Washington Insider -- Wednesday

New Tariffs Set Stage for Drawn-Out Trade Battle

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

EPA Said To Be Mulling Partial Small Refiner Waivers

The controversial topic of small refiner waivers under the Renewable Fuel Standard (RFS) continues, with reports this week that EPA is mulling making only partial waivers for small refiners who claim economic injury from having to meet RFS requirements.

"This issue is the subject of ongoing discussions" with USDA, the White House and Department of Energy, EPA spokesman Michael Abboud said this week.

It's not clear that any partial waivers would be enough to address concerns raised by biofuel interests who maintain the waivers have resulted in "demand destruction" for ethanol of more than 2 billion gallons over the past two years combined.

Acting EPA Administrator Andrew Wheeler has said the agency will not halt the use of waivers for small refiners as they are required under the RFS. However, Wheeler has pledged to be far more open about the process used to release small refiners from their RFS requirements.

Call For UK And US To Abolish Farm Tariffs, Align Food Standards Post-Brexit

The United Kingdom and the United States should abandon all tariffs on bilateral agricultural trade and also adopt a purely science-based approach to sanitary and phytosanitary issues under a new ‘model’ bilateral trade agreement, according to a new report published this week.

Such a deal should also have only limited acceptance of geographical indication (GI) protections, which “many view as simple protectionism for farmers,” the report adds.

However, the provisions set out in the 239-page report - which includes draft text for a full 18-chapter bilateral trade deal - are acknowledged by the report’s authors to be politically ambitious, and hence unlikely ever to be adopted in full.

The report, entitled “The Ideal U.S.-UK Free Trade Agreement”, is edited by Daniel Ikenson and Simon Lester of the U.S.-based Cato Institute, and by Daniel Hannan of the UK’s Initiative for Free Trade.

“We realize this is idealistic – ‘ideal’ is in our title. We're saying: let's have trade agreements without managed trade provisions,” said Ikenson at the launch of the report in London.

EU-UK ‘rulebook’ could constrain new British trade deals

The UK has identified the U.S. as being one of its three main targets for a trade deal after it leaves the EU – Australia and New Zealand being the other two.

However, a number of analysts and diplomats have foreseen significant difficulties in pursuing a UK-U.S. free trade deal in the immediate aftermath of Brexit, not least because of differing standards in Europe and the U.S. in the areas of hormone-treated beef, chlorine-washed poultry and GM crops.

UK government officials have made clear that Britain will not relax the rules in these areas once it leaves the EU

Washington Insider: New Tariffs Set Stage for Drawn-Out Trade Battle

Bloomberg and other news outlets are reporting this week that President Trump’s decision to elevate his trade war with China to new heights “sets the stage for a more prolonged battle” between the world’s two largest economies.

The report said that the “10% tax on over 5,000 more products from China now taking effect next week” gives a “changed character” to his campaign with Beijing in ways that suggest the dispute will not end soon.

Bloomberg went on to say that the administration is “for the first time publicly planning for a trade spat that drags into 2019 and possibly beyond.” That means U.S. businesses and consumers may have to learn to see higher import costs as a normal rather than temporary phenomenon.

Until now the president argued he was using tariffs as a tool to force U.S. trading partners to the negotiating table. Tariffs, the argument went, are all about securing a “better deal” for American businesses and workers on the global stage.

And the announcement of the latest levies on Monday included a hint at that argument again, pointing to his “great respect and affection” for Xi Jinping, his Chinese counterpart, and raising the possibility of a negotiation.

But it also signaled that the President was digging in for the long haul. The 10% tariff that takes hold on Sept. 24 will rise to 25% on the first day of 2019. Moreover, if Beijing retaliates, Trump vowed to impose duties on a further $267 billion in Chinese imports.

If the administration follows the same procedures and time line it used so far, those tariffs would be imposed “at the earliest, either late this year or early next year,” Bloomberg said.

In addition, these tariffs also threaten to undermine the prospect of any further talks any time soon with Beijing — and they raise another long-term possibility. For all of the President’s talk of a deal he also makes clear that “he loves tariffs and the power he wields to impose them.”

Hawks in his administration have been open about their goal of forcing a repatriation of American companies’ supply chains. Trump, too, has hailed tariffs as a way to force businesses to shift more production to the U.S. So tariffs may be here to stay, Bloomberg thinks.

Somewhat strangely, the President is also signaling he may be vulnerable to domestic pressure and business complaints about his tariffs, a wobble which could encourage the Chinese to hold firm and delay any solution.

Over the summer, the President made much of his decision to more than double his original threatened tariffs on $200 billion in Chinese imports from 10% to 25%. But that drew loud opposition from farmers and U.S. companies.

And, the tariffs also are not polling well with a Gallup survey in July finding that more Americans believed they would hurt the economy than help it.

There also is the opposition within the president’s Republican party. The message from Orrin Hatch, R-Utah, who chairs the Senate Finance Committee, was direct on Monday: “Tariffs are not the solution to every trade problem.”

Still, Bloomberg concludes that the trade war is on, and the question is what’s next?

Complaints at home have yielded some concessions with the administration introducing the tariffs in steps and taking almost 300 product categories off its original list, including certain Apple Inc. products — a suggestion, Bloomberg says, that the President blinked in the face of domestic concern.

In addition, it says that with polls showing Democrats regaining control of at least one chamber in November, some in Beijing may, rightly or wrongly, see a chance to take advantage of Trump’s growing weakness at home.

The really bad news, Bloomberg says, is that the U.S. and China are talking past each other and efforts to mediate are going nowhere.

Even as Trump was expressing his continuing affection for Xi on Monday his aides were making their frustration with Beijing clear.

In a call with reporters, two senior administration officials complained that China had retaliated to U.S. tariffs rather than bent to Washington’s demands.

Officials in Beijing, meanwhile, grumble to visitors that a third or more of U.S. demands are unrealistic, such as the calling for dismantling key areas of Xi’s “Made in China 2025" policy to lead the world in areas such as artificial intelligence.

They may have a point, Bloomberg says. Some American observers have started calling the demands the Trump administration presented in May the “surrender or die” document.

The moves also come as Beijing has been trying to reach out to potential intermediaries in the U.S. business community to try and convince Trump to talk. But those efforts are going nowhere.

A week ago the news was that Treasury Secretary Steven Mnuchin had invited Chinese officials to meet again. A week later the news is that Trump is again trying to back Xi into a corner.

So, we will see. It will be important to see whether the traditional Republican interest in trade leads to significant shifts in the President’s policies — and if not what approaches are used instead. This is a fight producers should watch closely as it proceeds, Washington Insider believes.

Want to keep up with events in Washington and elsewhere throughout the day? See DTN Top Stories, our frequently updated summary of news developments of interest to producers. You can find DTN Top Stories in DTN Ag News, which is on the Main Menu on classic DTN products and on the News and Analysis Menu of DTN’s Professional and Producer products. DTN Top Stories is also on the home page and news home page of online.dtn.com. Subscribers of MyDTN.com should check out the US Ag Policy, US Farm Bill and DTN Ag News sections on their News Homepage.

If you have questions for DTN Washington Insider, please email edit@dtn.com