Washington Insider -- Friday

What About the U.S. Strategy for Europe?

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

Some RFS Information Coming But Finalizing Other Shifts Delayed

EPA is expected to propose the new annual renewable fuel blending targets via the Renewable Fuel Standard (RFS) for 2020 ahead of the July 4 recess, according to contacts.

Renewable fuel groups are hoping and lobbying to see a sizable boost in the amount of ethanol refiners are expected to blend to make up for previous refinery exemptions/waivers from the EPA.

However, EPA now appears to have slowed up finalizing the rule-making process on the reset of the RFS levels for 2020-2022. EPA sent its proposals to the Office of Management and Budget (OMB) for review and the agency held at least four meetings on the topic, including one Wednesday, June 26.

While the OMB lists the legal deadline for the action as November 30, 2019, the budget office now indicates the final rule on the plan is not expected until February 2020. That indicates EPA is not expected to keep the RFS reset and the 2020 biofuel and 2021 biodiesel on the same regulatory timeline which previously appeared to be the case.


Details on MFP Program Could Arrive Soon

USDA Secretary Sonny Perdue Wednesday said that USDA has decided it can make a “minimal” payment to farmers under the Market Facilitation Program 2 (MFP 2) for cover crops that are planted on prevent plant acres.

However, he did not signal how much the payment would amount to and noted that the agency is close to announcing details of the MFP 2 effort.

“The reason we are close is the prevented-planting triggers are done,” he told reporters after speaking to the National Council of Farmer Cooperatives in Washington. “That was our purpose for being intentionally opaque about the plans and not having producers trying to farm the program. I think we are close to beginning disclosing some of these plans.”

Perdue said USDA will also “top off” prevent planting payments using money from the recently approved disaster aid package, but said the amount of increased payments will depend on how many prevent plan acres there are.

While many are touting the potential for farmer payments from MFP 2, crop insurance, the disaster package and being able to sell forage harvested from cover crops on prevent plant acres, Perdue stressed, “All those combined will not come up to what a farmer could have [earned] if they could have planted. Prevent plant is not a strategy. It's a fall-back safety mechanism."

Washington Insider: What About the US Strategy for Europe?

While most of the current press coverage of trade issues is focused on the U.S.-China talks, Bloomberg says that the logic of the President’s attacks escapes leaders in Europe, and that this is especially true as President Trump heads to a showdown with China’s Xi Jinping and as the costs of his trade war become clearer.

The estranged U.S. allies may not follow the logic of the administration’s offensive but they have become reconciled to persistent attacks from Washington, EU officials told Bloomberg. As Trump ramps up his effort to win a second term in 2020, they expect no letup, and are even getting used to fighting back. For example, “should Trump get serious about his threats, we’re prepared,” Cecilia Malmstrom, the EU’s trade commissioner told Germany’s Der Spiegel magazine this week. “Our list of counter measures is set.”

If talks at the G20 meeting in Osaka and in the coming weeks fail to head off the threatened U.S. tariffs on Europe’s cars, EU officials say they are confident that their response will be sharp enough to hit the president “where it hurts.”

Earlier levies on Harley Davidson motorcycles and bourbon whiskey specifically targeted Trump’s political base. Other measures against U.S. tech firms prompted members of Congress to write asking Brussels to back off, Bloomberg said.

Still, there seems to be little else the Europeans can do. It can hold its own in a trade dispute but its locker is empty when it comes to hard-power tools needed at the sharp end of geopolitics. That means the EU has limited leverage to shape the U.S. agenda in hotspots like Syria, the Persian Gulf, or the South China Sea.

Part of the struggle for EU leaders is that they feel they would be natural allies with the Trump administration against China, one official said. They share many of his grievances over Chinese practices even if they’d favor a more diplomatic approach to Beijing.

At the same time, administration attacks on China over unfair trade and investment practices and against the rise of Huawei Technologies Co. in ultra-fast telecommunications networks echo European reservations. But instead of forging a united front against the communist government in Beijing, the U.S. administration has taken the Europeans to task over an even longer list of complaints that go beyond trade to defense spending and energy.

“Europe treats us worse than China,” the President said on Wednesday, reeling off a familiar list of complaints about German defense spending on a new gas pipeline to Russia.

So, will Europe be the target of his next trade offensive? “Oh yeah,” the president said, although the EU says it “remains in the dark about whether Trump will actually follow through” on his threat to hit European cars and auto parts with tariffs based on national-security grounds.

That move would mean the end of the fragile truce struck last July in the wake of American duties on European steel and aluminum, which provoked an EU response targeting firms in Trump’s heartland states like Kentucky and Wisconsin.

While the European official said that the EU believes some key figures within the Trump administration will argue against automotive tariffs, other factors suggest the threat remains real. In May, Trump said he shared the conclusion of a Commerce Department report that foreign automotive goods undermine U.S. national security and called for “reducing imports.”

Bloomberg also reports the view that U.S. policy for Iran is the most glaring example of uncertain U.S. policy goals — and that the President’s unilateral withdrawal from the 2015 nuclear accord has thrown a decade of diplomatic work into turmoil. In response, European capitals responded with an investment vehicle designed to circumvent U.S. sanctions and preserve some of the economic benefits of the deal for Tehran. But the dominance of the dollar and the threat of retribution from Washington has meant that no company has dared to use it.

EU leaders have been lamenting the limitations of their toolkit for years. But they are still left appealing to their common interests with that U.S. — an approach that has so far fallen on deaf ears.

“We’ll once again make an attempt and discuss the issue of multilateral cooperation,” German Chancellor Angela Merkel told lawmakers in Berlin Wednesday as she prepared to deal with Trump in Osaka.

The President clearly prefers unilateral trade policies and believes they enhance the U.S. position. Others strongly disagree, and the administration preference likely will be tested repeatedly over the next few months — challenges producers should watch closely as they emerge, Washington Insider believes.

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