November 26, 2019
U.S. Pork Industry Sees $25 Billion China Market Without Tariffs
“U.S. pork producers see a potential $24.5 billion market in China within 10 years if the Trump administration can gain unrestricted trade access after the Asian country’s hog herd has been devastated by disease. The National Pork Producers Council released the forecast on Tuesday as they pressed the Trump administration to emphasize access for pork products in ongoing talks with Beijing for a partial trade agreement. The spread of African swine fever has ravaged China’s hog herd and by September had driven up the price of pork more than 69% from a year earlier. The meat is a staple in the Chinese diet. While American exports have climbed amid the Chinese protein gap, meat suppliers in Brazil have seen even stronger demand. “The U.S. pork industry is missing out on an unprecedented sales opportunity in China when it most needs an affordable, safe and reliable supply of its favored protein,” David Herring, president of the producer association and a hog farmer from Lillington, North Carolina, said in a statement. Dermot Hayes, an Iowa State University economics professor who performed the analysis, said the projection was based on a “best-case scenario” in which China drops all tariffs and barriers to pork imports, including speeding up customs processing to allow for imports of chilled pork. The Asian country had a 12% duty on frozen pork before the trade war and has now added a 60% punitive tariff. Currently, China’s customs processing is restricting imports of non-frozen U.S. pork, Hayes said. Hayes said the analysis assumes that Chinese consumption of pork would rebound to its level prior to the swine fever epidemic. He concluded that the nation’s domestic industry wouldn’t return to prior production levels if tariffs are dropped now on U.S. pork since the American product is significantly less expensive than the cost to produce in China. Hayes projected that without tariffs, China would import 35% of its pork — a level similar to Mexico and Australia after they concluded free-trade agreements — and U.S. producers would capture half that market. The gains in U.S. pork exports would add 184,000 new jobs in the next decade, Hayes forecast. The pork group launched a digital media campaign to promote opening the Chinese market as a priority for the trade talks.”
Pound Weakens as Traders Question Complacency Over U.K. Election
“The pound slipped as polls showed the ruling Conservative party’s lead narrowing into a December election, with the tightening race raising investor fears about an inconclusive result. The U.K. currency weakened versus all of its Group-of-10 peers as the latest surveys of voting intention showed the opposition Labour party making up some ground following the release of its manifesto last week. The most positive outcome for investors betting the pound will rise is a Conservative win, whereas if no party gains a majority it raises the prospect that an impasse over Brexit will drag on into next year. The pound has acted as a barometer of political risk throughout the Brexit process and has recovered nearly 8% since hitting an almost three-year low in September, on hopes of an end to the uncertainty. Markets favor a clear win for Conservative leader Boris Johnson, which would make it easier to get his existing Brexit deal through Parliament, allowing the country to move on to trade talks with the European Union. The currency’s drop “highlights somewhat complacent pricing of political risk in the U.K.,” wrote Adam Cole, chief currency strategist at Royal Bank of Canada, in a research note. “It is hard to reconcile this degree of confidence with current polling results.” A Kantar poll on Tuesday showed the Conservatives at 43% and Labour at 32%, while an ICM/Reuters poll released Monday put the Conservatives at 41% and Labour at 34%, narrower margins than the double-digit lead of previous surveys in the past 10 days. Pollsters say this election is a tough one with voters prone to switching parties as Brexit disrupts traditional allegiances. Surprise results in the Brexit vote and the last election also mean such surveys are seen as less reliable.”
China, U.S. Hold Phone Call in Sign of Progress on Phase 1 Deal
“China signaled trade talks with the U.S. are on track towards an interim deal after negotiators from both sides spoke by telephone on Tuesday. The officials “reached consensus on properly resolving relevant issues” and agreed to stay in contact on the remaining points for a so-called phase one pact, China’s Ministry of Commerce said in a statement. The U.S. Trade Representative’s office confirmed a meeting took place, but declined to comment on the contents. Chinese Vice Premier Liu He, U.S. Trade Representative Robert Lighthizer and U.S. Treasury Secretary Steven Mnuchin discussed core concerns, according to China’s statement, which didn’t provide further details. Talks on the limited deal have continued since it was first announced in October, with both sides making concessions recently on issues such as food imports, intellectual property and tech giant Huawei Technologies Co. Liu, China’s chief negotiator, said last week that he was “cautiously optimistic” about concluding a phase one deal, but the lack of a deadline and comments from President Donald Trump and others have led to speculation that talks could extend into next year. Asian stocks gained Tuesday amid optimism over the talks and a fresh wave of merger and acquisition activity. If a phase one deal does not materialize before Dec. 15, Trump will have to choose whether to carry out his previous threat to impose 15% tariffs on some $160 billion in imports from China. Relations between the two sides are also complicated by passage of a bill through the U.S. legislature that supports pro-democracy demonstrators in Hong Kong, and President Xi Jinping has called for an equal agreement. Officials on the call Tuesday may have discussed tariff removal, agricultural purchases and a review mechanism for the implementation of a potential agreement, Global Times reported, citing an unidentified expert close to the trade talks. Trump said last week that a trade deal with China was “potentially very close” but it “can’t be like an even deal” because the U.S. is “starting off from the floor” and China is “already at the ceiling.” “Key is what happens if we do not get a deal by 15 December,” said Khoon Goh, head of Asia research at Australia & New Zealand Banking Group in Singapore. “Will the U.S. agree to suspend the tariffs out of goodwill?” Even if a first phase deal is signed, it may well skirt more difficult issues such as U.S. concern about Chinese subsidies and protectionism, or attempts to shut out Chinese technology companies from the U.S. market over security threats. Ongoing civil unrest in Hong Kong and China’s actions in Xinjiang are becoming additional points of tension.”
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