From the Executive Office of the President through the Office of the United States Trade Representative the following points need to be understood.
In March 2018, President Trump announced the following actions the Administration will take in response to China’s unfair trade practices covered in the USTR Section 301 investigation of China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation.These actions follow an investigation initiated by U.S. Trade Representative Robert Lighthizer in August 2017 at the direction of President Trump.
“President Trump has made it clear we must insist on fair and reciprocal trade with China and strictly enforce our laws against unfair trade. This requires taking effective action to confront China over its state-led efforts to force, strong-arm, and even steal U.S. technology and intellectual property,” said Ambassador Lighthizer. “Years of talking about these problems with China has not worked. The United States is committed to using all available tools to respond to China’s unfair, market-distorting behavior. China’s unprecedented and unfair trade practices are a serious challenge not just to the United States, but to our allies and partners around the world.”
The Chinese government’s technology transfer and intellectual property policies are part of China’s stated intention of seizing economic leadership in advanced technology as set forth in its industrial plans, such as “Made in China 2025.”
Section 301 is a key enforcement tool that allows the United States to address a wide variety of unfair acts, policies, and practices of U.S. trading partners. The investigation of China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation addresses four categories of acts, policies, and practices of the Government of China that unfairly result in the transfer of technologies and intellectual property from U.S. companies to China. These policies harm U.S. businesses and workers and threaten the long-term competitiveness of the United States.
USTR staff, with the assistance of dozens of experts from across the Administration, prepared a comprehensive report containing detailed findings. The report is available on the the USTR website.
The report supports the following conclusions:
China uses foreign ownership restrictions, including joint venture requirements, equity limitations, and other investment restrictions, to require or pressure technology transfer from U.S. companies to Chinese entities. China also uses administrative review and licensing procedures to require or pressure technology transfer, which, inter alia, undermines the value of U.S. investments and technology and weakens the global competitiveness of U.S. firms.
China imposes substantial restrictions on, and intervenes in, U.S. firms’ investments and activities, including through restrictions on technology licensing terms. These restrictions deprive U.S. technology owners of the ability to bargain and set market-based terms for technology transfer. As a result, U.S. companies seeking to license technologies must do so on terms that unfairly favor Chinese recipients.
China directs and facilitates the systematic investment in, and acquisition of, U.S. companies and assets by Chinese companies to obtain cutting-edge technologies and intellectual property and to generate large-scale technology transfer in industries deemed important by Chinese government industrial plans.
China conducts and supports unauthorized intrusions into, and theft from, the computer networks of U.S. companies. These actions provide the Chinese government with unauthorized access to intellectual property, trade secrets, or confidential business information, including technical data, negotiating positions, and sensitive and proprietary internal business communications, and they also support China’s strategic development goals, including its science and technology advancement, military modernization, and economic development.
The European Union Chamber of Commerce in China likewise concluded in a report entitled “China Manufacturing 2025: Putting Industrial Policy Ahead of Market Forces” that there has been an “unprecedented wave of outbound investments” in recent years from China into firms in industries of relevance to Made in China 2025, and many of these investments have been in areas where foreign business is unable to make equivalent investments in China.
The USTR report also notes, “As the global economy has increased its dependence on information systems in recent years, cyber theft became one of China’s preferred methods of collecting commercial information because of its logistical advantages and plausible deniability.” The report goes on to conclude that “based on available information on China’s cyber intrusions, experts have concluded that China’s cyber intrusions and cyber theft align with its industrial policy goals.”
China’s Ambitions Ignites Trade Conflict
China’s President Xi and core Chinese leadership are accelerating their timeline for achieving U.S. and Global Technological, Economic, and Military dominance goals.
China’s Communist Leadership:
- Through their “Made in China 2025” strategic initiative plan on achieving technological U.S. and Global supremacy by the year 2025.
- Plan to economically overtake the United States by 2035.
- Plans on achieving U.S. and Global and military dominance by 2049.
- Removed China’s Presidential 2-Term 5-Year Limit allowing President Xi potential longevity of leadership or leadership until his death.
- Plans include total and complete authoritative control of its citizens through electronic monitoring and suppressing individual and collective activity, as well as achieving previously stated economic and military goals.
The Week Ahead July 23, 2018
10-Year US Treasury Yield: Sideways Trading Range - For a multi-month period this market likely trades in an interest rate range of 2.5 percent to 3.0 percent before moving higher.
For the week of July 16, 2018, the 10-Year US Treasury Yield ended the week up 2.1 percent at 2.89-percent. The Fed Fund Rate was increased .25 percent at the June 13, 2018 meeting to 2 percent. Global fiscal, monetary, and trade policy actions will likely allow a rate hike of .25 percent at the next Federal Reserve Open Market Committee (FOMC) meeting on September 25-26, 2018. (Charts A1-A4) Presently, I have no expectation of a rate increase at their December 2018 meeting, but stimulus driven global growth could allow for an increase. The Fed is positioning to maintain a balanced yield curve as the year progresses by continuing to shrink their balance sheet and likely raising the long end of the yield curve.The upward trend of U.S. interest rates is essential to the financial health of pension funds, individuals, and businesses dependent on a more normalized interest rate. Prolonged Business Cycle: Understand, Global Governments and Central Banks continue positioning to prolong the business cycle for an extended period of two to three-plus years, which implies slowly rising interest rates and inflation over that period.
U.S. Dollar Index: Stimulus driven global growth appears to be throttling up, which would likely give the dollar a bearish bias near term. With the dollar index presently at 94.23, down 0.29 percent for the week, (Charts A5-A8) and off its low of 88.15, the index has been in a slow determined corrective grind to the upside, but that could be about to change. A global slowdown is normally bullish for the U.S. dollar and this time was no different, but if global growth is slowly reemerging, then the dollar is likely to move sideways to down. A resumption of the dollar’s downside trend will be a function of the resumption of re-emerging and building global growth.This is an extremely challenging market and chart strength or weakness is highly dependent on global government and central bank orchestrated fiscal, monetary, trade, and regulatory policy objectives being achieved and resulting in collective global growth.
Since the U.S. Dollar strength has negative economic consequences to frontier, emerging, and developing economies that mostly borrow in dollars, a prolonged rise in the dollar moves countries toward their own economic slowdown. This is a key reason for the collective ongoing global economic slowdown; therefore, we will closely monitor this market and adjust our expectations accordingly. What could keep the dollar index rising? Inaction of global governments and central banks to achieve individual and collective growth. S&P 500: This market enters the week at 2802, moving and holding above 2830 lays the foundation of a potential breakout above the previous high of 2873. If global equity markets are regaining economic momentum, there may be more price strength in those markets near term than in the key U.S. equity markets.Consider: Given global collective policy tensions most domestic and global equity markets could simply move sideways for a period before moving higher.Bottom-line: Just let price action provide guidance until stronger momentum is regained. Note the collection of attached Equity Charts A14 to A28.
$WTIC Light Crude Oil: Consolidating gains, but stimulus driven global growth and an array of factors likely supportive of prices. Why would oil prices move higher? Stimulus driven global growth over the next two to three-plus years remains the driver as supply increasingly struggles to keep up with demand.
The length of the current global economic slowdown is increasingly debatable. I have anticipated a slowdown into mid-August, but that expectation in today’s global economic setting can easily be off plus or minus a month.
Two major supply concerns:
- The Venezuelan economic, social, and political crisis has that country and its oil sector near collapse.
- Likely Iranian sanctions have the potential to contract global supply, even though significant Iranian oil will likely move through the global black oil market or directly into China.
An interesting array of factors from fundamentals, to global policy drivers, to social, economic, political, and military uncertainties keep this market at elevated levels and they do not appear to be losing their influence anytime soon.
CRB Commodity Index: A retest of support is underway. Commodity bulls need to see this index push through resistance at 205 (currently at 192.6). Commodity bears need to see this index lose support at 185. This would likely imply major across the board commodity weakness, due to slow global growth for a period.
Rice, Grain and Cotton Charts B1-B28 in Chart Book
- Soybeans: Ending the week of July 23, 2018, above November $8.80 per bushel means strong consideration should be given to a potential bottom in place, while ending the week below Friday’s (July 20, 2018) close of $8.65 per bushel implies this market is possibly still in search of a bottom. Charts (B10-B13)
- Corn: Ending the week of July 23, 2018, at or above December $3.80 per bushel means strong consideration should be given to a potential bottom in place, while ending the week below Friday’s (July 20, 2018) close of $3.69 per bushel implies this market may still be in a bottoming process. Charts (B14-B17)
- Wheat: Upside price momentum appears to have been regained. Moving from the current price level of September $5.16 per bushel to $5.60 per bushel and holding would be a strong bullish confirmation. Charts (B14-B17)
- Long Grain Rice: Fundamentals are weighing heavily on this market. Bullish case: Finishing the week of July 23, 2018 and holding above $12.60 per cwt would be bullish. Next closing and holding above $13.16 opens the door for a price move to $14.50 to $15.00 dollars per cwt. Bearish case: Closing below the July 20, 2018, close of $11.99 per cwt. implies potential resumption of downside price action as the U.S. 2018 rice harvest is close to getting underway. (Chart B18-B20)
- Cotton: Remains Bullish. Key consideration: If cotton can remain above December 85 cents per pound, this market still has a bullish bias given today’s global economic setting. Charts (B21-B24)
- Rice Outlook Webinar: Nathan Childs on 2018/19 U.S. Rice Market Outlook: Larger supplies, increased exports, and higher ending stocks. Thursday, July 26, 2018 10 AM in Central Time (US and Canada). The 2018/19 U.S. Rice Market Outlook: Larger supplies, increased exports, and higher ending stocks
Dr. Nathan Childs, Agricultural Economist, USDA’s Economic Research Service will analyze the current U.S. rice market forecasts for both the 2017/18 and 2018/19 market years, highlighting the impacts of the June NASS Acreage and Rice Stocks reports, as well as current and revised trade data. Despite expectations of larger U.S. exports in 2018/19, an almost 20 percent increase in production is projected to result in a 31 percent boost in U.S. rice ending stocks. In the global rice market, a slight decrease in global production is projected to result in a small decline in 2018/19 world ending stocks, with global trade in 2019 projected record high.
Link to Register: http://bit.ly/UAEX-USDA-Rice-Market-Outlook-Child
A Rice Video and a Seed-Cotton video both produced on July 19th with Dr. James Richardson, Co-Director of the Agricultural and Food Policy Center, Texas A&M AgriLife Senior Faculty Fellow, and Senior Regents Professor in the Department of Agricultural Economics at Texas A&M University
The Bipartisan Budget Act of 2018 included seed cotton as a covered commodity and extended PLC and ARC provisions to seed cotton. The Act authorizes owners of a farm with generic base acres and a recent history of planting covered crops a one-time opportunity to update the farm’s payment yield for seed cotton and generic base acres. Additionally, land owners are now faced with the decision to elect either PLC or ARC. The Texas A&M Agricultural and Food Policy Center has developed a web-based decision aid to help farmers make these decisions. In this video Dr. Richardson discussed the decisions cotton farmers are facing and how the decision aid will be useful.
Rice Outlook Video, July 19th: Rice Outlook and Three Rice Markets You Should Care About: India, China and Chicago with Milo Hamilton, President, Founder, and Senior Economist, Firstgrain, Austin, Texas
The two big “elephants” of rice are India and China but for the America rice market, Chicago is also important and watched around the world. This presentation covered the interplay of India and China in determining price trends and the role of wheat in setting the value of rice long term. This is a presentation Milo presented in the Dominican Republic in June reconfigured for American rice growers and their marketing needs.
Milo says, “There are a lot of misconceptions about what rice futures are and are not. In this talk I will try to add some clarity to your rice thinking. I have traded over $100 million of rice for 18 years and have advised the rice marketing chain for a similar number of years. What you object to about the rice market or do not understand might actually improve your bottom line. I provide a context for how you view the world of rice. You need to understand how trends happen and turn around. The next one to two years will be exciting times for the food grains, if you can weather the current storm of diminishing profitability.”
A Rice Video on Cuba from July 12 offers an assessment of The Cuban Rice Value Chain with Dr. Alvaro Durand-Morat, Assistant Professor, Department of Agricultural Economics and Agribusiness, University of Arkansas System, Division of Agriculture
Little is known about the state of the Cuban rice value chain. In this presentation, Dr. Durand-Morat describes the production, processing, and market features of the Cuban rice sector and discusses the potential implications for U.S. rice.
Video Link: https://www.uaex.edu/farm-ranch/economics-marketing/food-agribusiness-webinars/
Bobby Coats is a professor in the Department of Agricultural Economics and Agribusiness, University of Arkansas System, Division of Agriculture, Cooperative Extension Service. E-mail: [email protected]
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