U.S. pins hopes on new European leader to rescue trade talks

With help from Adam Behsudi, Sabrina Rodriguez and Hans von der Burchard

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— The November inauguration of a new European Commission president could be the spark that reignites long-stalled trade talks between the United States and the European Union.

— U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin talked trade with their Chinese counterparts Thursday, marking the second time the two sides have spoken since agreeing to resume negotiations last month.

— Ten House lawmakers are in Mexico to study labor and environmental standards on the ground,a trip meant to help inform any future vote on USMCA.

IT'S FRIDAY, JULY 19! Welcome to Morning Trade, where your host is warning any North Carolina readers to watch out for the rogue emu on the loose. Any emu sightings or trade news? Let me know: mcassella.com or .

U.S. PINS HOPES ON VDL TO RESCUE EU TRADE TALKS:The U.S. is hoping European Commission President-elect Ursula von der Leyen can inject new life into deadlocked transatlantic trade talks, President Donald Trump's man in Brussels said.

"I’m very optimistic about her leadership,” U.S. Ambassador to the EU Gordon Sondland said of von der Leyen, in an interview with our European colleagues.

Her planned inauguration in November is "a golden opportunity for the U.S. and the EU to re-engage, where folks do not have to be fixed in old positions and trying to save face, but they can essentially start with a new, clean sheet of paper,” Sondland said.

But Sondland also said Trump remains ready to impose auto tariffs, or take other actions, with "immediate financial consequences" for the EU if there’s no progress in the negotiations, or if countries like France and Britain progress with a digital services tax. Read more from Hans Von Der Burchard’s interview.

Fast start expected: Von der Leyen, the former German defense minister, may not have much time to catch her breath after taking office on Nov. 1. That’s the same day Britain is threatening to leave the EU without a deal unless European negotiators sweeten the agreement reached by outgoing U.K. Prime Minister Theresa May.

Von der Leyen could also be dealing with U.S. tariffs on European auto exports after Nov. 13, when a 180-day period for negotiation set by Trump expires.

Germany, her home country, is by far the largest European car producer. Last year, it exported $18.7 billion worth of cars and $9.6 billion worth of auto parts to the U.S., compared with less than $900 million for all automotive products from France.

What about a new stance on farm trade? Since France is generally seen as leading the opposition to including agriculture in trade talks with the U.S., Morning Trade wondered if a German-led European Commission might be more amenable to rethinking that position.

Peter Rashish, director of the geoeconomics program at the American Institute for Contemporary German Studies, cautioned against viewing the U.S.-EU trade talks as “a case of French interest in protecting its agriculture and a German interest in selling its cars.”

“France exports a lot of manufactured products to the U.S. as well, like airplanes, pharmaceuticals, and energy equipment. So it would also gain in a U.S.-EU deal to eliminate tariffs on goods,” Rashish said. But the new EU deal with South American trade bloc Mercosur “is likely reinforcing French caution about widening the U.S. talks to include agriculture,” he noted.

U.S., CHINA TALK TRADE BY PHONE: USTR confirmed that Lighthizer and Mnuchin touched base with their Chinese counterparts for a second time on Thursday, but offered no details on the conversation.

The restart of talks between Washington and Beijing has been relatively sluggish, and some China hawks inside and outside of the administration are warning that striking a deal could be a 2020 liability for Trump.

Some top Trump advisers, including Commerce Secretary Wilbur Ross, are also tempering expectations of a quick deal. “This is not a 10-minute process, right? This is a long involved process," Ross said in an interview with Fox Business Network on Wednesday.

Meanwhile, it’s been nearly three weeks since Trump told a roomful of journalists that China would “immediately” begin making large agricultural purchases as part of restarting talks. Trump has indicated he’s frustrated with Beijing’s lack of action, ramping up speculation that he could revive plans to hit China with more tariffs.

With Lighthizer slated to meet with House Democrats again next week on USMCA negotiations, the earliest he could leave for talks in Beijing would likely be after the House adjourns for its August recess.

ECONOMIST: TECH A BIGGER WEAPON AGAINST CHINA THAN TARIFFS: Trump’s duties on Chinese goods aren’t having much impact on Chinese economic growth, Paul Gruenwald, chief global economist for S&P Global Ratings, told Morning Trade. Instead, U.S. efforts to cut off China’s access to new technology could cause more pain, he said.

By the numbers: Tariffs are a relatively weak tool to pressure Beijing because it’s less reliant on exports to fuel its economy than a decade ago, Gruenwald said during a visit to POLITICO’s Rosslyn, Va., office.

“Before the global financial crisis, China was getting 2 to 3 percentage points of growth per year just from running a huge trade surplus with the U.S. and others,” Gruenwald said. “Since the global financial crisis, that’s basically averaged zero. … China’s surplus isn’t that big anymore. Its entire global surplus is with the U.S.”

Consumption now accounts for about 50 percent of the Chinese economy, compared with 70 percent in the U.S., Gruenwald said. That gap indicates “there is a lot of runway for China to have consumption-led growth,” as other drivers, like investment and exports, fade in importance, he said.

Access to technology a bigger factor: China is much more vulnerable to disruptions in its access to new technology, he said. “If China comes to the point where their ability to access technology and improve their productivity is impaired, then they start to grow more slowly,” Gruenwald explained.

Either way, the uncertainty is affecting business planning: “At the current growth rate, and we might slow a bit, Chinese consumption is going to double over the next 10 or 12 years," Gruenwald said. So if a business wants to capitalize on that growth, "you’re going to have to build new capacity and you’re going to have to make capital expenditure decisions and that’s exactly what’s being clouded by all of this uncertainty around trade,” he added.

LAWMAKERS HEAD TO MEXICO: Earl Blumenauer, chairman of the House Ways and Means Trade Subcommittee, is leading a bipartisan House delegation to Mexico this weekend to see labor standards there as Democrats continue to push for changes to USMCA. During the three-day trip, the group will meet with Mexican officials and other stakeholders.

A goal of the trip is for lawmakers to “deepen their understanding of environmental and worker conditions,” Ways and Means said in a statement.

Who’s going: Democrats Ron Kind (Wis.), Terri Sewell (Ala.), Judy Chu (Calif.), Don Beyer (Va.), Stephanie Murphy (Fla.), Jimmy Gomez (Calif.), Rosa DeLauro (Conn.) and Filemón Vela (Texas) and Republican George Holding (N.C.).

MNUCHIN OUTLINES ‘TWO-TRACK PROCESS’ ON DIGITAL TRADE: A USTR investigation into France’s new digital service tax will proceed, Mnuchin said Thursday, despite reaching an agreement with other G-7 finance ministers that new international tax standards shouldn’t discriminate against U.S. technology firms.

STEEL RACKS FROM CHINA: The Commerce Department issued a final determination on anti-dumping and countervailing duties on imports of steel racks from China. The imports will be subject to anti-dumping duties ranging from roughly 18 percent to 144 percent. Anti-subsidy duties will range between 1.5 percent and 102 percent. The U.S. imported about $200 million worth of steel racks in 2017. The petitioner in the case was the Coalition of Fair Rack Imports, a group of nine U.S. companies that produce metal racks.

ICYMI: PROPANE CYLINDERS FROM CHINA, THAILAND: The U.S. International Trade Commission made an affirmative determination on Wednesday that imports of steel propane cylinders from China and Thailand caused injury to domestic producers. That means imports from China will be hit with anti-dumping and countervailing duties, and imports from Thailand will be subject to anti-dumping duties.

— China and Russia have agreed to deepen their trade in soybeans, The South China Morning Post reports.

— South Korea official discounts prospect to join the TPP amid trade row with Japan, POLITICO Pro reports.

— China last week made its biggest purchase of U.S. sorghum since April, Reuters reports.

— More than 50 global companies have announced or are considering plans to move production out of China amid ongoing tensions with the U.S., Nikkei Asian Review reports.

THAT'S ALL FOR MORNING TRADE! See you again soon! In the meantime, drop the team a line: abehsudi.com; mcassella.com; dpalmer.com; srodriguez.com; jlauinger.com; and pjoshi.com. Follow us and.

Source: Politico

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