Washington Insider -- Friday

Fri. Dec. 28 Washington Insider Trade Policy Summit Planned

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

Timeline Murky for Lifting US Metal Tariffs

Despite President Trump and others in his administration pledging steel and aluminum tariffs would be lifted for Mexico and Canada when a new NAFTA accord was signed, no such move came after the three countries agreed to the U.S.-Mexico-Canada Agreement (USMCA).

U.S. officials now say signing the new USMCA is not enough. They also want Canada and Mexico to agree to new quotas on their metals exports to the U.S. before the U.S. will lift the Section 232 tariffs. Canada is the largest foreign supplier of steel to the U.S., with a 20 percent import share.

The U.S. goal of quotas would be to limit steel supply to keep domestic steel prices high.

Meanwhile, the U.S. dairy sector has consistently stressed importance of lifting the metal tariffs on Canada and Mexico. While the USMCA opens a slightly larger share of the Canadian dairy market to U.S. producers, Mexico remains the largest destination for U.S. dairy exports. U.S. dairy products face a 25 percent tariff in Mexico imposed in retaliation for the steel and aluminum tariffs.

The small gains USMCA brings U.S. dairy in Canada may not make up for the export losses to Mexico, a point backed up in a November analysis by the Farm Foundation.

Concerns over the uncertainty and ongoing hardship associated with the metals tariffs has some in Congress looking at legislation that would rein in President Trump's ability to implement Section 232-related (national security) trade constraints.

Partial Shutdown Likely To Continue Into 2019

It is now a near certainty that the partial government shutdown will enter a second week, and very likely drag into the new year.

Congressional Democrats and the White House remain at loggerheads over President Donald Trump's insistence on funding for a wall along the U.S.-Mexico border.

Senate Minority Leader Chuck Schumer, D., N.Y., rejected the latest White House offer, saying the two sides remained far apart. Spending bills require 60 votes to clear procedural hurdles in the Senate, where Republicans hold a slim 51-49 majority, giving Democrats leverage in the talks.

Rep. Steve Scalise, R., La., the majority whip, told House members on Wednesday that no votes were expected for the rest of the week. Meanwhile, on Thursday the Senate adjourned until next week.

"We have not been able to reach agreement, with regards to the leadership on both sides," Sen. Pat Roberts, R., Kan., told reporters Thursday following a short Senate session. "In Dodge City, Kansas, they say a horse divided against itself cannot stand. That's about where we are."

If the shutdown lasts until the new Congress begins on January 3, Nancy Pelosi, D., Calif., the Democratic leader who is likely to regain the speakership, is expected to move quickly to pass a spending bill extending to February 8 with no border wall funding and send it to the Senate.

If the likely Pelosi measure clears that hurdle, it would still need to be signed by the president to end the impasse. "She could pass a very liberal spending bill with Democrat-only votes and probably find enough Republicans to go along in the Senate but it will be met with a less than enthusiastic response in the White House," Rep. Mark Meadows, R., N.C., said in an interview with the Wall Street Journal.

Fri. Dec. 28 Washington Insider Trade Policy Summit Planned

Well, observers are laser-focused on the next step in the trade fight with China planned for early next month in Beijing. A key part of the discussion is the "concerted efforts to end the standoff with the U.S.," by the Chinese, who remain "uncertain that their efforts will be satisfactory," Bloomberg says this week.

Since Presidents Xi Jinping and Donald Trump came to a temporary truce almost a month ago, China has removed a retaliatory duty on U.S. automobiles and is drafting a law to prevent forced technology transfers. It's also slashed import tariffs on more than 700 products and began buying U.S. crude oil, liquefied natural gas and soybeans again.

Officials also have been in constant contact "with the U.S." to try to determine what else is needed to move things forward in January, Bloomberg says.

It appears to Chinese officials that the U.S. itself isn't clear on what it wants, Bloomberg adds.

China wants the U.S. to remove the punitive tariffs that have been imposed and not add new ones. However, it suspects the U.S. will ask for more before it agrees to do that, Bloomberg says. Officials are working on alternative retaliatory measures in case the talks collapse.

"After the meeting in Argentina, the incentive for China to speed up opening up and reform has increased," said Lu Xiang, an expert in bilateral ties at the state-run Chinese Academy of Social Sciences in Beijing. "The key obstacle to a deal is whether the U.S. demands are a bottomless pit."

The newly announced measures are responses to the "appropriate U.S. concerns," he said, using the term in the Chinese truce statement which referred to some of the issues the U.S. has raised.

China's flurry of policy announcements since the Argentina meeting between Trump and Xi happened despite Canada's arrest of a top Huawei Technologies executive as requested by the U.S. and a fiery speech Xi made declaring "China wouldn't be dictated to by anybody." China underscored its determination to implement the agreement by including it as a key segment in an important annual policy statement published last week.

Deputy U.S. Trade Representative Jeffrey Gerrish will lead the Trump administration's team heading to Beijing the week of Jan. 7, Bloomberg said. The group will also include Treasury Undersecretary for International Affairs David Malpass.

China's Ministry of Commerce spokesman Gao Feng confirmed in a regular briefing Thursday in Beijing that the two sides planned to sit down for talks next month. Gao provided no date and said both countries continue to maintain close communication.

News of the talks was followed by a potential source of renewed strain: a Reuters report saying Trump might declare a national emergency next month that would ban U.S. companies from using telecommunications equipment made by Huawei and ZTE Corp. Asked about the report Thursday, Chinese Foreign Ministry spokesman Hua Chunying said a "certain country" needed to address cybersecurity concerns with facts and stop politicizing national security issues.

China is eager to seal a deal while at the same time it is intent on preserving its economic system, said Jonathan Fenby, chairman of China research at TS Lombard in London. It aims to give Trump enough to be able to claim victory by March, enabling it to get on with the business of modernizing its economy, he said.

The U.S. administration has agreed to put on hold a scheduled increase in tariffs on $200 billion in annual imports from China while the negotiations take place. Trump is pushing the Asian nation to reduce trade barriers and stop the alleged theft of intellectual property. The delay in tariffs is through the start of March. In response, China temporarily lowered tariffs on U.S. car imports for the same period.

China's significant recent efforts to unveil policies that address Trump's concerns have been underappreciated in the U.S., said Wang Huiyao, an adviser to the State Council, or cabinet. China has shown it wants to make a deal, but it can't meet all the U.S. demands, he said.

After the recent U.S. stock market's plunge, the U.S. should quit the trade row "while it's still ahead," said Wang, founder of the Center for China and Globalization, a Beijing-based think tank.

There's still skepticism about the prospects for an agreement. China thought it had a deal in May, only for President Trump to back out. Some in Beijing warn the same could happen again.

If there is an agreement, it would just be a framework deal, according to Mei Xinyu, a researcher at the Chinese Academy of International Trade and Economic Cooperation affiliated with the Ministry of Commerce. "Trump showed no spirit of respecting contracts in the past, and I suspect he will do so again this time. Will he backtrack even after a deal is inked?"

So, we will see. These are important talks -- and the trade fight is increasingly seen as having very important implications for both sides. Clearly, these discussions should be watched closely as they proceed, Washington Insider believes.

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