Washington Insider -- Tuesday
China and Future Trade Policies
Here’s a quick monitor of Washington farm and trade policy issues from DTN’s well-placed observer.
White House Sends Nominations to Senate For EPA, Energy PostsThe White House Thursday sent forward the nomination of Mark Menezes to Deputy Secretary of Energy.
Menezes is currently Undersecretary of Energy and is the principal advisor on energy policy and emerging energy technologies. Prior to taking that role at DOE, Menezes was an executive with Berkshire Hathaway Energy in its Washington, D.C., office and while a staffer on the Hill was involved in the Energy Policy Act of 2005.
The nomination of Douglas Benevento as EPA Deputy Administrator was also sent forward. Benevento currently serves as EPA Associate Deputy Administrator. Previously, he served as Senior Counselor for Regional Management and State Affairs, and as Region 8 Administrator for EPA.
In the private sector, he worked on energy and environmental issues at Xcel Energy and practiced law at Greenberg Traurig, LLP. Benevento also served as executive director for the Colorado Department of Public Health and Environment, where he managed the State’s environmental and public health programs.
Both agencies play a role in US ethanol policy and Menezes has experience on the Hill in terms of the initial law that set up the Renewable Fuel Standard (RFS).
Visit to India By USTR Lighthizer Now Not In The Cards Ahead Of Trump Trip
President Donald Trump is to visit India this week, February 24-25, with some expectations that he could sign a trade deal during the trip.
The expectation had been that U.S. Trade Representative Robert Lighthizer was to visit India ahead of Trump’s arrival to hold trade discussions. The two sides have held discussions over the last several weeks via teleconference.
But it now appears Lighthizer’s visit may not take place. The Press Trust of India reported that an unnamed official said, "Lighthizer was supposed to hold discussions with [a] commerce ministry team but as of now, he is not coming."
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The official said there was no indication yet that a trade deal will be signed by Trump during his visit.
Washington Insider: China and Future Trade Policies
There is a lot of concern among global policy makers just now regarding what will happen next on trade, Bloomberg is reporting this week. The “broad policy direction for many of the world’s central banks and governments now hinges on one question: how will the Chinese government respond to the economic shocks caused by the coronavirus?”
The report notes that the Communist Party’s elite Politburo has urged the nation to meet its economic targets this year, an imperative that could change the government’s recent reluctance to “fire up large-scale stimulus.”
If this attitude translates into an all-out loosening of monetary policy and a ramp up in government spending, key trading partners that have been slammed by the hit to exports, supply chains, commodities and tourism may see that short-term pain followed by a rapid snap back.
Such a potential economic shock is expected to dominate discussions at this week’s meeting of finance ministers and central bankers at a Group of 20 summit in Riyadh, Saudi Arabia. International Monetary Fund Managing Director Kristalina Georgieva on Friday suggested there may be a need for “synchronized or, even better, coordinated measures to protect the world economy.”
Much depends on which levers China pulls, Bloomberg says. Near-term options include further cuts to central bank funding rates and more tax relief to hard-hit sectors as well as flush liquidity for the financial system. The emphasis for now remains on not over doing it, though there are signs the resolve is softening.
The People’s Bank of China could further cut the proportion of deposits banks must hold as reserves. Local governments are being allowed to speed up bond sales to fund infrastructure like highways and health facilities.
Real gross domestic product is now forecast to grow 5.8% this year, according to the median result in a Bloomberg survey, down from 5.9% last month. That would be the weakest in three decades. The main unknown is whether officials will really relax their rigid clampdown on borrowing in an economy where total debt is heading toward 300% of national output, making financial stability a political priority.
“The key for China’s trading partners is not so much the composition of China’s stimulus but, rather, that the stimulus is tailored to reflect the features of the shock.” said Nathan Sheets, a former Fed official who is now chief economist for PGIM Fixed Income.
However, Bloomberg also notes that China’s factories are vital links in the supply chains for multinational companies and that Hubei province, an industrial powerhouse with an economy the size of Sweden’s, remains in lock-down while a mix of curbs on factory production and travel remain in place elsewhere too, complicating the task of getting the economy back up to speed.
HSBC Bank Plc economists led by Janet Henry estimate the hit to tourism revenue will be the biggest drag on Asia. They also highlight China’s role at the center of the global supply chain for electronics will delay a nascent recovery after a prolonged slump. The Asia-focused lender has cut its 2020 global GDP forecast to 2.3% from 2.5% on the back of the China effect.
President Xi Jinping has stressed the hit to growth will be short term and has used opportunities like a half hour phone call with Malaysia’s Prime Minister Mahathir Mohamad to assure the fallout will be contained.
Still, there is concern that because China is experiencing a supply side shock that’s upended production and distribution, a conventional stimulus such as lower interest rates or higher public spending may not be enough to turn things around, according to former IMF chief economist Olivier Blanchard. “The effects on the rest of the world are likely to be mostly through the disruption of supply chains and the effect on firms outside of China,” he said. “Much more so than the effect through lower exports to China, because of lower growth in China.”
Governments across Asia are already gearing up to respond, observers say. For example, Koichi Hamada, an adviser to Japanese Prime Minister Shinzo Abe, said more fiscal stimulus will be needed if the fall out worsens. Singapore is seen as poised to roll out extra spending and Malaysia will announce stimulus next month while Indonesia plans faster spending, Bloomberg said.
Globally, policy makers including those at the International Monetary Fund and the U.S. Federal Reserve say they are closely watching the virus fallout. Among emerging markets, Thailand, Malaysia and the Philippines have already cut their benchmarks and others may follow.
That is why there’s so much focus on how China responds, Bloomberg thinks. “I would guess the global policy response will be 3/4 on Beijing and 1/4 by the rest of the world,” said Gene Ma, head of China research at the Institute of International Finance said this week.
So, we will see. There remains a basic current of trade tensions among major competitors concerning the U.S. reliance on tariffs and potential impacts on U.S. competitiveness in global markets including those for manufactured products – as well as the concern that the fundamental impacts of the coronavirus outbreaks may be harder to shake than some expect. As a result, trade policy proposals and decisions will continue to be vitally important to producers and should be watched closely over the coming months, Washington Insider believes.
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