Washington Insider -- Monday

Reduced Trade Tensions

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

Xinhua Reports US Soybeans, Pork Exempted From Additional Tariffs

Markets are abuzz on reports from the Xinhua news that U.S. soybeans and pork will be exempted from additional tariffs. “The Customs Tariff Commission of the State Council will exclude some agricultural products such as soybeans and pork from the additional tariffs on U.S. goods,” Xinhua reported. “China supports domestic companies in purchasing a certain amount of U.S. farm produce in line with the rules of the market and the World Trade Organization, according to sources with the National Development and Reform Commission and the Ministry of Commerce,” the report noted.

The news service also noted the move was “after the United States decided to make adjustments to the additional tariffs to be imposed on Chinese goods on October 1.” Plus, the report talked up “high-quality” U.S. farm products.

“China has a huge market, and the prospects for importing high-quality U.S. farm produce are broad,” Xinhua said. “China hopes the United States will be true to its word, make progress on its commitments and create favorable conditions for bilateral agricultural cooperation, said sources with the relevant departments of China.”

This backs up a Xinhua report Thursday which said the list of 16 U.S. products that would be exempt from additional tariffs was the "first set of U.S. goods to be excluded," with Ministry of Commerce spokesman Gao Feng saying the commission would "continue to work on the exemption process and release subsequent lists in due course," Xinhua said.

Speaker Pelosi Addresses USMCA Possibilities

“It boils down to enforceability... and I think it can be achieved,” House Speaker Nancy Pelosi, D-Calif., said Thursday relative to the U.S.-Mexico-Canada Agreement (USMCA).

Meanwhile, House Agriculture Committee Chairman Collin Peterson, D-Minn., said he expected Congress to vote on USMCA within the next one or two months.

"Right now, I am optimistic about getting this done," Peterson said during a rally in Washington in favor of the agreement.

Democrats are now examining information sent to them by U.S. Trade Representative Robert Lighthizer, sparking more optimism that the issue will be headed for a vote. We continue to expect that a vote in the House will be held, likely in the November-December timeframe and it will be approved.

Washington Insider: Reduced Trade Tensions

Almost everybody noticed last week after the U.S. delayed the imposition of some tariffs and China announced it is encouraging its companies to buy U.S. farm products including soybeans and pork.

The media generally indicated that both the U.S. administration and Chinese leader Xi Jinping are working to lower tensions that are clouding the global economic outlook. For example, Bloomberg said that China needs more pork because it faces shortages that are pushing up prices during a holiday period, “prompting officials to ration sales in some areas.”

“The ice is thawing,” said Chua Hak Bin, an economist at Maybank Kim Eng Research Pte., in Singapore. "China’s reciprocity to the U.S. administration’s goodwill gesture will set the stage for more cooperative trade talks.”

On the Chinese side, the government faces soaring pork prices that could potentially mar celebrations for the 70th anniversary of the People’s Republic of China’s founding on Oct. 1, Bloomberg said. It hopes to import 2 million tons for the year, some of which would be added to state reserves, the report said.

China bought 237,800 metric tons of U.S. pork and variety meats from January through July of this year, according to USDA data, a 51% increase from low 2018 sales to China.

Data published by the European Commission on the EU’s pork exports show that during the first half of 2019, EU exports to China grew by 42% compared to the same period in 2019, going from 680,686 metric tons in 2018 to 965,768 metric tons in 2019.

The New York Times noted that the news of China’s action came after President Trump delayed the next round of tariff increases on Chinese goods until after trade talks scheduled for early October—and after officials in Washington confirmed China had made its first major purchase of American soybeans in months.

China’s move was welcomed by the administration as an effort to help ease tensions ahead of the next round of talks. “The really good part about this is there is some relaxation in the air with China exempting some tariffs. We’ve returned the favor and the negotiations are moving along nicely,” Larry Kudlow, director of the National Economic Council, said on Friday.

The increased imports will “only go part of the way to addressing shortages.” The country is likely to see a 10 million ton pork deficit this year, more than the roughly 8 million tons in annual global trade, according to Vice Premier Hu Chunhua. That means the country will need to fill the gap by itself, he said.

China halted U.S. farm-product imports in August after trade negotiations deteriorated. Before that, Beijing had given the go-ahead for five companies to buy up to 3 million tons of U.S. soybeans free of retaliatory import tariffs, Bloomberg said.

The goods China exempted from additional tariffs this week included pharmaceuticals, lubricant oil, alfalfa, fish meal and pesticides. Further rounds of Chinese exemptions will be announced in due course, the ministry said.

The Times also emphasized the negative impacts of the trade fight on some U.S. farmers. It said that the political implications of the trade fight for farmers have been widely acknowledged and came up in Thursday’s Democratic presidential debate.

Administration advisers continue to say they will still press China for a “transformative” deal but many are also eager to calm tensions and avoid further tariff increases that might rock equity markets. There has even been talk of “striking an arrangement that would walk back the latest tranche of the administration’s tariffs on $112 billion of Chinese goods, leaving tariffs on at least $250 billion of products in place in return for substantial purchases of soybeans, pork and other products, the Times said — but emphasized that it is far from clear how China would react to such an offer.

Friday’s state media reports from China, brief in length and substance, left unclear whether it would be willing to consider roll-backs of tariffs previously placed on American goods. It began to stop imports of American agricultural products a year ago as trade tensions escalated.

The trade war, with a rising number of goods being taxed, not only has pushed prices higher for businesses and consumers in China and the United States, but risks a more permanent chill in relations between the two countries, a threat increasingly discussed by producer groups.

So, we will see. It now seems that both sides agree that they would benefit from better trade relations. However, these negotiations are fundamentally political and therefore subject to forces that are exceedingly difficult to appraise. It is a debate producers should watch extremely closely as it proceeds, Washington Insider believes.

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