Washington Insider-- Wednesday

Dealing With the Future China

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

CFAP 2 Payments Top $7.5 Billion

Payments under the Coronavirus Food Assistance Program 2 (CFAP 2) have reached $7.6 billion as of October 25, including $3.9 billion in acreage-based payments, $2.1 billion for livestock, $843.9 million for sales commodities, $790.1 million for dairy, and $17.8 million for eggs/broilers.

By commodity, the payments are led by $2.2 billion for corn, $1.7 billion for cattle. $832.2 million for soybeans, $793 million for sales commodities, $790.1 million for milk, $391.3 million for wheat, $377.9 million for hogs/pigs and $169.6 million for upland cotton.

Payouts have reached $500 million or more in five states—Iowa ($776.9 million), Nebraska ($517.9 million), Minnesota ($510.2 million) and Illinois ($505.7 million).

CFAP 1 payments stand at $10.3 billion, including $5.0 billion for livestock, $2.6 billion for non-specialty crops, $1.8 billion for dairy, $802.6 million for specialty crops and $112.8 million for aqua nursery flora.

EU Cleared To Hit US With Retaliation Over Boeing Subsidies

The WTO Dispute Settlement Body (DSB) Monday okayed the European Union (EU) request to hit $3.99 billion in U.S. goods with tariffs over subsidies paid to Boeing that were found to run counter to U.S. WTO commitments.

However, EU Trade Commissioner Valdis Dombrovskis said he would seek to negotiate a settlement with the U.S., according to a statement. The formal approval by the Dispute Settlement Body of the WTO “confirms the EU's right to impose countermeasures for illegal subsidies to the American aircraft maker, Boeing,” he said. “The European Commission is preparing the countermeasures, in close consultation with our Member States. As I have made clear all along, our preferred outcome is a negotiated settlement with the U.S.”

The U.S. has offered a proposal to the EU to resolve the Boeing and Airbus disputes that have run for some 16 years, but indications are the EU rejected that US offer.

The U.S. side indicated at the WTO session that they also want a negotiated settlement, indicating one could come in a “short period of time.”


Washington Insider: Dealing With the Future China

In a long news article this week, Bloomberg argues that no foreign policy issue will plague the next winner of the White House more than China.

Already a debate is raging among China watchers over what Washington's next steps should be. Some favor a “reset” to tamp down tensions and return to more constructive diplomacy. Others are fearful of that and argue the U.S. mustn't stray from the hard line.

Bloomberg describes a somewhat different reality. As the U.S. struggles to contain the coronavirus outbreak and restart its economy, China appears to be gaining strength. Its gross domestic product expanded 4.9% in the third quarter, an “astounding rebound in a world still mostly mired in a pandemic-induced paralysis.”

In its own foreign policy, Beijing has barely flinched under U.S. pressure and instead has become more assertive — enhancing its influence in global institutions such as the World Health Organization, crushing the pro-democracy movement in Hong Kong, turning up the heat on Taiwan, and brawling (literally) with India along their disputed border.

In addition, Bloomberg thinks western policies are based on a serious misapprehension of the country's past largely because “Americans encountered China at one of the darkest points in its history and, as a result, hold a “skewed” view of China today.

The report points out that China has consistently been one of the world's largest economies over the past 2,000 years—and still was well into the 19th century. Rather than something startling, China's growth into the world's second-largest economy is “a return to the norm,” it says. Centuries before Vasco da Gama felt his way to India in 1498, China was the beating heart of a global economic system, with trade links stretching from South China, across Southeast Asia and the Indian Ocean, to the Persian Gulf and Red Sea.

It also argues that China has “risen” many times in the past—and its latest period of weakness, when it was subordinated to the Western world, hasn't been all that long by its historical standards. It may be more realistic to describe the country's 21st century ascent is as a “restoration,” not so unlike the several imperial restorations of the past, the report says.

Such a view would shift the way the West contends with China as it works to resurrect some of its political and economic foreign policy precepts. It also could mean acceptance of the reality that China wants to be and most likely will be a global superpower. An approach meant to “keep China down,” as they see it, likely will generate conflict but few tangible results.

A better route may be to allow China more diplomatic space in areas where it doesn't fundamentally damage U.S. interests. Rather than contesting Beijing on everything, if China wants to lose money and alienate other governments building uneconomic railways and roads, the West might “wish it the best,” Bloomberg thinks

Still, today's China does present a threat in its expectation that it will be the dominant power in East Asia — a region that is too vital for the West to concede — so the U.S. will need to protect its core interests there. This will require “deft diplomacy through international organizations or alliances rather than vitriol-filled, one-on-one slugfests,” Bloomberg thinks.

It also will require the organization of the contending parties in Southeast Asia into a collective to prod Beijing to negotiate. And, it may require cooperation with the Association of Southeast Asian Nations as well as working within the World Trade Organization to influence China, rather than outside of it.

In fact, a U.S. policy that recognizes Chinese history doesn't equal a soft one. The U.S. should still target China's bad practices — more carefully but also more forcefully. Chinese companies and officials with proven records of stealing technology or participating in human-rights abuses should be sanctioned. Duties ought to be slapped on Chinese exports that are unduly subsidized by the state and, where possible, policies should be adopted to deal with the risks China presents without making them blatantly anti-China.

However, Bloomberg does not think that contesting international outrages means a constant fight with “China,” it will need to contend with the Chinese Communist Party — which asserts that the two are equivalent, but they aren't. The scholar-statesmen who managed imperial China, steeped in Confucianism, believed good government was founded on benevolence, not brutality. Chinese history's most tyrannical rulers were usually looked upon with scorn by the Confucians.

The report also concludes that just because China has restored itself in the past doesn't automatically mean it will now. Contemporary China is still a middle-income country lacking key technologies and plagued by an artificially aging population. It has a long way to go to become a global superpower. Yet from a policy standpoint, it's wiser to recognize the historical trends that propel it forward and rejigger the world order to address Chinese aspirations--though not its autocracy. It won't be easy. Bloomberg says, but neither is denying history.

So, we will see. This is a somewhat dark period with widely and deeply held skepticism regarding trade. However, since access to growing markets will require looking overseas expanding trade will continue to be of great value to many sectors of the economy. Thus the international relationships necessary to build and expand US global market access should be re-examined and revitalized, a process producers should watch closely, Washington Insider believes.

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