Washington Insider -- Monday

Economic Policy Fights Ahead

Here’s a quick monitor of Washington farm and trade policy issues from DTN’s well-placed observer.

Remaining TPP Countries Will Meet Again to Discuss Reviving Pact

The remaining 11 signatories to the Trans-Pacific Partnership (TPP) trade deal are preparing for a 10-day meeting later this month, which will help gauge support for efforts to reinvigorate the troubled deal.

There is little doubt that Japan, Australia and New Zealand all want to bring TPP into force, despite the Trump administration's decision to abandon it. Still, questions remain about the extent to which their enthusiasm and commitment is shared by other TPP members.

Japan is eager to see TPP activated because it does not want bilateral trade negotiations with the US due to the Trump administration's view that "anybody that has got a surplus with the US has to be dealt with," Alan Oxley, Australia's former ambassador to the General Agreement on Tariffs and Trade (GATT), told Bloomberg BNA. GATT was the predecessor to the World Trade Organization (WTO). Vietnam and Malaysia have shown some ambivalence to reviving TPP, but "the rest appear to be quite keen to want to do something," Oxley added.

Trade officials from the 11 remaining TPP countries will meet August 20-30 in Sydney, Australia to discuss prospects for activating the trade pact the office of Australia's trade minister Steven Ciobo confirmed August 10 to Bloomberg BNA. Earmarking 10 days for the Sydney TPP talks could indicate that the negotiations will be make or break moment for efforts to reach broad agreement on a way forward.

Administration Seeks to Keep Agriculture Gains Under NAFTA Talks

The first round of NAFTA 2.0 negotiations will run from August 16 to 20 and the Trump administration seeks only a limited renegotiation of the pact, according to a statement from White House chief economic adviser Gary Cohn, with a particular focus on keeping gains that have benefitted U.S. farmers. "NAFTA needs to be reformed to help protect American workers and create more jobs at home," Cohn said. "We should keep the parts that work, especially for much of American agriculture, but fix the parts that don't."

Trump as a candidate for president denounced the trade deal as bad deal for the US. And while Trump took the U.S. out of the Trans-Pacific Partnership (TPP), the administration's negotiating objectives for the pact appear to borrow heavily from that trade deal.

"Unlike his predecessors, President Trump insists on trade deals that are fair, balanced, modern, and put the American economy first. NAFTA was created for the world of the 1990s," Cohn said. "Working together, we will modernize this agreement to meet the needs of today's economy, just as the President promised."

Washington Insider: Economic Policy Fights Ahead

The Washington Post, not much of a friend to the Trump administration, is forecasting what it calls a “first fiasco” for Steven Mnuchin, now treasury secretary.

Unlike other issues facing the administration, including health care and the overhaul of the tax code, raising the debt limit comes with a hard deadline of late September, Mnuchin said. Failure to meet that deadline could lead the U.S. government to miss paying its obligations, causing what analysts would consider a historic, market-rattling default on U.S. government debt.

“We’re going to get the debt ceiling right,” Mnuchin said. “I don’t think there is any question that the debt ceiling will be raised. I don’t think there is anybody who intends to put the government’s ability to pay its bills at risk.”

Sensing there could be resistance on Capitol Hill to raising the debt ceiling quickly, he reviewed past debt-ceiling fights with the Ways and Means Committee. He also holds a weekly meeting with advisers about the government’s cash balance and debt issues.

However, the Washington Post says a former Treasury official said officials are now “brushing up on options in the ‘crazy drawer.’ ” In fact, former administrations have faced similar problems, the Post said, and designed plans to prioritize payments to government bondholders so that if the government runs short on cash it could, in at least a technical sense, avoid defaulting on US debt.

However, such a scenario would be very difficult to manage because some bills would either be delayed or not paid — but it could be necessary to prevent an actual default. Still, prioritizing payments this way could lead to a spike in interest rates and a stock market plunge, analysts have said.

Thus, the coming weeks promise to test Mnuchin, who told lawmakers earlier to raise the debt ceiling in a clean vote that includes no other budget changes before they leave town. “My preference is to get it clean,” he said. “My preference is to get it done, and my preference is to get it done sooner rather than later.”

But Mnuchin’s push on the debt ceiling was undermined from the start within the White House by Mick Mulvaney, the director of the Office of Management and Budget. Mulvaney is a former Republican congressman and founding member of the House Freedom Caucus who was brought into the White House, in part, to help influence how conservatives would vote on key issues.

Mulvaney publicly questioned Mnuchin’s call for a clean vote, saying that he would prefer spending cuts or other budget changes as part of any proposal to increase the ceiling. Some White House and Treasury officials were incensed to see Mulvaney break ranks, the Post said. Treasury officials complained to the West Wing that Mnuchin’s credibility was being undermined and Trump told a gathering of Senate Republicans that they should work with Mnuchin, and no one else, on the debt ceiling.

But Mulvaney had sufficiently muddied the administration’s message. Even though Trump told lawmakers that Mnuchin was his point person on the debt limit, the White House still has not publicly come out in favor of a no-strings-attached vote.

Earlier, Mnuchin called his relationship with Mulvaney very good. “I think the press made that out to be more than it is,” he said.

Still, Mnuchin “certainly is in the minority in the administration,” Rep. Mark Meadows, R-N.C, chairman of the House Freedom Caucus said. “The problem is, yes, you could get a clean debt-ceiling, but it would be 180 Democrats in the House with 40 or 50 Republicans, and that’s not a good way to start.”

Meadows said that he recently met with eight of the most conservative Senate and House lawmakers about how to handle the debt ceiling and that not once did they consider the idea of backing Mnuchin’s proposal for a clean debt-ceiling increase.

Senate Majority Leader Mitch McConnell, R-Ky., recently said that he would hold the Senate open for two weeks in August to take care of unfinished business. It is unclear whether they’ll tackle the debt limit or whether the House, where the odds of raising the debt limit are even more remote, will remain open, the Post says.

Although Mnuchin may be struggling to learn the ways of Washington, he does have an important patron: Trump.

Mnuchin has made clear that a tax overhaul is a focus of the president, tied to a broader goal of growing the economy at a rate of 3% a year, compared with 1.6% last year. Economists say that is unlikely in any sustainable way — and roundly agree that is especially true if the debt limit isn’t increased.

In addition, Business Insider is predicting that “a clean raise with a bipartisan deal to raise the ceiling without much drama," the group said.

So, the next few weeks likely will see even more intense struggles in a number of important policy areas. These are especially important fights producers should watch even more closely as they proceed, Washington Insider believes.

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