Washington Insider --Wednesday

Major Legislation Needed to Support Economic Boom

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

Brazil to Implement US Wheat TRQ, Allow US Pork Imports

Trade-related commitments between the U.S. and Brazil for U.S. pork and wheat were announced following a meeting between President Donald Trump and Brazilian President Jair Bolsonaro at the White House Tuesday.

Brazil will implement a tariff-rate quota (TRQ) allowing for the duty-free import of 750,000 metric tons of U.S. wheat annually, according to a joint statement released by the two leaders. U.S. wheat growers have long pushed for the TRQ, which Brazil committed to establish during the Uruguay Round of World Trade Organization (WTO) negotiations.

U.S. wheat exports to Brazil currently face a 10% tariff, while countries covered by the Mercosur trade agreement – Brazil, Argentina, Uruguay and Paraguay – are allowed duty free access.

Earlier this month, Kansas Republican Sens. Pat Roberts and Jerry Moran had pressed the Trump administration to confront Brazil over the TRQ.

"We are grateful to the Trump Administration for championing the interests of U.S. farmers and specifically to Chief Agricultural Negotiator Gregg Doud and USDA Undersecretary Ted McKinney for prioritizing the issue of Brazil’s TRQ commitment," U.S. Wheat Chairman Chris Kolstad said in a statement.

The development is "a big win for U.S. wheat farmers," National Association of What Growers (NAWG) President Ben Scholz remarked. “I’m glad to see Brazil fulfill its commitment and look forward to a stronger trading relationship between us," he added.

In other trade-related areas, the two nations agreed "to science-based conditions to allow for the importation of United States pork," according to the statement. To expedite a resumption of Brazil beef exports, the U.S. committed to quickly schedule a visit by USDA's Food Safety and Inspection Service (FSIS) "to audit Brazil’s raw beef inspection system" once the agency is "satisfied with Brazil’s food safety documentation."

No Cost-Benefit Analysis on ERS, NIFA Changes In USDA Budget

A requested cost-benefit analysis has not yet been provided by USDA relative to their proposal to relocate the Economic Research Service (ERS) and National Institute of Food and Agriculture (NIFA) outside of Washington, DC, but Fiscal Year (FY) 2020 budget plans say that analysis will be coming.

USDA earmarked funds for the relocations in its FY 2020 budget request, which also proposed sharp reductions for ERS overall. For FY 2020, USDA requested $15.5 million to relocate ERS and $9.5 million to relocate NIFA. For comparison, the total FY 2020 budget request for ERS was $60.5 million (including the $15.5 million for relocation), down from $87 million in funding Congress provided for FY 2019. Notably, some critics have suggested the relocations are a backdoor way to slash budgets by staff attrition, arguing many employees will opt not to relocate and USDA will leave some of those positions vacant.

In FY 2019 appropriations bills, Congress called for an "indefinite delay" of the ERS and NIFA changes and directed USDA to include detailed cost estimates for the plans along with "detailed analysis of any research benefits" in their FY 2020 budget justification. However, those additional details were not included in the department's FY 2020 budget explanatory notes. Instead, USDA said the cost benefit analysis will be completed as part of the site selection process for the relocations.

Washington Insider: Major Legislation Needed to Support Economic Boom

The Washington Post is reporting this week that the administration has promised an economic boom that will last for years to come, but is unlikely to get one “without the help of Congress to pass major new legislation.” The source, the Post says, is “estimates by Trump’s own economic team.”

To achieve 3% growth for the next decade will require a big infrastructure bill, more tax cuts, additional deregulation, and policies that transition more people off government aid and into full-time jobs according to the 2019 Economic Report of the President, released Tuesday by the President’s Council of Economic Advisers.

In addition, the Post sees “skepticism that Trump will be able to get all of these policies through Congress, especially with Democrats leading the House.

“Washington is a really hard place to get things done,” Kevin Hassett, CEA chair said as he stressed that his biggest concerns for growth are “Trump’s policies getting rolled back or Medicare-for-all becoming reality.”

The report says that the White House is predicting a lot weaker growth if all of those new policies do not come through. Growth would be about 2.5% in 2022 if no additional policies are implemented, it says — and by 2026, growth could fall to about 2%, the model suggests.

At the same time, a lot is riding on whether the president can achieve his promised 3 percent growth. “Without it, his tax cuts would add substantially more to the debt than they already have and Democrats would have an easier time hammering his economic track record,” the Post says.

To achieve the higher growth rate, the White House assumes that the individual tax cuts will be made permanent (they’re currently slated to expire after 2025) and that Congress will pass an infrastructure bill “commencing in 2019 with observable effects beginning in 2020,” the report says. While there’s widespread agreement that the United States needs a major infrastructure upgrade, there’s a big gap between the Democratic and Republican visions of what to do.

The report calls it a “key downside risk” to the forecast if Congress doesn’t pass the rest of the president’s agenda.

The 3% White House growth prediction — which is used in the president’s budget and has been criticized by outside experts as a “gimmick" — also assumes more deregulation, especially in the finance industry and a push for “improving self-sufficiency” supported by additional work requirements on recipients of government aid.

The president is relying on a strong economy to drive his reelection campaign, the Post says and notes that he often takes a victory lap about his economic achievements on Twitter and at rallies, touting stock market gains, record-low unemployment numbers and a “booming economy."

He repeatedly called the Obama economy, which averaged just over 2% growth per year, “mediocre,” so he wants to be able to say he presided over faster economic growth, the Post says.

However, the Post also notes that many economists have described the Trump economy as a “sugar high” and predicted that any spike in growth following the recent tax cuts is likely to return to about 2% by 2020 — or lower.

“We’ve always said 3% growth for one year was possible after we gave the economy a lot of stimulus. But you can’t keep giving the economy more stimulus every year,” said Marc Goldwein, senior policy director at a Committee for a Responsible Federal Budget. “There’s nobody that thinks we’re going to be anywhere close to 3% growth a year over the next decade.”

The White House has pushed back against the “naysayers,” arguing that the economy has exceeded expectations since Trump took office and shows little sign of slowing.

“For the second consecutive year, economic growth has either matched or surpassed my Administration’s forecast, and the economy has growth at a 3.1% rate over the last four quarters,” the president wrote in the report.

Forecasting where the economy is headed is notoriously difficult but Hassett and his team say that their predictions were almost spot on the past two years and that they think many on Wall Street are underestimating the Trump White House again.

“Everyone said we wouldn’t get 3.1%,” Hassett said. “We’re relying on the same analysis because nothing has come up which suggests to us it’s not going to happen.” Hassett says the corporate tax cut, which was the largest in U.S. history, is spurring a business investment boom that will lift the economy for years to come. But others disagree.

“We’ve not seen any meaningful pickup” in business spending “because of the tax package,” former Federal Reserve chair Janet Yellen, who headed the Council of Economic Advisers under President Bill Clinton, said recently. “We had a period of remarkable growth in 2018, probably around 3%. That just isn’t sustainable.”

Future growth likely will depend on many factors including supportive trade policies as well as domestic investments. These policy debates include high stakes for producers and should be watched especially closely as they intensify, Washington Insider believes.

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