Senate Finance Chairman Signals Backing of Legislation Curbing Trump's Tariffs

Posted on 07/18/2018 6:37 AM

House to vote today to go to conference with Senate on farm bill, conferees to be announced


Senate Finance Committee Chairman Orrin Hatch (R-Utah) is backing legislative steps that would block the Trump administration’s tariffs slapped on imports from allies. Members of the president’s party are deeply opposed to U.S. tariffs on imported steel and aluminum applied to long-standing allies, along with the resulting economic impacts of retaliatory tariffs imposed by other countries. Hatch took to the Senate floor and to Twitter to make his displeasure clear.
     Declaring themselves the "flag bearers of free trade," Japan and the EU have signed the world's largest bilateral trade pact covering about a third of global GDP. The deal, which involved significant concessions on both sides, will eventually reduce heavy Japanese tariffs on European wine, cheese and other foods and lift EU tariffs on Japanese cars and vehicle parts. Japan and the EU account for about a third of global gross domestic product (GDP) and their trade relationship has room to grow, according to EU officials, who expect the deal to boost the EU economy by 0.8% and Japan’s by 0.3% over the long term.
     The ag sector will talk trade policy at House hearing today. Farmers from five states are expected this afternoon to detail for the House Ways and Means Subcommittee on Trade how retaliatory tariffs by China and other trading partners are affecting them economically, as well as the tariffs' impact on rural areas in general. They may look to Congress for help in curtailing or ending tariffs the Trump administration imposed on imported steel, aluminum and Chinese goods in its drive to force trade concessions by other nations.
     Some upbeat NAFTA 2.0 comments were made by Mexican officials on Tuesday, with renewed talks expected soon.
     Treasury Secretary Steven Mnuchin has no bilateral meetings scheduled with Chinese officials during the Group of 20 meetings in Argentina later this week, a sign that the U.S. wants China to make the next move.
     President Trump on Tuesday said he misspoke in Helsinki — he meant to say that Russia did interfere in the 2016 election. Trump also praised his senior intelligence officials and their conclusions, a day after favoring Russian President Vladimir Putin’s denials of Russian government interference in the 2016 U.S. election. Vice President Mike Pence and Secretary of State Mike Pompeo privately urged Trump to issue a correction, according to Bloomberg. Trump said his administration will "move aggressively to repel any efforts" to interfere in U.S. elections. "We're doing everything in our power to prevent Russian interference in 2018."
     President Trump has a meeting today with his Cabinet. And according to CBS Evening News, he is scheduled to sit down with anchor Jeff Glor for an interview at the White House today for broadcast tonight, with more of the discussion to air Thursday.
     There is "no time limit" to denuclearize North Korea, according to President Trump, marking a shift in tone from when he said the process would start "very quickly." "The sanctions are remaining. The hostages are back. There have been no tests. There have been no rockets going up for a period of nine months, and I think the relationships are very good, so we'll see how that goes."
     Fed Chair Jerome Powell heads back to Capitol Hill today to give his semi-annual monetary policy testimony before the House Financial Services Committee. Yesterday, he stuck to an upbeat assessment on the U.S. economy while downplaying the impact of global trade risks on upcoming rate rises. The bullish outlook buoyed the dollar and put a squeeze on gold, which fell to $1,222/ounce — its lowest level in a year.
     The House this afternoon will vote to go to conference on a farm bill and to work out differences with the Senate. House and Senate conferees are expected to be unveiled soon.

 

Hatch signals he's had enough with Trump's trade tactics. In what may be a turning point in the ongoing saga of widening trade policy conflicts between the Trump administration and a growing list of countries, Senate Finance Chairman Orrin Hatch (R-Utah) warned Trump that he could support legislative efforts to boost Congress’ trade powers relative to the executive branch. “If the administration continues forward with its misguided and reckless reliance on tariffs, I will work to advance trade legislation to curtail presidential trade authority,” Hatch said on the Senate floor Tuesday.

Hatch revealed he is discussing “legislative options” with lawmakers on and off his panel. He added: “As the president taxes Americans with tariffs, he pushes away our allies and further strengthens [Russian President Vladimir] Putin. It is time for Congress to step up and take back our authorities. We have legislation to do that. Let’s vote.”

On the House side, Ways and Means Chairman Kevin Brady (R-Texas) said he is seeing “momentum for a legislative response or solution” to water down Trump’s trade authority as more tariffs are imposed or threatened.

Meanwhile, Federal Reserve Chairman Jerome “Jay” Powell warned Tuesday that continued escalation of trade tensions and tariffs could hurt a robust U.S. economy (see related item below for more on Powell’s comments Tuesday).

Mexican ambassador: NAFTA 2.0 talks can be completed by end of year. Mexican Ambassador to the U.S. Gerónimo Gutiérrez expressed confidence Tuesday that NAFTA 2.0 negotiations can be "wrapped up by the end of the year." Gutiérrez said he was "optimistic about what we've heard" from Mexico's president-elect, the leftist Andrés Manuel López Obrador, and his transition team, according to remarks he made at a Politico conference.

"There have been technical meetings going on. I think that's positive," Gutiérrez said, adding: "There has not been a re-engagement thus far at a ministerial level, but I would emphasize that contacts will be ongoing."

Canadian diplomat douses chances of changes to dairy system. Canadian Deputy Ambassador to the U.S. Kirsten Hillman said that scrapping the nation's dairy supply-management system — a proposal the U.S. made in the NAFTA 2.0 talks — is "unacceptable." Hillman, speaking at a Politico conference, said there are "a lot of misunderstandings" surrounding dairy "when it comes to the Canada-U.S. trading relationship."

House to take vote today on new farm bill. The House is scheduled to vote this afternoon to go to conference with the Senate, which will have to take a similar vote, likely early next week, clearing the way for the talks to formally begin. The House vote was moved up to today from Thursday so that House Ag Ranking Member Collin Peterson (D-Minn.) could return to Minnesota for his father’s visitation and funeral.

Democrats will also offer a motion to instruct conferees to establish a vaccine bank at USDA and to provide mandatory funding for the animal vaccine bank that would be created by the legislation. The Senate bill authorizes the bank but does not mandate funding for it.

There could be an initial meeting of the conference committee next week before the House breaks for its August recess. The chairmen and ranking Democrats on the Senate and House Agriculture committees will meet next week to discuss the negotiations.

Senate Agriculture Chairman Pat Roberts (R-Kan.) said his chamber will have seven conference committee members, four Republicans and three Democrats. The House is expected to have 20 conferees from the House Agriculture Committee, plus some additional representatives from other panels with jurisdiction on some of the issues.

Sen. Chuck Grassley (R-Iowa) believes there is a good chance of conferees agreeing to a conference report before Labor Day because the Senate will be around for much of August. House Ag Chairman Mike Conaway (R-Texas) expects committee staffers to continue working through recess. Grassley said he has been having discussions with the House on including payment limit language for subsidies in the final version of the farm bill.

EPA officials are in Michigan this morning to hear ethanol and oil supporters over its proposed biofuel volume obligations under the Renewable Fuel Standard (RFS). Comments from both sides of the RFS debate will be divided into 10 panels. Samantha Slater of the Renewable Fuels Association will note that EPA’s proposal “means nothing” until it reallocates lost gallons under its waivers.

FDA Commissioner Scott Gottlieb said the Trump administration will soon move to rein in the use of the term “milk” for non-dairy products such as almond beverages, stressing that the agency's current standards for milk reference products from lactating animals. Gottlieb on Tuesday said the FDA will issue guidance outlining changes to its standards of identity policies for marketing milk.

The U.S. dairy industry has petitioned FDA to enforce marketing standards for milk, but the agency has not previously addressed the issue. Gottlieb said FDA plans to soon start gathering public comments before taking next steps in redefining the rules for milk products. He added the whole process could take “something close to a year.”

Gottlieb also said that FDA and USDA are working closely to come up with a regulatory framework for lab-grown meat, or what FDA prefers to call “cell-cultured foods.” Gottlieb during comments at a Politico confab noted that “cell-cultured foods don’t involve the slaughter of animals, which is central to USDA’s authority. We're working closely with USDA to try to understand what, if any, jurisdictional lines there are to know what role [the department] would play potentially in this as well. But it's very clear to us that a lot of the scientific aspects of this is what [FDA] is going to be looking at, and certainly things like fish would fall squarely within our domain.” Gottlieb said there may be collaborative efforts with USDA on meat and poultry, but a lot of the cell-cultured products will likely be outside that sector.

Fed Chairman Powell talked about trade tariffs and the robust U.S. economy during remarks Tuesday before the Senate Banking Committee. He said U.S. monetary policy is not on a set course, evidenced by the addition of two words: "for now." Powell said with “a strong job market, inflation close to our objective, and the risks to the outlook roughly balanced. The FOMC believes that for now the best way forward is to keep gradually raising the federal funds rate.” The inclusion of the words "for now" suggest the Fed is at a point where interest-rate increases will become more of a debate point by U.S. central bankers than they have been. Expectations remain that the Fed will increase the target range for the Fed funds rate — currently at 1.75% to 2.0% — two more times yet this year, with September and December the likely meetings where those increases will occur.

Powell was more cautious regarding the issue of tariffs and their impact on the U.S. economy. "I am really firmly committed to staying in our lane, and, you know, our lane is the economy," Powell stated. "Trade is really the business of Congress and Congress has delegated some of that to the executive branch... But nonetheless, it has significant effects on the economy, and I think when there are long run effects, we should talk about it and talk in principle," Powell stated. "And I would say in general, countries that have remained open to trade that have not erected barriers including tariffs have grown faster, they've had higher incomes, higher productivity. And countries that have, you know, gone in a more protectionist direction have done worse. I think that is the empirical result."

Powell acknowledged there is "no precedent for this kind of broad trade discussions. In my adult life, I have not seen where essentially all of our major trading partners — hard to know how that comes out. If it results in lower tariffs for everyone, that would be a good thing for the economy. If it results in a — you know, a broader — higher tariffs across a broad range of trade — traded goods and services that remain that way for longer period of time, that would be bad for our economy and for other economies too."

The Fed leader talked specifically about agriculture in a line of questioning from Sen. Joe Donnelly (D-Ind.) who pressed Powell on the issue. Powell reiterated his stance that the Fed's job is not trade policy and his expectation that if lower tariffs resulted overall, it would be a positive. "If it results in higher tariffs, then I think, you know, I hardly need to tell you what higher tariffs would do for agricultural producers," Powell observed. "Agriculture is an area where we lead the world in productivity and we are great exporters. And, you know, you would be very hard hit by these tariffs." Should the tariffs go on for a period of a couple years, Powell said, “I think certainly it would be very tough on the rural communities and I think we would feel that at the national level too.”

The yield curve was also a topic Powell addressed, with the spread between the two-year note and 10-year note at its narrowest point since 2007. An inversion of the yield curve is often seen as a harbinger of a recession for the U.S. economy. Powell did not downplay the yield curve but suggested that the neutral rate of inflation is likely more important or at least plays a role in the yield curve situation. "What really matters is what the neutral rate of interest is, and I think people look at the shape of the curve because they think that there is a message in longer run rates," Powell said. Those longer-run rates "also tell us something along with other things about what the longer run neutral rate is. That is really why the slope of the yield curve matters. So I look directly at that. If you raised short-term rates higher than long-term rates, then — then maybe your policy is tighter than you think, or it is tight anyway."

The Fed has talked a lot about the shape of the yield curve, Powell observed, noting "Different people think about it different ways, some people think about it more than others. I think about it as really the question being 'what is that message from a longer run rate about neutral rates?'" That suggests that he and others on the Fed are closely monitoring the yield curve, but there are clearly a host of views on this front that will be in the mix as the Fed monitors the situation.

Other items of note:

  • Brady: House GOP to vote on tax cuts in September in largely symbolic vote. House Republicans’ plan to extend tax cuts that are set to expire in 2025 will get a vote in September, Ways and Means Chairman Kevin Brady (R-Texas) said. Brady and other Republican tax writers met Tuesday with President Donald Trump at the White House to discuss the vote, even as the White House budget office predicts the government will run a $1 trillion deficit next year. Labeled Tax Cuts 2.0, the proposal has very low odds of becoming law because it will be blocked by Senate Democrats. But the vote is designed to force Democrats into an uncomfortable vote while reminding voters of the GOP’s commitment to cutting taxes.

  • President Donald Trump will host European Commission President Jean-Claude Juncker at the White House on July 25 for talks on a “wide range of priorities,” including energy security, the White House confirmed. Trump recently called the EU a “foe” of the United States during a CBS News interview.

  • Research report coming today. The National Academy of Sciences, Engineering and Medicine this morning will release a report highlighting major research opportunities in food and ag science. The document is intended to sway Congress and other funders to make additional investments when presented with a clear vision of where the science could go if researchers had more financial backing.

  • Japan, EU sign free trade deal. The Economic Partnership Agreement was signed at a summit in Tokyo on Tuesday. The EU agreed to liberalize access to its car market, while Japan agreed to let in more EU dairy products. In some of the sectors, especially wine, the tariffs will be eliminated upon entry into force. A quota for soft cheese would be expanded “year by year” and the tariff rate on cheese would also be gradually reduced. Cutting car tariffs had been a key demand from Japan’s automotive industry, which wanted to get equal access to the EU market like its South Korean competitors. The EU maintains a tariff rate of around 10% for most of the world, including Japan. Korea has no tariff, because of the EU-Korea free trade agreement. Under the new trade deal, EU car duties will progressively decrease to zero in the first eight years after entry into force. Regarding car parts, 92.1% of auto parts tariffs will be eliminated upon entry into force.

Markets. The Dow on Tuesday gained 55.53 points, 0.22%, at 25,119.89. The Nasdaq rose 49.40 points, 0.63%, at a record 7,855.12. The S&P 500 was up 11.12 points, 0.40%, at 2,809.55.

In a 66-33 vote, the Senate Tuesday confirmed Federal Reserve regulatory chief Randal Quarles for a new 14-year term on the Fed’s board. His previous term, which only lasted four months, ended in January. Quarles, an appointee of President Donald Trump, also was approved last October to a four-year term as vice chairman of supervision. His new board term does not expire until 2032, but he is still one of only three remaining governors on the Fed’s seven-member board. Three other Fed nominees have not yet received confirmation votes on the Senate floor: Richard Clarida, nominated as vice chairman; Michelle Bowman, tapped for the seat reserved for a community banker; and Marvin Goodfriend.

Google was hit with a record $5.1 billion fine by European antitrust officials, their latest move to rein in American tech companies. The decision underlined how European authorities are aggressively pushing for stronger regulation of the digital economy.


 

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