Here’s a quick monitor of Washington farm and trade policy issues from DTN’s well-placed observer.Partial Shutdown Continues, Talks Fail To Break Impasse
A partial government shutdown is set to continue into the week and possibly longer. Senators from both parties and the White House appear entrenched and unable to find compromise language necessary to complete a deal on a funding measure that would include an unspecified amount of money for border security and disaster relief.
The Agriculture, Interior, Justice, Commerce, Transportation and Housing and Urban Development departments are now officially shut down, although essential employees are still required to work. The EPA, NASA and the Food and Drug Administration are likewise hit with a funding lapse.
Overall, the third government shutdown of the year closed about one quarter of federal offices, but was likely to have little immediate effect because of the extended holiday weekend.
An official told reporters Saturday the shutdown could run through the holidays. "Our hope is that by the time they come back after the holidays that we've reached an agreement," a senior administration official told reporters on a conference call.
Senate Majority Leader Mitch McConnell, R., Ky., adjourned the Senate until Thursday afternoon, making it unlikely the government would reopen before then. But, the door was held open if negotiators reach an agreement in the meantime. "If an agreement is reached, we'll come back and pass it," he said.
Negotiations between top White House officials and congressional leaders continue to come up short. Vice President Mike Pence and acting Chief of Staff Mick Mulvaney met at the Capitol Saturday with Senate Minority Leader Chuck Schumer, D., N.Y. A spokesman for Schumer said Pence had made an offer, but the two sides remained far apart.
Grassley Eyes Trade Focus As Senate Finance Chair
Praise and criticism of the Trump administration were handed out on the Senate floor by Sen. Chuck Grassley, R., Iowa, as he prepares to take over the helm of the Senate panel with trade as its responsibility.
President Donald Trump's use of Section 232 of the Trade Act of 1962 will be one area to get Grassley's attention. "I intend to review the president's use of powers under Section 232 of the Trade Act of 1962, which grants the president broad legal authority to impose tariffs in the name of national security," Grassley said. "I am certainly not opposed to being creative in negotiations," with other countries, Grassley said. "But I strongly disagree with the notion that imports of steel, and aluminum, automobiles and auto parts somehow could pose a national security threat as the president's actions have stated."
Those provisions in law date back to the Cold War with Russia, and Grassley said there "may have been reasons at that point to over delegate power to the president, but I am not sure those conditions exist today."
Section 232 duties on imports of steel and aluminum hurt U.S. agriculture via retaliatory measures. Grassley, from the key farm state of Iowa, said the administration needs to address those issues if it wants to win approval of the U.S.-Mexico-Canada Agreement (USMCA).
"I urge the administration to consult with Congress, as intended by the Trade Promotion Authority [law], to ensure a clear path forward for U.S.-Mexico-Canada Agreement," Grassley said. The veteran lawmaker committed to pushing hard for USMCA in the Senate, but warned, "But I cannot do it without a strong commitment from the administration that we will work together."
The duties against Canada and Mexico and their retaliatory measures, Grassley said, will dilute the positives that will arise from USMCA. "As long as 232 tariffs on steel and aluminum imports from Canada and Mexico remain, U.S. farmers and others facing retaliation, along with the American businesses that rely on those imports, will be unable to realize the full potential benefits of the U.S.-Mexico-Canada Agreement," Grassley said.
Grassley also chided the European Union (EU) for its opposition to including agriculture in upcoming trade talks with the U.S. "The notion that some people in the EU think there could be an agreement that does not address the many ways they block our good agricultural products from being sold in Europe is outright ridiculous," Grassley stated.
The fact talks with the EU and Japan are on tap is a positive, Grassley reminded. "That's why I'm happy the administration is pursuing new agreements with Japan, the European Union and the United Kingdom. The economies of those countries account for 27.4 percent of global GDP."Washington Insider: Debt-Ceiling Concerns
Well, the shutdown happened. It isn't clear yet how long it might linger, but it seems not everyone regards the event with the same concerns. For example, Bloomberg says that "the government shutdown is beginning to worry Wall Street. Just not for the reasons you might think."
The point of the report was that traders aren't really "losing much sleep" over the prospect of furloughed bureaucrats inside the Beltway. Market veterans are reportedly on edge because of "what the debacle signals about Washington's inability to compromise" ahead of the early March debt-ceiling reinstatement and the likely need the Treasury will face then as it resorts to "extraordinary measures to pay America's obligations."
In what's become something of a grim ritual, lawmakers from both sides of the aisle are likely to lock horns once again as the clock to a U.S. debt default ticks down--using the threat of economic disaster to try and wrangle legislative concessions from the other party, Bloomberg suggests.
While Congress has never failed to reach an accord, "many longtime Wall Street prognosticators" are growing increasingly concerned that 2019's clash could match, or surpass, some of the more bitter showdowns of years past, leading to a major market disruption.
While the economic impact of the current shutdown "likely will be limited," the consequences of similar strife over increasing America's borrowing capacity could be huge, if recent history is any guide, the report said.
In 2011, a split House and Senate, "similar to the incoming Congress," took the debt-limit debate down to the wire, prompting S&P Global Ratings to cut America's sovereign credit grade for the first time.
Ten-year Treasury yields slid from more than 3 percent to a then-record low of about 2 percent in the weeks surrounding the Aug. 2 drop-dead date as investors--somewhat counterintuitively--sought shelter in government bonds. The S&P 500 fell about 20 percent amid the turmoil, while the Bloomberg Dollar Spot Index surged in the aftermath of the downgrade.
While longer-term Treasuries gained, some bills and short-tenor notes tumbled as traders avoided securities at risk of non-payment, leaving taxpayers on the hook for an addition $1.3 billion in interest payments for the fiscal year, Bloomberg said. Similar disruptions in the front end also occurred in the run-up to the 2013 and 2017 debt-ceiling deadlines.
Should a similar scenario play out in 2019, however, some strategists see any market shakeup unfolding differently.
The dollar and Treasuries, which have rallied in recent weeks amid signs the Federal Reserve is set to slow the pace of interest-rate hikes, are unlikely to act as havens as they did in 2011 according to Bank of America Corp.'s David Woo.
This could weaken the dollar, forcing investors to look elsewhere, Woo, said. The yen, at around 111 per greenback, will strengthen to 109 by June and 105 by next December, Woo predicts, while the Swiss franc will also benefit.
One silver lining this time around is that Treasury won't have to whittle down its cash balance as much as in past episodes, a product of the size of its balance at the time the debt-ceiling moratorium was implemented.
When exactly the Treasury's extraordinary measures would run out still remains somewhat up in the air. The 2017 tax overhaul has made gauging the pace of revenue next year murky, according to Thomas Simons, an economist at Jefferies LLC. He expects a drop-dead date anywhere from mid-year to as late as the third quarter.
"The worry is that the debt limit is something that Congress lets slips through the cracks."
So, we will see. Given recent market volatility, the growing uncertainty from the current budget fight is spreading widely and the debt ceiling concern is not yet on most observers radars—but that likely will change especially if the current battle intensifies. These are highly complex but important issues that producers should watch closely as they evolve, Washington Insider believes.
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