Washington Insider -- Wednesday

OECD Warns on Growth

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

Rumors on US Farmer Aid Plan Continue to Swirl

Commodity markets gyrated Tuesday, reacting to news reports and USDA statements that USDA was working on a farmer-aid plan for soybeans, corn and wheat.

Bloomberg reported USDA was considering payments of $2 per bushel for soybeans, 63 cents for wheat and 4 cents for corn.

The report said that USDA was considering paying the amounts based on actual planted acres for 2019 and their historic yield of crops per acre.

However, USDA late-Tuesday sent out a statement that offered their views on that reporting: "Details on the new farming support program will be forthcoming shortly, but we want to be clear that the program is being designed to avoid skewing planting decisions one way or another. Farmers should continue to make their planting and production decisions with the current market signals in mind, rather than some expectation of what a farming support program might or might not look like based on inaccurate media stories."

US-China trade resolution still expected by former White House official

Clete Willems, deputy director of the White House's National Economic Council until April, said China's leadership includes figures that the U.S. hopes will steer the country to more market-oriented policies to underpin a trade pact.

"We believe there is a strong contingent of reformers in China that want change," Willems said via video link at the Wall Street Journal's CEO Council conference in Tokyo on Tuesday.

Meanwhile, U.S. Ambassador to Japan William Hagerty said at the conference the top trade negotiators for the U.S. and Japan may come up with an agreement "in months."

Trump is scheduled to arrive in Tokyo later this week for summit talks with Japanese Prime Minister Shinzo Abe, where trade and security issues are set to be on the agenda.

Washington Insider: OECD Warns on Growth

Another voice is warning about "subpar" future global growth if trade tensions continue. The Organization for Economic Cooperation and Development said this week that the global economy has been "derailed onto a low-growth track that's clouded by risks."

The group continued the gloomy tone it has held for some time, warning that trade disruptions could ricochet throughout the world economy. "Now that scenario has come to pass, with manufacturing production clobbered by tariffs, a sharp slowdown in investment, and confidence faltering," Bloomberg reported the OECD said.

Things could get worse given the renewed tensions, which have expanded into a U.S. ban on China's Huawei Technologies, the world's second-biggest mobile phone maker. An index of global trade is already at a decade low, and a WTO measure is signaling continued weakness this quarter, Bloomberg noted.

The OECD also flagged other risks, including weakness in manufacturing that is infecting services, a bout of financial stress from high private debt and faltering domestic demand in China. While there were small upgrades to its forecasts for the U.S. and the euro area, they were completely overshadowed by the pessimistic mood of the report.

"The outlook remains weak and there are many downside risks that cast a dark shadow over the global economy and people's well-being," Chief Economist Laurence Boone said.

The increasingly fragile trade situation is pressuring policy makers to urgently find a response. Investors have increased bets on a U.S. interest-rate cut by the Federal Reserve this year and Australia's central bank chief said he'll consider easing monetary policy next month.

But with many central banks having little scope to provide more stimulus, the OECD said the onus now falls on governments to repair multilateral negotiations and use any available fiscal space.

The first step should be to "reignite multilateral trade discussions," the group opined, and warned that the new measures announced this month could double the impact of tariff increases on growth in China and the U.S. and have a ripple effect around the world.

In addition to trade problems, China also faces domestic difficulties that could have a global impact. Despite signs of stabilization the OECD said there are risks that policy stimulus could prove insufficient, provoking a slowdown in domestic demand. Spillovers would be even bigger if central banks still had little margin to react, it said.

"Growth is set to remain subpar as trade tensions persist, while contributing to the divide between people," Boone said. "Governments can and must act together to restore growth that will be sustainable and benefit all."

Meanwhile, a Chinese foreign ministry spokesman accused Washington of misusing "state power" to hurt foreign companies and interfere in commercial markets, the Washington Post reported.

The spokesman, Lu Kang, said in a routine briefing on Tuesday that "The Chinese government has determination and ability to safeguard its legitimate and lawful rights and interests."

Responding to a question about President Donald Trump's comment that a trade deal with Beijing has to be more beneficial to the U.S. than China, Lu said it was "unscientific and unprofessional" to assume that there must always be a winner and a loser in trade relations between the two countries.

He said any agreement must be balanced, equal and mutually beneficial. Lu also said that using government power to "crackdown" on foreign companies and interfere in markets would not be in the interest of the U.S.

U.S. farmers are facing markets already weakened by trade uncertainty and some overseas market pullbacks. The OECD report is likely not much of a surprise just now, but clearly increases the economic stakes as debates continue over North American and Asian trade deals. Trade, along with as potential additional government market support proposals should continue to be watched closely as they evolve, Washington Insider believes.

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