Washington Insider -- Tuesday

Declining Expectations for Trade Talks

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

Trade Talks Between US and China Underway in Washington

Deputy-level talks between the U.S. and China got underway in Washington Monday and are expected to continue today. The talks will then shift to higher-level officials on Thursday and Friday.

U.S. Trade Representative Robert Lighthizer and U.S. Treasury Secretary Steve Mnuchin will meet Thursday and Friday with Chinese Vice Premier Liu He.

There have been both positive and negative signals emerging ahead of the talks.

Monday, President Donald Trump insisted there was a good possibility for a trade deal with China, but he did not signal when that could take place.

Trump administration officials and business leaders have discussed ways each side could make concessions to yield a mini deal, to delay the October 15 and December 15 tariffs or to jump start drawn-out negotiations, some sources and reports note.


Questions Continue on Administration Biofuel Plan

The package or reforms to U.S. biofuel policy announced Friday (October 4) continues as an attention point given the lack of some key details in that plan.

EPA is expected to release the supplemental plan and open the comment period with a goal of still finalizing the 2020 biofuel and 2021 biodiesel levels by the November 30 statutory deadline.

One focus will be on how EPA accounts for small refinery exemptions (SREs) as EPA officials stressed last week it would not be accounting for the waivers already granted.

Biofuel interests will also want to see the specific increased levels for biofuel use in 2020.

President Donald Trump will be in Minnesota on Thursday for a campaign-style rally and that could be the format for him to talk more about the effort given Minnesota being a prominent biofuel producer and a state that has taken several steps to encourage biofuels use. In Washington Monday, Trump said the deal will mean 16 billion gallons of corn ethanol would be used in 2020.

Washington Insider: Declining Expectations for Trade Talks

There was bearish trade news on Monday as Bloomberg, and others, report that Chinese officials are signaling that they are “increasingly reluctant to agree to a broad trade deal pursued by President Trump.” The reports came just ahead of negotiations this week that raised hopes of a potential truce.

It seems that in recent meetings with U.S. visitors to Beijing, Chinese officials have emphasized that the range of topics they’re willing to discuss has narrowed considerably, Bloomberg said.

Vice Premier Liu He, who will lead the Chinese contingent in the talks that begin Thursday, told visiting dignitaries he would bring an offer to Washington “that won’t include commitments on reforming Chinese industrial policy or the government subsidies that have been the target of longstanding U.S. complaints,” Bloomberg said.

That development would appear to take one of the administration’s core demands off the table. In addition, it is “emblematic of what analysts see as China’s strengthening hand” as the Trump administration faces an impeachment crisis and a slowing economy blamed by businesses on the disruption caused by the president’s trade wars.

Bloomberg said that the administration still denies that the impeachment inquiry is affecting trade talks. “Any attempt to portray anything different is an attempt to weaken the U.S. hand at the negotiating table,” they argue, and would be a “miscalculation” by the Chinese.

Bloomberg observed that China is beset by its own escalating political crisis in Hong Kong and was drawn into the Washington political furor last week after President Trump called for a Chinese investigation into his Democratic rival, Joe Biden, and the former vice president’s son – moments after threatening another escalation in the trade fight.

Still, the president insisted on Friday that there’s no linkage although his latest comments suggest why Chinese leaders, already frustrated with what they see as his impetuous conduct in the talks, may see room to take advantage.

China’s leadership “are interpreting the impeachment discussion as a weakening of Trump’s position, or certainly a distraction,” said Jude Blanchette, an expert on China’s elite politics at the Center for Strategic and International Studies.

Their calculation is that “Trump needs a win” and is willing to make compromises on substance as a result, he said.

On Monday, the White House said the gathering “will look to build on the deputy-level talks of the past weeks. Topics of discussion will include forced technology transfer, intellectual property rights, services, non-tariff barriers, agriculture, and enforcement.”

The President has said repeatedly he would entertain only an all-encompassing deal with China, and he remains firm in that view, Bloomberg said.

“We’ve had good moments with China. We’ve had bad moments with China. Right now, we’re in a very important stage in terms of possibly making a deal,” the president told reporters on Friday. “But what we’re doing is we’re negotiating a very tough deal. If the deal is not going to be 100% for us, then we’re not going to make it.”

However, Bloomberg reported that contacts that resumed over the summer after a breakdown in May have focused on how to resume negotiations and avoid further escalating the tariff fights that have unnerved financial markets.

It also notes that recent discussions have centered more on a timeline for implementing a limited deal rather than the substance of provisions where the two sides are at odds.

Administration officials view the agenda as having three-phases, the report said. It would involve large-scale purchases of U.S. agricultural and energy exports by China, implementing intellectual-property commitments China made in a draft agreement this year and, finally, a partial rollback of U.S. tariffs – elements already discussed earlier with the Chinese. Still, if China refuses to engage in any discussions on its industrial policy, those plans could be scuttled, Bloomberg said.

In spite of the president’s earlier statement, Bloomberg argues that hopes have always been limited that China would agree to give up its economic model in a deal with the U.S. It also says that such ambitions likely scuttled earlier efforts to secure “a few substantive commitments from China to abandon the sort of industrial policies the administration and others have complained about,” Bloomberg said.

That draft focused on securing more Chinese transparency on the extent of its subsidies and included a commitment “essentially to disavow Made in China 2025,” Xi Jinping’s plan for Chinese domination of key 21st century industries such as artificial intelligence, robotics and electric vehicles. China pushed back on those proposals even though they lacked a specific schedule for removing government subsidies.

U.S. Trade Representative Robert Lighthizer declined to comment on the current state of negotiations but Bloomberg suggests that while he’s unlikely to accept any Chinese offer that doesn’t address industrial subsidies or policy, he may be willing to embrace “sequencing” a deal and an “early-harvest” agreement as long as broader talks continue.

Still, observers also believe that the administration’s trade chief probably would need some kind of commitment resembling a concession on subsidies and industrial policy to sell the agreement at home.

So, we will see. Both sides are under pressure, and some form of agreement seems possible. However, both tend to take “tough” positions as part of their public image. Clearly, the negotiations will be tense and contentious and should be watched closely as they proceed, Washington Insider believes.

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