Washington Insider-- Friday

The Nation's Job Losses

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

USDA Deepens 2016 Grocery Store Price Decline Forecast

U.S. consumers are now forecast to have paid .5% to 1.5% less for food at the grocery store (food at home) in 2016, down from a forecast of a decline of 0.25% to 1.25% in November, according to USDA's Food Price Outlook from the Economic Research Service (ERS).

As noted in November, the forecast decline in the Consumer Price Index (CPI) for food prices at the grocery store marks the first year since 1967 that there could be annual deflation. "The forecast has been lowered due to recent declines in prices for beef and veal, poultry, and eggs," ERS detailed. "Lower transportation costs due to deflated oil prices as well as the strength of the US dollar have placed additional downward pressure on food prices in the first half of 2016."

Comparing the 2015 average price level with the 2016 level to date, ERS said the CPI for food-at-home is down 1.2%, ERS said.

USDA also reduced the rate of increase for food away from home (restaurant) prices in 2016, now forecast at 2% to 3% compared to 2.5% to 3.5% in November.

Overall, food prices are still forecast to increase from 0.25% to 1.25% in 2016, steady from their November forecast.

For 2017, USDA is still forecasting supermarket prices to rise between 0.5% and 1.5%. "Despite the expectation for declining prices in 2016, poultry, fish and seafood, and dairy prices are expected to rise in 2017," ERS said, with the agency again noting their standard caveats that the forecasts are based on normal weather conditions and could be impacted by shifts in energy prices and the value of the U.S. dollar, with the latter cited as a factor for the 2016 result.

Restaurant prices in 2017 are forecast to rise 2% to 3%, the same rate of increase as forecast for 2016, with overall food prices expected to rise 1.5% to 2.5%.

USDA also made several changes in the 2016 forecasts in several commodity areas, lowering the forecast levels for other meats, fats and oils, fruits and vegetables and other foods compared to their November outlook. For 2017, USDA lowered their outlook for fats and oil prices but increased their forecast for egg prices to now decline from 3% to 4% compared to 11% to 12% fall they forecast in November.

US Renews Fight Against EU Ban on Hormone-Treated Beef

A trade fight against a European Union (EU) ban on imports of hormone-treated American beef has been relaunched by the Obama administration, raising the possibility of imposing tariffs on European goods.

The U.S. decision, which reignites a long-standing disagreement, was taken following the failure of talks to adopt a transatlantic trade pact this year.

"American ranchers raise some of the best beef on the planet but restrictive European Union policies continue to deny EU consumers access to US beef at affordable prices," USDA Secretary Tom Vilsack said in a statement from the office of the U.S. Trade Representative (USTR).

The World Trade Organization in 1998 ruled that an EU ban on imports of U.S. beef violated WTO obligations and was not based on scientific evidence, according to the statement. European officials had argued that the dispute should be handled via the Transatlantic Trade and Investment Partnership, but said in September that adopting the proposed trade pact in 2016 was no longer possible. Given the failure of the TTIP talks, the U.S. is reinstating its trade action, according to USTR. The statement said the U.S. could impose tariffs on a list of EU goods following a public hearing.

House Ways and Means Committee Chairman Kevin Brady, R-Texas, issued the following statement regarding the announcement that the USTR is scheduling a public hearing and seeking public comments in connection with the European Union's ban of U.S. beef products.

"For years, the EU has denied us access to the EU market through a discriminatory ban on certain U.S. meats — a ban that the WTO ruled clearly violated the EU's WTO commitments. It's time to act. Today's announcement allows us to determine how to hold the EU accountable for its unfair trade practices against US beef. By considering whether to reinstate the retaliation that the Administration had suspended in recent years, we are taking a huge step forward for American ranchers, farmers, and the American beef industry," Brady said.

Washington Insider: The Nation's Job Losses

During the recent campaign, both parties agreed that trade was bad because it killed jobs. And, both parties argued that keeping jobs in the United States, probably by subsidies, was the way to reduce income inequality.

The problem is, most economists never really believed in that emphasis. Even though some of the economic articles months ago began to ask about real causes of job losses, the image of trade as a villain was repeated at almost all levels.

Now, however, the issue is rapidly becoming what national policies will be required to bolster the jobs economy? On Thursday, the New York Times carried a long article in its main section on what "really killed jobs" and raises questions that should have been raised many months ago, but, mainly weren't.

The article says new technology was typically the main villain. It cites a variety of examples including the steel industry in California where "minimill" technology led steel plants to cut 75% of employees over five decades, while keeping production the same. It presents many more examples.

"Over the long haul, clearly automation's been much more important (than trade) — it's not even close," Lawrence Katz, an economics professor at Harvard who studies labor and technological change told the Times.

No candidate talked much about automation on the campaign trail, the article asserts, but it fails to note that most news articles didn't either. "Technology is not as convenient a villain as China or Mexico, there is no clear way to stop it and many of the technology companies are in the United States and benefit the country in many ways."

So, the key question is what the next wave of policies will offer to deal with the problem and that answer is murky, at best. The Times notes that President-Elect Trump told a group of tech company leaders last Wednesday: "We want you to keep going with the incredible innovation. Anything we can do to help this go along, we're going to be there for you."

Then, it quotes Andrew Puzder, the incoming labor secretary and chief executive of CKE Restaurants, as extolling the virtues of robot employees over the human kind as recently as last March. "They're (robot employees) always polite, they always upsell, they never take a vacation, they never show up late, there's never a slip-and-fall, or an age, sex or race discrimination case," he said.

So, the Times concludes that globalization caused some of the job losses, especially trade with China during the 2000s which led to the rapid loss of up to 2.4 million net jobs. Still, over time, automation has had a far bigger effect than globalization, and would have eventually eliminated those jobs anyway, the article said.

When Greg Hayes, the chief executive of United Technologies, agreed to invest $16 million in one of its Carrier factories as part of a Trump deal to keep some jobs in Indiana instead of moving them to Mexico, he said the money would go toward automation. "What that ultimately means is there will be fewer jobs," he said on CNBC.

Another analysis, from Ball State University, attributed roughly 13% of manufacturing job losses to trade and the rest to enhanced productivity. Over time, automation has generally had a happy ending: As it has displaced jobs, it has created new ones. But some experts are beginning to worry that this time could be different. That's because even as the economy has improved, jobs and wages but for a large segment of workers others—particularly men without college degrees doing manual labor—wages have not recovered.

Labor economists say there are ways to ease the transition for workers whose jobs have been displaced by robots. They include retraining programs, more public-sector jobs, a higher minimum wage, a bigger earned-income tax credit and for following generations, better education. But critics are pointing out that the new administration's policy headlines to date have little overlap with the White House proposals, and that retraining programs have been a hard sell in the past because of their cost.

The White House on Tuesday released a report on automation and the economy that called for better education from early childhood through adult job transitions and for updating the social safety net with tools like wage insurance. "Just allowing the private market to automate without any support is a recipe for blaming immigrants and trade and other things, even when it's the long impact of technology," said Mr. Katz, who was the Labor Department's chief economist under President Clinton.

The changes are not just affecting manual labor since computers are rapidly learning to do some white-collar and service-sector work, too. Existing technology could automate 45% of activities people are paid to do, according to a report by McKinsey.

So, the key issue now is to be sure that policies are focused clearly at the cause of the unemployment and wage inequality problems, likely a very difficult task since so much political capital has been used blame trade and to build expectations on anti-trade efforts that may offer little relief, or may make problems worse. Thus, the coming debate over trade policies will be extremely important and should be watched closely by producers as it proceeds, Washington Insider believes.

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