Washington Insider - Monday

Self Inflicted Damage to U.S. Ag

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

Trump Steel, Aluminum Duties Draw Criticism from Ag Groups

New duties of 25% on imported steel and 10% on imported aluminum, formally signed by President Donald Trump, have drawn deep concerns from ag groups who fear the move could ignite a trade war – with the U.S. ag sector in the crosshairs.

Statements from several major ag trade groups:

NAWG (National Association of Wheat Growers): "U.S. Wheat Associates (USW) and the National Association of Wheat Growers (NAWG) are extremely disappointed in the decision announced today to impose sweeping tariffs on imports of steel and aluminum," the groups said. They noted their efforts to dissuade President Trump from imposing the duties. "We have repeatedly warned that the risks of retaliation and the precedent set by such a policy have serious potential consequences for agriculture."

National Corn Growers Association (NCGA): "Trade plays an important role in many facets of the U.S. economy and impacts various industries in different ways. Agricultural trade has been a bright spot for U.S. economy, positively impacting our overall trade balance, while providing an important avenue to grow demand for America’s farmers and ranchers. New tariffs on steel and aluminum might not only trigger retaliation from our trading partners, but could also increase the prices farmers pay for necessary equipment, such as tractors and combines."

USA Rice: Rice producers are concerned European Union (EU) retaliation could affect rice exports. The EU is a 55,000 tonnes market for U.S. exporters, valued at $42 million, USA rice noted. "We have worked for a decade to rebuild the EU market following the Liberty Link incident and have seen renewed interest and demand for U.S. rice in recent years. U.S. rice exports to the EU are already constrained by a complex and discriminatory system of quotas and duties, and any increase in tariffs would set back our progress," said USA Rice COO Bob Cummings.

American Soybean Association (ASA): Lashed out at the duties, saying they could lead to retaliation by affected countries with soybean exports a likely prime target given their prominent role in U.S. agricultural trade.

House Farm Bill Details Expected Next Week

The farm bill process is going to pick up steam in coming weeks, with the House side moving first with an aim of finishing their version in early April.

House Agriculture Chairman Mike Conaway, R-Texas, wants to release his draft farm bill next week in preparation for markup the week after the Easter break. The bill would go to the House floor after that.

Washington Insider: Self Inflicted Damage to U.S. Ag

Well, Dan Sumner is no bleeding lefty—although he is director of the Agricultural Issues Center and professor at UC Davis. But, he also was a high official responsible for Economic policy at USDA in the early 1990s and also served on President Reagan’s Council of Economic Advisers. He has long been on the front line in U.S. economic policy wars.

This week, he wrote in The Hill that agriculture is so fully integrated into world markets “that consumers everywhere take for granted that ripe peaches will be available to everyone, everywhere in January along with many, many other seasonal goods.” And, he points out that farmers all over the world use tractors made in America—while tomato processors use equipment from Italy.

He says he is aware that “not all trade flows freely.” Governments here and elsewhere still respond to special pleadings and favoritism and try to block competition, or at least tax it, in their home markets. But, “make no mistake, the high taxes and burdensome regulations are just as costly to the economy when placed on trade as anywhere else,” he says.

For agriculture, the World Trade Organization and a long list of Free Trade Agreements mean that imports and exports flow far more freely now than 30 years ago. And, that trade follows rules—which are far better than no rules at all. He harks back to the “country of origin” labeling fight that went against the United States a few years ago and recalls that when the U.S. imposed labeling rules that severely disadvantaged Canadian and Mexican cattle and pigs, those countries had a place to make their case and get relief.

He says he did not write to rehash the basics of the steel and aluminum tariffs, but does note that, “just about every industry, except steel and aluminum, has expressed sentiments from frustration to outrage” about the proposed tariffs.

The proposed policy is important because steel is important, he says.

First, farms use it too, both in tractors, trucks and other equipment and in building materials. Farms are customers and customers pay more when taxes rise. So, one effect of higher steel prices will be that some farms will decide to keep an old combine operating rather than buy the new one that is sorely needed. Such decisions ripple through the sector and even have impacts on food prices, he thinks.

Second, farm commodities have been top line picks for retaliation when the U.S. has tried to pursue trade actions that violate international rules in earlier trade spats.

Third, and perhaps the most serious for the farm economy, is that other countries, which have their own trade troubles and grudges, may follow the U.S. lead with ill-disguised unilateral efforts to block imports such as farm trade from the United States.

And, he thinks the worst feature of these negative potentialities is that they do not even have to be implemented to have real economic consequences. Agricultural markets, like others, operate on expectations and increasing the chance of trade disruptions in the future affects markets now.

That is one reason that calming voices are so important. He says WTO Director-General Roberto Azevêdo, took the right approach by urging members to show restraint. The appropriate response to U.S. tariffs that targeted trade partners believe are inappropriate is for them to make their case in the WTO and use legal tools to cause the U.S. to remove measures found to be in violation.

Still, Sumner warns, a “measured international response will not eliminate self-inflicted economic damage to agricultural and other industries in the United States.” The best action now would be to revise the tariffs to include the smallest possible list of countries (zero is best) and to refocus the any trade action toward those countries that committed offences for which an economic and legal case can be made in an appropriate forum such as the WTO.

In fact, Sumner is no friend of steel—he says agriculture is at the front of the long and broad line of those objecting to this latest attempt to coddle the steel industry. The reason is based on data and history. Perhaps one upside of this latest outbreak of naked crony-capitalism is that it is so egregious and ill-considered that it illustrates clearly the deep and widespread economic benefits of letting markets work. And, it is still not too late to learn the lesson and avoid most of the economic pain, Sumner says.

So, Sumner has a long reputation as a plain-spoken, “single-handed” analyst who believes strongly in trade—and, we will see how well he and Secretary Perdue fare in their dealings with administration officials who do not seem to share that view. Clearly, this is an issue that producers should watch especially closely as it evolves, Washington Insider believes.

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