Washington Insider -- Monday

By DTN's Washington Insider

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

China to Ask Removal of Existing Tariffs in Exchange for Stepped-up Ag Buys

Discussions between top-level U.S. and Chinese negotiators – U.S. Trade Representative Robert Lighthizer, Treasury Secretary Steve Mnuchin and Chinese Vice Premier Liu He – were expected to see China request cancellation of “some planned and existing U.S. tariffs” on Chinese imports in exchange for China’s increased purchases of U.S. farm goods, according to sources cited by Reuters.

China was expected to request the U.S. not impose tariffs December 15 on $156 billion in goods from China and that the U.S. remove the 15 percent tariffs put in place in September on $125 billion in China products.

“The Chinese want to get back to tariffs on just the original $250 billion in goods,” one source told the news service. China would, in turn, exempt some U.S. ag products from tariffs, including soybeans, wheat and corn, the report said, with Chinese buyers exempt from existing tariffs to make purchases and get refunds of tariffs already paid on prior purchases.

The report also indicated that Lighthizer and Mnuchin would travel to China the week of November 3, but the Treasury Department did not confirm that possibility.

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Sen. Ernst Warns She Could Call For Wheeler to Exit Over Biofuel Plan

Should the biofuel plan from EPA not result in restoring demand for ethanol as has been pledged by President Donald Trump, Sen. Joni Ernst, R-Iowa, said she will call for EPA Administrator Andrew Wheeler to leave his post.

"If we get to a point where the EPA is not following through on what the president has directed them to do then we will have to hold them accountable," Ernst said Thursday in remarks to Iowa reporters. "And I, at that point if we do not see that result, that 15 billion gallons, then I am ready to call for the resignation of Andrew Wheeler.”

She said if that were to happen, she would go to President Donald Trump and say, “‘Andrew Wheeler is the one that is not following through with your commitment to America’s farmers. You need to get rid of him.'"

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Washington Insider: Push Back on Trade Policies

There has been significant unhappiness for some time among groups on the frontline in the trade fight, primarily in response to the administration’s heavy reliance on tariffs — and on its willingness to apply them to well established, functioning markets.

Bloomberg is reporting that this week a group of prominent economists from the U.S. and China have released a joint statement calling for the world’s two largest economies “to abandon their trade war and agree to a new path forward that would give both countries more latitude to both pursue their own domestic economic policies and hit back at those that hurt them.”

In a joint statement issued in China on Sunday, 37 economists – a including Joseph Stiglitz, Michael Spence and three other Nobel winners – bemoaned what they said has been a descent of the trade conflict into a binary debate where the only emerging solutions are either wholesale economic reforms by China leading to a converging of economic models or an economically damaging “decoupling.”

The group argued a more sensible framework for future trade relations would give China room to pursue industrial policies that are often a target of criticism from the U.S., while also allowing the U.S. latitude to respond with targeted tariffs if China’s policies were damaging its interests.

“We believe this approach preserves the bulk of the gains from trade between the two economies without presuming convergence in economic models,” the statement says. It also would be in line with the current multilateral system, they argued, although it would enlarge both the U.S. and China’s rights under current World Trade Organization rules.

The push is emblematic of the ways in which economists and other thinkers are wrestling with how to respond to U.S. President Trump’s challenge to the existing governance of the global economy. While many countries have circled the wagons to try and protect the WTO and other institutions from Trump’s attacks, there is also a growing acknowledgment from many sides of politics that the current system has not worked in addressing China’s economic rise and its effect on other economies.

The statement comes as Trump is working to close what he has described as “phase one” of a trade truce with China that is designed to avoid a further escalation of their trade wars. It would see China commit to resuming agricultural purchases from the U.S. at levels similar to those seen before the U.S. started imposing new tariffs last year and would put on hold the threat of further U.S. duties. It is also expected to include commitments on intellectual property reforms and currency manipulation by China.

But the interim deal, which President Trump has said he hopes to sign with China’s Xi Jinping at a summit in Chile next month, would crucially push discussions of other U.S. complaints such as China’s industrial policies to later rounds of negotiations.

Bloomberg said that the effort unveiled Sunday was led by New York University law professor Jeffrey Lehman, Harvard economist Dani Rodrik and Yang Yao, dean of the National School of Development at Peking University. Rodrik is a long-standing critic of globalization and has advocated giving countries more “policy space” to pursue and protect domestic economic priorities, arguing that the current global trading system often violates nations’ sovereignty.

The statement’s other signatories include former World Bank chief economists Justin Yifu Lin and Kaushik Basu.

Professor Rodrik said President’s Trump’s trade attack on China has shifted the debate on how to manage the economic relationship into dangerous territory. “What he is doing is crowding out space for a more reasonable discussion,” he said.

“What the United States is doing is actually engaging in a trade war and imposing tariffs as a way of forcing China into a series of economic arrangements,” he said. “The modus operandi is ‘China you are not playing by the rules of the game and we are going to raise our tariffs on you until you fall into line.’”

At the same time, he said, “China brings to a head the fundamental tensions of the world trading regime like nothing else” and policymakers needed to realize that their expectation that China would simply “fall into line” with global trading rules had not worked.

“China is the clearest example that that is an unrealistic expectation and because it is such a large economy it makes the tension existential,” he said.

While the economists statement likely will receive considerable media attention, it is unclear whether it will have any significant impact on administration policy makers who long have been “deeply dug in” on the use of aggressive tariffs to achieve fundamental shifts in China’s policies.

Still, there were a few hints that some reconsiderations may be already underway. For example, one of the administration’s most active “China hawks,” White House Trade Adviser Peter Navarro said over the weekend that a postponement of tariffs on China due to be implemented in December “might be in play” as the administration “works toward the signing of a partial trade deal in Chile next month.”

“If they walk away again it won’t be our fault,” Navarro said in a TV interview, referring to the breakdown in talks in May. “We are on a glide path to Chile...let’s see what happens”

So, we will see. It seems clear that both economic and political pressures are building on both sides for some sort of reset on trade, especially if the global economy continues to show signs of weakening. Whether or not the changes extend as far as the recent letter from the economists’ group suggests remains to be seen, but could well mean at least consideration of a widened dialogue that producers should watch closely if it emerges, Washington Insider believes.

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(GH/CZ)

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