Washington Insider - Tuesday

Upended Politics on Trade

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

Latest Round of NAFTA 2.0 Talks Wrapped Up

While progress again was made, the most sensitive areas linger, with most of them likely being held back for final agreement until the end of any conclusion of the talks. Some suggest the announcement by President Donald Trump that he intends to put duties on imports of steel and aluminum into the U.S. cast a pall over the just concluded talks in Mexico.

Negotiators have wrapped up four chapters of about 30 so far, and talks could run for the rest of this year and even into 2019, trade observers have noted. The next round of talks is planned for early April, with some suggesting around April 8, near Washington, DC.

USDA Revives Cotton Ginning Cost Share Payment Program

USDA announced it will make payments to cotton producers under the Cotton Ginning Cost Share (CGCS) program based on their 2016 cotton acres reported to USDA multiplied by 20 percent of the average ginning cost in each U.S. production region.

Producers will have two months to sign up for the one-time payments as USDA hopes the changes in the farm bill safety net program to make seed cotton a covered commodity will provide a better safety net for cotton producers. CGCS payments are capped at $40,000 per producer and producers are required to meet conservation compliance provisions, be actively engaged in farming and have adjusted gross incomes not exceeding $900,000.

Washington Insider: Upended Politics on Trade

Well, it’s a strange world. The administration has always worked for isolationist policies, and now is threatening new tariffs to implement them. This is severely upsetting to many in the GOP, Politico is reporting, because of fears midterm backlash from the proposed tariffs. This even suggests that “what might be good politics for Trump might not work for the entire party,” Politico says.

Republicans are planning to brag about the economy in midterm campaigns in hopes of countering Trump’s unpopularity, touting a strong stock market, low unemployment rate and — most importantly — their tax legislation. But Trump’s suggestion Saturday that he might slap penalties on European cars, in addition to the tariffs on aluminum and steel he already promised, could upend that strategy, Republicans say.

“Should the administration opt to move forward with tariffs on steel and aluminum, American manufacturers, businesses and consumers would be forced to bear the brunt, paying more for steel and steel products,” said Senate Finance Chairman Orrin Hatch, R-Utah, one of the primary authors of the tax overhaul. “Such action could very well undercut the benefits of the pro-growth tax reform we fought to get on the books.”

“It’s a real simple frame for the [midterm] election: Republicans want to run on issues,” said Douglas Holtz-Eakin, president of the American Action Forum and a former Congressional Budget Office director. “This threatens that because it… goes against our economic message.”

While narrow action directed at China alone might be well received, two top Republican congressional campaign sources said, any broader trade actions — such as what Trump is floating now — could be devastating.

And it’s also allowing Democrats to hug Trump just when Republicans have been trying to position the opposing party as detrimental to Trump's economy. Vulnerable Democratic incumbents from the Rust Belt have rushed to praise Trump for taking action that could help industries in their states.

“I like where the president is going on this,” Sen. Joe Manchin, D-W.V., one of the most at-risk Democrats, said on CBS. “Free trade hasn't worked well for West Virginia.”

This intense back and forth is coming just days after Trump said he would slap a 25% tariff on imported steel and 10% on imported aluminum as soon as this week. Trump tweeted Friday that “trade wars are good” and “easy to win.” And by Saturday, Trump doubled down by threatening to retaliate against countries seeking to punish the U.S. for its protectionism.

“If the EU wants to further increase their already massive tariffs and barriers on U.S. companies doing business there, we will simply apply a tax on their cars which freely pour into the U.S.,” Trump tweeted Saturday. “They make it impossible for our cars (and more) to sell there. Big trade imbalance!”

Trump’s allies argue that the GOP’s free-traders misunderstand the politics of what Trump is doing. They say he is fighting cheap imports of aluminum and steel to boost domestic industries in the Midwest.

On CNN on Sunday, Office of Trade and Manufacturing Policy director Peter Navarro noted that just about every single Republican presidential candidate rejected Trump’s trade agenda. "Guess what: He beat them,” Navarro boasted.

Republicans are “dead wrong on the economics," Navarro said. “There’s no down-stream effect here.”

Most of the party flat-out disagrees. Sen. Mike Lee, R-Utah, called Trump’s proposed tariffs a "huge job-killing tax hike.” Sen. Ben Sasse, R-Neb., said it will “kill American jobs.” And even Trump allies Larry Kudlow, Arthur Laffer and Stephen Moore argued in a weekend Saturday CNBC op-ed that “even if tariffs save every one of the 140,000 or so steel jobs in America, it puts at risk 5 million manufacturing and related jobs in industries that use steel.”

Republicans have seen “this movie before, and they know it ends poorly,” said Holtz-Eakin, who worked in the George W. Bush administration. “I was at the White House for steel tariffs, and in the end, there was a lot of retaliation against the U.S.”

“Just a terrible decision, advocated by Assistant to the President for Losing Elections Peter Navarro,” tweeted conservative commentator Hugh Hewitt.

Sen. Lindsey Graham, R-S.C., on Sunday listed several South Carolina industries that would suffer, including tire and car manufacturers. And he directed his message to Trump personally: “You’re letting China off the hook and punishing the American consumer and our allies. You're making a huge mistake here.”

So, we will see. The Navarro-Ross cabinet axis seems to be winning internal Cabinet arguments on trade now, in spite of deep-seated Republican political opposition, and that is something of a surprise although perhaps it shouldn’t be. Whether that will actually lead to the heavy-duty policy changes being proposed will be important for producers to watch closely as this debate proceeds, Washington Insider believes.

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