Washington Insider- Tuesday

Trade Policy and Tariff Retribution

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

Finding the Right Ambassador To China

The frontrunner to be U.S. ambassador to China is Iowa Gov. Terry Branstad, a longtime friend of Chinese President Xi Jinping, Bloomberg reported.

A decision could come after Branstad meets with members of President-elect Donald Trump's transition team in New York this week, said three people with knowledge of the matter.

Branstad is the longest-serving governor in US history. He was already scheduled to be in New York for issues related to Iowa economic development, his spokesman said. Now, meetings with Trump transition officials are expected to be added to that schedule.

Meanwhile, reports indicate President-elect Trump is expanding his search for secretary of state and plans to interview more candidates this week. They include John Bolton, a former United Nations ambassador; Jon Huntsman, a former Utah governor who also served as the ambassador to China and speaks Mandarin; Rex Tillerson, the president and chief executive of Exxon Mobil; and Sen. Joe Manchin, D-W.Va.

The Associated Press reported that, "According to two people close to the transition, Trump is moving away from two of the front-runners for the job, former New York City Mayor Rudy Giuliani and Mitt Romney, the 2012 GOP nominee. ... Former CIA director David Petraeus is still in the mix, though both people close to the transition said Trump's prolonged decision-making process has left the door open to other options."

Given the apparent shift on the post of secretary of state, this is yet another indication that those currently on a list for a given post may not be the eventual person chose for that job.

CRP Focus Continues at USDA

USDA continues an acute focus on the Conservation Reserve Program (CRP), mostly linked to the acreage cap on the program of 24 million imposed by the 2014 Farm Bill, according to contacts.

USDA has made some announcements already and more are likely in coming weeks as the agency seeks to keep the acreage level from exceeding the 24-million-acre mark. The cap is still at 24 million acres for Fiscal 2018, but there are contracts on around 2.52 million acres that will expire September 30, 2017, freeing up space for new contracts to begin.

How many acres are in CRP? That is potentially a good question. USDA's latest data indicates that as of September 30, there were 23.881 million acres in the program. While the official data for October is not yet available, the combination of expiring CRP contracts (1.66 million) and new entries under general signup 49 (411,000 acres) and other activities has resulted in "around 23.5 million acres" in the program as of October 1, sources advise.

CRP Pollinator Habitat limit: Identified as CP42 relative to CRP practices, enrollment in that practice is limited to a maximum of 100 acres per farm for contracts that were not approved as of Dec. 1, 2016.

CRP Grasslands: As announced earlier this week (link), contracts on more than 504,000 acres under the CRP Grasslands effort will have a start date of Oct. 1, 2017, putting them into Fiscal 2018.

Monthly tracking of CRP enrollments: USDA will track each month the level of CRP enrollments that come in, and is expected to offer Fiscal 2018 contract-start dates to keep the program acreage under the 24 million-acre level. USDA signaled this policy previously, but sources advise it will still be the agency's policy moving forward.

Washington Insider: Trade Policy and Tariff Retribution

The Washington Post is reporting this week that president-elect Trump on Sunday issued a "dramatic warning" to companies that they would face "retribution" in the form of increased tariffs if they move jobs overseas.

Overall, the new position was not a total surprise, since candidate Trump had set up a collision with corporate America and the free-market wing of the Republican Party earlier when he advocated an unusually isolationist position.

This time, he used a "string of early-morning tweets" to say that he intends to keep jobs in the United States by lowering taxes for companies and slashing regulations, two key components of his economic agenda. But he also warned that companies that send jobs offshore would face a 35 percent tariff on goods sold back to the United States.

"Any business that leaves our country for another country, fires its employees, builds a new factory or plant in the other country, and then thinks it will sell its product back into the U.S. ... without retribution or consequence, is WRONG!" the president elect wrote.

In addition to vowing to hit American companies with severe consequences if they imperil American jobs, he pledged to tear up trade agreements and tag products from countries such as China and Mexico with tariffs if those nations continue to take American jobs.

The Post emphasized that this week's comments set up a clash with Republicans who traditionally argue in favor of free trade and against excessive intrusion by government into the affairs of businesses. For example, Sen. Ben Sasse, R-Neb., a frequent Trump critic, argued that a 35% tariff would be passed along to American consumers in the form of higher prices.

A conservative advocacy group, the Club for Growth, said that it favors Trump's proposals on tax and regulatory changes but warned of the consequences of cutting off trade. "We think it's bad economic policy. It'll cost more American jobs than it saves," said former Indiana congressman David McIntosh, the head of the Club for Growth. "Therefore it needs to be stopped."

However, many Republican groups stood nearly silent on Sunday, potentially worried about drawing the wrath of the president-elect, the Post said. The U.S. Chamber of Commerce, the nation's largest business lobby, declined to directly respond to Trump's comments but signaled that it has not budged in its opposition to tariffs.

Last week, Trump traveled to an Indiana factory to champion a deal to keep about 800 jobs in the United States. On Sunday, Vice President-elect Mike Pence said that Trump would continue the extraordinary interventions, working on deals with such companies "on a day-by-day basis."

Although Trump would be able to follow through on some of his threats without congressional approval, for example, declaring China a currency manipulator and launching a renegotiation of the North American Free Trade Agreement. It's not clear whether he could penalize companies broadly for moving jobs overseas without congressional authorization.

Gary Hufbauer, a senior fellow at the Peterson Institute for International Economics, a think tank that regularly supports proposed trade deals, predicted that Trump would face legal obstacles if he tries to impose tariffs on individual companies unilaterally.

"This would be, in my way of thinking, a real intrusion of congressional powers over foreign commerce," Hufbauer said. "We've never had this kind of policy before, so he's on novel ground."

In his interview with ABC's "This Week With George Stephanopoulos," Pence rejected the idea that Trump will be picking winners and losers. "What the president-elect did with Carrier was simply reach out, one American to another, and just ask them to reconsider," Pence said.

On the stump, Trump espoused an aggressively protectionist stance toward international trade. Even some leading liberal Democrats acknowledged that his elements of economic message broke through with working-class voters and opened up the possibility of working with him on shared areas of interest. However, since the election, his advisers have softened some of his most heated rhetoric.

Still, Trump's social-media message on Sunday is being regarded as a new signal that the Trump who appeared on the campaign trail at raucous rallies and boasted about his ability to shake up Washington isn't going away. He added a clear threat, "Please be forewarned prior to making a very, very expensive mistake!"

So, it will be very important to see what the incoming administration actually does about trade, especially since most concerned critics likely will be Trump supporters who will express their interests forcefully. Thus, trade policy can be expected to continue to be controversial, and the coming debate should be watched closely as it continues, Washington Insider believes.

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