Washington Insider -- Wednesday

By DTN's Washington Insider

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

EPA Unveils RFS Proposals

EPA Tuesday released its proposed levels for 2019 biofuels and 2020 biodiesel under the Renewable Fuel Standard (RFS), with the proposed levels matching levels that had been widely expected since last week.

For 2019, EPA is proposing “Conventional” renewable fuel volumes, primarily met by corn ethanol, would be maintained at the implied 15-billion gallon target set by Congress. The advanced biofuel standard for 2019 would be increased by almost 600 million gallons over the 2018 standard. The cellulosic biofuel standard for 2019 would be increased by almost 100 million gallons over the 2018 standard.

For 2020, the biomass-based diesel standard would be increased by 330 million gallons as compared to the standard for 2019.

Absent from the plan is any proposals relative to reallocating obligations for small refiners. Those totaled around 1.6 billion gallons for 2017 and have been the subject of ire among biofuel backers.

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Biodiesel Board, Others Push for Renewal, Extension of Biodiesel Blender Credit

A diverse group has come out in favor of renewing and extending the $1-per-gallon biodiesel blender credit for 2018 and 2019, and the groups are pushing for a long-term solution, "including a permanent tax incentive at a level that will continue to foster growth in the domestic biodiesel fuel market."

The groups argue the uncertainty by letting the credit expire periodically have stymied investment by the industry. Signing the letter to leaders of the House and Senate tax-writing committees were the Advanced Biofuels Association, American Trucking Associations, National Association of Convenience Stores, National Biodiesel Board, National Renderers Association, NATSO (Representing America's Travel Centers and Truckstops), New England Fuels Institute, Petroleum Marketers Association of America and the Society of Independent Gasoline Marketers of America.

However, efforts previously to get a permanent extension have not met with success and House Ways & Means Chairman Kevin Brady, R-Texas, has previously been against the annual parade of tax extenders.

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Washington Insider: Tariffs and Corporate Trade Fight

The New York Times this week is reporting that while corporate America has largely avoided “sticking its head over the parapet in the trade war,” but sees that position increasingly threatened as the bellicose trade rhetoric transforms into action.

Harley-Davidson is a case in point, the Times said. On Monday, it announced it was planning to shift some production out of the United States to lessen the cost of tariffs that the European Union imposed in response to those put in place by the Trump administration.

Harley-Davidson’s move reveals the uncomfortable choices companies face as they navigate escalating trade tensions. The company, by making more motorcycles beyond its United States factories, is already drawing increased criticism from the administration and US advocates of protectionism. But if Harley-Davidson does not adapt to the rising trade barriers, it stands to sell fewer motorcycles, which could harm its profits, the Times said.

So far, large companies have mostly left it to their trade groups to speak out against Trump’s trade policies. But when financial pain grows and increasingly threatens companies’ bottom line, public companies say they are obliged to publicly react. Almost by default, then, they are forced to enter the fight. And as more companies react the way Harley-Davidson did, the debate over trade wars will focus on what the Times calls the trade fight’s “nitty-gritty.”

The European Union last week raised tariffs on Harley-Davidson motorcycles to 31% from 6%. The company said the increase would add $2,200 on average to the cost of a motorcycle exported to Europe from the United States. Harley-Davidson said it would not raise the suggested prices of its motorcycles to cover the cost of the tariffs. It expects, at least for a little while, to bear the additional expense of the tariffs itself, which would cost the company an estimated $90 million to $100 million a year.

However, over the longer term, Harley-Davidson, based in Milwaukee, says it will make more motorcycles in countries that are not subject to the tariffs. That plan could take nine to 18 months to put into effect, the company said.

A year ago, Trump lauded the firm for manufacturing in the United States. “We’re proud of you! Made in America, Harley-Davidson,” he said, when executives from the company drove motorcycles onto the White House lawn.

The firm’s negative corporate announcements bring a jarring specificity to trade wars that can spread through financial markets and the wider economy, Bloomberg said. Harley-Davidson’s stock was down over 7% on Monday. The Standard & Poor’s 500-stock index was down 1.8%. The benchmark is now only up 1.1% since the end of 2017 and down 5.9% from its all-time high.

As markets appeared to weaken, Bloomberg speculated that the trade war may be weakening the “Trump rally.” It raises the question of how many more Harley-Davidsons there are on the stock market.

In response, the President turned on an iconic American company he once embraced, accusing Harley-Davidson Inc. of using new tariffs on trade as cover to shift some production abroad.

"A Harley-Davidson should never be built in another country - never!" Trump tweeted Tuesday. "Their employees and customers are already very angry at them. If they move, watch, it will be the beginning of the end - they surrendered, they quit! The Aura will be gone and they will be taxed like never before!"

The high-profile spat pits the president against one of the best-known manufacturers in Wisconsin, a state of high political importance to Republicans. Trump won the state’s 10 electoral votes by a narrow margin of just over 22,000 votes in 2016, and has repeatedly focused his attention on bolstering the state’s economy while in office, Bloomberg said.

The early-morning missive from the president marked the second consecutive day Trump took aim at the motorcycle maker, after the company said in an SEC filing on Monday that tariffs enacted by the European Union in response to Trump’s penalties on imported steel and aluminum would add as much as $100 million a year to its costs.

Harley-Davidson’s headquarters are in Milwaukee, and on Monday the office of House Speaker Paul Ryan, a Wisconsin Republican who has opposed Trump’s move to impose tariffs, said the company’s announcement was evidence of the detrimental effect of the president’s trade policy.

“This is further proof of the harm from unilateral tariffs,” AshLee Strong, a Ryan spokeswoman, said Monday. “The best way to help American workers, consumers, and manufacturers is to open new markets for them, not to raise barriers to our own market.”

So, we will see. Part of the administration staff embraces protectionism, but part does not. How the administration interprets moves like the one by Harley Davidson may yet affect the administrations basic policies — or, they may not, depending on how much pushback they receive from the economy including how much pushback comes from threats to well established ag markets, Washington Insider believes.

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(GH/BAS)

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