Washington Insider -- Thursday

Determining a Reasonable Economic Growth Rate

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

US Dispute On Chinese Agriculture Quotas Likely On WTO Agenda

The World Trade Organization (WTO) is likely to agree on September 22 to the Trump administration's latest request that the WTO review whether Chinese trade policies unfairly harm U.S. farm exports.

The Obama-era dispute alleged that the way Beijing applies its agricultural tariff-rate quotas (TRQs) for rice, wheat, and corn imports violates WTO rules because it unfairly undermines the ability of U.S. farmers to export their grains.

WTO, if it accepts the U.S. complaint, will determine whether China fulfilled its TRQ obligations and will evaluate U.S. allegations that China imposed “impermissible” restrictions on farm imports, failed to provide sufficient information about its import quantities, and didn't disclose changes to those import quotas. As part of China's WTO accession agreement, Beijing pledged to set specific TRQ levels for various products by applying a lower tariff rate to imports up to a certain quantity and then applying higher duties to imports that exceed the threshold.

Beijing could be forced to accept increased amounts of U.S. grain imports or face retaliation from Washington, if the WTO finds that China's TRQ policies violate international rules.

EPA's Pruitt Says Icahn Wasn't Directing Policy At EPA On RFS

Even though Carl Icahn has exited the White House as an adviser to President Donald Trump, he is still getting attention. EPA Administrator Scott Pruitt responded to inquiries from Sen. Sheldon Whitehouse, D-R.I., on Icahn's involvement in the Renewable Fuels Standard (RFS) and the point of obligation issue he pursued. Pruitt said in any meetings he had with Icahn, he gave no assurances to Icahn relative to the point of obligation or "any other substantive issue." Pruitt further noted the agency searched email in boxes of 39 EPA officials and found no emails from Icahn or the refining firm he has a majority interest in – CVR.

However, a spokesman for Whitehouse indicated some skepticism about Pruitt's assurances. "On its face, this letter suggests Mr. Icahn had far less control over RFS policymaking than he had suggested publicly," Whitehouse spokesman Rich Davidson told Politico. "On the other hand, Pruitt has a long-established skill in obscuring his contacts with the industry that pulls his strings."

Washington Insider: Determining a Reasonable Economic Growth Rate

Amid all the toxic fights in and about Congress, one of the bitterest is the fight over the definition of a “reasonable” expectation for future economic growth. Administration spokespeople often note that “while our country has recently grown about 2% annually, or less, other countries expect much, much higher rates, the Washington Post says.

The gross domestic product is the broadest measure of a nation’s economy. But since the Great Recession ended in 2010, the U.S. GDP has only grown between 1.6% and 2.6% on an annual basis, the Post notes.

While this growth rate puts the United States on a par with developed nations like Canada and Britain, President Trump frequently says he thinks the United States should be doing far better. He believes it should be able to reach upwards of 4% or 5% growth, though most economists believe that is unrealistic on a sustainable basis—and point to the fact that the United States last topped four percent GDP growth in 2000.

To help spur the economic boom the administration envisions, the President is pressing to change numerous economic regulations and to overhaul the U.S. tax code by cutting tax rates and eliminating complex tax rules—and, the administration is pressing for a very sharp reduction in corporate tax rates.

So, the Post focused on the assertion that other country’s growth should provide a pattern for the United States. The Post searched through national tax reports and found that a very few countries had extremely high rates of growth--in 2016, the Philippines’ GDP grew by 6.9%, India saw a 7.1% increase, and Iraq had the largest increase of 11%. The Post concludes that those “ultra-fast growth” countries are almost all developing economies while developed countries grow much slower.

For example, India is an emerging economy, the Post says, and such economies grow rapidly by adopting technological improvements, investing in infrastructure, providing better training for their growing workforces and by major capital investments—along with changes in political and social practices. “India’s emerging economy explains why India’s GDP percentage growth tops the United States’ year after year,” the Post says.

Douglas Holtz-Eakin, president of the American Action Forum, a right-leaning policy organization, says it is much harder to make rapid economic gains in countries that have already experienced a period of major investment. Instead, countries like the United States “are doing the hard work of keeping the economy churning along,” he says.

Jared Bernstein, senior fellow at the Center on Budget Policy Priorities, a left-leaning research and policy institute, shares Holtz-Eakin’s analysis and thinks that the frequent administration assertions that the United States can match India by issuing major tax cuts are “nonsensical.” Bernstein attributes India’s growth to several factors, including a younger and growing labor force. In contrast, the United States has a shrinking and aging labor force.

“As long as I’ve been looking at the numbers, China and India have always grown faster than the U.S.,” said Bernstein, an economic adviser to former Vice President Biden. “They are more volatile. They might fall faster as well,” he said.

The Post also notes that recently India has hit an economic rough-patch. From April to June, India’s growth slumped to 5.7% annually, the lowest in three years, according to numbers released in September. Economists point to a decline in manufacturing growth, a sector the government pledged to revitalize, as a key cause for the slump. Manufacturing growth bottomed out at 1.2%, from 10.7% during the same period a year ago.

This is not a debate that will be settled soon, or ever, since the future impacts of future policies cannot be fully known in advance. What is known is that some investments yield short term benefits that can be difficult to repeat on a continuing basis so that mature economies often act very differently than they did when they were younger—and that how and why those differences appear can be very difficult to anticipate. Thus, the current debate is complex but likely worth having—and should be watched closely by producers as it emerges, 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 edit@dtn.com