Here’s a quick monitor of Washington farm and trade policy issues from DTN’s well-placed observer.China Considers Domestic Policy Changes
As high-level U.S.-China trade talks continue to take place, China has announced it is considering changes to government policies concerning technology transfer -- an area of key concern for the U.S. and a catalyst for the ongoing trade war.
China said it held vice-minister-level talks with the U.S. over the phone late last week, according to a statement on its Ministry of Commerce’s website. The two sides exchanged views on trade balance and enhancement of intellectual property rights protections during the call and made "new progress," the ministry said. They also discussed arrangements for next call and visits. China and the U.S. held a same-level phone call on December 19.
Meanwhile, new efforts to address policies that motivated U.S. trade actions against China have also surfaced. China is considering a new law on foreign investment that would reiterate the illegality of forced technology transfer. The measure could replace three existing rules on wholly foreign-owned enterprises, Chinese-foreign equity joint ventures and contractual joint ventures.
Forced technology transfers were a key issue cited by the U.S. when it initiated trade actions against China earlier this year. A Section 301 investigation conducted by the Office of the U.S. Trade Representative found Chinese government "acts, policies and practices" promoted forced tech transfer, deeming such actions "unreasonable or discriminatory" and a burden to U.S. commerce.
The conclusions of report were the motivating factor for tariffs the U.S. went on to impose on scores of Chinese imports. That initial round of duties marked the beginning of a trade war between the two nations that escalated throughout the year.
More Signs Shutdown Could Drag Into 2019
Chances the partial federal government shutdown may drag on into early 2019 appeared to increase as remarks by President Donald Trump indicated he is not budging on border security funding demands. Meanwhile, Democratic leaders maintained the president lacks the necessary support in Congress to clear a bill with his requested funding provisions.
"I can't tell you when the government is going to be open," Trump told reporters Christmas Day. "I can tell you, it's not going to be open until we have a wall, a fence, whatever they'd like to call it. I'll call it whatever they want."
Those remarks followed a Christmas Eve tweet from the president that implored congressional Democrats to "make a deal on desperately needed border security," and added, "Democrats not wanting to make a deal will cost our country more money than the border wall we are all talking about."
For their part, top Democrats argue Trump and conservative House lawmakers lack the support needed to pass a funding package that meets their demands for more money for a wall on the U.S.-Mexico border. "As long as the president is guided by the House Freedom Caucus, it’s hard to see how he can come up with a solution that can pass both the House and Senate," Senate Minority Leader Chuck Schumer, D., N.Y., and House Minority Leader Nancy Pelosi, D., Calif., wrote in a joint Christmas Eve statement.
The Democratic leaders also said it was difficult to negotiate with the White House as different officials have said "different things about what the president would accept or not accept," making it "impossible to know where they stand at any given moment." The rhetoric, along with other comments, including earlier ones by Office of Management and Budget (OMB) Director and incoming Acting White House Chief of Staff Mick Mulvaney, further suggest an agreement to end the shutdown may not emerge before year's end.
Wed. Dec. 26 Washington Insider Perils To Firing The Fed Chair
There seems to be wide and growing concern about a bitter fight between the President and the Fed. Bloomberg says the president says he likes winning, but concludes that "it’s difficult to count up anything but losers if he fires Federal Reserve Chairman Jerome Powell."
The president has been discussing whether he can dismiss Powell, Bloomberg says, and that is prompting Treasury Secretary Steven Mnuchin and others to say that president doesn’t believe he has that authority.
If he decides to push ahead anyway, the president will be up against powerful forces that could deliver unwelcome verdicts in three principal arenas: the financial markets and economy, the U.S. Senate and the courts, Bloomberg warns.
For example, firing Powell could undermine the U.S. currency, leading to higher longer-term interest rates as foreign investors who are critical to financing America’s growing deficit balk, said Mark Spindel, the head of Potomac River Capital, a Washington investment fund.
"I can’t think of one U.S. asset you would want to own," said Spindel, co-author of a book on the Fed’s relationship with Congress. "Where is the president helped by any of this?"
The president has been simmering for months over Fed policy, claiming rising interest rates are putting a brake on his economic plans, though many companies have cited the trade war as negatively impacting business.
On Wednesday, Fed officials raised the benchmark lending rate a quarter point to reflect a strong economic outlook for 2019. That decision was unanimous, with all of Trump’s appointees and the five reserve bank presidents who aren’t politically appointed voting in favor. Policy makers also forecast that they expect to hike borrowing costs twice in 2019.
Stocks tumbled further amid confusion over the Fed’s message and a separate fight over a government shutdown.
The irony is that if the president does try to fire Powell, it could erode the central bank’s economic outlook and hit growth and hiring. In that case, policy makers might have to pause their rate hikes.
Then, it would become a matter of who the public blames for the slowdown: the president or the Fed.
"Firing the Fed Chairman over a one quarter-point move, with real economic data as strong as they have been, would be utter madness and highly counterproductive," said Jeffrey Lacker, a former Richmond Fed president, now a professor at Virginia Commonwealth University.
Ultimately, the president’s influence is limited.
"The president can try and fire the chairman but he can’t change the whole Federal Reserve because he is not responsible for its creation," Michael Bordo, a professor at Rutgers University, said.
The second arena involves the Senate, which confirmed Powell and, together with the House, presides over the Federal Reserve Act. It isn’t clear that the Senate would blithely accept Trump’s wishes and rubber stamp a new chairman.
Alabama Republican Senator Richard Shelby, a former chairman of the Senate Banking Committee, publicly warned Trump against the move on Saturday after Bloomberg reported the discussions said, "The independence of the Fed is foundation of our banking system."
Powell could stay on as a governor and be elected Federal Open Market Committee chair even if the president removed him as Fed Board chair, because the two positions are distinct.
The FOMC, the Fed panel that sets interest rates, could even elect a non-politically appointed Fed bank president as chair.
The third arena involves the legal battle over removal. The Federal Reserve Act stipulates that the president can only remove a Fed governor - and Powell is also a governor - "for cause," a reason that typically doesn’t cover policy differences.
Powell’s Senate confirmation and fixed terms provide more protection and have been interpreted by the courts as limiting the president’s authority to dismiss his own appointments in order to grant an agency greater independence.
So, we will see, but certainly this is a fight producers should watch closely if it does emerge, Washington Insider believes.
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