Washington Insider -- Wednesday

US and France May Have Tariff Truce

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

USDA’s Perdue Predicts Record Exports For US

USDA Secretary Sonny Perdue told Farm Bureau members that the signing of the phase-one agreement should mean that a third round of trade aid in 2020 should not be expected by farmers.

He did say that the third installment of the 2019 Market Facilitation Program (MFP 2) payments should be dispatched shortly. He pointed to the purchase by China in the deal that he believes will alter China’s usual pattern of buying U.S. ag goods in the fall and winter.

"If China is going to achieve that, and we believe they are, we think they have to buy earlier than the traditional export season from the United States," Perdue observed.

He also predicted that the U.S. will post a record year for U.S. ag exports, especially with the additional Chinese purchases. This will put more attention on the U.S. ag export forecast which is not scheduled to be updated until February 20.

USTR Official Explains More on China Phase On Deal

U.S. Trade Representative chief ag negotiator Gregg Doud told members of the National Association of Wheat Growers and U.S. Wheat Associates that the phrase of market terms links to seasonality.

“We do not expect China to buy U.S. soybeans in the middle of the Brazilian harvest. That is what that term means,” Doud observed. “The expectation is they have a commitment to make. We expect them to make that, when it is our time.”

He also noted the enforcement mechanism in the deal. “Either country has the right to put tariffs on, commensurate with the value of whatever the problem is,” he remarked.

Doud added that when and if that were to take place, an important part is that “the other side cannot retaliate. The goal is not to have that happen — and I will tell you, that’s very sincere on both sides.”

Regarding timing, Doud indicated that 60 days appears to be a key figure in the timelines relative to when U.S. ag exports could start materializing.

“China enters into force in 30 days. And the beef component of that we supposed to have in another 30 days, so that is 60 days,” Doud said. “Then you think about it in terms of what we just did in poultry. We reopened the poultry market in the middle of November.” The poultry landed in China January 14, he noted,

“so that is roughly 60 days.”

Washington Insider: US and France May Have Tariff Truce

Bloomberg is reporting this week that Presidents Emmanuel Macron and Donald Trump agreed to a truce in their dispute over digital taxes and that “neither France nor the U.S. will impose punitive tariffs this year.”

The group reported that Macron told the press on Monday he had a “great discussion” with Trump on the issue, without giving details. President Trump appeared to agree--“Excellent!” he said in a reply to Macron’s post, without providing additional information. At the time, the President was en route to Davos, Switzerland, for the World Economic Forum.

A White House readout of the call was notably more muted, saying only that the “two leaders agreed it is important to complete successful negotiations on the digital services tax” and “discussed other bilateral issues.” Bloomberg noted that “neither a White House spokesman nor officials with the U.S. Trade Representative’s office would confirm that the U.S. president had called off his announced tariffs.”

Still, the possible respite may defuse transatlantic tensions that had been building between Washington and Brussels along another potential trade war front. The European Union is an even bigger U.S. trading partner than China and supply chains between the two economies, particularly in automotive and financial services industries, are intertwined in ways that would make a tit-for-tat tariff dispute even more harmful to the world economy, Bloomberg said.

Macron’s government still hopes to find a solution that fits within discussions at the Organization for Economic Cooperation and Development’s work on the issue, according to a French official. While the organization is still working on its proposal for taxing tech companies around the world, France pushed ahead with its own levy last year that hit U.S. internet giants like Google, Apple Inc. and Amazon.com Inc.

“We now have an agreement between the two presidents to avoid any tariff escalation and avoid any trade war,” French Finance Minister Bruno Le Maire told reporters in Brussels. Paris and Washington have discussed the possibility of France suspending the collection of the digital tax payments due in April as long as the U.S. refrains from imposing new tariffs, French officials said. But that wouldn’t constitute a withdrawal of the levy, they added. For its part, the French government denies its national tax is discriminatory and warned that the EU would retaliate if the U.S. imposed additional levies.

The U.S. has charged that the French tax discriminates against American technology companies. It has threatened to hit $2.4 billion of French goods with tariffs in retaliation.

The dispute was another headache for European trade officials scrambling to expand their policy arsenal as the U.S. takes aim at a rules-based system for global trade that Trump argues is outdated and tilted against America. It also coincided with a change in leadership at the European Commission, the EU’s executive arm.

The truce follows weeks of discussions between Treasury Secretary Steven Mnuchin and Le Maire, who were scheduled to meet Wednesday in Davos, Switzerland. The dispute has ramifications outside France as other countries try to come up with ways to generate revenue from the digital economy. Mnuchin told the Wall Street Journal that the UK and Italy will face American tariffs if they proceed with similar levies on foreign tech firms.

U.S. and EU trade relations started to sour in 2018 when the U.S. administration invoked national-security considerations to impose tariffs on steel and aluminum from Europe. As a U.S. military ally, the EU was infuriated and promptly retaliated with levies on iconic American brands such as Harley-Davidson Inc. motorcycles and Levi Strauss & Co. jeans.

A subsequent U.S. threat to wreak significantly more economic damage by targeting the European auto industry with duties on the same security grounds led to a hastily agreed truce and a pledge by both sides to work toward reducing industrial tariffs across the board.

Since then, the administration has refused to start the tariff-cutting negotiations unless Europe includes agriculture in them. Also, it imposed levies on EU products in retaliation over government aid to Airbus SE that was deemed illegal by the WTO and disabled the WTO’s appellate body.

The EU, meanwhile, is pressing ahead with a plan for tariffs against the U.S. in a parallel WTO case over unlawful subsidies to Boeing Co.

“Europe has had tremendous barriers to us doing business with them. All those barriers are coming down. They have to come down,” President Trump told a conference of farmers in Austin, Texas. “If they don’t come down, we’re going to have to do things that are very bad for them.”

He added, “Europe was, in many ways, more difficult – and is more difficult – than China.”

So, we will see. The phase-one deal with China has been well received by many in industry, even though there is substantial skepticism regarding the achievement of the main objectives like subsidies for Chinese companies. In the case of frictions with Europe, the stakes are extremely high, once again, and producers should watch closely as these talks proceed, Washington Insider believes.

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