Washington Insider -- Friday

China's Growing Troubles

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

Timeframe Set For Implementing WTO Ruling on Chinese Ag Subsidies

The World Trade Organization (WTO) said the U.S. and China have agreed to a March 31, 2020 deadline for Beijing to bring its ag subsidies for wheat and rice into compliance with a ruling by WTO's dispute settlement body (DSB).

The decision was adopted in late April. A dispute panel found China provides "market price support" in excess of its WTO commitments for domestic production of the two ag commodities. The case was initiated in December 2016 when the U.S. requested a panel be established to adjudicate the issue. It was one of two major ag-related disputes with China that the U.S. has recently won — the second centered around China's administration of import tariff-rate quotas (TRQ) for corn, wheat and rice.

China declined to appeal either ruling, and is currently in talks with the U.S. to determine a compliance timeframe for the TRQ decision.

Democrats, Republicans Split Over EPA WOTUS Rewrite

A partisan split was clear as the Senate Environment and Public Works Committee discussed the Environmental Protection Agency's (EPA) rewrite of the 2015 "Waters of the U.S." (WOTUS) rule this week.

Sen. Joni Ernst, R-Iowa, said changes proposed by EPA give "much-needed predictability and certainty by establishing clear and reasonable definitions of what qualifies as an actual water of the United States."

However, Democrats pointed to a report by the U.S. Geological Survey (USGS) that found almost half of wetlands and one fifth of streams and temporary waters would lose Clean Water Act protections under EPA's proposal.

Others lawmakers cited extensive and ongoing litigation around the 2015 rule, that has resulted in stays on implementation covering 26 states. Revising WOTUS will "guarantee a lot more litigation," warned Sen. Chris Van Hollen, D-Md.

Washington Insider: China’s Growing Troubles

While it has long been clear that U.S. trade policies are increasing pressure on China, Bloomberg is reporting this week more details on a broad range of the nation’s growing problems. The report says that for most of the last six years, Xi Jinping has been largely free to define the terms of his rule. Now, however, he faces problems that are piling up from the U.S. trade war as well as from mass protests in Hong Kong — to the point that “his presidency is increasingly being dictated by events.”

Assailed on all sides, “Xi’s travails amount to one of the most difficult periods to date of his six-year presidency,” Bloomberg reports. How he responds is a matter for business, finance and economies globally, since whichever course Xi takes could have far-reaching consequences for his legitimacy at home and his ability to assert China’s interests abroad.

“This is all on Xi’s shoulders,” said Trey McArver, co-founder of Beijing-based research firm Trivium China. “Xi has personally said that he would handle relations with the United States and at this point he has failed. Those relations are spiraling out of control.”

Xi’s current challenges are seen as particularly acute since they “strike at the heart of the Communist Party’s legitimacy.” The fact that in Hong Kong protests against new government policies met with tear gas and rubber bullets highlights the limits of the party’s ability to assert control over the formerly autonomous island, which became a Chinese special administrative region in 1997.

The situation in Hong Kong looked calmer as the week ends. Police have removed roadblocks and the Legislative Council temporarily scrapped debates on the extradition bill at the heart of the uproar. Congress fired a warning at Beijing but President Trump showed no inclination to weigh in, telling reporters at the White House that “I hope it all works out for China and Hong Kong.” Yet tensions remain high with organizers calling a demonstration for Sunday.

While there is no indication that China intends to send in troops, there is still a risk that Beijing will over-reach, said Jacob Kirkegaard, a senior fellow at the Peterson Institute for International Economics in Washington, which could “make it more difficult for President Xi to back down. He would be seen as bowing to political pressure from President Trump and from the administration, which is very difficult for him given the standoff they’re already embroiled in over the trade relationship.”

The dust-up in Hong Kong is just one of China’s peripheral headaches where the U.S. can play an aggravating role. Secretary of State Michael Pompeo has accused the Communist Party of “methodically attempting to strangle Uighur culture and stamp out the Islamic faith” in its far western region of Xinjiang.

The U.S. has meanwhile ratcheted up support for Taiwan’s China-skeptic president, sailing warships through the Taiwan Strait while entertaining the island’s request for advanced F-16V fighter jets. Taiwanese President Tsai Ing-wen has decided to run against China as she seeks a second term, announcing Thursday that she won’t cooperate with Hong Kong’s extradition law.

The Trump administration is also provoking China in sensitive areas. And, on top of this, the U.S. has stepped up efforts to restrain flagship Chinese companies from Huawei to ZTE.

Chinese officials have been frank about the seriousness of Trump’s attacks. One senior Chinese diplomat recently told a foreign counterpart that Beijing sees the U.S. actions as a challenge to the Communist Party’s right to govern China, Bloomberg said.

The strength of these headwinds is intensified by the relative weakness of the Chinese economy. Imports tumbled in May, while Bloomberg Economics estimates that if the current 25% tariffs remain in place, they could result in a drag of nearly 1% on growth by 2021.

What’s more, these are not the kinds of challenges that Chinese leaders are used to dealing with. In Hong Kong, Xi must deal with the unpredictability of a polity where relative freedom of assembly and expression are the norm. In Trump, Xi faces a U.S. president who announces major policy shifts on Twitter - a platform blocked in China - and courts an image of unpredictability to gain leverage in talks.

In addition, Xi’s decision to remove presidential term limits last year means he has nowhere to pass the buck. If he backs down in the face of these pressures, he risks looking weak in front of the domestic audiences which handed him this authority.

With such a delicate balance of considerations, some analysts believe that something “has to give.” The G-20 summit later this month may be a significant moment for Xi.

“Xi has grown overconfident in himself on dealing with domestic and international issues,” said Suisheng Zhao, director of the Center for China-U.S. Cooperation at the University of Denver’s Josef Korbel School of International Studies. While displaying great ambition, he’s neglected some issues which could come back to haunt him, said Zhao. “If he sticks to his current path, it will only become more challenging for him at home and abroad.”

It is clear that global tensions are rising, but it is not clear whether the key leaders have clear policies to manage or stop the escalation even as the confrontations multiply. These are growing fights producers should watch closely over the coming months, Washington Insider believes.

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