Washington Insider-- Monday

Challenging Trade Debate Emerges

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

USDA, FDA Insist 'No Credible Evidence' COVID Is Transmitted Via Food Or Food Packaging

There is “no credible evidence of food or food packaging associated with or as a likely source of viral transmission of severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2), the virus causing COVID-19,” according to a statement issued by acting USDA Secretary Kevin Shea and acting FDA Commissioner Janet Woodcock.

“While there are relatively few reports of the virus being detected on food and packaging, most studies focus primarily on the detection of the virus' genetic fingerprint rather than evidence of transmission of virus resulting in human infection,” the statement said. “Given that the number of virus particles that could be theoretically picked up by touching a surface would be very small and the amount needed for infection via oral inhalation would be very high, the chances of infection by touching the surface of food packaging or eating food is considered to be extremely low.”

The agencies said they were sharing the information “based upon the best available information from scientific bodies across the globe, including a continued international consensus that the risk is exceedingly low for transmission of SARS-CoV-2 to humans via food and food packaging.” Further, the USDA/FDA statement indicated food products and food packaging has “not been attributed” as a transmission source via national or international surveillance systems.

This comes as China has maintained that this can be a source of infection and a World Health Organization (WHO) team that investigated the situation in China indicated that further exam needs to be done on whether frozen foods and the cold supply chain are possible transmission methods.

US Ag Export Forecast Raised To New Record

U.S. agriculture is now forecast to see record exports in Fiscal Year (FY) 2021 of $157 billion, up from a November forecast of $152 billion. Imports are also forecast at a record mark up $137.5 billion, up from $137 billion in USDA's November forecast.

The two forecasts would result in U.S. agriculture registering a trade surplus of $19.5 billion, the biggest since a $21.1 billion surplus in FY 2017.

For China, USDA forecasts their FY 2021 imports at $31.5 billion, up $4.5 billion from their November outlook, “due to strong first quarter shipments and surging sales, most notably of corn,” USDA said. “China is forecast to remain the largest U.S. agricultural market in FY 2021.”

The resulting trade surplus for U.S. agriculture would be up $17 billion from the FY 2020 result, which was the smallest trade balance for U.S. agriculture since it was $2.1 billion in 1972.

Washington Insider: Challenging Trade Debate Emerges

The Hill this week featured a warning in an article by Desmond Lachman – a resident fellow at the American Enterprise Institute. Lachman was formerly a deputy director in the International Monetary Fund's Policy Development and Review Department and the chief emerging market economic strategist at Salomon Smith Barney.

He warns President Biden “not to repeat the trade policy mistakes made by the previous administration.” He argues that President Joe Biden inherited a U.S. and global economy in “much worse shape than did former President Donald Trump – and that he can ill-afford to repeat the same trade policy mistakes that the Trump administration made.” He worries especially about the worldwide drift to “protectionist policies that now threatens to be destructive to U.S. and global prosperity.”

He says “it would be a gross understatement to say that Trump's trade policy was a dismal failure. Not only did it fail to eliminate the U.S. trade deficit and level the trade playing field with China as it repeatedly promised to do. It also managed to alienate our traditional trade allies in Europe and Japan, lose our economic influence in the Asian Pacific region by pulling out of the Trans-Pacific Partnership and abandon our country's traditional world economic leadership role,” Lachman says.

He thinks a key economic policy mistake the Trump administration made was to view international trade as a zero-sum game and to take a “my way or the highway” approach to trade policy. This induced him to adopt an “America First” trade policy and to start a costly Chinese trade war on a unilateral rather than on a multilateral basis, Lachman says.

It also induced him to undermine the World Trade Organization, to arbitrarily impose import tariffs on our allies on supposedly national security grounds and to eschew participation in multilateral trade agreements.

Lachman criticizes “another cardinal trade policy mistake made by the former administration, which was not to realize that our trade deficit is determined fundamentally by the difference between our country's saving and investment levels.” Had it grasped this basic economic principle, it might have refrained from engaging in the large 2017 unfunded corporate tax cut which had the effect of causing us to “revisit the twin budget deficit and trade deficit problem of the Reagan years,” the commentary said.

Lachman is especially worried that while the Biden administration has yet to articulate a coherent international trade policy, “it is far from clear that it will be making a clean break from Trump's trade policies and restoring the country's traditional role of promoting freer international trade.”

He sees as a positive the Biden administration efforts to adopt a more multilateral and rules-based approach to trade than the Trump administration did in general and that it “wishes to restore the WTO's authority in particular.”

Another encouraging sign is that President Biden has not ruled out the possibility that the United States might re-join the Trans-Pacific Partnership.

He also approves that the new administration also appears to understand that our European trade allies share our concern about China's multiple unfair trade practices and that our leverage in trade negotiations with China would be enhanced if we cooperated with Europe. This is particularly the case considering that European trade with China now exceeds that of ours.

On the negative side, Lachman worries that President Biden is pursuing a “Buy American” program that appears to follow the previous “America First” playbook. And he sees problems from the new administration's commitment to fast track a $1.9 trillion-dollar budget package “that is almost sure to create a twin deficit problem that would cause the dollar to rise on the back of higher U.S. interest rates caused by a more expansive budget policy.”

With the world still in the grip of its worst post-war economic recession and with protectionist policies on the rise, the world very much needs U.S. international economic leadership to maintain an open international trade system. To provide that leadership, the U.S. will need to lead by example.

That leadership will require repairing fences with our traditional European economic allies to facilitate greater international cooperation to ensure that all countries, including China, play by the rules of the game in their international trade policies.

It will also require the Biden administration to “dial back on its protectionist tendencies and refrain from pursuing a reckless budget policy that threatens to exacerbate current international economic imbalances.”

So, we will see. It is clear that the administration almost certainly will find itself challenged as it attempts to support economic recovery from the coronavirus without inflating its currency—and a strong debate is now underway about the implications of those threats. That debate should be watched very closely as new policies are considered and implemented, Washington Insider believes.

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