Washington Insider -- Wednesday

Fight Over Trade Facts

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

NFU not yet backing USMCA

The National Farmers Union is so far not yet backing the U.S.-Mexico-Canada Agreement (USMCA), despite the agreement being widely viewed by most in U.S. agriculture as a positive for the sector.

A resolution adopted by NFU’s board and released Monday says that country-of-origin labeling (COOL) should be added to the agreement, and that the trade pact should also address concerns Democrats have raised about labor standards and drug pricing.

COOL language will not be part of any final USMCA voted on by Congress, congressional and administration sources stress, but discussions continue on some of NFU's other shortcomings in the environmental, labor and drug pricing areas.

The group held a session at USDA as part of their annual flyin for members to visit Washington and meet with administration officials and lawmakers. Some in the group were critical of the Trump trade policies, but USDA Undersecretary Ted McKinney sought assured the farmers he heard their concerns and pledged the administration was seeking to open markets for U.S. ag goods.

For perspective, NFU has never supported a multilateral trade deal.

More Pressure on Administration as They Try to Find Biofuel Compromise

Small refinery exemptions (SREs) continue as a source of scorn for biofuel backers, with the National Biodiesel Board and 33 biodiesel producers calling on the Trump administration to boost mandates for biodiesel.

“Small refinery waivers destroy demand for all biofuels across the board, with a significant impact on domestic biodiesel and renewable diesel producers,” the firms said in a letter to President Donald Trump. “Every small refinery waiver issued by the Environmental Protection Agency has the potential to put a U.S. biodiesel producer out of business.” The letter noted that small refiners can produce nearly one billion gallons of fuel in a year, with the biodiesel requirements requiring the blending of about 20 million gallons of biodiesel or renewable diesel annually. The companies said that amounts to a “very small fraction” of total fuel production.

The 31 SREs granted for the 2018 compliance year amount to 1.4 billion gallons of renewable fuels not being used, the letter noted, including “millions of gallons of biodiesel and renewable diesel in the biomass-based biodiesel, advanced and overall volumes.”

This comes as the administration continues to work on a biofuel policy plan, a package that USDA Secretary Sonny Perdue told reporters Tuesday would make farmers “happy” and still “save small refiners from certain closing.”

Discussions are still ongoing, Perdue noted. “The best answer is it is still in process,” he said, including discussing “how we can recover some of the small refinery waivers that were given, from a gallons perspective.”

Washington Insider: Fight Over Trade Facts

For the past several years there has been an important policy disagreement in many quarters over trade basics — whether trade deals simply ship jobs overseas, or not. Powerful groups in both parties openly disagree on trade issues, a controversy that is not new; the previous administration sharply criticized trade impacts during its campaign, but later came to support proposals for far-reaching deals.

Many press reports glibly cite trade agreements as the source of U.S. job losses in several sectors, although more recently, more detailed investigations have begun to focus on the role of new technologies in increasing productivity and causing changes in the investment and employment landscape.

Still, the current administration has adamantly insisted that its heavy reliance on tariffs — taxes and tax threats on imports — has little impact on the domestic economy. And the New York Times is reporting this week that Treasury Secretary Steven Mnuchin said that “President Trump’s tariffs on Chinese imports were having no impact on the United States economy.” The Times called the assertion “at odds with a raft of increasingly gloomy economic data and industry surveys.”

It noted that the administration has used large tariffs — increased rates on $360 billion of imports from China and is preparing to tax another $160 billion worth on Dec. 15. It concluded that the levies have begun to hit consumer products including furniture, televisions and bicycles, prompting retailers and manufacturers to warn of lower sales and profits going forward. And, it cited the administration’s provision of $28 billion in payments “to help struggling farmers who have lost sales as a result of Chinese retaliation” as evidence of current and potential negative impacts.

While the United States and China are expected to resume high-level trade talks next month, and a deal could ultimately be reached, Secretary Mnuchin suggested that the administration “saw no downside to keeping the trade war going, dismissing the idea that Trump’s tariffs were doing any damage to the United States economy.”

“It’s fair to say it’s impacted the Chinese economy,” Mnuchin said in a TV interview. “We have not yet seen any impact on the U.S. economy.” Mnuchin’s comments dovetail with those of the President who has continued to insist that the trade war is hurting China more than the United States, “which is taking in billions of dollars in tariffs.”

Still, the Times charged that “the Treasury secretary’s view seems increasingly divorced from economic data, which are showing pain from a trade war that has lasted more than a year.” The report proceeded to list statements and studies that report such impacts, including those already affecting the economy.

For example, last week an Institute for Supply Management survey showed that manufacturing activity in the United States contracted for the first time since 2016 and employment growth was moderating. Countries from Germany to Australia are feeling the effects of the trade war, contributing to a slowdown in a global growth, the report said.

The Treasury secretary did allow that certain companies had been feeling the pinch from higher taxes on their imports from China but claimed that the administration was managing this through an exemption process that allowed companies to avoid certain tariffs to help mitigate the effect.

“It is the U.S. importer which technically pays the tax,” said Brad Setser, a Council on Foreign Relations fellow and former Treasury Department economist. “The extent that other countries pay for a share of the tax, it is because the tax induces them to reduce the price they charge to the United States.”

Business groups representing a wide range of sectors, from retailers to soybean growers, have blamed the tariffs and China’s retaliation for disrupting their supply chains and slowing their sales and hiring.

However, the administration’s top spokesmen and economic advisers have publicly tried to put a positive spin on the trade war, saying it is having little to no effect in the short term and will pay off in the long term.

“If we can get a good deal, a deal that’s good for us, we’ll sign it,” Mnuchin said on Monday. “If not, the president is perfectly fine with continuing the tariffs, which are raising significant amounts of money for the U.S. Treasury.”

The Times charged further that “while they express optimism in public, some administration advisers have begun to caution the President about the potential economic impact from a long-running trade war. That includes Sec. Mnuchin, who has privately tried to prevent Trump from escalating his trade fight with additional tariffs.

In the meantime, economists in the administration have been carefully tracking economic data and considering strategies to spur growth, including a potential payroll tax cut. The President has called for additional tax cuts and has repeatedly pressed the Fed to cut rates more aggressively to stimulate an economy that he says is firing on all cylinders.

Mnuchin acknowledged that slowing global growth could have a “moderate impact” on the U.S. economy, though he has previously insisted that any slowdown is unrelated to the trade war. But he said he remained optimistic that the passage in Congress of a trade pact with Canada and Mexico would jump-start the economy and that a deal with China remained a possibility.

So, we will see. Sectors like agriculture that have worked hard to build overseas markets are deeply unhappy to see them limited by tariffs, and are increasingly critical of the administration’s “get tough” policy as it is currently being administered. Whether that pushback reaches a critical level as the campaign season for the 2020 election nears remains to be seen, but producers should watch that debate closely as it intensifies, Washington Insider believes.

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