Washington Insider -- Friday

Trade War Analytics

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

Battle Lines Continue as E15 Announcement Expected October 9

President Donald Trump is expected to use a stop in Council Bluffs, Iowa, October 9 to announce he will order the EPA to move forward with the process of making sales of E15 fuel available year-round.

Ahead of the announcement, the ethanol lobbying group Growth Energy launched a website to rebrand E15 fuel, calling it “Unleaded 88.” The Growth Energy website says Unleaded 88, its new name for E15, is a fuel approved by EPA for cars model year 2001 and newer, which it says represent about 9 out of 10 cars on the road today. “The website showcases the value Unleaded 88 provides -- whether consumers are looking for a fuel that’s good for their engines, their wallets, or the environment -- in a simple and straightforward way,” said Growth Energy.

The name change was based on a request from convenience store retailers for a “unified brand identity for E15,” the group explains. “Unleaded 88 has made its debut across the country and will be the consistent labeling at more than 80% of today’s E15 stations,” it said.

Trump will also likely include proposed changes to Renewable Identification Number (RIN) market trading. RINs are credits refiners receive for blending ethanol into gasoline, in compliance with the RFS.

During a conference call with reporters, API’s Frank Macchiarola, director of downstream and industry operations, said the deal isn’t fair: “The administration has signaled its push for more E15 could also include potential limits on the RINs market to benefit refiners for a so called ‘win-win’ deal. This was never a deal to begin with and it’s not a win for industry — and it’s certainly not a win for consumers. We do not view this as a fair exchange at all. RIN limits may hamper market liquidity, and in no way compares to the significance of allowing more incompatible fuel into the marketplace.”

Perdue: USDA May Have To Be ‘Selective’ On Farm Programs Not In Baseline

USDA Secretary Sonny Perdue indicated the department's hands may be tied in keeping some agricultural programs afloat without baseline funding in the absence of a farm bill.

With the expiration of the 2014 Farm Bill, some 39 orphan programs lack mandatory funding.

Perdue said that USDA may have to make some choices as to which programs it will direct temporary funding toward so that they can keep their doors open. "We’re going to do everything we can for all the programs under the ‘14 farm bill to keep them manageable for what we’re legally allowed to do," Perdue told reporters, after delivering a speech at a conference hosted by the North American Meat Institute.

"We’re going to be as selective as we can in maintaining the status quo of the ‘14 Farm Bill if we’re legally permitted to do so," he continued. "If we’re precluded from spending money on those programs we obviously cannot do that. But we’re going to be as flexible as we can."

Washington Insider: Trade War Analytics

Well, perhaps no one should be surprised—at a time when baseball teams line up fielders on the basis of data regarding batter performance, we are now being told that the Chinese are “going after American farm products to hurt the President’s political base.” A recent New York Times article presents details of how and where that is being done. But, there are some surprises.

The Times article uses data from several sources to map “the counties that voted for Trump in 2016 and those affected by China’s tariffs” to shows tariff impacts.

One surprise is the extent to which such a targeting approach is used. “Over the summer, the Chinese took aim at Mitch McConnell, the Senate majority leader, the Times says. In his home state, Kentucky, 18,000 jobs depend on whiskey. “So China put a 25% tariff on it.” Representative Paul Ryan’s cranberries were added to the target list, “for good measure.” And China went after pork and soybeans, two of the leading farm products in Iowa, home of Charles E. Grassley, a powerful member of the Senate Agriculture Committee.

“Forty percent of our exports are now under punitive tariffs,” said Jim Monroe, a spokesman for the National Pork Producers Council.

In addition, the Times says, China isn’t the only one playing this game. Mexico also took aim at whiskey. So did the European Union. And Canada. Mexico added pressure on Grassley’s voters with a tariff on pork.

What’s more, while trade relations with Mexico and Canada may be more cordial now that a revamped NAFTA deal has been reached, Mexican and Canadian tariffs are likely to remain in place until the administration lifts its original protectionist measures, the Times says.

With China, the war remains hot. Last month, Trump announced tariffs on $200 billion worth of Chinese imports to top off the original list of $50 billion. China has announced retaliation on a total of $110 billion worth of goods from the United States.

The target lists drawn up by the United States’ four largest trading partners show a similar pattern.

The Times article cites an analysis by Joseph Parilla and Max Bouchet of the Brookings Institution. They focused on the impacts of tariffs placed on $121 billion worth of American exports, about 6 percent of the nation’s total, and concluded that about 650,000 people are employed in industries exposed to the new tariffs, including both workers who make or grow the designated products and those who depend indirectly on their export.

Tariffs are, in the first instance, a shot in the foot, NYT says. “They raise the cost of imports, hurting domestic consumers as well as companies that import intermediate goods, from steel to integrated circuits, that go into their finished products.”

So, in designing a retaliation package, a primary objective is to limit self-inflicted harm. “The first priority is that the tariffs should have a minimum impact on prices of basic consumer goods in Mexico and the second is that they don’t disrupt our value chains, including products which have alternative sources of supply,” said Guillermo Malpica Soto, who heads the office dealing with trade and Nafta for Mexico’s Economy Ministry in Washington.

Political messaging comes in third. “We choose states where we can create the right political incentives to get this resolved soon,” Malpica said.

The objective, at least at the beginning, did not require much precision targeting. Other countries could hit mostly Republican-held, pro-Trump enclaves simply by focusing on steel and aluminum and agricultural goods. Even Canada’s retaliation, which Ottawa said was dictated strictly by reciprocity, weighs more heavily on Trump’s supporters.

The Brookings researchers estimated that 13 percent of export-dependent jobs in rural America were affected by the tariffs, in that they depend either directly or indirectly on products hit by tariffs. Big, diverse cities with large service economies are somewhat more insulated. In large metropolitan areas, only 3.5% of export-dependent jobs are exposed.

Tariffs have worked to change behavior in the past, especially concerning currencies, among other things. For example, in the 1980s, tariffs on Italian wine and French cheese helped persuade the European Union to put its Common Agricultural Policy on the negotiating table in the talks that created the World Trade Organization.

Also, retaliation was an effective defense in the past. The Smoot-Hawley tariffs of 1930, imposed by Congress on 800 imported products are often criticized for their negative impacts, but some trade historians argue that the U.S. retaliation then made a difference and eventually led to the 1934 Reciprocal Trade Agreements Act that set off a cascade of tariff reductions.

So, we will see. While ag groups say they understand that they are caught in the crossfire, they claim to be unclear about the eventual objectives of this fight—and how much damage to their markets they may be expected to sustain.

If the Brookings estimate that the cost of the battle includes negatives for double-digit shares of producers across the economy stands scrutiny, that may well attract the serious attention of the Congress, a development producers should watch closely as the fight continues, Washington Insider believes.

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