Washington Insider -- Friday

China Vows It Won't Back Down

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

Trump Enters the Farm Bill Debate

President Donald Trump took to Twitter on Thursday, jumping into the debate on the next farm bill as both chambers now have named their conferees to iron out differences between the two bills.

"When the House and Senate meet on the very important Farm Bill - we love our farmers - hopefully they will be able to leave the WORK REQUIREMENTS FOR FOOD STAMPS PROVISION that the House approved," Trump tweeted.

The work requirements referenced by Trump are in the House version of the bill but not the Senate plan.

Further, Trump also hinted the Senate needs to get rid of the filibuster rule that requires 60 votes to overcome any filibuster. The Senate farm bill passed 86-11.

The Senate handily turned back an effort to alter the work requirements during floor consideration of the bill in a 30-68 vote and expectations are there would not be close to 60 votes if the House version of the language was included in the final package. Plus, it's not even clear that the chamber could produce enough Republican votes to clear a package with the House language.


US Officials Are Talking With China about a Negotiated Settlement

While the war of words continues between the U.S. and China, a senior Trump administration official said they were communicating with Beijing about the potential for a negotiated settlement but did not have any dates for a meeting to announce.

Some observers, including U.S. lawmakers, want direct talks between President Donald Trump and Chinese President Xi Jinping, but the two leaders have no scheduled meetings until November when they will both be at regional meetings.

While no formal talks have been scheduled, the two countries remain in constant communication about the possibility, senior administration officials said Wednesday. President Donald Trump "remains open to those conversations and, you know, we are in contact with our Chinese counterparts. We have been throughout this process," a senior administration official told reporters during a briefing on Trump's latest plan to ratchet up pressure on Beijing.

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Washington Insider: China Vows It Won't Back Down

Well, it seems that the war of words and threats over trade with China still has the capacity to shock people. Bloomberg is reporting that a new threat. The administration said Wednesday that it’s considering increasing the proposed tariff on $200 billion in Chinese imports to 25% from 10% and succeeded in gaining wide attention across the media. Bloomberg says the move is a “bid to force China back to the negotiating table.”

Bloomberg also reported that China responded that the latest threat by the U.S. to increase tariffs “won’t succeed in forcing concessions from Beijing.”

“China is fully prepared and will have to retaliate to defend the nation’s dignity and the interests of the people, defend free trade and the multilateral system, and defend the common interests of all countries,” China’s Ministry of Commerce said yesterday. The “carrot-and-stick” tactic won’t work, it said.

The U.S. had indicated that it is open to restarting formal negotiations with China, though Beijing must agree to open its markets to more competition and stop retaliating against U.S. trade measures.

China replied in kind. Along with its pledge to fight back, it also left the door open for a resumption of negotiations — and Bloomberg noted that the statement left out language that had been used previously pledging to fight back using the “same scale, same intensity” as the U.S. trade measures.

“China has consistently advocated resolving differences through dialogue, but only on the condition that we treat each other equally and honor our words,” the ministry said. “The Chinese side always believes that bad things can turn into good things and challenges can be turned into opportunities.”

The proposed higher tariff “is intended to provide the administration with additional options to encourage China to change its harmful policies and behavior and adopt policies that will lead to fairer markets,” U.S. Trade Representative Lighthizer said.

The move to more than double the proposed tariff may inflame already heightened tensions between the world’s two largest economies. The International Monetary Fund has cited escalating trade disputes as a growing downside risk that’s threatening the strongest global economic upswing in seven years.

However, increasing the pressure on China by threatening even higher tariffs could backfire, Bloomberg emphasized. It observed that Beijing responded to news reports on Tuesday about the planned tariff increase by cautioning the U.S. against “blackmailing and pressuring” and it vowed to strike back at every escalation.

The administration last month released a list of thousands Chinese products it wants to slap with an additional 10% in tariffs, ranging from television components to handbags and seafood to baseball gloves. The duties could take effect after the administration draws up its revised, final list of imports following a public comment period. Hearings are scheduled for Aug. 20 to 23 and the comment period has been extended to Sept. 5 from late August, according to Lighthizer’s office.

The first wave of 25% tariffs on $34 billion of Chinese goods took effect last month, prompting immediate in-kind retaliation from China and the next round on $16 billion could be implemented by the U.S. in the coming days or weeks.

Trump said last month that he’s willing to impose tariffs on every good imported from China, which totaled more than $500 billion last year. American companies, industry and consumer groups have pleaded with the administration to avoid tariffs, saying they could raise their costs and eventually lead to price hikes for consumers.

Bloomberg also noted that implementing the tariffs would complicate the Federal Reserve’s decision-making on interest rates. Omair Sharif, an economist at Societe Generale in New York, said a 25% tariff on the entire $200 billion product list could cause inflation to surge by 1.1 percentage point. Assuming the levies get passed along to customers, the annual increase in the consumer price index, excluding food and energy, would jump to 3.4% from the current rate of 2.3%, he said in a research note on Wednesday.

The Institute for Supply Management’s latest survey released Wednesday indicated that U.S. companies are already considering significant investment changes. While manufacturers are experiencing healthy demand in the U.S., they’re considering expanding outside the country to avoid tariffs, Timothy Fiore, chairman of the ISM manufacturing survey, said.

Representatives of U.S. Treasury Secretary Steven Mnuchin and Chinese Vice Premier Liu He are having private conversations as they look for ways to reengage in negotiations after talks broke down last month, Bloomberg said.

So, it seems that the trade policy outlook for ag products is looking murkier than ever, although the administration reported that it had not detected significant impact on the U.S. economy so far. At the same time, producer groups, political advocates and others say they are increasingly worried—and that the strategy of an administration “bailout” stirs lingering fears of earlier government interventions even as it is criticized as inadequate. Certainly this is a debate producers should watch very closely as it proceeds, Washington Insider believes.


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