August 2018
August 1, 2018
October 2018
October 1, 2018
Washington Says Goodbye to John McCain
This past weekend the nation and its capital said goodbye to John McCain, whom colleagues described as “the last lion of the Senate.” After lying in state at the U.S. Capitol, the Vietnam veteran and longtime Arizona senator was honored with a memorial service at Washington National Cathedral. John Sidney McCain III was praised by former political rivals George W. Bush and Barack Obama for his vision of the United States as a global superpower and moral beacon. The last time Washington held a funeral of this magnitude was in January 2007, when many of the same figures gathered to say goodbye to former president Gerald R. Ford. McCain’s passing immediately raised questions of who would succeed him in the Senate where Republicans are nurturing only a narrow majority. (see story below)
Top Story: White House Extensions Briefly Raises Hope For Complete NAFTA Agreement
President Trump announced a US-Mexico trade deal last week that sent stock markets worldwide to a six-month high as fears of a global trade war receded. Investors expressed optimism the deal could signal a return to normalcy in trade relations by the world’s largest economy.
After the announcement by the two NAFTA partners, the Canadian Foreign Affairs Minister Chrystia Freeland cut short a trip to Europe to start talks with US trade negotiators, as pressure mounted on Canada to agree to join the agreement. The White House then extended the deadline for reaching a tri-party deal but unfortunately those talks with Canada ended without a deal. Talks are set to resume this week.
Timing may have played more of a role in the talks than any actually thawing of relations between the countries. Republicans would like to be able to demonstrate the effectiveness of their trade strategy in advance of the midterm elections in November. At the same time, any deal with Mexico must be completed before the new Mexican president, Andrés Manuel López Obrador, takes office on December 1st of this year. Obrador has been a critic of President Trump making it unlikely any deal involving Mexico would happen after that date. Meanwhile, Justin Trudeau of Canada stands for re-election in October of 2019 and perhaps cannot show any weakness in his negotiating stance with the country’s neighbor to the south.
Ottawa stood firm after the collapse of last week’s talks: "We're looking for a good deal. Not just any deal. And we will only agree to a deal that is a good deal for Canada. We're not there yet," Ms. Freeland told reporters.
Treasury Secretary Steven Mnuchin said he was optimistic that Canada will join Mexico in signing up to the proposed pact: “I think our objective is to try to get Canada on board quickly,” he said, speaking to CNBC on Tuesday, before talks had broken down.
“The US–Mexico deal seemed to boost confidence that the trade war is moving closer to an end, and the next question is who’s next to close a deal with Trump?” he said.
Adding pressure Commerce Secretary Wilbur Ross said after agreement was reached with Mexico that the Trump administration is “fully prepared to go ahead with or without Canada” in ripping up NAFTA and warned that Canada’s economy “can’t survive well” without the treaty.
“We hope that Canada will come in. I think it’s a good idea if they do. There’s really not much they should object to. But if not, they will then have to be treated as a real outsider,” Ross told Fox Business Network.
Mnuchin also indicated that the US would go ahead with the US-Mexico deal with or without Canadian support.
But senior Republicans voiced opposition, objecting to both the potential exclusion of Canada and additional restrictions on trade. Pat Toomey, the Republican senator from Pennsylvania, warned in a statement that the administration would not be able to use expedited procedures to get the deal through congress.
“The administration … must reach an agreement with Canada. NAFTA was a tri-party agreement,” Toomey said. Representatives of other states that rely heavily on exports to Canada, or hope to, were also critical of completing a deal without Canada.
“In order to do no harm to the 14 million US jobs that depend on trade with Canada and Mexico, the agreement must remain trilateral,” the US Chamber of Commerce said in a statement last Monday.
“The most surprising thing is that Mexico agreed to move forward without Canada, which few expected, and that’s left Canada exposed in these negotiations,” says Daniel Ujczo, an expert in US-Canada trade law at the US law firm Dickinson Wright.
Three central issues for Canadian negotiators, he says, are to protect Canada’s dairy quota system, issues with the US-slanted changes to system of trilateral dispute resolution, and intellectual property rights around pharmaceuticals manufacturing.
At the moment Canada seems likely to object to revisions in NAFTA that include rules that will make it harder for treaty members to challenge US trade penalties. While Mexico accepted that change, Canadian officials have said for months that would be unacceptable.
Under the new agreement with Mexico, 75% of the content in automobiles must be sourced in North America to qualify for tariff-free treatment, up from 62.5% under the current NAFTA.
Second Wave of China Tariffs Goes Into Effect
Punitive tariffs went into effect on an additional $16 billion of Chinese imports last week, bringing the total value of imports from China subject to additional duties to $50 billion. This additional list found importers including foreign-trade zones scrambling to update their duty profiles where new sources of supply have not been found.
The new tariffs impact foreign-trade zones, and the ability to attract FDI and other FTZ users, since the additional duties must be paid on all U.S. sales even if the article is manufactured into another item within an FTZ.
Two days of talks between delegations from China’s Ministry of Finance and the U.S. Treasury Department just before the tariffs went into effect failed to find a way to end the escalating trade standoff between Washington and Beijing. U.S. President Donald Trump and Chinese President Xi Jinping are scheduled to meet later this year at a multilateral summit in Argentina in November, which may be the first chance for any progress on the issue.
The first wave of new tariffs took effect in July and affected $34 billion in Chinese imports, including farm equipment, motor vehicles, medical equipment and products made of aluminum and steel. The second round includes a 25 percent tariff on 279 additional product classifications including electronics, plastics and railway freight cars.
China has retaliated by slapping an extra 25 percent duty on 545 products from the United States including soybeans, electric cars, orange juice, whiskey, salmon and cigars.
The two governments have had no formal trade discussions since the initial round of tariffs were imposed amid complaints that China engages in unfair trade practices, including the theft of U.S. technology and intellectual property.
While the Chinese economy is softening, the tariffs may not be the source of the reversal. “We have seen no evidence that the tariffs are impacting China,” said Erin Ennis, senior vice president of the U.S. China Business Council, a Washington-based nonprofit group.
But just $34 billion of the tariffs have taken effect so far, which is a fraction of China’s overall trade with the U.S., Ennis said. The President has threatened to impose 10 or 25 percent tariffs on an additional $200 billion in Chinese imports. Coupled with the levies that already have imposed, the additional duties, if enacted, would mean that that half of all Chinese imports to the U.S. are subject to new tariffs.
At a series of hearings held last month by the U.S. Trade Representative’s office, scores of U.S. companies and groups representing the bridal industry, candle makers, handbag designers, bicycle-parts distributors and others implored the Trump administration not to go forward with the additional tariffs.
A 25 percent duty would be devastating for the bicycle industry and especially for companies that make bike parts, such as tires, tubes, helmets, seats and handlebars, testified Bob Margevicius, who sits on the board of the Bicycle Product Suppliers Association.
The proposed tariffs also would have catastrophic consequences for his industry, said Stephen Lang, president of the American Bridal and Prom Industry Association.
“I shouldn’t be put out of business because of an ill-placed attempt to balance the books between these two countries,” Lang said. “There are other ways to negotiate.”
Rising Tariffs Aren’t Hurting . . . The Air Freight Business
Driven by nearly 350 million pounds of freight, American Airlines reported 10% growth in air cargo for the second quarter, while also posting a record month in June.
Several key trends contributed to the record month and quarter. E-commerce related movements showed significant growth, particularly out of Asia, Europe and Brazil, while pharmaceuticals, fruit, and flowers were the largest growing commodities throughout the timeframe. The recent increase in the value of express shipments that can be delivered duty-free from overseas may be driving increases in e-commerce volumes by air.
The same cannot be said of the ocean business. COSCO’s profits in the first half of 2018 fell by 97.8% compared to the same time last year, despite its TEU volume increasing by 12.3%, according to its second quarter figures.
The Chinese ocean carrier blamed its fall in profits on pressure from the market freight rate and the falling value of the Yuan against the US dollar due to the tariff war.
The company was also affected by its $6.3 billion acquisition of Orient Overseas International Ltd, parent of container line OOCL, in July 2018, which was approved by US Homeland Security after it agreed to sell its Long Beach container terminal to a third party.
That purchase saw the company leapfrog Hapag-Lloyd and CMA CGM to become the third biggest container shipping line in the world.
Despite the US-China trade war, OOCL said it expects the world economy to continue its recovery and consequently help the container shipping industry.
In its financial report for January – June 2018, it said: “Looking forward to the second half of 2018, world economy will remain on the path of recovery.
“Although trade protectionism is on the rise and Sino-US trade frictions may inhibit the growth of the global economy to a certain extent, it is expected that the global economy will continue its growth since 2017, thus providing guarantee for the growth of container shipping volume.
“In terms of shipping capacity, currently orders of container vessels are at a historically low level and the pressure on capacity delivery has slowed down.”
China Tariffs Alter Ford Production Strategy
Ford Motor Co. has ditched plans to import its Focus compact vehicle from China to the U.S., citing the expected hit from import tariffs just put into effect.
The U.S. auto maker had planned to begin shipping a new version of the Focus from China, starting in the second half of 2019. But a new 25% tariff upended the economic case for the import plan, said Kumar Galhotra, the company’s head of North America.
The move signals that the Trump administration’s trade policies have started to affect major production decisions in the auto industry. Until now, many auto executives have taken a wait-and-see approach, hopeful the administration would change course or strike new trade deals.
Ford will instead discontinue the Focus nameplate for the U.S. market after selling down the current supply. The tariff made it a “very difficult business case for us, so we’re choosing to deploy these resources elsewhere,” Mr. Galhotra told reporters during a conference call right before the holiday weekend.
Ford recently ended U.S. production of the Focus, but said it would re-enter the market next year as a small crossover utility vehicle made in China. The plan was part of a larger effort to shift more investment into the higher-profit SUVs and trucks that are in hot demand. Earlier this year, Ford said it would kill off several small car and sedan models due to weak sales.
The Ford Focus, which will live on in other markets overseas, is priced around $20,000 and had become well-known in the U.S. as a popular choice for budget-minded shoppers looking for better fuel-efficiency. But with low gasoline prices and more buyers flocking to crossovers and SUVs, sales of the Focus and other small cars have fallen in recent years, prompting some auto makers to rethink their lineups.
Ford sold roughly 158,000 Focus compact cars in the U.S. last year, down 6% from 2016.
Ford has said the new version of the Focus would have been a relatively light seller in the U.S.—projected at less than 50,000 vehicles annually—and those volumes didn’t warrant U.S. production. The company has said it would be less expensive to use excess factory space in China than it would be to continue building the Focus at the Wayne, Michigan plant where it has been made for years.
The auto industry was on the front lines of the President’s trade offensive before taking office when he criticized car companies for producing vehicles in foreign markets rather than the U.S. More recently, industry executives have been fending off President Trump’s threat to impose hefty tariffs on cars imported to the U.S., including on those made by the Detroit car companies.
President Trump during the 2016 presidential campaign took aim at Ford several times, blasting it for plans to build a $1.6 billion assembly factory in Mexico. The company had intended to move production of the Focus–still built in Michigan–to the new Mexican facility.
After President Trump won the election, Ford canceled plans for the factory in Mexico, saying instead it would build the Focus at an existing plant in the country while adding factory jobs in the U.S. Later that year, it changed plans again, saying it would switch production of the Focus to China and import the model to the U.S.—a move that would be about $500 million cheaper than its previous plan, the company said at the time.
The auto industry’s lengthy development times for designing and engineering new vehicles and the large factory investments needed for new models make car companies wary of the trade uncertainty. Industry executives say they have been holding off on changing plans to see how President Trump’s tariff threats play out.
The 25% vehicle tariff on Chinese imports that took effect in July has been problematic for some auto-parts suppliers, but has had minimal impact on auto makers so far. Few ship vehicles from China for sale in the U.S. General Motors became the only car company to do so in significant numbers in 2016, when it began importing a China-built Buick Envision SUV.
GM has asked the Trump administration for an exemption from the tariffs on the Envision and has indicated it could pull the vehicle from the U.S. market if the request isn’t granted. Mr. Galhorta said Ford didn’t seek a tariff exemption for the Focus. Mr. Galhotra said the decision would have “marginal” impact on the auto maker’s future sales in the U.S., where Ford plans to increase the number of nameplates it offers to 23 within five years—from 20 today—despite plans to eliminate several car lines. Ford has said it would add more trucks, SUVs, and electric and hybrid models to respond to consumer demands.
Senate Balance may be decided by . . . an Ice Cream Salesman?
Sen. John McCain's death in office has handed Arizona's governor an empty Senate seat to give out — and a difficult political puzzle to solve before he does so. Not only is the narrow Republican majority in the Senate at stake (51-49) but Gov. Doug Ducey himself stands for re-election this November, requiring the first-term governor to balance both national and local political needs in coming up with his choice. CNN called it “the most important decision of his political career.” (more) Ducey is the former CEO of Cold Stone Creamery and has described himself as “an ice cream salesman.” Arizona law requires that he name a replacement who is a member of McCain's Republican Party, but that person will only fill the seat until the next general election in 2020. At that time the seat would be up for grabs and in a state with a deeply divided Republican Party, where McCain was a towering but divisive figure, the choice is complicated.
Ducey must balance the demands of the many conservative Arizona Republicans who had soured on McCain due to his dovish immigration stance, criticism of President Donald Trump and vote against a rollback of President Barack Obama's health care law. They are wary of Ducey appointing a moderate and the White House as well would like a more reliable Republican vote. But naming someone with dramatically different views from McCain could be viewed as disrespectful to McCain's legacy, carrying its own risks. In either case, Ducey wants to set the party up to hold the seat two years from now, no easy task given the turmoil in his party.
The decision is under close scrutiny in Washington. While McCain was being treated for cancer in Arizona and unable to vote in Washington, his party's already narrow Senate majority had shrunk from two votes to one. With the confirmation of Trump's Supreme Court nominee, Brett Kavanaugh, scheduled for next month the GOP needs every reliable vote it can get. Ducey's office has heard from Vice President Mike Pence's aides about the choice, a person familiar with the discussions said Sunday. The person was not authorized to discuss the matter and asked for anonymity.
A day after McCain's death, political types from Arizona to Washington were buzzing with options. The senator's wife, Cindy McCain, was viewed as a possibility, as was former Sen. Jon Kyl and former McCain chief of staff, Grant Woods. Another group of former lawmakers and state officials were floated as middle-ground options — including Ducey's chief of staff Kirk Adams — who might not anger the right wing of the party.
Ducey himself faces a weak primary challenge from his right in the state's primary elections Tuesday. An aide to Ducey said in a statement to CBS News on Sunday that the governor would name a replacement after McCain is laid to rest.
"Now is a time for remembering and honoring a consequential life well lived," said Daniel Ruiz, senior adviser for communications and policy strategy to Ducey. Doug Cole, a former McCain staffer and veteran Arizona strategist, said one of Ducey's key choices has to be whether he wants to name someone who wants the job for the long term. "Do I appoint a caretaker or do I appoint someone who will stand for election?" Cole asked. "Does he choose from the family?"
Some observers predict the governor will be solicitous to the McCain family's wishes. That's led to widespread speculation that Cindy McCain could be selected, perhaps under the assumption that she would not run again for the seat in 2020, when John McCain’s six-year term expires. Cindy McCain's politics are largely unknown, though she would hardly be the first spouse to take over a husband's seat in Congress. After Rep. John Dingell, D-Michigan, retired after 58 years in the House in 2014, his wife Debbie Dingell ran for and won the seat. Dingell has successfully held the seat ever since.
Another caretaker option would be Kyl, now a Washington lobbyist viewed as a safe, uncontroversial choice. But Kyl already is tasked with shepherding the Kavanaugh nomination and Republicans may be loath to upend that process. Kyl, a former member of Republican leadership, was Senator for Arizona for 18 years from 1995 to 2013. He served on the Senate Judiciary Committee during the confirmations of 4 of the last 5 justices who have joined the Supreme Court. Barrett Marson, a Republican strategist in Phoenix, said that if Ducey opts for someone with long-term designs on the seat, "he has to pick someone who can galvanize voters in 2020."
Grant Woods, a former Arizona attorney general and McCain aide, is another possibility. But he is known for sharing McCain's stances on immigration, which could be anathema to the state's conservative.
The person who was previously seen as McCain's most likely successor is Arizona Rep. Martha McSally. Like the late senator, she's a former fighter pilot — one of the first women to fly in combat and an air force colonel. But she is already running for the Senate seat vacated by Sen. Jeff Flake, which, if elected, would give her a full term in office.
U.S. Foreign-Trade Zones Board Activity
Washington Says Goodbye to John McCain
This past weekend the nation and its capital said goodbye to John McCain, whom colleagues described as “the last lion of the Senate.” After lying in state at the U.S. Capitol, the Vietnam veteran and longtime Arizona senator was honored with a memorial service at Washington National Cathedral. John Sidney McCain III was praised by former political rivals George W. Bush and Barack Obama for his vision of the United States as a global superpower and moral beacon. The last time Washington held a funeral of this magnitude was in January 2007, when many of the same figures gathered to say goodbye to former president Gerald R. Ford. McCain’s passing immediately raised questions of who would succeed him in the Senate where Republicans are nurturing only a narrow majority. (see story below)