Here’s a quick monitor of Washington farm and trade policy issues from DTN’s well-placed observer.USTR Report Says Administration to Stay Tough On China
The Trump administration said it will continue to press China over its unfair trading practices and urged Congress to approve a pact to replace the North American Free Trade Agreement this year, in an annual report outlining U.S. trade priorities.
The U.S. will also pursue trade negotiations with Japan, the European Union and the UK, the U.S. Trade Representative’s office said in the report released on Friday.
“One of the administration’s top priorities in 2019 is to obtain congressional approval of the USMCA,” according to the report, referring to the U.S.-Mexico-Canada agreement. “The USMCA gives more priority to the interests of American workers than any prior deal signed by the United States. It is not merely a new trade deal — it is a new paradigm for future agreements.”
Groups Warn Against NAFTA Exit without USMCA
While getting the U.S.-Mexico-Canada (USMCA) agreement approved is a top priority for four major commodity organizations in 2019, they are also warning that the U.S. should not leave the 1994 North American Free Trade Agreement (NAFTA) prior to approving the new pact.
The National Corn Growers Association (NCGA), American Soybean Association (ASA), National Association of Wheat Growers (NAWG) and National Sorghum Producers (NSP) weighed in on NAFTA and USMCA March 1, during the 2019 Commodity Classic conference.
The groups' support for USMCA is predictable, but their warning on NAFTA underscores concerns as the newly negotiated accord faces congressional approval. President Donald Trump has suggested he may use NAFTA withdrawal to pressure Congress into approving USMCA – a tactic even many lawmakers who back the updated deal have warned against. If the U.S. withdraws and USMCA is not in place it would have a sharply negative effects on trade flows and the broader U.S. economy, observers have warned.
Protecting trilateral North American trade ties is vitally important to corn growers, NCGA President Lynn Chrisp said. "Mexico and Canada are the U.S. corn industry’s largest, most reliable corn market; Mexico is corn’s number one buyer and Canada is one of our largest ethanol importers. We cannot afford to risk losing this market," he warned. Ratification of USMCA is "NCGA’s top legislative priority for 2019," and the group is committed to working with the Trump administration and Congress to ensure the deal is approved, Chrisp said.
Meanwhile, NAFTA export gains for U.S. soybeans were highlighted by ASA President Davie Stephens. Under the 1994 accord, "soybean exports to Mexico quadrupled and to Canada doubled," he observed. Building on NAFTA, USMCA “would boost both national and rural economies, and for soybeans, it would assure us tariff-free access to two strong markets," he added.
Washington Insider: Deep in the Monetary Weeds on Currency Values
As usual, there’s lots to fight about these days in the Washington world of budgets and politics in general, but Bloomberg is seeking out a particularly basic one — it says president Trump may have to “work a lot harder if he wants to talk down the dollar.”
The report says that the U.S. currency is poised to remain strong this year despite Trump’s complaints about its recent gains as Treasuries remain the best option for yield-hungry investors and growth elsewhere is lackluster. Bloomberg cites “money managers including Grant Samuel Funds Management Pty and QIC Ltd.”
“Trump’s not going to succeed in talking down the dollar just like that,” said Stephen Miller, an adviser at Grant Samuel in Sydney and former head of fixed income at BlackRock Investment Management (Australia). “Where are you going to put your money when major economies like Europe are weak? There’s not much else around, and that will keep the dollar bid.”
The greenback has rallied for the past three quarters as the Federal Reserve has steadily raised interest rates due to robust economic growth, with the top end of its policy range now at 2.50%. That compares with European Central Bank’s deposit rate at minus 0.4%, and the Bank of Japan’s benchmark at minus 0.1%.
The president lashed out at the Fed on Saturday for causing the dollar to appreciate. “I want a strong dollar but I want a dollar that does great for our country, not a dollar that’s so strong that it makes it prohibitive for us to do business with other nations and take their business,” he said in a speech at the Conservative Political Action Conference.
Trump’s comments — along with speculation of an imminent trade deal between the U.S. and China — saw the dollar weaken versus most of its peers at the start of trade Monday. The Bloomberg Dollar Spot Index has since erased its losses to edge higher during London hours.
Even though the Fed has now paused its rate-hike cycle, U.S. assets remain in demand due to political uncertainties and weak growth in other developed nations, said Stuart Simmons, senior portfolio manager at QIC in Brisbane.
“When U.S. data start converging with the rest of the world’s, if there’s a recovery in economic data elsewhere, then we’ll likely start to see the dollar weaken,” said Simmons, who helps oversee the equivalent of $60 billion. “For now, Trump’s comments are having less of an influence.”
The ECB is predicted to downgrade its growth outlook when it meets Thursday in Frankfurt, according to Bloomberg Economics.
This is not the first time Trump has sought to talk down the dollar. In January 2018, he said a weaker greenback was “good for us as it relates to trade” while in April, he lambasted Russia and China for playing a “currency devaluation game.”
Not everyone is taking Trump’s latest comments lightly, Bloomberg says.
“I am not at all certain whether it is so clever to ignore all these dollar risks,” said Ulrich Leuchtmann, the head of currency strategy at Commerzbank AG. “If the Fed, perhaps for very good reason, really does implement expansionary measures Trump will not hesitate to sell this as the result of his pressure on Powell, which would increase the damage inflicted on the dollar.”
Currency values are of immediate importance to producers, so the currency debates should be watched especially closely as they continue, Washington Insider believes.
Want to keep up with events in Washington and elsewhere throughout the day? See DTN Top Stories, our frequently updated summary of news developments of interest to producers. You can find DTN Top Stories in DTN Ag News, which is on the Main Menu on classic DTN products and on the News and Analysis Menu of DTN’s Professional and Producer products. DTN Top Stories is also on the home page and news home page of online.dtn.com. Subscribers of MyDTN.com should check out the US Ag Policy, US Farm Bill and DTN Ag News sections on their News Homepage.
If you have questions for DTN Washington Insider, please email firstname.lastname@example.org
Copyright 2019 DTN/The Progressive Farmer. All rights reserved.