Washington Insider -- Wednesday

The Huawei Interlude

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

Small Refiner Exemption Issue Continues to Erupt

The issue of small refiner exemptions (SREs) continues as a focal point in Washington and in farm country. Reuters reported that President Donald Trump “ordered cabinet members on Monday to stem the tide of rising anger in Iowa and other Farm Bill states” over the EPA granting of SREs.

The report said Trump’s order came after a two-hour meeting at the White House Monday that involved representatives from USDA, EPA and the Energy Department.

EPA last week announced that it had granted 31 SREs of the 40 that had been submitted for the 2018 compliance year at that time, with six rejected and three either withdrawn or declared ineligible. Since then, EPA data now shows two more SRE requests are pending for the 2018 compliance year, bringing the total requested to 42.

The announcement last week prompted several lawmakers to criticize the administration’s action which reports indicated were due to Trump’s own orders to EPA to announce the SREs. Senate Finance Committee Chairman Chuck Grassley, R-Iowa, denounced the action. “They screwed us when they issued 31 waivers compared to less than 10 waivers during all of the Obama years,” Grassley told reporters.

VP Pence Pushes on China Trade, USMCA Passage

Vice President Mike Pence has warned China that it will be harder to strike a trade deal if it violates Hong Kong’s laws amid the continued protests.

"For the United States to make a deal with China, Beijing needs to honor its commitments, beginning with the commitment China made in 1984 to respect the integrity of Hong Kong's laws through the Sino-British joint declaration," Pence said during a speech at the Detroit Economic Club.

He also called on Congress to quickly pass the new U.S.-Mexico-Canada Agreement (USMCA) after the recess. Pence noted that passage of USMCA would also help bolster the administration’s agenda with Beijing. “Make no mistake about it ... passing the USMCA will strengthen the president’s hand in negotiations with China,” he said.

Washington Insider: The Huawei Interlude

Economic and trade policy have become exceedingly complex these days, especially as the U.S. economy is seen by many as possibly slowing ahead of next year’s elections. One central issue, the New York Times says this week, is how the U.S. treats Huawei, the Chinese telecommunications giant that is seen by many as a potential security threat — and which the administration has moved to ban from U.S. operations.

This week, however, the United States announced that it will allow American companies to continue doing business with Huawei for an additional 90 days, Commerce Secretary Wilbur Ross said.

The announced reason is to give rural telecommunications companies more time to wean themselves from reliance on Huawei supplies of parts and equipment. Many rural telecom firms have been scrambling to figure out how they will replace Huawei equipment since the administration banned the company from U.S. communications networks in May, and have mounted a strong lobbying effort at the White House for more time, the Times said.

“As we continue to urge consumers to transition away from Huawei’s products, we recognize that more time is necessary to prevent any disruption,” Ross told the press this week.

Although Huawei has been thrust into the middle of the President’s trade fight with China, he has given mixed signals on U.S. policies. After the trade talk breakdown in May, the Commerce Department added the company to a United States “entity list” that effectively banned U.S. firms from buying Chinese technology and products without government approval.

But following U.S. company complaints that the ban would be hard to comply with on such short notice, the Commerce Department offered a temporary reprieve in exchange for China’s purchasing more American farm products, but no such agreement emerged. On Monday Secretary Ross said that the administration would extend the reprieve through mid-November.

In a sign that the administration is not completely easing pressure on Huawei, the Commerce Department said that it was also adding 46 affiliates of Huawei to the entity list.

In a terse statement issued on Monday, Huawei called the addition of the affiliates “politically motivated” and unrelated to national security and said that it was being treated “unjustly.”

“These actions violate the basic principles of free market competition,” Huawei said in the statement. “Attempts to suppress Huawei’s business won’t help the United States achieve technological leadership.”

President Donald Trump has called the company a national security threat, and the United States has concerns that Huawei could be used to help the Chinese government’s espionage efforts and to disrupt American telecommunications infrastructure in the event of a conflict.

“Huawei is a company we may not do business with at all,” Trump said last weekend, and argued that the relief for Huawei comes as trade negotiations between the United States and China remain at an impasse.

The President agreed last week to delay some additional tariffs on toys and electronics until December, but the United States is still expected to slap levies on more Chinese imports on Sept. 1. Earlier this month it labeled China a currency manipulator for the first time since 1994. China is expected to unveil plans to retaliate.

Despite the continuing tension, President Trump says that he and President Xi Jinping of China are planning to speak and that the two countries would continue to have trade talks.

Republicans and Democrats in Congress have been urging President Trump to keep his hard line on Huawei. Lifting the ban outright would probably be met with strong bipartisan disapproval, NYT says.

The Trump administration continues to warn that Huawei poses a national security threat — and American officials have been warning allies for months that the United States will stop sharing intelligence if they use Huawei and other Chinese technology to build the core of their fifth-generation, or 5G, networks.

There is widespread concern among U.S. firms that Huawei is a security threat but some observers believe that effective safeguards can be designed and implemented, as they are in Britain and several other countries that monitor Huawei activities closely but continue to allow Huawei operations.

At this time, the easing of the Huawei ban is seen as an easing of the U.S.-China trade fight and a lessening of the negative economic impacts of that battle. However, so far, positive signs of a let-up in that war have mainly been temporary and so they continue to be issues that producers should watch closely as they emerge, 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