Washington Insider-- Monday

Regarding the US-China Trade War

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

NPPC Focusing On Next Farmer Aid, Help For Euthanized Livestock

The National Pork Producers Council (NPPC) is focusing on the coming second round of Coronavirus Food Assistance Program (CFAP) help (see previous item) and are urging Congress to provide USDA the authority to use the Commodity Credit Corporation (CCC) to provide financial help to livestock producers have had to euthanize livestock due to the COVID-19 pandemic.

The group wants no limits on the CFAP 2 effort, but USDA will still impose pay caps on the funds.

The group also wants more funding to boost the number of U.S. inspectors at U.S. borders, citing the appearance of African swine fever (ASF) in Germany as a key reason more inspectors are needed as they are the “first line of defense,” officials with the group told reporters in a call Thursday.

The group is working to try and get the inspector funding in the coming continuing resolution to keep the government funded past September 30, but officials were uncertain whether such funding could be added to the plan.

USDA Approves Contracts Under Third Round Of Food Box Effort

USDA approved another $1 billion in food box contracts for a third round of deliveries through the end of October.

The department says it has taken steps to fix shortfalls in the relief program that drew criticism from lawmakers and some food banks in recent months.

The third round of contracts are under the Farmers to Families Food Box Program. USDA said the combination boxes of fresh produce, dairy products, fluid milk and meat products “will be distributed to every county in America.”


Washington Insider: Regarding the US-China Trade War

While much of the debate in Washington has quickly turned to the Supreme Court and efforts to replace Justice Ruth Bader Ginsberg, Bloomberg has raised a different concern — it says that after four years of “relentless” effort by the President to push back against China, questions remain about that policy's effectiveness. It calls efforts to ban new downloads of WeChat — China's ubiquitous messaging and payments app — and the wildly popular video-sharing app TikTok — as merely diversions.

The report goes further — it says that “the final scorecard is already in: On just about every metric that matters, China is ahead.” The article lists several details.

It considers the trade balance and notes that the president “seems to regard that as “the most important measure of success” in its effort to get China to play by global trading rules. It says that metric “has grown almost 25% since the start of the administration's tariff war and cites Jim McCormick of NatWest Markets. Also, China is nowhere near on track to meet its target of increasing imports from the U.S. under the current partial deal the signal accomplishment of the administration's “tariff tit-for-tat.”

Bloomberg then considers China's powerfully resurgent GDP, the result of its vastly more effective response to the pandemic that began there. China, McCormick notes, is the only country among 48 to have reported a second-quarter GDP number that was higher than at the end of 2019. In the U.S., the worst country when it comes to the coronavirus (as measured by death and infections), the economy shrank 9.5% in the second quarter, a drop that equals an annualized pace of 32.9% — its sharpest downturn since at least the 1940s, Bloomberg says.

And now the Chinese currency is surging, the report says. It climbed for the eighth week in a row, its longest run of gains since February 2018. Global bond funds are pouring into the country — ones that still offers yields. Meanwhile, the dollar is slumping.

Behind these headline numbers Bloomberg also sees “deeper industrial trends, which again work in China's favor, helping it pick up global market share in the aftermath of COVID-19 lockdowns.” Increasingly, China is supplying the kind of sophisticated machinery that German manufacturers once dominated, like high-end tunnel borers and hydraulic valves and pumps used in wind turbines.

“It's only a matter of time until Chinese firms are No. 1,” Ulrich Ackermann, managing director for foreign trade at Germany's VDMA Mechanical Engineering Industry Association told Bloomberg.

So, Bloomberg asserts that the administration's assaults on WeChat and TikTok are “distractions” and argues that there are “better ways to mitigate the national security risk Chinese companies may pose” by gaining access to U.S. personal data. In any case, lashing out at Chinese tech companies will only slow, not derail, Beijing's efforts to dominate the 21st century economy, the report says.

As an example, it describes the race to develop batteries, a key to the future of transport, defense and other industries. By 2025, China will have battery facilities with maximum production capacity of about 1.1 terawatt-hours' worth of cells annually, almost double the rest of the world combined.

The White House response? So far, only inertia, Cathy Zoi, chief executive officer of charging-network operator EVgo who was an assistant secretary at the U.S. Department of Energy under President Barack Obama, says.

The report argues that the “net result” of administration efforts to decouple the U.S. and Chinese economies is to push China even further toward self-sufficiency, a strategy set to be enshrined in China's new five-year plan at a meeting of the Chinese Communist Party Central Committee next month.

This new economic direction is described by the official phrase “dual circulation,” an ambiguous reference to the outward and inward drivers of the Chinese economy. The report argues that China “looks set to make a drive to reduce dependence on imports, particularly of high-end manufacturing equipment and inputs,” writes economist Alicia Garcia-Herrero. “Dual circulation,” she said, is import-substitution by another name.

The report also argues that the Democratic political contender's ideas, no less than the administration's, would grapple with a China set on global domination of 21st century industries by deploying old-fashioned mercantilism, among other retrograde trade policies. It asks, “how could it do better?”

Robert Zoellick, the former U.S. trade representative and World Bank head has this advice for the former U.S. vice president, should he win in November: “Foreign policy should start at home,” focusing on domestic issues like public health, immigration and inclusive economic growth will both signal U.S. leadership and appeal to allies, Zoellick wrote in Foreign Affairs.

He sees that as a “new base of cooperation,” and thinks that “the U.S. and its partners will be better positioned to address two overarching challenges: the future of free societies and competition with China.”

So, we will see. While there are wide disagreements regarding many of the current indicators, certainly the continuing competition with China will be fierce and likely will persist. How well Bloomberg has captured the current “state of play” as well as the future prospects remains to be seen, but certainly should be watched closely by producers as these trends intensify, Washington Insider believes.

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