Washington Insider -- Wednesday

Spending Fights Seen as New Source of Gloom

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

Dairy Group Warns Against Border Closure

U.S. ag lobbyists are out in force with warnings for President Donald Trump not to close the southern border, with U.S. dairy groups leading the charge.

The U.S. Dairy Export Council warned a southern border closure would add to the industry’s economic slump caused by retaliatory duties imposed after Trump slapped tariffs on trading partners including China and the European Union.

Mexico is the largest export market for U.S. dairy, importing nearly $1.4 billion worth of dairy products in 2018.

“Dairy exporters already are suffering from diminished access to export markets due to high tariffs and lack of progress on U.S. trade agreements,” Tom Vilsack, president and CEO of the group, said in a statement. “Closing the U.S. southern border to Mexico would be a gut punch that could set the industry back by a decade or two."

Mexico is the largest customer of U.S. milk powder, cheese and butterfat, according to the dairy council.

R-CALF Asks Justice to Prevent National Beef from Buying Iowa Premium

R-CALF USA has called on the U.S. Department of Justice to block the proposed acquisition of Iowa Premium by National Beef, a division of Brazil’s Marfrig.

The group made a formal request to Attorney General William Barr this week, arguing that the deal will substantially reduce competition for fed cattle regionally as well as nationally, harming independent U.S. cattle producers. The group says the takeover of Iowa Premium will also likely substantially reduce competition for boxed beef, which will harm American consumers.

R-CALF contends National Beef is a member of the “Big 4” beef packers, calling those packers a "cartel" due to their control of cattle supplies in the U.S.

The group claims that National Beef, Tyson and Cargill all limit access to the marketplace unless producers become certified under the Beef Quality Assurance (BQA) program.

Washington Insider: Spending Fights Seen as New Source of Gloom

There is a great deal of anxiety in Washington these days, but POLITICO is reporting this week that coming spending battles will be central. It sees a “looming battle” between President Trump and Democrats over spending and the debt limit that could “make the 35-day government shutdown look like a blip.”

A series of budget deadlines converge in the coming months, POLITICO says that could leave Washington on the precipice of another shutdown, facing $100 billion in automatic spending cuts and a full-scale credit crisis. It reports that “lawmakers are openly worried about stumbling over the edge.”

Some top Democrats have begun quietly pushing for a grand bargain to simultaneously raise the debt ceiling and Congress’ stiff budget caps—avoiding market turmoil and staving off harsh cuts to domestic and defense programs, according to multiple lawmakers and aides.

At the same time, the White House – focused on the President’s reelection bid – is resisting talk of another massive deal that could cost as much as $350 billion over two years. Administration officials, led by Treasury Secretary Steven Mnuchin, are instead pushing for a “clean” debt ceiling hike that extends the federal borrowing limit without making any other policy changes.

These battles will come to a boil this fall — around the same time that Congress must pass its annual funding bills, timing that is guaranteed to dredge up the same standoffs between President Trump and Democrats that led to the earlier shutdown.

By September, lawmakers could be faced with a fiscal cliff rivaling that of 2011, when another divided government nearly defaulted on its debt.

“This is the Congress of the United States. Of course, there will be a cliff,” said a senior Republican lawmaker involved with the budget negotiations.

The conflict is still at arm’s length for most of Washington, POLITICO thinks. Talks between House and Senate leaders have only just begun and while there's some hope that a deal could come together as soon as this spring, neither party has finalized its strategy.

Senate Majority Leader Mitch McConnell, R-Ky., and Speaker Nancy Pelosi, D-Calif., are confident they can avert a scenario in which the U.S. government fails to pay its bills. Also, Senate Republicans, eager to defend their majority in 2020, will be in no mood for any shenanigans surrounding the debt limit.

Officials in both parties say they’re committed to reaching a deal to avoid sequestration and lift the budget caps. Without a bipartisan agreement, the Pentagon would be forced to slash $71 billion from the next fiscal year’s budget, for example, with an additional $55 billion cut from domestic programs.

The White House, however, isn’t on board and is angry about accepting a previous deal to boost spending.

One of the key questions for Democrats and Republicans is whether to try to strike a deal that would lift the debt ceiling and budget caps at the same time. Entangling the two — in theory — could offer enough incentive for both parties to hold their noses and sign.

Other headwinds to a deal this fall, some lawmakers say, is the president’s circle of advisers including, especially, acting chief of staff Mick Mulvaney, who as a congressman threatened to refuse to raise the debt limit in 2011 until then-President Barack Obama agreed to deep spending cuts.

Publicly and privately, the White House has said it wants a no-drama debt ceiling lift. However, that would mean none of the spending cuts that Republicans have demanded in past years. In addition, this time Democrats see the debt limit as a potential pressure point to persuade Trump to agree to another massive budget agreement.

Meanwhile, another little-known math problem could severely complicate Congress’ ability to produce a two-year deal: the $350 billion budget boost being discussed could actually cost more than $2 trillion on paper, POLITICO says.

Because lawmakers would be technically phasing out the 10-year Budget Control Act sequester, its cost would not only include the two years' worth of spending hikes, it would also account for many years of future projected spending increases, to the tune of hundreds of billions of dollars that the government had "saved" during the sequester.

The final cost, as much as $2 trillion over a decade, according to a source familiar with the process, would even exceed the cost of the GOP tax law.

The many fights over economics and trade certainly will be controversial and extended and should be watched closely by producers as they intensify, 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 edit@dtn.com