Washington Insider -- Friday

Trade Policies and Rural Politics

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

US And Japan Agree To Begin Talks on Trade

The U.S. and Japan have agreed to begin talks on a set of "free, fair and reciprocal trade deals" to promote economic development in the Indo-Pacific, Japanese Prime Minister Shinzo Abe said Wednesday after he failed to secure exemptions for steel and aluminum tariffs imposed in March by Trump.

"In order to benefit both Japan and the US, we'll further expand both trade and investment between the two countries," Abe said during a joint news conference with Trump after their summit meeting in Mar-a-Lago. Abe did not say Japan was going to start talks on a bilateral free trade agreement with the US, emphasizing that Tokyo still believes that the CPTPP (the successor to TPP) is the best choice for both countries. Trump withdrew from that pact on his third day in office.

What Trump Wants To Get Back Into TPP

Usually reliable sources say President Donald Trump wants the 10 members of the revised Trans-Pacific Partnership (CPTPP) to commit to bilateral trade agreement talks with the United States, in return for the U.S. coming back to the Asia-Pacific trade accord.

That could allow a "win-win" for all parties concerned, according to the White House. Last week, Trump dispatched White House National Economic Council Director Larry Kudlow and U.S. Trade Representative Robert Lighthizer to begin work on a potential U.S. re-entry into TPP. But his later tweets indicated he may be backpedaling on the issue. However, USDA Secretary Sonny Perdue still is touting the fact Trump asked Kudlow and Lighthizer to look into the matter.

Washington Insider: Trade Policies and Rural Politics

While the implications of tax policies on the fall elections are uncertain just now, but trade policy impacts may be even more difficult to appraise—and much of the media has an especially hard time with trade policy. For example, during the 2016 campaign, both candidates opposed most aspects of trade agreements—and the press regularly reported as fact political observations about the negative impact of trade on U.S. jobs--which were often far off the mark.

However, the New York Times carried a long report on Thursday suggesting that the administration’s hard line on China will cost votes among groups that went heavily to the President in 2016.

Looking mainly at trade policy, the Times sees “stern warnings” coming from all over the Midwest about the political peril for Republicans in President Donald Trump’s recent decision to slap tariffs on foreign competitors—and thus inviting retaliatory tariffs on American agriculture.

Soybeans are America’s second largest export to China, the Times says, and that country’s proposed 25% duties on the crop would hit hardest in states like Iowa, Kansas and Minnesota — where there are highly competitive House races — as well as Indiana, Missouri and North Dakota, whose Senate contests may determine control of the chamber.

Who knew? Well, almost everybody, the Times suggests. “By proposing the tariffs, Mr. Trump has moved to fulfill a central promise of his campaign: confronting those countries he believes are undermining American industry.”

However, his goal — to revive the steel and aluminum industries, thereby aiding the Rust Belt states that were crucial to his election — has effectively prioritized one element of the Trump political coalition over another, larger bloc of voters. “That larger segment, the farm belt, is essential to Republican success in the midterm elections and beyond.”

“They’re not in touch with the reality of the Midwest and the impact that the tariffs would have,” said Bart Bergquist, a biology professor and part-time farmer who lives on 10 acres just south of Waterloo, Iowa. Bergquist, who voted for Mr. Trump in the 2016 election, added that commodity prices had already taken a toll on the area.

This week’s Times article reports a number of negative comments from ag groups, individuals and others that expressed similar views.

After an initial round of tariffs on a modest share of American exports, the Chinese have displayed a keen awareness of the electoral map and moved to punish those industries whose misfortune will be felt most intensely in states and districts pivotal in 2018.

Karl Rove, the former strategist to President George W. Bush, said a trade clash “would limit Midwestern enthusiasm from our base and limit our ability to hold what we have and pick up more seats.” Rove also grumbled that Trump “has little to no understanding of the farm coalition.”

The Times says the president may have a slightly better appreciation after a meeting last week in the West Wing with a small group of farm belt Republican senators and governors, during which two of them brought up the adverse impact that tariffs on exports could have in the midterm election, according to officials briefed on the conversation.

Still, it is not clear just what message was delivered. While Trump used the session to direct a pair of his top economic advisers to reconsider whether the United States should join a free-trade pact with a group of Pacific nations, just hours later he signaled on Twitter that he was unlikely to reverse course on that agreement, the Trans-Pacific Partnership, the Times said.

In addition, the article notes that we may well have been here before. It says that “there are already whispers, in Washington and in agriculture states, that the president is risking a replay of President Jimmy Carter’s grain embargo on the Soviets, which contributed to the massive losses Democrats suffered in 1980.”

Indeed, after a year in which Trump only mused about pulling out of NAFTA and was stymied by Congress in his attempt to slash USDA’s budget, there is now a sense in the farm belt that Trump’s yearning to punish China could inflict real economic and political damage on his own political base.

So, while it is far too early to attempt to forecast political impacts of policy decisions, the contrast between the campaign and ongoing political reality seems to be growing and is reflected in the NYT conclusion that while President Trump’s trade policies enjoy the strong backing of his supporters, they are much less popular among a number of broad groups including independents, moderate Republicans and others whose votes could decide control of Congress in the midterm election this fall. “That could complicate Republicans’ plans to make their economic record a central argument in their case for re-election,” the Times said.

It is increasingly clear that the trade policy fights involves high stakes for producers and should be watched closely as more than a few administration officials continue to push hard while risking important ag markets in pursuit of vague objectives only loosely grounded in economics, Washington Insider believes.

Want to keep up with events in Washington and elsewhere throughout the day? See DTN Top Stories, our frequently updated summary of news developments of interest to producers. You can find DTN Top Stories in DTN Ag News, which is on the Main Menu on classic DTN products and on the News and Analysis Menu of DTN’s Professional and Producer products. DTN Top Stories is also on the home page and news home page of online.dtn.com. Subscribers of MyDTN.com should check out the US Ag Policy, US Farm Bill and DTN Ag News sections on their News Homepage.

If you have questions for DTN Washington Insider, please email edit@dtn.com