Washington Insider -- Tuesday

The Continuing Spin on the Economy

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

Two New Small Refiner Exemption Requests Received By EPA

Fresh on the heels of EPA announcing they have granted 31 small refiner exemptions (SREs) under the Renewable Fuel Standard (RFS), EPA data now shows that additional requests have been made.

EPA now shows that 42 SREs have been received for the 2018 compliance year as two are currently listed as being “pending petitions.” Agency data previously indicated that 40 requests had been made with 31 of those being approved. The data showed that six were denied and three were declared ineligible or were withdrawn.

It is not clear when the two latest SREs were received nor is there any indication as to when the agency will make a decision on the latest requests.

Canada to Pay Dairy Farmers Hurt by Trade Deals

Canada will spend C$1.75 billion ($1.32 billion) over eight years to compensate dairy farmers facing greater competition due to free trade deals, Prime Minister Justin Trudeau's government said on Friday.

The move is seen as an attempt to satisfy an influential group of voters two months before a national election. Payments to be made in the first year are budgeted to take up C$345 million from the C$1.75 billion funded program.

The payments to dairy farmers are to compensate sales they have lost after trade pacts were struck with the European Union and Pacific nations, Agriculture Minister Marie-Claude Bibeau said in an announcement made at a dairy farm in Compton, Quebec.

Washington Insider: The Continuing Spin on the Economy

The big news this week is the increasing economic uncertainty and growing exposure to the “trade risk.” Bloomberg says that President Donald Trump is working to calm the waters on talk of a weakening economy by asserting that the U.S. is “doing very well with China, and talking!” However, he suggested he wasn’t ready to sign a trade deal, hours after his top economic adviser laid out a potential timeline for the resumption of substantive discussions with Beijing.

The president continues to assert that China needs a trade agreement more than the U.S. given the relatively weak condition of the Asian nation’s economy.

White House economic director Larry Kudlow said on Sunday that recent phone calls between U.S. and Chinese trade negotiators had been “positive,” potentially opening the door to further progress toward a deal.

More teleconference meetings with Chinese negotiators are planned over the next week to 10 days, the White House National Economic Council director said on Sunday.

“If those deputies meetings pan out, as we hope they will, and we can have a substantive renewal of negotiations then we are planning to have China come to the USA and meet with our principals to continue the negotiations and the talks,” Kudlow added.

The state of the economy is key to Trump’s re-election prospects in 2020; a downturn would dim the outlook for a president whose approval ratings have stayed stubbornly low, Bloomberg said. Major U.S. equity indexes, often referenced by the administration as a litmus test of its success, have been essentially flat over the past 12 months.

“There’s no recession on the horizon,” Kudlow claimed. He added that there were no plans for additional fresh measures to boost the economy and that the administration would stay the course on its current agenda.

At the same time, trade advisor Navarro denied on CNN that the U.S. had seen an inverted yield curve, often a forerunner of recession because it signals market expectations for weaker growth ahead. “Technically we didn’t have a yield curve inversion,” he said. “All we’ve had is a flat yield curve” that he called “the result of a very strong Trump economy.” However, as recently as last Wednesday, the president had lashed out at Federal Reserve Chairman Jerome Powell specifically citing the “CRAZY INVERTED YIELD CURVE,” Bloomberg noted.

Navarro once again criticized Powell and the Fed on Sunday. “The Federal Reserve chairman should look in the mirror and say ‘I raised rates too fast,’” he said on CNN.

Additional Fed rate cuts beyond the quarter-point move in July will be a good thing, Navarro said, and a potential easing by the European Central Bank in September will help Europe’s struggling economy.

Navarro noted that the U.S. still has “significant structural issues” with China.

In an interesting side note on the economy amid administration discussions of trade issues with China, Europe and others, an NBC-Wall Street Journal poll released Sunday showed support for free trade among Americans is on the rise, Bloomberg said.

Almost two-thirds – 64% – see free trade as good for the U.S., an all-time high for the survey series and up 7 percentage points from the last time it was asked, in 2017. Only 27% believe it’s bad, citing damage to key U.S. industries, a key claim in the last campaign.

Trump and his top aides have said repeatedly that Beijing, not U.S. companies or consumers, are bearing the brunt of the tariffs imposed on imports from China. Trump tweeted on Sunday that China is “eating” the tariffs.

However, many analysts disagree and the administration is working to counter those conclusions. Navarro rejected a study by researchers at the University of Chicago, the Federal Reserve Bank of Boston and elsewhere that found U.S. importers are shouldering the vast majority of price changes from the tariffs, versus China’s 5%. Tariffs “aren’t hurting anyone in the United States,” Navarro said.

However, Labor Department measures of U.S. inflation increased in July, driven by costs of shelter, apparel and used cars, and gained the most in a decade in the past two months, the report said. Economists say the boost in inflation shows the tariffs are gradually filtering through.

The tariff war has increased prices for goods and U.S. companies are paying the higher levies, according to a survey by the Federal Reserve Bank of New York. The U.S. government collected $57 billion in customs duties in the fiscal year that began Oct. 1, according to the Treasury Department.

So, we will see. The recent increases in volatility in stocks in addition to increases in consumer prices are indicators that likely will continue to increase pressure on the administration as elections draw nearer – areas in which the ag sector likely will continue to be on the front line, and which should be watched closely as they intensify, 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.

If you have questions for DTN Washington Insider, please email edit@dtn.com