Washington Insider -- Tuesday

More Trade Friction with China

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

Refiners Critical Of Trump Plans to Boost Biofuels

Executives for major oil refiners urged President Donald Trump not to move forward with proposed changes to the Renewable Fuel Standard (RFS) program meant to boost biofuel usage.

The biofuel moves are meant to compensate for the Environmental Protection Agency's (EPA) granting of small refinery exemptions (SREs). Trump is expected to boost federal mandates for production of corn-based ethanol and biodiesel in response to complaints from farmers about the administration’s policy of issuing a growing number of the refinery waivers.

"The fixes that are being suggested by the Department of Agriculture and the biofuels community that would raise the conventional biofuel mandate will do nothing to increase domestic ethanol usage, but will only give incentives for more imported biodiesel," said CEOs Joseph Gorder of Valero, Gary Heminger of Marathon and Jeff Ramsey of Flint Hills Resources, in a letter to President Donald Trump.

The companies led by the three chief executives produce nearly one fifth of U.S. ethanol.

The refiners also pushed back on the suggestion that ethanol demand has been undermined by EPA waivers exempting some small refineries from biofuel-blending requirements, saying the notion is "simply untrue."

Oil industry groups may file lawsuits to stop the policy changes under discussion at the White House if they cannot persuade Trump to abandon the plans, said American Fuel and Petrochemical Manufacturers (AFPM) President and CEO Chet Thompson. "It’s never over until it’s over with this administration," Thompson remarked. He argued the administration cannot "unilaterally" move forward with the changes now under consideration and said the industry will fight them through EPA's rulemaking process and in court if necessary. Trump is expected to announce the biofuel package next week in the Midwest.

Thompson and American Petroleum Institute (API) President and CEO Mike Sommers also penned a joint letter to President Trump urging him not to move forward with the changes and disputing claims from biofuel proponents that SREs are causing demand destruction for ethanol.

USDA's McKinney To Lead Canada Ag Trade Mission

USDA Undersecretary for Trade and Foreign Agricultural Affairs Ted McKinney is leading a trade mission to Canada Sept. 3-6, the department announced. He will be accompanied by representatives from 41 U.S. agribusinesses and associations looking to expand sales to the United States’ top agricultural export market.

"With the new U.S.-Mexico-Canada Agreement (USMCA) poised for passage, this is a great time for U.S. agricultural exporters to be shoring up ties with our neighbors to the north,” McKinney said.

"Our two nations already enjoy the world’s largest bilateral agricultural trade relationship, with almost $120 million worth of food and farm products crossing the border every day," McKinney noted. "The USMCA will make this good relationship even better, and we’re looking forward to meeting with current and potential customers in Toronto and Montreal to explore new and expanded business opportunities."

Washington Insider: More Trade Friction

Much of the Chinese media is continuing to shrug off President Trump’s latest escalation of the tariff war as state sources, especially, signal that the government is ready to weather the economic turbulence.

For example, Bloomberg says that Chinese editorials and commentaries since the administration slapped tariffs on roughly $110 billion in Chinese imports on Sunday have focused on the impact the latest tariff hikes will have on U.S. consumers. In addition, late Sunday, the State Council, or cabinet, released a statement pledging to increase economic support if needed, the report said.

Chinese officials have yet to give a clear sign that they intend to carry through a plan for in-person negotiations in Washington this month, a meeting planned before the latest round of tit-for-tat measures. Few column inches were dedicated to the trade war Monday and there was little evidence of any change in stance.

However, the theme was clear: “It is time the U.S. administration reconsidered its poorly thought out China-bashing moves,” an editorial in the China Daily argued. “Working to secure a trade deal would be a more fruitful approach.”

The 15% U.S. duty hit consumer goods ranging from footwear and apparel to home textiles and certain technology products like the Apple Watch. A separate batch of about $160 billion in Chinese goods--including laptops and mobile phones--will be hit with 15% tariffs on Dec. 15.

The new tariffs imposed over the weekend are “a turning point in the trade war” with the U.S., an editorial in the Communist Party’s tabloid Global Times wrote Sunday evening. “The U.S. economy cannot sustain its superficial prosperity and is facing a bigger risk of decline,” the editorial said. “The Trump administration has shot Americans in the foot. When more and more Americans feel the pain, maybe it will be time for Washington to recover rationality.”

While the Trump administration has dismissed concern about a protracted trade war, business groups are calling for a tariff truce and the resumption of negotiations—and talks scheduled for Washington in September are still on, the President told reporters Sunday. “We are talking to China, the meeting is still on,” he said.

The President repeated the assertion that China, not the U.S., is “paying” for the tariffs and said that farmers hurt by Beijing’s retaliation are being made “more than whole” by federal payments.

Chinese media disagree with both statements, as do many in the United States. While president Trump has repeatedly said China pays for U.S. tariffs on Chinese sales, many companies and economists report that U.S. importers bear the cost, as do consumers. The non-partisan Congressional Budget Office in August projected that by 2020, administration tariffs and its trade war will reduce the level of real U.S. GDP by about 0.3% and reduce average real household income by $580.

That followed a JPMorgan Chase & Co. note to clients estimating that the latest round of tariffs will increase the average cost per U.S. household to $1,000 a year--up from $600 for duties enacted last year. That estimate is in the low range because it was based on a duty rate of 10%, before it was increased it to 15%.

The tariffs are also harming the global economy, Bloomberg says. The International Monetary Fund in July further reduced its world growth outlook, already the lowest since the financial crisis.

China’s retaliation took effect as of 12:01 p.m. Sunday in Beijing, with higher tariffs being rolled out in stages on a total of about $75 billion of U.S. goods. Its target list strikes at the heart of the President’s political support--factories and farms across the Midwest and South at a time when the U.S. economy is showing signs of slowing down.

The Sept. 1 duty boosts include an extra 10% on American pork, beef, and chicken and various other agricultural goods, while soybeans will get hit with an extra 5% tariff on top of the existing 25%. Starting in mid-December, American wheat, sorghum, and cotton will also get a further 10% tariff. While China imposed a new 5% levy on US crude oil starting from September there was no new tariff on liquefied natural gas.

The resumption of a suspended extra 25% duty on U.S. cars will resume Dec. 15, with another 10% on top for some vehicles. With existing general duties on autos taken into account, the total tariff charged on U.S.-made cars would be as high as 50%. Gary Shapiro, president of the Consumer Technology Association, said the Trump administration’s approach of using tariffs to pressure China into a deal has backfired and many producer groups now appear to agree.

So, we will see. It appears to be increasingly difficult for the administration to make its case that the tariffs only hurt the Chinese, or that its trade aid farm programs are fully successful. Still, both sides are deeply dug in on their current policies and are resisting change—as the debate continues to rage. This is an important fight; one producers should watch closely as it proceeds, Washington Insider believes.

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