Here's a quick monitor of Washington farm and trade policy issues from DTN's well-placed observer.
China Phase One Deal In Focus As Meeting Approaches
China continues its purchases of U.S. commodities under the Phase One agreement signed between the U.S. and China to start the year, with White House economic adviser Larry Kudlow telling reporters the deal is “fine.”
Asked if deteriorating ties between the world's two largest economies on other fronts could result in the trade deal being thrown out the window, Kudlow said, "No, no."
Despite the tensions between the two sides, Kudlow said that the one area between the two countries that is “fine right now” is trade. “The one area we are engaging is trade," he stated.
U.S. Trade Representative Robert Lighthizer, Treasury Secretary Steve Mnuchin and Chinese Vice Premier Liu He are to meet via teleconference to assess the progress on the deal, reportedly on Saturday, August 15.
Beijing is pushing for the recent measures targeting businesses including TikTok and WeChat to be on the agenda.
Along with agricultural purchases and the dollar-yuan exchange rate, which are among topics to be discussed, Chinese officials intend to bring up Trump's prospective bans on transactions with the two apps on national security grounds, Bloomberg reported.
USDA Continuing To Work on Unsolicited Seed Packages
USDA has more than 9,000 emails from consumers that have received unsolicited packets of seed, presumably sent from China, according to Osama El-Lissy with USDA's Animal and Plant Health Inspection Service (APHIS).
So far, USDA has only received 925 seed packets and has gone through those and so far, El-Lissy said, has only found two noxious weeds – dodder and water spinach.
“We are working to figure out who is actually sending those shipments and more importantly, to stop future shipments,” El-Lilly told USDA Radio.
USDA has also been working with their counterparts in China to identify the actual senders, he noted, saying they know the names of the companies but do not know background information. USDA said it has been working with primary commerce companies to “use their own systems in stopping future shipments.”
Politico is reporting this week that after a spring and summer bolstered by cash infusions from the federal government of more than $3 trillion, the U.S. economy may have to sink or swim this fall with a relative trickle of support — a scenario that presents a significant threat to the administration as it heads into a compressed reelection campaign.
Negotiations on another large fiscal aid package remained stalled and administration officials said they “held no hope of any movement this week — perhaps even for the rest of the month.” Also, economists “mostly say” the administration's executive actions would have limited impact, even if they manage to survive potential legal and operational challenges.
Politico thinks that this means that for the moment, struggling small businesses are running out of their initial aid with no replenishment in sight. State and local governments face mounting budget shortages that could spur significant layoffs this fall. And schools are waiting on much-needed funding to open safely.
Politico sees this as boiling down to the expectation that absent a fresh breakthrough on another stimulus bill, an economy that cratered by historic proportions in the first half of the year amid the COVID-19 epidemic will have to continue to snap back without much federal help, at least beyond the easy-money policies put in place by the Federal Reserve.
At the same time, Politico says White House officials expect that the executive actions will do a lot to boost the recovery while also putting Democrats on defense politically. National Economic Council Director Larry Kudlow said “I'm the first to admit there is way too much unemployment out there and we really do need to help people and we came up with a good compromise way to do that.”
Kudlow frames the payroll tax deferral as a $1,200 wage increase “for the heroes who are working through this whole pandemic. And if after-tax wages go up, that's an incentive to go back to work. And politically, it may well move us toward negotiations.”
Trump on Saturday moved to circumvent Congress with four executive actions that would attempt to provide $400 per month in extra jobless benefits by redirecting existing federal disaster aid money.
The order says states would have to come up with 25% of the money, but Trump later said the federal government would cover the whole payment if struggling states could not. Kudlow said the extra benefit could be even higher — as much as $800 — because the administration would work to repurpose more funds and add to whatever states are able to provide.
It's unclear when the benefit would kick in or how long it would last. States were still seeking guidance this week and some worried they'd need to build a new system for delivering benefits under this program. But Treasury Secretary Steven Mnuchin said he thought states could start distributing the new benefits “within the next week or two.”
White House chief of staff Mark Meadows conceded that major issues remain unaddressed. “The downside of executive orders is you can't address some of the small business incidents that are there,” he said on Sunday.”
And, the White House says it still wants a larger deal, despite major differences with Democrats on the price tag and what new legislation would include. But Meadows did not say when he might restart talks with Democratic leaders on the Hill, only that “if we can get a fair deal we're willing to do it this week.”
“It's unclear where we go from here. The recovery may be ongoing but downside risks absent further stimulus are significant,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics. “Without additional help, incomes and spending will surely retrench.
Market analysts say the stock market's resilience is partly because second-quarter earnings — though dramatically lower than 2019 — have mostly not come in as badly as feared. And the Fed's commitment to keep interest rates low and pumping vast sums of money into markets to boost growth is driving investors into stocks.
But part of the market strength is also an assumption — perhaps an incorrect one — that Republicans and Democrats will ultimately have to make a deal for something around $2 trillion in further stimulus rather than face the election risk of a freshly declining economy
Still, it's virtually impossible to find analysts who believe a deal won't ultimately get made, Politico says. “The executive orders will likely force Democrats to come back to the negotiating table,” Edward Moya, senior market analyst at foreign exchange trading firm OANDA, said. “Democrats will likely make some big concessions and a deal around the $1.5 trillion level should be reached. The economic recovery will continue and still be fueled by stimulus before and after the election.”
So, we will see. It is clear that there is wider support for economic interventions than in previous recessions — but producers should watch closely as lawmakers continue to struggle to find a path to make the support as effective as many suggest is needed, Washington Insider believes.
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