Washington Insider-- Wednesday

US and China Diverge on Stimulus Plans

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

FSA Notes ARC/PLC Enrollments Still Lag

The March 15 deadline for enrollment in the Ag Risk Coverage (ARC) and Price Loss Coverage (PLC) safety net programs is approaching and there is still a swath of farms that have not yet been enrolled, according to the Farm Service Agency (FSA).

The agency said that 1.4 million farms have been enrolled in the program, or about 81% of what they agency said is typically enrollment of 1.7 million farms out of the 2.3 million farms in the U.S. that have base acres. The level the agency announced Monday is up from 1.29 million as of March 1.

FSA offices “in many instances” have used appointments that go beyond the March 15 deadline and those are going to be considered being on a “register” for enrollment. FSA said that counties are not to use a register unless the producer requests an appointment after March 15 or the county cannot complete the activity by March 15.

All enrolled contracts are required to be approved within 30 calendar days after the enrollment deadline, FSA noted, and those on the register are to be completed “as soon as possible” after the March 15 deadline.

USDA Seeks Comments On Food Programs

USDA is seeking public comment by March 31 on deploying aid to the U.S. food industry that was contained in the December COVID aid plan.

The Ag Marketing Service will also hold a listening session March 19 via Zoom on the topic. The December aid plan would provide no less than $1.5 billion to purchase food and agricultural products, including seafood, fresh produce, dairy, and meat products, to distribute to individuals in need, including through delivery to nonprofit organizations that can receive, store, and distribute food items, and for grants and loans to small or midsized food processors or distributors, seafood processing facilities and processing vessels, farmers markets, producers, or other organizations to respond to coronavirus, including for measures to protect workers against COVID–19.

The agency said it was specifically seeking feedback from “smaller businesses, new and beginning farmers and ranchers, socially disadvantaged producers, veteran producers, and underserved communities, and/or organizations representing these entities.”

The agency is also seeking feedback by March 31 on a “food purchase and distribution program intended to provide additional aid to nonprofits serving Americans in need of nutrition assistance.” The program, “If implemented… will serve as a successor to the temporary food box purchase program created in April 2020 in response to the rapidly developing crisis within the food supply chain and increased joblessness due to COVID-19.” The agency said while the Food Box program did work well in some areas, there were issues in others.

A March 22 listening session via Zoom is planned for that effort. It is still fully expected that some form of the Food Box program will continue in the future even as it could be modified and potentially renamed.

Washington Insider: US and China Diverge on Stimulus Plans

Bloomberg is reporting this week that the U.S. and China are pursuing very different economic policies in the aftermath of the coronavirus recession — a role reversal since the last time the world economy recovered from a shock.

One of the takeaways from the annual National People's Congress under way in Beijing now is a conservative growth goal, with a tighter fiscal-deficit target and restrained monetary settings, Bloomberg says. It notes the contrast with Washington and with the president's second major fiscal package now reaching final approval.

This widening policy divergence is putting strains on exchange rates and could potentially reshape global capital flows. It stems, in part, from different policy lessons from the 2007-09 crisis.

A stunted and choppy U.S. recovery in the 2007-09 period left key Democrats concluding it's vital to “go big” on stimulus and keep it flowing, Bloomberg said. For monetary policy the moral was: “Don't hold back” and “don't stop until the job is done,” Federal Reserve Chair Jerome Powell said last week.

China's leaders have a different take and different history. A massive unleashing of credit growth back then led to unused infrastructure, ghost towns, excess industrial capacity and an overhang of debt. While rapid containment of the pandemic meant the economy didn't need as much help in 2020, President Xi Jinping and his team are now winding things back to re-focus on longer-term initiatives to strengthen the technology sector and tamp down debt risks.

This puts the world's two biggest economies on very different fiscal recovery paths.

“Each learned a lesson from the previous episode,” said Nathan Sheets, head of global economic research at PGIM Fixed Income and a former U.S. Treasury undersecretary for international affairs. The policy mix now makes “a compelling case for renminbi appreciation,” he said.

That's a view that's widely shared, Bloomberg thinks and it notes that the median forecast based on a recent survey is for a strengthening to 6.35 by the renminbi against the dollar by the end of the year, from 6.5114 in Shanghai late Tuesday.

One of China's financial regulators, Guo Shuqing, highlighted in a briefing just days before the opening of the its legislative gathering that high leverage within the financial system must continue to be addressed. Guo pointed to worries about inflated property prices and the risk of overseas money pouring in to take advantage of the premiums China's assets offer. He also indicated the nation's lending rates will likely go up this year.

Bloomberg said its economists believe that China is “increasingly shifting its attention from pandemic recovery to managing the economy in more normal conditions.”

“Unlike many of its peers, including the Fed, China's central bank has continued to calibrate its policy partially with a view to prevent an excessive rise in asset prices,” said Frederic Neumann, co-head of Asian economics research at HSBC Holdings Plc in Hong Kong.

In three appearances in the past fortnight, Fed chair Jerome Powell has made clear that the Fed plans to keep policy rates near zero until well into the economic recovery, when most jobless Americans are brought back into employment.

As China contends with capital inflows, the U.S. is likely to be pumping out a greater supply of dollars into the global economy — via a widening current-account deficit — as its growth revs up, supercharged by the coming stimulus and the Fed's easy stance.

The U.S. approach is very different with its “outsized” coronavirus relief bill and a planned longer-term follow-up, said Robin Brooks, chief economist at the Institute of International Finance. As growth soars past 6% this year, a wider current-account deficit will be “the pressure valve” given domestic production constraints, he said.

Brooks projects that deficit will hit 4% of gross domestic product this year — the highest since large shortfalls during the 2002-08 period.

China's reluctance toward the kind of “go big” message of Treasury Secretary Janet Yellen dates back several years. After unleashing a fiscal package of 4 trillion yuan ($586 billion, at the time) and an unprecedented surge in broader credit after the 2008 crisis, Beijing was already by 2012 saying it wouldn't do that again.

This reticence later turned into a concerted push to rein in leverage. A May 2016 front-page treatise in the People's Daily blasted excessive debt as the “original sin” sowing risks across financial and real-estate markets. The anonymous article — widely said to have been written by Vice Premier Liu He, Xi's top economic adviser — called stimulating the economy through easy monetary policy a “fantasy.”

So with the country's success in applying draconian restrictions to contain the coronavirus, it should come as little surprise that Beijing is returning toward its pre-pandemic focus on building domestic tech capabilities and managing down debt risks.

By contrast, “the U.S. locomotive is back on track,” said Catherine Mann, global chief economist at Citigroup Inc.

So, we will see. The very large fiscal interventions likely will make the U.S. economy fairly difficult to manage and at least somewhat more vulnerable to shocks — developments producers should watch closely as they emerge, Washington Insider believes.

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