Washington Insider-- Thursday

DTN's Washington Insider

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

Agriculture Regains Trade Surplus As Exports Rise

U.S. agricultural exports reached $11.1 billion in August, up nearly 8% from July and the highest level since March when $11.9 billion in U.S. ag goods were shipped. Imports, however, eased to $10.9 billion, down 0.6% from the July mark and counter to the trend seen in overall U.S. trade which saw imports rise by a greater percentage level than exports.

But this helped U.S. agriculture regain a trade surplus of $245.6 million, reversing five straight months of trade deficits and in six of the last seven months. This brings cumulative U.S. ag exports for Fiscal Year (FY) 2020 to $123.7 billion against imports of $122.3 billion for a trade surplus of $1.4 billion. To meet USDA's forecast for FY 2020 of $135 billion in exports and $131.7 billion in imports, September exports would need to be $11.35 billion and imports $9.43 billion.

With large shipments to China expected to be registered for some key commodities for September, the export target could well be hit.

Imports have not fallen under $10 billion since February 2019, which would suggest the import total will surpass USDA's current forecast and further trim the trade balance, but still should result in an annual trade surplus.

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Food Industry Officials Downplay Potential o Fresh Disruptions Relative To COVID-19

Another wave of coronavirus-driven closures of meatpacking plants is unlikely because worker testing and safety practices have improved since the spring, the chief executive of JBS USA Holdings Inc. Andre Nogueira said.

Meat companies have installed automated temperature checkpoints, distributed safety gear to plant workers and installed partitions between some workstations to catch COVID-19 symptoms and prevent its spread in plants.

“I'm pretty confident we are not going to have the size of the disruption we saw in April and May,” Nogueira remarked during a Wall Street Journal Global Food Forum this week. “The number of positives over the last two or three months in the plants has been pretty low.”

Others at the forum indicated that changes in supply chains have also factored into expectations that disruptions are not likely to match those seen earlier this year.

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Washington Insider: The Losing Battle Against the Trade Deficit

Politico is reporting this week that as President Trump enters the final month of his reelection campaign, it's increasingly clear that he has failed at one of the signature goals of his presidency: reducing the U.S. trade deficit.

New figures out Tuesday show the U.S. trade gap is on track to exceed $600 billion this year, the highest since 2008, just before the global financial crisis. The monthly deficit in U.S. goods trade with all other countries set a record high in August at more than $83 billion.

The administration has blamed the trade deficit on bad trade deals negotiated in the past and unfair trade practices by other countries – but most economists disagree with that explanation. In November 2017, after returning from his first trip to Asia as president, the president promised that “we are going to start whittling that down and as fast as possible."

Those 2017 comments seemed to be referring to just the goods trade deficit while ignoring the surplus the U.S. enjoys in services trade.

The trade deficit measures the difference between what the U.S. imports and exports as the powerful U.S. economy sucks up goods from around the world. The deficit has grown dramatically from a mere $6 billion in 1975.

A variety of factors contributed to the failure to eliminate the gap, which White House trade adviser Peter Navarro predicted in 2016 could be erased in one or two years. But the massive U.S. government stimulus payments to businesses and consumers helped U.S. imports recover faster than exports, pulling down the monthly goods deficit.

However, even without the pandemic, the administration's tariff policies for China were never going to turn around the deficit, most economists agree. “Short-term fixes like tariffs don't work,” said Mary Lovely, a senior fellow at the Peterson Institute for International Economics and professor of economics at Syracuse University. “It's magical thinking.”

The U.S. trade deficit is fundamentally driven by larger economic factors—like the fact Americans spend more than they save and have to borrow from abroad to finance the difference, Lovely said.

Politico also says the administration's $1.5 trillion tax cut in 2017 contributed to that problem by running up the U.S. budget deficit. This year, Congress has approved more than $3 trillion in additional spending to help the U.S. economy recover from the coronavirus pandemic, tripling the budget deficit to $3.3 trillion and pulling the trade deficit along, she said.

U.S. Trade Representative Robert Lighthizer on Tuesday defended the administration's trade actions and attributed this year's rise in the deficit to the strength of the U.S. recovery from the pandemic and investors buying gold as a hedge against the crisis.

"In spite of the pandemic, our goods deficit is down 2.4% year-to-date, Lighthizer said. He also noted that the bilateral trade deficit with China fell by 17% to $345 billion as importers turned to other countries such as Mexico, Vietnam, Taiwan, South Korea, Japan and members of the EU.

For the administration to fundamentally reduce the trade deficit, it needed to address misaligned currency rates, experts say. The Phase One trade deal with China contains enforceable rules against currency manipulation, but it is not clear how these provisions will be enforced.

Also, the revised NAFTA agreement with Mexico and Canada includes strong protections for workers' rights. But the fact that labor concerns were not addressed in the China agreement “just shows that the administration is not driven by any principles in this area, but simply by political expediency,” one observer told Politico.

The administration hails China's agreement as part of the phase one trade deal to purchase $200 billion more of U.S. goods and services in 2020 and 2021. But the data released on Tuesday show that China is well behind on that goal. U.S. farm exports to China had reached as high as $25 billion annually a few years ago—but they fell sharply after Beijing retaliated against administration tariffs.

Now, even with the purchase commitments in the Phase One trade deal, USDA forecasts farm exports to China in the current fiscal year that began on Oct. 1 at $18.5 billion. That's below the $21.8 billion during the president's first year in office.

The U.S. agricultural trade surplus has also dwindled under this administration and is projected this fiscal year at just $4.5 billion, down from $21.1 billion in fiscal 2017.

Even some longtime China hawks fault the administration's handling of trade. The president's decision to confront Beijing alone, instead of working with allies such as the European Union and Japan, meant that the phase one trade deal failed to address many of the most serious concerns about China's trade practices, said Mike Wessel, who has served on the U.S.-China Economic and Security Review, a watchdog panel created by Congress, since it began in the early 2000s. “We certainly have to advance U.S. interests, but it'd be a lot better and more productive if we did it together,” Wessel said.

The administration also failed to implement domestic policies that would encourage production of manufactured goods in the United States, Wessel argued. “China has an integrated structure to achieve the goals laid out in its 'Made in China 2025' plan. It's a holistic government approach. We don't have anything comparable,” he said.â??

So, we will see. The elements and tone of U.S. trade policies are very important to producers and should be watched closely as they emerge, Washington Insider believes.

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