Washington Insider -- Wednesday

The Politics of Tariffs

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

Flake Introduces Bill to Nullify Steel, Aluminum Tariffs, but Low Odds Given For Measure

Sen. Jeff Flake, R-Ariz., who is not seeking re-election, on Monday introduced legislation that would nullify the tariffs President Donald Trump imposed on steel and aluminum imports. Mexico and Canada, which are in the process of renegotiating the North American Free Trade Agreement (NAFTA) with the United States, are initially exempted from the new tariffs. Flake said those exemptions would lead to uncertainty among other countries.

While Senate Republicans are largely unified in their opposition to the new tariffs, GOP leaders will not likely seek to advance the bill. Senate Finance Chairman Orrin Hatch, R-Utah, said: “I’m not really happy with what the president’s done. I’m hoping we can resolve this. And the president’s been thinking it over too.”

As for the White House, Press Secretary Sarah Huckabee Sanders said Monday, before Flake formally introduced his bill. “The president has been clear for quite some time what his position is and what his authority is under the 232 statute, and we’re moving forward.”

$1.5 Billion Settlement in Suit over Syngenta GMO Corn Seed

A $1.5 billion settlement was reached in a class-action lawsuit against Syngenta over its introduction of a genetically engineered corn seed. Payments will be made to U.S. corn farmers, grain handling facilities and ethanol plants, covering corn priced after September 15, 2013.

Lawsuits in state and federal courts challenged Syngenta's decision to introduce its modified Viptera and Duracade corn seed strains to the U.S. market for the 2011 growing season before having approval for import by China in 2014. The plaintiffs said Syngenta's decision cut off access to the large Chinese corn market and caused price drops for several years.

The settlement, reached Monday, must be approved by US District Judge John Lungstrum in the District of Kansas. It will create a fund to pay claims by farmers and others who contracted to price corn or corn byproducts after September 15, 2013.

If approved, money could be distributed to class members in the first half of 2019. The settlement does not include exporters such as Cargill and ADM that are also suing Syngenta.

Washington Insider: The Politics of Tariffs

There is a lot of effort going into reading the tea leaves regarding future impacts of the President’s proposed tariffs—even as they are still being fine-tuned by the administration. In addition, Europe is threatening to counter the U.S. policies with new tariffs of their own on producers like Wisconsin’s Harley Davidson and Kentucky Bourbon.

These moves are intended to threaten House Speaker Paul Ryan, R-Wis., and Senate Majority Leader Mitch McConnell, R-Ky., and may be part of a broader strategy to encourage Republican resistance to Trump. However, The Hill thinks this approach may be quite challenging. To be effective, The Hill says, it will be necessary to gain the attention of the President’s political base.

Europe’s announcement possibly encouraged Ryan to break with Trump on the current proposals but the reality is that neither Ryan nor other establishment Republicans are protectionists anyway. And, the trouble with relying on Congress to keep the president in check is that it ignores the real driver of Trump’s policies: his populist political base.

In fact, the base hardly loves Ryan and McConnell, The Hill notes. Far from paying heed to them, it often wants them to lose. And Trump dances for his populist base, not Republican leadership.

Thus, reaching that base with counter threats is the vital key to European policies. If it were to try and start a conversation with Trump’s populist base, the political narrative is tailor-made for it.

Consider the last time a president tried steel tariffs. On Feb. 18, 2002, Wilbur Ross, now Commerce secretary, began buying near-bankrupt steel plants. On Feb. 27, 2002 President Bush slapped a 30 percent tariff on steel imports, juicing the value of Ross’ assets. After larding $7.5 billion in pension payments on the U.S. government, Ross exited his investment with profits 14 times his initial investment, The Hill says.

Now Ross is surrounded by the “big steel” dream team: U.S. Trade Representative Robert Lighthizer; Assistant to the President Peter Navarro; USTR General Counsel Steve Vaughn; and Under Secretary of Commerce Gil Kaplan, and Deputy USTR Jeff Garish, among others. All are long-time boosters of big steel.

The backdrop to this, of course, is that contrary to assertions by Ross and his advocates, U.S. steel production grew 5 percent last year. The Hill calls the U.S. officials stories about steel as “chicanery” and asks about how much of it must taxpayers subsidize?

Another issue is that tariffs are wealth transfers to industry, The Hill says. Manufacturers that use steel and aluminum, and consumers that buy their products will have to belly up to the bar. The things they make and that consumers buy will cost more. “They pay more so that Big Steel can make more,” The Hill says.

Moreover, those who are bearing the risk are not the ones benefitting. Big steel’s lawyers and financiers in Washington, DC and New York do not bear the risk that blue-collar workers do — the people who comprise Trump’s base.

To secure 400,000 steel production jobs, or to enrich investors, the jobs of “6.5 million workers in other industries are being put in jeopardy,” and The Hill noted that in 2002, while Ross made billions off of Bush’s tariffs, 200,000 manufacturing jobs were lost.

Of course, this is even before we get to retaliatory measures that are sure to come, The Hill observed.

Tariffs also lead to whacky policy outcomes. One manufacturer in Marinette, Wisconsin builds ships — out of steel — including the Navy’s new Littoral Combat Ship or LCS. Will more expensive steel equate to fewer ships?

If so, tariffs that force the Navy to make do is a peculiar way to make America great, especially when the tariffs are predicated on national security, The Hill says. And will fewer ships mean fewer jobs in this county that Trump won with 65%?

A recent Quinnipiac poll shows that Republican voters are outliers in their support for the president’s trade war. Two-thirds agree with Trump that “a trade war would be good for the United States and could be easily won” in contrast to just 7% of Democrats and 19% of independents.

Top European steel or aluminum exporters to the U.S. — such as Germany — have a natural constituency in the areas where Trump’s base resides because of their manufacturing presence.

They won’t, however, reach Trump’s base through traditional diplomatic lines of communication. With Gary Cohn departing the White House, the trade portfolio is in the hands of Navarro and Ross. But if Europe can find a way to influence the Republican base, the president may find that a trade war, whatever his desires, is politically infeasible.

So, we will see how the tariff fight comes off—and it certainly seems that the gloves are coming off and that a number of organizations are pushing back—hard—to this particular use of tariffs. Certainly, producers have a large stake in the outcome of the administration’s current proposals and should watch closely as moves and counter moves are unveiled, and proceed, Washington Insider believes.

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