Washington Insider-- Wednesday

US Leverage Over Beijing

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

USDA Moves To Bring GMO Animals Under Its Umbrella

USDA announced it will move forward with an Advanced Notice of Proposed Rulemaking (ANPR) to solicit public input on a proposal to bring the regulation of animal biotechnology under USDA.

USDA's plan would move some of FDA's current animal biotechnology oversight to USDA, with the ag agency consulting with FDA on that front.

USDA said the notice will propose "a flexible, forward-looking, risk-proportionate and science-based regulatory framework that provides a predictable pathway to commercialization and keeps pace with advances in science and technology for certain farm animals (cattle, sheep, goats, swine, horses, mules, or other equines, catfish, and poultry) developed using genetic engineering intended for agricultural purposes."

Office of Management and Budget finished the review of USDA's prerule on the matter December 18. This appears to put to rest what is said to have been a tug of war between USDA and FDA over animal biotech regulation

Biofuel Producers Could Get COVID Payments from USDA

The COVID aid approved by Congress contains several wind and solar energy provisions but also potential aid for biofuel producers is tucked in the legislation.

Biofuel producers have been seeking aid as Congress worked on the CARES Act. However, unlike some of the other provisions in the COVID aid effort, USDA is not ordered to make payments to biofuel producers.

A summary of the legislation noted USDA "may make payments to producers of advanced biofuel, biomass-based diesel, cellulosic biofuel, conventional biofuel, or renewable fuels with market losses due to COVID-19."

Washington Insider: US Leverage Over Beijing

Bloomberg is reporting this week that President-elect Joe Biden will take office after the Trump administration spent years ramping up pressure on China, including $370 billion in tariffs, getting Canada to place a Chinese executive for Huawei Technologies Co. under house arrest, threatening access to U.S. capital markets and blaming the Communist Party for the scale of the COVID-19 outbreak.

The President's pressure campaign continued last week, as the administration blacklisted more than 60 Chinese companies, limiting their ability to get U.S. technology, in order "to protect national security," the Commerce Department said.

In addition, Beijing's recent behavior turned some nations that might have otherwise tried to straddle U.S.-China tensions more firmly against Chinese President Xi's government by asserting territorial claims in the South China Sea and in strategic areas like its border with India, as well as using economic coercion against countries like South Korea and Australia.

"Trump's broad trade sanctions against China coupled with pushback from other countries against China's aggressive geopolitical diplomacy will give the Biden administration substantial leverage when it commences bilateral negotiations," said Eswar Prasad, who formerly worked on China issues at the International Monetary Fund.

While Biden and many Democrats say they oppose the tactics Trump used to pressure China, those tools will remain on the table as his successor seeks to negotiate with leaders of the world's second largest economy. "I'm not going to make any immediate moves and the same applies to the tariffs," Biden said in recent interviews.

Despite public misgivings about Trump's strategy toward Beijing, countries such as Britain and France have fallen into line behind the U.S. over the threat posed by Huawei to next-generation wireless networks. Western institutions such as the "Five Eyes" spy alliance and the North Atlantic Treaty Organization have turned their attention to combating threats from China.

As the European Union and China aim to complete negotiations over an investment agreement, western countries raised concerns over allegations of forced labor in China's far western region of Xinjiang. The European Parliament backed a proposal that the deal "must include adequate commitments to respect international conventions against forced labor," Reinhard Buetikofer, a German Green party member of the European Parliament who chairs the delegation for relations with China, said on Monday. "European Commission should take that seriously!"

"China's expectation for the Biden administration is to re-set China-U.S. relations aimed at re-engagement and mutual benefit," said Gao Zhikai, a former Chinese diplomat and translator for late Chinese leader Deng Xiaoping. "Poisoned China-U.S. relations need to be disinfected and both China and America need to be made winners, not losers."

America's global reputation has suffered under Trump, Bloomberg said, and U.S. allies are unsure it can be trusted in the longer term. And as much as Trump's tactics have exhausted officials in Beijing, they have done little to change their policies. Xi's government has accelerated its efforts to rein in independent voices in Hong Kong and to bolster its outposts in the South China Sea and along its frontier. It has seen America's failure to tame the pandemic as evidence that the U.S. is already past its prime.

Even if Biden succeeds in changing such perceptions, negotiations with China will probably be every bit as tortuous and drawn-out as those that took place under Trump, who never got the comprehensive trade deal with China that he promised to achieve when taking office in 2017.

"I don't get the sense that China's leaders are under such stress that they're willing to tolerate significant concessions to remove unilateral U.S. pressure," said Ryan Hass, who previously oversaw China affairs at the National Security Council.

The U.S.-China relationship has changed markedly since the president-elect was last in the White House in early 2017 and China's rapidly growing military prowess has given it more confidence to project power in the Asia Pacific, solidifying its hold on tiny South China Sea outposts despite protests from regional neighbors.

To China's benefit, the Biden administration may also be more cautious about using some of the tools at its disposal in the future. While current Treasury Secretary Steven Mnuchin eventually designated China a currency manipulator, Biden's nominee for that post -- former Federal Reserve Chair Janet Yellen -- as indicated reticence about using that lever to win concessions.

One of the biggest risks is that Biden finds himself distracted on the domestic front even as vaccine distribution expands. Unless Washington can get its house in order after a polarizing election and rebuild trust with allies abroad, any advantage Washington has over Beijing could remain largely theoretical, Bloomberg said.

"There's potential for the Biden administration to build leverage but doing so will depend upon whether they are able to build consensus at home on top priorities, consensus with allies and partners on China," said former National Security Council staffer Hass, now a fellow at the Brookings Institution.

The new administration's challenges in rebuilding the domestic economy remain very large. It also has strong challenges in proposed trade policies, all very important policy designs that producers should watch closely as these debates proceed, Washington Insider believes.

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