Washington Insider-- Wednesday
USTR Policy Cure-All, More Tariffs
Here’s a quick monitor of Washington farm and trade policy issues from DTN’s well-placed observer.
Phase One Trade Deal Intact, Says Trump
Financial and commodity markets swooned Monday evening after reports of White House trade adviser Peter Navarro saying the phase-one agreement with China was “over.”
Navarro made the comments in a Fox News interview that focused heavily on the coming book by John Bolton, with the interviewer throwing a “last question” at Navarro asking him if the deal was over. He responded that “it is,” adding he thought a turning point on the matter came after the COVID-19 news came out almost immediately after the phase-one agreement was signed.
As financial and commodity markets reacted, Navarro sought to pull his remarks back.
And, President Donald Trump tweeted, “The China Trade Deal is fully intact. Hopefully they will continue to live up to the terms of the Agreement!”
From China, Foreign Ministry spokesman Zhao Lijian said of Navarro, "He consistently lies and has no honesty and trustworthiness.” As for the phase one agreement, Zhao told reporters at a briefing, "China's stance on the issue has been consistent and clear."
China’s action to bar imports of poultry from the Springdale, Arkansas, Tyson Foods plant continues as a discussion point in the U.S. meat industry, with most agreeing that it will not have a significant impact unless it is expanded.
"Hopefully it's not going to mean anything," said Jim Sumner, president of the USA Poultry & Egg Export Council. "If it remains at just one plant, it will not have any meaningful impact, but we don't know what's going to happen."
He also noted that the product is frozen and spends some 30 days in a container traveling to China. “So there is zero possibility of a live virus from the U.S. showing up in frozen poultry as it has been shipped by ocean carrier halfway around the world.”
A spokesman for Tyson said their products are safe and hoped the issue can be resolved in talks between the two countries.
Washington Insider: USTR Policy Cure-All, More Tariffs
Bloomberg is reporting this week that with COVID-19 cases spiking in nearly a dozen U.S. states, this may seem like a strange time to constrain America’s ability to obtain critical medical supplies and drugs. However, “new tariffs are exactly the strategy that America’s top trade official says is the best way to combat the coronavirus pandemic.”
The report cites Robert Lighthizer, the U.S. Trade Representative, who says he is a “firm believer that the things we need to fight the pandemic should be made in America,” The U.S. official was addressing members of the House Ways and Means Committee last week.
“I’m not in favor of reducing tariffs on the things we need. I would be far more in favor of increasing tariffs on the things we need.”
Lighthizer’s comments come at a pivotal moment in the health crisis as fresh outbreaks spark fears that a second wave may cross the globe and force governments into a dilemma where they must consider whether it is better to hoard critical medical supplies while redoubling their ability to produce them domestically, or help expand global access to medical goods so all nations can collectively fight the pandemic.
Bloomberg says Lighthizer is in the first camp while the European Union, Canada, Japan, Brazil and nearly a dozen others are in the second, “working to lower trade barriers that harm other nations’ ability to fight the virus.”
The emerging alliance, which calls itself the “Ottawa Group,” is discussing an EU-led initiative to eliminate tariffs on pharmaceuticals and medical supplies in order to “help ensure that the world is better prepared to deal with similar future crises."
The U.S. administration’s preference for protectionism remains clear, Bloomberg says.
In his testimony, Lighthizer flatly rejected the idea of joining the EU’s medical goods deal and blamed the World Trade Organization for hindering America's access to essential medicines,"casting specific ire on a 1994 agreement that eliminated tariffs on pharmaceutical goods.”
“Countries got together and said we will all agree to have zero tariffs on a certain list of pharmaceutical products and then we will just give that benefit to the rest of the world, which struck me as really, really crazy,” Lighthizer said.
Also, in yet another trade policy action, the administration says it is considering re-imposing tariffs on aluminum imports from Canada. Bloomberg says it expects an announcement by the end of the week.
Bloomberg says the U.S. is threatening Canada with new tariffs if it “refuses to impose export restrictions on aluminum.” It expects those to be 10% tariffs on Canadian aluminum, to be implemented by July 1 – just days before the new U.S.-Mexico-Canada trade deal enters into force. It follows Lighthizer’s expressions of concern about recent struggles by American aluminum producers as demand evaporated amid the global pandemic.
Lighthizer told the Senate Finance Committee in a hearing last week that recent surges in metal imports from North American neighbors are “of genuine concern to us now,” and that his office was looking at the issue.
“I would say there have been surges on steel and aluminum, substantially from Canada, some from Mexico, and it is something that we’re looking at and talking to both Mexico and Canada about,” he told the panel’s top Republican, Senator Chuck Grassley, R-Iowa.
Under the May 2019 agreement, which resulted in initial tariffs being lifted, Canada has to limit its retaliation to the U.S. metals sector and cannot hit American agriculture, Lighthizer told Grassley.
Ironically, the only three U.S. aluminum producers -- Alcoa Corp., Century Aluminum Co. and Magnitude 7 Metals LLC -- disagree whether tariffs should be re-imposed, Bloomberg said.
The American Primary Aluminum Association, which represents Century Aluminum Co. and Magnitude 7 Metals LLC., has asked Lighthizer to reimpose a 10% tariff on imports of Canadian aluminum, saying a rise in metal coming from the country has caused the price to collapse.
However, the Aluminum Association of the U.S., which represents Alcoa Corp., Rio Tinto Group and dozens of other aluminum parts makers, argues that imports are virtually unchanged since 2017.
Alcoa CFO William Oplinger said at a virtual bank conference in June that China’s overcapacity subsidized by the government is the real problem, and that he supports free trade with “those who trade freely, especially the Canadians.”
So, we will see. Clearly, the administration is continuing to rely on “get tough tariff policies” which likely will continue to lead to retaliation from trading partners, as well as higher prices for domestic products. These strategies are continuing to be debated in the U.S. even amid anti-coronavirus strategies and should be watched closely by producers as they intensify, Washington Insider believes.
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