Washington Insider -- Friday

China Considers Trimming Export Plan

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

Soybean Growers Welcome China Soybean Buy, But Urge Aid Payments

The American Soybean Association (ASA) welcomed the purchase of U.S. soybeans by China this week, but said that does not mean the administration should hold off making a second round of aid payments to U.S. farmers.

Davie Stephens, ASA President and a grower from Clinton, Ky., said, “This is positive news for our growers and for U.S-China trade relations. American soybean farmers prosper when they have access to international markets, and our trade relationship with China is critically important to our industry.”

Stephens also said the sales were a "positive step," but it was vital that China lift its 25 percent duty on imports of U.S. soybeans. "Without removal of this tariff, it is improbable that sales of U.S. soybeans to China can be sustained," Stephens said.

Further, Stephens called on USDA to move ahead with the second installment of payments to farmers under the Market Facilitation Program (MFP). "When USDA calculated the harm incurred by the tariffs on soybean prices, it assumed that China would still purchase at least 50% of the 32 million tons of U.S. soybeans it bought in 2017," he detailed. "With only a fraction of this amount accounted for in this week’s announced sale, it is critically important that we see additional purchases and actual deliveries, and for USDA to make a payment on the second half of 2018 soybean production."

USDA's Perdue Meeting With OMB on Aid Payments

USDA Secretary Sonny Perdue is meeting with the Office of Management and Budget (OMB) Friday to keep up a push for the second round of aid payments to farmers.

OMB has held up the payments, even as Perdue told reporters are USDA's headquarters Thursday that the purchase of U.S. soybeans by China was promising, but he had no knowledge of any new agreements by China to buy more.

He also predicted the second installment of payments would be made. "We still even have the retaliatory tariffs between Canada and Mexico, which we're working feverishly to overcome," Perdue explained. "It's my expectation that this next facilitation program grant will be issued very soon."

Washington Insider: China Considers Trimming Export Plan

Bloomberg is reporting this week that China is considering plans to delay some targets in its strategy to dominate high-end technologies as it tries to ease trade tensions with America that have roiled financial markets.

Beijing may postpone some aspects of its ambitious industrial program by a decade to 2035, the report said. The program that Chinese officials call “Made in China 2025,” which seeks advancements in robotics, aerospace and renewable energy, has been one of the main targets in President Trump’s trade war.

Trump administration officials said on Wednesday that Beijing will have to do more to end the tariff war, with both Commerce Secretary Wilbur Ross and Treasury Undersecretary for International Affairs David Malpass calling on Beijing to agree on timelines, deadlines and enforceable actions to balance trade and open their markets to foreign companies.

“What you will see, if we do get to a trade agreement with China, is there will be verification procedures, there will be enforcement mechanisms,” Secretary Ross said. “We’re talking about some fairly fundamental structural changes that over time will be needed to accomplish at least our end purposes.”

However, Bloomberg hastened to add that “Beijing hasn’t made a final decision on revising the Made in 2025 plan, and it’s unclear whether it has communicated the idea to the Trump administration.”

Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer are working with China to strike a deal by March 1 that would avert a further escalation in tariffs, Council of Economic Advisers Chairman Kevin Hassett told Bloomberg. They are making “a lot of positive progress, but have to wait and see where it all ends up,” he said.

The Wall Street Journal first reported Wednesday on China’s plans to give foreign companies greater access to its economy and that it was drafting a replacement to the Made in 2025 program.

Stocks rallied globally on the improved outlook for U.S.-China trade, with U.S. equities gaining after the Journal story, Bloomberg said.

A less aggressive technology plan could help address concerns raised by the U.S. administration, among others, that Beijing unfairly subsidizes Chinese companies and steals American intellectual property. But the White House is skeptical whether Beijing is committed to making permanent changes to its policies and is wary that changes to industrial strategy may amount to little more than a re-branding, Bloomberg said.

The evidence of China’s commitment to a market-oriented economy will be in the implementation of those changes, Treasury’s Malpass told lawmakers at a House hearing in Washington on Wednesday. “The proof is in the pudding,” he said.

President Xi Jinping’s government has taken steps this week to soothe the U.S., including a plan to cut tariffs on U.S. cars to 15% from 40%. USDA also confirmed Thursday that private exporters sold 1.13 million metric tons of soybeans to China. China also said last week it would deepen reforms in the area of science and technology and put more effort into protecting intellectual-property rights.

Beijing launched Made in China 2025 in 2015, with the goal of becoming an advanced manufacturing leader within a decade. The initiative aims to develop local expertise in research and development and reduce the nation’s reliance on foreign technology. It targets 10 emerging sectors, including robotics, clean-energy vehicles and biotechnology.

So, we will see. In fact, the United States has been pressing Beijing for some time to reduce its reliance on export markets and concentrate more heavily on domestic market growth. And a key aspect of China’s development plan has been its focus on domestic high-tech capabilities and investments overseas. If the current negotiations do lead to less-aggressive Chinese export market policies and cool off the tariff tit-for-tat escalations, that likely will be seen as good news for ag producers and should be watched closely as they proceed, Washington Insider believes.

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