Washington Insider -- Monday

Farm Products on Front Line as Tariffs Risk Trade War

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

US Announces More Country Exemptions for Metals Tariffs

US Representative Robert Lighthizer told the Senate Finance Committee late last week that products from the European Union, Australia, Argentina, South Korea and Brazil would be exempted from tariffs on imports of steel and aluminum that went into effect March 23, while negotiations over other potential exemptions continue. Trump already had exempted Canada and Mexico from the import levies for the duration of talks aimed at renegotiating the North American Free Trade Agreement (NAFTA). In a twist, the Trump administration said it might impose import quotas to prevent too much foreign metal from flooding into the United States.

Also, the White House gave allies that won exemptions a May 1 deadline to negotiate “satisfactory alternative means” to address what the administration calls the threat to United States national security resulting from its current levels of steel and aluminum imports. The announcement also left the door open for other allies that did not win exemptions, most notably Japan, to negotiate with the administration over tariffs.

“Any country not listed in this proclamation with which we have a security relationship remains welcome to discuss with the United States alternative ways to address the threatened impairment of the national security caused by imports of steel articles from that country,” Trump wrote. Perspective on exemptions to U.S. metals tariffs: More than half of the metal the United States imports will now be free from the announced U.S. tariffs.

Rep. Peterson: Farm Bill Extension Likely

A major farm bill impasse continues in the House as Congress has departed for a two-week recess. An extension of the 2014 Farm Bill appears likely as House Ag Committee Ranking Member Collin Peterson, D-Minn., said the bill “is on life support... If you were a betting person you would want to bet on an extension,” he said. House Agriculture Chairman Mike Conaway, R-Texas, is more upbeat, saying there is still time to enact a new farm bill this year.

In remarks late last week at a Washington Examiner event, Conaway said he is moving ahead with his committee’s bill next month, with or without Democratic support. Conaway expressed frustration over the impasse during his remarks. “I’m deeply disappointed and hurt, quite frankly, that Collin led his team to the sidelines,” Conaway said, adding that he will welcome Democrats back “with open arms” if they want to re-engage.

Washington Insider: Farm Products on Front Line as Tariffs Risk Trade War

Although the administration and the Congress avoided another government shutdown last week the president announced new tariffs on China on Thursday. Farm groups worried prominently that the possible tariff fight would hit them hard—at a time when they are economically vulnerable. In addition, U.S. equity values fell sharply at the week’s end, rattled, observers say, by the potential for a global trade war.

Most media say that both U.S. agriculture and “the president’s rural political base are in China’s sights as it weighs retaliation against the new tariffs on at least $50 billion in Chinese imports,” Bloomberg reported.

For example, in its initial counterstrike, China announced a 25 percent levy on U.S. pork imports- a heavy blow to Iowa, the top pork-producing state and a political battleground that swung to Trump in 2016 after going for Democrat Barack Obama in the previous two elections, Bloomberg said.

For the administration, U.S. tariffs on Chinese goods and on steel and aluminum imports are the fulfillment of pledges made in his campaign to crack down on perceived trade abuses. Those promises likely helped him win key states including Michigan, Wisconsin and Pennsylvania, Bloomberg said.

The administration has offered exemptions on the steel and aluminum tariffs to some countries, and on Thursday announced that it would at least initially shield allies, including Europe, Australia, South Korea, Argentina and Brazil.

However, Bloomberg said that the president risks broader damage to the economy and to his political standing if the tit-for-tat with China escalates into a trade war, an outcome investors worry was growing more likely.

“We do not want a trade war with the United States or with anybody else. But we are not afraid of it,” Chinese ambassador Cui Tiankai said in a video posted to the U.S. embassy’s Facebook page. “If somebody tries to impose a trade war on us, we will certainly fight back and retaliate. If people want to play tough, we will play tough with them and see who will last longer.”

Voters’ perceptions of the economy are always crucial to the political strength of a sitting president and his party. Trump in particular has staked his success on the strength of the economy, repeatedly promising stronger growth and crediting his policies for improvements.

He recognized the electoral impact of trade as he signed the tariff order. “It’s probably one of the reasons I was elected, maybe one of the main reasons,” Trump said at the White House.

Trump’s order calls for 25% duties on targeted Chinese products to compensate for what the White House says is harm caused to the American economy by China’s policies, according to a fact sheet released by the U.S. Trade Representative. The proposed product list will include goods in the aerospace, information and communication technology and machinery industries. USTR said it will announce the proposed list within “several days.”

China has significant leverage over Farm Belt voters who helped elect Trump, Bloomberg said. He captured 61% of the vote in U.S. rural areas and small towns, according to exit polls. The Asian nation is the most important foreign customer for U.S. agriculture. For example, China purchased about one-third of the entire U.S. soybean harvest last year.

Any hit to agricultural producers’ markets would be especially painful right now as falling commodity prices already are hurting producers’ incomes, which is expected to drop 6.7% this year to its lowest level since 2006, USDA says on the basis of estimates that assume normal trade relations with China.

“Were farmers faced with falling prices for the exports and higher prices at home because of the import tariffs, the popularity of the tariffs would diminish quickly,” Mike Jakeman, a global analyst at the Economist Intelligence Unit told Bloomberg. “This is a high-risk strategy for the U.S. administration and one that is likely to weaken, rather than strengthen, the global economy,” he said.

While some lawmakers welcomed the President’s get-tough approach, those with constituencies most vulnerable to Chinese countermeasures urged caution—as U.S. farmers and manufacturers braced for retaliation, Bloomberg said.

Rural lawmakers’ anxiety over the possibility was clear as USTR Robert Lighthizer testified before the Senate Finance Committee last week. Sen. Chuck Grassley, R-Iowa, who represents the nation’s biggest soybean-producing state, raised concerns about Chinese retaliation against American farmers. Sen. Michael Bennet, D-Colo., also expressed his displeasure at the potential impact on rural areas.

“Our farmers and ranchers want to be able to export the goods that they are producing here in the United States,” Bennet said. “They don’t need sympathy; they need the administration to act responsibly.”

So, we will see what happens. Certainly, a trade war would be bad news for many in the US, as well as farmers. And, while the political winds in Congress seem to be blowing increasingly against dangerous trade interventions just now, the administration seems to be in lock step on the new, higher tariffs--a portent of growing tensions to come even as the midterm elections loom, Washington Insider believes.

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