Washington Insider -- Friday

Who Pays Tariffs?

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

Farm Lending Officials Say Farmers Should Weather Current Financial Storm

U.S. farmers should be able to weather another year of disappointing crop prices, but there could be more financial pain for farmers if the trade tensions with China are not resolved, according to officials that represent institutions that provide financing to farmers.

U.S. agriculture remains on more-solid financial footing than it did during the 1980s farm crisis, but officials sounded warnings about the future. “Our message is that this is very serious,” Farm Credit Council President Todd Van Hoose said at a briefing with reporters. “We are seeing four years of accumulated problems hit home ... They have now weathered it for four straight years and a lot of producers are coming to the end of their ability to weather it.”

The relatively low level of debt relative to assets and equity and real estate values holding up better than expected are two factors helping farmers in the current climate, according to Mark Jensen, CEO of Frontier Farm Credit and Farm Credit Services of America. "A high percentage of our customers are supportive of the long-term trade agreements putting US in the best position it could ... but everyone wants to see those completed sooner versus later,” he predicted. “Do not be surprised if you hear more percentage of producers that are really struggling.”

As for USDA temporarily reopening FSA offices for limited activities over three days, Van Hoose said it would provide "a little bit of relief." He noted this is currently a time when ag lending agreements are renewed and the group things "it is very important that we get those FSA offices open permanently so we can get business done."

Ag Nominees Part of Big List Of Names Sent To Congress

The White House sent a lengthy list of nominations to the Senate on Wednesday night that included USDA nominees Mindy Brashears, Scott Hutchins, and Naomi Earp.

All three names had been submitted last year and voted on by the Senate Agriculture Committee, but were not scheduled for a vote in the Senate before Congress adjourned last month.

Brashears has been nominated as undersecretary for food safety, Hutchins as undersecretary for research, education, and economics, and Earp as assistant secretary of agriculture.

It is not clear yet whether the Senate Ag Committee will hold another set of confirmation hearings on the USDA nominees.

Washington Insider: Who Pays Tariffs?

There is a strange back and forth over tariffs these days, Bloomberg says, and it concerns whether or not China pays for tariffs on goods it sells in the United States.

According to data from U.S. Customs and Border Protection (CBP), more than $13 billion in duties imposed by the Trump administration were assessed on imported goods as of Dec. 18. Actual collections could lag and be lower because of refunds and other factors, but Treasury Department reports show receipts from all customs duties have risen sharply since the new tariffs took effect.

And, while administration officials have suggested on Twitter and in public comments that tariffs are “somehow being charged to or paid by China and other countries, trade economists say that’s generally misleading.”

U.S. importers of record are responsible for the duties and ultimately U.S. businesses and consumers pay through higher costs, they say.

Nevertheless, the president and his administration have continued to suggest that the tariffs are “bringing in lots of new revenue and all of the burden is falling on the Chinese," said Phil Levy, senior fellow on the global economy at the Chicago Council on Global Affairs and a former senior economist for trade for President George W. Bush’s Council of Economic Advisers. “I think that’s mostly false."

Johns Hopkins University applied economics professor Steve Hanke, a member of the Council of Economic Advisers under President Ronald Reagan, put it more bluntly. “Tariffs on Chinese imports are paid by Americans, not by the Chinese or their government. The President’s tariffs are simply a tax on American consumers," Hanke said recently.

The administration imposed tariffs starting last January on foreign-made solar equipment and washing machines, then levied duties on steel and aluminum imports from March on the grounds of national security. It has slapped duties on about $250 billion in Chinese goods in response to a U.S. trade deficit and allegations of intellectual property theft and other unfair trade practices.

Customs and Border Protection collects the tariffs based on the price paid for products and the tariff rate in effect and the duties are charged when shipments are released into the U.S. The assessed amount now tops $13 billion, with $8 billion coming from the duties on Chinese goods, CBP data show.

The duties are deposited in the U.S. Treasury. Customs duties increased by $8 billion in the final three months of 2018, an 83% gain from the year-ago period thanks in large part to recent increases in administration tariffs, according to estimates from the non-partisan Congressional Budget Office.

Administration officials have suggested the U.S. is benefiting without paying—for example, on Jan. 3 a White House tweet said that “the United States Treasury has taken in MANY billions of dollars from the Tariffs we are charging China and other countries that have not treated us fairly.” A day later the President told reporters that “we’ve taken in billions and billions of dollars in tariffs from China and from others."

It’s not foreign governments paying, said Dan Anthony, vice president of The Trade Partnership, an economic consulting firm. U.S. businesses paid $2.8 billion in new Trump tariffs in October alone, The Trade Partnership determined in an analysis for Tariffs Hurt the Heartland, a coalition of business and agricultural groups lobbying against recent administration duties.

Companies aren’t equivocating about the cost. Ford Motor Co. executives, speaking during the recent Deutsche Bank Global Automotive Conference in Detroit said they see a $700 million headwind from duties this year. General Motors Co. said late last year that tariffs on steel and aluminum had already cost it $1 billion.

“Let me be very clear: Tariffs are taxes paid by American families and American businesses – not by foreigners," Thomas Donohue, president of the U.S. Chamber of Commerce, said in his annual state of American business address last week.

This is a strange debate in that it is coming long after the policies have been imposed. Tariffs are widely seen as special taxes imposed on imports with impacts similar to other taxes — they raise the eventual cost of the product, and typically dampen demand and sales and shift competitive positions among competing sellers and buyers.

Both sides are deeply dug in on this trade fight and each is busily pointing out damaging impacts on the other. Businesses, including those with global markets are increasingly worried that the overall impact will be large and negative—and possibly more persistent than many now believe. This certainly is a fight producers should watch closely as it intensifies, Washington Insider believes.

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