U.S. on the Defensive as Global Trade Falls Flat
October 07, 2015
Senate advances Defense Authorization Act despite threat of veto by President Obama, boosts defense funding up from 2011 sequester levels; Secretary of Defense announces US and allies will not cooperate with Russia in fight against Islamic State; US trade deficit widens to lowest level in 2 years as American exports fall; China’s foreign exchange reserves drop in lowest monthly decline in the People’s Bank of China’s history.
- The Senate advanced the $612 billion 2016 Defense Authorization Act in a bipartisan vote of 73-26, though it remains under the threat of veto from President Obama as it does not include balanced funding increases for both defense and non-defense programs in the department.Instead, the bill, which adds $89.2 billion to the Overseas Contingency Operations war fund, boosts defense funding above 2011 sequester levels while holding appropriations for non-defense activities constant. 25 Democrats sided with the White House in opposing the bill, and the Senate Democratic Caucus announced that there would be less support for the legislation if it came to overriding a presidential veto. The 2016 funding package authorizes funding for a number of programs the Pentagon had wanted to eliminate, pushes reforms in how the department buys weapons, expands retirement benefits for veterans, and limits the transfer of prisoners from Guantanamo Bay, Cuba to the United States. The Senate is expected to hold a final vote on the bill on Wednesday. [WSJ]
- Secretary of Defense Ashton Carter announced Wednesday that the U.S. and its coalition allies would not cooperate with Russia in the fight against the Islamic State, as he stated that Russian forces have continued to strike targets in Syria that are not ISIL. Instead, Carter stated that Russian airstrikes have been directed at some U.S.-backed Syrian rebels and have provided air support for the Syrian Armed Forces under the command of President Bashar al-Assad, the Syrian leader who the Obama administration claims must be removed from power. In a joint press conference with Italian Defense Minister Roberta Pinotti, Carter reaffirmed the U.S.’s commitment to tactile military support for its allies in Europe and North Africa, and he announced that American forces would not cooperate with their Russian counterparts until there is an alignment of objectives between the two countries regarding peace in Syria. [ABCNews]
Economic Indicators & News
- The U.S. trade deficit widened to its lowest level since October 2012 in August as a strong dollar and weak global demand pushed exports down and expanded the gap 15.6% to $-48.3 billion. American exports fell $3.7 billion to $185.1 billion while imports surged $2.8 billion to $233.4 billion. For exports, the goods deficit rose 10.6% billion while the services surplus grew only 0.51%. The rise in imports was led in part by the release of the new Apple iPhone during the month, as the cell phones component increased $2.1 billion. Regionally, the trade deficit with China rose 14.6% to $32.9 billion given weak domestic consumer demand and the recent devaluation of the yuan, while the gap with the European Union rose 16.9% to $14.5 billion. The market consensus was for a $48.6 billion trade deficit over the month. [BEA]
- China’s foreign exchange reserves fell $43 billion last month as the country’s central bank has required additional liquidity to support its massive economic stimulus and yuan devaluation programs amid faltering domestic demand and slowing international investment. September’s selloff of world currencies and government bonds follows a sale of $94 billion of such securities in August, the largest monthly decline in forex reserves held by the People’s Bank of China on record. The country’s forex account currently holds $3.514 trillion in assets, its lowest level since July 2013, as the balance has fallen by a monthly average of $36.5 billion during 2015. [FT]