Washington Insider --Wednesday

White House Threats and German Trade Surplus

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

Morocco Opens Market to US Poultry

Morocco has agreed to allow commercial imports of U.S. poultry meat and products for the first time, according to an announcement from USDA. Initial indications are that Morocco could be a $10 million market for U.S. poultry with additional growth over time.

“I welcome Morocco’s agreement to allow imports of US poultry meat and products and the economic opportunities that will be afforded to US producers," said U.S. Trade Representative Robert LIghthizer.

USDA Secretary Sonny Perdue echoed that sentiment, noting that the U.S. shipments to Morocco will be "safe, wholesome and very delicious," adding that he believes Moroccan consumers will "want more of it."

U.S. poultry exports in 2017 totaled $4.3 billion.

Morocco will allow in poultry and poultry-based products except products not meeting processing requirements for inactivation of the avian influenza virus and those originating from two areas in Missouri where low pathogenic avian influenza (LPAI) was found earlier this year.

USDA's Food Safety and Inspection Service (FSIS) said that all federally inspected establishments in the U.S. are eligible to ship to Morocco. Their total poultry imports in 2017 were valued at $10 million, with about 60% of those shipments coming from Brazil.


US Seeks Sanctions on Indonesia Over Ag Trade Restrictions

The U.S. has asked the World Trade Organization for clearance to impose $350 million in sanctions against Indonesia for its restrictions on imports of food and other ag products.

The U.S. and New Zealand both led successful WTO challenges against Indonesia's limits on imports of apples, grapes, potatoes, onions, flowers, juice, dried fruit, cattle, beef and chicken. The U.S. said Indonesia had not yet complied with the WTO ruling, prompting the sanctions request.

Indonesian officials were still studying the US request, insisting they believe they have complied with the WTO ruling.

It is not clear what specific products the U.S. would target in the matter.

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Washington Insider: White House Threats and German Trade Surplus

There is a lot of media ink going into examinations of just how U.S. trading partners globally are responding to the Trump Administration's tariffs and threats. For example, Bloomberg looked at Germany this week, the largest European exporter. It reports that its exports exceeded imports sharply once again this year—leading the administration to single out German car sales for further criticism.

So far, at least, Germany’s trade surplus with the U.S. is showing little or no sign of buckling under President Trump’s accusations of unfair practices.

Bloomberg says that German data released on Tuesday said that the nation’s exports to the U.S. exceeded imports by 24.4 billion euros in the first half of the year — an amount “barely changed from the 24.5 billion euros in the same period of 2017.”

It indicates that the booming U.S. economy is continuing to suck in German goods from cars to chemicals, even amid repeated criticism from the president and threats of tariffs on Europe. Still, the latest figures show “how tensions could flare up again, despite Trump’s agreement with European Commission President Jean-Claude Juncker to refrain from any action while the two sides negotiate,” Bloomberg said.

“At the moment, we don’t see much of a decline in the trading relationship with the U.S.,” said Jan-Philipp Schulz, treasury manager at Sparkasse Suedholstein. While some confidence indicators have weakened amid a worsening of ties, “this overflow into the real economy hasn’t happened.”

Thus, Bloomberg is suggesting that the administration’s “jawboning” has accomplished little so far because it runs into the reality of price competition. He has lambasted the country for its underspending on defense, links to Russia and exports. He has complained on Twitter about the “MASSIVE trade deficit” with Germany and at a meeting with European Union leaders called the country “very bad” for selling “millions of cars” in America. His top trade adviser, Peter Navarro, has accused it of benefiting from a “grossly undervalued” euro.

Yet while German exporters do benefit from a weaker currency—as the euro has softened against the dollar recent years--the country doesn’t set the exchange rate.” Bloomberg says. That’s largely a consequence of the European Central Bank (ECB), which is running looser monetary policy than the Federal Reserve because the bloc’s recovery from global financial crisis has been slower.

In addition, there’s little sign that dynamic will change any time soon, with the Fed pledging to keep raising rates at a gradual pace and the ECB saying it expects to keep borrowing costs at current record lows at least through the summer of 2019.

A major point in the Bloomberg report is that U.S. exporters are still nervous about the trade outlook, even after President Trump’s recent reassurances and the recent U.S.-EU agreement meeting. The U.S. Commerce Department is continuing an investigation into car imports under an act that permits trade restrictions if needed to safeguard national security.

That’s a particular concern for Germany, the report notes. Vehicles were its largest export category by value in 2017, accounting for almost a fifth of the total, and levies on vehicles including Mercedes-Benz, BMW AG and Porsche models would represent a significant blow to the economy. Chancellor Angela Merkel last month described potential auto tariffs as “a danger for the prosperity for many in the world.”

The U.S. is also Germany’s largest non-European Union export destination, taking 9 percent of the nation’s shipments last year.

The breadth of the economy’s manufacturing base shows how difficult it would be to curb exports through product-specific tariffs, Bloomberg says. The country is also a major seller overseas of machinery, chemicals, electronics and electrical equipment.

The German global trade surplus was 122 billion euros in the first half of 2018, putting it on track to match last year’s 244 billion euros, and within reach of 2016’s record 249 billion euros.

One area where the nation is largely dependent on imports is crude oil and natural gas — a fact that has led the President to allege the country is “captive to Russia” for its energy supplies and tried to pitch U.S. liquefied natural gas (LNG) instead.

The EU officials told the president at their meeting that Europe will expand imports of the fuel from the U.S., but “that may not add up to much,” Bloomberg says. Germany has so far been lukewarm to the idea of buying U.S. LNG, and analysts have noted that supplies from Russia’s vast Siberian fields are far cheaper.

So, we will see. The administration’s new tariffs, along with promises of even larger increases are causing widespread concern across the economy, as are the policies being used to administer the new restrictions. And, the administration’s “farm aid” pledge of some $12 billion is facing a decidedly cool reception in many quarters, as well. This certainly is a trade policy debate producers should watch closely as it emerges, Washington Insider believes.


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