U.S. Debt Hits Record $34 Trillion as Lawmakers Wrestle with FY 2024 Spending

FOMC minutes | ERP | Oil prices drop | Panama Canal | Mo. farmland | Chevron and Calif.

Jim Wiesemeyer

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January 03, 2024 08:30 AM

Today’s Digital Newspaper

MARKET FOCUS

Financial traders focusing on today’s FOMC minutes
Markets rethinking degree of expected U.S. interest rate cuts
Economists predict unemployment will slightly increase and hiring will slow down
U.S. debt hits record $34 trillion
Fisher Investments denies WSJ report Advent International in talks to acquire
Higher oil prices certainly didn’t last long
Chevron will book $3.5 billion to $4 billion in charges, citing regulations in California
Dollar index remained above 102, having risen 0.8% prior session
Maersk extends pause on travel through the Red Sea after missile attacks
Panama Canal addresses water shortages with short-term measures, long-term plan
Ag markets today
India’s wheat stocks remain plentiful despite sales
Ag trade update
Anemic Sierra Nevada snowpack signals slow start for California’s water needs
NWS weather outlook
Pro Farmer First Thing Today items

CONGRESS

House GOP control to further narrow due to key developments
Agreement needed on spending levels to avoid gov’t shutdown
Sen. Menendez accused of accepting Qatar gifts in corruption scheme

ISRAEL/HAMAS CONFLICT

Israel carried out drone strike against Hamas office in southern Beirut
Israeli strike on southern Beirut suburb kills Hamas leader

RUSSIA & UKRAINE

Russian officials report shooting down 12 Ukrainian missiles targeting Belgorod
Polish farmers to resume blockade at Medyka border crossing with Ukraine

POLICY

Another rise in ERP Phase 2 payments
Missouri bans adversarial foreign-owned ag land near critical military facilities

CHINA

China’s top banks tighten exposure to smaller peers to curb credit risk
China’s balloons are back, this time over Taiwan
Abrupt dismissals point to Xi Jinping’s quiet shake-up of China’s military
China food security: offshore fish farming turns idle waters into ‘marine breadbasket’

TRADE POLICY

Politico analysis: Biden has failed to sell his “worker-centered” trade agenda

ENERGY & CLIMATE CHANGE

Car manufacturers fear impact of scrapping incentives on U.S. EV sales

POLITICS & ELECTIONS

Biden faces tough re-election bid, losing support among crucial segments of base
NBC News & Des Moines Register to host GOP candidate ‘closing arguments’

OTHER ITEMS OF NOTE

Officials: 302,000 migrant encounters in December
CBP reopens four U.S./Mexico border crossings as illegal crossings decrease
Biden admin taking conflict with Texas over immigration enforcement to SCOTUS
USS Gerald Ford Strike Group being redeployed back home from the Mediterranean
Explosions in Iran kill at least 73 at event commemorating general killed in a U.S. strike

MARKET FOCUS

— Equities today: Asian and European stock markets were mixed to weaker overnight. U.S. Dow opened around 100 points lower. Asian stock markets opened lower for a second day. The MSCI’s index for Asian bourses excluding Japan’s, which remains on holiday, dropped by 1.1% after falling by 1% the day before. Despite early gains, European stocks also fell, as investors adjust their expectations on the loosening of monetary policy. In Asia, Japan closed. Hong Kong -0.9%. China +0.2%. India -0.8%. In Europe, at midday, London -0.8%. Paris -1.3%. Frankfurt -0.9%.

U.S. equities yesterday: While the Dow was able to edge into positive territory on a late rise, the Nasdaq was unable to recover from sharp initial losses and along with the S&P 500 ended with losses to open trading in 2024. The Dow was up 25.50 points, 0.07%, at 37,715.04. The Nasdaq dropped 245.41 points, 1.63%, at 14,765.94, the benchmark’s biggest drop in two months. The S&P 500 fell 27.00 points, 0.57%, at 4,742.83.

— The U.S. dollar posted its strongest advance since mid-October as investors showed doubts about the scale of Fed monetary easing.

— Markets rethinking degree of expected U.S. interest rate cuts. Markets had been pricing in as much as 160 basis points of cuts in 2024, double what the Fed had projected, but the New Year has led traders to reassess their outlook, with markets now pricing in less than 150. Minutes from the Fed’s last meeting are due later today and will help traders gauge the central bank’s thinking around monetary easing.

— Higher oil prices certainly didn’t last long. Benchmark West Texas Intermediate crude initially rose due to concerns about escalating Middle East conflict when Iran deployed a warship to the Red Sea. “The market is correcting itself in so far as there have been no supply disruptions and they think it is unlikely that the Iranian warship will engage with American warships,” said Andrew Lipow, president of Lipow Oil Associates. Prices also declined because of a disappointing December S&P Global U.S. manufacturing PMI, which showed a drop in output readings, indicating potentially reduced demand. This decline in demand contributes to a bearish outlook for oil prices. Additionally, factors such as high U.S. oil production, signs of a slower economy, and warm weather reducing fuel demand have been on traders’ minds. Even news of the killing of a senior Hamas leader in Beirut, blamed on Israel by Hamas and Lebanon, did not significantly impact oil prices. WTI traded down $1.27, -1.8%, to close at $70.38. Brent traded down $1.15, -1.5%, to close at $75.89.

— Advent International is in talks to acquire Fisher Investments, the money-management firm known for its advertisements, the Wall Street Journal reports (link). In a statement after the WSJ reported on the talks, the company said, “Fisher Investments is not being bought by Advent International, or anyone else.” The firm had $205 billion in assets under management as of Sept. 30, according to its website. Fisher manages money for pension funds, governments and college endowments, and has a sizable 401(k)-advisory business. Billionaire Ken Fisher founded the firm in 1979.

— Agriculture markets yesterday:

Corn: March corn futures dropped 7 1/2 cents at $4.63 3/4, near the session low and hit a contract low.
Soy complex: March soybeans fell 24 1/2 cents to $12.73 1/2, the lowest close since June 29. March soymeal fell $6.50 to $379.50, while March soyoil rose 11 points to 48.29 cents.
Wheat: March SRW wheat dropped 21 1/4 cents to $6.06 3/4, near the session low and hit a two-week low. March HRW wheat closed 13 lower cents at $6.29 and nearer the session low. March spring wheat fell 8 1/2 cents to $7.15.
Cotton: March cotton fell 106 points to 79.94 cents, a low-range close
Cattle: February live cattle futures surged $3.425 to $171.925, ending the day nearer session highs. March feeder cattle futures leapt $3.35 to $226.45, while nearby January futures jumped $3.125 to $225.425.
Hogs: Hog futures turned sharply lower in anticipation of early-year weakness similar to that seen in early 2023. The February contract led the way lower, losing $2.65 to $65.325 at the close. As expected, the cash hog market slid to fresh 2023 lows between the holidays, with last Thursday’s official quote for the hog index dipping 22 cents to $65.35.

— Ag markets today: Corn, soybeans and wheat faced mild followthrough selling overnight after heavy losses to open the new year on Tuesday. As of 7:30 a.m. ET, corn futures were trading steady to fractionally lower, soybeans were 1 to 2 cents lower, winter wheat futures were mostly 2 to 4 cents lower and spring wheat futures were around a penny lower. Front-month crude oil futures were near unchanged, while the U.S. dollar index was around 250 points higher.

Wholesale beef prices plunge. Cash cattle prices firmed for a second straight week to close out 2023 and cattle futures bucked the general commodity selloff Tuesday with strong gains. Wholesale beef prices dropped sharply, with Choice down $5.37 and Select $1.47 lower. Cash cattle prices are expected to trade higher again this week, but with packer margins in the red, wholesale prices likely need to stabilize to keep them actively bidding for cash cattle once they have near-term slaughter needs replenished after the holidays.

Cash hog prices continue to slide. The CME lean hog index is down another 30 cents to $65.05 (as of Dec. 29), marking a new low on the seasonal decline. After sharp losses on Tuesday, the premium February lean hog futures held to today’s cash index was down to 27.5 cents.

— Quotes of note:

“There is not a lot of history of laziness being rewarded with success.” — Wayfair Chief Executive Niraj Shah, in a staff memo this past holiday season admonishing his staff to dig deeper when it comes to work culture.
Missouri farmland purchases. “With heightened concerns regarding ownership of Missouri farmland by foreign adversaries, especially China, we are signing this order to safeguard our military and intelligence assets, prevent security threats to our state, and give Missourians greater peace of mind,” Missouri Governor Mike Parson said. “When it comes to China and other foreign adversaries, we must take commonsense precautions that protect Missourians and our security resources.” (See related item under Policy section for details.)
Chevron said it will book $3.5 billion to $4 billion in charges for the fourth quarter, citing challenges tied to regulations in California and previously sold oil and gas production assets in the Gulf of Mexico. The California regs include the state cap-and-trade program, low-carbon fuel standard, penalty on “excessive” refiner margins, and a 2022 law limiting new drilling within 3,200 feet of homes and schools. California policies have made it “riskier than investing in other states, with projects being lower in quality and higher in cost,” Chevron’s Americas Products business president Andy Walz wrote last month in a filing with the California Energy Commission. “Chevron alone has reduced spending in California by hundreds of millions of dollars since 2022… We have rejected capital projects” and canceled some “due to permitting challenges,” Walz noted, adding that California’s “arbitrary attacks on a disfavored industry . . . signal to every industry, entrepreneur, manufacturer, and employer that California is closed for business.” Employment in California has declined by 77,700 over the last year.

— FOMC minutes today: Insights on future U.S. interest rate policy. The Federal Open Market Committee (FOMC) minutes from the Dec. 12-13 meeting are set to be released today, and they are anticipated to provide further insights into the expected interest rate decisions by the U.S. central bank in the coming year. Updated forecasts from FOMC members suggested that three rate cuts might be appropriate by the end of 2024. However, Federal Reserve Chairman Jerome Powell emphasized during his post-meeting press conference that these forecasts are not set in stone and do not dictate Fed actions. He clarified that officials do not engage in discussions to determine which forecast is correct.

Given the limited number of Fed speakers since the meeting, the minutes are expected to offer a deeper understanding of the Fed’s current perspectives, which can be more revealing than usual. The minutes are likely to reflect the divergent views within the central bank, with one camp not yet convinced of the need for further rate hikes and the other leaning toward rate reductions soon. Market expectations regarding the extent of future rate cuts have started to be adjusted, and analysts will scrutinize the minutes for any signals that either support or challenge prevailing market views on the direction of U.S. interest rate policy.

— Economists predict that unemployment will slightly increase and hiring will slow down in the coming year. This shift could potentially benefit the economy by facilitating a soft landing, the Wall Street Journal reports. The goal for both American workers and Federal Reserve policymakers is to achieve a gradual cooling of the labor market without it collapsing entirely. This approach aims to maintain household incomes while also reducing inflationary pressures, ultimately guiding the economy towards a smooth and controlled slowdown, if the deceleration doesn’t become too severe.

— U.S. debt hits record $34 trillion. The United States has entered the new year with a record national debt surpassing $34 trillion, marking a grim fiscal milestone. The Treasury Department reported this development as Congress prepares for another potential battle over federal spending (see related item above). Unless lawmakers can reach an agreement on a short-term continuing resolution or pass appropriations bills by Jan. 19 (and additional measures by Feb. 2), the U.S. faces the risk of its first federal shutdown since 2019.

The national debt is not only growing in total, but the cost of servicing this debt is also increasing rapidly. Interest payments on the federal debt have already reached $900 billion this fiscal year and are on track to exceed $1 trillion, a situation viewed as unsustainable. This escalating debt burden can also exacerbate inflationary pressures, posing challenges for the central bank, which primarily deals with monetary policy while having limited influence over fiscal matters. Oversized government spending has been a common practice across both political parties.

Credit rating agencies are taking note of these developments, with Moody’s recently revising its credit outlook for the US to negative from stable, citing increased downside risks to the nation’s fiscal strength. Fitch downgraded America’s credit rating following last summer’s debt ceiling dispute, and S&P was the first to downgrade U.S. gov’t debt in 2011. Continually postponing resolution of this issue makes it more challenging to address and may eventually lead to drastic measures rather than gradual adjustments, such as reduced spending or increased taxes.

While there is no specific threshold at which a government’s debt begins to harm its economy, the U.S. has managed a much larger debt load than previously thought possible. Nevertheless, extreme partisan divides have both parties blaming each other, with Republicans pointing to extensive federal spending programs under the Biden administration, such as the Infrastructure Investment and Jobs Act, the CHIPS and Science Act, and the Inflation Reduction Act. Democrats refer to the “trillions spent on Republican tax cuts benefiting the wealthy and large corporations.”

Market perspectives:

— Outside markets: The U.S. dollar index was firmer, with the euro slightly weaker against the greenback. The yield on the 10-year U.S. Treasury note was higher, trading around 3.97%, with a mixed tone in global government bond yields. Crude oil futures moved higher ahead of U.S. market action, with U.S. crude around $70.95 per barrel and Brent around $76.55 per barrel. Gold and silver were under pressure, with gold around $2,053 per troy ounce and silver around $23.44 per troy ounce.

— U.S. dollar index remained above 102, having risen 0.8% in the prior session. This strength was driven by a shift towards cautious risk sentiment, which saw Treasury yields rebound and a selloff on Wall Street. Geopolitical tensions in the Middle East, notably Iran’s deployment of a warship to the Red Sea challenging U.S. forces in a vital trade route, added to the dollar’s support. Additionally, investors tempered their expectations for significant interest rate cuts by major central banks this year. Market expectations now suggest a 70% likelihood of a quarter-point rate cut from the U.S. central bank in March, down from nearly 90% previously. Investors are eagerly awaiting the release of the Federal Reserve policy meeting minutes today for insights into future monetary policy. The dollar gained strength across various currencies, particularly against the New Zealand dollar (kiwi) and the euro.

— Brent crude futures saw a 1.5% drop, reaching a three-week low below $75 per barrel. This decline followed a previous 1.5% loss due to a selloff in risk assets, overshadowing concerns about Middle East tensions. The start of the year saw pressure on stocks and other risky assets, along with the dollar and Treasury yields rebounding as investors scaled back expectations for significant central bank interest rate cuts. The oil market continued to grapple with increased global supplies, notably from non-OPEC producers, and an uncertain demand outlook. Additionally, traders were closely monitoring geopolitical developments, including Iran’s deployment of a warship in the Red Sea challenging U.S. forces in a critical trade route. Over the weekend, U.S. Navy helicopters destroyed three Houthi boats, causing casualties, as they attempted to board a container ship in the Red Sea.

— Maersk extends a pause on travel through the Red Sea after missile attacks. The Danish shipping giant said it would continue to avoid the area and the Suez Canal after Yemen-based Houthi militants tried to board one of its ships at the weekend, prompting a firefight with U.S. forces that killed 10 of the attackers. Worries are growing that the Israel-Hamas war could expand into a broader regional conflict after a Hamas leader was killed in Lebanon. There have been 24 attacks against merchant shipping in the Southern Red Sea since Nov. 19, according to the U.S. Central Command. “If we don’t protect the Red Sea, it risks emboldening those looking to threaten elsewhere, including in the South China Sea and Crimea,” warned UK Defense Secretary Grant Shapps.

— Panama Canal addresses water shortages with short-term measures and ambitious long-term plan. The Panama Canal is facing water shortage challenges during the dry season, and long-term solutions are being explored, including damming the Indio River and drilling a tunnel, Bloomberg reports in an in-depth article (link). The canal plays a vital role in global trade and is a significant source of revenue for Panama.

Short-term fixes:

During the dry season, the canal will release water from Lake Alajuela, a secondary reservoir, to allow for 24 vessels a day, which is lower than the pre-drought capacity of about 38 vessels.
If rains increase in May, there may be an opportunity to increase traffic through the canal.

Long-term solution:

The primary solution to chronic water shortages involves damming up the Indio River and drilling a tunnel through a mountain to pipe fresh water 8 kilometers (5 miles) into Lake Gatún, the main reservoir of the canal.
This project, along with additional conservation measures, is estimated to cost about $2 billion and will take at least six years to complete. A feasibility study by the U.S. Army Corps of Engineers is underway.

Importance of the Panama Canal:

The Panama Canal is a critical global trade route, handling approximately 3% of global maritime trade volumes and 46% of containers moving from Northeast Asia to the US East Coast.
It is Panama’s largest source of revenue, generating $4.3 billion in 2022.

Benefits of the Indio River reservoir:

The proposed Indio River reservoir would increase vessel traffic by 11 to 15 ships per day, helping maintain the canal’s capacity.
It would also ensure a fresh water supply for Panama City, which has experienced rapid development over the past two decades.

Challenges and opposition:

Moving the proposal forward will require congressional approval.
Thousands of farmers and ranchers whose lands would be flooded for the reservoir are already organizing to oppose the project.

— India’s wheat stocks remain plentiful despite sales. India’s wheat inventories are likely to remain above the buffer norm on April 1 despite the ongoing sale of the grain from state reserves, a senior government official said. The country’s wheat stocks at state warehouses have dropped to 16.47 MMT as of Jan. 1, said Ashok Kumar Meena, chairman of the Food Corporation of India. That’s the lowest since 2017. India has sold 5.8 MMT of wheat from state reserves since June 1 to tame domestic prices, prompting speculation inventories would fall below 6 MMT by April 1. However, the official said they will remain above the normal level of 7.46 MMT.

— Ag trade update: Taiwan tendered to buy 82,975 MT of U.S. milling wheat.

— Anemic Sierra Nevada snowpack signals slow start for California’s water needs. California water officials reported the snowpack statewide was 25% of average for this time of year. It’s the worst start for California’s watershed in a decade. The state relies on the snowpack for roughly a third of its water supply, and it also helps protect against wildfires in the dry, hot months in summer and fall.

Details: The California Department of Water Resources ahead of its first survey of the water year, which began Oct. 1, said the network of gauges up and down the Sierra measured the snowpack at 19% of normal in the southern Sierra, 27% in the central Sierra and 28% in the northern Sierra. Statewide, the amount of snow saved in the mountains accounts for 12% of what’s average come April 1, when the water year’s last survey is performed.

— NWS weather outlook: Showers and thunderstorms spread eastward from the central Gulf Coast Wednesday into Florida and portions of the Southeast Wednesday night... ...Lake-effect snow showers forecast downwind from the Great Lakes... ...Lower elevation/coastal rain and higher elevation accumulating snowfall continues in California, the Great Basin, and the Southwest/Four Corners Region Wednesday, with snow shifting into the Central/Southern High Plains Thursday... ...Precipitation chances remain in the forecast for the Pacific Northwest as a couple system pass through.

Items in Pro Farmer’s First Thing Today include:

• Mild followthrough selling in grains overnight
• HRW crop ratings improve during December

CONGRESS

— House GOP control to further narrow due to key developments. The House GOP’s control of the House of Representatives is currently very narrow, and it is about to get even thinner due to some key developments:

Veteran Rep. Bill Johnson (R-Ohio), who has been serving since 2010, will step down on January 21 to become the president of Youngstown State University in Ohio.
Former Speaker Kevin McCarthy (R-Calif.) resigned on Dec. 31, creating another vacancy.

Impact: With both McCarthy and Johnson leaving their positions, the Republican Party will have a slim majority in the House with 219 seats, while the Democrats will have 213 seats. This is a two-vote margin, as ties are not possible.

Additionally, there is a special election scheduled for Feb. 13 in New York’s 3rd District to replace former Rep. George Santos, who was a Republican. If Democrats win that election, the ratio will become 219-214, maintaining the two-vote margin.

There will be a primary to replace McCarthy in his heavily Republican seat on March 5. However, no date has been set for the general election yet. According to California law, a special election must be called by Democratic Governor Gavin Newsom between 126 to 140 days after a vacancy is officially declared. This would likely mean a special election sometime in May.

— Sen. Menendez accused of accepting Qatar gifts in corruption scheme. Federal prosecutors have alleged that Sen. Bob Menendez (D-N.J.) accepted gifts, including race car tickets, from Qatar as part of a long-running corruption scheme. This adds Qatar to the list of foreign countries that Menendez is accused of assisting while in office, alongside Egypt. The superseding indictment, made public on Tuesday, extends the alleged bribery and extortion scheme into 2023, a year longer than initially stated. The new indictment replaces the original one and lists formal charges against the defendant.

ISRAEL/HAMAS CONFLICT

— Israel carried out a drone strike against a Hamas office in southern Beirut, according to Lebanon’s state news agency. The office was in an area of the capital controlled by Hezbollah, an Iranian-backed militia. Hamas confirmed the death of several members, including Saleh al-Arouri, a senior official. Israel has not confirmed its involvement in the attack. Emmanuel Macron, France’s president, called for restraint amid fears the strike could spark a regional conflagration.

RUSSIA/UKRAINE

— Russian officials have reported shooting down 12 Ukrainian missiles targeting Belgorod, a Russian town near the border. The conflict between Ukraine and Russia has escalated in terms of aerial assaults. Ukrainian President Volodymyr Zelenskyy alleges that Russia has launched 300 missiles and 200 drones in the past five days. Russian authorities, on the other hand, claim that a Ukrainian attack on Belgorod resulted in the death of 25 people.

— Polish farmers are set to resume their blockade at the Medyka border crossing with Ukraine, starting on Thursday. They have expressed dissatisfaction with the lack of assurances that their demands will be addressed. The farmers had temporarily suspended their protest on Dec. 24, seeking additional subsidies for corn and opposing proposed tax increases. However, Polish truck drivers have continued their blockades at several crossings along the Ukraine border. They are advocating for the reinstatement of the policy that requires Ukrainian companies to obtain permits to operate within the European Union (EU). The situation at the border remains tense due to these ongoing protests and blockades.

POLICY UPDATE

— Missouri bans adversarial foreign-owned ag land near critical military facilities. Missouri Gov. Mike Parson (R) issued an executive order banning businesses or individuals from nations designated as adversaries from purchasing farmland near military installations. “We are signing this order to safeguard our military and intelligence assets, prevent security threats to our state, and give Missourians greater peace of mind,” Parson said at a press conference announcing the executive order, according to a release (link). The executive order specifically prohibits any citizen, resident or business from an adversarial nation from purchasing agricultural land within a 10-mile radius of critical military facilities in Missouri. Those countries include China, Cuba, Iran, North Korea, Russia and Venezuela. The order requires the Missouri Agriculture Department to approve any foreign acquisition of agricultural land in the state. It also requires certain information to be disclosed to the state before a foreign purchase.

Of note: The order does not affect current landowners. And, Parson said the order will not impact foreign investment by U.S. allies like Israel, Sweden, Germany, the U.K. and Japan, among others.

CHINA UPDATE

— China’s top banks tighten exposure to smaller peers to curb credit risk. Some of China’s top banks have sharpened scrutiny of smaller peers’ asset quality and have tightened standards for interbank lending, three sources told Reuters, to curb credit risk as a deepening property debt crisis ripples through the economy. Two of China’s biggest state-owned banks and a leading joint-stock bank have stepped up reviews of smaller lenders over the past couple of months to identify those with poor asset quality and have a high risk of default, the sources said. The two state-owned banks have decided to reduce interbank lending limits and set shorter maturity periods for smaller peers deemed high risk, said two of the sources. The cautious approach taken by some big banks in dealing with smaller peers could exacerbate capital woes for the latter as they have fewer other fundraising options, which could force Beijing to step in with more supportive measures. Link for details via Reuters.

— China’s balloons are back, this time over Taiwan. Taiwanese defense ministry reports four Chinese balloons floating across the self-ruled island ahead of pivotal election. Link to more via the Wall Street Journal.

— Abrupt dismissals point to Xi Jinping’s quiet shake-up of China’s military. The purge of several commanders from China’s legislature was the latest sign of widening investigations focused on the sensitive arms sector, experts say. Link to details via the New York Times.

— China food security: offshore fish farming turns idle waters into ‘marine breadbasket’. China, continuing its march towards self-sufficiency in food, sees offshore fish farming as one way to guarantee a plentiful harvest for its people. Link to more via the South China Morning Post.

TRADE POLICY

— Politico analysis: Biden has failed to sell his “worker-centered” trade agenda. Under the headline, “RIP ‘worker-centered trade’: Biden’s Global Economic Agenda Stalls,” Politico says (link) President Biden’s “ambitious plans to rewrite the rules of global trade — and blunt Donald Trump’s economic message against him —are running aground just as the nation enters election season. The chief reason: “Biden has failed to sell his self-styled ‘worker-centered’ trade policy to key members of his own party.” According to Politico, “Biden and Democrats still fear that trade initiatives, even those framed as ‘worker centered,’ could be an electoral liability in battleground states that Trump wooed with a protectionist message in 2016. Though Biden’s team has tried to differentiate its own policy to counter Trump’s agenda, members of his own party now worry those efforts will backfire at the ballot box.”

ENERGY & CLIMATE CHANGE

— Car manufacturers fear impact of scrapping incentives on U.S. EV sales. Carmakers are concerned about the potential negative impact on U.S. electric vehicle (EV) sales if the Inflation Reduction Act (IRA) is scrapped. Advisors of former President Donald Trump revealed plans to overhaul this key green legislation if he were re-elected. The IRA incentivizes consumers to buy EVs with certain parts sourced from the U.S. or its trading partners, discouraging the purchase of Chinese technology and attracting significant investment into the U.S. EV manufacturing sector. Without these incentives, the growth of EV sales is expected to slow, causing apprehension among industry executives.

General Motors’ CFO, Paul Jacobson, emphasized the IRA’s significant benefits for the EV market and expressed concerns about its potential discontinuation. Nissan’s CEO, Makoto Uchida, also credited the IRA for driving EV sales in the medium to long term.

As of 2023, EVs accounted for 9% of new vehicle sales in the U.S., with the Biden administration aiming for 50% by the end of the decade. However, EV growth rates are slowing in major markets, including the U.S. and Europe, due to consumer skepticism about higher prices and charging infrastructure.

Of note: If the IRA’s provisions are struck down, Republican politicians may need to justify their actions to voters in states that have received significant IRA-related investments, raising questions about the potential impact on the U.S. auto industry.

POLITICS & ELECTIONS

— President Joe Biden faces a tough re-election bid in 2024, and he’s losing support among crucial segments of the Democratic base, according to a new USA TODAY/Suffolk University poll. Biden now claims the support of just 63% of Black voters, a precipitous decline from the 87% he carried in 2020, according to the poll.

Donald Trump leads among Hispanic voters: Biden trails among Hispanic voters by 5 percentage points, 39%-34%. In 2020, he had swamped Trump among that demographic group 2 to 1, 65%-32%.

Biden struggles with young voters: Among voters under 35, a generation largely at odds with the GOP on issues such as abortion access and climate change, Trump now leads 37%-33%. Younger voters overwhelmingly backed Biden in 2020.

Bottom line: This grim outlook for Biden has left him narrowly following Trump, the longtime Republican frontrunner, 39%-37%, according to the USA TODAY/Suffolk University poll. Of note: 17% support an unnamed third-party candidate.

— NBC News & Des Moines Register to host GOP candidate ‘closing arguments’ interviews. The series of half-hour sit-down interviews start with Vivek Ramaswamy today, followed by Ron DeSantis tomorrow and Nikki Haley on Friday.

Separately, Trump, former South Carolina Gov. Nikki Haley and Florida Gov. Ron DeSantis have all qualified for CNN’s Jan. 10 Republican presidential primary debate in Iowa, though the former president will not participate. The Washington Post reports Trump “plans to skip a Republican presidential primary debate in Iowa next week and instead will hold a live town hall on Fox News in Des Moines.”

OTHER ITEMS OF NOTE

— U.S. Customs and Border Protection officials said there were 302,000 migrant encounters in December, the highest number of illegal crossings ever recorded in a month, according to Fox News (link).

— CBP reopens four U.S./Mexico border crossings as illegal crossings decrease. The U.S. Customs and Border Protection (CBP) announced the reopening of four border crossings between the U.S. and Mexico. These include the international bridge at Eagle Pass, Texas, two crossings in Arizona, and one near San Diego, California. The decision to reopen these crossings is attributed to a reduction in illegal border crossings, which has alleviated the strain on CBP resources. According to an internal report, CBP authorities have been arresting an average of 6,400 migrants daily over the past week, a significant decrease from the levels observed before Christmas (see item above). A U.S. official briefing reporters noted that border crossings tend to ease between Christmas and New Year’s, and they emphasized the readiness of CBP to respond to surges in crossings. Mexico has welcomed this action.

— The Biden administration has requested the Supreme Court’s permission to remove razor wire at the U.S./Mexico border, sparking a legal dispute over the Border Patrol’s authority to cut the wire installed by Texas along the banks of the Rio Grande. According to court documents, the Biden administration claims that Border Patrol agents cut the wire to provide medical aid to migrants in need or to apprehend migrants who have already entered U.S. territory. However, Texas Governor Greg Abbott, a Republican, argues that cutting the wire undermines security and constitutes the illegal destruction of state property.

— The USS Gerald Ford Strike Group is being redeployed back home from the Mediterranean after being sent there in response to Hamas’s attack on Israel. The Department of Defense in a statement said it continues to assess its force posture globally and will maintain a strong presence both in the Mediterranean and across the Middle East. Other U.S. warships, such as the USS Bataan and USS Carter Hall, have been deployed to the eastern Mediterranean as part of this ongoing effort. “The Ford’s deployment had already been extended once. The Navy does not like to extend deployments too much because of fatigue on the crews,” analyst Mark Cancian told Breaking Defense.

— Explosions in Iran kill at least 73 at an event commemorating a general killed in a U.S. strike, state media says. Two blasts struck the city of Kerman, where thousands of mourners had gathered to commemorate the anniversary of the assassination of Gen. Qasem Soleimani, an Iranian leader who was killed in a U.S. strike in 2020, Iranian state media reported. Kerman’s deputy governor said the incident was a “terrorist attack,” according to Iranian state TV.

KEY LINKS

Policy Updates