Washington Insider -- Monday

Happy Talk and Reality

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

US, China Looking For New Spot for Phase One Deal Signing

The U.S. and China are continuing their work on finalizing a Phase One trade deal, with China’s Ministry of Commerce saying Thursday the two sides are continuing their bilateral negotiations according to plan and that the talks are progressing well.

They said the two sides are still in close communication and that top-level discussions would take place Friday.

President Donald Trump tweeted Thursday morning, “China and the USA are working on selecting a new site for signing of Phase One of Trade Agreement, about 60 percent of total deal, after APEC in Chile was canceled due to unrelated circumstances,” Trump said. “The new location will be announced soon. President Xi and President Trump will do signing!”

Trump on Friday floated the idea of signing the deal in Iowa. "I want to get the deal done first," Trump told reporters. "But we're thinking about Iowa. You know why? Because it would be the

largest order in history for farmers. ... It's a possibility."

However, Chinese Foreign Ministry spokesman Geng Shuang dismissed reports that China had suggested Macau as a possible signing location as purely speculation. As for the Phase One deal, Commerce Secretary Wilbur Ross told Fox Business Network that the U.S. is pretty comfortable that the Phase One deal is in good shape and that the U.S. hopes it can be signed around the same timeframe as the cancelled APEC meeting.

Meanwhile, China’s Ministry of Justice published a draft rule Friday that would allow foreign-funded firms to make stock and bond issuances in China and overseas and would let foreign investors in China repatriate profits. The draft rule is aimed at facilitating a foreign investment law that would take effect January 1, 2020.

Mexico, US Officials More Upbeat On USMCA

Mexico’s North American negotiator Jesus Seade, after talking with House Speaker Nancy Pelosi, D-Calif., and U.S. Trade Representative Robert Lighthizer said he is optimistic the White House and lawmakers can reach an agreement on the U.S.-Mexico-Canada Agreement (USMCA) before Thanksgiving. Seade was basing his outlook on conversations this week with the two officials.

Seade stressed that any changes agreed to between Lighthizer and Democrats is really a “proposal of sorts” because it will require a stamp of approval from Mexico and Canada. But Seade said he is optimistic the changes will be acceptable to Mexico — which would allow for Mexico City to approve the changes “in a few days,” clearing the path for Congress to vote on USMCA ratification before the end of the year.

But if not, Mexico could be forced to get back into negotiations with the U.S. and offer counterproposals, he said. Pelosi on Thursday said she will allow a vote in return for concessions on labor and enforcement provisions.

Pelosi said talks between congressional Democrats and Trump administration officials over changes to the pact with Canada and Mexico were in the “last mile,” and she was optimistic that an agreement could be reached. “If we can come to terms, [which] I think we are close to doing, this will be a template for future trade agreements,” Pelosi said. This continues to match our expectation that a vote in the U.S. House remains likely yet this year.

Washington Insider: Happy Talk and Reality

There is quite a bit of talk around about the outlook for the economy these days, Bloomberg is reporting this week. President Trump has been saying that “a robust economy will protect him from impeachment and ensure his re-election.”

However, Bloomberg says that argument rests “on a shaky foundation,” and goes on to explain.

It says that the middle-class Americans who are the main targets of the President’s economic pitch “aren’t sharing much in the gains of U.S. growth.” Worse yet for the administration wage growth has been slower in the counties the president carried in 2016.”

By several measures, middle-class Americans’ incomes have risen more slowly in recent months than during Barack Obama’s final years, which were “hardly a period renowned for gangbuster pay increases.” Workers should finally be getting big raises with the unemployment rate down to 3.5%. Yet while wage growth picked up last year, it is still subdued and slowing again after manufacturing output contracted in the first half of the year, Bloomberg said.

The economy’s overall performance hasn’t changed much since Trump took office, with GDP growth averaging 2.6% versus 2.4% during Obama’s second term, far below the president’s own forecasts, Bloomberg says. On Wednesday, the Commerce Department reported the economy expanded 1.9% at an annualized rate in the third quarter, a level that when Obama was president Trump derided as a sign the “economy is in deep trouble.”

While the jobless rate continued to fall during the president’s first two years, median household income, adjusted for inflation, grew at an average annual rate of 1.3% – down from a 4.1% annual rate the previous two years and a 1.8% annual rate during Obama’s entire second term, Bloomberg said.

Asked about the income and wage data, White House spokesman Judd Deere argued that Trump’s “policies of lower taxes, deregulation, and fair and reciprocal trade have supported the longest economic recovery in U.S. history with record low unemployment and rising wages.”

However, Bloomberg noted that there are numerous measures of workers’ wages that show tepid growth under the current administration despite a roaring stock market, surging corporate profits and a $1.5 trillion deficit-financed tax cut that is often promoted as a way to rev up pay gains.

Nevertheless, in counties Trump won in 2016, growth in real average weekly earnings slowed to a 1.2% annual rate under his presidency, down from 1.5% the prior two years, Bloomberg said.

In the presidential battlegrounds of Wisconsin, Michigan and Pennsylvania the drop-off has been sharper with weekly earnings in counties he carried up 0.8% annually versus 1.8% the previous two years. The “manufacturing recession” threatens to further weaken pay growth in those states, where 1 in 6 workers hold factory jobs, Bloomberg says.

The president often claims that wage gains have picked up since he took office. But with inflation factored in, overall progress on wages doesn’t look much different. Real average hourly earnings under President Trump have grown at an average annual rate of 1.1% through September versus 1% during Obama’s second term. Workers in the middle fared worse. The median weekly paychecks for full-time workers, adjusted for inflation, have grown at an average annual rate of 1% through September versus 1.5% during Obama’s second term.

A measure created to minimize potential distortions from more low-wage workers entering the workforce also shows slower pay growth under the current administration. The Atlanta Federal Reserve Bank’s national wage growth tracker is based on surveying the same workers 12 months apart on their pay and calculating their median raise. Adjusted for inflation, the index increased at an average annual rate of 1.3% during the past two years versus 1.7% during Obama’s second term.

And, there is considerable diversity among groups, Bloomberg says. Real median earnings for high-school educated men – a key Trump constituency – rose at a 1.2% average annual rate during the administration’s first two years, up from a 0.4% rate the prior two years. Conversely, high-school educated women’s real median earnings declined at a 1.1% annual rate under this administration versus a 0.6% rise during Obama’s final two years.

High-school-educated men still haven’t caught up to their pay in 2000. Their $45,459 median earnings in 2018 was $2,128 lower than their counterparts at the turn of the century. High-school-educated women are further behind, with 2018 median earnings of $32,412, down $2,356.

Weak pay increases contribute to “ambiguous feelings” about the economy even as unemployment remains at historic lows, said Alan Abramowitz, a political science professor at Emory University who studies public opinion and presidential election forecasting. “What matters politically is the subjective economy, how people feel about the economy,” Abramowitz said. “Real incomes aren’t rising that much, so it’s not obvious that things are that good.”

So, we will see. Much depends on the current medium-term economic policy trends and trade developments. Clearly, the administration intends to lean heavily on the “economic growth and prosperity arguments,” but whether these prove persuasive remains to be seen – and should be watched closely by producers in the coming months, Washington Insider believes.

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