Washington Insider -- Tuesday

China Promises Openness in Push for US Deal

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

USDA Lowers Rate of Increase For Grocery Store Price Outlook

USDA now expects food price inflation for food at home (grocery store prices) to be 0.5% to 1.5%, down from their prior outlook for those prices to increase 1% to 2% in 2019 compared to 2018.

USDA economists followed a similar pattern with their forecast for 2018 grocery store prices, initially setting the outlook at one percent to two percent, but trimming it to 0.5% to 1.5% in February 2018 with another revision down to steady to up 1% in July.

Grocery store prices in 2018 ended up rising 0.4% after having posted annual declines in 2017 and 2018. Compared to February, USDA analysts downgraded their outlooks for several commodities relative to grocery store prices, including meats, poultry and fish, dairy products and fruits and vegetables. USDA trimmed the forecast decline in egg prices and increased its outlook for cereals and bakery products and nonalcoholic beverages.

USDA did not change its outlook for overall food price inflation, leaving it at 1.5% to 2.5% compared with a 20-year average of 2.3%.

USDA Sets Enrollment for 2018 MPP For Some Dairy Producers

Dairy producers who enrolled in the Livestock Gross Margin (LGM) insurance product for the 2018 calendar year can now enroll to retroactively participate in the Margin Protection Program (MPP) for that year.

Previously, those with the LGM insurance were unable to participate in MPP, but the signup running through May 10 will allow those producers to be able to get a one-time MPP payment for 2018.

Producers will be required to visit their local Farm Service Agency office to signup for the limited retroactive MPP program.

USDA said this will apply to a "limited' number of dairy producers. The option to get the 2018 MPP coverage in addition to having the 2018 LGM coverage was authorized in the 2018 Farm Bill.

USDA is still working on getting the new Dairy Margin Coverage (DMC) program ready to roll, with USDA Secretary Sonny Perdue saying the agency will have portions of it ready to go next month.

Washington Insider: China Promises Openness in Push for US Deal

There is a lot of activity between the U.S. and China these days as well and important promises are being offered. For example, the New York Times says that top Chinese economic policymakers “promised this weekend that Beijing was ready to open up the country’s economy to more market-based competition and international trade.”

Clearly, contacts between the two countries have intensified, the Times says. Senior American officials are scheduled to go to Beijing in the coming days for trade talks, with Chinese officials then headed to Washington the following week in an attempt to wrap up a deal.

The Times also says that Chinese officials have “an extra incentive in pledging to loosen their hold over the world’s No. 2 economy – and not just to the Trump administration.” In addition to a trade war that is hitting the country’s exporters, China’s economy has also been hurt by private sector business leaders who have become increasingly cautious in recent months about making new investments.

Key developments in China include a slowing economy that creates “a self-reinforcing cycle of skepticism that further private investments will be profitable.” State-owned enterprises have claimed a growing share of the loans available in the economy, a sign that the government may be crowding out the private businesses that could drive future growth.

The promises of economic opening may sound familiar. Chinese officials have said for years that they were ready to allow foreign competitors to enter their market on a more equal footing, with slow progress.

The tone of remarks at this weekend’s session of the China Development Forum, the country’s premier annual economic policy conference, was nonetheless “striking” and coordinated, the Times says. It lists several examples.

Han Zheng, one of the seven men who run the country as members of the Communist Party’s Politburo Standing Committee, said that China wanted to keep increasing imports. “We do not strive for a trade surplus,” he said.

Yi Gang, the governor of the central bank, said that China wanted more foreign investment. He said the government was looking for ways to let foreign investors trade derivatives and other financial instruments so as to limit their exposure to risk. Such a move could mean loosening Beijing’s controls over the value of its currency — a politically sensitive subject, and one in which Beijing has a mixed record — and Yi offered no details.

Han, Yi and other senior officials took turns extolling a new foreign investment law approved by China’s legislature on March 15, describing it as a carefully thought-out framework for making the country a more appealing place to invest.

However, foreign lawyers have described the new law as vague, noting that a third of the provisions are no longer than one sentence each and that domestic companies are still covered by separate legislation.

China has made similar offers ever since President Trump visited Beijing in November 2017, as part of an effort by Beijing to woo support from Wall Street during the trade war.

At the same time, President Trump’s remark on Friday that the United States would keep its 25% tariff imposed last summer on $50 billion of Chinese goods drew irritation at the forum. For the United States to insist on keeping tariffs could “ruin the whole base of this negotiation,” said Zhu Min, an influential adviser on economic policy issues in Beijing and a former senior central banker in Beijing and former deputy managing director of the International Monetary Fund in Washington.

The Trump administration had consistently taken a hard line on retaining the tariffs on the $50 billion a year in goods. The administration has been much more willing to discuss removing a 10 percent tariff imposed last autumn on another $200 billion a year in goods.

But corporate lobbyists in Washington have mounted a strenuous campaign for the repeal of all tariffs, including on the $50 billion in goods. Chinese officials have been hoping that campaign would be successful.

An extensive interagency effort by civil servants and political appointees produced the $50 billion list of products. They came up with product categories in which they did not want the United States to become more dependent on China. Some products were included for reasons of national security, like components for nuclear reactors and aircraft.

At a separate gathering on Friday afternoon that was organized by the Center for China and Globalization, a Beijing research group, former senior American and Chinese officials also expressed worry about whether the broader relationship between China and the United States could be quickly fixed even if a trade deal were reached soon.

In spite of widespread signs of interest in reaching a deal between China and the United States, there are still important hurdles to be surmounted, both in China and the US. However, the negotiations increasingly appear to be serious and highly focused and should be watched closely by producers as they proceed, Washington Insider believes.

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