Washington Insider -- Wednesday

State of Play on Trade Policy

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

House Freedom Caucus Farm Bill Backing Possible, But With Changes

Big attention has been on the House Freedom Caucus and whether the conservative group of House members will back the farm bill approved by the House Ag Committee.

Freedom Caucus leader Mark Meadows, R-N.C., said this week that House Agriculture Chairman Mike Conaway, R-Texas, could get the support he needs to pass the farm bill by making several changes that would satisfy GOP conservatives, including making sure expanded food stamp work requirements are more of a "work initiative but not necessarily supporting a jobs program within the USDA."

The group of conservative lawmakers plans to offer “several” amendments related to the bill’s work requirements but provided no details. "I don’t know that there’s an overwhelming issue, I think it’s just modifying the existing farm bill to make sure it reflects conservative principles,” Meadows told reporters. “With some modifications I’ll be a yes."

As for USDA Secretary Sonny Perdue's meeting with Republicans, he called on them to emphasize the need to help farmers due to the recent rise in trade tensions with China, especially the U.S. soybean industry. House Majority Whip Steve Scalise, R-La., will begin whipping the bill on Wednesday.

E15 Remains Major Focus

A White House session between President Donald Trump and key lawmakers saw Trump reiterate his intention or support for making sales of E15 available year-round. Ahead of that meeting, several groups laid out their positions on the fuel.

Trump's promise to push forward with year-round E15 sales was lauded in a letter sent to him ahead of the session by a group of Iowa and Nebraska fuel retailers. They said following through on his decision to allow the sales will "provide a lower-cost, cleaner-burning fuel option for consumers during the busy summer driving season."

However, they pushed for action ahead of June 1 when current regulations on summer gasoline kick in and curb E15 sales.

"It is imperative that you direct the EPA to immediately begin the rule-making process necessary to turn your pledge into reality," the groups urged, adding, "Without regulatory relief, on June 1st we will see our E15 sales plummet and consumers forced to pay more for fuel than they should."

Backing of making E15 available year-round also came from a coalition of farm and commodity organizations, including the National Corn Growers Association (NCGA), American Farm Bureau Federation, American Soybean Association (ASA), National Farmers Union (NFU) and National Association of Wheat Growers (NAWG).

"We agree that this barrier is unnecessary, and removing it would benefit not only farmers, but also consumers and air quality," they said.

Like the fuel retailers, the ag groups expressed alarm with the EPA's recent decision to grant waivers for up to 1.6 billion gallons of RFS volume requirements for refiners. "These exemptions run contrary to your commitment to America’s farmers and remove a significant amount of renewable fuel gallons from RFS volumes," they remarked. "Because of these exemptions, RIN values, a stated concern of refiners, have fallen significantly and remain low."

However, not all are in favor of E15. A group labeling itself as "a diverse range of interests and industries including meat and poultry producers and processors, restaurants, marine manufacturers and small engine owners, development, conservation and environmental groups, and consumer and taxpayer organizations," penned a letter to Pruitt urging against year-round E15 sales.

The groups said the availability of low or no-ethanol fuels remains critical for use in "engines and fuel systems of boats, motorcycles, lawn equipment, as well as many automobiles, which are not capable or allowed to run on E15."

Washington Insider: State of Play on Trade Policy

Administration experts often argue that trade is simple, and that there is wide support for tougher negotiations. At the same time, Bloomberg reported recently that “some of the biggest voices in U.S. economics” have written to warn of negative impacts about reliance on tariffs.

The recent warning was fairly spectacular. More than 1,100 economists, including Nobel laureates and former presidential advisers, wrote to warn the President about his “tariff-heavy” approach to trade. Many of the recent arguments quote directly from another letter sent in 1930, cautioning against protectionist measures proposed at the start of what became the Great Depression.

“Congress did not take economists’ advice in 1930, and Americans across the country paid the price,” the economists say in recent letter. “Much has changed since 1930 -- for example, trade is now significantly more important to our economy -- but the fundamental economic principles as explained at the time have not.”

The letter, organized by the Washington-based National Taxpayers Union (NTU), came as the Trump administration prepared to travel to China for talks “aimed at averting a trade war, among other issues.” Once again, the trade disputes are clouding the outlook for the U.S. economy, which is now in its second-longest expansion on record. However, the Beijing talks that ended last week without achieve any significant results, press reports indicated.

The economists’ letter said that economists are “pretty united in their opposition to protectionist trade policy,” Bryan Riley, director of the NTU’s free-trade initiative, said. “It’s the economic equivalent of flat-earth trade policy.”

Still, the administration continues to considering levies on as much as $150 billion worth of Chinese imports on the grounds of alleged intellectual property theft, while Beijing has vowed to respond with tariffs of its own on everything from US soybeans to planes.

Playing up the original letter, sent 88 years ago to urge U.S. lawmakers to reject the Smoot-Hawley Tariff Act was something of a gimmick, experts say. It didn’t work then, and the law passed in 1930 and was a key factor in a trade war that deepened the worldwide economic slump. The authors of the current letter -- including last year’s Nobel winner Richard Thaler and Gregory Mankiw, a former chief economic adviser to President George W. Bush -- fear a repeat, since the group is likely to change few minds this time, either.

So, the political split remains clear “but confusing,” as administration advisers, using their own criteria, insist that the economics profession is solidly behind the administration’s proposals. But, many, many top economists say, “not so fast.”

The truth is, the New York Times says, across the ideological spectrum, trade experts and former top economic advisers go so far as to say Trump is right to highlight issues on which China is widely viewed as an offender, such as intellectual-property theft and access to its domestic market, and other interventions in its industrial system.

Still, that doesn’t mean that many of those same experts are pretty sure the administration’s planned tariffs would backfire, according to the New York Times, because it would raise costs to American businesses and consumers and invite retaliation against American exporters.

“Many economists have said, yeah, there’s some legitimate issues here,” said Laura Tyson, an economist at the Haas School of Business of the University of California, Berkeley, who headed the Council of Economic Advisers under President Bill Clinton. “I haven’t seen any who have said the appropriate response is a series of tariffs on a bunch of goods, most of which don’t have any real link to the underlying issue.”

Tyson and many other economists say it was mistake last year when Trump pulled the United States out of the Trans-Pacific Partnership. Proponents of that agreement say it would have unified a dozen countries against the Chinese on trade issues.

“I don’t think the way the administration is going about it is a particularly strategic one,” said David Autor, a Massachusetts Institute of Technology economist whose research suggests that opening trade with China cost the United States two million jobs in the late 1990s and early 2000s. “The first way to go about it should have been to sign TPP, which was set up as a bulwark against China.”

Who’s right? The administration advisers uniformly use a metric, “trade deficits” that most economists discount very sharply. They seem to think the current system is far from perfect – but also that dipping deeply into protectionism is almost certain to make things worse for many, many consumers and many producers as well. And, looking back on the Beijing talks, there seems little room for much movement, although he gap is extremely wide, nobody is giving much.

So, there is more and more at risk and no clear way out—not even by invoking antique letters. This is a fight producers need to continue to watch very closely as it proceeds, Washington Insider believes.

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