Washington Insider -- Friday

Front Lines on Tariffs

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

Small Refiners Threaten Suit Against EPA

A group of small U.S. refiners said they will sue EPA in 60 days if the agency fails to issue decisions on small refiner exemptions (SREs) under the Renewable Fuel Standard (RFS), according to news reports and DTN's Ethanol Blog.

The coalition of small refiners said reminded EPA that the agency is required to act on SREs within 90 days after receiving the request, noting the agency did not issue decisions on requests for the 2018 compliance year by March 31, 2019, the date the group said was the compliance deadline.

"This letter ... provides notice of our intent to sue in federal court 60 days after delivery of this letter ... The small refinery owners, however, urge the administrator to issue the 2018 decisions as soon as possible, so it will be unnecessary to file suit," it said.

EPA data shows 38 SREs are still pending for the 2018 compliance year out of 40 submitted – two were declared ineligible or withdrawn.

SREs remain a controversial portion of the RFS with biofuel backers blasting them as reducing required biofuel use while refining interests say the law requires them to be used.

Pompeo Signals Kansas Senate Bid Still a Possibility

The Washington Post reports that Secretary of State Mike Pompeo on Wednesday “signaled that he is open to considering a” 2020 bid to succeed retiring Sen. Pat Roberts, R., Kan., “months after he declared that he had ruled out a bid.”

The Post says that “in an interview with KCMO Radio in Kansas City, Pompeo repeated his familiar refrain that he intends to continue as Secretary of State “so long as President Trump wants me to be engaged in this activity.”

However, the Post said Pompeo left himself more wiggle room than previous statements, suggesting the door remains open to a Senate bid.

“I always leave open the possibility that something will change and my path in life will change too,” Pompeo remarked.

Pompeo represented the Kansas fourth congressional district from 2011-2017 when he was tapped to be come the head of the Central Intelligence Agency.

Front Lines on Tariffs

Agricultural groups often note that they are on the front lines of the global trade wars and deserve special protections as a result. However, Reuters is reporting this week that other industries also are under pressure and face significant damages.

The report’s focus is the U.S. high-end recreational vehicle industry. It notes that about 85% of the recreational vehicles sold in the United States are built in and around Elkhart County, Indiana, making it a popular stop for politicians.

The report suggests that the RV industry’s woes illustrate how even "uniquely American" manufacturers, the kind of industries the administration vows to protect, can be heavily exposed to tariffs in a world of globalized supply chains

The industry has taken hits from U.S. tariffs on steel and aluminum. Despite its all-American image, the RV industry also relies on imports, particularly from China, for basics such as plumbing fixtures, electronic components and vinyl seat covers, to options such as air compressors, appliances, bedding fabrics and the LED light strings that have become a popular interior feature.

Shipments of RVs to dealers have fallen 22% percent in the first five months of this year, compared to the same period last year, after slipping 4% in 2018, Reuters says.

Tariff-related price hikes are forcing manufacturers to pass on some of the increased costs through higher RV prices, which in turn have contributed to slower sales. As dealers cut orders, many plants furloughed workers or reduced hours, including Renegade, which has reduced its headcount of 160 by about 10 workers since May at its two factories that Reuters reviewed.

Michael Hicks, a Ball State University economist who tracks the industry, said its decline is far worse than he or other analysts expected and could signal a wider economic downturn. RV shipments fell sharply just before the last three U.S. recessions and provide “a great bellwether of the economy,” Hicks says, because the vehicles are an expensive and discretionary purchase, easily delayed by consumers who start to worry about their financial stability.

The Commerce Department says that it has “met with private industry” to hear concerns about steel and aluminum tariffs and that it is granting most U.S. companies’ requests for tariff exemptions among the applications it has fully processed.

The RV industry may have contributed to its own problems, Reuters says, by building too many factories during a sales boom in recent years. But tariffs were the pivotal factor in the industry’s decline, managers at RV manufacturers and suppliers told Reuters.

“The tariff price increases are what tipped the RV business -- it started the landslide, no question,” said Tom Bond, the materials and purchasing manager at Adnik Manufacturing, an Elkhart-based division of Norco Industries that has been hit with higher costs on metals it uses to make components such as seat frames.

Elkhart’s RV industry also anchors a large network of related transport equipment companies, including utility trailer makers and specialty bus manufacturers, who rely on the same supply chains -- and also face increasing costs.

Tariffs have so far translated into a 5% increase in RV sticker prices for consumers, estimates Gregg Fore, chief revenue officer at trade magazine RV Business, based on anecdotal reports and proprietary sales data he has seen. “That doesn’t sound like a lot, until you start to talk about adding $1,000 to the price of a $20,000 vehicle,” he said.

Some industry leaders say the business will stabilize once dealers reduce excess stocks. But many of the region’s leaders are worried, including Jackie Walorski, the Republican who represents the area in Congress.

Walorski is an outspoken critic of the administration’s tariff policies, although she steps lightly. In a statement, she praised the President’s tax cuts and other policies for helping fuel economic growth.

“At the same time, I have not been afraid to stand up for Hoosiers when tariffs and retaliatory measures have put those gains at risk,” she said. “As I’ve told the president, we need to put a stop to China’s unfair trade practices by using a scalpel, not an axe.”

So, we will see. The debate over tariffs appears to be intensifying, especially as the complexity of the policies being used is more widely discussed and opposition from front line groups grows. The question of whether to use a policy scalpel or the axe likely will intensify as the 2020 elections near, Washington Insider believes.

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