Washington Insider-- Wednesday
More Trade Tensions With China
Here's a quick monitor of Washington farm and trade policy issues from DTN's well-placed observer.
CFAP 2 Payments Edge Higher In Most Recent Week
Payments under the Coronavirus Food Assistance Program 2 (CFAP 2) moved up to $13.14 billion as of Jan. 10, with approved applications now totaling 889,001.
The payments nudged above $13 billion in the prior week.
Payouts by category did not change greatly, with acreage-based payments at $6.19 billion, accounting for 47.1% of CFAP 2 payments with 586,264 approved applications. Another $3.41 billion has been made for livestock, 26% of total CFAP 2 payments on 435,757 approved applications.
USDA has paid $2.3 billion for sales commodities, 17.5% of all payments, on 64,143 approved applications. Another $1.19 billion has been paid for dairy, 9% of all payments, on 23,444 approved applications. USDA payments for eggs/broilers under CFAP 2 total $55.5 million, 0.4% of all payments, on 32,798 approved applications.
Reports Signal Trump Administration to Grant Some RFS Waivers
The Trump administration is poised to issue additional small refinery exemptions (SREs) relative to the Renewable Fuel Standard (RFS), according to reports from Reuters and Politico, with both indicating the decisions could come yet this week for requests made by refiners for the 2019 compliance year.
EPA data shows 32 SRE requests are pending for the 2019 compliance year and another 14 for the 2020 compliance year.
Politico reported that refineries in Oklahoma, Kansas, New Mexico, Colorado, Wyoming and Utah would not likely receive SREs after the January 2020 10th Circuit Court of Appeals decision invalidating three SREs on the basis that such waivers had to be received annually since 2011.
The Supreme Court said Friday it would review the 10th Circuit Court decision. Politico reported that EPA could issue partial waivers for the 2019 compliance year. The reports come after some speculated the pending Supreme Court review could put any action on hold.
Bloomberg is reporting this week that the Trump administration's final days are proving as confounding as ever for companies and investors stuck in the middle of an increasingly contentious U.S.-China relationship.
After a week of widespread confusion over the scope of a U.S. ban on investments in businesses linked to China's military, both Washington and Beijing took steps over the last weekend that threaten to further ratchet up tensions and cloud the outlook for cross-border commerce.
Secretary of State Mike Pompeo upended decades of U.S. policy on Saturday by removing self-imposed restrictions on how government officials interact with Taiwan, eliciting swift calls for retaliation by China's state-run media. Pompeo's announcement came just a few hours before Beijing issued new rules that would allow Chinese courts to punish global companies for complying with foreign sanctions.
In both cases, it was far from clear how the edicts would be implemented. China, for example, has been expanding its toolkit to fight back against U.S. sanctions for years, though it has so far refrained from using measures including blacklists and export controls.
Hanging over everything is how the world's most important geopolitical relationship will evolve after President-elect Joe Biden enters the White House later this month. Any optimism for an easing of tensions should be tempered by bipartisan U.S. support for recent policies levied against China, former U.S. Ambassador to China Terry Branstad said. “I don't see a likelihood of a big change in the policy with the change of administrations,” he said.
The upshot is continued uncertainty for companies caught in the crossfire, from Apple Inc. to Tencent Holdings Ltd. and HSBC Holdings Plc. That risks chilling investment decisions, deal-making and startup funding at a time when the coronavirus-pummeled global economy needs all the support it can get.
“There is an escalation of tit-for-tat,” said Alex Capri, a research fellow at the Hinrich Foundation, an Asia-based foundation set up by U.S. entrepreneur Merle Hinrich to promote sustainable global trade.
In an address to Communist Party officials about China's development plans on Monday, President Xi Jinping said that everyone “must be brave to fight and be good at it,” while striking an optimistic tone that “opportunities outweigh challenges.”
Investors in Taiwan largely brushed off rising cross-strait tensions, sending the local stock index to a record high. Pompeo lifted U.S. guidelines on meetings with Taiwanese officials, put in place after Washington's recognition of China in 1979.
The Chinese Communist Party-backed Global Times warned that Pompeo was pushing toward military conflict. Hu Xijin, the newspaper's editor-in-chief, added in a microblog post that China has a “precious window of opportunity for mainland China to teach a heavy lesson to the 'Taiwan independence' forces” and re-establish “strategic leverage” in the Taiwan Strait.
The Chinese Foreign Ministry, which opposes official U.S.-Taiwan interactions, said Monday that it “firmly opposes and strongly condemns” the U.S. move.
Beijing's new rules on foreign sanctions are meant to protect local firms from “unjustified” overseas enforcement actions by allowing Chinese citizens or companies to sue for compensation in Chinese courts if their interests are damaged by the application of foreign laws.
The new rules are more than anything a signaling mechanism to both Chinese companies and U.S. companies in China, and are more of a signal at this stage rather than actually trying to put legal efforts in motion, Bloomberg said.
Even though Hong Kong's security law forbids sanctions against the financial hub and China, state-owned lenders including Bank of China Ltd. have quietly taken steps to comply with U.S. sanctions against officials such as Hong Kong Chief Executive Carrie Lam. With more than $1 trillion of liabilities denominated in U.S. dollars, China's four largest state-owned banks have huge incentives to stay on the good side of American regulators so they can retain access to dollar funding.
Investors have in many cases been given little warning on how regulators, banks, index providers and exchanges plan to implement Trump's order. The New York Stock Exchange flip-flopped twice before finally confirming last week it will delist China Mobile Ltd. and two other Chinese telecom companies. MSCI Inc. removed the three stocks from its indexes on Friday, giving global funds just one day to adjust billions of dollars of passive investments.
Wendy Liu, head of China equity strategy at UBS Group AG, said some investors in Europe are interested in taking advantage of the sanction-induced drop in Chinese share prices. But she added that many are still waiting to pull the trigger as they await more clarity on the outlook for U.S.-China tensions.
“Reversing Trump's sanctions and China policies too quickly will give a 'pro-China' signal that will not be beneficial for Biden's polls,” Liu said. “We still need to wait and see how U.S.-China relations will unfold in the new administration.”
So, we will see. The current U.S. transition period seems increasingly likely to be steeped in confusion as new positions are constructed with major trading partners — trends producers should watch closely as the transition approaches its completion, Washington Insider believes.
Want to keep up with events in Washington and elsewhere throughout the day? See DTN Top Stories, our frequently updated summary of news developments of interest to producers. You can find DTN Top Stories in DTN Ag News, which is on the Main Menu on classic DTN products and on the News and Analysis Menu of DTN's Professional and Producer products. DTN Top Stories is also on the home page and news home page of online.dtn.com. Subscribers of MyDTN.com should check out the US Ag Policy, US Farm Bill and DTN Ag News sections on their News Homepage.
If you have questions for DTN Washington Insider, please email email@example.com
(c) Copyright 2021 DTN, LLC. All rights reserved.