Washington Insider -- Wednesday

China Digs in for Trade Fight

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

US Food and Ag Groups Say US-EU Trade Talks Must Tackle Ag Issues

Leading U.S. food and farm groups are warning the Trump administration not to exclude agriculture from a new U.S./European Union (EU) trade deal.

Led by the American Farm Bureau Federation, the Grocery Manufacturers Association and the National Pork Producers Council (NPPC), the ad-hoc coalition of more than 50 organizations says they will oppose any deal that doesn't remedy long-standing concerns about EU policies towards U.S. farm products and contend there is little support in Congress for an accord that doesn't include agriculture.

"If the EU wishes to conclude a trade agreement that addresses inequities in trade between us and that ultimately will be approved by Congress, such barriers and measures that restrict U.S. agriculture’s access, as politically difficult to discuss as they may be, must be included as part of negotiations and successfully addressed in a final agreement," the groups say in a Dec. 18 letter to U.S. Trade Representative (USTR) Robert Lighthizer.

The letter comes as the Trump administration and EU officials continue to work on the framework for talks over a new deal. The EU Commission is set to receive a mandate from member states in early 2019 that will lay out what issues are up for negotiations and early signs are that the Europeans are not keen to include agriculture, a move the ag interests say could "preordain failure" of the trade talks before they begin.

"Our organizations could not fairly represent our members if we were to support even the launching of negotiations with the EU on those terms, let alone support Congressional approval of a deal that excludes provisions that resolve measures restricting or preventing access to the European market for high-quality, safe American farm and food products," the letter says.

The groups call the U.S. trade deficit in food and agricultural goods with the EU "absurd," noting that since 2000 it has increased from $1.8 billion to nearly $11 billion.

"This is not because European consumers do not want American products," according to the letter. "It is because EU tariffs and non-science-based regulations deny consumers a choice."

Tax Incentive Extenders, Including Biodiesel, Could Be Up For House Action This Week

A multiyear extension and phaseout of a $1 per gallon tax credit for biodiesel and renewable diesel has been added to a broad tax package that could go to the House floor as soon as this week.

The bill extends the $1 per gallon credit for biodiesel retroactively for 2018 and then through 2021, then is phased out to $0.75 in 2022, $0.50 in 2023 and $0.33 in 2024, according to a summary.

The House Rules Committee is scheduled to review year-end tax legislation on Wednesday.

An earlier version of the tax legislation failed to get a vote on the House floor. However, the Senate has shown little interest in a broad tax package as the year winds down.

Washington Insider: China Digs In For Trade Fight

As the year winds down among US budget battles and other fights, China has chosen to send a signal about future U.S.-China tensions, Bloomberg says. Its conclusion: anyone betting that Chinese President Xi Jinping would back down quickly in a trade war “better think again.”

Xi told a Beijing crowd including some of the nation’s most influential political, military and business figures this week that the country’s growing wealth and power had validated the Communist Party’s – and thus his own – leadership. “No one is in the position to dictate to the Chinese people what should and should not be done,” Xi said.

The president’s 80-minute recitation of party achievements outlined no new economic policies that might assuage investor concerns about market access or the slowing economy. Instead, he reaffirmed China’s pursuit of “indigenous innovation” in “core technologies.”

The event was intended to mark the 40th anniversary of Deng Xiaoping’s “Reform and Opening Up” campaign that unleashed an economic boom that helped China outlast the Soviet Union and become the world’s second-largest economy.

But coming at the end of Xi’s most tumultuous year since taking power in 2012, it also served to assert his own rule at home and push back against critics abroad, such as the U.S. president, Bloomberg said.

Over the past 12 months, Xi pushed through a repeal of Deng-era term limits--the sole legal check on his tenure--only to find himself locked in an unprecedented trade war with the United States. He decided to play down plans to dominate high-tech industries and revise his signature Belt and Road trade-and-infrastructure initiative amid whispers about whether China had prematurely abandoned Deng’s advice that it should “hide its strength and bide its time.”

“2018 has been a very difficult year for Xi Jinping,” said Trey McArver, co-founder of Beijing-based research firm Trivium China. “The question going forward is how the system responds to all these troubles bubbling up.

Rather than retreat, Xi has decided to “press on.” He offered long passages about the party’s supremacy and the need to promote Marxist ideology, Bloomberg said.

“What and how to reform must be based on the overarching goal of improving and developing the socialist system with Chinese characteristics, and modernizing the country’s governance system and governance capacity,” Xi said. “We will resolutely reform what should or can be changed, but will never reform what cannot be changed.”

A ceremony honoring contributors to China’s reform era on Tuesday emphasized hard power as much as economic gains, celebrating people who supported Beijing’s claims to the South China Sea and the development of an aircraft carrier fleet.

Tuesday’s events cast a different light on recent Chinese efforts to patch up frayed ties with rivals such as India and Japan or tone down initiatives that have drawn U.S. criticism, like Made in China 2025 and the Belt and Road. Viewed through the lens of Xi’s rhetoric to his own party, they seem more like tactical shifts to minimize conflict than course corrections.

Indeed, Xi has so far managed to consolidate more power than any Chinese leader in a generation and keep the country’s economic slowdown from getting out of control.

“Despite significant economic headwinds, including the eruption of a trade war with the U.S., Xi and his economic team managed to steer clear of a significant slowdown or collapse of investor confidence,” said Jude Blanchette, who analyzes Chinese politics at Crumpton Group, an international advisory firm in Arlington, Va. “But for Xi and China’s economy, a crisis averted is but a crisis delayed.”

The boom unleashed by Deng’s reforms helped give rise to many of the problems China faces today, including severe pollution, a mountain of debt and a massive middle class with increasing demands for health care and other services. Failure to control China’s economic slowdown could undermine a key pillar of the party’s rule.

China’s rise has also provoked new challenge from the U.S. and other major economies which increasingly see the country as a competitor, rather than a source of labor and goods. Its military might has spurred an arms build-up among its neighbors.

“China has stepped into the center of global competition for wealth, power and other interests,” said Zhu Feng, dean of the Institute of International Relations at Nanjing University. “Now the biggest problem for China’s foreign policy is being too high-profile. China needs to bear in mind that the point when it becomes a major power is also when other countries start being tough.”

There seems to be U.S. support still for confrontations with China on a broad range of issues, even as overall criticism of administration policies grows—including trade restraints for long time allies. Pressures to force China to resume some ag purchases and to provide payments to offset some negative policy impacts likely will offset some concerns by producers. Still, the trade policy debate seems likely to intensify in the coming months and should be watched closely by producers as these fights intensify, Washington Insider believes.

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