Washington Insider -- Tuesday

Tariff Criticism Builds

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

Documents Outline 2018 Three-Point RFS Plan Presented To White House

The White House was presented a plan that would have scaled back small refiner exemptions (SREs), provided for year-round sales of E15 and would have made Renewable Identification Numbers (RINs) from exported ethanol able to be used toward Renewable Fuel Standard (RFS) compliance, according to documents released by EPA. However, only the E15 portion moved forward.

The SRE provision would have restricted the use of those to cases where a significant financial hardship would be seen from complying with the RFS. There are still 39 SRE requests pending before EPA for the 2018 compliance year.

The plan to allow year-round E15 sales was finalized by EPA but is already subject to a court challenge.

The allowance for RINs from exported ethanol also has not moved forward, with some indicating that could create a WTO liability for the US as some could view that step as creating a “subsidy” on exported ethanol supplies. Currently, there are no RINs allowed on exported ethanol.

Pair of WTO Actions on China

The U.S. has suspended a dispute panel established to rule on the U.S. challenge of China's intellectual property (IP) practices until December 31. The IP issue is at the heart of a trade dispute between the two countries that began following a Section 301 investigation by the Office of the U.S. Trade Representative (USTR) which took issue with Chinese practices including forced technology transfer and IP theft.

Following the investigation the U.S. imposed new tariffs on imports of certain Chinese goods and initiated dispute proceedings at WTO in March 2018. The dispute panel was established Nov. 21, 2018. The US gave no reason was given for the suspension.

Meanwhile, the WTO announced that it has suspended the dispute over China’s economic status based on a request from China.

China had brought the challenge at the WTO against the European Union (EU) stance that China was not a market economy. China is said to have lost the case at the WTO, but the final ruling has not yet been made public.

Some speculate the action by China could be a bid by the country to avoid the release of the decision.

Washington Insider: Tariff Criticism Builds

Bloomberg is reporting this week that even long-time advocates of tariff protections are criticizing current administration proposals as “too high.”

The report uses New Balance Athletics Inc. as an example of a firm that has long advocated and benefited from tariffs, competing with Nike Inc. and other footwear companies while still making shoes in the U.S. Now, it’s among the critics of President Donald Trump’s duties testifying at a public hearing that began yesterday.

The Boston-based firm said while it supports the administration’s efforts to force China to address intellectual property theft in a trade deal, its U.S. factories are supported by a global supply chain connected to China and built over decades. Duties on soles and other components would hurt the business, as do China’s retaliatory tariffs on US exports.

The administration’s proposed levies “will not just translate into higher costs, but jeopardize our ability to maintain production levels and continue investing in our domestic factories,” New Balance Vice President Monica Gorman said this week.

The footwear firm is among the U.S. companies who lined up for this week’s hearing to drive home a now-common point: the proposed tariffs are bad for business. But the stakes have never been higher, with the latest wave of threatened duties set to hit essentially all remaining imports from China including mobile phones, laptops, apparel and other consumer items, Bloomberg says.

New Balance has long pushed to supply U.S.-made shoes to the Pentagon and argued against reducing tariffs on imported finished footwear when the U.S. was negotiating the Trans-Pacific Partnership with 11 other nations earlier this decade.

About 320 officials from U.S. manufacturers, retailers and other companies and trade groups are set to appear over the seven days of this week’s hearing. While some companies, including Rheem Manufacturing Co. support the duties, most are arguing that Trump shouldn’t tax their products, Bloomberg thinks.

And, although the President likes to say China is paying the tariffs, economists say it’s U.S. importers that pay them and at least part of the charge gets passed to consumers in higher prices. Companies also say they can’t easily avoid them by moving operations outside China, as the President suggests.

This is the fourth round of hearings, after the administration levied duties on $250 billion of products last year. As talks on a trade deal with China faltered last month, he ordered a tariff increase to 25% from 10% on $200 billion of goods and targeted an additional $300 billion in products – including consumer goods the administration tried to spare in previous rounds.

Some executives are coming to Washington to testify for the fourth time, even though many don’t have much hope of success given that the President sees tariffs as “beautiful” and leverage for a deal – especially after he said the threat of duties on Mexico produced an immigration pact. Some firms got goods removed from previous tariff lists, only to have them put back.

Retailers including Best Buy Co. Inc., Jo-Ann Stores LLC and Forever 21 Inc. have asked to testify against duties on goods including computer tablets, smartwatches and artificial plants. Hallmark Cards Inc. said greeting cards and Christmas ornaments should be spared because of the impact on retailers, consumers and even the US Postal Service.

Technology products account for more than half the value of the $300 billion, which will raise prices for consumers and could prove “catastrophic,” especially for small- and medium-size firms, the Consumer Technology Association said.

Almost a quarter of the more than 3,800 targeted tariff lines involve goods such as textiles, apparel and footwear, according to the American Apparel & Footwear Association. That’s attracted objections from companies including Ralph Lauren Corp., Columbia Sportswear Co. and Designer Brands Inc.

The proposed duties have also drawn opposition from companies that sell products including eyeglasses, fireworks, books, art, vinyl gloves, skis, fishing equipment, seafood, baby cribs and toys.

“Look out, American toy shoppers here comes the Grinch That Tariffed Christmas!” Wendy Lazar, the founder of I Heart Guts plush toy company in California, posted online.

The tariffs could be imposed after a seven-day rebuttal period following the last day of the hearings.

The President says he is still waiting for a response from Chinese President Xi Jinping about meeting to restart trade talks, economic adviser Larry Kudlow said last week, while warning that Beijing may face consequences it if refuses. Trump has repeatedly threatened to raise tariffs if Xi doesn’t meet with him at the G-20 leaders’ meeting from June 28-29 in Osaka, Japan.

Commerce Secretary Wilbur Ross downplayed the prospect of a major trade deal emerging from a possible meeting between the two presidents, telling the Wall Street Journal in an interview Sunday that the most he thinks will happen is an agreement to resume talks.

Walmart Inc., Target Corp., Macy’s Inc. were among about 660 companies and associations that made a plea last week to Trump not to impose additional tariffs on Chinese goods, and to return to the negotiating table to strike a trade deal with Beijing.

So, we will see. Clearly, administering “get tough” tariff policies is very difficult, as numerous earlier administrations discovered and especially as political and economic pushback builds among domestic groups and overseas trading partners. These are fights producers should watch closely as the trade policy debate intensifies, 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 U.S. Ag Policy, U.S. Farm Bill and DTN Ag News sections on their News Homepage.

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