China Strikes Back, Announces Tariffs on U.S. | No North American Trade War, For Now

— Equities: Asian and European shares were mixed overnight. U.S. stock indexes are set to open mixed. In Asia, Japan +0.7%. Hong Kong +2.8%. China closed. India +1.8%. In Europe, at midday, London -0.2%. Paris +0.2%. Frankfurt +0.1%.

On Monday, U.S. equities finished with losses after a volatile day of trading that began with steep declines that were pared as news on tariffs continued to affect the market. The Dow ended down 122.75 points, 0.28%, at 44,421.91. The Nasdaq fell 235.49 points, 1.20%, at 19,391.96. The S&P 500 fell 45.96 points, 0.76%, at 5,994.57.

— OPEC+ sticks to output plan, drops EIA as verification source. OPEC+ confirmed it will proceed with its planned gradual oil output increase starting in April, rejecting a request from former President Donald Trump to boost production and lower prices. The group also removed the U.S. Energy Information Administration (EIA) and Rystad Energy as monitoring sources, opting instead for Kpler, OilX, and ESAI to assess production compliance. Reports suggest the decision to drop EIA was not political but due to data inadequacies. OPEC+ previously removed the International Energy Agency as a source in March 2022. A final decision on the April output increase is expected in early March.

— U.S. ag markets:

· Grains mostly lower overnight. Corn, soybeans and wheat favored the downside overnight as traders closely monitored the fluid tariff/trade situation. As of 7:30 a.m. ET, corn futures were trading unchanged to 2 cents lower, soybeans were 1 to 4 cents lower and wheat futures were 4 to 7 cents lower. The U.S. dollar index was down around 375 points, and front-month crude oil futures were about $1.60 lower.
· Cattle traders ignore cash fundamentals. Live cattle and feeders faced heavy pressure from long liquidation on Monday amid news of the impending border reopening to Mexican cattle. That superseded a 38-cent rise in the average cash cattle price to a record $209.57 last week – the fifth straight week with an all-time high – and strong wholesale beef gains of $4.31 for Choice to $331.99 and $2.77 for Select to $319.84.
· Cash hog index rises, pork cutout declines. The CME lean hog index is up another 29 cents to $83.77 as of Feb. 3. The index has risen $3.34 from the seasonal low on Jan. 9. The pork cutout dropped 94 cents to $93.81 on Monday as it gave back a portion of last Friday’s strong gains, led lower by hams. Of note, lean hog futures have expanded limits of $6.00 today after yesterday’s limit-down performance in April hogs.

— India temporarily bans export of de-oiled rice bran. India has prohibited the export of de-oiled rice bran until Sept. 30, according to a government notification issued on Tuesday.

— Ag trade: South Korea tendered to buy 50,000 MT of U.S. milling wheat. Japan is seeking 96,725 MT of milling wheat via its weekly tender. Bangladesh tendered to buy 50,000 MT of optional origin milling wheat.

— Trump pauses tariffs on Canada and Mexico, China tariffs take effect, with China countering with tariffs on the U.S. President Donald Trump agreed to pause tariffs on Mexican and Canadian goods after negotiations with Mexican President Claudia Sheinbaum and Canadian Prime Minister Justin Trudeau. The duties, originally set to take effect today, Feb. 4, will be postponed for at least 30 days while further discussions take place. The notices on public review at the Federal Register on tariffs against Canada and Mexico are still shown as being on public inspection with a scheduled publication date on both being Feb. 5. It appears, at least for now, that Treasury Secretary Scott Bessent’s previous comments about Trump’s tariffs have proven correct. He described Trump’s strategy as “escalate to de-escalate,” implying levies are a negotiation tool.

· Tariff suspension with Mexico. Trump announced via social media that Sheinbaum agreed to deploy 10,000 Mexican soldiers to the U.S.-Mexico border to combat fentanyl trafficking and illegal migration. In exchange, the U.S. will hold off on imposing 25% tariffs on Mexican goods during a one-month negotiation period led by Secretary of State Marco Rubio, Treasury Secretary Scott Bessent, Commerce Secretary Howard Lutnick and himself. The U.S., in return, will strengthen efforts to stop the flow of weapons, including high-powered rifles, into Mexico, according to Sheinbaum. “For the first time, the government of the United States says we will work together to avoid high-caliber weapons from entering Mexico,” she said, referring to how cartels acquire many of their weapons illegally from the United States. Confirming the deal, Trump said the arrangement is mutually beneficial.

Sheinbaum also announced that Mexico would establish three joint working groups with the U.S. government. “We already have a working group with the U.S. State Department, where the undersecretary is actively engaged in defending our Mexican brothers and all immigration-related matters,” Sheinbaum said. “Now, two new groups will be formed — one dedicated to security and another to trade,” she added, emphasizing the importance of the tariff pause. “We now have a month to work and convince everyone that this is the best path forward.”

· U.S./Canada tariff freeze. Similarly, Trump and Trudeau agreed to a 30-day tariff suspension while they explore a broader economic deal. Trudeau confirmed Canada’s commitment to bolstering border security with $1.3 billion in funding, the assignment of 10,000 border personnel, the creation of a “Fentanyl Czar” to combat drug-related crime. The border protection plan will use new technology, personnel, helicopters, and enhanced cooperation with American law enforcement agencies. The nation is also investing $200 million in intelligence operations, appointing a fentanyl czar, designating cartels as terrorist organizations, and establishing a partnership with the U.S. Joint Strike Force to fight fentanyl trafficking, organized crime, and money laundering, Trudeau said. Talks with Trudeau also included discussions about regulations that prevent American banks from doing business in the northern nation, according to Trump.

“Tariffs will remain like Schrodinger’s cat, dead and alive at the same time. We believe the endgame is a USMCA renegotiation, to get a USMCA 2.0,” said Carlos Capistran, chief Canada and Mexico economist at Bank of America. “That is when the threat of tariffs really end.

”The deal Trudeau agreed to yesterday was “virtually the same” as the one Canada’s prime minister had offered weeks ago, wrote Campbell Clark in the Globe and Mail, a Canadian newspaper. “Mr Trump just loves making those threats and making everyone dance.” And he will “keep on doing it”. “What,” Clark asked, “will Canada do next time?”

· China tariffs under discussion, but China reacts with tariffs on U.S. products (see next item). The 10% U.S. additional tariffs on Chinese goods went into effect today. However, Trump will speak with Chinese leader Xi Jinping in the next few days, White House Press Secretary Karoline Leavitt told reporters. Some speculate discussions could revisit the Phase 1 trade deal from Trump’s first term, which included commitments from China to increase U.S. agricultural imports. “China will be dealt with,” Trump said. “China hopefully is going to stop sending us fentanyl, and if they’re not, the tariffs are going to go substantially higher.” On Feb 3, China’s U.N. envoy suggested a meeting between Chinese Foreign Minister Wang Yi and U.S. Secretary of State Marco Rubio at an upcoming United Nations Security Council meeting in two weeks, stressing the need for cooperation because “so much is at stake.”

— China hits back with tariffs and export controls in escalating trade war. China announced strong retaliatory measures against the U.S., imposing punitive tariffs of 10-15% on American products starting Feb. 10. This follows President Trump’s decision to levy 10% additional tariffs on Chinese goods, citing fentanyl controls.

Beijing will apply 15% tariffs on U.S. coal and natural gas, and 10% on petroleum, agricultural equipment, and high-emission vehicles. China’s Ministry of Finance condemned the U.S. move as a WTO violation that disrupts economic cooperation.

Additionally, China introduced export controls on key minerals like tungsten and molybdenum and launched an anti-monopoly probe into Google. It also placed PVH (owner of Calvin Klein) and Illumina on its unreliable entity list, accusing them of discriminatory practices.

Of note: Despite the U.S. imposing a 10% tariff on Chinese goods and China retaliating with import taxes of up to 15%, the Chinese yuan remained stable, even returning to its previous Friday level. This unexpected resilience suggests that investors still hold hope for a potential last-minute negotiation or compromise, similar to the trade deferrals seen in Canada and Mexico. Trade with China has been falling since the first Trump administration, so the new U.S. tariffs may have only a limited effect on the economy.

— Trump targets the EU on trade. President Donald Trump has renewed his criticism of the European Union, accusing it of exploiting the U.S. on trade, particularly in autos and agriculture. “The European Union has abused the United States for years, and they can’t do that,” he said. In response, European leaders, including French President Emmanuel Macron, signaled their intent to push back. Given that the U.S. and the EU are each other’s largest sources of foreign direct investment, a trade battle between them could have serious economic consequences.

— Fed officials warn tariffs could stoke inflation, delay rate cuts. Federal Reserve officials warned that implementing a 25% tariff on Canadian and Mexican goods, as proposed (but delayed) by the Trump administration, could drive inflation higher. Boston Fed President Susan Collins noted that broad tariffs would raise prices for both final and intermediate goods. Chicago Fed President Austan Goolsbee emphasized the need for caution in lowering interest rates due to potential inflation risks, while Atlanta Fed President Raphael Bostic highlighted that inflationary effects would depend on how the tariffs are executed. All three officials agreed the Fed is not in a hurry to cut rates, aligning with Chair Jerome Powell’s stance that the central bank will wait for tariff policies to materialize before adjusting its monetary strategy.

— Trump says he will talk with Panama’s leader by phone on Friday afternoon. Secretary of State Marco Rubio began his Latin America tour in Panama, where he urged officials to reduce China’s influence over the Panama Canal, citing violations of the 1977 neutrality treaty ensuring equal access. While Panama retains control of the canal, its canal authority announced it will prioritize U.S. Navy vessels. President José Raúl Mulino also pledged to exit China’s Belt and Road Initiative, a move welcomed by U.S. officials. However, Trump reportedly remains unsatisfied with Panama’s response.

— Wright confirmed as Energy Secretary with bipartisan support. The Senate confirmed Liberty Energy CEO Christ Wright as Secretary of Energy in a 59-38 vote, with backing from eight Democrats, including one independent. Wright has pledged an “all-of-the-above” energy strategy, supporting both fossil fuels and renewable energy. His confirmation aligns with former President Trump’s push for U.S. energy dominance. While some Democrats opposed him due to his fossil fuel ties, supporters praised his scientific approach and openness to discussion.

— Senate Ag Committee unanimously advanced Brooke Rollins’ nomination to be the next USDA chief. This bipartisan approval in committee is a crucial step towards her final confirmation by the full Senate which is expected to happen soon. Rollins’ confirmation hearing focused on several important issues:
· Trade concerns: Senators from both parties pressed Rollins on protecting farmers from potential trade war fallout.
· Economic aid: Rollins emphasized her commitment to quickly distributing economic aid to farmers in her first 100 days, if confirmed as expected.
· Animal disease outbreaks: She pledged to address animal disease issues comprehensively.
· USDA modernization: Rollins expressed her intention to realign and modernize USDA.

The unanimous committee approval suggests strong bipartisan backing for Rollins’ nomination. Several factors contributed to this support:
· Her close relationship with President Trump, which senators hope will give her leverage in Cabinet discussions on trade and tariffs.
· Her background in agriculture and policy, including her Texas roots and experience at the Texas A&M School of Agriculture.
· Endorsements from over 400 agriculture organizations, including the Farm Bureau and Farmers’ Union.

— Key confirmation votes for Trump nominees today. Two of Trump’s controversial nominees face crucial Senate votes today. Robert F. Kennedy Jr., nominated for HHS secretary, awaits a Finance Committee decision amid concerns over his vaccine skepticism, with Sen. Bill Cassidy (R-La.) still undecided. Meanwhile, Tulsi Gabbard, nominated for director of national intelligence, has gained the support of Sen. Susan Collins (R-Maine), ahead of her Intelligence Committee vote. Sen. Todd Young (R-Ind.) remains uncertain and consulted with Vice President JD Vance and colleagues over the weekend.

RFK Jr. has been vocal about his intentions to dramatically alter current agricultural practices, particularly regarding pesticide use. He has promised to:
· Ban agricultural chemicals prohibited in other countries
· Remove “conflicts of interest” from USDA dietary panels and commissions
· Promote a transition to regenerative and less chemically intensive agriculture

Trump’s apparent support for these ideas has raised concerns among some in the agricultural sector. Trump on Monday publicly approved Kennedy’s examination of pesticide usage amid his global trade war. “We have massive deficits with the European Union. ... We don’t charge them tariffs,” Trump said. “They make it very difficult. Agricultural product, they actually don’t take it. They have a lot of excuses, some of them are the pesticides and the different chemicals used. Bobby Kennedy is actually looking into that very seriously because maybe it’s not necessary to use all of that.”

— Rubio reshapes USAID amid controversy. Secretary of State Marco Rubio has assumed control of USAID as its acting administrator, triggering concerns about the agency’s future. (The State Department launched its own USAID page.) Reports indicate significant restructuring, including suspensions, system lockouts, and an internal review led by Trump loyalist Peter Marocco. Elon Musk, tasked by President Trump with cutting government spending, has also played a role, with his DOGE team allegedly freezing security communications for foreign-based USAID workers. Rubio has criticized its operations as unresponsive. Trump has openly supported shutting down USAID, while Musk has called the agency “beyond repair.” Congressional Democrats, calling the move an illegal power grab, have vowed to block Trump’s State Department nominees in protest.

Sen. John Hoeven (R-N.D.) said “there’s a role” for foreign aid, “but it needs to advance our policies and our objectives.” Still, some in the GOP were irked by the way it went down. “The law is very specific that if there’s going to be a reorganization of USAID that Congress has to be informed 15 days in advance,” said Senate Appropriations Chair Susan Collins (R-Maine).

Rubio notified lawmakers Monday that he intends to work with Congress to reorganize the U.S. Agency for International Development and potentially merge much of it into the State Department.

Of note: Rep. Wesley Hunt (R-Texas) pointed out on X Monday that USAID spent $20 million to produce Ahlan Simsim Iraq, an Arabic-language version of Sesame Street, gave the Jordanians $100 million to build schools, funneled $11 million to Vietnam as part of an environmental protection program and spent $27 million for reintegration gift bags for deportees. White House Press Secretary Karoline Leavitt mocked some of USAID’s outlays on Monday, including “$70,000 for a production of a DEI musical in Ireland, $47,000 for a transgender opera in Colombia, $32,000 for a transgender opera in Peru.”

— Trump downplays Musk’s power amid federal aid controversy. President Donald Trump dismissed concerns over Elon Musk’s influence after the tech mogul effectively shut down a federal aid agency. “Elon can’t do — and won’t do — anything without our approval,” Trump told reporters. Musk’s growing political sway has sparked debate. A Democratic congressman called Musk’s move to close USAID “illegal, unconstitutional interference.” Despite Musk’s support for Trump during the election, tensions have arisen, with Trump insisting, “Musk is not going to be president.”

— Trump moves to dismantle Education Department. Reuters reports that President Trump is preparing to defund and dismantle the federal Education Department, with an official announcement expected later in February. The Wall Street Journal notes that this initiative aligns with efforts led by Elon Musk and his allies to shrink the federal workforce. The Washington Post cites sources stating that an executive order is being drafted to reduce the department’s functions internally, as only Congress can officially shut it down. Politico highlights that the plan includes assessing legal pathways to reassign its responsibilities, though conservative lawmakers currently lack sufficient support to fully dissolve the department.

— Trump proposes U.S. sovereign wealth fund for TikTok purchase. President Trump ordered the creation of a U.S. sovereign wealth fund, suggesting it could be used to buy TikTok. Such funds are typically found in nations with state-owned oil assets and budget surpluses — conditions that don’t apply to the U.S. Economists warn it could crowd out private investment and entangle Washington in market decisions. The proposal likely requires congressional approval, which may resist a fund that bypasses its control over federal spending. Treasury Secretary Scott Bessent stated, “We’re going to monetize the asset side of the U.S. balance sheet for the American people.” The U.S. holds about $5.6 trillion in assets but owes far more in liabilities.

— President Trump and Israeli Prime Minister Benjamin Netanyahu will hold a joint press conference after their talks today. The two are set to discuss the path forward for the ceasefire in Gaza, with Netanyahu looking for guidance from Trump on the second phase of the deal. “I have no guarantees that the peace is going to hold,” Trump told reporters Monday, sounding less than optimistic.

— President Trump said he’s pursuing a deal that would see Ukraine offer access to rare earths resources in exchange for U.S. military assistance in its war against Russia.

— GOP struggles to finalize budget resolution. House Republicans remain divided over a nonbinding budget resolution, with ultra-conservatives pushing for significantly higher savings targets than party leaders propose. House Budget Committee Chair Jodey Arrington (R-Texas) supports a $300 billion savings target over ten years, while some conservatives demand figures closer to $900 billion or even $1 trillion. Arrington emphasizes the importance of passing the resolution to enable reconciliation for key policy moves on border security and the 2017 tax cuts. With a recess approaching the week of Feb. 17, delays in committee markup could jeopardize its approval timeline.

— Trump’s water release wastes billions of gallons in California. About 2.2 billion gallons of water were released from Central California reservoirs on Friday after President Donald Trump ordered the move, aiming to send water to fire-ravaged Southern California. Trump celebrated the action on Truth Social, claiming the water was “heading to farmers throughout the State, and to Los Angeles.” However, experts note that Los Angeles’ water sources are separate from these reservoirs, meaning the release — during the wet winter season — wasted water that could have been stored for the dry summer months.

— Brazil’s sugar boom peaks in 2024, but 2025 faces decline. Brazil, the world’s top sugar exporter, hit record export volumes in 2024 despite severe wildfires. Exports surged to 38.23 million tons, generating $18.6 billion in revenue — an 18% increase from 2023. However, experts predict a drop in 2025 due to domestic supply constraints. January’s early figures show a significant slowdown, with only 1.7 million tons shipped in the first 20 working days compared to 3.16 million tons last year. Additionally, a slight dip in global sugar prices and India’s ongoing recovery may further impact Brazil’s dominance in the market.

— Arctic competition heats up as Russia expands influence. Russia is rapidly expanding its presence in the Arctic, working closely with China and outpacing the U.S. in the region, the Wall Street Journal reports (link). Shrinking sea ice has opened up new shipping routes, fueling geopolitical and commercial competition. Last year, over 1,300 voyages used Russia’s Northern Sea Route, which is significantly faster than the Suez Canal. Meanwhile, Canada’s Northwest Passage remains far less developed. Russia has also leveraged its Arctic waterways to ship fuel to China. In response, the U.S. and Canada plan to acquire more icebreakers, but they lag far behind Russia’s fleet of three dozen.

— NWS weather outlook: Unsettled weather to persist across the Northwest U.S. through the middle of the week much colder temperatures and heavy snowfall across the Cascades and the northern Rockies... ...An atmospheric river will continue to stream across northern and central California over the next couple of days with additional heavy rains and concerns for flooding... ...New storm system to bring a threat for light snow, sleet and freezing rain to portions of the Ohio Valley and the Mid-Atlantic region by Thursday... ...Record high temperatures are expected across much of the Southern U.S.
over the next few days.

(NWS)