Policy Updates: Trump Again Talks NAFTA Exit, But Hails Infrastructure Plan

Posted on 02/13/2018 5:09 AM

Amendment day for Senate immigration reform bill debate



Trump keeps talking NAFTA exit as he hails infrastructure plan. If Mexico and Canada do not agree to an updated NAFTA 2.0 agreement, President Donald Trump Monday again talked of getting out of the pact. "I always said we're going to renegotiate it or terminate it," Trump said while unveiling his infrastructure plan. "Hopefully, the renegotiation will be successful, and if not, we'll be even more successful."

Trump also talked of putting a reciprocal tax in place to account for countries that place higher duties/tariffs on U.S. goods than the levels imposed on imports from those countries. "We send them our product, same product as they're sending us; and they'll charge us 50 and 75 percent tax — and that's very unfair," Trump declared. "So we're going to be doing very much a reciprocal tax, and you'll be hearing about that during the week and during the coming months."

The White House later appeared to downplay the potential that a reciprocal tax was in the cards. "There is nothing formal in the works right now," a senior administration official said. "He was simply reiterating the same sentiments he's been saying about reciprocal trade for years."

Meanwhile, the U.S. Trade Representative’s office would receive $63 million under the president’s fiscal 2019 proposed budget request, a $1 million increase over the 2017 enacted level, as the agency negotiates several trade deals and investigates countries such as China for trade abuses. The Trump administration requested $57.6 billion in discretionary funding for fiscal 2018, a level the Senate Commerce-Justice-Science appropriations bill (S 1662) proposes to meet, while the House spending bill (HR 3267) would provide $68 million. Neither bill has been enacted.

U.S. asks about Canadian wine, dairy rules at WTO. The U.S. asked Canada Feb. 12 to explain several regulatory changes regarding wine and dairy ahead of next week's World Trade Organization agriculture review.

The questions may be relevant to the ongoing renegotiation of the North American Free Trade Agreement, where the U.S. and Canada remain at odds over various agricultural trade policies.

Regarding Canada's dairy policies, the U.S., Australia, and New Zealand asked Canada to explain its application of new milk classes that America previously criticized as import substitution policies that may violate WTO rules. Last year the Canadian dairy industry established a new “class 7” milk category to price ingredients like protein concentrates, skim milk, and whole milk powder used to make cheese and yogurt. The move followed Ontario's decision in 2016 to set up a “class 6” milk category that U.S. ranchers blame for reduced market prices for ultra-filtered milk and depressed demand for U.S. milk exports. U.S. trade officials in 2017 complained that Canada's national ingredient strategy harmed U.S. ranchers by incentivizing Canadian dairy producers to manufacture protein substances using Canadian milk.

U.S. dairy exports to Canada represent less than 0.2% — or $631 million — of the $320.1 billion worth of goods and services that the U.S. annually exports to Canada.

Meanwhile, Canada asked the U.S. several questions about California's milk classes and various government policies that offer financial compensation to U.S. dairy producers. Canada asked whether U.S. producers benefit from lower milk prices if their yogurt is exported rather than sold domestically. Canada also asked how the U.S. government compensates milk producers who are forced to dispose of their products due to spoilage or other reasons. Canada also asked the U.S. to explain the purpose of its Dairy Forward Pricing Program and evaluate the benefits it provides to U.S. milk producers and handlers.

Transportation Secretary: Highway Trust Fund needs fixing. Transportation Secretary Elaine Chao said Monday the Highway Trust Fund's declining balance must be addressed — possibly as part of an infrastructure initiative the Trump administration released Monday. The White House infrastructure principles clarify that the federal government would pay for no more than 20% of a project from a newly established incentives program. No state would receive more than $10 billion of the $100 billion program.

The 55-page White House document (link) (plan document) proposing the infrastructure initiative doesn't make any suggestions about what to do with the trust fund, which is projected to run out of money if Congress doesn't act by the end of fiscal 2020. But Chao said Congress could address it as part of infrastructure legislation. “Clearly, the Highway Trust Fund, with its cliff at the end of 2020, is a subject of great concern,” Chao said. “So that will have to be addressed, either in the infrastructure proposal, or, if not in the infrastructure proposal, in a reauthorization of some sort. I think we all recognize how important this issue is and we need to address it in the infrastructure proposal.”

Federal gas taxes provide revenue to the trust fund, but at a rate that hasn't been increased since 1993 despite inflation and rising construction costs. The revenue from the gas tax no longer covers the spending approved by Congress. Some business groups including the U.S. Chamber of Commerce have called for significant raises to gas taxes to make the Trust Fund solvent. Chao stopped short of endorsing any particular path to fixing the trust fund, saying there are no attractive options, but they all remain “on the table.”

House Transportation and Infrastructure Chairman Bill Shuster (R-Pa.) has said an infrastructure bill should address the problem facing the trust fund. He likewise has not ruled out a gas tax raise. Bur raising gas taxes could be politically difficult in an election year, as several GOP officials have already nixed the idea.

The Waterways Council, Inc. (WCI), advocates for the upkeep of the locks and dams on the 12,000 miles of U.S. inland waterways, offered negative feedback regarding Trump's infrastructure proposals. The plan, said WCI President and CEO Mike Toohey, would increase repairs of aging locks and dams, but also install “third party service providers” to collect higher tolls that would only be paid by commercial users of the rivers. “Carriers, and therefore shippers like American family farmers, energy/petroleum and coal producers, cement and construction material companies, and many others who rely on the cost-competitive waterways to ship their products around the U.S. and the world, would be saddled with massive increases that will deter freight from the waterways and cause a modal transportation shift,” Toohey said.

Meanwhile, water infrastructure was among the few EPA winners in Trump's budget plan, as it would essentially be shielded from the deep cuts the Trump administration is seeking in Environmental Protection Agency funding in fiscal 2019, even as the president seeks to eliminate or greatly reduce regional water quality programs. But funding for most regional water quality programs, in which the EPA supports cooperative efforts by states, would take a big hit under the Trump request. It is seeking to eliminate EPA support for all such regional programs, with the exception of the Chesapeake Bay and the Great Lakes. Those two programs would be cut to 90 percent below the fiscal 2017 enacted levels. Sen. Debbie Stabenow (D-Mich.) vowed to fight to restore that funding for the Great Lakes Restoration Initiative. “This is outrageous,” Stabenow said in a Feb. 12 statement. “People across Michigan spoke out and took action last year to stop these cuts and I know they'll do so again.”

Amendment day for Senate immigration reform bill action. There likely will be many amendments heading to the Senate floor today following a procedural vote of 97-1 Monday evening to get action started on the vehicle for immigration legislation by limiting debate on a motion to proceed to the bill. The only no vote came from Sen. Ted Cruz (R-Texas).

Senate Majority Leader Mitch McConnell (R-Ky.) gave his support behind a proposal he calls “a fair compromise” that addresses President Trump’s four priorities: a solution for "Dreamers," limits on family based immigration, the end of the Diversity Visa lottery and a $25 billion trust fund for a U.S.-Mexico border wall. Minority Whip Dick Durbin (D-Ill.) said he trusts McConnell to follow through on his promise to maintain a fair and balanced amendment process, but he said leaders had made no decisions as to how the debate would be structured.

Durbin said he is open to supporting a bill that would provide funding for a wall along the US-Mexico border. "As part of a package to get this done, I'm open to it, not a trust fund slush fund but something as an appropriator I can vote for," he said.

USDA Secretary Sonny Perdue tried to put the best spin on a not-so-spinnable Trump budget proposal. Perdue cited the $20.5 trillion national debt as an impetus for keeping a tight USDA budget. “President Trump’s budget proposal is fiscally responsible and no longer puts off the tough decisions to future generations,” Perdue said in a statement. “At USDA, we will do our part to get America’s fiscal house in order. This is familiar territory for me, because when I was governor of Georgia, five of the eight budgets I submitted to the legislature had less money in them than the budget before.”

According to a USDA budget summary (link), the proposed policy changes to SNAP include converting part of food benefits to commodities or food items. As expected, the administration would limit the amount of federal subsidies for crop insurance premiums but it does not spell it out in dollars. Instead, the administration says the average premium subsidy will decline from 62% to 48% under new restrictions. It would also place a limit on eligibility for payments from commodity crop programs to producers with adjusted gross incomes of $500,000 or less; a limit eligibility for the federally subsidized crop insurance program to farmers with adjusted gross incomes of $500,000 or less; and reduce federal underwriting payments to the private insurance companies that write and service the crop insurance policies. Some observers said these proposals could give cover for lawmakers seeking similar amendments via the upcoming new farm bill process. However, appropriators rejected similar proposals in their House and Senate spending bills for fiscal 2018, which have not yet been enacted.

Food aid program and other spending cuts. The administration says it would achieve $938 million in discretionary spending reductions by eliminating the McGovern-Dole International Food for Education, the rural business and cooperative service, rural water and wastewater grants, direct loans for single family housing and a U.S. Forest Service program for buying land. The administration would trim $213 million from Animal and Plant Health Inspection Service salaries and expenses by proposing that state and local governments shoulder more of the costs for ensuring plant and animal health efforts. The White House also is calling for the elimination of the international food aid program, Food for Progress; the end of interest payments to electric and telecommunications utilities; and the elimination of the Rural Economic Development program.

Budget deficit impact. The Trump administration says proposed changes to crop insurance, farm and conservation programs, SNAP, and several new user fees would reduce the federal budget deficit more than $250 billion in mandatory spending from 2019-2028.

Note: Some agencies would receive more than is reflected in the following chart, due to extra money made available in the recently enacted congressional deal raising budget caps (link).

FY2019 DISCRETIONARY BUDGET AUTHORITY

 

(BILLIONS OF DOLLARS)

 

Departments

2017 Enacted*

2018 Estimate**

2019 Request

 

2019 Request less
2017 enacted

Agriculture***

$22.7

$22.5

$19.0

 

-16.4%

Commerce

$9.3

$9.3

$9.9

 

6.1%

Defense**

$523.2

$574.5

$597.1

 

14.1%

Education

$66.9

$67.8

$59.9

 

-10.5%

Energy

$30.2

$30

$29.2

 

-3.4%

Health & Human Services****

$87.1

$86.3

$69.5

 

-20.3%

Homeland Security**

$42.4

$44.1

$46

 

8.6%

Housing & Urban Development (Excluding receipts)

$48

$47.7

$39.2

 

-18.3%

Interior

$13.5

$13.4

$11.2

 

-16.8%

Justice

$28.4

$28.1

$28

 

-1.3%

Labor

$12

$12

$9.4

 

-21.4%

State and Other International Programs***

$38.7

$38.1

$28.3

 

-26.9%

Transportation

$19.3

$19.2

$15.6

 

-19.2%

Treasury

$12.7

$12.6

$12.3

 

-0.3%

Veterans Affairs

$74.4

$77.3

$83.1

 

11.7%

Major Agencies

2017 Enacted*

2018 Estimate**

2019 Request

 

Percent Change

Corps of Engineers

$6.2

$6

$4.8

 

-22.2%

Environmental Protection Agency

$8.2

$8

$5.4

 

-33.7%

NASA

$19.7

$19.5

$19.6

 

-0.3%

Small Business Administration

$0.8

$0.8

$0.6

 

-24.5%

Social Security Administration****

$9.3

$9.3

$8.8

 

-4.9%

* 2017 Enacted reflects the actual amounts, and include many changes that occur after appropriations are enacted that are part of budget execution such as transfers, reestimates, and the rebasing as mandatory any changes in mandatory programs enacted in appropriations bills.
** At the time the 2019 Budget was prepared, 2018 appropriations remained incomplete and the 2018 column reflects at the account level enacted full-year and annualized continuing appropriations provided under the Continuing Appropriations Act, 2018 (Division D of Public Law 115–56, as amended by Division A of Public Laws 115–90 and 115–96). The 2018 levels are further adjusted through policy allowances to illustratively reflect the base and Overseas Contingency Operations totals proposed in the Administration’s amended 2018 Budget request. These allowances appear within the Department of Defense, the Department of Homeland Security, and Government-wide.
*** Funding for Food for Peace Title II Grants is included in the State and Other International Programs total. Although the funds are appropriated to the Department of Agriculture, the funds are administered by the U.S. Agency for International Development.
**** Funding from the Hospital Insurance and Supplementary Medical Insurance trust funds for administrative expenses incurred by the Social Security Administration that support the Medicare program are included in the Health and Human Services total and not in the Social Security Administration total.


Source: Office of Management and Budget

To see how much the various government agencies' workforce would shrink or grow under President Trump's request, view the chart below:

FY2019 CIVILIAN EMPLOYMENT IN THE EXECUTIVE BRANCH

(CIVILIAN EMPLOYMENT AS MEASURED BY FULL-TIME EQUIVALENTS (FTE) IN THOUSANDS, EXCLUDING THE POSTAL SERVICE)

Agency

Actual

Estimate

Change 2018 to 2019

Departments

2016

2017

2018

2019

FTE

Percent

Agriculture

86.8

87.3

88.7

80.9

-7.8

-8.8%

Commerce

40.3

40.9

42.6

51.7

9.1

21.3%

Defense

725.3

726.2

741.5

744.5

3

0.4%

Education

4.1

4.1

3.9

3.9

-*

-1.1%

Energy

14.9

14.7

15.4

15.1

-0.2

-1.4%

Health and Human Services

72.6

74.1

75.5

74.9

-0.6

-0.8%

Homeland Security

183.5

182.4

182

195

13

7.2%

Housing & Urban Development

8

7.9

7.7

7.5

-0.2

-2.6%

Interior

64.2

64.9

64.4

59.8

-4.6

-7.1%

Justice

114.9

118.2

117.1

116.8

-0.3

-0.3%

Labor

16.5

16.2

15.7

15.8

*

0.3%

State

32.1

27.6

25.7

25.5

-0.2

-0.6%

Transportation

54.3

54.7

55.1

54.7

-0.4

-0.7%

Treasury

93.4

92.5

90

88.3

-1.8

-1.9%

Veterans Affairs

345.1

351.6

359.3

366.3

7

1.9%

Other Agencies -- Excluding USPS

2015

2016

2017

2018

FTE

Percent Change

Corps of Engineers - Civil Works

21.8

21.7

21.6

21.6

*

*

EPA

14.7

14.8

15.4

11.6

-3.8

-24.6

EEOC

2.2

2.1

2.1

2

-*

-0.8%

General Services Administration

11.2

11.5

11.7

11.9

0.2

1.5%

NASA

17.1

17.2

17.3

17.2

-0.1

-0.3%

National Science Foundation

1.4

1.4

1.4

1.4

Office of Personnel Management

5.1

5.5

5.9

5.8

-0.1

-2.3%

Securities and Exchange Commission

4.6

4.6

4.5

4.5

-0.1

-1.4%

Small Business Administration

3.2

3.4

3.2

3.3

*

0.5%

Smithsonian

4.9

5

5.2

5.2

-*

-0.1%

Social Security Administration

63.7

61.4

61.5

60.8

-0.8

-1.2%

Total Executive Branch Civilian Employment

2,057.3

2,062.1

2,085.1

2,095.2

10.1

0.5%

*50 OR LESS

SOURCE: Office of Management and Budget

— Ag panel leaders comment on Trump’s ag-related budget. President Trump’s plan to cut crop insurance and other farm programs by $47 billion over 10 years and reduce the Supplemental Nutrition Assistance Program/food stamps drew quick comments from Ag Committee leaders.

Roberts and Conaway. Senate Agriculture Committee Chairman Pat Roberts (R-Kan.) and House Agriculture Committee Chairman Mike Conaway (R-Texas) released a joint statement to say they would not take it seriously. “As Chairmen of the Agriculture Committees, the task at hand is to produce a Farm Bill for the benefit of our farmers, ranchers, consumers and other stakeholders,” the Republicans said. “This budget, as with every other president’s budget before, will not prevent us from doing that job. We are committed to maintaining a strong safety net for agricultural producers during these times of low prices and uncertain markets and continuing to improve our nation’s nutrition programs.”

Harsh criticism came from Sen. Debbie Stabenow (D-Mich,) the top Democrat on the Senate Agriculture Committee. “The proposed cuts to both the USDA and the Farm Bill would hurt American agriculture, neglect rural businesses, and leave families and seniors behind,” Stabenow said. “This is especially troubling given the state of the fragile rural economy. If taken seriously, this budget would make it impossible for Congress to pass a Farm Bill this year.”

Economic assumptions in Trump budget labeled optimistic. The Trump administration’s economic projections start with very optimistic economic growth rates (apparently based on their expectation that the tax law and unspecified regulatory, health, infrastructure, and energy policies will significantly increase growth) and assume a large economic dividend on top of that due to the budget’s policies. As a result, the economic growth forecast in this budget is much higher than other long-term projections and for most economists, extremely unlikely to materialize.

The Office of Management and Budget (OMB) projects real growth rates averaging 3.0% over the next decade —3.0% for 2018 and 3.2% growth for 2019. That falls to 3.0 percent growth in 2021 and eventually tapers down to 2.8% in 2026 and beyond.

OMB’s long-term growth projections are far above what outsider forecasters expect, as the table below from the Committee for a Responsible Federal Budget shows.

Economic estimates compared

Other items of note:

  • Steel and aluminum investigations topic of lawmakers' talk with Trump today. Trump administration trade investigation on imports of steel and aluminum are topics that a bipartisan group of lawmakers from primarily steel states want to talk to President Donald Trump about Tuesday. Expectations are that group of lawmakers from both parties and both the Senate and House will take part in the session that is also expected to include U.S. Trade Representative Robert Lighthizer, National Economic Council Director Gary Cohn and chief of staff John Kelly. Sen. Sherrod Brown (D-Ohio) said he would be in attendance and while he commended the Trump trade efforts to date, "there is more work to do, including swift action to crack down on Chinese steel overcapacity that is costing American jobs."

  • U.S. government registers budget surplus for January. The January budget update showed the U.S. had a $49 billion surplus, nearly on track with the year-ago level, according to the U.S. Treasury Department. But the government's deficit so far in fiscal year (FY) 2018 still is at $176 billion, up from $159 billion for the same period in FY 2017. Outlays for net interest in on the debt were up as were outlays for the Department of Homeland Security, with the $2 billion rise chalked up to disaster relief. But the news on the monthly deficit came as the Trump administration unveiled their FY 2019 budget that would see budget red ink to hit nearly $1 trillion.

  • Sad news in the world of sugar: the death of Carolyn Cheney. The lady who mentored so many sugar industry analysts and reporters passed away last Thursday, Feb. 8. Carolyn came to Washington in 1972 to serve on the staff of newly elected Congressman James R. Jones (D-Okla.). Juggling demanding jobs with her responsibilities as a single parent, Carolyn proved an apt student of politics and a highly competent legislative aid. She moved through the ranks quickly with grace and flair. Though her loyalty was to the Democratic Party, she made many friends with Members and staff “across the aisle.” Beginning in 1991, Carolyn represented the Sugar Cane Growers Cooperative of Florida and the Domino and C & H refineries owned jointly by the Florida Cooperative and Florida Crystals Corporation. During Carolyn’s time representing the sugar industry, she worked tirelessly on behalf of her Florida producers as she helped pass five Farm Bills and advised U.S. officials during numerous international trade negotiations that have shaped the U.S. sweetener market over the past three decades. She was a founding member of the American Sugar Alliance and instrumental in ASA’s organization and growth as an association. She served as its esteemed Chair five times during this period and would jokingly say, “It’s not a privilege, it’s just my turn.” Carolyn mentored many new associates in the industry, giving generously and willingly of her time and advice, and leaving a lasting mark on numerous careers. Her great leadership and significant contributions to the sugar industry, along with her kind and genuine personality, led to countless friendships within the “sugar industry family.”

Markets. The Dow on Monday gained 410.37 points, 1.70%, at 24,601.27. The Nasdaq moved up 107.47 points, 1.56%, at 6,981.96. The S&P 500 added 36.45 points, 1.39%, at 2,656.00.

Credit card debt potential concern point ahead. Credit card debt in the US reached a new record in 2017 with around 110 million new accounts opened in 2016, according to the Consumer Financial Protection Bureau (CFPB), a 50% increase over the level in 2010. Credit card holders have a credit limit of $4 trillion, close to the $4.4 trillion peak during the housing bubble. A record 196 million U.S. consumers had access to credit cards or other kinds of revolving credit, the CFPB said. Financial industry firms are reporting that the level of delinquencies is on the rise and those with lower credit scores have seen their balances rise at a rapid rate – those with subprime scores have seen their average credit card debt rise more than 25% the past two years. Expectations are that credit card companies will be more proactive ahead and that could temper some of the credit card issuances, particularly for those with lower credit scores. That could be a cautionary signal for consumer spending ahead and consumer financial stability as well.
 


 

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