Washington Insider -- Monday

It's Hard to Focus on Data When Trade Questions Loom

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

Trump: U.S. to Delay Raising Tariffs on Chinese Imports

President Donald Trump on Sunday announced the U.S. would delay an increase in tariffs on imports of Chinese goods previously scheduled to take effect on March 1, citing progress in trade talks with Beijing.

Trump tweeted that there had been “substantial progress" in the talks.

"I am pleased to report that the U.S. has made substantial progress in our trade talks with China on important structural issues including intellectual property protection, technology transfer, agriculture, services, currency, and many other issues. As a result of these very...... ....productive talks, I will be delaying the U.S. increase in tariffs now scheduled for March 1. Assuming both sides make additional progress, we will be planning a Summit for President Xi and myself, at Mar-a-Lago, to conclude an agreement. A very good weekend for U.S. & China!"

US Ag Trade Officials Slam EU, Have High Hopes For Japan Trade Talks

Harsh words about the European Union (EU) approach to ag trade issues, and high hopes for a bilateral deal with Japan were aired by key U.S. ag trade officials during a discussion on the US ag trade agenda at USDA’s Outlook Forum.

USDA Undersecretary for Trade and Foreign Agricultural Affairs Ted McKinney and chief agriculture negotiator at the Office of the U.S. Trade Representative (USTR), Gregg Doud, participated in the event. Both have been involved in ongoing U.S.-China trade talks and defended the Trump administration strategy on a range of trade issues.

“I firmly believe trade is a two-way street,” McKinney said. “Fair is fair and free is free, and that is what we must aspire to” when forging trade policy, he added. Unsurprisingly, neither McKinney nor Doud could offer much information on the state of U.S.-China talks which were underway as the two spoke Thursday (February 21). Doud would only say that in the search for ag export markets the U.S. “must turn over every rock,” noting “China is a big rock.”

Optimism about the US’ ability to ink a bilateral trade deal with Japan was voiced by both men. With rival ag exporters like the EU and others benefiting from new trade agreements with Japan, Doud acknowledged those competitors “are clear over the hill ahead of us,” adding “time is of the essence” for the US to cinch its own agreement and protect its market share. McKinney shared those sentiments, saying in his opinion “we can’t get into Japan fast enough.”

The harshest criticism on trade issues was leveled by Doud on the EU approach to ag trade issues. Though he would very much like to see negotiations with the EU progress, “I can't express my frustration with European agricultural and the way they deal with things like biotechnology, the way they deal with things like beef hormones,” Doud observed, calling the EU approach “beyond reprehensible.” EU politicians respond to questions by saying “Maybe I need to check with Greenpeace before I answer,” he quipped.

Washington Insider: It's Hard to Focus on Data When Trade Questions Loom

Bloomberg offered a backhanded criticism to last week’s annual USDA outlook conference. It emphasized a comment by a speaker who noted that when farmers and analysts get together at an annual U.S. government outlook forum, the conversation usually turns to topics like plantings and weather. “This year, the hottest buzz was all about trade.”

The comment came from highly respected analyst Rich Feltes who said that “in the end, all that [USDA] data will depend heavily on what happens with trade negotiations between China and the U.S." Feltes is director of market insights for R.J. O’Brien & Associates.

“There is nothing here to move the markets,” he noted regarding data and outlooks released by the USDA during two days at its annual outlook conference in Arlington, Va. “There is nothing here that changed the overall narrative.”

Feltes was emphasizing that the USDA gathering landed at a time of intense trade negotiations between the administration and China and which on Friday reported signs of progress as the discussions were extended.

The announcement came after a week in which all sides agreed progress had been made on several thorny issues. The latest series of meetings was supposed to end Friday but China’s Vice Premier Liu He stayed in the American capital for two extra days. Trump took to Twitter to announce he was extending the March 1 deadline to reach a deal with China and avert higher tariffs from going into effect on March 2.

A final deal would be signed at a summit with Xi Jinping, the Chinese leader who Trump said he hoped to meet with in the “not-too-distant future.” Trump said a deal with China is more likely to happen than not and Liu said that a pact with the U.S. is very likely. Treasury Secretary Steven Mnuchin said a leaders’ meeting for late March at Trump’s Mar-a-Lago resort in Florida is being tentatively planned.

However, Bloomberg also reported that U.S. Trade Representative Robert Lighthizer, who is leading talks for the White House, tempered the enthusiasm. He agreed that the two sides have made progress on issues related to the Chinese economy but still face obstacles. “We have major hurdles,” he added.

Bloomberg noted that uncertainty posed by the trade war has taken a toll on both economies and caused some turmoil in financial markets.

For example, it said that Chinese exports suffered a weak patch amid the dispute, representing a drag on growth with shipments to the U.S. falling for two straight months through January. But U.S. exports to China have suffered as well, and the U.S. Federal Reserve said Friday that net exports would detract from last year’s economic expansion. Gross domestic product will expand at a slower pace this year in both countries, according to analysts surveyed by Bloomberg.

After suffering its worst December since the Great Depression, the S&P 500 Index rebounded almost 8% in January and is up about 3% this month. The Shanghai Composite Index of Chinese equities plunged 25% last year, recouping about 14% in 2019.

With regard to the current state of play in the talks Politico reported on Friday that the U.S. and China reached an agreement as part of broader trade talks that will limit Beijing’s ability to manipulate the value of its currency for an unfair trade advantage, but noted that “the currency agreement is just one piece of what is expected to be a much larger deal aimed at rebalancing trade between the world’s two largest economies.”

Beijing’s currency practices have been a point of tension in the U.S.-China relationship since at least the early 2000s, when many U.S. lawmakers and manufacturers accused Beijing of deliberately lowering the value of its currency to gain an unfair trade advantage.

President Trump said last week that details of the currency agreement would be released at a later time. The pact may contain a pledge that China will not let its currency depreciate beyond 7 yuan to the dollar, said Derek Scissors, a China policy expert at the American Enterprise Institute who has advised the Trump administration, earlier this week.

Despite the optimistic tone from the President, the U.S. private sector still sees gaps between the two sides on U.S. complaints on issues like forced technology transfer and Chinese state subsidies that distort prices, Politico said.

It noted that officials from the U.S. Chamber of Commerce met with senior Chinese government officials during a trip to Beijing this week and came away with an understanding that major differences remain. “What was evident from our discussions is that structural reform, which is a priority for both governments, means something different for both governments,” said Myron Brilliant, the Chamber’s executive vice president and head of international affairs. “Each side is defining it slightly differently.”

Brilliant said the Chamber’s “working assumption” is that tariffs would not be increased, even by the March 1 deadline, “as long as the two sides are willing to engage in constructive dialogue.”

Feltes is likely right about the outlook in general, but the sector’s stats are also important — no matter what. Trade deals have a big impact, but the supply and demand fundamentals also have a lot to do with how well things work and should be watched closely as policies are decided, Washington Insider believes.

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