Washington Insider -- Friday

High Tariff Costs

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

China Touts Agreement With US To Lift Tariffs In Phase One Deal

The U.S. and China have agreed to remove trade tariffs in stages as part of a “phase one” trade agreement currently being negotiated, the Chinese Ministry of Commerce said on Thursday.

“In the past two weeks, top negotiators have had serious and constructive discussions on resolving issues of core concern. Both sides agreed to remove the additional tariffs imposed in phases as progress is made on the agreement,” ministry spokesperson Gao Feng said. “If China and the U.S. reach a Phase One deal, both sides should roll back existing additional tariffs in the same proportion simultaneously.”

Gao said that both sides will negotiate how much of the tariffs to eliminate based on the content of the final Phase One deal. Negotiations to finalize the deal are ongoing, and “economic and trade teams from both sides have been in constant communication,” he added.

Trump administration officials have yet to confirm the agreement to lift duties and the exact details regarding what tariffs may be eliminated remain unclear.

House Democrats, Canadian PM Meet to Discuss USMCA

House Democrats met with Canadian Prime Minister Justin Trudeau, Foreign Affairs Minister Chrystia Freeland and Labor Minister Patty Hadju Wednesday to discuss the U.S.-Mexico-Canada Agreement (USMCA).

“I particularly stressed the importance of meaningful enforcement mechanisms that ensure the protection of workers in all three nations and of our shared environment,” said House Ways and Means Committee Chairman Richard Neal, D-Mass., who led the delegation. “I’m pleased that our neighbors to the north also have a strong desire for an agreement that benefits our economies while also lifting up our people,” he added.

Meanwhile, Canadian news outlets reported Trudeau said is working with U.S. lawmakers to reach a “good place where we have the right deal for Canada, the United States and for Mexico. It is a pleasure to see the positive momentum that seems to be happening on this renewal of this very important trade deal.”

Washington Insider: High Tariff Costs

Well, a few hints of easing pressure on the U.S.-China trade standoff are being reported this week and markets have been responding accordingly. However, not all the press was favorable. The Hill reported that U.S. consumers and businesses paid a record $7.1 billion in tariffs in September “due largely to President Trump’s trade war with China.” It said the calculation was based on new data and a new analysis.

Roughly $4.1 billion of the $7.1 billion in import taxes paid by Americans in September were levied through tariffs the administration imposed on Chinese goods since 2018. The total amount of tariffs paid by Americans has increased 59% since September 2018 and has risen $600 million since August 2019, The Hill said.

The work behind the report was commissioned and released by Tariffs Hurt the Heartland, a coalition of trade groups opposed to import taxes, The Hill reported.

Since March 2018, the administration has imposed tariffs on more than $350 billion in imports from China and another round of tariffs on close to $200 billion in Chinese goods is scheduled to take effect on Dec. 15. That would subject almost all U.S. Chinese imports to additional tariffs.

However, U.S. and Chinese officials claim to be nearing a preliminary trade deal that would grant China relief from some tariffs in exchange for drastically increasing purchases of American farm exports, among other concessions, the report said.

President Trump and Chinese President Xi Jinping were expected to sign the so-called phase one trade deal at a now-canceled summit of Pacific nations in Chile later this month. Reuters reported Wednesday that the signing may be delayed until December as Trump and Xi mull new locations. “Negotiations are continuing and progress is being made on the text of the phase-one agreement," White House spokesman Judd Deere told The Hill. "We will let you know when we have an announcement on a signing location.”

The U.S. has collected tariffs on foreign goods throughout its history and import taxes were once a primary source of federal revenue. But after decades of trade liberalization, the administration’s imposition of steep tariffs on Chinese goods has vastly increased the amount in import taxes paid by U.S. consumers and firms.

President Trump frequently insists that China effectively pays the cost of U.S. tariffs on its goods through currency devaluation and reduced product prices. And while the president argues that the U.S. economy has not been harmed by tariffs, manufacturers and farmers have been slammed with higher costs and lower global demand.

The U.S. manufacturing sector has suffered through a recession for most of 2019, due largely to the rising costs of Chinese goods and parts not easily obtainable from other nations. A steep decline in global economic growth has also dampened foreign demand for U.S. goods.

U.S. farmers and ranchers have also lost billions in sales to China after Beijing imposed retaliatory tariffs on American agricultural exports, The Hill says. While the U.S. exports to China are “a fraction” of the value of goods it imports from the country, China is a crucial market for the ailing American ag sector.

“This data offers concrete proof that tariffs are taxes paid by American businesses, farmers and consumers – not by China,” Jonathan Gold, a spokesman for Americans for Free Trade, another anti-tariff coalition of trade groups told The Hill.

President Trump has consistently blamed the Federal Reserve for the steep decline in American manufacturing and business investment, insisting that the central bank has hindered the U.S. from its full economic potential.

President Trump’s tariffs on Chinese goods have yet to hinder solid consumer spending and the unemployment rate is “near record lows,” The Hill said. But the bulk of pending tariffs on Chinese goods apply to crucial consumer items like clothing, shoes, toys, household products and technology. In addition, economists say that new consumer-facing tariffs are the biggest threat posed by the administration’s trade policy to the broader economy.

So, we will see. Clearly, many producers and others see any reduction of tensions in the U.S.-China trade war as very good news, but many observers continue to be skeptical of the success of “phase one” of the negotiations, and of the eventual benefits from the “get tough” trade policy. The report of a more than $7 billion tariff cost in the month of September is likely to attract attention among nearly all interest groups in the trade policy issue—a debate that should be watched closely by producers as it intensifies, Washington Insider believes.

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