Washington Insider -- Thursday

By DTN's Washington Insider

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

Trump Very Upbeat on Getting Trade Deal with China

President Donald Trump accelerated expectations for positive results of the now-scheduled meeting with Chinese President Xi Jinping at the G20 summit next week in Osaka, Japan.

Trump, who revealed he had a “long talk” with Xi on the phone Tuesday morning, said “China very much wants to discuss the future and so do we.”

Trump predicted a “very good chance” of working out a trade agreement and that some lower-level discussions would begin Wednesday. “I think China wants to make a deal. They do not like the tariffs. A lot of companies are leaving China in order to avoid the tariffs,” Trump said to reporters.

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China’s Commerce Ministry Says Antidumping Duties on US DDGs To Stay

China's Ministry of Commerce Wednesday announced that antidumping and anti-subsidy tariffs on imports of U.S. distillers’ dried grains (DDGs) will remain in place after reviewing the issue.

The ministry said that it was keeping the antidumping duties of 42.2% and 52.7% in place along with anti-subsidy tariffs of 11.2% to 12% on U.S. DDGs.

Their determination was based on a finding that there could be potential damage to domestic firms if the duties were removed. The agency undertook the review in April.

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Washington Insider: Fed Fight Gets Down and Dirty

The expected fight over monetary policy appears ready to burst into public view these days. Following criticism — sometimes bitter — from President Donald Trump, the world’s most powerful central bank is making clear it thinks the law is on its side if the President tries to remove Jerome Powell as Federal Reserve chairman.

White House lawyers have equipped Trump with a possible blueprint for demoting Powell by stripping him of his chairmanship and leaving him as only a governor, Bloomberg says. But the Fed, which faces frequent attacks from Trump for not being more accommodating to his economic agenda, has hinted for the second time that it won’t back down easily.

In response to inquiries earlier this week about the White House review of the legality of removing Powell, Fed spokeswoman Michelle Smith offered a direct response, saying the chair can “only be removed for cause.”

For his part, Powell has previously demonstrated his resolve to complete his four-year term.

The latest episode in this battle was revealed as the Fed entered a two-day policy meeting this week — as Trump officially launched his re-election bid on Tuesday, a campaign in which he’ll ask voters to keep him in the White House largely on the strength of the U.S. economy.

Bloomberg thinks the President has set up the Fed and Powell as a scapegoat if there’s any downturn before election day. Before leaving Washington for this week’s political rally in Orlando, the President didn’t dismiss the idea of removing the chairman. “Let’s see what he does,” He told reporters.

But Powell’s and Smith’s statements suggest possible friction if Trump acts to remove the chairman. It appears the Fed has done their own analysis and it’s given them sufficient confidence to “plant a flag,” said Sarah Binder, a senior fellow at the Brookings Institution in Washington who has written on the Fed’s relationship with Congress.

Some senior administration officials have said they don’t think Powell can be removed. Asked in November if Trump could fire Powell, the president’s chief economic adviser, Larry Kudlow, said: “a Fed chair can only be removed for cause.”

The Fed may feel compelled to show some firmness given how little support it has received from Senate Republicans who shy from crossing the president, Binder said. “They’re staking their ground in the absence of any clear signal from the Hill, taking a stand on whether the chair can be removed.”

A chorus of Democrats including Senate Minority Leader Chuck Schumer, D-N.Y., warned Trump away from any action that could undermine the Fed’s independence. Alabama Republican Senator Richard Shelby expressed the most concern among his party, saying on Tuesday that the Fed should remain “above politics” and do “what’s best for the economy and what’s best for the long-term stability of our currency, too.”

Trump has expressed skepticism of other central bankers as well. Earlier Tuesday, he criticized European Central Bank President Mario Draghi for signaling a rate cut and pushing down the value of the euro. He told reporters that he wants a “level playing field” from the Fed.

Bloomberg News reported in December that Trump discussed firing Powell out of frustration over the central bank’s interest rate increases. Earlier this year, Trump asked White House lawyers to explore his options for removing Powell as chairman. Trump’s team concluded that it would be highly questionable to fire Powell without cause but that a case could be made for replacing him with a sitting Fed governor. Those findings remain closely held within the White House.

While Trump still regularly expresses his displeasure with the Fed in tweets, talk of removing Powell has subsided. Trump told Powell in a March phone call, “I guess I’m stuck with you,” according to the Wall Street Journal.

The Federal Reserve Act provides explicit protection for all Fed governors against removal by the president except “for cause.” Courts have interpreted the phrase to require proof of some form of legal misconduct or neglect of basic duties. A disagreement over monetary policy wouldn’t meet that bar.

But if Trump tries to remove him, Powell may be unwilling to challenge him in courts out of concern about damage to the institution and possibly to financial markets, said Mark Spindel, chief investment officer at Potomac River Capital.

“In doing that calculus, I think Jay would run to ground and decide it’s just not worth the fight,” he said.

So, we will see. The Fed is right to be eternally concerned about inflation and to be skeptical about how “exuberant” they should be in efforts to bolster an economy, especially given the tight labor supply—but it also has to be concerned that monetary policy not be an unwelcome restraint on growth. All in all, crafting the “just right” policy is a thankless and tricky job, made riskier by outside pressures on the part of vested interests — a process producers should watch closely as the battle continues, Washington Insider believes.

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