Here's a quick monitor of Washington farm and trade policy issues from DTN's well-placed observer.
RCEP Signed Covering 30% of World Trade
The Regional Comprehensive Economic Partnership (RCEP) trade pact was signed on Sunday, a trade effort that includes China, Japan, South Korea, Australia, New Zealand and 10 Southeast Asian nations. The pact still needs to be ratified by national governments before going into effect.
It will take some time for that ratification and even longer for tariff modifications under the pact to take effect. The agreement was initiated by the Association of Southeast Asian Nations (ASEAN) in 2012 and takes most of the existing agreements signed by the 10 ASEAN countries — Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam — and combines them into a single multilateral pact with Australia, China, Japan, New Zealand and South Korea.
The 15 participating countries account for nearly 30% of both world population and global trade. The U.S. is not part of the accord.
India also opted out of the deal, expressing concern that it would unleash a lot of cheap imports into their market and negatively impact India producers.
Tougher US Actions on China Said in the Works
President Donald Trump over the next 10 weeks is now expected to announce several measures to further crackdown on China over human rights abuses, according to a report from Axios, focusing on Xinjiang and Hong Kong in particular.
No more actions are expected on Taiwan and no additional closures of Chinese consulates in the U.S. are expected to result, the report noted, with the focus being on trying to make it “politically untenable” for a Biden administration to change course on China policy.
The key will be whether the expected actions will spook U.S. commodity markets relative to China's pledged purchases of a host of U.S. agricultural goods.
Bloomberg is reporting this week that eight months into the pandemic, American household finances are in “the best shape in decades.”
The report calls the finding “seemingly incongruous” what with the widespread business lockdowns earlier in the year and the coinciding surge in unemployment—and that the same picture certainly doesn't apply to all families equally. But it “points to just how strong the U.S. economy was going into the virus outbreak and how powerful the combined monetary and fiscal responses were from the Federal Reserve, Congress and the administration.”
Record-low mortgage rates, reflecting the ultra-easy Fed policy, have prompted a steady wave of refinancing and allowed homeowners to reduce monthly payments or tap equity. Americans are also holding more cash, helped in part by stimuli from the government, Bloomberg says.
Households' debt service burdens have eased considerably, too, a complete departure from the 2007-2009 financial crisis that required years to mend. That in turn bodes well for consumer spending and its ability to power the economic recovery through a period marred by a violent spike in virus cases, Bloomberg said.
“The consumer here in the U.S. is relatively stable and, honestly, relatively better off than we might have feared back in the height of the pandemic in the second quarter of 2020,” Marianne Lake, JPMorgan Chase & Co.'s chief executive officer for consumer lending, said at a recent virtual investor conference. “The consumer's willingness to carry on spending is a pretty positive sign for a broader economic recovery.”
In addition, Bloomberg notes that a report today on retail sales likely will find another solid, yet more moderate, sales advance in October.
And despite the surge in COVID-19 cases, economists project a 4% annualized rate of U.S. economic growth this quarter, unchanged from the October forecast – though down from the prior period's record gain, according to a Bloomberg survey.
While the pandemic has financially been harder on working-class families than it has been for those more wealthy who have been stockpiling much of the cash, data shows that they too have more money in the bank now. That's important because they are much more likely to spend that money – and give the economy an added jolt – than are the wealthier, Bloomberg noted.
Checkable deposits also had improved for several quarters leading up to the pandemic and even before the government actions to provide financial assistance for the unemployed.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, said it's possible economic growth estimates for coming quarters could be revised upward even more “because there's an awful lot of cash which is waiting to be spent.”
However, the virus resurgence likely means “people can't spend until it's safe to go back out again,” he said.
To be sure, another reason savings remain elevated is that people are uneasy about their jobs and the outlook, particularly in industries such as travel, food services and leisure, where business activity is more at risk. And, while cash buffers of those who benefited from fiscal stimulus are starting to weaken, their financial positions remain elevated compared with pre-pandemic levels, JPMorgan's Lake said.
For its part, residential real estate has played a huge role in driving both the recovery and improvement in household finances. Cheaper borrowing costs have not only sparked a flurry of demand for homes, mortgage refinancing has strengthened. While cash-out refinancing only makes up a little more than a third of all activity, a larger share of rate-term refinancing means lower monthly mortgage payments.
“It's highly likely that households have the ability to spend more, and probably are spending more, and continue to spend more, because they can refinance and their payments are low relative to their income,” said David Berson, chief economist at the insurance and financial services company Nationwide.
“The consumer came into this crisis in a pretty strong position in terms of household balance sheets and household liquidity and debt service burdens,” JPMorgan's Lake said.
So, we will see. The report is good news – and it likely will take some of the pressure from the current talks regarding additional stimulus. However, the virus still appears to be spreading out of control, a trend that certainly will continue to boost economic tensions as the government transition is debated – a process producers should watch closely as it proceeds, Washington Insider believes.
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