Washington Insider -- Wednesday

Do Tariffs Pay?

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

OMB Completes Market Facilitation 2 Review

The Office of Management and Budget (OMB) has finished its review of the $16 billion Market Facilitation Program 2 (MFP 2). The review began in June.

"So, I am going to give the farmers — we are going to help them out because they are great patriots," President Donald Trump said Monday. "We are going to give them $16 billion. And we just did. Been approved ... And I approved it."

Eligible farmers could start getting those payments in August, payments that will be made on a county-by-county basis.

Speculation continues on the payments that will be coming, with some indicating high payments could go to counties in Mississippi due to hefty soybean production, with others indicating big payouts will arrive for farmers in the heart of the Corn Belt.

Mnuchin: Another China Trade Call This Week

Treasury Secretary Steve Mnuchin and U.S. Trade Representative Robert Lighthizer will hold another call with China trade negotiators this week.

"We expect to have another principal-level call this week, and to the extent we make significant progress, I think there is a good chance we will go there later," Mnuchin said at the White House.

China acknowledged contacts between the two sides, but little else. "I believe you know that the two teams have been in contact," Chinese Foreign Ministry spokesman Geng Shuang told reporters in China.

Commenting on the China situation, President Donald Trump indicated his relationship with Chinese President Xi Jinping has changed. "I used to say he is a good friend of mine, probably not quite as close now," Trump told reporters Monday at the White House. "But I have to be for our country. He is for China and I am for the USA, and that is the way it's gotta be."

Washington Insider: Do Tariffs Pay?

The New York Times is reporting this week that the president's tariffs on Chinese goods generated $20.8 billion in revenue as of last Wednesday. However, it also said that this revenue is "less than what the United States is spending to support farmers hurt by the trade war."

The observation was in spite of President Trump's Monday comment that "America is on the winning end of the trade war."

"We've taken in tens of billions of dollars in tariffs from China," the President told reporters during a Made in America event at the White House. He advanced the claim that while China has taken $16 billion "off the table" by stopping its purchases of American ag products the United States has "taken in much, much more — many times that in tariffs."

The Times disagreed. It said that government figures show that the revenue the United States has collected from tariffs on $250 billion worth of Chinese goods "is not enough to cover the cost of the president's bailout for farmers, let alone compensate the many other industries hurt by trade tensions. The longer Trump's dispute with China drags on, the more difficult it could be to ignore that gap," the report said.

The president has rolled out two rounds of financial support for farmers: a $12 billion package that was announced last July, of which nearly $10 billion has been spent, and an additional $16 billion announced in May.

However, the government has provided no such benefit to myriad other businesses, including plane makers, technology companies and medical device manufacturers, that have lost contracts and revenue as a result of the administration's policies and China's retaliation against American goods.

Mr. Trump's tariffs are undeniably hurting China, the Times thinks, "where exports power about 20 percent of the economy, compared with 12 percent in the United States." On Monday, the Chinese government said its economy had grown at a 6.2 percent annual rate in the second quarter, the lowest rate in 27 years.

The United States Tariffs "are having a major effect on companies wanting to leave China for non-tariffed countries," Trump said Monday commenting on the Chinese growth figures. "Thousands of companies are leaving. This is why China wants to make a deal with the U.S. and wishes it had not broken the original deal in the first place."

Still, the Times thinks that there is little sign that China's loss is America's gain. Much of the business activity the President noted is shifting to other low-cost countries, like Vietnam, with a transition cost attached for American companies.

Numerous companies have announced changes in their supply chains and more could be revealed as companies report second-quarter earnings in coming weeks. The president and his advisers argue that now is the time to try to force China to change trading practices that they say have hurt American companies. The administration argues that the status quo was "not without costs" to the American economy and an investigation by the administration about intellectual property theft found that China's policies cost the U.S. economy at least $50 billion per year.

Many trade experts and business leaders support confronting Beijing and some have said the heavy cost of the trade war will be worth it if the United States can force China to open up its economy. But most disagree with the administration's claim that the trade war is having no current negative effect on American businesses.

"Certainly, it is absolute folly to suggest that this is cost free for the U.S.," said Rufus Yerxa, the president of the National Foreign Trade Council, which represents major American exporters.

Numerous studies show that American consumers are bearing much of the cost of the tariffs, the Times says. Studies from the Tax Foundation in Washington and the Penn Wharton Budget Model at the University of Pennsylvania show the tariffs amount to a significant tax on Americans in the form of increased prices of goods.

The damage is concentrated, as a percentage of income, among the lowest earners, who spend a larger share of their pay on imports than the upper middle class and the rich.

The administration is continuing to try to shelter and support some American businesses and this week raised to 95 percent the share of steel and iron in projects funded by federal contracts that must be American made, up from 50 percent — the latest in a series of proclamations that encourage more purchases of American goods.

Clearly, the administration is finding its effort to claim that tariffs are paid by foreigners an increasingly difficult sell. And, in at least some cases, it is finding hard to sell the idea that its "get tough confrontations" are the best way to achieve agreements others believe could better be achieved by negotiations. This is an extremely important debate, and one producers should watch closely as it proceeds, Washington Insider believes.

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