Washington Insider -- Monday

Busy Times Ahead on Trade Front

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

Navarro Downplays Impact from US-China Trade Dispute

White House trade adviser Peter Navarro said Thursday the economic impact of the U.S.-China trade situation is a “rounding error” when compared to the overall U.S. and China economies. He said President Trump is looking at the broader “chess board” with regard to trade strategy.

“My point is that it is much less disruptive than these headlines would suggest, and it’s much more constructive as we see the adjustments made in terms of where investment is going to go and where we’re going to build,” he said Thursday during an interview on CNBC.

The comments came as the Fed's Beige Book released Wednesday noted that businesses in all 12 Federal Reserve Districts noted impacts from the trade/tariff actions.

Meanwhile, Sen. Joni Ernst, R-Iowa, was quick to respond to Navarro's comments. “Mr. Navarro, America’s farmers are caught in the crosshairs of this game of ‘chess,'” Ernst said in a statement. "Offhand comments like the ones that Mr. Navarro made ... disregard the people whose livelihoods depend on global trade. In Iowa alone, more than 456,000 jobs are supported by trade, and these new tariffs are threatening $977 million in state exports. That is no ‘rounding error.'”


Europe, Canada Warn of Response if US Deploys Auto Import Duties

Should the U.S. put tariffs in place on autos and auto parts as a result of the Section 232 trade investigation, European and Canadian officials have signaled they will respond, potentially hitting hundreds of billions of dollars in U.S. products with retaliation.

EU Ambassador David O’Sullivan said he estimates $294 billion worth of US exports, “around a fifth of total U.S. exports in 2017,” would be hit if Trump approves auto tariffs.

Kirsten Hillman, Canada’s deputy ambassador to the U.S., said “Canada will once again be forced to respond in a proportional manner” if tariffs are imposed.

U.S. Commerce Secretary Wilbur Ross opened a hearing Thursday on the Section 232 investigation by trying to calm the waters. “It is clearly too early now to say if this investigation will ultimately result in a Section 232 recommendation on national security grounds, as we did earlier with steel and aluminum,” Ross said. “But President Trump does understand how indispensable the U.S. automobile industry is.”

Commerce has until February to report its findings to Trump, who has the final say on any tariffs.

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Washington Insider: Busy Times Ahead on Trade Front

In addition to the continuing confrontations on foreign policy, it’s going to be “a rip-roaring week in the world of trade starting today,” Bloomberg says. Top European Union officials will meet with President Trump, and US tariffs on imported automobiles will be high on the agenda.

In addition, Mexico’s trade minister will come to Washington to attempt to restart NAFTA talks with U.S. Trade Representative (USTR) Robert Lighthizer.

On Capitol Hill, a Senate Appropriations panel will hear testimony from Lighthizer as the Senate weighs proposals to rein in the president’s authority to impose tariffs. In addition, House Ways and Means lawmakers want to hear how companies are faring with their requests for exemption from U.S. tariffs on steel and aluminum imports, and a Senate Foreign Relations panel will probe China’s use of economic power as statecraft.

On the China trade front, witnesses at a USTR hearing on Tuesday will get a chance to describe in detail the process being used to provide waivers from the proposed tariffs of 25%, which could be levied on $16 billion worth of Chinese goods. This would be the second tranche of tariffs proposed by the administration, which said it is responding to China’s alleged intellectual property abuses.

All this while the U.S. is under fire from European Commission President Jean-Claude Juncker who will head to the White House July 25, accompanied by European Trade Commissioner Cecilia Malmstroem.

The EU mission will try to persuade Trump not to raise tariffs on European autos in spite of a Commerce Department probe into whether auto and auto parts imports threaten national security, which could trigger tariffs of up to 25% on foreign vehicles.

“We want to find solutions to de-escalate the present situation and prevent it from worsening,” Malmstroem said July 19. One of several ideas being kicked around is a plurilateral trade agreement to lower car tariffs among the U.S., EU, Japan, and South Korea, she said.

EU officials want to dampen expectations ahead of the high-stakes meeting. EU exports of cars and car parts to the U.S. worth 50 billion euros per year ($58 billion).

Bloomberg also says that “NAFTA’s back in the spotlight again,” although only Mexican Economy Minister Ildefonso Guajardo and Lighthizer will be at the table for talks July 26 in Washington. Missing will be Canadian Foreign Minister Chrystia Freeland, who currently has no plans to travel to D.C. for the meeting, according to the Canadian Embassy. However, Freeland will be in Mexico on July 25 to discuss NAFTA with Guajardo and Foreign Minister Luis Videgaray; on the agenda will be bilateral relations and NAFTA modernization.

Canada’s newly minted International Trade Diversification Minister James Carr will be among a slew of high-level Canadian officials joining Freeland in Mexico. Also joining Freeland will be Brian Clow, Prime Minister Justin Trudeau’s director of U.S. affairs.

The U.S.-Mexico meeting could signal that the two sides are close to sealing a deal on auto trade, according to a private sector source close to the talks. Trump said recently that the U.S. may strike a separate deal with Mexico and “we’ll negotiate with Canada at a later time.”

U.S. and Mexican officials have been seeking to work out percentages for North American content in autos and what wage level would be used to meet new content criteria, according to the source. Mexico won’t make a NAFTA deal without certain dispute settlement provisions and a deal on seasonal agricultural produce, trade lawyer Daniel Ujczo of Dickinson Wright PLLC in Columbus, Ohio, said.

Another stumbling block for Mexico is the U.S. proposal for a sunset clause that would automatically terminate NAFTA after five years unless the sides affirmatively decide to keep it in place, he said.

Amid all this, a Senate Appropriations panel will grill Lighthizer on July 26, as trade tensions between the U.S. and its allies continue to mount, Bloomberg says. The Commerce, Justice, Science, and Related Agencies subcommittee hearing is technically about funding priorities for USTR.

However, Bloomberg says lawmakers may press Lighthizer on the administration’s imposition of tariffs on steel and aluminum imports, among other things, which have provoked retaliatory tariffs from US allies and China that are taking a toll on both farm and manufacturing states.

So, we will see. Tensions between Capitol Hill and the Executive Branch are particularly strong and apprehension about U.S. trade access to China is high and growing. Current moves to limit Executive power could fade, as before, or they could catch fire in at least some cases—a fight producers should watch closely as it emerges, Washington Insider believes.


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