Washington Insider -- Monday

Good News on China Trade

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

Top House Appropriator Lowey Announces She Will Not Run In 2020

House Appropriations Chair Nita Lowey, D-N.Y., the first woman to lead the panel, announced Thursday she will not seek reelection in 2020. That has set off a potential contest to replace her atop the panel that controls government purse strings.

Rep. Rosa DeLauro, D-Conn., announced she will seek the top position, a move that would put a sharp critic of the current administration’s food safety and Supplemental Nutrition Assistance Program (SNAP) in charge of the panel that decides on House versions of government spending.

DeLauro also has pushed a means test and other restrictions on crop insurance to limit its use by large farms.

But Rep. Marcy Kaptur, D-Ohio, is also mentioned as a possible contender and is the second-ranking Democrat on the panel – DeLauro is the third-ranking Democrat in terms of seniority.

However, Democrats have not relied solely on seniority relative to full committee chair roles.

USDA Corrects August Trade Data to Trade Surplus, Not Deficit

USDA has corrected its figures released October 7 on U.S. ag export and imports for August, essentially swapping the figures for the two categories. USDA now says that exports in August totaled $11.27 billion and imports at $10.46 billion, putting the monthly balance at a surplus of $813 million.

USDA on October 7 reported the figures as exports at $10.46 billion against imports of $11.27 billion for a trade deficit of $813 million.

The adjustment by USDA means the U.S. has only registered a trade deficit in agriculture three months of Fiscal Year (FY) 2019 and would indicate a deficit for the entire FY is now far less likely.

While it appeared unlikely that the U.S. would register a trade deficit in agriculture for all of FY 2019, that is even more the case now in light of the updated figures.

Washington Insider: Good News on China Trade

There is at least some good news on trade this week—an interim pact announced Friday between the United States and China “came together” as both country’s leaders faced mounting political pressures and rising economic worries at home, the New York Times said on Sunday.

It said that both sides decided that “half a deal was better than none,” consenting to a preliminary agreement that would involve China buying more American farm products and taking several other limited steps to open its economy “in exchange for the United States foregoing its planned tariff increase next week.”

NYT noted that the truce will help calm a trade fight that has taken a significant toll on the world’s two largest economies and threatened to further slow global growth at a precarious moment. “It’s pretty clear that the U.S. and China have fought this war to a stalemate,” said Edward Alden, a senior fellow at the Council on Foreign Relations. “At the moment, neither side sees any real advantage in escalation.

Of course, both sides are claiming a win, the Times said, and pointed to cautions including an International Monetary Fund warning last week that argued that the trade fight with China could cost the global economy around $700 billion by 2020 — a loss equivalent to the size of Switzerland’s entire economy.

The Times also pointed to an American farm economy hurt by a sharp drop-off in sales to China, among the largest export markets for agricultural goods like soybeans, pork and corn. Although the administration has tried to blunt the pain with two rounds of financial assistance, farmers pushed the White House to end the war, saying the handouts “are not enough to make up for the lost sales.” NYT said.

The administration had planned to increase tariffs on $250 billion worth of goods to 30% from 25%, a hike that would likely have been met with further retaliation by China and “been particularly burdensome for U.S. consumers and businesses going into the holiday season,” the Times said.

The administration said on Friday that China has agreed to buy $40 billion to $50 billion worth of American farm goods annually after scaling up over a period of two years. The compromise is even more timely for Chinese President Xi Jinping, the Times said. Sharply rising food prices have become a national issue in China. A lethal epidemic among the country’s swine has sent prices skyward for pork as well as for alternatives like beef and lamb.

As the Chinese public has begun asking, “Where’s the beef?” China’s trade negotiators suddenly have an answer: It can come from the United States, along with a lot of pork, soybeans and other food, the Times said.

However, it also noted that the deal likely will not reverse a trend toward greater economic divisions between the two countries.

If the understanding on Friday holds together, it would allow the U.S. to retain tariffs imposed over the past 16 months on a wide array of Chinese industries. That could prompt many companies to continue efforts to shift production away from China, possibly to the United States but more likely to American allies in Southeast Asia.

Eswar Prasad, a professor of trade policy at Cornell University and a senior fellow at the Brookings Institution, said the agreement will defer new sanctions but will do little to resolve the major underlying sources of friction between the two countries. “It’s hard to see this really amounting to an actual de-escalation of tensions or anything that businesses can take to the bank,” Mr. Prasad said.

The president has often criticized past administrations for ceding too much to China, and negotiating endlessly with limited results. China experts say that the many months of painful standoff have perhaps shown the limits to his winner-take-all approach.

Negotiators say they will continue discussing other issues once the deal is signed.

Still, the compromise does signal a shift in strategy for the administration, which had previously said it would settle for no less than a comprehensive pact that addressed so-called “structural issues” — that is, various industrial policies seen as harmful to American businesses, including subsidies to its state-owned companies, policies that pirate technology and a pernicious history of cybertheft.

But while the agreement includes some new protections on intellectual property, greater access for financial services companies and guidelines as to how China manages its currency, it does not appear to address several of these deeper concerns.

The U.S.-China Business Council, which represents American companies that do business in China, said it hoped the tentative agreement would restore sufficient confidence to allow negotiators to tackle other issues, including “market-distorting subsidies for state-owned enterprises and equal treatment for U.S. and other foreign companies.”

Whether China will agree to deeper concessions is not guaranteed, particularly given Xi’s political sensitivities at home. In the next three weeks, Xi will face a long-awaited session of the 204-member Central Committee of the Chinese Communist Party. The committee, which has not gathered since February of last year, holds enormous power in China and has authority to change the country’s leaders.

So, we will see. While a pause in hostilities likely will be seen as welcome by producers, the fact that so many of the often stated, key objectives have not been achieved can be expected to lead to questions of basic administration policy — a growing debate that producers should watch closely as it intensifies, Washington Insider believes.

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