Washington Insider-- Monday

Implications of Deglobalization

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

China Seeks To Soothe Concerns Over Illegal GM Crops

China's tough supervision of unapproved genetically modified (GM) crops will allow for commercialization of such foods in the future, according to an agriculture ministry official, defending a recent crackdown on illegally grown GM corn.

China has spent billions on research of biotech crops, but it has not yet approved the planting of any GM varieties of staple food crops amid deep-seated consumer opposition. It plans to introduce GM corn and soybeans within the next five years, however, a step that would lead to a huge increase in global production of genetically modified crops, according to Reuters.

Some farmers have recently been found growing GM corn illegally, triggering a strong response from the government to shore up already low consumer trust in its ability to handle food safety issues. In August, almost 600 acres of GM corn were uprooted by authorities in Shaanxi, while in Xinjiang and Gansu provinces more than 1,000 mu (163 acres) of corn was destroyed last year, a ministry official has said.

Public acceptance of biotechnology is one of the key challenges to the future introduction of GM crops in China, and despite attempts by the government to persuade consumers of the safety of such foods, opinions remain highly polarized. Agriculture minister Han Changfu has tried to assuage fears, telling reporters earlier this year that GM crops, planted illegally or not, did not threaten consumer health.

Zhang Xianfa, deputy head of the agriculture ministry's science and education department, told reporters at the seminar that the government will continue to punish people responsible for illegal planting. "Development of the GMO industry and supervision of GMOs is complementary, mutually supportive," he said. Zhang also sought to downplay concerns that the illegal planting was more widespread than the government has said. "Illegal planting of GMOs is sporadic," he said. There is "no excessive planting."


EPA Rejects Changes To RFS Point Of Obligation

EPA has proposed rejecting the bid by Valero and CVR Energy to have the point of obligation under the Renewable Fuel Standard (RFS) switched from refiners to blenders. EPA said that would inject too much uncertainty into an 11-year-old program designed to force more renewable fuel into the US gasoline and diesel supply, but it also opened the question up to public comment to reconsider the process. However, EPA cautioned the change would not address any program or marketplace challenges.

"Changing the point of obligation could also disrupt investments reasonably made by participants in the fuels industry in reliance on the regulatory structure the agency established in 2007 and confirmed in 2010," EPA wrote in a filing.

The EPA's proposed rejection does not rule out a reversal by President-elect Donald Trump, analysts at ClearView Energy Partners LLC said in a research note to clients. "A Trump administration seems likely to consider moving the point of obligation," ClearView noted.

The American Petroleum Institute (API) and some refiners oppose a shift, saying it distracts from bigger efforts to overhaul the entire RFS.


Washington Insider: Implications of Deglobalization

Well, as you might expect, there is a lot of discussion about the impact of the election campaign on U.S. trade policies. And if you thought the campaign was noisy, the aftermath seems likely to be even more so. A major problem has been the fact that almost no one was really willing to talk in detail about the importance and implications of more isolationist policies.

While the trade confrontation has tended to focus on mechanics and politics in many urban dailies, an exception is an OpEd by Ruchir Sharma, chief global strategist at Morgan Stanley. He writes in Sunday's New York Times that the world goes through long cycles of globalization and deglobalization, so the current turnaround is certainly not unique. But, the cycles are powerful.

He thinks that globalization generates prosperity and benefits for millions--but that the elite gain the most and so inequality grows and this stirs "pockets of fierce resentment" and to "great shocks" in Democracies. The discontented often turn to nationalism and controls for trade, global banks and immigrants and "globalization stalls."

Such a shock came in 1914, he says, when the outbreak of World War I ended an extraordinary four-decade period of rising migration and trade, a clear parallel to the globalization boom that gained momentum in the 1980s and stalled in 2008. Since then, globalization has been in retreat and "populism has been on the march" in the United States, Britain, Italy, France and Germany.

He argues that the shock in 1914 continued for three decades and weakened the world economy enough to feed resentments that erupted into World War II. Now, the retreat that began in 2008 is still gaining strength, he says, but it is time to recognize the likely fallout, "which is slower growth, higher inflation and rising conflict."

Both booms were driven by changing technology, including most recently, container ships, the internet and new global trade rules that opened the world's most populous country, China, to commerce.

Before 1914, there were steamships and the "Victorian internet," the telegraph along with novel rules that opened the 19th century's largest economy, Britain, to imports. By the eve of World War I, the world was in some ways as connected as now.

There also were social tensions. In the early 20th century, the share of income going to the richest 1 percent of Americans rose steadily from 1870 to a peak of nearly 20 percent in the late 1920s, as global commerce created a "gilded age" plutocracy. Popular resentment pushed politicians to seal the borders, particularly after 1929 when the economy crashed.

As America turned inward, Congress passed the sweeping Smoot-Hawley Tariff Act in 1930, prompting a global trade war, Sharma says. Measured as a share of the world economy, trade fell to a low of 10 percent in 1933. That year, Congress also passed the Glass-Steagall Act, which barred big banks from the investment business. After the war, it took decades for the flow of trade, money and people to regain momentum. Global trade did not recover to its 1914 peak until the 1970s; and capital mobility, the scale and ease of money flows, did not recover until the 1990s.

Today, 2008 looks to Sharma to have been "as clear a turning point as 1914." With global demand weak, and many nations erecting import barriers, trade is slumping. Measured as a share of global gross domestic product, trade had doubled from 30% in 1973 to 60% in 2008—but, since has dropped to 55%.

Also, the world's major economies have imposed hundreds of protectionist measures since 2008, led by India, Russia, China and the United States. While there are many causes of job declines, he says the political reality remains that the tide has turned against immigrants and trade. It is time to recognize the implications of deglobalization.

For example, populists are once again calling for protecting domestic industry and sharing wealth, which could have negative economic impacts. Wealth redistribution within nations can narrow income gaps. But more protection could widen the wealth gap between nations, he says.

Sharma also sees more governments willing to close borders to project military power, including China, Russia, and Iran. Global military spending was flat worldwide for much of the last decade but now is up 75% in East Asia, 90% in Eastern Europe and 97% in Saudi Arabia.

Mr. Sharma admits that developments may not follow the older path—but thinks that inclinations and directions are clear and that the global movement of goods, money and people is likely to continue slowing. "The lesson of the past is that just as night follows day, deglobalization follows globalization, and can last just as long."

Well, these issues certainly deserve attention, especially the question of whether globalization "inevitably" leads to "deglobalization." And, whether the consequences including and the link between isolation and slow income growth are as strong as he thinks, and how strong the link is between isolation and geopolitical tensions. These are all huge issues for producers that deserve close attention as the debates continue, Washington Insider believes.


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(GH/CZ)