Washington Insider -- Tuesday

Administration Considers More Tariffs on Europe

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

MEXICO ACCEPTS US ASSURANCE ON LABOR ATTACHES

The road toward approval of the U.S.-Mexico-Canada Agreement (USMCA) hit a bit of a bump to open the week, but a quick exchange between U.S. and Mexican trade officials smoothed things over.

Mexican Undersecretary for North America and Chief Trade Negotiator Jesus Seade feared language in the implementing legislation for USMCA Mexico meant the U.S. was going to send labor inspectors to Mexican plants.

U.S. Trade Representative Robert Lighthizer Monday quickly fired off a letter to assure Seade that Department of Labor attachés that would be in Mexico were not labor inspectors and pledged that the attaches would "abide by all relevant Mexican laws."

Lighthizer said the use of the attaches was "routine" and that the Labor Department attaches would "work with their Mexican counterparts, workers, and civil society groups on implementation of the Mexican labor reform."

At an event in Washington, Seade declared Lighthizer's response eased his fears. "We are satisfied, very satisfied," Seade said, noting other authorities in Mexico were also pleased.

Further, Seade indicated that Mexico has not found any other issues in the implementing legislation that would be questionable.

The Mexican Senate Dec. 12 approved the modifications to the USMCA pact in a 107-1 vote. The House is expected to vote yet this week, but the Senate will not take up the USMCA legislation until later in January, after the impeachment trial.


U.S. COMMODITY GROUPS EYEING CHINA MARKET

Several U.S. commodity organizations are looking at the U.S.-China Phase One deal as an opportunity to sell more of their products to China.

Jim Sumner, president of the USA Poultry and Egg Export Council, said Friday's deal opened an opportunity for $2 billion in annual poultry exports to China. "We hope to have a good share of that $40 billion," he said.

Meanwhile, U.S. pork exports to China were $1 billion in 2017, according to the U.S. Meat Export Federation. An Iowa State University analysis in 2018, published before the Africa swine fever outbreak, concluded that China could import $8.9 billion more U.S. pork once tariffs were gone.

Chinese officials at a Friday press event signaled they would buy some U.S. wheat and rice, among other commodities. Before that China confirmation, many U.S. commodity analysts said there were low odds China would purchase U.S. rice or wheat.


WASHINGTON INSIDER: ADMINISTRATION CONSIDERS MORE TARIFFS ON EUROPE

The urban media, and others, are reporting this week that even as administration officials are taking public victory laps over the phase-one deal with China -- and in spite of continuing criticism of that agreement -- they are considering heavy tariffs on a broad range of European goods that could reach "100 Percent in some cases."

The import taxes are retaliation for excessive subsidies by the European Union to the aerospace giant Airbus.

The World Trade Organization ruled in favor of the United States this year in a dispute centering on European support for the aerospace giant Airbus that has lasted 15 years. In May, the WTO ruled that Europe's financial assistance to Airbus violated global trade rules and then in September, it effectively authorized the Trump administration to impose tariffs of up to $7.5 billion a year on European imports, pending negotiations over the removal of the subsidies.

The administration unveiled an initial list of tariffs in October. Then, this month, after Europeans suffered another setback in the dispute, administration officials said they would expand the list and increase tariffs already in place.

Last week, the United States Trade Representative (USTR) published the updated list, including a variety of items Americans buy from Europe, including dairy products such as yogurt, butter and several types of cheese; olives and olive oil; other food products; hand tools; clothing; wine and grape brandy; and Scotch and Irish whisky.

The trade representative also warned that it was considering raising tariff rates on imported items that are already subject to 25% tariffs as part of the Airbus dispute.

The Times report said that the administration has increasingly seized on tariffs to punish Europe. In addition to considering tariffs on German cars, the United States is mulling separate tariffs on French wine and other products as retaliation for a new tax that the administration says unfairly targets American technology companies.

This year, France passed a so-called digital service tax, which hits large companies that sell and advertise to French consumers but have not faced large tax liabilities in France. Then, the USTR recently recommended tariffs up to 100% on $2.4 billion of French products after declaring the tax a threat to America's national security. Some of those products, most notably French wines and cheeses, are also on the new list released on Friday.

President Trump told reporters this month that the USTR finding was justified. "They're starting to tax other people's products," he said. "So therefore we go and tax them."

The extension of tariffs on the European Union is a rare example of the administration's agreeing with the WTO. Administration officials have frequently criticized the body, which they call unfair to the United States, and they have worked to undermine its effectiveness.

The administration has blocked new appointments to a crucial panel at the organization that hears appeals in trade disputes. This week, the terms of two appointees to the panel expired, leaving the panel without sufficient membership to hear new cases. That means there will be no official resolutions of many global trade disputes for the foreseeable future.

So, we will see. The Europeans are tough negotiators and have numerous "high protection" tariffs of their own that are well supported politically. While this particular fight may have less potential influence on U.S. producers than the tariff retaliation fight with China does, it can play an enormous role in the global economy -- especially as economic uncertainty is increasingly identified as a potential threat to future U.S. growth.

Thus, these fights are important and should be watched closely by U.S. producers as the details and trends emerge, Washington Insider believers.


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