Washington Insider --Tuesday

CEOs Try Again to Temper Trump Tariffs as US-China Talks Open

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

Details On U.S. Farmer Aid Plan Coming

More information and likely details of how the payments to farmers under the Market Facilitation Program (MFP) will work are set to be unveiled by USDA, potentially on Friday.

However, there does not appear to be a lot of differences between the actual operation of the effort versus the general outline announced by USDA in late July. Some sources indicated there has been pushback on using actual production results to set payments as some are pushing the use of average yields instead. However, indications are that actual production is the evidence USDA will use to make payments.

Other questions remain on issues like the per-unit payment rate, whether there will be a separate payment limitation on the payouts and whether a pay cap will be exempted for dairy and hog producers. Signup for the aid effort is expected to start September 4.

The final plans for the Agriculture Trade Promotion (ATP) effort could also be of note, though that is expected to be the smallest component of the overall package.

Plus, attention will be on the level of purchases of ag commodities for food and feeding programs could be important.


Deal on Auto Content in US-Mexico talks?

The U.S. has proposed requiring a greater proportion of a car’s value to be manufactured in North America to qualify for favorable treatment. It has also proposed various rules that would require carmakers to use a certain proportion of steel, aluminum and automobile components made in North America, sources indicate, and to have a certain proportion of a car’s value be made by workers earning at least $16 per hour.

In return, Mexico has asked the U.S. drop a proposal that would let American farmers block Mexican products, notably fruits and vegetables, more easily. Mexican negotiators fought back against the produce plan, saying it was unacceptable and would violate WTO rules.

It has also sought assurances that the Trump administration would lift the tariffs it has already imposed on steel and aluminum shipments from Mexico, and not hit Mexican products with the new tariffs Trump has threatened on imported cars.

That could be a key situation, especially for U.S. exports of pork to Mexico.

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Washington Insider: CEOs Try Again to Temper Trump Tariffs as US-China Talks Open

Bloomberg is reporting that the six days of hearings on the U.S.-proposed $200 billion of tariffs on imported Chinese goods got underway this week.

American companies and trade groups are returning to a Washington hearing room, most to argue against more tariffs from Donald Trump. For this hearing, almost 360 individuals are scheduled to testify over six days of hearings that began yesterday on the latest round of proposed actions against Chinese imports, which would place tariffs of as much as 25% on $200 billion in goods, according to the Office of the U.S. Trade Representative

At the same time, China is sending Vice Commerce Minister Wang Shouwen to meet with David Malpass, undersecretary for international affairs at the Treasury Department, for the first major trade negotiations in more than two months.

This week’s hearing is the third round of hearings on the tariffs proposed by the administration. While there is broad agreement that action is needed to address allegations of Chinese theft of intellectual property and other unfair trade practices, “most companies and trade groups have been telling the administration that tariffs aren’t the answer,” Bloomberg said.

Some officials are making their third trip to the nation’s capital to ask that their products be spared from duties. However, since the additional tariffs threaten to hit virtually all imports from China, they’re not overly optimistic about goods being removed from the list.

“It doesn’t give me a whole lot of confidence going into the third round,” said Ed Brzytwa, director of international trade for the American Chemistry Council, which has tried unsuccessfully on behalf of its member companies to have certain products removed. “We have to make our best effort and explain why including these products on the list is not a great idea.”

Almost 200 individuals testified during the previous two rounds of hearings on duties covering $34 billion of goods imposed on July 6 and another $16 billion in products due to take effect later this week. While some companies want tariffs added to products from competitors, most have requested that certain imports be spared because comparable items are not made in the U.S. or the higher costs and promised retaliation by China would cause economic harm.

The U.S. Chamber of Commerce said in its written comments ahead of this week’s hearings that “tariffs won’t effectively address concerns about China’s trade behavior, but the number of objections to the duties speaks volumes about the damage that additional tariffs will do.”

Some goods, such as shipping containers used by freight companies, were removed when Schneider National Carriers Inc. and other firms testified they are almost exclusively made in China. But most products have remained despite the pleas from companies and trade groups.

The list of $200 billion in targeted items ranges from polymers and raw materials used to manufacture products in the US to finished goods like handbags and bicycles. The chemistry council, whose members include DowDupont Inc., said plastics and chemicals account for 25 percent of the more than 6,000 products targeted, and the value of those imports in 2017 was $16.4 billion.

Duties for the latest round were initially proposed at 10 percent, but President Trump directed USTR to consider raising them to 25 percent in response to Chinese retaliation. These tariffs could go into effect after a comment period ends Sept. 6.

SEMI, which represents semiconductor companies and others in the manufacturing supply chain, will also testify this week for the third time. It plans to emphasize the cost and time it would take to change suppliers--as long as 18 months in some cases, which is a generation in the industry, said Jay Chittooran, a public policy manager for the group.

While there’s concern about how much flexibility the administration will have to add and remove products, it’s critical to try, Chittooran said.

“You don’t win the lottery if you don’t buy a ticket,” he said. “If we don’t at least weigh in, we’re definitely not going to get anything taken off.”

Joseph Cohen, chief executive officer of New Jersey-based Snow Joe LLC, successfully argued in May to have electric and cordless snow blowers removed from the tariffs list that were implemented July 6, and log splitters were also spared from the duties taking effect Aug. 23 after its input.

But Cohen was unable to have garden tillers removed, and the $200 billion list includes the company’s power washers for consumer use -- its largest category, he said. Cohen said he is already in talks with retailers about increasing prices if the tariffs stand, and has put the launch of four new product lines on hold.

Still, Cohen said he is encouraged by the prospect of China and US talking again.

“That’s better than where we were the last three weeks,” he said. “Heck, I’m happy to buy them all lunch, let them all sit down together and come up with something that makes sense.”

So, we will see. During this ultra-political moment, it seems that pressure is building for the administration to reconsider its tough stance on Chinese trade—and many observers say that meetings with Chinese officials are a very good sign. At the same time, the basic criterion the administration has been using to evaluate trade deals—deficits or surpluses of trade in goods—is being challenged in the press and by some in Congress.

The administration claims it is receiving strong accolades from its political supporters for its strong trade stands. Still, the very negative comment emphasizing damages from the US policy from one of the administration’s strongest supporters, the U.S. Chamber of Commerce, would seem to be a political signal that could be costly to ignore. This is a fight producers should watch very closely as it intensifies, Washington Insider believes.


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