Washington Insider -- Wednesday

A Discouraging Word on Trade Policy

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

Trump Administration Announces Another $200 Billion in China Tariffs

The White House on Tuesday said it would assess 10% tariffs on a further $200 billion in Chinese goods, but they won't take effect for at least two months, giving time for public comment.

The new round of tariffs comes on top of two others ($34 billion which went into effect Friday and another $16 billion to follow). President Trump’s latest action will hit consumer products such as televisions, clothing, bedsheets and air conditioners, which were spared from the first import levies on Friday. Tuesday’s announcement included a 205-page public notice and list of the individual products that could be hit by the new 10% tariffs.

President Trump asked the U.S. Trade Representative (USTR) on June 18 to consider an additional $200 billion in tariffs after China said it would pursue retaliation if the U.S. made good on its threat of duties on Chinese imports.

USTR said Tuesday it will hold public hearings August 20-23 on the products and goods it proposes to impose tariffs on. A final decision on the tariffs will be made after August 30.

China reacted angrily, calling the move a “totally unacceptable” escalation and vowing to roll out unspecified countermeasures.

China Updates Request for WTO Consultations With US On Section 301 Tariffs

An updated request for consultations with the U.S. over its decision to levy Section 301 tariffs – imposed on national security grounds – on $34 billion worth of Chinese exports, was submitted by China at the World Trade Organization (WTO) July 9.

"China looks forward to receiving your reply to the present consultations request and to scheduling a mutually convenient date for consultations,” the Chinese government said in the filing.

Consultation over the duties were first requested April 4, after the U.S. Trade Representative (USTR) published its proposed list of around $50 billion worth of Chinese exports targeted with a 25 percent duty the day prior. In its most recent filing, China said it was updating that request given the duties have now been imposed. The update came alongside another response by China over its own set of retaliatory tariffs on $34 billion of U.S. exports.

China has been warned the U.S. tariffs will backfire with the public once the negative effects become apparent. "The move will deal a blow to many multinationals, enterprises and ordinary consumers worldwide, while various industries and the public of the United States have realized that they themselves will also suffer," a Chinese Foreign Ministry Spokesperson Lu Kang told China's state-run media outlet Xinhua July 6. At the same time he said it was China's prerogative to "fight back when its legitimate rights are undermined," and foreshadowed the July 9 WTO filing by noting China "will report the relevant situation to the WTO in time, and stand with other countries in defending free trade and multilateral mechanisms."

Indeed, the tariffs' impacts are being closely watched in Congress, and many members strongly oppose the Trump administration's moves over the potential harm to domestic producers. Some, like Sens. Pat Toomey, R-Pa., and Bob Corker, R-Tenn., and others have gone so far as to draw up legislation that would rein in executive branch Section 301 tariff authority, but have had limited success in attaching that language to other bills. An attempt to add such an amendment to the recently passed Senate farm bill failed late last month.

Toomey is insisting that the plan he and Corker have drawn up will get a vote in the Senate, but he told Bloomberg that "exactly on what and in what form remains to be determined."

Washington Insider: A Discouraging Word on Trade Policy

Jacob Lew is a partner at Lindsay Goldberg and former U.S. Treasury Secretary under President Barack Obama. He recently discussed the trade tensions between the U.S. and China, the yuan and other matters. He speaks on "Bloomberg Markets: Asia." and has been highly critical of a number of economic and trade policies in recent days.

He weighed in this week on current policies and warns that tariffs will push up prices in the U.S. and confuse the Fed. He even charges that they are somewhat like “pouring kerosene on a fire.”

He argues that the U.S. should build a global alliance to tackle China on unfair trading practices instead of using what he calls “spurious national security claims” to impose tariffs that also hurt allies.

In addition, he said that the U.S. is in danger of abandoning the global economic order it helped to build — and that tariffs on imported goods will drive up prices, become a drag on investment and confuse the outlook for the Federal Reserve.”

"I think that if you continue to bring the world together and put pressure on China to do the right thing, it would be more effective than using a kind of spurious claim of national security," Lew told Bloomberg on Tuesday. “It doesn’t make sense.”

President Donald Trump last week threatened to impose tariffs on practically all Chinese imports into America, as the world’s two largest economies exchanged blows in a trade war that isn’t set to end anytime soon.

A 25% levy on $34 billion of Chinese goods entering the U.S. took effect just after midnight Washington time on Friday with farming plows and airplane parts among the products targeted. China hit back immediately via duties on U.S. shipments including soybeans and automobiles.

Trump is already eyeing the next tranche, on $16 billion of Chinese goods, and he has indicated that the final tariff total could exceed $500 billion, almost the same amount that the U.S. imported in 2017. At the same time, Trump is also locked in disputes with other key trading partners including Mexico and the European Union.

"I am not worried when the U.S. challenges China on legitimate grounds," said Lew, who served through the end of the Obama administration. "What I think is wrong is that the U.S. loses its role as a leader of international norms."

Lew said the U.S. Treasury yield curve merits careful attention and that it isn’t showing a lot of confidence in the long-term outlook, adding there are lots of reasons to be nervous about the U.S. economy.

"The tax policies, while they were cheered by the business community, are a little bit like pouring kerosene on a fire," said Lew. "There is a flare you know when you pour the kerosene and then it burns off. The after effect of the tax cut will be trillions of dollars of debt, trillions of dollars of debt. I think that is going to be a burden on the economy as we are getting to the end of the economic cycle."

So, as the Washington Trade machinery slowly ratchets up to impose newer and broader sanctions, even Congressional Republicans are increasingly critical of administration trade policies. POLITICO reported earlier that “mounting frustration with the Republican president should be taken a “warning sign” for the party. And, even worse, they say, they can’t get the president to comprehend that his tariffs offensive could undercut recent progress as commodity prices continue to soften in the Midwest, U.S. allies are retaliating with tariffs of their own — and GOP leaders are fretting that the booming economy is about to go into a pre-midterms nosedive.

So, we will see. A number of urban dailies ran somewhat superficial analyses about the role of soybeans in ag trade over the weekend, and how that is now vulnerable and how strange all that seems for this administration. Clearly, several producer groups think it is strange, as well—and frightening. Clearly, all eyes are on the policy makers and the stakes are high and the process should be watched closely as it proceeds, Washington Insider believes.

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