With help from Jakob Hanke
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PROGRAMMING NOTE: Morning Trade will not be published on Monday, Jan. 20. We’ll be back on our normal schedule on Tuesday, Jan. 21.
— The U.S. and China will sign the first phase of their bilateral trade deal this morning, scoring President Donald Trump some political points while raising questions about how he will address more significant issues.
— The Senate is expected to hold a floor vote on the revised USMCA this week, before the impeachment trial begins Tuesday. Four more Senate committees are on track to advance the deal today.
— The European Union’s new trade commissioner is hoping to reset the U.S.-EU trade relationship during his visit to Washington this week.
IT’S WEDNESDAY, JAN. 15! Welcome to Morning Trade, where we’re filing a motion for earlier debate start times. Trade tips or thoughts as we head into a busy news day? Let me know: mcassella@politico.com or @mmcassella.
LET’S INK A DEAL: It’s finally time: Chinese Vice Premier Liu He and his team are expected at the White House later this morning to sign phase one of a bilateral trade agreement with Trump. The big event is scheduled to begin at 11:30 a.m., and administration officials have said the 86-page text of the agreement will be released in conjunction with the signing.
Officials said Tuesday that all aspects will be made public today, with the exception of a “confidential annex with detailed purchase amounts, which has been previously described.” POLITICO reported earlier this week that expected additional annual purchases — which the administration has said would total at least $200 billion above 2017 purchasing levels — would include around $75 billion in manufactured goods, $50 billion in energy, $40 billion in agriculture and $35 billion to $40 billion in services.
A framework: The clearest indication so far as to what the deal entails is the two-page fact sheet USTR released in December. That document said the agreement includes “substantial additional purchases” of U.S. items and a dispute resolution system, and it also requires changes in areas of intellectual property, technology transfer, agriculture, financial services, and currency and foreign exchange.
Politics versus policy: For Trump, the signing presents a big political victory in an election year, something he can point to as evidence of his deal-making prowess. “He wants a deal, and he also wants to look like a statesman,” Agathe Demarais, global forecasting director at The Economist Intelligence Unit, told Morning Trade.
But at the same time, questions abound about how significant the first phase of the agreement really is when major structural issues surrounding China’s use of subsidies, for example, are left unaddressed. Other issues left for the next phase include state-owned enterprises and technology policy.
“That’s a giant hole in the phase one deal, and there’s no way to get around it,” said Chad Bown, a senior fellow at the Peterson Institute for International Economics. “China’s subsidies are at the heart of the trade war, and them not being part of the phase one deal makes it an incredibly incomplete deal.”
Tariff talk: USTR is emphasizing that there are no commitments, written or verbal, to remove the duties currently in place on roughly $370 billion of Chinese goods.
U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin put out a relatively rare joint statement Tuesday responding to a Bloomberg report that said those tariffs are expected to stay in place until after November’s presidential election.
“There is no agreement for future reduction in tariffs,” the statement said. “Any rumors to the contrary are categorically false.”
USMCA WILL GET SENATE VOTE THIS WEEK: Senate Majority Leader Mitch McConnell has announced his chamber is on track to pass the revised deal this week, before the president’s impeachment trial begins in earnest on Tuesday.
That means the USMCA is likely to see a floor vote sometime on Thursday, after four more committees are scheduled to vote today. Those include the Appropriations, Commerce, HELP and Foreign Relations committees.
Two other committees — Budget and Environment and Public Works — moved the deal forward on Tuesday.
2020 CANDIDATES CLASH ON STAGE OVER USMCA: The USMCA was the focus of more than 10 minutes of trade discussion during Tuesday night’s Democratic debate. Most of the candidates defended the positions they’ve already laid out: Vice President Joe Biden; Sens. Amy Klobuchar (Minn.) and Elizabeth Warren (Mass.); and South Bend, Ind., Mayor Pete Buttigieg all spoke of their support for the agreement, while Sen. Bernie Sanders (I-Vt.) and billionaire businessman Tom Steyer stood firmly against it.
Sanders and Steyer both said they are against the agreement primarily because it fails to adequately address environmental concerns. “Given the fact that climate change is right now the greatest threat facing this planet, I will not vote for a trade agreement that does not incorporate very, very strong principles to significantly lower fossil fuel emissions in the world,” Sanders said.
The case for incrementalism: Sanders, who has previously said the USMCA makes some modest improvements over its predecessor, argued that the U.S. could “do much better than a Trump-led trade deal.” But others maintain that a step forward is better than nothing.
“It will give some relief to our farmers. It will give some relief to our workers,” Warren said. “I believe we accept that relief, we try to help the people who need help, and we get up the next day and fight for a better trade deal.”
EU TRADE CHIEF HUNTS FOR COMMON GROUND: EU Trade Commissioner Phil Hogan’s visit to Washington this week is aimed at convincing his American counterparts that the two longtime allies should work together on trade rather than butt heads.
“I want to see the United States and European Union resetting this relationship and developing a positive and common trade agenda,” Hogan said in a video clip posted by the EU’s office in Washington. Part of his message, he added, is that the EU wants “to engage in cooperation and dialogue rather than confrontation.”
Grassley’s message for Hogan: In addition to sit-downs with Lighthizer, Mnuchin and Commerce Secretary Wilbur Ross, Hogan will make the rounds on Capitol Hill this week to meet with congressional leaders including Senate Finance Chairman Chuck Grassley. The Iowa Republican told reporters Tuesday he will let Hogan set the agenda, since the trade official requested the meeting, while making sure he emphasizes two core points.
“One, they ought to be more tolerant towards our use of GMOs,” Grassley said. “And number two, they shouldn’t expect negotiations on free trade agreements if they don’t include agriculture.”
Wine about it: More than 100 lawmakers chimed in Tuesday with a letter to Lighthizer urging him to leave wine out of two EU trade disputes, one over France’s digital services tax and the other over subsidies for Airbus.
TRILATERAL PRINCIPLES TO REIN IN CHINESE SUBSIDIES: Washington, Brussels and Tokyo on Tuesday agreed on six principles to update WTO rules, in an attempt to rein in Chinese subsidies.
The trio published a manifesto with concrete steps to ban or curtail industrial subsidies for “uncompetitive” firms, which distort global trade.
A major focus of the proposals is on failing companies that are being kept alive with government support. Such “zombie” steel and aluminum mills have been a main driver of overcapacity, with China producing more steel than the rest of the world combined.
While the central government in Beijing recognized that there was oversupply and many companies were operating at a loss, no region wanted to be the one to lay off thousands of workers — so regional governments kept their undead mills running with state loans, swamping global markets with underpriced steel.
The U.S., EU and Japan want to avoid a repeat in other sectors.
Why now? After two years of talks, the announcement of an agreement to push for new global rules — which are aimed squarely at China — came just a day before the U.S.-China deal signing. It was also made even though joint legal text has not yet been finalized. But the principles could help the U.S. deflect criticism about how its phase one agreement does little to address China’s subsidies.
NO TARIFFS FOR TURKISH TART CHERRIES: The U.S. International Trade Commission ruled Tuesday that imports of dried tart cherries from Turkey do not materially injure or threaten to injure U.S. industry. The 5-0 vote comes after the Commerce Department found the imports were subsidized and dumped in the U.S. at less than fair value. But because of the ITC’s ruling, no anti-dumping or anti-subsidy duties will be imposed.
— U.S. and Indian officials are discussing a potential Trump visit to New Delhi, possibly as soon as next month, The Washington Post reports.
— American bike firms are facing an uphill battle to move their supply chains out of China, Reuters reports.
— Appeals Court judges question national security definition in Section 232 steel challenge, Inside U.S. Trade reports.
— As the U.S. and China prepare to sign a phase one deal, tech tensions centered on Huawei simmer on, The Wall Street Journal reports.
THAT’S ALL FOR MORNING TRADE! See you again soon! In the meantime, drop the team a line: abehsudi@politico.com; mcassella@politico.com; dpalmer@politico.com; srodriguez@politico.com; jyearwood@politico.com and pjoshi@politico.com. Follow us @POLITICOPro and @Morning_Trade.
