Washington Insider -- Monday

Gloomy Talk on Trade

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

US, China Trade Retaliatory Pledges as Trade Tensions Rise

President Donald Trump announced tariffs on $50 billion in goods from China, saying, "The United States can no longer tolerate losing our technology and intellectual property through unfair economic practices." In a statement, Trump said, "These tariffs are essential to preventing further unfair transfers of American technology and intellectual property to China, which will protect American jobs. In addition, they will serve as an initial step toward bringing balance to the trade relationship between the United States and China."

The list is divided into two sets, according to the Office of the U.S. Trade Representative (USTR). The first set contains 818 lines of the original 1,333 lines that were included on the proposed list published on April 6, USTR stated. "These lines cover approximately $34 billion worth of imports from China." Duties of 25% will be applied on these 818 product lines, with the Customs and Border Protection office to begin collecting the duties July 6. The action announced today removes 515 product lines from the initial list.

The second list covers 284 proposed tariff lines identified by the interagency Section 301 Committee as benefiting from Chinese industrial policies, including the "Made in China 2025" industrial policy, USTR said. "These 284 lines, which cover approximately $16 billion worth of imports from China, will undergo further review in a public notice and comment process, including a public hearing," USTR stated. "After completion of this process, USTR will issue a final determination on the products from this list that would be subject to the additional duties."

USTR will "soon provide an opportunity for the public to request the exclusion of particular products from the additional duties subject to this action," USTR said, and it will issue a notice in the Federal Register with details regarding this process within the next few weeks.

China did as they pledged they would do and responded with a promise to apply tariffs on $50 billion in U.S. goods, coming in two installments. The updated Chinese list released includes 106 U.S. goods initially targeted by China in April, but now totals 659 different kinds of U.S. goods worth $50 billion.

China will put 25% duties on about 545 US products totaling $34 billion starting July 6 including: Cars, including hybrids and electrics; soybeans, corn, wheat, rice, cotton and sorghum; Tobacco, cigars; beef, pork and poultry; fish, shellfish; dairy products, nuts; and vegetables, mushrooms.

***

Reuters: Mexico Mulling Plan to Hit US Corn, Soybeans With Import Duties

Mexico is studying imposing duties imports of around $4 billion in U.S. corn and soybeans, according to Reuters, with the country looking at ways to blunt the impact of such a move.

"This issue is one for phase two," according to Bosco de la Vega, who heads the National Farm Council, Mexico's main ag lobby. The tariffs were discussed at a meeting June 4 at Mexico's Economy Ministry, including officials such as Economy Minister Ildefonso Guajardo. "Intentionally, it was left for a major crisis phase," said de la Vega. Mexico "right now" was not targeting U.S. grains in a retaliatory action, said Raul Urteaga, director of international trade at the Mexican Agriculture Ministry, but would not rule out such an action in the future, noting Mexico was looking at alternative suppliers.

Reuters said the Economy Ministry would not confirm whether duties on corn and soybeans were being studied. The national security investigation launched by the Trump administration on auto imports is a factor, as de la Vega said, "That is why we are preparing."

South America, primarily Brazil and Argentina are being eyed as alternative suppliers, he noted, adding that he expected corn imports by the end of this year to hit 1 million metric tons from Brazil and 500,000 metric tons from Argentina. But there is a realization in Mexico that the country would not likely be able to replace U.S. supplies.

"There is no real possibility of substituting these two products in the short-term. The impact on the pork and beef industries in Mexico in terms of costs would be brutal," said Mariano Ruiz-Funes, a former deputy agriculture minister.

A plan being studied, the report said, would open up a duty-free quota on such imports was being looked at, much like Mexico opted to do on pork, de la Vega said.

***

Washington Insider: Gloomy Talk on Trade

A common theme across much of the national this weekend has been a deepening gloom over the future outlook for global trade—that is worsening rapidly. For example, the New York Times says in a long article featured on Sunday’s front page that only a few months ago, “the global economy appeared to be humming, with all major nations growing in unison. Now, the world’s fortunes are imperiled by an unfolding trade war.”

As the Trump administration imposes tariffs “on allies and rivals alike,” the Times says, it is provoking broad retaliation—and already global commerce is suffering disruption, flashing signs of strains that could hamper economic growth.

The latest escalation came on Friday, when President Trump announced fresh tariffs on $50 billion in Chinese goods, prompting swift retribution from Beijing.

The Times also says that already shipments are slowing at ports and airfreight terminals around the world. Prices for crucial raw materials are rising. “At factories from Germany to Mexico, orders are being cut and investments delayed. American farmers are losing sales as trading partners hit back with duties of their own.”

The Trump administration portrays its confrontational stance as a means of forcing multinational companies to bring factory production back to American shores – and the Times says this policy “may yet prove to be a negotiating tactic that can force deals,” rather than a move to a full-blown trade war.

Still, it argues that history has proved that trade wars are costly and often escalate risks of broader hostilities. “Fears are deepening that the current outbreak of antagonism could drag down the rest of the world,” it says.

Even before most trade measures fully take effect, businesses are grappling with the consequences — threats to their supplies, uncertainty over the terms of trade and gnawing fear about what comes next.

“Just talking about protectionism is causing trouble,” said Marie Owens Thomsen, global chief economist at Indosuez Wealth Management in Geneva. “It’s an existential risk to the world economy.”

The article tracks several examples of recent trade weakness and says a gauge of world trade tracked by Oxford Economics, a research firm in London, recently registered its weakest showing since early 2017.

“Let us not understate the macroeconomic impact,” the managing director of the International Monetary Fund, Christine Lagarde, warned last week about trade conflicts. “It would be serious, not only if the United States took action, but especially if other countries were to retaliate, notably those who would be most affected, such as Canada, Europe and Germany.”

The Times also points out that these economic threats are emerging just as the global economy contends with other substantial challenges, including the administration’s decision to reinstate sanctions on Iran that have lifted oil prices – adding pressure to importers worldwide. Europe’s economy is weakening, with Germany — the continent’s largest economy — especially vulnerable. Central banks in the United States and Europe are withdrawing the cheap money the global financial system offered after the crisis of 2008, lifting borrowing costs.

The Times pointed to the more than $600 billion in goods and services imported from Canada and Mexico under NAFTA — a deal Mr. Trump has threatened to blow up. Americans bought more than $500 billion in goods from China and another $450 billion from the European Union.

“If you seriously disrupt any of these three, you’re going to feel the effects,” said Adam Slater, lead economist at Oxford Economics. “If you disrupt all three at once, you’re going to feel it quite severely.”

Sixteen years ago, when President George W. Bush put tariffs on steel, imports fell substantially. Such memories now stoke modern-day concerns. “We’re kind of in a wait-and-see mode,” said Roger Guenther, executive director for the Port of Houston Authority.

Across Europe, steel makers fret about an indirect consequence of Mr. Trump’s tariffs — cheap Chinese steel previously destined for the United States, now redirected to their continent.

Mr. Trump portrays trade hostilities as a necessary corrective to the United States’ trade deficits with other nations. But economists and business leaders note that many imports are components that are used to manufacture goods at American factories.

For buyers of steel and aluminum inside the United States, the tariffs have increased prices, discouraging investment with impacts that hit small businesses and consumers, and farmers, among others.

In recent years, as the ranks of China’s middle class have grown, so has the national appetite for pork. Raising larger numbers of hogs has forced China to import increasing volumes of American soybeans.

But China has taken direct aim at American farms in retaliation for Mr. Trump’s metals tariffs, threatening duties on soybeans from the United States. Chinese pork producers have turned their sights to Brazil and Argentina, the only countries that now produce enough soybeans to offer a potential alternative to the American supply, shifts that are adding new volatility to already uneasy global markets.

So, we will see. The key uncertainty is the outlook for future retaliations against current restrictions — a really far-reaching war.

Increasingly, there is pushback against the tough U.S. policies in the Congress and among important economic groups, although these do not seem to have much impact on administration policies. Certainly, this is a fight producers should watch closely as it proceeds, Washington Insider believes.


Want to keep up with events in Washington and elsewhere throughout the day? See DTN Top Stories, our frequently updated summary of news developments of interest to producers. You can find DTN Top Stories in DTN Ag News, which is on the Main Menu on classic DTN products and on the News and Analysis Menu of DTN’s Professional and Producer products. DTN Top Stories is also on the home page and news home page of online.dtn.com. Subscribers of MyDTN.com should check out the US Ag Policy, US Farm Bill and DTN Ag News sections on their News Homepage.

If you have questions for DTN Washington Insider, please email edit@dtn.com

(GH/BAS)