Washington Insider - Friday

How Toxic is Trade?

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

Budget Request for Corps at Odds with Obama Push for Infrastructure Investment

A “huge disconnect” exists between the Obama administration’s push for investment in infrastructure and its budget request for the US Army Corps of Engineers, the president of the Waterways Council Inc. said at a March 9 news briefing on the administration’s Fiscal Year 2017 request.

While Vice President Joe Biden has stressed the need for “the most modern infrastructure in the world,” the White House Office of Management and Budget (OMB) is proposing budgets that would axe funding for crucial inland waterways projects, said Michael Toohey, president of the Waterways Council, which represents waterways carriers, shippers using the carriers, port authorities and other parties.

The council is concerned because the White House has requested $225 million for the Corps in FY 2017 to resume construction of the Olmsted Locks and Dam project on the Ohio River between Illinois and Kentucky. However, Toohey said, the White House has requested no funds to continue work on the three other projects that are vital to inland waterways transport: Lower Monongahela Locks 2, 3 and 4 in Pennsylvania, the Kentucky Lock, and the Chickamauga Lock in Tennessee. Toohey said the budget request is at odds with the Corps’ FY 2016 work plan, which includes $268 million for Olmsted, $58.9 million for Lower Monongahela, $44.5 million for Kentucky Lock, and $29.9 million for Chickamauga. The Corps’ work plan outlines how the agency will spend the appropriations it received for fiscal year 2016 from Congress.

The Waterways Council wants House and Senate appropriators to make full use of the Inland Waterways Trust Fund, estimated to total $390 million, collected by increasing the diesel fees used for towing barges along inland waterways. But the budget request seeks to use only $33.5 million from the trust fund for the Olmsted project when it could make full use of the revenue to continue work on the other three projects.

Several key senators agreed with the Waterways Council. Senate Appropriations subcommittee chairman Lamar Alexander, R-Tenn., and ranking member Dianne Feinstein, D-Calif., expressed frustration with the administration’s continued underfunded budget requests for the Corps.

Jo-Ellen Darcy, assistant secretary for the US Army for civil works, cited fiscal constraints facing the corps as the reason for its low budget request.

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Vilsack Defends Crop Insurance Cuts in Obama Budget Proposal

Agriculture Secretary Tom Vilsack defended the Obama administration’s push for a 10% cut in crop insurance premium subsidies, testifying at a Senate subcommittee hearing on his department’s budget.

As part of the president’s Fiscal 2017 budget proposal, subsidies for crop insurance premiums would drop from $7.9 billion in Fiscal 2016 to $7.6 billion, with a projected savings of $18 billion over a decade, according to the administration.

Vilsack noted that USDA currently subsidizes about 62% of farmers’ crop insurance costs. “We think it’s probably more fair to the taxpayers that it be more of a fifty-fifty partnership,” Vilsack said.

Senate Agriculture Committee Chairman Pat Roberts, R-Kan., has said the idea was “dead on arrival." Sen. John Hoeven, R-N.D., cautioned Vilsack on the proposal, saying that since 2008 about $12 billion has been taken out of crop insurance sector and the reduced subsidies could harm the insurance market. “You want a robust number of companies out there providing crop insurance to have a competitive market,” Hoeven said.

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Washington Insider: How Toxic is Trade?

The Washington Post is reporting this week that the trade issue has “blindsided” Democratic and Republican politicians. And, as the primary season moves to the industrial Midwest, blunt talk about trade — and deep skepticism — are increasingly winning out over nuance, the Post says.

Trump’s victory in Michigan was expected but the victory of Sen. Bernie Sanders of Vermont defied every poll and rattled a Democratic establishment that was already looking ahead to the general election.

The issue is complex. Even though unemployment has fallen rapidly in many Midwestern states since the start of the Great Recession, Democrats are being forced to struggle to find coherence between their labor base and their leadership, the Post says. The issue also “worries Republicans, whose leaders and donors are resolutely in favor of free trade.”

“There has been a bipartisan conventional wisdom that the damage done to working-class jobs and incomes are simply part of inevitable changes, ones we cannot and should not challenge,” Larry Mishel, president of the left-leaning Economic Policy Institute told the Post. People correctly understand that many elites simply believe that wage stagnation is something we cannot change.”

In the meantime, the post-2009 increase in overall employment is masking a steady decline of Midwestern manufacturing jobs. Ohio is down 6,900 manufacturing jobs from the start of 2008, the Post reports, a decline of 9%. Michigan has gained just 1,300 manufacturing jobs since the start of 2008 and still has 285,000 fewer factory jobs than it did in 2000.

In Michigan, exit pollsters for the first time asked voters whether they thought trade created or took away American jobs. The “take away” faction made up 55% of the Republican primary vote and 57% of the Democratic primary vote. Trump won the GOP faction with 45% of those voters, and Sanders won the Democratic side with 56%, the Post notes.

“Many, many Republicans and far too many Democrats supported these disastrous trade policies,” Sanders argued last Sunday at the pre-primary debate in Flint.

Lori Wallach, the director of Public Citizen’s Global Trade Watch, commented, “On a bipartisan basis, the political class in this country has underestimated the political potency of the public’s opposition to job-killing trade agreements or have dismissed it as ill-informed,”

Stephen Moore, a conservative economist who has advised several Republican candidates on economic policy this cycle and who supports free trade, said Republicans shouldn’t be surprised that voters have turned against trade deals. “It’s really hard and painful to find something else to do when you’re 58 years old” and laid off, he said. “Our side has to do a really better job of explaining the ways trade makes people better off.”

No one on the mainstream right has really done so. “What’s needed now by the supporters of free trade is a public education campaign to talk to these voters and explain to them and their family members what’s at stake,” said David McIntosh, the president of the Club for Growth. “It’s a matter of having an economic policy that will create new jobs to replace those jobs being lost. There’s a lot at stake here if we get into a trade war.”

Pat Buchanan, who won the New Hampshire primary in 1996, was one candidate who capitalized on the anti-trade backlash. At the time, a stronger Republican establishment managed to stop him, he told the Post. That experience made Buchanan wonder why the elites in both parties seemed so startled by Michigan.

“If they’re surprised, there’s something wrong with their antennae and their radars,” Buchanan told the Post. “Global free trade has never had, in my estimation, real majority support. In Michigan and Ohio, you’ve got voters who have lived through what we predicted.”

So, global trade may be difficult to explain, but it continues to offer far better prospects for national growth than does the protectionism advocated by anti-traders. The real issue is how committed the nation is to support for trade adjustment support to ameliorate the shifts both technology and trade require—the “nuance” the Post talks about.

Actually, trade and stronger international mechanisms are bi-partisan issues but have become increasingly easy scapegoats for politicians, especially this year. So, the recent primaries should provide a wake-up call to politicians that current proposals could result in the failure of negotiations in both the Pacific and Atlantic regions, developments in which producers have large stakes, and should be watched carefully as they proceed, Washington Insider believes.


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(GH/CZ)