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China is lowering import tariffs on more than 850 products, the country's finance ministry said in a statement Sunday night.

Driving the news: Goods to benefit from the Jan. 1 tariffs cuts include medication, tech and frozen pork — which could help China's meat shortages, driven by swine fever swine fever, Bloomberg reports.

The big picture: The U.S. and China agreed on Dec. 13 to a "phase one" trade deal, which  averted a new round of tariffs scheduled to come into effect on Dec. 15, and a Chinese official said that the U.S. would reduce its tariffs on Chinese goods in stages.

Between the lines: Sunday's tariffs reduction is not directly linked to the U.S.-China trade war, but Bloomberg notes "it supports Beijing’s claim to be further opening its economy as it pursues a deal with the Trump administration."

Go deeper: Pork industry wants to cash in on "phase one" U.S.-China trade deal

China to cut import tariffs on 850 products

Pork will be among the products to see a cut on Jan. 1.

A port on December 4, 2019 in Lianyungang, Jiangsu Province of China. 

A port in Lianyungang, Jiangsu Province, China on Dec. 4. Photo: Wang Chun/VCG via Getty Images

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After a record economic expansion, the coronavirus pandemic sent the U.S. economy into a recession as unemployment soared to staggering heights. The country now faces urgent questions about how much stimulus is needed for reeling consumers and businesses, and what a recovery might look like.

Economy & Business

U.S. Trade Representative Robert Lighthizer said in a letter to a top Mexican trade negotiator Monday that the full-time diplomats, or attachés, designated to uphold labor standards in the version of the United States-Mexico-Canada Agreement (USMCA) sent to Congress are not "labor inspectors."

Why it matters: Mexico’s Undersecretary for North America Jesús Seade flew to Washington on Sunday to confront U.S. officials over the inclusion of language that would appoint attachés to implement labor reform in Mexico, accusing the Trump administration of blindsiding them. The intervention has thrown a wrench in the House's tentative plan to vote on the North American trade deal on Thursday.

"The Administration included language in the USMCA implementing legislation authorizing up to five attachés from the Department of Labor to work with their Mexican counterparts, workers, and civil society groups on implementation of the Mexican labor reform, including by providing technical assistance and disbursing capacity building funds, and provide assistance to the new U.S. government interagency labor committee.  These personnel will not be “labor inspectors” and will abide by all relevant Mexican laws."

Go deeper: Mexicans throw 11th hour curveball at Trump's biggest trade deal

Robert Lighthizer tells Mexico: USMCA "attachés" are not "labor inspectors"

The trade deal provision led Mexican officials to accuse the Trump administration of blindsiding them.

U.S. Trade Representative Robert Lighthizer. Photo: Rodrigo Arangua/AFP via Getty Images

Politics

USMCA

Latin America and Latinos

The U.S. pork industry — whose commodity was among the hardest hit by China's retaliatory tariffs — breathed a sigh of cautious relief following news of a deal that winds down tensions between the U.S. and China.

Why it matters: The deal in theory is a reprieve for farmers, a key part of President Trump's base who have borne the brunt of the trade war. China's purchases of goods like soybeans and pork have waned in the nearly two-year battle — pushing rural America into a financial tailspin in an otherwise solid economy.

Driving the news: U.S. officials said China would up annual purchases of U.S. farm goods to at least $40 billion over a period of two years.

But there are no details yet on which goods it'll buy or how China plans to absorb that level of imports. The most China ever purchased from U.S. producers was $29 billion in 2013, per Bloomberg.

Hog futures — along with other commodities — rose 1% on news of the deal.

Industry experts say the ceasefire could create new prospects for farmers — but won't undo the missed opportunity to cash in on China's pork shortage, partly due to African swine fever.

Pork exports to China haven't "accelerated at the rate that it could have if we didn't have these [trade] obstacles," Joe Schuele, head of communications at the U.S. Meat Export Federation, an industry trade group, tells Axios.

Data: China's monthly consumer price index via FactSet; Chart: Axios Visuals

The backdrop: The trade war coincided with a breakout of African swine fever, a deadly pig disease that killed hundreds of millions of hogs in eastern Asian countries, as Axios' Jacob Knutson reported earlier this year. 

Pork prices in China surged triple digits from the prior year in November. The jump in prices pushed China's overall inflation index to rise at the quickest pace in about eight years, per the latest data from the Chinese government.

The epidemic had China — the world's top pork consumer — looking offshore to fill the supply gap, a potential goldmine for U.S. farmers.

U.S. ramped up herds in anticipation of more demand, with processors slaughtering about 1 million more pigs per week than a year ago, per Reuters.

Yes, but: The U.S. pork industry faced three rounds of retaliatory tariffs. In 17 months, tariffs on pork exports to China increased sixfold (from 12% to 72%).

That made it less palatable for Chinese buyers to turn to the U.S. for help, but not totally out of the question. 

Those that did import from the U.S. sometimes pushed the price hikes back onto U.S. packers and producers  — making it less profitable to export to China, Schuele says.

As a result, European suppliers have capitalized much more on China's pork shortage. So has Brazil.

What's next: "We're encouraged that a deal has been reached and we're anxious to get the details," Schuele says — a sentiment echoed by the industry's most prominent trade groups. 

There may be some opportunity to take advantage of China's upcoming all-important Lunar New Year celebration, which tends to be the country's biggest period of pork consumption.

Go deeper: Chicken consumption is closing in on red meat

Pork industry wants to cash in on "phase one" U.S.-China trade deal

Industry experts say the ceasefire could create new prospects for farmers.

U.S. China trade war

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Two of the biggest constraints to the world economy — uncertainty about Brexit and the China trade war — were alleviated last week, Bloomberg reports.

Why it matters: With a "phase one" deal between U.S. and China staving off more tariffs and the United Kingdom now on pace to leave the European Union on Jan. 31, the outlook for global growth should be more positive in 2020 after being hampered by widespread uncertainty in 2019.

What they're saying: Ben Emons, managing director for global macro strategy at Medley Global Advisors in New York, told Bloomberg: "The China trade deal and U.K. election result have taken out a major tail risk overhanging markets and companies."

"Business confidence should see a large boost that could see a restart of global investment, inventory rebuild and a resurgence of global trade volume."

Yes, but: The New York Times' Peter Goodman writes in a new analysis that the Conservative victory in Britain has dealt another blow to globalism, paving the way for a new era of trade dominated by nationalism.

"The decisive Conservative victory in Britain leaves no doubt that in today’s global equation, national interests are supreme and globalization is suspect."

"[A] new era is underway in which national interests take primacy over collective concerns, with trading arrangements negotiated among individual countries."

U.S. and China reach "phase one" trade deal to avert December tariffs

U.K. election: Boris Johnson's big win means Brexit is coming

Goldman Sachs sees break in the clouds in latest economic forecast

Global economic uncertainty eased by U.K. elections, China trade deal

The outlook for global growth should be more positive in 2020.

U.K. Prime Minister Boris Johnson. Photo: Lindsey Parnaby WPA Pool/Getty Images

World economy

China announced Sunday that it is postponing additional tariffs on U.S. automobiles, corn, wheat and other goods that were set to take effect on Dec. 15, Reuters reports. 

The big picture: The U.S. and China agreed to a "phase one" trade deal last week in which Washington agreed to delay a tariff hike on $160 billion of Chinese products that was also planned for Dec. 15. In exchange, Beijing agreed to increase imports from the U.S. by at least $200 billion over the next two years, including agricultural goods.

China suspends additional retaliatory tariffs on U.S. goods

China had planned to enact the tariffs on Dec. 15 before striking a "phase one" trade deal with the U.S.

A worker at a port in Qingdao, China, 2017. Photo: STR/AFP via Getty Images

The U.S. and China agreed to a "phase one" trade deal on Friday, which President Trump touted in a series of tweets.

The state of play: The deal averts a new round of tariffs scheduled to go into effect on Dec. 15, and a Chinese official said that the U.S. would reduce its tariffs on Chinese goods in stages, per Bloomberg. The deal includes an agreement from China to increase imports from the U.S. and purchase agricultural goods.

Sunday's tariffs on $160 billion of Chinese imports would have directly affected consumer goods such as cell phones, laptops, video game consoles and toys.

The president, who called the deal "amazing," also said that he would "begin negotiations on the Phase Two Deal immediately, rather than waiting until after the 2020 Election."

Our thought bubble, via Axios' Dan Primack: This is Trump trying to save face. The deal seems to basically be an agriculture purchase agreement  — and does little to address the core issues that the president supposedly cares about.

China wanted and needed to purchase the agricultural goods anyway.

The dropped December tariffs also don't really have an impact on American consumers during the holiday season, as those goods have already been imported.

The big picture: The 17-month U.S.-China trade war has lacked significant breakthroughs, causing major market uncertainty and hammering the U.S. manufacturing industry. 

Recent data, however, has shown China's economy is also taking a hit, giving Beijing extra incentive to strike a deal that would delay the December tariffs.

Between the lines: Optimism for a trade war reprieve was low in the wake of Trump's suggestion earlier this month that he "liked the idea" of waiting until after the 2020 election to strike a deal with China.

A source close to Trump's negotiating team also told Axios' Jonathan Swan that the China deal had been stalled as a result of legislation from Congress expressing support for anti-government protestors in Hong Kong, which infuriated Beijing.

Go deeper: The trade war is working — kind of

President Trump called the deal "amazing" in a tweet.

Photo: Artyom Ivanov/TASS via Getty Images

Fed chair Jerome Powell said Wednesday that the new U.S. trade deal with Mexico and Canada should remove some trade policy uncertainty, and that it's a positive factor for the economy.

Yes, but: However, the U.S. Chamber of Commerce and other groups have been registering their unhappiness with the trade deal in recent days.

Why it matters: For most of the year, groups have been universally calling on Congress to pass the agreement. Now that the deal is near the finish line, it's facing mounting opposition.

What they're saying: "We are seriously disappointed by the removal of certain intellectual property provisions," Thomas J. Donohue, the Chamber's CEO, said in a statement. He specifically pointed to reduced protections for prescription drugs.

"USMCA is a step back from NAFTA and will yield limited economic gains," said Daniel Griswold, a senior research fellow with the Mercatus Center at George Mason University. The agreement will raise "prices for US families in the market for a new car or light truck, while reducing sales and exports of the domestic US auto industry."

The left-leaning think tank EPI said the revised deal "constitutes Band-Aids on a fundamentally flawed agreement and process."

Pelosi loses push to strip tech liability shield from USMCA

Big Pharma keeps its status quo after USMCA deal

Business groups express growing dissatisfaction with USMCA compromise

Now that the deal is near the finish line, it's facing mounting opposition.

Nancy Pelosi and a group of Democrats at a press conference

Speaker Nancy Pelosi and Ways and Means Chairman Richard Neal announce the USMCA compromise. Photo: Mark Wilson/Getty Images

U.S. manufacturers and small businesses have been hit hard by the trade war, but recent data shows that China is really suffering.

Driving the news: China's total exports fell for the 12th straight month in November, dropping 1.1% from a year ago, and exports to the U.S. have fallen more than 20%, according to China’s customs administration. 

Economists had expected shipments to rise 1%, as retailers and companies stock up for Christmas, per Reuters.

What's happening: The U.S. trade deficit declined 7.6% in October to $47.2 billion, the smallest since May 2018, as both imports and exports of goods fell. It was the second straight month the trade deficit has fallen and the largest drop since January.

The goods trade deficit — a key benchmark of the Trump administration — is at its lowest since September 2017.

China’s trade surplus fell to $38.73 billion in November, about $8 billion below what it was expected to be.

27.4% drop in the goods trade deficit in October.

23.1% year-over-year decline of U.S. imports from China.

2.8% year-over-year decline in U.S. exports to China.

What they're saying: "There’s little reason for the Trump administration to back away from tariffs as the pressure on China is working," analysts from S&P Global Market Intelligence note.

But, but, but: The goods trade deficit with the EU increased 20% during the month, with U.S. imports from the EU surging to a record high, so American business owners aren't necessarily reaping the benefits.

The Commerce Department also reported that factory orders increased 0.3% in October, but shipments were unchanged and unfilled orders were flat, indicating the recession in the U.S. manufacturing sector could continue for some time, Reuters notes.

A 2019 U.S.-China trade war deal is looking unlikely

The trade war is kind of working

Recent data shows that China is really suffering.

The dollar has fallen every day this week, notching a cumulative loss of around 1% since President Trump complained on Twitter about its strength and took aim at two countries with weak currencies.

Why it matters: The decline may continue, reducing the dollar's strength in 2020, experts say.

Driving the news: With U.S. businesses continuing to complain, Trump has made it clear the currency's strength is a major administration concern.

On Monday, he announced he would reimpose tariffs on steel and aluminum imports from Brazil and Argentina for "presiding over a massive devaluation of their currencies."

Trump's decision to target Argentina and Brazil, two countries whose economies have been hurt by weakening currencies and whose central banks have intervened to strengthen them, signals to strategists at Bank of America Merrill Lynch that a number of other countries could find themselves in his crosshairs.

Between the lines: "Trump has the ability to intervene in the FX market," Michelle Meyer, Bank of America Merrill Lynch's head of U.S. economics, tells Axios.

"The dollar size would be pretty small in terms of flows but it would be about sending a signal that he is willing to use that tool."

Yes, but: Currency intervention has been shown to be ineffective unless coordinated between central banks, notes Kathy Lien, managing director of FX Strategy at BK Asset Management.

"And that’s certainly not what you’re going to get this time around," she tells Axios.

Be smart: What could really move the needle is a ceasefire in the U.S.-China trade war or Trump holding off on instituting more tariffs on Chinese imports.

New tariffs have boosted the dollar in the past, Lien says, by prompting traders to sell out of so-called high-beta currencies like the Australian and New Zealand dollars and emerging market currencies, and buy more greenbacks in search of safety.

The dollar also could be weakened by outside factors, Lale Akoner, global market strategist at BNY Mellon, tells Axios.

She expects European economic data to improve, bolstering the euro, and for emerging market currencies to rise against the dollar.

The British pound has risen to its highest level since May against the dollar this week and could go higher if a Brexit deal is reached, analysts say.

The bottom line: With the U.S. economy poised to slow next year, "the economic differential between the U.S. and the rest of the world will decrease," Akoner says, which should lead to less appetite for the dollar.

Earnings have been weak, but better than expected

Central banks want more gold, fewer dollars

A "Mar-a-Lago Accord" could weaken the dollar

Trump may get the weak dollar he wants

It has fallen every day this week after a series of presidential tweets.

Illustration of George Washington looking concerned on a dollar bill

U.S. Dollar Index

The trade war looks to be back on in a big way after a series of pronouncements from President Trump and the White House.

The latest: Trump told reporters in London Tuesday he had "no deadline" for a China deal and that he liked "the idea of waiting until after the election for the China deal."

That followed an early Monday announcement that the U.S. would reimpose tariffs on steel and aluminum imported from Brazil and Argentina for "presiding over a massive devaluation of their currencies."

U.S. stocks predictably performed poorly, with the S&P 500 closing 0.9% lower and the tech-heavy Nasdaq dropping 1.1%.

"Trump’s tweets suggest a failure to understand how trade flows, exchange rates, or economies function at the most basic level," Karl Schamotta, chief market strategist at Cambridge Global Payments, told Axios.

Hours after Trump's Monday morning tweet, Commerce Secretary Wilbur Ross said on Fox Business that December was a "really good time" to add more tariffs to Chinese imports because it wouldn't "interfere with this year’s Christmas."

Ross also noted that time was running out to secure a trade deal before the next round of tariffs kick in on Dec. 15.

Later in the day, the USTR issued a statement saying it was "initiating a process to assess increasing the tariff rates and subjecting additional EU products to the tariffs,” and claiming the EU didn’t sufficiently eliminate the adverse effects of its subsidies to Airbus.

To top it off, Trump’s chief trade negotiator Robert Lighthizer yesterday suggested adding tariffs of 100% on $2.4 billion of French imports like cheese, sparkling wine and makeup. This was in response to an investigation that concluded a French digital services tax discriminated against U.S. internet companies.

On the other side: Chinese officials have continued to slow roll and push back on the "phase one" trade deal. Late Monday, China said they would soon publish a list of “unreliable entities” that could lead to sanctions against American companies.

France's finance minister said the European Union would "be ready to retaliate” if the U.S. imposed the tariffs on its products.

The big picture: “Markets have had a great run this year and expectations are already high that a trade deal gets done,” David Carter, chief investment officer at Lenox Wealth Advisors, told Reuters.

“The most recent tariff tweet has reminded markets that there’s a lot of uncertainty around trade policy and U.S. actions."

The bottom line: The day's actions "ought to make a whole lot of people nervous,” William Reinsch of the Center for Strategic and International Studies told the Washington Post. “It kind of makes people wonder what’s the point of negotiating if this is going to happen.”

Data: Money.net; Chart: Andrew Witherspoon/Axios

While the broader market suffered, shares of U.S. steel companies got a big boost from the president's Monday morning tweet. 

Yes, but: It's been a rough year for the American steel industry. Both TimkenSteel and U.S. Steel have lost around a third of their share price year to date and while AK Steel shares have risen on the year, they are around 80% below their 2017 peak.

How to think about Trump's two big trade deals

Wilbur Ross says December tariff hike likely without China breakthrough

Trump brings the trade war back to life

The trade war looks to be back on in a big way after a series of pronouncements from the president.

Illustration of President Trump smiling and holding a shipping container

Lost amid headlines about the coronavirus pandemic and the seemingly unstoppable stock market rally, has been the monthslong escalation of tensions in the U.S.-China trade war —  and it's likely here to stay.

Why it matters: The tariffs continue to impress a sizable tax on U.S. companies and consumers, adding additional costs and red tape for small businesses, farmers, manufacturers and households trying to stay afloat amid the pandemic.

"The trade war has been quietly intensifying," Stephen Gallagher, chief economist at Société Générale, tells Axios.

Driving the news: White House chief of staff Mark Meadows said late Wednesday that administration officials are "looking at the national security risk as it relates to TikTok, WeChat and other apps" from China and could announce bans in the coming weeks.

That followed remarks from President Trump on Tuesday that he had no plans for "phase two" trade deal negotiations and was "not interested right now in talking to China.”

What's happening: The "phase one" deal was cheered by investors as a positive first step, because it stopped a tit-for-tat tariff escalation that was poised to add a tax to nearly every product traded between the U.S. and China.

However, it did nothing about tariffs on hundreds of billions of dollars of Chinese imports already in place that are paid by U.S. companies.

Why you'll hear about this again: With the U.S. ratcheting up the pressure, there is a decreasing likelihood China lives up to its "phase one" agreement.

That means a diminished outlook for industries that were counting on the $200 billion in increased purchases of U.S. agriculture, energy and manufacturing after a brutal 2019.

Remember: The primary cost of tariffs isn't the tariffs themselves, but the deadweight loss of consumers buying more expensive, or less efficient, products.

The trade war also is a major factor pushing businesses to pull supply chains and production out of China, increasing costs and uprooting longstanding relationships.

For big companies, this will weigh on margins; for small companies, it could mean going out of business.

Don't sleep: Deutsche Bank’s global head of tech strategy Apjit Walia warns that the demand disruption, supply chain upheaval and bifurcated tech standards from a "Tech Cold War" between the U.S. and China could cost the sector more than $3.5 trillion over the next five years.

What's next: Even if Trump loses in November, investors don't expect a significant change in the U.S. approach to China given Joe Biden's recent rhetoric and bipartisan legislation condemning China for its treatment of Uighur Muslims and restrictions on public companies.

The U.S.-China trade war quietly escalates

Photo Illustration: Sarah Grillo/Axios. Photos: Alex Wong/Getty Images and Lintao Zhang/Getty Images

Technology

China

China is becoming the most formidable rival America has faced, and the risk of confrontation with Russia, North Korea or Iran still looms. Authoritarians are rising, the chaotic Afghanistan exit revealed the limits of U.S. power, and the pandemic, climate change and other critical challenges continue to pose grave threats.

President Biden has made the COVID-19 crisis and a post-Trump return to national unity and traditional democratic ideals his top priorities. From vaccinations to stimulus to schools, Biden is seeking bipartisan compromise while showing a willingness to use executive authority and bare Democratic majorities in the U.S. House and Senate to implement his policies. Republican leaders are navigating deep party divisions over if and how to move beyond former President Trump.

Politics & Policy

From the Valley to D.C., Big Tech players like Facebook, Google and Amazon are under more scrutiny than ever as new technology develops and privacy and antitrust concerns grow in lockstep with companies’ ambitions.

Axios Pro Rata

Protectionism is poised to play an elevated role in global dealmaking, particularly as countries grapple with the economic fallout of COVID-19.

Driving the news: Governments are creating new regulations and incentives to maintain local ownership of homegrown companies.

France’s Finance Ministry on Friday formed a fund to invest in domestic tech companies if they receive unsolicited takeover offers from foreign suitors. It begins with €150 million, managed via state-backed lender Bpifrance, but could expand to €500 million next year.

Australia has proposed a series of changes related to foreign takeover offers in all sorts of industries, regardless of deal size, including one that would let the country's treasurer force divestitures on the basis of national security.

Poland, Hungary and the Czech Republic are in various stages of implementing new restrictions of foreign direct investments, with the goal of restricting takeovers by non-EU companies.

Germany also strengthened its screening of foreign direct investments, initially aimed at health care, but it's expected to expand to other "sensitive" industries like artificial intelligence.

Sweden today got into the act, with top government officials introducing a series of proposals to better screen foreign direct investments.

India last month said that companies from its seven neighboring nations, including China, must receive government approval for takeovers of Indian businesses. It also applies to other changes to beneficial ownership.

The U.S. doesn't appear likely to enact similar restrictions, regardless of White House saber-rattling toward China, although there was that proposal from some congressional Democrats in April to put an overall moratorium on large M&A until the pandemic subsides.

By the numbers: Global cross-border merger activity is down 40% year-to-date, compared to an overall 43% drop in total M&A, per Refintiv. Cross-border deals for European targets, however, are down 5% versus an overall 12% increase in European dealmaking.

The bottom line: The world may be flat, but political policy is marked by peaks and valleys.

Governments turn to protectionism in pandemic fallout

Global cross-border merger activity is down 40% year-to-date.

Protectionism

Data: U.S. Dept. of Commerce; Chart: Chris Canipe/Axios


President Trump's trade war has led to even bigger trade deficits with China, even though it was intended to improve the trade balance. But it's not just China — the deficit has increased with most of our other major trade partners, too.

Why it matters: While economists agree that trade deficits aren't a good way to measure   a trade relationship, they are the metric Trump fixates on, made campaign promises about and uses to evaluate relationships with other countries. 

Throughout his campaign, Trump vowed that he would wipe away the U.S.'s trade deficits: "You will see a drop [in the trade deficit] like you’ve never seen before.” 

Reality check: Among the U.S.'s 15 biggest trading partners, the trade balance has moved in the wrong direction for Trump in 10 of those countries between 2016 and 2018, while the aggregate trade deficit has jumped from $503 billion to $628B.

While Trump can explain the deficit spike with China as a short-term sacrifice for long-term benefit, it doesn't account for the wider trend.

The latest: The U.S. trade deficit in the first 6 months of 2019 is even bigger than in the last two years.

What's going on: Trump's tax cuts are as much to blame for the increase in the trade deficit as anything else, writes Axios Markets editor Dion Rabouin:

More money in Americans' pockets leads to more consumption, often of Chinese-made goods.

Despite promises, Trump's trade deficits are only growing

Under Trump, the U.S. trade deficit has increased by $125 billion.

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