Washington Insider -- Tuesday

Trade Anxiety Deepens

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

USTR Files Notice to Hit Remaining China Goods With Tariffs

The Office of the U.S. Trade Representative (USTR) as released the list of Chinese goods that the U.S. intends to hit with 25% tariffs, a list worth about $300 billion. That would essentially cover all imports to the U.S. from China.

"The proposed product list covers essentially all products not currently covered by action in this investigation," USTR said, referencing the investigation of China's practices on intellectual property actions under Section 301 of U.S. trade law. "The proposed product list excludes pharmaceuticals, certain pharmaceutical inputs, select medical goods, rare earth materials, and critical minerals. Product exclusions granted by the Trade Representative on prior tranches from this investigation will not be affected."

There will be a public hearing on the proposed list June 17 and that is also the public comment deadline.

As for the effective date of the new tariffs, that remains unclear. But indications are they could come into play by late June or perhaps beyond.

Disaster Aid May See Senate Vote Next Week

A vote in the Senate in disaster aid could take place next week, with a still-to-be set package containing several billion dollars in help for those hit by disasters.

Senate Appropriations Committee Chairman Richard Shelby, R-Ala., told reporters on Monday that both sides were still talking. He signaled he was cautiously optimistic that the two sides could be able to come up with a solution on the blocked plan.

"Next week is the week before a big break," Shelby said. "I can't predict what will happen, but I think something is either going to hit the floor dealing with that, or maybe we'll all come to an agreement."

If the measure comes up for a vote, it would make good on the expectation of Senate Majority Leader Mitch McConnell, R., Ky., who said he expected to chamber to be able to act on the disaster plan before the week-long Memorial Day break.

Washington Insider: Trade Anxiety Deepens

The media focus this week seems to be all trade, all the time as President Trump tries to both calm investors and launch a “full-scale trade war with China” the Washington Post reported Monday. The paper also pointed to “cracks in administration policy” as one of the president’s top advisers admitted the approach could damage the U.S. economy and a Goldman Sachs report predicted it might lead to higher interest rates. China vowed publicly “to impose tariffs on $60 billion in U.S. goods on June 1.”

The rapid-fire succession of stark economic news spooked financial markets, the Post said, with U.S. futures indicating drops of nearly 2% at the open for both the Dow Jones industrial average and the Standard & Poor’s 500 index.

“Over the past week, hopes for at least a partial and temporary ceasefire between the two sides have given way to the prospect of a rapidly escalating and broadening economic conflict between the two countries,” Eswar Prasad, senior professor of trade policy at Cornell University said.

Amid signs that investors were questioning his adversarial approach, the President attempted to assuage the public in a series of Twitter posts, although their typos and misspellings suggested his comments hadn’t been thoroughly vetted by White House officials and might not represent fully planned out policy initiatives, WaPo said.

The dramatic escalation comes after Trump last week imposed a 25 percent tariff on $200 billion of Chinese imports to the United States. He also told aides to begin plans to hit more than $300 billion in other Chinese goods. Trump has alleged that the Chinese government is ripping off U.S. consumers and businesses by unfairly subsidizing Chinese companies, stealing intellectual property from U.S. firms, and flooding global markets with cheap goods to put other companies out of business.

On Monday, the President warned China against retaliation on tariffs, but China showed it planned to counter his adversarial approach with its own penalties against U.S. companies to be imposed starting on June 1. The steepest penalties will hit certain beef, live plants, dyed flowers, and a range of fruits and vegetables. The tariffs would range from 5% to 25%.

Chinese foreign ministry spokesman Geng Shuang warned that China would be ready to defend itself. “China will never succumb to foreign pressure,” he said. “We are determined and capable of safeguarding our legitimate rights and interests. We still hope that the U.S. will meet us half way.”

U.S. agriculture companies could be hit hard from the new penalties, the Post said. U.S. farm groups have already complained to the White House that they were caught in the middle of Trump’s trade skirmish and that the president had pledged to assist them. Trump has said he would seek an additional $15 billion in U.S. taxpayer money to aid farmers.

However, the President’s comments about the effects of the tariffs clashed with those of National Economic Council Director Larry Kudlow, who acknowledged on Sunday that “Americans will pay the price.” "It’s not China that pays tariffs,” TV host Chris Wallace said. “It’s the American importers, the American companies that pay what, in effect, is a tax increase and oftentimes passes it on to U.S. consumers.”

The new U.S. tariffs largely affect business equipment, but they also apply to $40 billion in consumer products like air conditioners, furniture, clothing and spark plugs. The financial impact of the tariffs could be delayed because they will apply only to products that left China on Friday, which often take two or three weeks to arrive from Shanghai.

“The costs of U.S. tariffs have fallen entirely on U.S. businesses and households, with no clear reduction in the prices charged by Chinese exporters,” Goldman Sachs analysts wrote in a note to investors Monday. They also wrote that the tariffs could pose a double-whammy to the U.S. economy, by driving up the cost of goods and potentially leading the Federal Reserve to raise interest rates to counter inflation. That could further slow the economy.

The president imposed a series of tariffs on many Chinese goods last year and threatened to impose steeper penalties in January, but Chinese officials agreed to negotiate with him as a way to prevent more damage to their economy. Those talks began in earnest in December and continued into this year.

However, he became frustrated with the pace of trade talks and threatened to impose steep tariffs on $200 billion in Chinese imports two weekends ago. China’s vice premier, Liu He, came to Washington last week but those discussions didn’t break new ground and the tariffs went into effect Friday morning. U.S. officials accused China of going back on prior details of the deal, a charge China denied.

"They were constructive discussions between both parties, that’s all we are gonna say. Thank you,” Treasury Secretary Steven Mnuchin said after the talks concluded.

Certainly, U.S. trade policies have become increasingly complex and will continue to be so as Congress considers the new NAFTA as well as other trade issues—a debate producers should watch closely as it proceeds, Washington Insider believes.

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