Washington Insider -- Wednesday

Concerns About US, Japan Trade Deal

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

US-China Talks Set for Week of October 7

Treasury Secretary Steve Mnuchin initially said Monday that U.S.-China trade talks with Vice Premier Liu He would take place next week in Washington, but later revised his statement to say that it would be the week of October 7.

“I think it is not next week but the following week we will be having those talks,” Mnuchin said in an interview with Fox Business Network, adding that deputy-level negotiations last week had made some progress in easing trade tensions.

Some people closely following the talks said they expect the confab to take place October 10-11.

“We look forward to those conversations,” Mnuchin said Monday on the sidelines of the United Nations General Assembly in New York. “The president has been very clear: if we can get the right deal, he wants the deal,” Mnuchin said. “If we cannot get the right deal, he is happy with the tariffs.”

Mnuchin also said the U.S. had requested China postpone visits to U.S. farms in Montana and Nebraska this week, a development which raised anxiety about the trade talks.

Word that the talks are scheduled has eased some concerns on the U.S.-China trade front, but have not totally removed concerns given the history of how quickly this issue can shift.


Grassley Blasts Delay in Biofuels Announcement

Patience on a biofuels announcement from the Trump administration is running thin with Sen. Chuck Grassley, R-Iowa. “This agreement we have with the White House, it is 15 billion gallons, why isn't that the end of it?” Grassley told reporters on a weekly call. "Let's either do our job or get off the pot. Let's call this thing to an end. We ought to have this paper from the EPA yesterday.”

Grassley has talked about an apparent agreement reached during a meeting at the White House some two weeks ago in which the Small Refinery Exemptions (SREs) would still be granted by EPA, but the agency would account for those in setting biofuel levels under the RFS.

“This is hurting the president more in Iowa than even the China debate,” Grassley said. “I think farmers have patience with China, the negotiations going on with China. They know China has been cheating. What they do not understand is, they are promised 15 billion gallons of ethanol to be used, but get 13.6 [billion gallons].”

EPA data shows that as of September 19, there have been 42 SREs requested, with 31 granted, six were denied, three were withdrawn or declared ineligible and two are listed as still pending.

Washington Insider: Concerns About US, Japan Trade Deal

The urban media is intensely interested in trade policy now, especially the talks with China but also with Japan. Thus, it was a modest surprise when the New York Times and others reported on Tuesday that the U.S. and Japan may fall short of signing a new deal this week, as negotiators from both countries grapple with how to resolve the U.S. threat to place tariffs on cars from Japan.

However, reports late Tuesday afternoon indicated the two sides had completed their negotiations.

The two countries had been working toward finishing a “limited” deal this week, as both President Donald Trump and Prime Minister Shinzo Abe of Japan prepare to appear side by side at the UN General Assembly meeting in New York.

The key holdup had been the U.S. threat to tax cars imported from Japan. The threatened levies would be similar to those already placed on steel and aluminum imported from Japan, Europe and other nations.

NYT says the President has long seen the threat to tax cars, which make up more than one-third of U.S. imports from Japan, as a source of leverage that has brought Japan to the trade negotiating table.

But that threat — and the U.S. administration’s “mercurial negotiating strategy” — has also become an obstacle to the deal’s resolution, the Times said. Japan is seeking a firm commitment from the administration not to tax its cars and is pushing to include a “sunset clause” that would cause the deal — and any benefits it has delivered to American agricultural producers — to expire if the U.S. follows through on its car tax threats.

The impasse raises questions about whether the United States and Japan will be able to finish the deal in the near future, in time for the Japanese legislature to consider it when it convenes next month.

The prospective deal was expected to reduce barriers to American exports of beef, pork and wheat, helping to shore up administration political support for U.S. farmers who have been badly hurt by his trade war with China, the Times said. In return, the United States would drop its barriers to Japanese machinery and chemicals and both sides would sign onto new standards for e-commerce and other digital trade.

After meeting with Abe at the summit of global leaders in France in August, Trump said that the United States and Japan had reached an agreement “in principle.” Last week, his administration sent a notification to Congress that it intended to enter into an agreement in the coming weeks.

Unlike a traditional trade agreement, which would cover nearly all sectors of the economy, the proposed Japan deal would be confined to a few sectors and products. But it would be an important political talking point for the president who has struggled to make progress in trade talks with China and has not persuaded congressional Democrats to pass the revised North American trade deal.

It could also help mollify American farmers and ranchers, who have complained about the administration decision to pull the U.S. from the Trans-Pacific Partnership, a multi-country trade deal that included Japan. The president argued then he could secure better trade terms for American farmers through bilateral talks.

While Japan initially resisted administration requests for one-on-one negotiations on trade, the threat of auto tariffs brought Japan to the negotiating table to discuss a more limited agreement. The administration determined this year that automobile imports posed a threat to U.S. national security by eroding its industrial base that also supplies its military. That allowed the president to impose tariffs on foreign cars and car parts as he has done on imports of steel and aluminum, including from Japan.

But in May the administration postponed that decision an additional six months as it continued to negotiate trade agreements with both Japan and the European Union. One of Japan’s main priorities has been a guarantee that its cars will not be hit by such a tax.

Daniel C. Sneider, a lecturer in East Asian studies at Stanford University, said inserting a clause into the deal that would withdraw Japan’s concession on agriculture if U.S. taxes cars “is a very clever solution to their problem.” He added current tensions at least in part arise from the perception that the administration “cannot be trusted” but that the Japanese cannot say that in public.

So, we will see. The proposed deals awaiting approval are very important for both economic and political reasons. However, the debates over approval likely will continue to be contentious and should be watched closely by producers as they evolve, Washington Insider believes.

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