Washington Insider-- Wednesday

China Trade Fights and More

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

USTR Considers Ban on Cotton Products from China's Xinjiang Region

This week the Office of the US Trade Representative (USTR) could ban the import of products made with cotton from the Chinese region of Xinjiang, in response to the abuse of minorities living there.

US Customs and Border Protection (CBP) would have to issue an order implementing the ban. The issue could affect tens of billions of dollars of US textile and clothing imports that include cotton, yarn or fabric from the Xinjiang Uygur Autonomous Region.

A ban would cut deeply into apparel supply chains, and there is the potential that any US action could lead China to retaliate – possibly targeting US cotton producers.

Cattle Group Presses USDA Over Mexican Beef

The US Cattlemen's Association (USCA) is urging USDA's Animal and Plant Health Inspection Service (APHIS) and Food Safety and Inspection Service (FSIS) to enhance inspections of beef imported from Mexico, citing concerns over the potential use of the growth promoter clenbuterol.

The group pointed to reports of an outbreak of illness affecting 54 people across Mexico linked to meat contaminated with clenbuterol. It also pointed to a 2019 study that found clenbuterol residues in excess of Codex Alimentarius maximum limits in 52 of 106 samples of beef muscle and liver purchased from vendors in the city of Cuernavaca.

“USCA strongly recommends increased inspection protocols of all beef and cattle imported from Mexico until such a time when confidence can be restored in Mexican beef product,” USCA President Brooke Miller wrote in the September 8 letter to APHIS and FSIS administrators. “We ask that APHIS and FSIS seriously evaluate the public health risks associated with importing beef and meat from Mexico, including conducting an equivalence verification to ensure that Mexico is still maintaining a regulatory food safety inspection system that is on par with the United States'.”


Washington Insider: China Trade Fights and More

Bloomberg is reporting this week that the President is staking out a much more punitive position on future trade relationships with China. He is threatening to “punish any American company that creates jobs overseas.”

“We'll manufacture our critical manufacturing supplies in the United States, we'll create 'made in America' tax credits and bring our jobs back to the United States and we'll impose tariffs on companies that desert America to create jobs in China and other countries,” President Trump said on Monday.

“If they can't do it here, then let them pay a big tax to build it someplace else and send it into our country,” he said of US corporations. “We'll prohibit federal contracts from companies that outsource to China and we'll hold China accountable for allowing the virus to spread around the world.”

The report says that the president has recently emphasized the idea of “decoupling” the US economy from China—as US China hawks have long dreamed. “Whether it's decoupling or putting massive tariffs on China which I've been doing already,” he said. “We're going to end our reliance on China because we can't rely on China and I don't want them building a military like they're building right now and they're using our money to build it.”

Despite the president's comments, bilateral trade is one key area of US-China relations that hasn't worsened recently, Bloomberg says. Both nations are seen as reaffirming their commitment to a phase-one trade deal that stopped tit-for-tat tariff increases. China's trade surplus with the US in August was $34.2 billion, the highest since November 2018.

The president has increasingly sought to intensify the election-year trade issues but didn't say when he would implement the new policies. He framed the moves as part of a second-term agenda.

Overall, Bloomberg says that this year could become the most challenging period for the international trading system in modern history. It cites Edward Allen, a senior fellow at the Council on Foreign Relations, who thinks the next three months will be “pivotal” for the state of global trade. With protectionism on the rise in ways similar to the lead-up to the Great Depression, “the echoes of the 1930s are pretty clear,” he said.

Bloomberg focuses on several key political and economic events affecting trade, beginning with the WTO review of whether and how much the EU can retaliate against the US for its subsidies to Boeing Co. The EU has requested authorization for levies on $11.2 billion of US products, but trade experts say a lower figure is likely -- perhaps below the WTO's $7.5 billion award to the US in its parallel dispute against EU subsidies to Airbus SE.

There are hopes that a ruling would spur the US to restart negotiations to settle the 15-year-old dispute. A settlement would be a huge relief to European exporters, who are currently facing stiff US retaliatory tariffs.

However, Bloomberg thinks that the most important trade development this year will be the US presidential election. If the president is re-elected in November, it's likely the US will increase tariffs on foreign trade partners as a means to reshore and diversify America's supply chains, Bloomberg says. This could mean “more of the same--a roller coaster ride of volatility, threats, and tariffs,” said William Reinsch, a trade official in the Clinton administration and senior adviser at the Center for Strategic and International Studies.

If Democrat Joe Biden wins, “he has already said, in effect, that trade is going to be on the back burner while he deals with the pandemic and the economy,” Bloomberg thinks.

In the midst of all this, members of the WTO will attempt to select a new leader to help revive the “neutered” referee for international commerce. The organization is currently operating without a chief following Roberto Azevedo's early departure on Aug. 31. Bloomberg thinks the WTO's dispute-settlement function is crippled, its negotiating arm is essentially frozen and the organization is beginning to buckle beneath the pressure of the US-China battle for trade supremacy.

It believes that US and European policy makers also are sleepwalking toward a “damaging trade conflict over foreign taxes on US technology companies like Facebook Inc. and Alphabet Inc.'s Google, Bloomberg says.

Though nations have sought to resolve the matter at the Paris-based Organization for Economic Cooperation and Development, the US withdrew from those talks in June. If an agreement is not forthcoming this year America's top trade official has pledged to impose tariffs on nearly a dozen nations in 2021.

Also, new and significant trade barriers between the UK and EU are likely by year-end, Bloomberg thinks as the UK proceeds to leave the EU's single market and customs union -- meaning British exporters must endure new customs paperwork that will create border queues and persistent delays.

This will happen regardless of whether Britain can come to an agreement with the European trading bloc over the future of their economic relationship. If the UK fails to negotiate a tariff- and quota-free accord with the EU, British exports will become subject to WTO negotiated terms that bring costs, controls and red tape that haven't existed for decades.

So, we will see. Overseas markets are very important for US agriculture and for other industries that are globally competitive and who have outgrown domestic markets—and they tend to be supported by those who believe that trade agreements tend to lead to stronger global relationships than the past reliance on more mercantilist objectives achieved. Now, Bloomberg and others think that the global trade system risks drifting even further into much more confrontational arrangements, developments and fights producers should watch closely as they emerge, Washington Insider believes.

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