Washington Insider -- Monday

Wall Street Journal Recession Warning

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

EPA Issues 31 Small Refiner Exemptions for 2018 Compliance Year

The agency received 40 requests for the 2018 compliance year and prior to Friday (August 9), data showed two had been withdrawn/declared ineligible. The data now show that 31 have been granted, six denied and three were withdrawn/declared ineligible.

The data also show that EPA has now denied a request for the 2016 compliance year and one for the 2017 compliance year that had previously been showing as pending in the data until the update on Friday.

The 31 requests granted for the 2018 compliance year is down from 35 granted for the 2017 compliance year but still above the 19 approved for the 2016 compliance year and seven approved for 2015 and eight each for the 2013 and 2014 compliance years.

As expected, the news has not been welcomed by biofuel supporters. House Ag Committee Chairman Collin Peterson, D-Minn., expressed disappointment at the data released Friday. “The Administration tried to bury bad news for rural America by quietly approving 31 more waivers this Friday afternoon that undermine the Renewable Fuel Standard (RFS) and the market for corn,” Petersons said in a statement. “On Wednesday, I hosted a packed forum at Farmfest with Secretary Perdue where farmers raised this issue again and again. Farmers are on the front lines of the tariff war and this announcement by the EPA will only make things worse.”

Other biofuel backers offered similar negative reactions.

Judge Dismisses Antitrust Suits Against US Pork Companies

Antitrust lawsuits filed against several U.S. pork companies that alleged they conspired to limit supplies in order to boost prices and their own profits have been dismissed by a federal judge in Minneapolis. Chief Judge John Tunheim said that plaintiffs in the case did not show there was “parallel conduct” among the companies that indicated they conspired to rig prices.

The dismissal of cases against Hormel Foods, JBS USA, Smithfield Foods and Tyson Foods and data provider Agri Stats was without prejudice, meaning the plaintiffs would be able to amend their complaints.

The suits contended the companies had reduced production in the years following 2009. But Tunheim said the allegations focused on industry data and public statements but did not have any specific allegations of action to cut production besides Smithfield. "It may be true that some of these defendants cut production in the years following 2009. It may also be true that all of these defendants cut production," he wrote. "The fact that the complaints contain this ambiguity is exactly the problem."

At least one of the attorneys involved said they would amend their complaints.

Washington Insider: Wall Street Journal Recession Warning

The Washington Post reported late last week that trade policies have become increasingly personal and focused on a particular controversial advisor, Peter Navarro—who warned on Thursday that the “Trump’s trade war could trigger a recession.”

The Post noted that Navarro is a strong proponent of going hard after China using tariffs to force trade practices. His official title is White House assistant for trade and manufacturing.

“The Wall Street Journal will write what it writes. It doesn’t sound a lot different from the People’s Daily in terms of the news that it puts out," Navarro said in an interview on Fox Business Network.”

The Post obviously enjoyed the controversy and noted that People’s Daily is the largest newspaper in China and provides an official outlet for the Chinese Communist Party. The Journal, by contrast, is owned by businessman Rupert Murdoch and his family and its editorial board is widely considered a leading Republican and capitalist voice.

The Journal’s Thursday editorial, “A Navarro Recession?,” cautioned that Trump’s escalating trade battle with China is backfiring by causing businesses to stop investment and reduce hiring. The editorial blamed Navarro for giving the president poor advice.

“Mr. Trump’s willy-nilly trade offensive could be the mistake that turns a slowdown into the Navarro recession,” the editorial board wrote.

Navarro dismissed the editorial as biased and wrong when he was asked about it in a Fox TV appearance. He insisted the U.S. economy is doing well and blamed Congress and the Federal Reserve for the fact that hiring has slowed from last year and that business investment dried up in the second quarter.

“This economy is solid as a rock,” Navarro said. “But President Trump doesn’t want a very good economy, he wants a great economy.”

However, the stock market has mostly gone sideways since Trump started putting tariffs on various items and countries in January 2018, the Post said. And, while business leaders and the Wall Street Journal editorial board say the trade war is harming the economy Navarro insists that all blame falls on the Fed, even though Trump appointed the Fed chair and most of its board of governors.

Navarro predicted that the Fed would reduce interest rates three or four more times by the end of the year, an unprecedented amount of aid at a time when the economy is doing pretty well.

“I believe that by the end of the year, we’ll have 75 to 100 basis points in cuts, not because this economy is weak, but because of this spread problem,” Navarro said, referring to the difference between the Fed’s 2.25 percent benchmark interest rate and the 1.72 percent yield on 10-year Treasury bonds.

The Fed cut interest rates in July for the first time since the financial crisis, citing increased uncertainty from slowing global growth overseas and trade tensions.

Hope of a quick resolution to the U.S.-China trade war faded last week as both sides have dug in further, the Post said. At Navarro’s urging, Trump said he will put 10% tariffs on an additional $300 billion worth of Chinese imports. China responded by devaluing its currency, a move Trump detests, although it does help alleviate the costs of the tariffs.

It turns out that the Wall Street Journal is far from the only critic of current U.S. trade policies. Bloomberg also reported that former Treasury Secretary Lawrence Summers said on Sunday that the U.S. and world economies are at their riskiest moment since the global financial crisis a decade ago as a result of growing trade tensions.

He spoke on CNN’s “Fareed Zakaria GPS” about what he called a “sadomasochistic and foolish trade conflict” the U.S. has engaged with China under President Donald Trump.

“We are losing very substantial amounts in terms of uncertainty, reduced investment, reduced job creation – for the sake of benefits that are very unlikely to be of substantial magnitude,” Summers said.

He concluded, “I don’t think there’s any question that American workers are going to be poorer, American companies are going to be less profitable and the American economy is going to be worse off because of the course we’re on,” Summers said.

Summers, director of the National Economic Council during the Obama administration and a former chief economist of the World Bank said that despite the risks, a crisis of the magnitude seen during the previous recession is still unlikely and “would be a great surprise” if one occurred.

Even if the economy is not broadly undercut by the current trade policies, many very significant markets likely will be, including those for ag products. This is a key fight that producers should watch closely as it intensifies, Washington Insider believes.

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