Washington Insider - Friday

Administration's Controversial Trade Approach

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

House Passes Tax Reform Legislation

Legislation to provide major tax reform was approved by the House of Representatives on a 227-205 vote with 13 Republicans voting against the plan along with all of the chamber's Democrats.

The vote came after President Donald Trump met with Republican lawmakers and urged them to support the plan.

“We are in a generational defining moment for our country,” House Speaker Paul Ryan, R-Wis., said in remarks in the floor before the vote. “It is finally time that we get the general interest of this country to prevail over the special interests in Washington.”

Not surprisingly, Democrats decried the plan. “They’re trying to sell a bill of goods to the middle class,” House Democratic leader Nancy Pelosi, D-Calif., said. “It preys on the middle class and those who aspire to it. It pillages and loots the middle class.”

Attention now shifts the Senate where the chamber's Finance Committee is working on their version of the package, one that has some key differences from the House package. A likely sticking point ahead for the bill will be the issue of state and local taxes (SALT), a factor in the number of Republican lawmakers not backing the plan.

EPA Formally Proposes Delay for WOTUS Rule

A delay for the effective date of the Waters of the U.S. (WOTUS) rule is formally being proposed by the Environmental Protection Agency (EPA) and U.S. Army Corps of Engineers, according to a document submitted for publication in the Federal Register.

Delaying the effective date until two years after a final rule on the proposal would "maintain the status quo by proposing to amend the effective date of the 2015 Rule and thus provide continuity and regulatory certainty for regulated entities," the notice said. EPA had previously signaled they would delay the effective date of the WOTUS rule, and the action announced today formalizes that effort.

The move comes as the agencies look to rework or scuttle WOTUS, and after its implementation was stayed nationwide in October 2015 by the U.S. Court of Appeals for the Sixth Circuit. The 2015 WOTUS rule sought to redefine waterways under the Clean Water Act (CWA).

In its proposal, the agencies cited President Donald Trump's February executive order, which instructed them to review the 2015 rule.

Given the move, and the previous stay, the previous definition of "Waters of the U.S." that existed prior to the issuance of the 2015 rule would remain in effect until EPA is able to promulgate a replacement. Comments on the proposed delay will be accepted for 21 days following its publication in the Federal Register.

Washington Insider: Administration’s Controversial Trade Approach

Well, the President returned from his recent Asian trip claiming success, in spite of numerous skeptics, including many deep within his Republican supporters. For example, the New York Times reported that the President’s “isolationist approach to trade” is rattling what little uneasy peace remains within the party. It calls administration trade policies “at odds with longstanding conservative orthodoxy about the benefits of free and open markets.”

Republicans have long believed that by allowing markets to operate unhindered, nations can boost domestic industries, lift their wages and improve living standards, the Times says. But that view is not shared by Trump whose approach is “sowing concern among many Republicans and business groups that the United States will wind up on the losing end of an integrated global economy.”

Trump said he told other leaders as he traveled across Asia that his tougher approach had begun to take effect, and that nations around the world have renewed respect for the United Sates.

Nevertheless, “he appears to have returned from the trip empty-handed, without any new trade deals in process,” the Times said. At the same time, several of the nations he visited announced they were moving forward with the Trans-Pacific Partnership, an 11-country trade deal that had support from Republicans but which Trump jettisoned during his first days in office.

As a result, Republicans and business groups “are now warily eyeing talks over the North American Free Trade Agreement, which resumed again this week against the backdrop of Mr. Trump’s get-tough talk,” the Times said. The White House could soon be forced to decide whether to accept minor changes to the accord in a face-saving gesture or withdraw entirely, “since neither Canada nor Mexico shows signs of bending.”

Canadian and Mexican negotiators believe that renegotiating the pact to more heavily favor the United States would cost them politically at home — and that, even if they agreed to Trump’s demands, the United States Congress would not approve them.

The Times sees the new fissures over trade as a product of a surge in populism on both the political right and left.

Growing anxieties about the unforeseen costs of globalization, the overhang of the financial crisis and the stagnation of the middle class have deeply damaged voters’ faith in the ability of free markets to deliver prosperity — and fractured the Republican Party in the process as conservative populism has become increasingly ascendant, while free market Republicans have been left increasingly marginalized, the Times says.

NYT also points to a new poll by the Pew Research Center that says Republicans are now more likely than Democrats to say that NAFTA is bad for the United States. The opinion of Republicans toward free trade has worsened sharply since the George W. Bush administration, when the party was more likely than Democrats to describe trade, in general, as a good thing.

While free trade has been broadly beneficial to the United States, politicians and business leaders in past decades oversold its potential to benefit all, Stefan Selig, a former trade official in the Obama administration, said. The benefit to the average American of being able to buy cheaper products was no match for the concentrated damage that global trade — in addition to forces like automation — has wrought in some American communities.

The Trump campaign appealed to voters by advocating a heavier hand to prevent further damage from trade, including the use of tariffs on foreign products and renegotiating trade pacts.

However, pushback from this political realignment has grown, NYT says, as the business community, a traditional ally of the Republican Party, has increasingly protested the president’s plans to rewrite NAFTA, the Times said.

Some Republicans, including those from farming and border-states, have protested the president’s threats to withdraw from NAFTA arguing its loss would deeply harm their constituents.

However, the Times concludes that responses from other quarters — including congressional leadership — has been surprisingly muted, given how deeply the president’s actions contradict the Republican Party’s longstanding faith in freer trade, and the intensity of opposition form well established markets to potential losses.

Now, the Times says that trade advisers are reporting that congressional leaders are pressing the United States trade representative, who handles the negotiations, behind the scenes. Still, most have not been willing to create an open rift with the president on trade that could put at risk their current efforts of reforming taxes, said Phil Levy, a senior economist for trade during the Bush administration.

“There is little enthusiasm among congressional Republicans for open conflict, but that doesn’t make the tensions go away,” Levy said.

So, the Times report is moderately bad news for the ag sector, it seems. It also argues for intensification in the already active opposition by ag leaders to the administration’s anti-NAFTA leaders who seem to ignore the looming reality of damage to important markets from a weakened or terminated NAFTA, Washington Insider believes.

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