Washington Insider --Tuesday

Administration Moves Toward Still Tougher Trade Policies

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

Mexico Pressing Pelosi On USMCA

Mexican President Andres Manuel Lopez Obrador called on House Speaker Nancy Pelosi, D-Calif., to take yes for an answer on the U.S.-Mexico-Canada Agreement (USMCA) in a letter to the lawmaker dated November 26.

“Following up on my letter dated October 8, I would like to inform you that, with approval of our 2020 federal budget, which includes appropriations for implementing the labor law reforms that I have promoted, we have fully met our commitments regarding USMCA,” Obrador wrote. “In the first place, and most importantly, you can be assured that we will fulfill these labor commitments because Mexico has raised them to the Constitutional level. In addition, the secondary rules needed to enforce these laws have been established and funds have been provided for their successful implementation,” according to the letter.

Meanwhile, the final terms of USMCA could be completed this week, Jesus Seade, Mexico’s undersecretary for North America, said in Canada after meeting with Canadian Prime Minister Justin Trudeau and Canada’s top trade negotiator, Chrystia Freeland. Seade and Freeland also last week in Washington with U.S. Trade Representative Robert Lighthizer.

“There are important issues still being looked at, but a lot of issues have already been overcome,” Seade said. “If the amendments suggested are acceptable improvements, then there’s no reason why we should not be shaking hands [this] week,” he said.

WSJ Notes Farmers May Have Already Sunk Hemp Market

Many farmers sought to capitalize on surging demand for cannabidiol (CBD), which proponents say has medical benefits, and expanded their plantings into hemp.

But wholesale prices for plant matter used in CBD production fell as much as 53% between April and October, the Wall Street Journal reported. Hemp — which is the same plant species as marijuana, but with a minimal amount of the psychoactive compound in pot — became legal because of a provision of the 2018 Farm Bill.

It is mostly grown for cannabidiol, or CBD, which is used to treat seizures, pain, anxiety and other conditions. The projected growth of the CBD market has enticed farmers: Acres of cultivated hemp in the U.S. surged to more than 285,000 this year from 78,000 in 2018.

The item appears to confirm the warning or caution that USDA Secretary Sonny Perdue said in testimony to the Senate Ag Committee earlier this year – that farmers could swamp the hemp market before it takes off. And the rise in hemp plantings comes despite the fact it is not yet approved for growing in all 50 U.S. states.

Washington Insider: Administration Moves Toward Still Tougher Trade Policies

President Donald Trump announced Monday that the administration will immediately reimpose tariffs on steel and aluminum from two South American countries, blaming the governments of Brazil and Argentina for devaluing their currencies and hurting the U.S. economy.

Trump made the announcement in a series of tweets while pushing the Federal Reserve to lower interest rates and loosen monetary policy.

"Brazil and Argentina have been presiding over a massive devaluation of their currencies, which is not good for our farmers. Therefore, effective immediately, I will restore the Tariffs on all Steel & Aluminum that is shipped into the U.S. from those countries," Trump tweeted.

He also pushed the Federal Reserve to likewise act so that countries, of which there are many, no longer take advantage of our strong dollar by further devaluing their currencies. This makes it very hard for our manufactures and farmers to fairly export their goods. “Lower Rates & Loosen - Fed!" he continued.

The President argued that U.S. markets are up as much as 21% since the announcement of tariffs on 3/1/2018 – and the U.S. is “taking in massive amounts of money (and giving some to our farmers, who have been targeted by China)!"

The Trump administration first implemented steel and aluminum tariffs in March of 2018, declaring at the time that "aggressive foreign trade practices" related to the trade goods amounted to an "assault on our country" and the U.S. steel industry.

At the time, the administration temporarily exempted Mexico and Canada from the plan, while seeking to negotiate a replacement trade agreement for the “much-criticized” North American Free Trade Agreement. In May of 2018, the administration made deals with several countries to temporarily suspend the tariffs, Brazil and Argentina included.

Also this week, in yet another “get tough on trade” statement, Commerce Secretary Wilbur Ross said on television that “time is running out for the U.S. and China to make a trade deal before the U.S. increases tariffs on Chinese goods.”

The Secretary told Fox network’s Stuart Varney, “If nothing happens between now and then, the president has made quite clear he’ll put the tariffs in – the increased tariffs."

Ross also argued that placing tariffs on $156 billion of Chinese goods on Dec. 15. won't "interfere with this year’s Christmas" as retailers have already stocked up, adding that it’s a "really good time if we have to put more tariffs on.”

In fact, the tariffs are a key part of current negotiations and Chinese negotiators are pushing hard for the U.S. to roll back tariffs as part of a phase one agreement, something President Trump has said he won't do. The U.S. has placed tariffs on more than $350 billion of Chinese goods amid the more than 17-month long trade war.

"We have a very strong economy and they have lots of problems," Ross said, pointing to the "hollowing out" of China's supply chain, the country's debt levels and falling consumer confidence. China's economy grew at a 6 percent pace in the third quarter, its weakest since record keeping began in 1993. In addition, he argued that the Chinese economy is growing "slower than what they are letting on to."

When asked if the two sides will reach a deal this year, Trump told reporters at Andrews Air Force Base recently, "The Chinese are always negotiating. They want to make a deal. We'll see what happens."

In fact, it seems increasingly difficult to see what is happening and to estimate what the outcome likely will be. Both sides are willing to say that at least a partial deal is near, but both also have a long list of grievances that they are more than willing to dredge up even as talks continue. So, we will see. These are discussion and maneuvers that producers should watch very closely as they continue, Washington Insider believes.

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