Washington Insider -- Friday

New Agenda Issue is Harvey's Costs

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

Trade Tensions on Display at APEC Summit

Asia-Pacific Economic Cooperation (APEC) officials downplayed apparent U.S.-China trade tensions at the trade group's gathering in Vietnam, saying August 30 that APEC is the alternative to U.S. "protectionism."

Not every country wants to sign trade deals said Bui Thanh Son, the 2017 chairman of APEC senior officials. He did not elaborate when asked about reports that disagreements had arisen between Chinese and U.S. delegates, in addition to some internal discord over an APEC electronic commerce proposal.

"It's not just the U.S. and China having disagreements, we have other countries with disagreements—that is normal,” Son told reporters in Ho Chi Minh City, where two-weeks of APEC meetings just ended. "Our member economies participate from the economic side, not the political side," said Son, who is Vietnam's permanent deputy foreign minister.

Hosted by Vietnam, the APEC talks throughout 2017 will be capped by a November summit bringing Presidents Donald Trump of the U.S., Xi Jinping of China, Vladimir Putin of Russia, and others to the central beach city of Danang.

Besides accusing China of dumping steel in the U.S., the Trump administration has ordered a more comprehensive inquiry into countries that have large trade surpluses with the U.S., many of them members of APEC. "Of course, we've heard the U.S. having a tougher line on some issues," Alan Bollard, the APEC Secretariat's executive director told Bloomberg BNA.

Hoang Van Dung, the 2017 chairman of the APEC Business Advisory Council, said the Asia-Pacific bloc should stand firm against those in the U.S. rejecting globalization. "They don't like to remove tariff barriers, they want to impose protectionism," Dung said at the news conference. “Those are the issues that we need to fight, together," he added.

Second Round of NAFTA Talks to Focus on Common Ground

A focus on areas of common ground is expected during the second round of North American Free Trade Agreement (NAFTA) talks September 1-5 in Mexico City.

Negotiators will likely focus on moving positions closer on issues where they share similar views including small and medium-sized enterprises and regulatory cooperation, sources told Bloomberg BNA.

Tougher issues including investment disputes, market access, currency manipulation and automobile rules of origin, will be raised in round three, the sources said. "At the next two rounds it's how much can they knock out that they agree on," one source remarked. U.S. Trade Representative (USTR) Robert Lighthizer is set to be in Mexico City for the round's conclusion.

Another area of common ground includes technical barriers to trade. However, the sides differ on dispute settlement, labor mobility and rules of origin for autos, the source added. During the upcoming round negotiators are expected to try to find more areas of agreement among the proposals offered so far, the source said. The U.S. is pushing to get all the proposals on the table by the third round.

Washington Insider: New Agenda Issue is Harvey’s Costs

The month of August saw solution of none of the main issues the administration faces and a new concern that likely will rearrange the government’s priorities. This could affect the debt ceiling fight, the budget battle, the administration’s tax cut agenda as well as other issues. It is the enormous clean-up costs of hurricane Harvey, Bloomberg says this week.

Before President Donald Trump launched his latest call for major tax cuts, he took a moment to offer support to Texas and Louisiana in the wake of Hurricane Harvey. “We are here with you today, we are with you tomorrow and we will be with you every single day after, to restore, to recover and to rebuild,” the President pledged during a speech at a Springfield, Missouri, manufacturing plant Wednesday.

That moment revealed how the storm, which has claimed more than 30 lives and caused as much as $90 billion in damage, may add new limits to Trump’s goal of delivering “historic” tax cuts.

Republicans in Congress, who were already tentatively planning to combine a debt-ceiling increase with a short-term spending bill to keep the government open, may now feel urgency to add Harvey-relief provisions into that mix.

“That has everything you want except Republican fiscal responsibility,” said Representative Dave Brat, R-Va., a spending hawk. “We’ve got to help the victims of Harvey, we’ve got to raise the debt ceiling, but where is the responsibility for not leaving a fiscal mess to our children and grandchildren? That bill could come from Democrats.”

GOP leaders had already said that any tax plan would have to pay for its cuts with new revenue. “It will have to be revenue-neutral,” Senate Majority Leader Mitch McConnell, R-Ky., said in May. “We have a $21 trillion debt.”

Representative Peter Roskam, R-Ill., who chairs the House Ways and Means Committee’s panel on tax policy, stuck to that line on Wednesday, although he added that it’s an “open question” as to whether Congress will adhere to revenue neutrality in tax legislation.

The question is not just academic. Republicans, who have a slim 52-seat majority in the Senate, plan to pass a tax bill under a budget procedure that would allow them to bypass Democrats’ opposition. But that procedure, known as “reconciliation,” also requires that any tax cuts that add to the nation’s long-term deficit would have to be temporary.

In general, the administration has tended to downplay potential budgetary effects while promising “the biggest tax cut and the largest tax reform in the history of our country.” On Wednesday, in a speech the White House billed as the first of several aimed at campaigning for a tax overhaul, Trump avoided repeating the superlatives, but stuck to similar themes.

While his remarks included few specifics, he repeated his desire to slash the corporate income tax rate to 15% from 35%. He also called for an unspecified middle class tax cut—possibly, by doubling of the standard deduction, which would benefit working-class taxpayers. Together, the two provisions would cost an estimated $3.7 trillion in revenue over 10 years, according to the nonpartisan Committee for a Responsible Federal Budget.

“Congress shouldn’t be debating a deficit-increasing tax cut because our debt is at record levels,” said Maya MacGuineas, the CRFB’s president. Also, she said, the need to pay for Hurricane Harvey relief “is a reminder of why it is so important to have our fiscal house in order.”

As Congress returns from a month-long recess next week, the bill for Hurricane Harvey’s damage will make it more fiscally irresponsible than ever for lawmakers to consider tax cuts that aren’t paid for, said Bob Bixby of The Concord Coalition, a deficit-watchdog group.

“What needs to happen when Congress returns is a budget deal acknowledging that things need to be paid for and that tax cuts don’t pay for themselves,” Bixby said in an email. “It makes sense to borrow for an emergency like a hurricane but not for a tax cut that will contribute to an already unsustainable fiscal path.”

So, it seems that all the old fights remain, while new ones are being added. This means, among other things, that the search for funds can be expected to look for offsets from programs long thought too important or popular to cut. And, it clearly raises the stakes on each of the debates now underway, which producers should watch closely as they proceed, Washington Insider believes.

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