Washington Insider -- Friday

Cautious Optimism on China Deal

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

McConnell Chides House Democrats For Giving AFL-CIO Big Role In USMCA Process

Senate Majority Leader Mitch McConnell, R-Ky., on Wednesday argued that Democrats are giving AFL-CIO President Richard Trumka too much sway in talks on the U.S.-Mexico-Canada Agreement (USMCA).

“How ironic. We are talking about a trade deal that would create more American jobs, and Democrats are considering outsourcing their judgment to Big Labor special interests — who, to my recollection, have not supported a single major trade deal in living memory,” McConnell said on the Senate floor.

This comes after Trumka met with House Democrats on USMCA, noting that changes are still needed in the trade deal to get his union to back the deal.

Meanwhile, Mexico’s Congress delayed the government’s 2020 spending bill, which includes proposed funds to implement the labor reforms required under the USMCA.

USDA To Issue Final Rule On Export Sales Reporting Of Pork, Beef

The fall 2019 regulatory agenda released by the Trump administration Wednesday included a notice that USDA intends to issue a final rule in December, which will clarify export sales reporting requirements.

“The final rule would amend the Export Sales Reporting Requirements Regulation to clarify certain definitions as they relate to beef and pork, which are subject to this regulation to ensure accuracy of the weekly U.S. Export Sales report,” the notice said.

This appears to be aimed at addressing details on things like the specific cuts that are to be reported to USDA and the timeline for making those reports to USDA.

The most-recent sales data did show that nearly one half of the total for U.S. pork sales to foreign buyers were “late reported” sales.

Washington Insider: Cautious Optimism on China Deal

Bloomberg is reporting this week that China’s chief trade negotiator indicated he was “cautiously optimistic” about reaching a phase one deal with the U.S. in spite of “warnings of the dangers of escalating the tariff war” by experts.

Vice Premier Liu He commented in a speech in Beijing on Wednesday ahead of the Bloomberg New Economy Forum. He also said he had invited his U.S. counterpart, U.S. Trade Representative Robert Lighthizer, to travel to China for talks this month but noted that “the invitation hasn’t yet been accepted.”

On Thursday, former U.S. Secretary of State Henry Kissinger said America and China were in the “foothills of a Cold War,” and warned that the conflict could be worse than World War I if left to run unconstrained. Later in the day, former Treasury Secretary Henry Paulson also warned of the perils of decoupling the world’s two largest economies.

President Donald Trump announced a “phase one” deal a month ago, but since that time, markets have been whipsawed by comments from both sides, first indicating progress, and then the opposite.

The latest potential hurdle came after Liu made his dinner-time comments, when the U.S. House voted 417-1 for legislation supporting Hong Kong protesters that has already been unanimously approved by the Senate. The President said earlier that he plans to sign the bill, Bloomberg said.

Liu also explained China’s plans for reforming state enterprises, opening up the financial sector, and enforcing intellectual property rights, issues at the core of U.S. demands for change in China’s economic system. However, in a separate comment, he told one of the attendees that he was “confused” about the U.S. demands but was confident the first phase of an agreement could be completed nevertheless.

Liu’s remarks cushioned declines in stocks in Asia, Europe and the U.S. as investors weighed the impact of the House bill on relations between the world’s two largest economies.

U.S. and Chinese trade negotiators will continue communicating closely and work toward a phase one deal, Ministry of Commerce spokesman Gao Feng said at a briefing in Beijing on Thursday. Responding to questions including whether the two sides agreed on agricultural purchases and tariff removal, as well as a media report on the timetable for a deal, Gao said related rumors were not accurate. It was unclear exactly what he was referring to.

If efforts to reach a phase one deal fail before Dec. 15, the White House has threatened to impose 15% tariffs on some $160 billion in imports from China.

While the Hong Kong bill is a negative factor for the phase one deal, China still may be able to reach an agreement with the U.S. this year, said Zhang Yansheng, who previously worked at the National Development and Reform Commission, the country’s top economic planning body.

“The optimistic view is that the phase-one deal can be reached within this year – but a more pessimistic one is that the first phase will be dragged to some point next year,” said Zhang, who is now chief researcher at the China Center for International Economic Exchanges.

Kissinger, 96, said he hoped trade negotiations would provide an opening to political discussions between the two countries.

“Everybody knows that trade negotiations, which I hope will succeed and whose success I support, can only be a small beginning to a political discussion that I hope will take place,” he said.

Kissinger spoke hours after Chinese Vice President Wang Qishan addressed the NEF, saying his country was committed to peace and would follow through on policy changes despite facing challenges at home and abroad.

“Between war and peace, the Chinese people firmly choose peace,” he said. “We should abandon the zero-sum thinking and Cold War mentality.”

The Forum is being organized by Bloomberg Media Group, a division of Bloomberg LP, the parent company of Bloomberg News.

Meantime, Paulson called on China to open more and said the U.S. should resist the temptation to delist Chinese firms from U.S. exchanges, calling it a “terrible idea.” Both countries should determine the rules of the road for high-end technology such as 5G, he said.

“There will be some natural decoupling,” Paulson said. “But the delusions of a wholesale, comprehensive decoupling and an economic iron curtain will leave our countries, and the world, worse off. We need to avoid that outcome.”

After almost two years of negotiations and escalations – and plenty of false dawns – trade negotiators from the U.S. and China are making progress in key areas, Bloomberg said.

The negotiating teams are using their failed May proposal as a benchmark for how much a phase-one deal covers of the once-near agreement and how much tariffs will be removed as part of the initial deal. There’s been signs of a thawing on other fronts. The U.S. Commerce Department has started approving some suppliers’ applications for licenses to do business with China’s Huawei Technologies Co., partially reopening access to one of the biggest buyers of U.S. technology.

However, Charlene Barshefsky, who negotiated China’s entry into the WTO, said that “No outcome is inevitable but two decades of careful management of the relations between China and the West have run its course.”

So, we will see. The positive signals from China are certainly welcome in spite of the remaining large areas of uncertainty to be addressed. These are very important fights that producers should watch closely as they emerge, Washington Insider believes.

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