November 2020 Market Update
After nearly a year of big changes for the United States, voters on Nov. 3 added at least one more, electing Democrat Joe Biden to replace Republican Donald Trump as President.
In a close contest that wasn’t called until four days after voting ended, Trump, as he did four years ago, significantly exceeded his polling numbers, but this time by not quite enough. A week after Election Day, with Georgia and North Carolina still too close to call – Biden and Trump, respectively, were holding on to narrow leads in the two states – Biden had 290 electoral votes to Trump’s 214.
Even with Biden having exceeded the 270 electoral vote threshold for election, the results of the race have yet to be formally certified. With allegations of fraud and voter irregularities in several
states, President Trump has so far refused to concede and has filed various legal challenges. It appears, however, that few people outside of his most loyal allies think he has a chance of coming out ahead by the time the Electoral College meets to officially elect the President on Dec. 14.
In the popular vote count, Biden received the largest number of votes of any candidate in American history – around 76.5 million to Trump’s 71.7 million. Election Day was no Blue Wave, however, contrary to the predictions of many pundits and news organizations. While Democrats retained control of the House of Representatives, they will have a significantly smaller majority. It appears that Republicans will have about 210 seats in the next Congress, and perhaps more.
Republicans also have a good shot of holding on to the Senate, again contrary to many media predictions.The GOP will have no fewer than 50 seats in the 100-member upper chamber, with the Democrats holding a minimum of 48. The remaining two to be determined are both in
Georgia, where no candidate in either race received a majority of the votes, forcing runoff elections to be held on Jan. 5. Republicans have the advantage of incumbency in both contests, but if Democrats sweep them, the 50-50 tie would effectively give them control of the Senate, since, as Vice President, Kamala Harris would cast the tie-breaking vote in the chamber.
A split or a Republican sweep, though, would mean at least another two years of divided government, making it difficult, if not impossible, for the Biden Administration to push major initiatives through Congress without bipartisan support. For some, this is a reassuring result all around. The new Administration would likely provide relief from some of the stresses of the past four years, while a GOP majority in the Senate would prevent the policy pendulum from swinging far to the left, making proposals like packing the Supreme Court and the Green New Deal and its derivatives nonstarters.
Some have suggested that, while Senate Majority Leader Mitch McConnell would be sure to quash Democratic priorities as much as possible if the GOP maintains control of the Senate, he and Biden, who were colleagues in the chamber for more than 20 years, could find common ground on issues such as providing another round of stimulus funding.
While Wall Street is often thought to favor Republican Administrations, the markets responded well to Election Day, with the Dow Jones Industrial Average rising 6.1 percent from Nov. 3 to Nov. 9, and the S&P 500 Index gaining 5.4 percent.
The markets were also buoyed by news that a coronavirus vaccine candidate developed by Pfizer had achieved more than 90 percent effectiveness in trials, with no major safety concerns. The company could seek emergency approval from the Food and Drug Administration as early as late November and, if all goes well, could immunize as many as 20 million people by the end of the year.
The potential for a return to normalcy in 2021 obviously bodes well for an economy that has already begun to bounce back from the devastation of the pandemic and accompanying lockdowns. During the third quarter, the economy grew at a record annualized rate of 33.1 percent, an extraordinary number that followed an equally extraordinary 31.4 percent decline in
Q2, according to the Bureau of Economic Analysis. As the bureau matter-of-factly noted, “increase in third quarter GDP reflected continued efforts to reopen businesses and resume activities that were postponed or
restricted due to COVID-19.”
The Federal Reserve on Nov. 5 announced, as expected, that it will leave the target range for the federal funds interest rate unchanged at 0 to 0.25 percent term.
The unemployment rate also continued to drop, with the economy adding 638,000 jobs in October to push the rate down a full percentage point to 6.9 percent. That is a lot of job creation in one month, with the economy so far clawing back about half of the 22 million jobs that were lost in March and April.
“Economic activity and employment have continued to recover but remain well below their levels at the beginning of the year,” the Fed’s Federal Open Market Committee said in a statement. The path of the economy will depend significantly on the course of the virus. The ongoing public health crisis will continue to weigh on economic activity, employment, and
inflation in the near term, and poses considerable risks to the economic outlook over the medium.
Those risks can be seen in daily new case counts that exceeded 100,000 in early November, up from fewer than 40,000 a day two months earlier. While at least part of this increase resulted from expanded testing, hospitalizations and deaths have also been trending upward, though at a much slower rate. And with winter approaching, it was reported that Dr. Deborah Birx, a top advisor to the President on the coronavirus, wrote in a private memo to White House aides on Nov. 2 that, “We are entering the most concerning and most deadly phase of this pandemic.”
Confidence among manufacturers improved from September to October, with the Institute for Supply Management’s Purchasing Managers Index increasing from 55.4 to 59.3.
“The manufacturing economy continued its recovery in October,” the chair of the Institute’s Manufacturing Business Survey Committee said. “Survey Committee members reported that their companies and suppliers continue to operate in reconfigured factories; with every month, they are becoming more proficient at expanding output.” Of 18 industries surveyed in October, 15 reported growth.
Consumer confidence was little changed in the month leading up to the election. The University of Michigan’s Index of Consumer Sentiment crept up from 80.4 in September to 81.8 in October, while The Conference Board’s Consumer Confidence Index slipped from 101.3 to 100.9.
“There is little to suggest that consumers foresee the economy gaining momentum in the final months of 2020, especially with COVID-19 cases on the rise and unemployment still high,” the Board’s director of economic indicators said.
Notwithstanding the developments in early November, much uncertainty remains. While President Trump is extremely unlikely to overturn the results of the election, election-related legal challenges have yet to be litigated or resolved. Control of the Senate remains undetermined, with two high-stakes Georgia Senate runoff elections that will likely dominate the news coming in January. And promising vaccine test results still leave the country and the world far from the end of the pandemic, especially with the seven-day rolling average of daily deaths in the United States exceeding 1,000 for the first time since August. But a divided country will soon come together to welcome one happy development, the passing of 2020 into the annals of history, and the hope-filled start of a New Year.
November 2020 Steel Shorts
Biden Expected to Review Section 232 Tariffs
President-elect Joe Biden is expected to review the Section 232 tariffs on steel and aluminum that were imposed by President Trump, but he appears likely to adopt a fairly protectionist approach to trade once he takes office.
In May, Biden submitted written answers to questions from United Steelworkers in which he stated that, “Steel dumping, especially from China … is a serious risk to our economy and needs to be addressed.” He pledged that, as president, he would “work to address global overcapacity and ensure that our producers and workers, who produce these products more efficiently and in environmentally conscious ways than countries like China, are successful.”
He offered no specifics about his plans for the Section 232 levies, though.
“The Trump Administration’s actions on steel and aluminum have brought some short-term relief, but done nothing to address the long-term challenges facing these sectors,” Biden wrote. “I intend to protect our national security and to ensure that there is fair trade in steel, aluminum, and other products. I will review the existing 232 tariffs and any other tariffs that have been put in place to ensure our trade policies achieve the goal of supporting workers and growing our middle class, both now and in the long-term.”
His campaign platform, meanwhile, states that he “will focus our allies on addressing overcapacity in industries, ranging from steel and aluminum to fiber optics to shipbuilding and other sectors, and focus on the key contributor to the problem – China’s government.”
Also in the platform, Biden is clear about backing measures that support domestic manufacturers, including Buy America provisions, which, he says, “are critical for the U.S. manufacturing industry.” The platform also states that a Biden administration would “commit to purchasing American steel, cement, concrete, building materials, and equipment, and in the process not only help rebuild our crumbling infrastructure and retrofit our buildings, but position our domestic companies to lead in resilient, sustainable production for the future.”
Tariffs Did Little for U.S. Steel Industry: Wall Street Journal
The tariffs imposed by the Trump administration “didn’t fuel [a] revival for American steel,” a Wall Street Journal article stated in October.Although the tariffs initially pushed up prices for domestic steel and created jobs in the sector, the longer-term effects have not been as positive, according to the paper.Higher steel prices ended up reducing demand because they “hurt U.S. manufacturers, including those in the automotive and appliance sectors, who say the duties on steel and aluminum continue to keep their metal costs higher than what overseas competitors pay.” As a result, the 6,000 jobs that appeared after the tariffs were implemented were short-lived and were dwarfed by a loss of 75,000 jobs in the manufacturing sector.The article also noted that new, more efficient plants recently built by domestic steel companies “will eventually saturate the U.S. market, where steel consumption is expected to decline in the coming years.”In a separate article published by Bloomberg, some high-level members of the American steel industry acknowledged that their sector needs more than tariffs, with the international president of United Steelworkers saying that he wants Joe Biden to understand one thing about the issue: “Tariffs aren’t a long-term solution. They’re a Band-Aid.”
U.S., Mexico Reach Agreement on Transshipment of GOES
The United States and Mexico on Nov. 5 announced an agreement on transshipments of grain-oriented electrical steel (GOES).
Under the terms of the pact, “Mexico will establish a strict monitoring regime for exports of electrical transformer laminations and cores made of non-North American GOES,” the Office of the U.S. Trade Representative said.
As a result, Mexico will be exempted from any Section 232 limits on imports of electrical transformers and related parts.
“The resilience of North America’s energy infrastructure is significantly enhanced by having electrical steel production capability within our region,” U.S. Trade Representative Robert Lighthizer said. “An influx of low-price steel from third countries imperils this capability.”
Commerce Department Announces Trade Rulings
The Department of Commerce announced the following determinations in steel-related trade cases.
• The department announced affirmative final determinations in antidumping duty and countervailing duty investigations of forged steel fittings from India and an antidumping duty investigation of such fittings from South Korea.
• Commerce announced an affirmative preliminary determination in an antidumping duty investigation of non-refillable steel cylinders from China.
CTPAT Minimum Security Criteria Changes and Covid Pandemic have led to Loss of Members
The Customs-Trade Partnership Against Terrorism (CTPAT) program has been losing members through both program withdrawals and suspensions for failure to comply with program requirements. The primary issues appear to be the changes in the Minimum Security Criteria that members must meet, and changes in the finances and/or importing activities of many companies due to the Covid pandemic.
Customs and Border Protection (CBP) reported on CTPAT during a Virtual Trade Week program in early September. CTPAT still maintains about 1,400 total members, including importers, certain exporters, brokers, carriers, and other logistics providers. About 53.4% of U. S. imports by value are CTPAT certified, which is important to CBP as it allows the agency to focus on more problematic transactions. CBP would like to get back to previous program numbers and increase them if possible, so is working to identify the problems and issues facing participants, and to add benefits to bring back old and bring in new members.
CBP adopted new Minimum Security Criteria during 2019, giving participants an extended timetable to update their profiles on the CTPAT website responding to the new criteria. Among other concerns, new Criteria include Forced Labor and Wood Packaging Materials (WPM) modules.
Involuntary suspensions or removals from the program – some 53 during this fiscal year – have been due to the failure to update or respond to the new requirements. If not remedied in a timely manner, suspended companies will be removed from the program. There have also been issues on the southern border, where some CTPAT companies have been caught up in the massive increase in narcotics seizures. CBP works with those companies to develop training and communications to assist in reducing problems.
Attrition from voluntary withdrawals has, according to responses from those companies, been primarily due to financial and staff reductions responding to the pandemic, so that company resources are no longer sufficient; and to changes in import procedures or supply chains. It seems likely that the new Security Criteria have had some effect, but the extent is unclear.
One possible new benefit being considered includes some assistance in dealing with a withhold release order for goods made from forced labor. There is also some discussion on integrating the WPM module with pre-approvals by CBP and/or accredited inspectors at the time of shipment. Further efforts at mutual recognition of the new criteria by similar agencies of other countries are in process. CBP is similarly working to develop a virtual validation process, initially to replace and more long term perhaps supplement in person validations.
CTPAT remains an important part of CBP’s cargo security efforts. Members will continue to receive at least some benefits and special support, and integration of the importer self-assessment program into CTPAT is ongoing.
Steven W. Baker
AIIS Customs Committee Chair