Washington Insider -- Tuesday

Analyzing the Trade War

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

China to reimburse state reserve buyers for added soybean import duty

China will reimburse importers for the cost of the 25% tariff on soybean imports from the U.S. if the cargoes are intended for state reserves, Bloomberg reported, citing unidentified sources.

Meanwhile, three trade sources cited by Reuters say China has started clearing goods from the U.S. at its ports. Customs officers had initially delayed clearance of some U.S. goods as they awaited official instructions on whether to start collecting the new import tariffs.

Those duties are now being collected and products moved through customs, including a soybean cargo that arrived just after the tariffs were implemented.


Acting EPA Chief Wheeler: Will Not Change EPA Direction

Andrew Wheeler, acting administrator of the EPA after Scott Pruitt resigned, told the Wall Street Journal in an interview that he plans to continue the agency’s current policy trajectory on environmental regulations. He said that while he is likely to continue President Trump and Pruitt’s regulatory plans, there may be shift in tone of "how I talk about some things... “I have thought for years environmental issues need to be depoliticized. In 1991 when I came to town they were not as politicized as they are today. And I would love to return to that.”

Priorities include reducing the time it takes for environmental permitting and giving additional clarity on length of enforcement reviews. He also said EPA could communicate better about health risks in times of crisis, such as after the Flint water contamination and September 11 attacks.

Wheeler said he believes in climate change; but there are legal limits to what EPA can do about it.

The article said Wheeler declined to say if he’d take administrator job if nomination were offered. The WSJ revealed that among others who might be considered: Donald Van der Vaart, formerly North Carolina’s top environmental regulator; Bryan Shaw, environmental regulator in Texas and Jeff Holmstead, a former EPA official under George W. Bush, who said he had no comment on whether he would consider the position.

As for the Renewable Fuel Standard (RFS), Wheeler said during his confirmation hearing in November that the RFS "is the law of the land" and that he supports "both the law and the intent of the RFS program."

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Washington Insider: Analyzing the Trade War

Most of the major dailies reported the growing trade tensions in terms of economics, but the Washington Post focused more on national politics. For example, it asserted that “President Trump is a man who judges his successes by anecdote — both real and embellished. But his trade war is turning the anecdotes against him and there are growing signs of trouble, even as the war officially began Friday.”

For example, the Post cited a poll conducted by the Washington Post and the Schar School of Policy and Government at George Mason University that asked whether people felt Trump's "taxes known as tariffs" against China were a good thing or a bad thing, in light of news that China retaliated with its own tariffs on U.S. goods. Fully 56% of voters thought the situation was bad for U.S. jobs, the Post said.

The even bigger concern, though, was about the cost of products. About three-quarters of voters — 73% — worried about the trade war's impact on them.

And that concern was even more pronounced in battleground House districts that will decide the 2018 election. In those districts, 78% said the trade war with China would be bad for the price of products. And even a solid majority of Republicans nationwide — 56% — shared this concern.

The poll results come about a week after the first major news about companies responding to tariffs, which have also been applied to Canada, Mexico and the European Union (EU). So far, a major American nail company, Mid-Continent Nail of Missouri, laid off 60 employees and is facing its potential demise by the end of summer.

Then came the more prominent case of Harley-Davidson, the motorcycle manufacturer that said it would move more of its production overseas in the face of the EU's retaliatory tariffs. Now BMW and General Motors are warning about rising automobile prices, Volvo may cancel 4,000 expected new jobs in South Carolina and polysilicon manufacturer REC Silicon announced it would lay off 100 people — all citing the tariffs.

It's too early to say whether the President’s decision to start trade wars with the EU, China and our North American neighbors will ultimately wind up being successful, the Post thinks. Such judgments are for economists to make months and years down the line, it said, since they also must account for the overall economy and the many factors that play into it. And a couple or a dozen companies shuttering plants, laying people off or shifting production, while painful for real people in real time, could ostensibly be the cost of creating jobs in other industries or creating a better trade balance, which is Trump's stated goal.

This message actually appears to be coming through for Trump's base. While Republicans worry about the cost of products by a 56-37 margin, they notably think the trade war with China will actually be good for U.S. jobs, by a 64-29 margin.

But that immediate pain is also the point, politically. “We have a president who from his earliest days as president-elect hailed companies bringing home jobs as a sign of his prowess and glowed as companies announced employee bonuses in light of the GOP's tax cuts,” The Post said. However much credit Trump deserved for any of these events or however much difference those $1,000 bonuses made in people's lives, Trump saw an opportunity to demonstrate real, tangible progress for real people.

But he's now experiencing the other side of that anecdotal coin. And now that the real and tangible isn't looking so good, he's lashing out. Trump has hit back at Harley Davidson for its announcement and even threatened to tax it. The message to other companies seems to be clear: “Don't tell people that my tariffs are to blame for your bad economic news. I will punish you.”

Layer on top of all this the fact that Trump is applying his tariffs not to a struggling economy, but to one that has been on a solid trajectory for years—and recently saw the unemployment rate tick below 4%. Given we're near what's traditionally been regarded as full employment, and given the stock market has shown in recent months that corrections may be in store, moments like now aren't a great time to rock the boat, politically speaking. Changing things up at this moment carries significantly more risk of reversing the current progress than potential credit for maintaining that progress, the Post concludes.

And this and other polls, at the very least, suggest there is skepticism about Trump's approach. That's not to say it will be an electoral dud in November; it just means it's probably an unnecessary risk — and one that is fraught for a president who so often judges himself by anecdote.

So, we will see. The administration says repeatedly that it will “protect” agriculture, although details are lacking. At the same time, buyers in important U.S. markets in North America and elsewhere are actively looking for alternative sources. The administration’s pledges seem to reek of much more active federal market interventions, most likely in the guise of programs that have had very spotty records in the past. How all that will be managed this time around remains to be seen and should be watched closely by producers as details emerge, Washington Insider believes.


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(GH/BAS)