Washington Insider -- Monday

US, China Trade Deal

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

US-China Trade Deal Completed

The U.S. and China reached a phase one trade agreement Thursday, with U.S. and Chinese officials talking about some of the details on Friday.

The Chinese have committed to purchase an additional $16 billion in U.S. ag goods beyond a $24 billion base – the level of U.S. ag exports to China in 2017. The total of $40 billion in purchases includes China indicating they will work to try to make additional purchases.

While the U.S. has indicated the list of commodities will not be made public, commodities mentioned thus far are corn, wheat, cotton and rice by the Chinese.

But perhaps more important are issues covering broader agricultural trade matters. The Agriculture Chapter addresses structural barriers to trade and will support a dramatic expansion of U.S. food, agriculture and seafood product exports, increasing American farm and fishery income, generating more rural economic activity, and promoting job growth, according to the U.S. Trade Representative (USTR). “A multitude of non-tariff barriers to U.S. agriculture and seafood products are addressed, including for meat, poultry, seafood, rice, dairy, infant formula, horticultural products, animal feed and feed additives, pet food, and products of agriculture biotechnology,” USTR said.

China is expected to purchase a total of $200 billion in U.S. goods, including agriculture items.

Tax Extenders May Wait Until 2020

It looks like key House Democrats are back to a big package of tax extenders and that will present approval hurdles for items like the lapsed biodiesel tax incentive, congressional sources advise.

House Ways and Means Chairman Richard Neal, D-Mass., reportedly altered his prior view this week for a “skinny” package of tax provisions that did not include more than $100 billion worth of refundable tax credits for low-income workers and families that Neal has been pushing since June.

But on Thursday, Neal changed. Asked if the skinny package was still on the table, Neal said, “Nah. We are trying to negotiate a big ending... Everything is in the mix now.”

In the Senate, Republicans appeared downbeat on the prospects for a tax deal before the year is out. Sen. Pat Roberts, R-Kan., said he thought January was more likely.

If so, that means the lapsed biodiesel tax credit will not likely be dealt with yet this year.

Washington Insider: US, China Trade Deal

Analysts are working hard this week to study the “phase one” deal that the U.S. and China agreed to last week — a deal the Washington Post said meant that the 21-month trade war is “on pause — for now.”

Now, the Post notes that both sides are claiming the win. The White House characterized it as “amazing” and “historic.” Top Chinese officials held a rare news conference to claim the win for them and “the Chinese people.” Many business groups were cautiously optimistic.

While the full text had not been made public, both sides confirmed that the U.S. committed to scaling back some tariffs in exchange for China’s purchases of about $200 billion more U.S. goods in the next two years and opening up to U.S. financial firms.

The Post also published a rundown of winners and losers, beginning with the President who “can say he made a deal, even it’s limited.” It said that the administration was “trumpeting the deal particularly to farmers and manufacturing workers hit hard by the war,” the Post said.

The Post also said that this deal, together with the recent Congressional approval announced by the House for the “New NAFTA” make it likely the U.S. economy will grow at 2% or more next year avoiding a recession and helping the president politically, especially with farmers.

U.S. officials are saying that China agreed to buy $40 billion of agricultural products and could “hit $50 billion” in purchases. The Chinese “refuse to utter that exact figure” but they have agreed to bump up purchases, even if it’s not quite $50 billion, the Post said.

The Post also lists as winners Apple and other tech companies; Walmart and other retailers; Wall Street investors; JPMorgan Chase and other U.S. financial companies and business leaders and the Chinese government—which “didn’t have to give too much,” the Post said. It charged that Chinese leaders played the U.S. president “skillfully at the end, refusing to confirm there was a deal for hours after the White House leaked there was one.”

The Post also carped that the newly agreed level of purchases had already been offered “as long ago as mid-2018.” It said the biggest concession China made is to agree to penalties if it doesn’t hold up its end of the bargain — although there is a long process the U.S. agreed to go through before imposing punitive tariffs.

Also, the Post identified “losers” including Peter Navarro, Stephen Bannon and China “hawks.” It said that the deal does little to fundamentally change China’s “Made in China 2025” plans and noted that the President “had many trade advisers like Navarro” urging him to keep the tariffs on and push China for a bigger deal that would commit to pulling back industrial subsidies and ending the theft of U.S. trade secrets. Instead, he scaled back tariffs and settled for a much less ambitious agreement, the report said.

The President promises there will be a “phase two” after the election but many fear this will end up being a one-and-done deal. As a result, the Post says that while the deal may be a political win, the goal of forcing China to overhaul its economic policies “did not happen here.”

It remains a power player and its “Made in China 2025″ plan is still moving ahead, the report says. While the latest trade data shows a small reduction in the trade deficit with China, the U.S. trade deficit with other nations is growing, the Post says.

Also, the Post placed in the loss column some farmers who “didn’t make it to see the gains from this deal after two brutal years,” and noted that some U.S. companies still face tariffs on Chinese imports.

The report adds China’s economy to the “list of losers” noting that it was already facing a slowing economy before the trade war began. While there is now relief that the U.S. will not go forward with tariffs on all Chinese products, the administration kept in place tariffs on nearly $370 billion worth of sales. Even more important, there is evidence that some companies shifted their supply chains out of China to other countries — lost business, that while modest as a share of China’s total economy, is unlikely to return.

Finally, the Post thinks there will be debates for years about whether the administration’s China trade war was worth it and whether enough was achieved from the deal. But there is agreement that it changed the conversation about China and expanded “bipartisan support” for confronting unfair Chinese business practices.

So, we will see. A key concern is what the new U.S.-China policies turn out to be and what impacts linger on important markets — developments producers should watch closely as the deal’s “devilish details” emerge, Washington Insider believes.

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