Washington Insider- Monday

New Economic Realities

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

Sen. Hatch Still Optimistic About TPP, TTIP Prospects

Senate Finance Committee Chairman Orrin Hatch, R-Utah, expressed optimism that outstanding issues Congress has with the Trans-Pacific Partnership (TPP) deal can be resolved and the agreement can be ratified.

Hatch said he would work to get issues blocking TPP resolved, but prospects for ratification remain bleak as President-elect Donald Trump has said that he would pull out of TPP on his first day in office.

"I think we might be able to get this done," Hatch told reporters, adding that he meant both TPP and the European Union (EU)-US Transatlantic Trade and Investment Partnership (TTIP). "They're both very important and we have to see what can be done," he said. Hatch reiterated his long-standing view that TPP can be improved in a "variety of ways."

Hatch pointed to Australia for problems resolving outstanding U.S. concerns with the TPP text. "They acted reprehensibly in my eyes," he said. "I'm sure they feel from their standpoint they're doing what's right."

Australia has pushed back against Hatch's position on intellectual property protections for biologic drugs. Hatch has called for 12 years of intellectual property protection for name-brand manufacturers, consistent with U.S. law, rather than the shorter period provided under TPP.

When asked about a possible bilateral trade deal with Japan, Hatch replied "I'd prefer TPP — there's no question about that." But, he added, "If we could sign up with Japan, we'd get a lot of other countries too."

Despite his Trump's vocal opposition to trade deals during the campaign, Hatch thinks the incoming president may be swayed on the issue. "I think we might be able to get this done once [Trump] sees the reality of the importance of this," Hatch noted.


Legislation to Open Cuba Agricultural Trade On Hold Pending Trump: Rep. Conaway

Legislative progress on expanding agricultural trade with Cuba is probably on hold until President-elect Donald Trump further details his policy for the island nation, the top lawmaker on the House Agriculture Committee said.

Following the November 25 death of long-time Cuban leader Fidel Castro, President-elect Donald Trump raised the prospect of his administration reversing the relaxation of travel and diplomatic ties to the country. Trump's comments could dampen the hopes of some in the agriculture industry to advance legislation easing trade restrictions with the country.

“I think it's all up to Trump, and until he makes a call one way or the other, I think just about everything's on hold, so we'll probably take our cues from what he decides what he wants to do because the president's an important cog in that whole conversation,” House Agriculture Committee Chairman Mike Conaway, R-Texas, told Bloomberg.

Trump has said he opposes the one-sided deals President Barack Obama has struck with the Cuban government and, as in other aspects of his foreign policy, said he would reverse the detente with Cuba unless the Castro regime satisfied additional U.S. demands. “If Cuba is unwilling to make a better deal for the Cuban people, the Cuban-American people and the US as a whole, I will terminate [the] deal,” Trump tweeted November 28.

While many are waiting on a definitive statement from Trump on Cuba policy, Conaway said that the groundwork for easing certain agricultural trade restrictions would probably continue at the committee level.


Washington Insider: New Economic Realities

Well, it was sure to happen. One of the most often repeated campaign promises was to create some new economic programs, including a substantial one to invest in infrastructure. However, The Hill is questioning now whether last month's strong U.S. job numbers raise serious questions about proposed economic strategies.

Specifically, The Hill asks, does the economy really need a stimulus now at a time that it is at or very close to full employment? The group points out that with U.S. unemployment down as low as 4.6%, such a stimulus “has to raise real concerns about inflation, particularly at a time when wage increases are gaining pace and international oil prices are being boosted by OPEC's decision to cut production.”

In these circumstances, “one would think that the last thing needed is a monetary or fiscal policy boost that could fuel inflationary pressures,” The Hill says.

Not only do the plans being discussed by the incoming administration include a Reagan-style tax reduction that would more than halve the corporate tax rate to 15% and cut household income tax rates as well—at the same time implementing both the ambitious infrastructure program and a large increase in defense spending.

In total, The Hill thinks this could provide the U.S. economy with “a fiscal boost of as much as 0.8 percent of GDP next year and an even greater boost in later years.”

The Hill argues that such a policy mix could threaten an unwelcome return of inflation along with negative implications for interest rates and for the dollar. It also could leave the Federal Reserve “little choice but to raise interest rates at a significantly faster pace than previously planned in order to curb inflation.” This would widen the gulf between U.S. monetary policy and that of the rest of the world, which would all too likely keep the recent dollar rally going and keep long-term interest rates rising, The Hill says.

It also argues that any “further strengthening of the dollar” is the last thing that the incoming administration should want as it works to restore the country's international competitive positon and reduce its trade deficit.

The Hill also asserts that “if anything were designed to undermine the country's competitive position across the board, it would be a strong dollar that would make U.S. exports more expensive abroad and that would make U.S. imports cheaper.”

The group also thinks that such a strong dollar might lead the incoming administration to raise import tariffs on countries like China and Mexico and provide additional incentives to tear up trade agreements like NAFTA. This, in turn, could raise the specter of bitter trade fights and “a generalized return to beggar-my-neighbor policies that have in the past proved to be so destructive to US and international economic prosperity.”

Well, nobody ever thought that macroeconomic and trade policy was simple, and there may have been already been only tepid support for the massive infrastructure spending in the Congress—although, there is a vast need. Still, the stronger-than-expected economy may well be causing some second or third thoughts about campaign promises. But, trade is especially important for agriculture at a time when surpluses are large, and, in some cases, building so policies that affect global competitiveness are enormously important. Thus, the coming debate about the economy should be watched closely as it develops, Washington Insider believes.


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