Washington Insider -- Tuesday

More Shocks for Trade

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

Trump May Opt To Pull Out Of South Korea Trade Deal

The U.S. Chamber of Commerce is calling for its membership to take action to prevent what they say could be the U.S. starting the process of withdrawing from the U.S. Korea Free Trade Agreement (KORUS).

Politico reported that a senior administration official confirmed withdrawing from the trade deal is being discussed in the White House but a final decision has not yet been made. Neither the White House nor the Office of U.S. Trade Representative confirmed or denied the possible move, which was initially reported by the Wall Street Journal and Washington Post.

The two countries have opened discussions on potentially updating the pact, but no announcements on those discussions have been made. "Discussions are ongoing, but we have no announcements at this time," a White House spokeswoman said.

Northey, Ibach Nominations Finally Made

Iowa Agriculture Secretary Bill Northey finally has been selected to be undersecretary for farm production and conservation, a "new" position at USDA created as part of the reorganization of the agency announced by USDA Secretary Sonny Perdue. Part of the reorganization involved creating an undersecretary for trade position that was ordered to be created in the 2014 Farm Bill.

In addition to Northey, the White House also announced Nebraska Department of Agriculture Director Gregory Ibach has been tapped to be undersecretary of agriculture for marketing and regulatory programs, and Stephen Vaden has been selected to serve as USDA's general counsel.

"I look forward to the confirmations of Greg Ibach, Bill Northey, and Stephen Vaden, and urge the Senate to take up their nominations as quickly as possible," said Perdue. "This is especially important given the challenges USDA will face in helping Texans and Louisianans recover from the devastation of Hurricane Harvey."

The expectation that Northey would be tapped for the role first surfaced in April and now the focus will be on the speed at which the Senate Agriculture Committee moves to approve the nomination.

Washington Insider: More Shocks for Trade

The New York Times reported over the weekend that President Donald Trump is considering pulling out of a major trade agreement with South Korea. An industry publication, Inside U.S. Trade, first reported on Friday that the administration was considering withdrawing from the treaty as early as next week — but the Times quoted sources at the White House that “discussions are ongoing, but we have no announcements at this time.”

The president’s top economic advisers remain deeply divided over the possible withdrawal, as negotiators from both countries struggle to rewrite the five-year-old deal. And, this debate is taking place as the United States and South Korea are working together to try to combat a growing nuclear threat from North Korea.

In recent days, a frustrated Trump has pushed his staff to take bold action against a host of governments, including the one in Seoul that he accuses of unfair trade practices. But many of his more moderate advisers, including the chairman of the National Economic Council, Gary Cohn, believe that such a move could prompt a trade war that could hurt the United States economy, the Times said.

On Saturday, during a trip to the Gulf coast, the President was asked whether he was talking with his advisers about the trade deal. He responded that “I am. It’s very much on my mind.”

The idea of potentially withdrawing seems to have been prompted by the breakdown in negotiations between South Korean officials and the United States Trade Representative, Robert Lighthizer, the Times said.

An initial meeting generated little consensus, with South Korean officials offering to consider minor adjustments to the agreement but rejecting a wholesale renegotiation. This was reported to have angered hard-liners in the White House who have targeted countries like China, Japan, Mexico and South Korea that have large trade surpluses with the United States.

Still, it remains unclear whether the administration will actually withdraw from the deal. Industry representatives who have lobbied the White House say the president’s team has done little of the work — like a wide consultation with affected industries — needed before taking such a step.

The possibility of abandoning the agreement has alarmed economists and some members of the president’s own party, as well as ag industry groups, who fear that such a move would force South Korea to block American manufacturers and farmers from a lucrative market.

“The president and Nebraska have a basic disagreement about trade,” said Senator Ben Sasse, R-Neb., who has frequently criticized Trump. “His administration holds 18th-century views of trade as a zero-sum game. I side with our farmers and ranchers who are feeding the world now.”

Lighthizer and other administration officials, including Peter Navarro, an economic adviser to the president, have long complained that many South Korean industries, especially the automotive sector, enjoy government protections that make it harder for American companies to compete.

In addition, scrapping the deal would also have profound geopolitical implications in the region, said Michael Green, an Asia expert at the Center for Strategic and International Studies, who oversaw issues on the Korean Peninsula during the administration of President George W. Bush.

“One of the big reasons we decided to go forward with the agreement was to demonstrate to the South Koreans, North Koreans and Chinese that the U.S. was committed to this relationship for the long haul,” Green said.

“That the administration would even consider canceling the agreement in the midst of the North Korean missile and nuclear crisis is astonishing,” Green said.

“It’s probably all theater, but it has negative strategic consequences as we try to manage the North Korean threat,” he said.

So, we will see. The Korean market has been very important to U.S. producers for several decades and the nation is also especially important geopolitically. It may be true that the North Korean threat is mostly theater, but the administration’s saber rattling on trade is unsettling to many Trump supporters in addition to Senator Sasse. It would be useful for USDA Secretary Perdue to take steps to make the administrations trade strategy for agriculture much clearer and more transparent than it is at this time, Washington Insider believes.

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