Washington Insider -- Friday

Political Fights and the New NAFTA

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

USDA Slashes FY 2019 US Ag Export Outlook

U.S. agricultural exports in Fiscal Year (FY) 2019 are now looked to be less than $140 billion while the value of U.S. ag imports is forecast to be at a record mark once again.

U.S. agricultural exports are now forecast at $137 billion for FY 2019, down from the February outlook for them to be at $141.5 billion. This also marks the first year since FY 2016 that exports have not been at least $140 billion.

The value of U.S. agricultural imports is now put at a record $129 billion, up $1 billion from their February forecast. If realized, this would make three years in a row for record import values.

The result of the trim to exports and boost to imports is to cut the forecast U.S. ag trade surplus to $8 billion, down sharply from $13.5 billion in February. This would mark the smallest U.S. ag trade surplus since FY 2006 when it was $4.6 billion.

China Official Labels US Actions In Trade Dispute 'Naked Economic Terrorism.'

Tension between the U.S. and China is ramping up as a Chinese Vice Foreign Minister Zhang Hanhui told reporters in Beijing that U.S. actions in the trade dispute between the two sides amount to "naked economic terrorism."

China is not in favor of trade sanctions, tariffs and protectionist measures, Zhang said. "We oppose a trade war but are not afraid of a trade war," he stated. "This kind of deliberately provoking trade disputes is naked economic terrorism, economic chauvinism, economic bullying."

He also warned that the situation could have negative effects on the global economic situation. "This trade clash will have a serious negative effect on global economic development and recovery," Zhang added, noting that China will make sure to "safeguard our country's sovereignty, security, respect and security and development interests."

Washington Insider: Political Fights and the New NAFTA

Several press reports are suggesting this week that the bad blood between the President and House Speaker Nancy Pelosi, D-Calif., could endanger the legislative approval of the new NAFTA.

For example, Bloomberg says that Democrats are still holding out hope they can “sculpt the new NAFTA” to their liking. The concern is that the acrimonious debate over whether to impeach President Trump — and his personal attacks on Pelosi — will undercut House approval of the deal.

An exchange of insults between Pelosi and Trump after a scuttled White House infrastructure meeting last week and the ongoing debate among House Democrats whether to impeach the president are fanning doubts about whether the two sides can cooperate enough to pass the U.S.-Mexico-Canada Agreement (USMCA) which is seen as the President’s most urgent legislative priority as he heads into 2020 elections.

Democratic lawmakers and their aides say the sides can look past the squabbling to reach a deal that can pass. Still, they are urging the White House to speed up collaboration and start addressing their concerns to get a vote on the agreement by year-end.

The infrastructure meeting was a setback for those in Congress who were hoping for more cooperation on agenda items that matter to both sides, a senior Democratic aide told Bloomberg. However, instructions from the speaker to her members haven’t changed and she’s in no way abandoning the work on USMCA, the aide said.

In a step viewed as positive, the speaker this month created working groups to negotiate with the administration on areas in USMCA they’d like to see changed, including provisions on labor, environment, pharmaceuticals and enforcement. The removal of U.S. steel and aluminum tariffs on Canada and Mexico this month also cleared a hurdle for the Democrats.

House Majority Leader Steny Hoyer. D-Md., in an interview Tuesday downplayed the effect of Trump’s angry outburst toward Pelosi on the USMCA process and emphasized the need for the White House to address Democratic policy objections.

"We are trying to get to yes," Hoyer said.

At the same time, Pelosi has made clear repeatedly that rushing a vote — like the president has said was necessary — would be a bad idea. There’s precedent for Pelosi stalling trade agreements in Congress that she felt weren’t strong enough on labor and the environment, Bloomberg said.

The risk for Democrats is that Trump may follow through on his threat to withdraw from the original NAFTA, a scenario that would increase tariffs across the continent.

Both parties realize the importance to the economy of getting the agreement approved, said Clete Willems, a former senior White House trade official who is now a partner at Akin Gump Strauss Hauer & Feld LLP in Washington. “I hope that both sides will put politics aside and get this passed," he said. U.S. Trade Representative Robert Lighthizer, who led the re-negotiation of NAFTA, and Pelosi “are professionals.”

It “would be a sad commentary on the state of our affairs’’ if Pelosi and her caucus reject USMCA because Democrats don’t want to give Trump a win for 2020, Marc Short, Vice President Mike Pence’s chief of staff, said Wednesday. Pence will be in Ottawa on Thursday to advance the deal, which the Canadian and Mexican legislatures also still need to pass. Canadian Prime Minister Justin Trudeau on Wednesday introduced legislation to ratify USMCA.

The administration is encouraging U.S. lawmakers and businesses to lobby Pelosi’s office “to ask her to bring this forward for a vote in Congress because we think we have the votes,” Short said on CNBC.

The Trump administration is eyeing a vote before the August congressional recess in order to protect it from the 2020 electoral cycle, said U.S. Chamber of Commerce’s John Murphy.

His organization remains optimistic about ratification this year. "Beneath the news of the day, there have been positive developments," he said.

While a number of outstanding issues need to be resolved before a vote can take place, the gaps between Democrats and the administration “are bridgeable” and don’t require reopening the deal, Murphy said.

“I have been doing this for 20 years and in every trade agreement there are issues that need to be addressed,” he said.

Linda Dempsey, a vice president at the National Association of Manufacturers, said outreach by Lighthizer in Congress has built momentum for a deal. "There’s a lot of goodwill," she said.

Also this week, the New York Times ran a somewhat different take on this fight which it headlined, “Pelosi ‘can get to yes’ on President’s trade deal, but not anytime soon.” It says that the “war of words with the White House stalls the legislation.”

It also notes that Democratic concerns are said to be “purely about policy but are not fully defined yet,” and it thinks that the longer Congress waits, the greater the likelihood that voting for the successor to NAFTA, a deal “criticized by Democrats and Mr. Trump alike could become a liability in 2020.” So, more than ever, the continuing NAFTA legislative debate should be watched closely by producers as it emerges, 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.

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