Washington Insider-- Wednesday

Cloudy Trade Outlook

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

Some State Attorneys General Express Support For Waiving RFS Requirements

Requests by some states for EPA to waive the biofuel requirements under the Renewable Fuel Standard (RFS) this year “is clearly justified by law and circumstance,” according to a letter signed by seven state attorneys general to EPA Administrator Andrew Wheeler.

Noting the regulatory relief being offered by the Trump administration in several areas, the officials argued that the biofuel sector is another where such an action is warranted.

“Chemical refiners are crucial to advanced economies and provide economic support for both states and workers’ families alike,” the officials said. “These hard-working Americans are named ‘critical infrastructure workers’ by the Cyber and Infrastructure Security Agency, meaning they fill an economic need vital to economic and national security.”

SBA Publishes Changes Making Some Rural Electric Co-Ops Eligible For PPP

The Small Business Administration (SBA) Tuesday published in the Federal Register updates made to the Paycheck Protection Program (PPP) to clarify that some rural electric cooperatives will be eligible to utilize the program.

The PPP is intended to provide economic relief to small businesses nationwide adversely impacted by COVID-19, and the SBA published an interim final rule that “supplements the previously posted interim final rules by providing guidance on additional eligibility requirements for certain electric cooperatives, and requests public comment.”

The measure covers applications submitted under PPP through June 30, 2020, or until funds for the program are exhausted.

Washington Insider: Cloudy Trade Outlook

Washington in entering a kind of “deep tea leaf reading period” on trade these days and analysts are scanning scenarios that are unusually deep in shadows.

For example, Bloomberg is reporting that the outlook for trade fights just now “should be read with some skepticism.” It says the prospect includes the “deteriorating relationship between the U.S. and China," but that those tensions may not lead to the collapse of the small trade peace Beijing and Washington signed up for in January. The report asks whether we may be entering the do-nothing phase of the administration’s trade wars?

It’s possible, Bloomberg says. It thinks that “there is little doubt that China is going to struggle to live up to its purchase commitments to the United States this year under the phase one deal that the two sides signed in January,” and cites a new tracker from Chad Brown at the Peterson Institute for International Economics as evidence.

Brown thinks Chinese purchases “would have to accelerate significantly to hit the deal’s targets for 2020,” but thinks that isn’t surprising given that the Chinese economy is still slowly emerging from a coronavirus-induced shutdown earlier this year. That observation is leading “some to argue the deal is poised to collapse.” However, Bloomberg says, “what’s the alternative?”

The report thinks that, “in reality,” there’s not much the administration can do right now even as the relationship with China deteriorates.”

So, Brown thinks that the administration’s options for action are not good. Walking away would literally mean going back to Plan A, which is mainly “hitting China with yet more tariffs.”

That would mean “whacking” the same consumer goods like smartphones that the administration had lined up as targets late last year. And, just the suggestion of that step caused angst in financial markets and among consumers last year. What would it do now in the middle of a global economic crisis?”

It also would mean more Chinese retaliation and the loss of even any prospect of increased sales for already-hurting American farmers.

In reality, Brown says, is that because of the northern hemisphere’s cultivation calendar the big Chinese agricultural purchases were always going to come later this year. Walking away from that deal now after farmers have planted “with the Chinese buying spree in mind” would lead to more pain a few months from now.

The smart play for the time being looks to be for the administration to do nothing other than encourage China to buy more. Brown thinks that would allow those around the president to aim plenty of rhetorical venom at Beijing, of course.”

Bloomberg also takes note that there likely will be a different set of “machinations” underway in the WTO, where Director-General Roberto Azevedo unexpectedly announced plans to step down Aug. 31, a year before his term expires. However, the “result may well be the same,” Bloomberg thinks.

There is no obvious candidate for the U.S. to support to succeed Azevedo, it notes. Moreover, there is no obvious need for the U.S. to push for any action unless it can extract a price from the WTO’s other member nations. “That’s especially true when members of the administration’s own party are calling for the abolition of the WTO.”

Robert Lighthizer, the administration’s trade czar, is a longtime skeptic of the WTO and someone who has demonstrated a penchant for using “time and the lack of action to get what he wants,” Bloomberg says. He has worked to hobble the WTO’s dispute-resolution function by simply blocking the appointment of new judges and allowing the clock to run out.

Like it or not, leaving the WTO in the hands of an acting director-general and institutional limbo for some time could actually be a way for the U.S. to build leverage ahead of a negotiation of overall reforms, or in advance of a broader negotiation of new tariff levels, Bloomberg says. Especially when the rest of the world has greater fondness for the WTO than the U.S. has right now.

The rest of the world, meanwhile, is also likely to be happy to wait until after November’s U.S. presidential election to deal with a Biden presidency.

None of that is especially good for the WTO, or a world economy that has seen global trade savaged by a pandemic, Bloomberg says. But the WTO is a sideshow right now. And, for the time being, inaction is easier than action. Which is an overarching truth in the administration’s trade wars.

So, we will see. Certainly, the longer-term prospect for global trade is not exactly rosy even though the immediate battles could be damped down for a while. It is still true that export markets have much greater growth potential than domestic ones do for U.S. producers, and that while trade issues are always thorny, they continue to be valuable to producers and should continue to be cultivated wisely where that is possible, Washington Insider believes.

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