China Hits Record Trade Surplus as U.S. Tariffs Loom | Strengthens Yuan Defense

News/Markets/Policy Updates: Jan. 13, 2025

Other topics include: (1) Oil rallies to five-month high; (2) Trump’s new economic adviser pushes tariffs; (3) Jamie Dimon on tariffs; (4) Malanga on economic trends and market dynamics amid policy shifts; (5) China exports to Vietnam surge; (6) Cofco expands export capacity in Brazil with new Santos terminal; (7) Focus on solar panels; (8) Tom Essaye on the Fed’s next move; and (9) Wendy Cutler and USTR Katherine Tai comment on trade policy.

— China hits record trade surplus, as U.S. tariffs loom. China’s trade surplus surged to an all-time high in 2024 at $992 billion, driven by a 7.1% rise in merchandise exports. This marked the eighth consecutive year of export growth, fueled by strong overseas demand for electric vehicles, batteries, and solar panels. Exports rose almost 11% to $336 billion in December, the second-highest month on record and behind only December 2021, when Chinese firms saw a surge of pandemic-led demand. Outbound shipments for the whole of last year were worth $3.6 trillion. Exports to the U.S. rose to the highest in more than two years in December, hitting almost $49 billion and taking the total for the year to $525 billion. Imports rose 1% last month and 1.1% for the whole year. Of note: With President-elect Donald Trump’s second term set to begin and his proposed 60% tariffs on Chinese goods, exporters rushed to front-load shipments. Analysts predict phased tariff hikes starting in 2025, potentially curbing China’s trade momentum in the coming years. (China’s General Administration of Customs, Bloomberg) — China is signaling a significant shift in its economic strategy by prioritizing domestic consumption over the investment-driven growth that has characterized the past two decades. At the Asian Financial Forum in Hong Kong, People’s Bank of China Governor Pan Gongsheng highlighted key measures to stimulate demand. These include increasing residents’ incomes, enhancing subsidies for consumers, and strengthening social security systems. This pivot underscores China’s focus on bolstering domestic demand to drive sustainable economic growth amid global economic uncertainties. — Trump taps David Fotouhi of Gibson, Dunn & Crutcher LLP for key EPA role. President-elect Donald Trump revealed the nomination on Truth Social, emphasizing Fotouhi’s commitment to pro-growth policies and environmental priorities. Fotouhi, a seasoned EPA legal veteran, held top legal roles during Trump’s first term and is currently a partner at Gibson, Dunn & Crutcher LLP. The position oversees day-to-day EPA operations and collaborates with multiple stakeholders. rump said Fotouhi would “advance pro-Growth policies, unleash America’s Energy Dominance, and prioritize Clean Air, Clean Water, and Clean Soil for ALL Americans.” Separately, Lee Zeldin, Trump’s EPA administrator nominee, faces Senate hearings this Thursday. — Trudeau: Canada has tariffs ready if Trump starts trade war. Outgoing Canadian Prime Minister Justin Trudeau announced that Canada is prepared to impose retaliatory tariffs if President-elect Donald Trump initiates a trade war. Speaking on MSNBC, Trudeau stressed that Canada prefers co-operation but will act decisively to protect its economy if the U.S. imposes tariffs, as Trump has suggested with a proposed 25% levy on goods from Canada and Mexico. Trudeau highlighted the economic interdependence between the nations, noting that Canada is the top export partner for 35 U.S. states and purchases $320 billion in U.S. goods annually. He also defended Canada’s recent investments in border security, aimed at addressing Trump’s concerns about illegal migration and fentanyl trafficking. Of note: As Trudeau prepares to step down in March following a party leadership race, his government is reportedly considering wide-ranging counter-tariffs on U.S. imports, like measures taken during Trump’s first term. Meanwhile, Trudeau dismissed Trump’s “51st state” jibes as distractions from critical issues. Bottom line: Trudeau’s tenure ends amid declining approval ratings, internal party dissent, and speculation about an early election. The new Liberal leader, to be chosen March 9, will inherit challenges including potential U.S./Canada trade tensions. (U.S. Commerce Dept., Bloomberg) — Sheinbaum: “Mexico is not subordinate” amid Trump tensions. Mexican President Claudia Sheinbaum, addressing a crowd in Mexico City ahead of Donald Trump’s inauguration as U.S. president, declared that Mexico remains a “free, independent, and sovereign country” and vowed to maintain strong but respectful ties with its northern neighbor. Sheinbaum underscored the importance of dialogue in U.S./Mexico relations, referencing the success of the revised North American trade deal during her predecessor’s term. However, she firmly rejected subordination, as Trump’s team pressures Mexico on migration and illicit goods, threatening steep tariffs and escalating rhetoric. The president also celebrated the contributions of Mexicans in the U.S., noting their $65 billion in annual remittances and significant roles in the American economy. Separately, Mexico’s government anticipates record-breaking investments in 2025, with plans to bolster public and private sector collaboration, signaling resilience despite mounting tensions. — Trump’s new economic advisor advocates for high tariffs. Stephen Miran, President-elect Trump’s nominee to chair the Council of Economic Advisers (CEA), has proposed tariffs averaging 20% — a significant increase from the current 2% — to address the U.S. trade deficit and industrial decline. Miran argues that tariffs, along with interventions to weaken the dollar, could recalibrate global trade and financial systems. “Sweeping tariffs and a shift away from strong dollar policy can have some of the broadest ramifications of any policies in decades, fundamentally reshaping the global trade and financial systems,” Miran wrote in a November report (link) for Hudson Bay Capital, where he is senior strategist. While his recommendations align with Trump’s tariff-focused policies, they acknowledge substantial risks, including retaliation from trade partners and potential inefficiencies in boosting domestic manufacturing. Miran’s approach also suggests linking U.S. military defense commitments to economic cooperation, a controversial strategy that could undermine alliances and global stability. Bottom line: Miran’s theories, rooted in traditional economic models, have sparked debate, with critics highlighting the potential for retaliation, trade disruptions, and geopolitical fallout. His appointment signals a dramatic shift in U.S. economic policy under the incoming administration. (Pro Farmer) — Jamie Dimon on tariffs, Trump, and geopolitical challenges. JPMorgan Chase CEO Jamie Dimon stated that tariffs, if used effectively, can address issues like unfair competition and national security. Speaking on CBS News’ Sunday Morning, Dimon emphasized that tariffs, like any tool, can cause harm if misapplied. He noted he has not discussed tariffs with President-elect Donald Trump, who has pledged to impose new tariffs on imports from both adversaries and allies, raising fears of supply-chain disruptions and economic strain. Dimon described Trump as a skilled negotiator who uses tough tactics, highlighting the need for policies focused on national security, resilient supply chains, and equitable impact. Reflecting on Trump’s election victory, Dimon attributed it to voter dissatisfaction with ineffective governance and the desire for pro-business policies. Dimon also commented on the proposed Department of Government Efficiency (DOGE), led by Elon Musk and Vivek Ramaswamy, expressing hope for its success despite uncertainties. He reiterated his longstanding warnings about the precarious geopolitical climate, calling it the most unstable since World War II, and stressed the importance of sound policy decisions, offering assistance to Trump’s team.

— Dollar surge pressures global markets amid rising U.S. yields. The dollar reached multi-year highs against several currencies as U.S. 10-year Treasury yields climbed to 4.788%, their highest level since November 2023. This continued momentum, fueled by robust U.S. jobs data, has tempered expectations for Federal Reserve interest-rate cuts in 2025. The DXY dollar index hit a two-year peak of 110.176, with the euro falling to $1.0179 and the pound sliding to $1.2102.

Asian currencies also struggled, with the Indian rupee hitting record lows and the Chinese yuan nearing 16-month lows. Officials in Beijing have pledged measures to support the yuan, while concerns grow about inflationary pressures from depreciation. In Asia, Japan closed. Hong Kong -1%. China -0.2%. India -1.4%.

In Europe, at midday, London -0.4%. Paris -0.8%. Frankfurt -0.7%.

Markets are now pricing in only one U.S. rate cut in late 2025. ING’s Chris Turner noted that the Fed may not cut rates at all this year, contrasting with struggling economies like the Eurozone and UK, further bolstering the dollar.

Rising yields and dollar strength are straining global financial systems. European and Asian equities saw declines, with India’s Sensex down 1.4%, Hong Kong’s Hang Seng off 1%, and the Euro Stoxx 50 down 0.9%. U.S. tech-heavy Nasdaq 100 futures dropped 1.3%, leading losses across major indexes.

— Equities Friday and for the week: U.S. equities on Friday declined after a stronger-than-expected payrolls report revealed 256,000 new jobs were added last month, easily surpassing Wall Street estimates. Increased hiring in the retail and health care sectors drove the growth. The data raised concerns about inflation and sustained high interest rates, unsettling equities and Treasury markets. All three major indices slumped in the wake of the stronger-than-expected jobs data for December, sending the 10-year Treasury note yield higher. It also resulted in solid losses for the week, with the Dow down 1.9%, the Nasdaq fell 2.3% and the S&P 500 was 1.9% lower. On Friday, the Dow fell 696.75 points, 1.63%, at 41,938.45. The Nasdaq dropped 317.25 points, 1.63%, at 19,161.63. The S&P 500 declined 91.21 points, 1.54%, at 5,827.04. The benchmark S&P 500 has now wiped out all the gains it had made in the fledgling year.

— Apple sold 5% fewer iPhones globally and lost ground to Chinese rivals last quarter, reflecting the absence of Apple Intelligence in its largest market outside the US. The iPhone slipped a point to 18% market share in 2024, Counterpoint Research data shows.

— Mosaic agreed to sell its phosphate mine and tailings dams at Patos de Minas in Brazil’s Minas Gerais state to Fosfatados Centro for $125 million in cash over six years. “This transaction aligns with Mosaic’s strategy to scrutinize and monetize non-core assets and redeploy capital to high-returning areas,” the company said. “This agreement represents an important step for the phosphate supply to the Brazilian fertilizer market and demonstrates our commitment to advancing the National Fertilizer Plan,” Fosfatados Centro said.

— Bonds in focus: Selloff an opportunity? The recent selloff in global bonds has sparked investor concern, yet some analysts say it might also present a rare buying opportunity. Yields on 10-year U.S. Treasurys surged to 4.772% — the highest since 2023 — amid a “bear steepening” trade, a rare market movement where long-term yields rise faster than short-term ones.

Despite fears of inflation driven by geopolitical uncertainty and fiscal policy challenges, analysts suggest this selloff may reflect shifting expectations of interest rate cuts rather than underlying economic turmoil. While global markets feel the pressure — especially in the U.K. and Europe — bonds could prove to be a safe haven. If economic growth falters, central banks may revert to stimulus, favoring fixed-income assets.

Upshot: With stretched equity valuations and competitive bond yields, some investors see bonds as a better bet for medium-term stability.

— Malanga on economic trends and market dynamics amid policy shifts. Dr. Vince Malanga, president of LaSalle Economics, discusses the state of the economy as it closed December on a strong note. He says that a surge of enthusiasm from small businesses post-election, alongside aggressive fiscal policies by the Biden administration, have buoyed economic activity. However, he warns the specter of widespread tariffs under the Trump team is influencing pricing and inventory behaviors. Malanga’s insights on key topics:

• Labor market: December’s labor report showcased a jobless rate drop to 4.1%, with growth in services and government payrolls. Wage growth softened, hinting at productivity gains.
• Sectoral insights: While manufacturing shows signs of recovery, housing remains sluggish, compounded by rising mortgage rates exceeding 7%.
• Inflation and commodities: December saw accelerated inflation, particularly in staples like coffee, eggs, and heating fuels, driven by adverse weather conditions. These effects may reverse in early 2025 as weather stabilizes, although tariff policies add uncertainty.
• Bond market & fiscal policy: Multi-trillion-dollar deficits at full employment strain bond markets, reflected in increased mortgage rates and deteriorating housing affordability. Addressing government spending and market expectations through DOGE’s fiscal actions is critical to reversing these trends.
• Federal Reserve: While inflation and labor conditions will influence monetary policy, the Fed’s role is expected to diminish, with its focus on yield curve trends rather than long-term rate levels.

Bottom line: Dr. Malanga underscores that resolving fiscal challenges and stabilizing inflation are crucial to restoring economic stability.

— To pause or not to pause? That is the Fed question. According to Tom Essaye of the Sevens Report, hot economic data is shaping the narrative that the Federal Reserve might be done with rate cuts, having already paused, and this perception is driving stocks lower as less-dovish expectations push yields higher. Here’s a breakdown of his key points:

Market expectations: As of Friday, fed fund futures suggest only one rate cut in 2025, potentially starting in June, with a 25% chance of no cuts at all.
While the fear of a Fed pause has weighed on stocks, the market’s expectations are already much less dovish. This suggests that even if the Fed announces a pause, much of the damage to equities might already be priced in.

Economic data: The recent data has been strong but not hot enough to justify additional hikes. Importantly, strong economic growth alongside falling inflation still supports the potential for further rate cuts. Fed concerns center on inflation, not just growth. If strong data doesn’t significantly threaten inflation (e.g., subdued wage growth in the jobs report), there’s less likelihood of a policy pivot away from easing.

Fed communication: Fed messaging is mixed but leans slightly dovish. Vice-Chair Waller noted inflation continues to trend toward the 2% target, keeping rate cuts on the table. December’s FOMC minutes mirrored this sentiment. Hawkish voices, like Governor Bowman and Kansas City’s Schmid, argue for a pause, with some implying that policy may already be neutral.

Current implications:

• Rising fears of a pause are not yet strongly supported by the data or Fed leadership. With fed funds rates still significantly above inflation, the Fed has room to continue easing.
• Any suggestion of rate hikes re-emerging, particularly after inflation reports like the upcoming CPI release, could significantly exacerbate a selloff.

Essaye concludes that while the probability of a pause has risen, the data doesn’t yet justify it. He says a relief rally could materialize if Fed leadership reinforces dovish sentiment. However, any shift toward potential rate hikes could be a major bearish game-changer for markets.

— Inflation reports on Tuesday and Wednesday will signal Fed action ahead on interest rates.

(TradingEconomics.com)

— Ag markets today:

Grains firmer overnight. Corn and soybean futures extended Friday’s strong gains during the overnight session, while wheat also traded higher. As of 7:30 a.m. ET, corn futures were trading 2 to 4 cents higher, soybeans were 7 to 10 cents higher and wheat futures were 5 to 8 cents higher. The U.S. dollar index was 425 points higher and front-month crude oil futures were around $1.50 higher.

Wholesale beef prices continue to strengthen. Wholesale beef prices jumped $2.06 to $332.84 for Choice and $5.79 for Select to $314.14 on Friday. While packer margins remain in the red, surging wholesale beef prices have improved those levels and kept packers actively bidding for cash cattle. Cash prices surged to another record high last week.

Cash hog index continues price slide. The CME lean hog index is down another 16 cents to $80.43 as of Jan. 9, the lowest level since the beginning of March. February lean hog futures finished last Friday $2.12 above today’s cash quote, signaling traders sense a price recovery over the next month.

— Ag trade: Taiwan purchased 65,000 MT of corn to be sourced from the U.S., Brazil, Argentina or South Africa.

— Agriculture markets Friday and the week:
• Corn: March corn futures surged 14 1/2 cents to $4.70 1/2 and closed near session highs, marking a nearly 8-month high close. March corn futures gained 19.75 cents for the week.
• Soy complex: March soybeans rallied 26 1/4 cents to $10.25 1/4, notching a 33 1/2-cent weekly gain. March soymeal extended $1.00 lower to $298.30 and sank $10.30 on the week. Marcy soyoil surged 282 points to 45.58 cents and rallied 565 points on the week.
• Wheat: March SRW wheat futures fell 3 1/4 cents to $5.30 3/4, near mid-range and set a new contract low. For the week, March SRW gained 1 1/2 cents. March HRW wheat futures rose 1 1/2 cents to $5.51 3/4, near mid-range and on the week gained 12 3/4 cents. March spring wheat futures rose 3/4 cent to $5.84 1/4 and gained 6 1/2 cents on the week.
• Cotton: March cotton fell 149 points to 67.01 cents, finishing the week down 65 points.
• Cattle: February live cattle futures rose $1.175 to $198.775, reaching the highest level since September 2023 and on the week up $4.725. March feeder cattle futures rose $1.10 to $269.40, nearer the daily high and hit a contract high. For the week, March feeders gained $5.225.
• Hogs: Rising wholesale prices again supported hog futures to end the week. Nearby February hogs rose 57.5 cents to $82.55; that represented a weekly rise of $1.775.

— U.S. pork exports stay strong, beef shipments rise in November. The U.S. exported 643.5 million lbs. of pork in November, a record for the month and the highest monthly tally since April. Pork shipments increased 60.7 million lbs. from October and 36.4 million lbs. from year-ago. Through the first 11 months of 2024, pork exports totaled 6.469 billion lbs., up 289.3 million lbs. (4.7%) from the same period the previous year. USDA trimmed its 2024 pork export forecast by 10 million lbs. to 7.108 billion lbs., though that would be up 4.2% from 2023.

The U.S. exported 253.1 million lbs. of beef during November, up 12 million lbs. from October and 24 million lbs. more than last year. Through the first 11 months of 2024, beef shipments totaled 2.744 billion lbs., down 42.9 million lbs. (1.5%) from the same period the previous year.

USDA raised its 2024 beef export forecast to 2.995 billion lbs., down 1.4% from 2023.

USDA made no changes to its 2025 pork and beef export forecasts. Pork shipments are expected to rise another 3.1% this year, while beef exports are projected to fall 13.4%.

— Oil prices surge as U.S. sanctions target Russia’s energy revenues. Brent crude oil futures jumped over 2% to $81.5 per barrel on Monday, reaching a four-month high. The spike followed sweeping new U.S. sanctions on Russia’s energy sector, targeting major exporters, insurers, and over 150 tankers, raising fears of supply disruptions. Key buyers like India and China are scrambling for alternatives, with early impacts visible as sanctioned tankers sit idle off China. Analysts estimate up to 800,000 barrels per day of Russian oil could be affected. Additional factors driving the rally include declining U.S. stockpiles, colder weather, and speculation over potential tighter sanctions on Iran under the incoming Trump administration.

Oil prices climbed nearly 3% on Friday, hitting three-month highs. Brent crude settled at $79.45 (+$2.53, +3.3%), briefly crossing $80, while WTI closed at $76.30 (+$2.38, +3.2%). Earlier reports of the sanctions pushed both benchmarks up over 4%.

(ICE, Bloomberg)

The Biden administration’s measures, targeting Russia’s production, intermediaries, and exports, are expected to disrupt oil flows to India and China, raising costs for Russian crude. UBS analyst Giovanni Staunovo predicts significant export challenges, which could become leverage in Ukraine negotiations ahead of President-elect Donald Trump’s inauguration.

Extreme cold across the U.S. and Europe added upward pressure, boosting heating fuel demand. Ultra-low sulfur diesel futures jumped 4.8% to $104.62 per barrel, a peak since July. JPMorgan analysts project global oil demand will rise by 1.6 million barrels per day in Q1 2025, led by heating oil, kerosene, and LPG consumption.

(U.S. Treasury Dept., UK Treasury, EU, Bloomberg)

— Solar panel subsidies installed on farms are paid via the Inflation Reduction Act (IRA/Climate Act) of 2022. The IRA significantly expanded and extended solar incentives, making them more accessible and beneficial for various sectors, including agriculture.

Concerns mounting. Many current solar panel owners or potential participants are wondering if the Trump administration and/or the GOP-led Congress will alter the IRA program to claw back some funding to help offset other spending like tax cuts.

Federal Investment Tax Credit (ITC). Farms can benefit from the 30% ITC for solar installations. This credit allows farm owners to deduct 30% of the total cost of installing a solar energy system from their federal taxes. Timeline:

• The 30% tax credit is available for systems installed between 2022 and 2032.
• It will decrease to 26% in 2033 and 22% in 2034.
• The credit will expire in 2035 unless renewed by Congress.

Rural Energy for America Program (REAP). Besides the ITC, farms may be eligible for the Rural Energy for America Program, which offers:

• Grants covering up to 50% of project costs
• Loan guarantees for up to 75% of project costs
• Grant awards ranging from $2,500 to $1,000,000

Additional benefits for farms:
Accelerated depreciation. Farms can take advantage of accelerated depreciation methods:

• Federal Modified Accelerated Cost Recovery System (MACRS): Up to 22%
• State Modified Accelerated Cost Recovery System (MACRS): Up to 8%
• Combined total of up to 30% in tax benefits

Production Tax Credit (PTC) option. For larger farm installations, the Production Tax Credit might be more beneficial:

• Offers 2.6¢/kWh generated over a 10-year period

• Can potentially generate more value than the ITC for large-scale projects

  Energy independence. By installing solar panels, farms can reduce their reliance on the grid and protect themselves from unpredictable utility rate increases.

— Farmers are being offered a wide range of payments per acre to install solar panels on their farmland, with significant variations by state and location. Here are some key points about solar lease payments:

Payment ranges.

• Generally, solar lease payments range from $250 to $2,000 per acre per year. Some farmers are receiving offers of $3,200 to $4,500 per acre, with additional signing bonuses.
• In California, a farmer was offered $1,600 per acre per year with a 2% annual increase for 25 years.
• In Oregon, a farmer was offered $1,500 per acre per year.

• According to a Purdue University poll, the majority of farmers (54%) were offered less than $750 per acre annually, with 32% receiving offers of less than $500, and 27% being offered more than $1,000 per acre.

  State variations. Lease rates vary significantly by state due to factors such as electricity costs and local incentives:

• California and New York tend to have higher lease rates due to more expensive electricity markets.
• Wisconsin’s lease rates are more modest, ranging from $500 to $1,200 per acre, primarily due to lower electricity rates (21% below the national average).
• In Maryland, solar farms typically cover about 60 acres and generate 5.2 MW of power.
• Vermont: $2.50 per square foot
• Illinois: $1.75 per square foot
• Indiana: $1.20 per square foot
• Georgia: 10 cents per watt (Solar 20 program)
• Florida: $2.00 per square foot
• Texas: $1.00 per square foot

Factors affecting payments. Several factors influence the payment amounts:

• Proximity to power substations and transmission lines
• State incentives and renewable energy policies
• Land quality and characteristics
• Size of the proposed solar installation
• Local electricity rates and market conditions

• Competition among solar developers in the area

  Of note: While some farmers are receiving very high offers, these are not typical across all regions. Farmers are being told they should carefully consider all aspects of solar leases, including long-term commitments (often 20-40 years), potential impacts on agricultural operations, and the reliability of the solar company making the offer.

— The 13 Trump administration appointees facing confirmation hearings before 11 different Senate committees in the coming week include:

Tuesday
• Pete Hegseth, Secretary of Defense
• Doug Burgum, Secretary of the Interior
• Doug Collins, Secretary of Veterans Affairs

Wednesday
• Marco Rubio, Secretary of State
• Kristi Noem, Secretary of Homeland Security
• Pamela Bondi, Attorney General
• John Ratcliffe, Director of the Central Intelligence Agency
• Chris Wright, Secretary of Energy
• Russ Vought, Director of the Office of Management and Budget
• Sean Duffy, Secretary of Transportation

Thursday
• Scott Bessent, Secretary of the Treasury
• Lee Zeldin, Administrator of the Environmental Protection Agency
• Scott Turner, Secretary of Housing and Urban Development

— Republican Senate update. The Republican Party holds a 51-47 majority in the Senate. Sen.-elect Jim Justice (R-W.Va.) is anticipated to be sworn in today, further solidifying their position. Meanwhile, Ohio Governor Mike DeWine is expected to appoint a replacement for Vice President-elect JD Vance’s recently vacated Senate seat. Lt. Gov. Jon Husted is reportedly the top contender for the role, should he choose to accept it.

— Trump talks SALT, other issues at Mar-A-Lago. House Ways and Means Committee Chair Jason Smith (R-Mo.) remains optimistic about reaching a deal on state and local tax (SALT) deduction relief, calling it the “easiest” issue in ongoing tax negotiations. However, the complexities of crafting a broad reconciliation package suggest otherwise.

This weekend, President-elect Donald Trump hosted House GOP members at Mar-a-Lago to discuss reconciliation priorities, including SALT. Blue-state Republicans advocated for raising the current $10,000 cap on SALT deductions, proposing increases up to $100,000 for individuals and $200,000 for married couples. Trump appeared supportive but urged lawmakers to identify a feasible cap that balances fiscal constraints and political viability.

Key challenges remain:

• Senate resistance: Red-state senators lack incentive to support SALT cap relief, which largely benefits blue states.
• Cost concerns: Lifting the cap could significantly reduce revenue, clashing with House hardliners’ push for spending cuts.
• Moderate leverage: Blue-state Republicans need to show resolve, but their typical inclination toward compromise could weaken their hand.

Beyond SALT, discussions covered New York’s congestion pricing plan, wildfire disaster relief for California, and targeted tax cuts for seniors. While Trump aims for a unified, single-bill reconciliation strategy, divisions persist within the GOP, particularly with House Freedom Caucus members advocating a two-bill approach.

Of note: Some observers say disaster aid for California could be part of a final bill for fiscal year 2025 spending (current stopgap measure runs out March 14), and it could also include language regarding the debt limit.

— Wendy Cutler: How Trump could strike a trade deal with China. A Phase Two negotiation isn’t out of the question, but Washington must get it right this time, writes former Acting Deputy USTR Wendy Cutler, now a vice president at the Asia Society Policy Institute. Writing in Foreign Policy (link), Cutler says as the U.S. administration under President-elect Donald Trump prepares to revisit its trade strategy with China, the possibility of a “Phase Two” negotiation emerges. The Phase One trade agreement, signed in 2020, addressed significant issues like intellectual property rights and agricultural barriers but fell short in achieving China’s promised purchase commitments. Since then, economic tensions have escalated, with both nations imposing trade and technology restrictions.

Cutler believes the upcoming challenge lies in overcoming entrenched trade disparities, including subsidies, state-owned enterprises, and cross-border data flows. A new agreement should aim for more realistic purchase commitments, better enforcement mechanisms, and expanded areas of negotiation, such as cloud computing and third-country investments.

Upshot: Despite the hurdles, Trump’s reputation as a dealmaker and China’s economic pressures might pave the way for renewed talks, provided both sides are willing to compromise and prioritize durable solutions.

— USTR Tai: The real purpose of trade policy. In her Foreign Affairs article (link), U.S. Trade Representative Katherine Tai outlines the Biden administration’s efforts to reshape trade policy in line with a “middle-out economics” approach, reminiscent of Franklin Roosevelt’s vision of shared global prosperity. She emphasizes that the administration’s policies aim to correct decades of trickle-down globalization, which widened inequalities and jeopardized democratic principles. By integrating trade policy with domestic industrial strategies, fostering fair competition, and empowering workers globally, Tai argues that the administration is rebuilding a system that prioritizes economic security for working people over corporate concentration and laissez-faire principles.

The article traces the historical roots of U.S. trade policy, highlighting the International Trade Organization’s unrealized potential and the harmful legacy of Reagan-era neoliberalism. Tai critiques China’s economic practices, discusses supply chain vulnerabilities, and underscores the importance of diversifying global supply chains and advancing labor rights. By fostering fair competition and reducing dependency on autocratic regimes, the administration’s trade agenda seeks to promote durable peace, economic justice, and freedom from want.

— Iowa House Ag committee prioritizes disease protection, grain indemnity, and wool checkoff elimination. The Iowa House Agriculture Committee, led by Chair Rep. Mike Sexton, is focusing on key issues for the upcoming legislative session, including protecting livestock from foreign diseases, revising the grain indemnity fund, and eliminating the wool checkoff program, according to the Iowa Capital Dispatch (link).

• Grain indemnity fund: Sexton aims to revisit a Senate-originated bill from last year that nearly doubled protections for corn and soybean farmers when buyers go bankrupt. Adjustments are underway to resolve disagreements over extending indemnity funds to credit-sale contractors.
• Foreign disease preparedness: Sexton emphasizes the urgent need for preparedness against diseases like foot-and-mouth disease and African swine fever, which threaten Iowa’s livestock and economy. While legislative action is uncertain, Sexton plans to involve state veterinarians and economists to raise awareness among lawmakers. He also advocates for safeguards against potential malicious disease spread.
• Wool checkoff program: A new bill, developed with the Iowa Sheep Industry Association, seeks to eliminate the wool checkoff, which Sexton describes as a burdensome “tax” on sheep producers given the low value of wool. Sexton is a sheep farmer himself.

Pipeline and eminent domain issues are not expected to feature in the committee’s agenda unless directed by House leadership.

— China’s soy imports record-large in 2024. China imported 7.94 MMT of soybeans in December, up 790,000 MT (11%) from November but down 1.88 MMT (19.1%) from last year. In 2024, China imported a record 105.03 MMT of soybeans, up 6.5% from the previous year.

— China’s meat imports rise in December but fall in 2024. China imported 611,000 MT of meat in December, up 30,000 MT (5.2%) from the previous month. For 2024, China imported 6.67 MMT of meat, down 710,000 MT (9.6%) from the previous year.

— China exports to Vietnam surge as supply chains adapt. China’s exports to Vietnam soared nearly 18% in 2024, reaching a record $162 billion, surpassing Japan as China’s third-largest export destination. This shift reflects companies adapting to U.S. tariffs by diversifying suppliers while continuing to rely on Chinese components for assembly in Vietnam.

Electronics parts, including screen modules and memory chips, drove much of the growth, with Vietnam serving as a hub for assembling products for US and global markets. Investments from firms like Samsung and Hon Hai Precision Industry have bolstered Vietnam’s manufacturing capacity, producing items like AI graphics cards and consumer electronics.

While this trade rerouting benefits Vietnam’s economy, it has raised costs and drawn scrutiny from the U.S., including tariffs on Vietnamese-made solar panels and potential challenges under President-elect Trump, who has criticized Vietnam’s trade practices.

— U.S. probe finds China unfairly dominates shipbuilding, paving way for penalties. The Biden administration has concluded that China uses unfair policies and practices to dominate the global maritime, logistics and shipbuilding sectors, three sources familiar with the results of a months-long trade investigation told Reuters. Investigators concluded that China targeted the shipbuilding and maritime industry for dominance, using financial support, barriers for foreign firms, forced technology transfer and intellectual property theft and procurement policies to give its shipbuilding and maritime industry an advantage, said one of the sources. Beijing also “severely and artificially suppressed China’s labor costs in the maritime, shipbuilding and logistics sectors,” that person added, citing excerpts of the report. The probe cites data showing that China’s share of the $150 billion global shipbuilding industry has expanded to over 50% in 2023 from around 5% in 2000, largely aided by government subsidies, while once dominant U.S. shipbuilders have seen their share dwindle below 1%. This could pave the way for tariffs or port fees on Chinese-built vessels. The U.S. Trade Representative’s office will release its findings later this week.

— Cofco expands export capacity in Brazil with new Santos terminal. Chinese agribusiness giant Cofco International is set to launch the first phase of its $285 million STS-11 export terminal at the Port of Santos in March 2025, according to Globo Rural. This facility will address a key challenge for Cofco since entering Brazil in 2014: dependence on third-party terminals, which raised costs by 10-15%.

Once operational, the terminal will handle 8 million tonnes of grains, sugar, and soybean meal annually, expanding to 14.5 million tonnes by 2026 with third-party usage. Equipped with advanced shiploaders and rail infrastructure, the terminal will reverse Cofco’s current reliance on trucks, with most products transported by rail from Brazil’s agricultural heartlands.

STS-11 represents Cofco’s largest port terminal outside China and a strategic shift to greater independence and cost efficiency in Brazil. The company plans to export 70-80% of locally sourced commodities through this terminal, while maintaining some operations in Northern Arc ports.

Bottom line: This move strengthens Cofco’s position as a global agribusiness leader, following its $50.1 billion in revenue and 121.7 million tonnes of commodity handling in 2023.

— China strengthens yuan defense amid looming trade tensions. China’s central bank, the People’s Bank of China (PBOC), and the State Administration of Foreign Exchange announced measures to bolster the yuan and stabilize the domestic foreign exchange market. These moves come as the country anticipates heightened trade and currency challenges with Donald Trump’s return to power.

Key adjustments include raising the macroprudential adjustment parameter for cross-border financing from 1.5 to 1.75, enabling businesses to borrow more foreign debt. This measure, last used to combat yuan depreciation, aims to ease pressure on the currency and attract more U.S. dollar inflows. However, experts caution that higher U.S. interest rates may limit its effectiveness.

The yuan faces mounting devaluation pressure, hitting multi-year lows against the dollar due to domestic rate cuts and anticipated U.S> tariffs. Nevertheless, PBOC Governor Pan Gongsheng remains optimistic, stating, “We have the confidence, conditions, and ability to maintain a stable foreign exchange market.”

To reinforce stability, the PBOC plans to issue a record 60 billion yuan (US$8.18 billion) in offshore bonds and has called for “self-discipline” among market participants. Despite external shocks, China’s economic fundamentals and international payments are expected to underpin the yuan’s resilience.

— GOP immigration bill expands state powers over enforcement. The Laken Riley Act, a GOP-backed bill advancing through Congress with bipartisan support, would significantly expand state and judicial authority over immigration enforcement. The legislation seeks to overturn Supreme Court precedent, granting states like Texas the ability to initiate immigration lawsuits against the federal government that have previously been dismissed. It also empowers state attorneys general to challenge decisions to release individual migrants and to impose sanctions on foreign nations refusing to accept deportees. Legal experts warn this measure could reshape the balance of immigration authority between states and the federal government.

— NWS outlook: Extremely dangerous fire weather conditions to develop across coastal southern California early this week... ...Locally heavy lake effect snow showers downwind of Lakes Erie and Ontario as renewed surge of arctic air moves through into the upper Midwest and Ohio Valley.

(NWS)

15: BLS consumer price index report (inflation)
15: Quarterly estimated taxes due
15: Last day to enroll in a 2025 health plan via HealthCare.gov
20: Inauguration Day
20: College football national championship
24: USDA Food Price Outlook
26: AFC and NFC football championships
27: First day IRS will begin accepting 2024 federal tax returns
28: Florida’s 1st and 6th special primaries
31: Employers and financial institutions should send out W-2 and 1099 tax forms
31: Federal Open Market Committee meets
31: USDA Cattle

Economic aid for farmers | Disaster aid for farmers | Farm Bureau summary of aid/disaster/farm bill extension |45Z tax incentive program | Poultry and swine line speeds | WASDE | Crop Production | USDA weekly reports | Crop Progress | Food prices | Farm income | Export Sales weekly | ERP dashboard | RFS | IRA: Biofuels | IRA: Ag | SCOTUS on WOTUS | SCOTUS on Prop 12 pork | Gov’t payments to farmers by program | Farmer working capital | USDA Ag Outlook Forum |