaps New Wave of Tariffs on Chinese Products, But UCO Not Likely Included

New farm bill | Panama Canal | Potential Canada port & rail strike | FERC’s new transmission rules

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May 14, 2024 10:50 AM

New farm bill | Panama Canal | Potential Canada port & rail strike | FERC’s new transmission rules

Today’s Digital Newspaper

Modified format as I am in Chicago for a speech at a Fastmarkets conference.

— Financial markets: Global markets are little changed this morning as traders digest mostly better-than-expected economic data from Europe and await today’s PPI report and commentary from Fed Chair Powell. In Asia, Japan +0.5%. Hong Kong -0.2%. China -0.1%. India +0.5%. In Europe, at midday, London +0.1%. Paris -0.1%. Frankfurt -0.2%.Japanese sovereign bond yields are near decade-highs amid signs the BOJ is ready to reduce debt purchases to ease pressure on the yen. The currency extended losses for a third day, while Asian stocks and European equity futures kept to small ranges.

— Home Depot’s first-quarter earnings exceeded Wall Street expectations, though revenue fell short. Shoppers are delaying major projects like bathroom and kitchen remodels due to high interest rates. The company reaffirmed its full-year guidance, projecting total sales growth of about 1% for fiscal 2024, which includes an extra week. However, comparable sales, excluding the additional week, are expected to decline by about 1%.

— Kraft Heinz is said to be weighing the sale of the hot dog maker Oscar Mayer, potentially for up to $5 billion, as it focuses on healthier food. Link to more via the WSJ.

— Ag markets: Corn futures extended recent gains overnight, while soybeans and wheat eased after earlier attempts at the upside. As of 7:30 a.m. ET, corn futures were trading 2 cents higher, soybeans were 6 to 7 cents lower and wheat futures were mostly 1 to 2 cents lower. Front-month crude oil futures were around 25 cents lower, and the U.S. dollar index was trading just below unchanged.

Wholesale beef prices jump. Wholesale beef prices jumped $4.38 for Choice and $3.01 for Select on Monday. Just as importantly, packers moved a solid 113 loads at the sharply higher prices. That’s the first sign of a potential short-term low in the wholesale beef market, though additional price strength will be needed for confirmation.

Pork cutout back above $100. The pork cutout value firmed $2.67 on Monday to $102.44, led by a $8.72 jump in bellies though all cuts except picnics rose. Key will be whether packers can hold wholesale prices above the $100.00 level as moves above that mark proved to be brief in both mid- and late-April.

Overnight demand news: Japan is seeking 121,516 MT of milling wheat via its weekly tender.

— HRW wheat tour starts today. The Wheat Quality Council’s annual HRW tour through Kansas and remote areas of surrounding states kicks off this morning in Manhattan, Kansas. Scouts will sample fields today across central and far northwestern areas of Kansas enroute to Colby, including some areas of far southern Nebraska. Day 1 results will be released this evening.

— Russia losses roughly 500,000 acres to inclement weather. Russia has lost crops sown on roughly 500,000 hectares this year due to bad weather, the nominee for agriculture minister Oksana Lut told a session of the lower house of parliament on Tuesday. She said the crops would have to be replanted and that Russia has sufficient resources to do so.

— Oceangoing transits at the Panama Canal reached a seven-month high in April with 789 vessels, an increase of 42 from March but 289 fewer than April 2023, according to the Panama Canal Authority. This marks the highest monthly total since October’s 1,003 vessels. April’s daily average was just under 27 transits, including about 15 cargo ships and 12 tankers. Improved water conditions contributed to the increase in traffic.

— Alberta called on Canadian Prime Minister Justin Trudeau to take urgent action to prevent strikes by port and rail workers. Rail workers could strike as early as May 22, and negotiations at the port of Vancouver have stalled. Alberta Premier Danielle Smith emphasized that any work stoppage would severely impact the national economy and North American supply chains, urging the government to use all available tools, including back-to-work legislation, if necessary. The Canadian government supports collective bargaining but is monitoring the situation closely. The Canada Industrial Relations Board is evaluating the potential safety implications of a rail strike and will seek comments until May 21. Concerns are rising in the U.S. about potential disruptions to agriculture, grain products, and other goods.

— The Biden administration announced at 5 a.m. ET a significant increase in tariffs on Chinese imports, including electric vehicles (EVs), batteries, and semiconductors, as part of efforts to protect American jobs ahead of the Nov. 5 election. The new measures will double the tariff rate on Chinese semiconductors by 2025, quadruple the rate on EVs to 100%, and triple tariffs on steel and aluminum imports. The tariffs, affecting $18 billion worth of Chinese goods, target strategic sectors such as aluminum, steel, critical minerals, solar cells, port cranes, and medical products. This move follows a review of tariffs imposed by former President Trump and aims to prevent undercutting of U.S. investments spurred by Biden’s policies. Despite denying political motives, the administration’s actions align with efforts to secure votes in key industrial states. Beijing has criticized the move, accusing Washington of attempting to “smear and suppress” China’s economy.

Of note: Donald Trump moved to one-up his rival. “I will put a 200% tax on every car that comes in from those plants,” the former president said at a rally in New Jersey on Saturday, referring to Chinese vehicles manufactured in Mexico. Biden, he suggested, was ripping off his tariff-focused trade agenda. “Biden finally listened to me,” Trump said. “He’s about four years late.”

Details: Biden will officially announce the new tariffs on an additional $18 billion of Chinese imports in a Rose Garden ceremony at 12:15 p.m. ET. Biden is increasing a key tariff rate on steel and aluminum products to 25% from 7.5%, while the tariff on solar cells will rise to 50% from 25% and a new duty on shipping cranes will be 25%. Those tariff increases, among others, will kick in this year, while others, including a tariff increase to 25% from 7.5% for larger storage batteries and a new tariff on natural graphite set at 25%, will take effect in 2026. The tariff rate for Chinese semiconductors would double by 2025 — to 50% from 25%. The delayed start of some of the tariff increases is to give U.S. industries time to adjust their supply chains.

China comments: China “resolutely opposes” U.S.’ move to hike tariffs on a wide range of Chinese imports — including EVs, batteries, semiconductors, solar cells, and critical minerals, according to Beijing’s Ministry of Commerce.

Meanwhile, the U.S. ordered a Chinese crypto miner to vacate and sell its property near a Wyoming Air Force base that houses nuclear missiles, calling the firm a national security threat.

— U.S. soybean trade group pushes for higher tariffs on Chinese used cooking oil (UCO) amid surge in imports. A U.S. soybean trade group, including Cargill Inc. and Archer-Daniels-Midland Co., is advocating for higher tariffs on Chinese used cooking oil, which they claim undermines American crops used for biofuels. The National Oilseed Processors Association (NOPA) seeks to raise the current 15.5% levy to match tariffs on other clean energy sources. This push comes amid speculation that imported used oil from China may be mixed with fresh vegetable oils, potentially distorting commodity values.

Chinese exports of processed animal and vegetable fats and oils to the U.S. have surged, reaching $201 million in the first three months of this year, compared to $770 million for all of 2023. Soy oil values have fluctuated as traders await tariff news, with Biden this morning announcing increased levies soon, though it is unclear if used cooking oil is included — it is not mentioned at all in the fact sheet. Nor is it mentioned in an accompanying statement issued by the Office of the U.S. Trade Representative outlining the tariff increases.

The move aligns with Biden’s broader strategy to differentiate himself from former President Donald Trump by cracking down on China ahead of the 2024 presidential race. This includes quadrupling tariffs on Chinese electric vehicles and increasing levies on other industries, amid tensions over various geopolitical issues.

U.S. soybean processors are concerned that increased imports of used cooking oil are eroding their profits and jeopardizing plans to expand U.S. crushing capacity for biofuels. NOPA plans to discuss the tariff issue with its members and explore other options. But some biofuel producers are making money importing used cooking oil from China. U.S. imports of used cooking oil more than tripled in 2023 from a year earlier, with more than half coming from China, according to the U.S. International Trade Commission. The surge is eroding profits for processors who crush whole soybeans to extract the oil, forcing some plants to slow down.

NOPA responds: “NOPA was not proactively pushing for tariffs. In response to rumors that UCO tariffs may be increasing in the Section 301 tariff review, NOPA reached out to administration officials accordingly. That said, NOPA continues to be concerned about the surge of UCO imports into the U.S. and as such continues to examine workable solutions that can address the impact on our domestic market,” NOPA President & CEO Kailee Tkacz Buller.

A source with the American Soybean Association told us, ”I spoke with Dr. Lael Brainard, Director of the NEC, late yesterday and I asked whether any food or ag related products were on the list of products facing increased tariffs. She said no.”

— New farm bill update:

Meetings this week include one with House Ag Committee members being brief on Wednesday, House Ag Dems meet with Senate Ag Chair Debbie Stabenow (D-Mich.) and House Minority Leader Hakeem Jeffries (D-N.Y.) on Wednesday, House Ag panel staff briefings Thursday for reporters not yet contacted, and likely separate meetings with House Ag Chair GT Thompson (R-Pa) and Stabenow and a Thompson session with ranking Senate Ag member John Boozman (R-Ark.). Thompson is also giving interviews this week ahead of the May 23 markup of the House farm bill.
Opposition: To no one’s surprise, the American Enterprise Institute and Environmental Working Group (EWG) issued statements opposing the House farm bill, especially its provision raising reference prices. The EWG has a key on their computers that writes out: raising reference prices “will benefit the largest, most successful farmers growing a handful of crops.”
Legislative text for the House farm bill is still expected this week, but a delay would not be surprising.
CBO scoring: Few farm bill observers have focused on this topic but once released, spending estimates from the Congressional Budget Office (CBO) could be key in discussing some farm bill priorities in both chambers.
Will any House Dems vote for May 23 House markup? With the House farm bill version decidedly more friendly for production agriculture, it will be interesting to see if House Dems on the panel follow an aggressive lobby push against the House version by Jeffries and Stabenow.
Dems continue to focus on SNAP and Thrifty Food Plan (TFP). Democrats allege the House farm bill plan implies deep cuts to the TFP, suggesting it would reduce current SNAP benefits. However, Ag Republicans argue that this is misleading. Thompson’s plan doesn’t cut current SNAP benefits but reallocates funds to strengthen existing nutrition programs. This includes removing the lifetime ban on SNAP benefits for low-income Americans with prior felony drug convictions. The Congressional Budget Office (CBO) estimates that limiting future TFP updates could prevent a future Democratic administration from increasing SNAP benefits by 23 cents per day. Despite potential future savings of $30 billion, SNAP benefits would still rise with inflation, and nutrition programs would constitute over 80% of the $1.51 trillion farm bill spending over the next decade. Democrats worry that changes to the TFP could hinder future SNAP expansions, a key strategy for increasing program size.

— Executive action to lower food prices? Massachusetts Democrats Sen. Elizabeth Warren and Rep. Jim McGovern led a letter from dozens of Democrats to the Biden administration urging executive action to lower food prices through the FTC, USDA and DOJ. Link to letter.

— Authorities plan to refloat the cargo ship Dali this week after setting off explosives at the collapsed Francis Scott Key Bridge in Baltimore. The explosion, aimed at freeing the ship, helped demolish part of the bridge resting on the vessel. The Dali has been trapped for nearly seven weeks following a collision that caused the bridge to collapse, killing six construction workers. During the detonation, some wreckage fell into the water, but part of the structure remained on the ship.

— FERC’s new transmission rules spark federal-state tension over grid upgrades. The Federal Energy Regulatory Commission (FERC) approved two new rules Monday that are expected to make it easier to expand the construction of big power lines and bring more renewable energy to U.S. homes and businesses. One rule will require companies that produce and transmit electricity to weigh factors such as supply and demand over at least 20 years; the other addresses the permitting of critical projects in areas that lack adequate transmission capacity. The new rules speed up the planning and permitting of high-voltage transmission lines, causing tension between federal and state officials. The rules require 20-year power grid assessments and allow the establishment of national corridors for high-voltage lines. FERC Chairman Willie Phillips emphasized increased state involvement and legal durability, but Commissioner Mark Christie dissented, arguing the rules overstep state authority and violate the Major Questions Doctrine. The rules aim to address the urgent need for grid upgrades due to the transition to clean energy and increased demand, despite concerns about higher consumer costs. Sen. John Barrasso (R-Wyo.) ranking member of the Senate Energy and Natural Resources Committee, said the rule “will force customers — often in rural states — to pay for new transmission lines even when those lines don’t provide any meaningful benefit to them.”

— Russian President Vladimir Putin will visit Chinese President Xi Jinping in Beijing this Thursday and Friday, highlighting the strengthening ties between the two nations. Xi has been pivotal in supporting Russia’s economy and military efforts since the 2022 invasion of Ukraine, while Russia supplies China with cheap fuel.

It will be Putin’s second visit to China since October and the latest display of the strong ties between the neighbors.

Of note: According to a report on bilateral investment by a Chinese think tank, about 80 per cent of payment settlements between China and Russia were suspended as of March because of sanctions from the West. This has “severely impacted normal trade and commercial relations” and brings home the urgent need to “build new payment-and-settlement channels as soon as possible, and resolve the threat of secondary sanctions on financial institutions,” the report from the Chongyang Institute for Financial Studies at Beijing’s Renmin University said.

— Wegovy may be about to get even bigger. A study found Novo Nordisk’s blockbuster obesity drug cut patients’ risk of heart attacks and strokes irrespective of how much they weighed, opening the door for even more prescriptions.

— Primary Day in Maryland and Nebraska:

Maryland Democratic Senate primary:

Rep. David Trone vs. Angela Alsobrooks: Trone has spent over $60 million, while Alsobrooks has support from top officials like Gov. Wes Moore and Sen. Chris Van Hollen. Concerns grow over a tough general election against former GOP Gov. Larry Hogan. Trone’s personal fortune may allow Democrats to allocate funds to other key races.

Harry Dunn’s congressional bid:

Maryland’s 3rd District: Former Capitol Police Officer Harry Dunn, known for his Jan. 6 testimony, faces State Sen. Sarah Elfreth, backed by AIPAC’s super PAC and local labor. Dunn’s past domestic dispute could impact his campaign.

Trone’s successor in the House:

Maryland’s 6th District: With Trone vacating his seat, State legislator Joe Vogel and April McClain Delaney, wife of former Rep. John Delaney, are leading the Democratic primary.

Nebraska’s 2nd District GOP primary:

Rep. Don Bacon vs. Dan Frei: Incumbent Don Bacon is challenged by MAGA candidate Dan Frei. Bacon is favored but the margin of victory will be telling. Democratic state Sen. Tony Vargas awaits a rematch in November.

— Trump leads Biden in five key battleground states amid rising voter discontent. Recent polls conducted by the New York Times, Siena College, and the Philadelphia Inquirer (link) indicate that Donald Trump is leading President Biden in five crucial battleground states: Michigan, Arizona, Nevada, Georgia, and Pennsylvania. President Biden leads only in Wisconsin among registered voters. This is a significant shift from the 2020 election, where Biden won all six states. The polls highlight a growing dissatisfaction with the current administration among young, Black, and Hispanic voters, driven by concerns over the economy, the cost of living, immigration, and the war in Gaza.

Notably, in hypothetical matchups that include minor-party candidates and independent candidate Robert F. Kennedy Jr., Kennedy garners an average of 10% of the vote, pulling support almost equally from both major candidates.

Trump is making inroads with young voters and Hispanic voters, who overwhelmingly supported Biden in 2020. Additionally, Trump’s support among Black voters has reached levels not seen for a Republican candidate since the Civil Rights Act of 1964. The polls also reveal that many voters, including some who supported Biden in 2020, feel disconnected from the administration’s positive economic messaging.

Abortion remains a contentious issue, with a majority of voters in battleground states supporting legal access to abortion. This issue could be a potential vulnerability for Trump, given his support for the Supreme Court justices who overturned Roe v. Wade. While Biden holds a lead over Trump on handling the issue of abortion, this alone may not be sufficient to offset broader discontent with his presidency.

Details: The Washington Post notes Biden is “close to tied among voters under 30 — a group Democrats have carried by at least 18 points in every election since 2004. He’s also close to tied among Hispanic voters — a group Democrats have carried by at least 23 points in every election since 2004.” The newspaper’s analysis concludes the poll offers “a rare high-quality look at multiple key states” and “shows that the issues that have long dogged Biden continue to loom large with less than six months to Election Day. Biden simply isn’t winning the voters he should.”

Bottom line: The findings underscore a broader yearning for change and a belief that Trump, despite his controversial nature, might bring the necessary changes to the political and economic systems. This anti-establishment sentiment, coupled with doubts about Biden’s ability to effect significant improvements, presents a challenging landscape for the Democratic incumbent as the election approaches.

— NWS weather: Severe thunderstorms and flash flooding will impact portions of the Gulf Coast and the Southeast on Tuesday... ...Above-average temperatures expected for South Florida and the West.

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