Washington Insider-- Tuesday

New Asian Trade Alliance Considered

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

House Ag Chair Raises Questions on CFAP

House Agriculture Committee Chairman Collin Peterson, D-Minn., is asking USDA to clarify its eligibility standards for the Coronavirus Food Assistance Program (CFAP), writing USDA Secretary Sonny Perdue in an August 21 letter.

Peterson said that he viewed the data used by USDA as only considering the earliest parts of the pandemic, missing the full extent of damage to different commodities. “Some would argue that the full agricultural market impact of the closure of schools, restaurants, catering, and agricultural processing facilities due to the COVID-19 public health crisis were not fully realized during the CFAP covered period, with losses for many commodities extending well into the second and third quarters of this year,” Peterson said.

He also raised questions about commodities that were not deemed eligible under CFAP. Hundreds of commodities were denied CFAP eligibility for “insufficient data” and “lack of information,” though it would seem that the “well documented shut-down of school meals, restaurants, and food service demand would have impacted those food crops, and the loss of export, landscape, and retail markets for the non-food crops (e.g., pima cotton) and livestock/poultry,” he wrote. “And, producers of processed food commodities (e.g., raisins) and aquaculture seem to have been completely excluded from the program.”

US, EU Reach Lobster Trade Deal

U.S. and European Union (EU) officials said Friday they reached agreement on a plan for the EU to lower tariffs on imports of lobster from the U.S. and other suppliers, with the U.S. agreeing to lower duties on a list of other items of equal value.

EU Trade Commissioner Phil Hogan announced the action even as some indicated they had hoped the issue might be dealt with in broader negotiations between the two sides. But those trade negotiations are proceeding very slowly as the U.S. is currently focused on a trade deal with the UK over one with the broader EU.

Still, the U.S. lobster industry is welcoming the development with their attention also on the trade situation with China.


Washington Insider: New Asian Trade Alliance Considered

India is already seeing some success luring supply chain investments away from China, and is considering teaming up with Japan, Australia and others to counter Chinese dominance as trade and geopolitical tensions escalate across the region, Bloomberg explains.

Bloomberg calls the three interested countries export powerhouses and says they are discussing a “supply resilience initiative.” The talks are now at a working level but Japan would like to elevate them.

Even without the other two nations, India's latest set of incentives to entice businesses away from China “seems to be working,” Bloomberg says, with companies from Samsung to Apple's assembly partners showing interest.

Prime Minister Narendra Modi's government in March announced incentives that make electronics manufacturers eligible for a payment of 4%-6% of their incremental sales over the next five years. About two dozen companies pledged $1.5 billion in investments to set up mobile-phone factories in the country.

Besides Samsung, those that have shown interest include Wistron, Pegatron and Foxconn. India has also extended similar incentives to pharmaceutical businesses. The group “plans to cover more sectors, which may include automobiles, textiles and food processing,” Bloomberg says.

Numerous countries in Asia and elsewhere have been actively looking to diversify supply chains amid the U.S.-China trade tensions and the coronavirus outbreak – conditions that are making it cheaper for businesses to open shop. Vietnam remains the most favored investment destination, followed by Cambodia, Myanmar, Bangladesh and Thailand, according to a survey by Standard Chartered.

The incentives would help bring an additional investment of $55 billion over five years, adding 0.5% to India's economic output, according to analysts led by Neelkanth Mishra at Credit Suisse.

The latest output-linked incentive plan is a “win for Make in India,” Amish Shah, an analyst at BofA Securities, said in a report to clients. He sees gains for industrials, cement, pharmaceuticals, metals and logistics, with long-term indirect benefits across many sectors.

Meanwhile, the campaign of U.S. President Trump, who is vying for re-election in November, just released a second-term agenda that includes a goal of bringing back 1 million factory jobs from China and offers “Made in America” tax credits.

The Congressional Research Service (CRS) reported last week that since the COVID-19 outbreak was first diagnosed, it has spread to over 200 countries and all U.S. states. In addition, CRS says the pandemic is negatively affecting global economic growth “beyond anything experienced in nearly a century.”

Estimates so far indicate the virus could trim global economic growth by 3.0% to 6.0% in 2020, with a partial recovery in 2021, “assuming there is not a second wave of infections.”

Still, the economic fallout from the pandemic raises the risks of a global economic recession with levels of unemployment not experienced since the Great Depression of the 1930s. The report emphasizes the “human costs in terms of lives lost” that will permanently affect global economic growth in addition to the cost of rising levels of poverty, lives upended, careers derailed, and increased social unrest.

Global trade could also fall by 13% to 32%, exacting an especially heavy economic toll on trade-dependent developing and emerging economies. CRS says the full impact of these trends will not be known until the effects of the pandemic peak. The report provided details and an overview of the global economic efforts and costs to date and response by governments and international institutions to address the pandemic impacts.

Policymakers and financial and commodity market participants generally have been hopeful of a global economic recovery starting in the third quarter of 2020. Some forecasts, however, raise the prospects that the pandemic could negatively affect global economic growth more extensively and for a longer period of time with a slow, drawn-out recovery.

Without a quick resolution of the health crisis, the economic crisis may persist longer than most forecasters have assumed, CRS says – and it may require policymakers to weigh the most effective mix of additional fiscal and monetary policies that may be required without the “benefit of a relevant precedent to follow.” Additional measures “may have to balance the competing requirements of households, firms, and state and local governments. CRS says.

Various U.S. states reversed course in late June to impose or reimpose social distancing guidelines and close down businesses that had begun opening as a result of a rise in new confirmed cases of COVID-19, raising the prospect of a delayed recovery, CRS said.

So, we will see. Certainly, the impacts of the pandemic are continuing to be both enormous and difficult to evaluate – efforts producers should watch closely as they are debated and implemented, Washington Insider believes.

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