China Expected to Outlast U.S. in Trade War Battles

Posted on 08/07/2019 5:41 AM

U.S. tariff collections reach $63 billion | FSA software glitches continue

In today’s updates:

* China digs in to outlast the U.S. in trade war skirmishes.

* U.S. collected $63 billion in Chinese tariffs through June.
* An MFP 3 in 2020?
* FSA software glitches continue to stymie MFP 2 rollout.
* Block grants and the coming disaster aid package.
* A possible return to Payment-in-Kind (PIK) program?
* Ag groups: USDA’s new proposed rules for regulating biotech products ‘fundamentally flawed’.
* Orange County, Calif., turns blue.
* Pompeo hosts U.K. official with trade deal on agenda.
* Markets: Equities on Tuesday recovered some of Monday’s plunge.


— U.S./China trade policy update:

  • “The door is still open for additional negotiations,” Larry Kudlow, National Economic Council director, told reporters. “We are planning for the Chinese team to come here in September… That could lead to good things.” Kudlow told CNBC on Tuesday that the Trump administration wanted to continue talks with China and suggested that the president could adopt a flexible approach on tariffs. Trump last week said he would impose 10% tariffs on another $300 billion in Chinese products from Sept. 1. “The reality is we would like to negotiate,” Kudlow said. “We’re planning for the Chinese team to come here in September. Things could change with respect to the tariffs.”
  • Kudlow joined President Trump regarding the possibility of an MFP 3 or ag trade aid program should talks falter. “The farmers have been great,” Kudlow said. “They’re patriots. They’ve backed us 100%. God bless them. We’re helping them as much as possible. We will help them more if need be and we’ll see how the negotiations go.” President Trump earlier tweeted: “As they have learned in the last two years, our great American Farmers know that China will not be able to hurt them in that their president has stood with them and done what no other president would do — And I’ll do it again next year if necessary!”
  • Sources continue to signal that the second and third installments for MFP 2 payouts are virtually certain. USDA officials will not go this far, but software development for such payments are being planned.
  • Beijing believes it can wait for the tariffs to damage the U.S. economy and for the declining U.S. stock market to force President Trump into making concessions, according to officials and policy advisers cited by the Wall Street Journal. “The best retaliation is letting U.S. tariffs on China hurt the U.S.’s own economy,” said Yu Yongding, an economist and adviser to Chinese policy makers.
  • China countermeasure. Sharon Bomer Lauritsen, an assistant USTR, confirmed Tuesday during an appearance at a sweetener confab that China has declared “any sales occurring after Aug. 3 will no longer be exempt from those (Chinese) retaliatory tariffs.”
  • Chinese officials and state news outlets have accused President Trump of violating a truce the two countries reached in late June with his threats of additional tariffs on Chinese goods. “China’s consistent position is that we don’t wish to fight, but we don’t fear a fight, and when the time comes, we’d have no choice but to fight,” the Communist Party’s flagship newspaper, People’s Daily, said in a Tuesday commentary. “The U.S. shouldn’t harbor any illusions that those who break the faith and abandon righteousness can avoid paying the price.”
  • President Trump’s recent actions confronting China are “a big policy mistake. We get recession because of policy mistakes like this,” Allen Sinai, chief economist and strategist at Decision Economics, told the Washington Post. “China did not actively drive its currency down. It was a market-driven move.”
  • Beijing has decided not to bow to Trump’s demands over its economy and trade practices. “It is unlikely China will buckle to any further pressure as they are convinced dealing with the current U.S. administration means give them an inch and they want a foot,” said Charles Liu, a former economic negotiator with the Chinese delegation at the United Nations, to Bloomberg News. “There does not seem to be serious interest from the U.S. side of actually wanting to do a deal.”
  • U.S. collected $63 billion in Chinese tariffs through June. As of June 30, the U.S. gov’t has collected $63 billion in tariffs over the preceding 12 months, according to the latest Treasury data. And, tariffs are on the rise. The U.S. collected $6 billion in tariffs in June, up from $5.3 billion in May and $4.8 billion in April, after President Trump’s decision to raise levies on $200 billion in Chinese goods from 10% to 25%. The U.S. is now on a pace to generate $72 billion in tariffs annually, and could reach the $100 billion mark if threatened more tariffs on $300 billion of Chinese products are implemented Sept. 1. For every dollar brought in by the new tariffs, a dollar has been authorized to fund rescue programs for farmers who have been harmed by retaliation from China and other countries, according to the Wall Street Journal. The U.S. authorized $12 billion in farm rescue funds in 2018 and an additional $16 billion this year, for a total of $28 billion.
  • China forex reserves fall. China’s foreign exchange reserves fell to $3.104 trillion in July, down $15.54 billion from June, according to data from the People’s Bank of China. The country’s foreign exchange regulator said the decline was due to changes in foreign exchange rates and prices of assets. But the regulator also indicated that economic momentum will support stabilization of those forex reserves. The country also reported gold reserves rose to $88.875 billion at the end of July, up from $87.27 billion at the end of June.

— Software glitches continue for MFP 2 as signup for some is being bumped into early September. Farmers are noting more issues relative to implementing Market Facilitation Program 2 details, with county Farm Service Agency office staffers frequently giving different answers to detailed topics.  

One farmer in Illinoi said an issue he has will have to be manually calculated and “they do not know when and if software can fix this problem. That situation can really slow down getting signed up and paid.” He added, “Appears FSA system software is having trouble accumulating total eligible acres if farmer has interest in more than one county and is not recognizing increased farming acres from 2018 acreage (rented more land). That is affecting a lot of producers, so they better get it fixed.”

“We are looking into this,” a USDA official told Pro Farmer.

— Will block grants be part of coming disaster aid program rollout? It seems USDA officials are giving mixed responses to this query. Some say four states have already been approved for such grants, while others say no such grants will be made.  

— A possible return to Payment-in-Kind (PIK) program? Pro Farmer recently sat down with a veteran ag industry analyst who presented the following possible (likely worst-case) scenario in the year and years ahead:

-- The U.S./China trade war continues past 2020 elections and perhaps longer.

-- USDA’s Aug. 12 Crop Production report is bullish for both corn and soybeans and prices really.

-- Corn and soybean users begin what will be a record amount of imports from several countries, notably South America.

-- U.S. hog producers see other countries expanding pork production in hopes of long-term China needs. The countries include Brazil, Argentina, Ukrain and South Africa.

-- The U.S. Federal Reserve continues to lower interest rates.

-- The U.S. dollar appreciates as investors and others seek a safe haven. The development makes U.S. exports less competitive.

-- President Trump pushes the Treasury to intervene and print more dollars.

-- 2020-crop corn and soybeans get planted on time and weather is “more normal” which leads to trend-line yields and a big increase in carryover.

-- Corn and soybeans plummet from their 2019-crop highs.

-- While corn and soybean farmers are no longer using the loan program like they were at the time PIK first appeared, any coming plummet in prices would see loan entries increase, perhaps significantly, as farmers seek cash flow. And there are a lot of bushels that head to the ethanol industry that was non-existent when PIK was utilized. There are a couple other components now that are different. And we do have marketing loans… LDPs. If prices get to loan rate levels, farmers could LDPs and market grain.

-- To reduce the government’s cash payments to farmers and to avoid forfeitures of grain to the Commodity Credit Corporation, USDA could resurrect the Payment-in-Kind (PIK) program, which the Reagan administration implemented in 1983. Under the PIK program, instead of paying farmers with cash, the government paid them with certificates good for federal surplus grain (this assumes farmers would forfeit grain in the future). Farmers could then exchange the certificates for actual grain or trade them like stock certificates. PIK, combined with a drought in 1983, succeeded in reducing the cash cost of the deficiency payment programs and the excessive grain surplus.

-- This admittedly is a worst-case scenario that would play out over future years if the U.S. and world economic and ag supply situation gets bogged down. And this could well take place in 2021 or later. Others say it would take a major shift by producers to go back to using the loan program. Plus, the current crop insurance programs are far different than when PIK first surfaced.

— NGFA, other agribusiness groups say USDA’s new proposed rules for regulating biotech products ‘fundamentally flawed’. USDA’s new proposed rule for regulating plant-based agricultural biotechnology products, as drafted, is “fundamentally flawed” and could contribute to future trade disruptions, the National Grain and Feed Association (NGFA) and several other grain- and oilseed-based agribusiness associations said in a joint statement submitted on Aug. 6. “Our industry, and our farmer-customers emphatically need to avoid the costly trade disruptions that have been associated periodically with transgenic biotechnology,” wrote the NGFA, Corn Refiners Association, National Oilseed Processors Association, North American Export Grain Association and North American Millers Association. “If the U.S. government’s regulatory oversight approach to genome editing and other plant breeding innovation is out of step with the domestic food industry or America’s significant export markets, it will have perilous repercussions for the grain and oilseed value chain, including U.S. farmers.”

The groups stressed that they strongly support the use of biotechnology and plant-breeding innovation, including genome editing, for its role in providing an abundant, affordable and environmentally sustainable food, feed and energy supply for U.S. and global consumers. But the groups also stressed that a “cornerstone of U.S. agriculture’s competitiveness” is its ability to efficiently and cost-effectively market America’s agricultural abundance. “It is through this dual lens – support for technological innovation while ensuring the continued efficient marketability of crops in which it is used” – that the five organizations said the proposed rule needs to be viewed. 

Background. Under the proposed rule published on June 6, USDA’s Animal and Plant Health Inspection Service (APHIS) – which has authority to determine whether agricultural biotech traits pose a plant pest or noxious weed risk to the environment – would exempt most crops developed with gene-editing techniques from regulatory oversight. APHIS’s proposed rule states that such plants can be developed through traditional breeding techniques, making them unlikely to pose a greater plant pest risk than conventionally bred crops. The APHIS proposal also would empower crop developers to make a “self-determination” that their plant is exempt from APHIS regulatory oversight, without providing any notification to the agency. Under the proposed rule, technology providers would have the “option” to request written confirmation from APHIS that their self-determinations are valid.

The agribusiness organizations said such a broad self-determination approach “risks undermining consumer acceptance and international regulatory recognition of APHIS’s regulatory oversight.”

The organizations urged APHIS to amend its proposed rule to require all technology providers to notify the agency in advance before introducing gene-edited or other plant breeding innovation traits for commercialization – even those within APHIS’s expressly exempted categories – to provide needed transparency to the market and to consumers. Doing so would enable the agency to issue an official attestation that the trait does not pose a plant pest risk, “thereby providing an important tool to efficiently market U.S. agricultural products.”

Other items of note:

  • Orange County, California, longtime GOP stronghold, now has more registered Democrats than Republicans. “The county that nurtured Ronald Reagan’s conservatism and is the resting place of Richard Nixon is now home to 547,458 registered Democrats, compared with 547,369 Republicans, according to statistics released early Wednesday morning by the county Registrar of Voters.” Link to Los Angeles Times for details.

  • Secretary of state Mike Pompeo hosts U.K. foreign secretary Dominic Raab, who is likely to press the White House on the need for a quick post-Brexit trade deal.

  • African swine fever has spread to all of China’s provinces. Some 1.2 million pigs have been culled, according to official statistics. Unofficial reports suggest far more. While not harmful to humans, African swine fever is fatal for pigs. There is no vaccine or cure. And the extent of the epidemic may be worse than China’s authorities admit, according to the The Economist. “Outbreaks may go unreported because officials fear punishment from higher-ups. But concealing a problem is no way to solve it, and now it has gone global: having hit south-east Asia in recent months, the virus has spread to Europe. Bulgaria has slaughtered 130,000 pigs, blaming Romanian travelers. Poland and Lithuania are at risk, and Slovakia announced a new outbreak on a four-pig farm on Monday. Every pig in a 3km radius was culled.”

Markets. The Dow on Tuesday climbed 311.78 points, 1.2%, to 26,029.52. The S&P 500 added 37.03 points, 1.3%, to 2,881.77 and the Nasdaq rose 107.23 points, 1.4%, to 7,833.27. The Dow’s gain snapped a five-day losing streak for the index, while the S&P 500 and Nasdaq notched their first gains after six consecutive sessions of losses.


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