USTR Tai Wants to Avoid Subsidy Race with European Union on Electric Vehicles

What’s a ‘snow leopard’ and why it may be important for EVs

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January 20, 2023 07:22 AM

What’s a ‘snow leopard’ and why it may be important for EVs

In Today’s Digital Newspaper

A travel format again today as I am still in Arizona covering and speaking at TEGMA’s confab.

Equities and outside markets: European stocks and U.S. equity-index futures rebounded as traders took a pause from a weekly selloff. In Asia, Japan +0.6%. Hong Kong +1.8%. China +0.8%. India -0.4%. In Europe, at midday, London +0.2%. Paris +0.5%. Frankfurt +0.3%. In outside markets, Treasuries fell along with German and U.K. securities while oil climbed. The dollar was mixed, while the Japanese yen, Swiss franc and British pound were firmly lower. Gold prices hit a nine-month high overnight, boosted in part by bullish technicals.

On Thursday, the Dow ended down 252.40 points, 0.76%, at 33,044.56 — despite a strong start to January, the Dow wiped away all of its 2023 gains on Thursday as stocks slipped for the third session in a row. The Nasdaq fell 104.74 points, 0.96%, at 10,852.27. The S&P 500 declined 30.01 points, 0.76%, at 3,898.85.

Markets:

Followthrough selling in corn and wheat, beans turn mixed. Corn and winter wheat futures extended losses from the two previous days overnight, while soybeans turned mixed this morning after facing pressure earlier in the session. As of 7:30 a.m. ET, corn futures were trading 1 to 3 cents lower, soybeans were a penny lower to 1 cent higher and wheat futures were 1 to 4 cents lower. Front-month crude oil futures were modestly firmer, while the U.S. dollar index was around 300 points higher.
Feedlot inventories again expected under year-ago. USDA’s Cattle on Feed Report this afternoon is expected to show the feedlot inventory under year-ago for the fourth consecutive month. Based on the pre-report estimates, traders expect the feedlot inventory to fall 3.2% to the lowest Jan. 1 total since 2018. December placements are expected to have dropped 9.0%, with marketings seen at 5.3% under the year-ago level.
Futures fall as cash cattle negotiations remain at standstill. Nearby live cattle futures tumbled $1 or more Thursday, with the February contract finishing 83 cents below last week’s average cash price. That suggests traders’ attitudes toward the cash market have deteriorated. But feedlots showed no willingness to move cash cattle at lower prices.
Cash hog index continues to fall. The CME lean hog index is down another 57 cents to $73.28 (as of Jan. 18), the lowest level since the first trading session last year and nearly $49 below the August peak. February lean hog futures finished Thursday $3.37 above the cash index, roughly the same premium traders have maintained in the front-month contract recently amid the persistent cash decline.
This year is already looking calmer than last year in liquefied natural gas markets, but that’s unlikely to slow the momentum for transports of the fuel. LNG prices are down sharply after a much milder than expected winter in Europe, the Wall Street Journal reports (link), with Asian LNG spot prices off nearly 67% from record highs reached last August. But Europe’s struggle to shift toward clean energy and replace lost Russian supplies will be a multiyear battle. And China’s reopening means Asian demand should remain strong too, even if global trade weakens. LNG shipping has become a growing force in seaborne trade. S&P Global says LNG imports made up 39% of combined European Union and U.K. gas imports last year, up from 23% in 2021. That growth should continue as Northwest European storage sites seek to refill in the late spring.
593,689: Combined loaded container imports, in 20-foot equivalent units, into the ports of Los Angeles and Long Beach in December, down 20.2% from December 2021 but 4.8% ahead of November imports.

Federal Reserve:

Higher rates, but Fed’s forecast for a ‘soft landing’ starting to fall into place. The chances of a “soft landing” for the U.S. economy, where inflation declines without major job losses, appear to be growing, Federal Reserve Vice Chair Lael Brainard said on Thursday, and the central bank is now “probing” for the right level of rates to control inflation without tanking employment. But two top Federal Reserve officials said high interest rates were needed to keep pressuring inflation that’s showing signs of slowing, but is still too rapid. “Even with the recent moderation, inflation remains high, and policy will need to be sufficiently restrictive for some time to make sure inflation returns to 2% on a sustained basis,” Brainard said Thursday at an event hosted by the University of Chicago Booth School of Business. Meanwhile, Fed New York President John Williams said officials aren’t done with their aggressive tightening campaign to reduce stubborn price pressures. And, Federal Reserve Bank of Boston President Susan Collins said she favors a more moderate pace of interest-rate increases, even as the central bank continues to tighten policy to reduce high inflation.
We get two fed speakers today: Harker (9:00 a.m. ET) and Waller (1:00 p.m. ET).
Meanwhile, in Davos, former U.S. Treasury Secretary Larry Summers warned that going soft on inflation will plunge economies back into the recessionary depths of the 1970s and have “adverse effect on working people everywhere.”

Economy:

IMF chief: Global economic outlook may be less bad — but we’re still not in a good place. The IMF’s Kristalina Georgieva said headline inflation was heading down and China’s reopening was expected to boost global growth. The IMF is forecasting China’s economy will outpace global growth of 2.7% this year, at 4.4%, after slipping below it for the first time in four decades last year. She also highlighted ongoing risks, including China’s growth resulting in higher oil and gas prices and the “horrible” war in Ukraine harming global confidence, particularly in Europe. Georgieva’s conclusion: “Be careful not to get on the other side of the spectrum from being too pessimistic to too optimistic. Stay in the middle of realism that seems to serve the world well.”
‘Extraordinary measures’ as the U.S. hits its debt limit. The U.S. reached its $31.4 trillion debt cap yesterday, the total amount it can borrow. Those accounting maneuvers, which include suspending investments for certain government accounts, will allow the Treasury to keep paying obligations to bondholders, Social Security recipients and others until at least early June, the department said last week.
Congress is gearing up for a bitter partisan battle over raising the cap, as the Treasury Department begins using a series of accounting maneuvers to ensure the federal government can keep paying its bills — and federal workers — ahead of what’s expected to be a protracted fight over whether to increase the borrowing cap. New House Speaker Kevin McCarthy (R-Calif.) and other Republicans have said they would oppose raising the debt limit unless Democrats also agree to cut federal spending. Meanwhile, Rep. Rosa DeLauro (D-Conn.), the top Democrat on the House Appropriations Committee, demanded answers about the impacts of the GOP’s proposed spending cuts in a letter to 23 federal agencies on Thursday.
What to watch: There is talk that a group of moderate Republicans in the House may work with Democrats on a discharge petition that could resolve the debt limit/suspension issue. In the Senate, Minority Leader Mitch McConnell (R-Ky.) will likely be able to garner enough GOP votes to help Democrats in that chamber. “Periodically the debt ceiling has to be lifted and it’s always a rather contentious effort,” McConnell told reporters at an unrelated event in his home state of Kentucky on Thursday. “In the end, I think the important thing to remember is America must never default on its debt. It never has and never will.” McConnell’s support in 2021 was critical in corralling enough GOP votes in that chamber to allow the most recent debt-limit increase to go through.
Market impact: None so far. Treasuries were calm on Thursday. Bond traders may not start to really pay attention until two weeks before the government runs out of funds, according to Wells Fargo. Meanwhile, credit-rating agencies are all confident a deal will be reached. S&P Global Ratings’ primary credit analyst Joydeep Mukherji said key economic policies are expected to remain “stable and largely predictable,” adding that despite years of polarization and brinkmanship, the government has passed crucial legislation with last-minute compromises.
Japan core inflation hits 4% for first time in four decades. Core consumer-price inflation in Japan reached a fresh 41-year high of 4% in December, adding to pressure on the Bank of Japan to unwind its decadelong monetary easing. But Bank of Japan Gov. Haruhiko Kuroda has repeatedly said that Japan doesn’t yet have sustainable inflation because recent price increases are caused mainly by the higher cost of energy.

China:

China’s top Covid official confirms cases at ‘low level’ ahead of Lunar New Year. Vice-Premier Sun Chunlan says Covid-19 prevention efforts are “stable and orderly,” citing steady decrease in severe infections, but a data firm predicts another peak as people travel for family gatherings.
Lagarde: China reopening will add to inflationary pressures. China’s reopening from strict pandemic restrictions is likely to add to global inflationary pressures as the world’s largest consumer of raw materials ramps up commodity consumption, European Central Bank (ECB) President Christine Lagarde said. “There will be constraints, there will be more inflationary pressure coming out of that added demand in commodities and energy in particular,” Lagarde told a World Economic Forum panel.
The People’s Bank of China (PBoC) left its key lending rates unchanged for the fifth straight month at January fixing, as widely expected. The decision came on the last working day in China before the week-long Spring Festival holiday. The one-year loan prime rate (LPR), which uses for corporate and household loans, was kept unchanged at 3.65%; while the five-year rate, a reference for mortgages, was maintained at 4.3%. The central bank earlier in the week held steady its medium-term policy rate at 2.75% while offering more loans to some banks ahead of the Lunar New Year celebration. Meantime, PBoC’s deputy governor Xuan Changneng recently said that the board had pledged to take further measures to boost market confidence and increase support for manufacturers and small companies, amid hopes that the economy will stage a solid rebound this year.
An Australia/China thaw? Australia and China are considering having a virtual meeting to discuss trade in the coming weeks, the Guardian reports. It would be the first such meeting between an Australian trade minister and a Chinese commerce minister — posts now held by Don Farrell and Wang Wentao, respectively — in more than three years. China is Australia’s largest trading partner, but relations have been rocky in recent years due to Australia’s push for a global investigation of Covid-19’s origins in 2020, China’s retaliatory tariffs against Australian wine and other products, and Canberra’s growing defense ties with Washington and Tokyo. China’s ambassador to Australia, Xiao Qian, noted last week that the two countries had gone to the WTO over trade disputes, but suggested a bilateral solution would be preferable and “much easier.”
U.S. share of soybean exports to China declined in 2022. China’s soybean imports from the U.S. dropped 10% to 29 MMT in 2022, while Brazilian fell 6% to 54.4 MMT. Brazil maintained its 60% share of the Chinese soybean market, while the U.S. share slipped slightly under 32%.

Russia/Ukraine:

Biden administration announced a major new package of military hardware for Ukraine. U.S. officials said they planned to send nearly 100 Stryker combat vehicles as part of a roughly $2.5 billion shipment of arms and equipment. It marks the 30th drawdown from Defense Department stocks since the war began. Meanwhile, Western defense leaders are meeting today to discuss Ukraine at the United States’ Ramstein Air Base in Germany. The meeting comes days after German Chancellor Olaf Scholz appointed a new defense minister, Boris Pistorius. Pistorius has already met his U.S. counterpart, Lloyd Austin. The meeting also comes as Germany continues to express reluctance to send tanks to Ukraine, saying it will only do so if the United States does so first — Germany is yet to approve the export of its Leopard 2 battle tanks to Ukraine.
Ukraine exports under Black Sea deal reach 18 MMT. As of Jan. 19, Ukraine had exported just over 18 MMT of grain under the Black Sea Grain Initiative, according to the Joint Coordination Center (JCC) in Istanbul, Turkey. A total of 1,316 ships (652 inbound and 664 outbound) have been inspected by JCC.

Energy and Climate Change:

Biggest U.S. offshore oil-export terminal plan challenged in court. A proposal to build the biggest offshore oil-export terminal in the U.S. is being challenged in court by environmental groups who claim the project hadn’t received adequate environmental and public health review. The Sea Port Oil Terminal off the coast of Brazoria County, Texas, would result in a surge of crude oil exports from the area that would create “disastrous levels of greenhouse gas pollution,” equivalent to the operation of almost 90 new coal-fired power plants, the environmental groups claimed.
U.S. Trade Representative Katherine Tai said she would like to avoid a subsidy race with the European Union on electric vehicles, as Biden’s signature climate law raises concerns it would put trading partners at an unfair disadvantage. “I have heard people very concerned that we don’t want a subsidies race,” Tai said in a Bloomberg TV interview with David Westin at the World Economic Forum in Davos, Switzerland. Last year’s Inflation Reduction Act offers subsidies and tax credits for the production of electric vehicles, renewable electricity, sustainable aviation fuel and hydrogen. Some of the largest U.S. trading partners — especially the EU — say the measures will unfairly benefit U.S. companies and violate World Trade Organization rules. EU policymakers are concerned the law could lure investment to the U.S. that would otherwise flow to Europe if there were a more level playing field.
The European Union is also starting to signal reluctance to spend extra on subsidies for clean energy. “Subsidy wars could take those billions [of dollars of investment] on both sides of the Atlantic and shrink them essentially into producing much less green output than if we look at our markets as a unified supply chain,” EU Ambassador to the U.S. Stavros Lambrinidis said during a panel discussion at the Washington, D.C. Auto Show. “That’s why I think elements of the [Inflation Reduction Act] are misguided, deeply misguided.” U.S. officials have said a separate tax credit on commercial clean vehicles could help EVs made in Europe, but Lambrinidis said they are not enough by themselves as there are still EU concerns.
Analysts predict a glut of lithium supply this year that will send prices for the key material in electric-vehicle batteries sliding. Link for details.
Battery tech could help reduce costs of EV ownership. Electric vehicles could become cheaper and more efficient thanks to a shift in how battery tech is used. Structural batteries built into a car’s frame can reduce weight, improve its range and cut production costs. The Atlantic Council, a think tank, uses the term “snow leopards” to describe phenomena that could change the course of history, but that most of us may miss. One of them is battery technology changes ahead. Link to other “snow leopards.”

Trade Policy:

WTO chief issues “friend-shoring” warning. Speaking in Davos at the World Economic Forum, World Trade Organization (WTO) Director-General Ngozi Okonjo-Iweala said countries looking to engage in “friend-shoring” should be careful. The term has been used by U.S. Treasury Secretary Janet Yellen, among others, to describe doing business with friendlier, more democratically minded countries, or countries with less geopolitical risk. “Who is a friend? You’re not too sure they’ll be a friend tomorrow, we’ve seen examples of that,” Okonjo-Iweala told Reuters. She also said there was a need to focus not just on trade with Asia, but also Latin America and Africa.
Yellen woos Africa as U.S. vies with China, Russia for clout. Treasury Secretary Janet Yellen, declaring that Africa can help shape the future of the global economy, will set out why the Biden administration intends to elevate its focus on the continent over the next two years in a speech she’s slated to deliver today in Dakar, Senegal.
USDA’s Taylor warns Mexico on biotech corn issue, signals opportunity on trade with China. Newly installed USDA Undersecretary for Trade and Foreign Agricultural Affairs Alexis Taylor has been making the rounds with reporters this week, including the biotech corn situation in Mexico. She was also asked to address the China trade situation.

Mexico has proposed delaying its ban on imports of biotech corn until 2025 versus their initial plan to halt the imports as of 2024, but Taylor said that still does not address Mexico’s commitments under the U.S.-Mexico-Canada Agreement (USMCA) to use a science-based approach on biotech. “Quite clearly, from our perspective, the changes proposed continue to raise concerns under that science-based approach,” Taylor said. She said the U.S. has continued to relate that view to Mexico “in a variety of forums.”

As for Mexico’s temporary export tariff on white corn exports through June 30, Taylor did not offer a specific reaction but said the U.S. has urged countries not to impose export restrictions on food and agricultural products.

Regarding whether retaliatory tariffs imposed by China on U.S. agricultural products can be resolved with those duties being removed, Taylor said she has not been fully briefed on the U.S./China trade discussions which are led by the Office of the U.S. Trade Representative (USTR). But she speaks “every few days” with Doug McKalip, chief agricultural negotiator at USTR who also was recently installed in that role. Regarding the U.S./China relationship, Taylor said, “We’re reinvesting in that relationship. There is an opportunity coming out of the past several years. There are areas of collaboration to invest in with that Chinese relationship.” While saying China often does not live up to “a rules-based system,” she said both countries do have common goals in improving innovation and food security.

Taylor also said a focus will be pressing Canada on dairy trade issues to make sure it complies with USMCA provisions using “all available means.

Immigration:

The Biden administration on Thursday unveiled a new immigration program to allow private citizen groups to sponsor refugees from around the world. Under the program, groups of at least five individuals can apply to sponsor refugees to live in the U.S. and help them acclimate to life in the country with the help of a consortium of non-profit resettlement organizations. The program, called the Welcome Corps, was billed by Secretary of State Antony Blinken as “the boldest innovation in refugee resettlement in four decades.” The sponsor groups must raise a minimum of $2,275 per refugee, and those funds will provide initial support for expenses like apartment security deposits, clothing and furniture. All refugees being supported through the program will be cleared through the same extensive security vetting required for all refugees admitted to the US, a senior State Department official said.
A bipartisan group of senators is pushing ahead with efforts to reach an agreement on border security and immigration policy. The lawmakers recently visited the southern border in Arizona and Texas, in the face of sharp political divides over how to handle a record number of illegal crossings that have strained border staff and facilities. “We’re committed to finding lasting solutions to this crisis,” said Sen. Kyrsten Sinema (I-Ariz.), who cohosted the trip with Sen. John Cornyn (R-Texas), in Somerton, Ariz., last week.

Congress:

Sanders to revisit rail worker paid leave as Senate HELP chairman. Sen. Bernie Sanders (I-Vt.) plans to introduce legislation that would give 125,000 railroad workers paid sick leave, revisiting an issue at the center of an 11th-hour deal to avert a nationwide strike last year. Sanders will introduce a bill in the coming months that would require rail carriers to offer a minimum number of sick days on top of the flexible leave workers already get in the collective bargaining agreement enshrined by Congress.

Elections & Politics:

Manchin says he doesn’t know what he will do in 2024. Sometimes centrist Sen. Joe Manchin (D-W.Va.), who led the Senate Energy and Natural Resources Committee in the last Congress, said he hasn’t decided about running for re-election in 2024. “I have no idea what I’m going to do in 2024. I really don’t. I’ve been at this for quite some time,” Manchin said when asked about re-election plans while attending the World Economic Forum in Davos.
President Joe Biden on Thursday made his first public remarks since batches of classified documents from his time as vice president were found at his private Washington, DC, office and Wilmington, Delaware, home. “I think you’re gonna find there’s nothing there. I have no regrets,” Biden said about not revealing earlier that the documents had been discovered. The White House has pledged full cooperation with the investigation but is largely downplaying the political effects of the probe.

Health updates:

Covid-19 pandemic enters its fourth year in the U.S. with hospitalizations and deaths declining. The virus remains persistent but hasn’t triggered waves as severe as in prior winters. A recent climb in hospitalizations and Covid-19 wastewater readings appears to have stalled following the quick rise of the Omicron XBB.1.5 subvariant. Epidemiologists and public-health officials said built-up immune protection from vaccines and prior infections mutes the impact of the virus for many people, marking how the pandemic has changed over time.

Other items of note:

U.S. air traffic halt caused by ‘unintentionally’ deleted files. The contractors who damaged computer files leading to the massive Jan. 11 disruptions to the U.S. flight system did so “unintentionally,” aviation regulators said in their latest preliminary findings Thursday.
Supreme Court says it hasn’t identified person who leaked draft opinion on overturning Roe v. Wade. The investigation did not determine whether any of those discussions led to a copy of the draft opinion becoming public. Investigators also found no forensic evidence of who may have leaked the opinion in examining the court’s “computer devices, networks, printers and available call and text logs,” the report said. In a 20-page report, the court’s marshal, Gail A. Curley, who oversaw the inquiry, said that investigators had conducted 126 formal interviews of 97 employees, all of whom had denied being the source of the leak. But several employees acknowledged that they had told their spouses or partners about the draft opinion and the vote count in violation of the court’s confidentiality rules, the report said.
Cotton AWP eases. The Adjusted World Price (AWP) for cotton moved down to 72.43 cents per pound, effective today (Jan. 20), from 74.68 cents per pound the prior week. The AWP has been at or above 70 cents per pound for 11 consecutive weeks.
Union membership rate hits record low. The share of U.S. workers who are members of unions fell to a record low last year even though unions added more members than in any year since 2008 following elections at workplaces including Starbucks, Amazon.com and Apple. About 10.1% of wage and salary workers were union members last year, down from 10.3% in 2021, the Labor Department said Thursday. The membership rate has been falling for decades as the economy has become more reliant on services industries, where workers haven’t traditionally been unionized. Union membership grew by 273,000 last year to 14.3 million, a rise of 1.9%. But the overall labor force grew by 5.3 million, or 3.9%, the department said.
High anxiety is the norm. “The world seems to want everything to be better, as do I. That’s not the reality. There is an incredible amount of uncertainty” — Procter & Gamble CEO Jon Moeller.
T-Mobile said hackers accessed personal data for about 37 million customers, its second major security breach.

NWS weather outlook: Snow and a wintry mix expected for portions of Upstate New York and New England into Friday morning... ...Heavy snow possible for portions of the High Plains late Friday and Saturday... ...Frost and freezing temperatures likely for parts of Northern and Central California.

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