Washington Insider -- Thursday

Continuing US-China Trade Discussions

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

US, China Clash At WTO

U.S. and Chinese trade officials clashed at a World Trade Organization (WTO) meeting, accusing each other of undermining the multilateral trading system. US Ambassador Dennis Shea accused China of seeking to "outright steal" technology in strategic industries and dump its products on US markets, saying "this is not acceptable."

China's ambassador said that "reckless actions" by the Trump administration were the root of the crisis but that Beijing hoped that the two countries could "move in the same direction with mutual respect to contribute to the stability of world economic and trade environment." China further warned that unrestrained unilateralism “would bring destruction to the world economy.” The US, in a statement, countered Beijing’s points and blocked China’s request, calling it a threat to the system that China was using the WTO’s dispute settlement system as a shield for trade-distorting policies not covered by WTO rules.

The U.S. has filed a formal WTO dispute against China’s technology licensing procedures but has argued that a range of other practices involving forced technology transfer, ownership restrictions and cybertheft are not covered by international trade rules and are fair game for justifying tariffs on more than $250 billion worth of imports.

The U.S. also called China’s panel request hypocritical for calling the U.S. measures unilateral, noting Beijing unilaterally retaliated with its own tariffs on roughly $110 billion worth of US imports in a way that could be considered inconsistent with WTO rules.

Diminishing Odds for Tax Incentive Extenders

It is unlikely tax provisions will get tacked onto a government funding bill, especially if it is just a stopgap measure, according to senators.

If lawmakers decide to pass a continuing resolution, tax provisions likely will not get attached to that, Sen. Richard Shelby, R-Ala., told reporters this week.

Shelby’s comments come as the House prepares to possibly vote this week on a lame-duck tax package that includes renewals for two expiring tax provisions, known as extenders.

One of the provisions would make permanent a tax break for railroad track improvements and another would create a long-term extension and phase out of the biodiesel and renewable diesel fuels credit.

Sen. Chuck Grassley, R-Iowa, who will head the Senate Finance Committee in the new Congress next year, promised that should the tax incentive measures fail this year, the biodiesel extension will be a high priority for him in 2019.

Washington Insider: Continuing US-China Trade Discussions

There was lots of tough talk this week by both sides in the U.S.-China trade standoff – but plans are still underway for talks next month, Booomberg says this week.

For example, it seems that China and the United States held quiet vice-ministerial level talks as recently as last week to discuss the ongoing trade dispute as the two sides move closer to meeting in January.

The recent meeting was by phone according to China’s Ministry of Commerce and was one of several rounds of talks in recent weeks,” Treasury Secretary Steven Mnuchin told Bloomberg.

The plan is still to hold a formal, face-to-face meeting in January to negotiate a broader truce – but negotiators “are unlikely to meet in person before then,” Mnuchin said.

“We’re in the process of confirming the logistics of several meetings and we’re determined to make sure that we use the time wisely, to try to resolve this,” Mnuchin said. Both sides are now focused on trying “to document an agreement” by a March 1 deadline for their current tariffs truce to run out. “We expect there will be meetings in January,” he said. Previously the administration had not specified the timing of talks.

Mnuchin said neither he nor President Donald Trump were aware of the arrest of a senior executive from Huawei Technologies Co. when they met with China’s Xi Jinping for dinner on Dec. 1 – the same day that the company’s chief financial officer was arrested in Canada.

The Treasury secretary also sought to play down the president’s comment last week that he would be willing to intervene on Huawei’s behalf “if it was necessary” to help reach a trade deal between the world’s two largest economies.

“We’ve been very clear and China understands that these are separate tracks," Mnuchin said.

He and the president had not had “any direct conversations" about the Huawei case, Mnuchin said. He also declined to comment on whether the Treasury Department was preparing a broader case against the Chinese telecommunications-equipment provider, which has been accused by the U.S. of conspiring to violate U.S. sanctions against Iran.

Hawks in the Trump administration have long raised questions about just how much the U.S. should trust any promises of economic reforms made by Xi given the experience of past administrations in dealing with Beijing. But Mnuchin said the two sides had agreed that any eventual deal would be “enforceable and verifiable and have specific dates on it.”

“We are determined that if we have an agreement it will be specific enough that time frames and details and everything else will be laid out," he said.

Reducing the trade deficit with China remained a major priority for Trump but Mnuchin said the administration understood it would take time to deal with the issue and that the talks also would focus on securing structural changes in the Chinese economy that would help balance trade. The U.S. monthly trade deficit in goods with China hit a record in October and is on track to have expanded through the first two years of the Trump presidency. There is sharp disagreement among trade experts about the relevance of “deficits in goods trade,” but the administration continues to cite that statistic as an “important indicator of trade success.”

“I don’t think that we’d expect that overnight," Mnuchin said, but that the U.S. and China agree on the need for more balanced trade and that would set the stage for meaningful change.

The U.S. also is determined to secure the same market access for American companies to China that Chinese companies get to the U.S., Mnuchin said. “If we do that and there are structural changes, the trade deficit by definition will be a lot more balanced," he said.

I don’t think there is a question comparing “wins for them or wins for us,” Mnuchin said. “I think that there could be a win for both in the sense that they have a large, growing middle class that wants U.S. goods. So I think there’s an economic outcome that’s good for both of us."

The president has agreed to put on hold a scheduled increase from 10% to 25% in tariffs on some $200 billion in imports from China while the negotiations continue through March 1. In return China has moved to resume American soybean purchases and to at least temporarily lower retaliatory tariffs on U.S. auto exports imposed last summer.

Still, uncertainty about the substance of the trade truce agreed to over a dinner between Trump and Xi on the sidelines of the Group of 20 summit has increased the recent volatility in financial markets, Bloomberg says – as have the growing concerns about slowdowns across the Chinese economy. The news of plans for future trade talks may alleviate some of that angst, but trade policy confrontations can be expected to intensify and should be watched closely as they evolve, 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