Washington Confronts Trade Policy Issues on Multiple Fronts

Posted on 04/16/2019 8:11 AM

Sanders discloses 10 years of tax returns

In Washington, it’s all about trade talks on several fronts. U.S. and China look to wrap up trade talks, European negotiators have received the green light to start trade negotiations with the U.S. after threatening each other with billions of dollars in new tariffs over an aviation dispute. The EU is trying to do its own limited deal with President Trump to address tariffs on industrial goods, but not including agriculture as U.S. officials desire. Japanese officials are in Washington for bilateral U.S. trade talks as Japan Prime Minister Shinzo Abe aims to avoid tariffs or quotas on auto exports and President Trump attempts to crack open Japan's agricultural market and reduce a $60 billion trade deficit.
     Presidential candidate Bernie Sanders (I-Vt.) has disclosed 10 years of tax returns, revealing that after his presidential bid, his income topped $1 million in 2016 and 2017, and put him within the top 1% of taxpayers. At a town-hall-style event hosted by Fox News, Sanders rejected the idea that his newfound millionaire status was a testament to capitalism and the “American dream.” During the session, Sanders refused to explain why he would not voluntarily pay his proposed 52% “wealth tax.” Ahead of the event, “Sanders released ten years of his tax returns,” which showed he and his wife “paid a 26% effective tax rate on $561,293 in income, and made more than $1 million in both 2016 and 2017. Asked “why he was holding onto his wealth rather than refusing deductions or writing a check to the Treasury Department,” Sanders replied, “I paid the taxes that I owe. ... And by the way, why don’t you get Donald Trump up here and ask him how much he pays in taxes? President Trump watches your network a little bit, right? Hey President Trump, my wife and I just released 10 years. Please do the same.”
     The world's third-richest man is pledging $226 million to help rebuild Notre-Dame. Bernard Arnault, the head of the family behind the French luxury conglomerate LVMH, who has a net worth of about $90 billion, has pledged 200 million euros ($226 million) to help rebuild Notre-Dame Cathedral after it was devastated by fire on Monday. The twin medieval towers of one of the most famous landmarks in Paris were saved, but its 300-foot spire collapsed and two-thirds of its roof was destroyed. The fire also endangered its vast collection of Christian relics and artwork.



— U.S./China trade policy update:

  • Negotiations over complaints that China has predatory technology policies were going "very well" and making good progress, according to Larry Kudlow, director of the National Economic Council.
  • President Trump reiterated that progress is being made toward a “very comprehensive” trade deal with China and emphasized helping farmers and ranchers “that have not been treated fairly by, really, the world.” But in remarks in Minnesota, Trump said the U.S. would emerge victorious regardless of the outcome. “We’re going to win either way. We’re either going to win by getting a deal, and we also win if we don’t get a deal,” he said.
  • Perspective: Trade policy sources stress that with the talks in the last 5% arena, news reports about tentative discussions should be taken with caution as both the U.S. and Chinese side are likely floating ideas through the media they know will take anything “new” on the topic.
  • Delays in China’s approval process for biotech crops has cost U.S. companies about $5 billion, according to an estimate from the trade group CropLife International, CNBC reports (link).
  • Some U.S. farmers fear they’ll be worse off under a potential U.S.-China deal than they were before the trade war, Bloomberg reports (link).

— China demand for Brazilian soybeans to remain stable: Reuters. China's demand for imports of Brazilian soybeans should remain stable, Yang Wanming, China's ambassador to Brazil, told Reuters in an interview. "I personally think there is no need to worry," he said, indicating that is his view regardless of whether a deal is cut between the U.S. and China. There has been concern in Brazil that current U.S./China trade discussions could negatively impact Brazilian soybean shipments to China which rose dramatically after China hit U.S. soybeans with tariffs.

Yang also said that Brazil could see more meat exports to China via high-level talks set for May. "We believe through the cooperation of both countries' agriculture ministries and quality inspection departments, more Brazilian farm and animal products can be imported into the Chinese market," Yang told Reuters. The news service said that up to 78 Brazilian meat plants could be added to the list of those approved to ship to China.

— U.S./Japan trade talks focus on goods, sticking with September negotiation commitment: Japan's Motegi. Three hours of trade talks between U.S. Trade Representative Bob Lighthizer and Japanese Economy Minister Toshimitsu Motegi were labeled "good and frank" and focused mostly on goods, according to remarks to Motegi to reporters after the session. He said the talks were focused on common ground to move the talks forward, and he pledged to reveal more from the discussions after a second round of talks today (Tuesday).

The talks ahead will follow the lines of the agreement between Prime Minister Shinzo Abe and President Donald Trump, an understanding that indicated the U.S. would not seek deeper tariff reductions on ag products than Japan has already agreed to via what was in the Trans-Pacific Partnership (TPP) agreement and the free-trade pact with the European Union (EU).

The pact with the U.S. will be a Trade Agreement on Goods (TAG), Motegi said, not a wider trade deal that could take in services and investment.

As for a currency component in the agreement that has been suggested by U.S. Treasury Secretary Steve Mnuchin, Motegi said that would be a matter for discussion between the two countries finance ministers, but some reports indicated the Japanese official indicated the two sides already have an agreement in that area.

Perspective: When talks are labeled “good and frank” that usually means not much of substance occurred and differences surfaced.

— Grassley: EU’s negotiating mandate could stymie deal with U.S. The European Union’s newly approved mandate for trade talks with the U.S. could lead to a deal that will be rejected by Congress because it doesn't include agriculture, said Senate Finance Chairman Chuck Grassley (R-Iowa). "Agriculture is a significant piece of the global economy and it simply doesn’t make sense to leave it out," said Grassley in a statement. The remarks came after EU member states approved a negotiating mandate for trade talks with the U.S. that excludes agriculture. Sen. Ron Wyden (D-Ore.), the top Democrat on Finance, also said leaving agriculture out would be unacceptable. “American farmers and ranchers are essentially locked out of vital markets due to high tariffs and regulatory barriers in the European Union,” he said Monday.

EU member states also insist any future deal needs to require Trump to eliminate the tariffs he imposed last year on EU steel and aluminum products. They also have threatened to suspend talks if he imposes tariffs on EU autos and auto parts.

EU trade chief Cecilia Malmström said Monday she wants to finalize negotiations before the end of this European Commission, which is in office through October.

President Trump made clear on Monday a deal must open the EU to U.S. farmers and ranchers. “They barely take our agricultural products and yet they can sell Mercedes-Benz and they can sell anything they want in our country including their farm products, and it’s not fair,” he said at an event in Minnesota. He warned that he would “tariff” EU cars. “You can’t treat our farmers that way.”

There is not even agreement within the EU about talks with the U.S. France and Belgium refused to support a new round of trade negotiations.  Trade measures normally pass unanimously. French and Belgian officials cited climate change, and specifically the U.S. withdrawal from the Paris climate accord, as an objection.

Perspective: Most trade policy sources expect lengthy talks and contentious moments if the EU does not include agriculture eventually in the talks. If ag is excluded, the focus will be on whether President Trump not only threatens auto tariffs on the EU, but officially announces them.

— Trump administration misses deadline on currency manipulation report, failing to meet the April 15 deadline for the semiannual report on currency practices by major U.S. trading partners. Administration officials did not give any indication as to when the report would be released.

China, Japan, South Korea and Germany have all been on a "monitoring list" since the Obama administration, and no country has been labeled a currency manipulator. Taiwan had been on the monitoring list, but has been removed. Switzerland was added to the list by the Obama administration in October 2016, and the Trump administration put India on that list in April 2018.

— President Trump’s aggressive and unpredictable trade policy style has brought other countries to the negotiating table. But his approach is causing concern among business groups and foreign officials, with many wondering if it will undermine the United States’ traditional role in setting global trade rules, hampering economic growth in the process, according to a New York Times article (link). “Because he is so unpredictable, you are not sure he’ll stick to anything,” said Maryscott Greenwood, chief executive of the Canadian American Business Council.

Trump keeps threatening auto tariffs on several countries, including Mexico, Canada, Japan and the EU, despite prior commitments to not do so for some of those countries. In an interview with a Mexican radio station this month, Jesús Seade Kuri, the undersecretary for North America at the Mexican foreign ministry, laughed off the threat of auto tariffs. “That is being talked about,” he said, chuckling. “The art of the threat.”

— China shifts gears and will allow large farms to test for ASF. China ag ministry has announced it is now encouraging large hog farms to test for African swine fever (ASF) in a shift in policy that is aimed at boosting early detection of the virus. Previously commercial farms were barred from conducting their own testing, putting the testing in the hands of government agencies. The agency said the test kits should be approved by either the ministry or the China Animal Disease Control Center. Funding to farmers for the testing and local animal husbandry departments should help with technical services, the agency noted.

The ministry has insisted ASF is under control, but in announcing the shift the agency said "the awareness of epidemic prevention in pig farms in China is generally weak" and that the "overall level of epidemic prevention is low, and the cleaning and disinfection measures are difficult to fully implement."

— U.S. wheat industry reps in Brazil to discuss tariff-free import quota. Representatives of the U.S. wheat industry are in Brazil this week to talk about demand once the tariff-free quota of 750,000 tonnes is opened by Brazil. The U.S. group met with the president of Brazil's wheat milling association Abitrigo, Rubens Barbosa. "They know Brazil will continue to import significant amounts of wheat in coming years, and they want to increase their share of that market," he commented, adding the group supports the import quota since it will provide the industry access to greater supply at lower prices.

No date has been set for implementation of the quota that will cover wheat from all sources, but Barbosa noted the government is working on the regulation. The U.S. is expected to hold some competitive advantage under the quota, but Russia has been making overtures to Brazil as a wheat supplier, which could be a factor.

— Growing problem for corn usage: lower gasoline consumption means less ethanol usage. With gasoline consumption plateauing and projected to fall in the decade ahead, economist Scott Irwin of the University of Illinois says the impact will be felt by U.S. corn producers. Around 38% of the U.S. corn crop — in 2018, 5.5 billion bushels — is used in making ethanol. If gasoline consumption drops 18% by 2030, as projected by a DOE agency, the market for corn for ethanol could shrink by 930 million bushels, Irwin noted in a farmdoc daily blog.

Other items of note:

  • Robert Mueller's report expected Thursday. Attorney General William Barr expects to provide the special counsel's report on Russian meddling in the 2016 election later this week, likely Thursday, the first step in what promises to be a protracted fight with Democratic lawmakers over how much of the document they are allowed to see. The House Judiciary Committee authorized its chairman to subpoena the complete report. Washington’s attention will focus most on what the report says about obstruction of justice as Barr’s summary said the report gave no grounds to pursue charges against President Trump. Meanwhile, the Internal Revenue Service (IRS) is facing an April 23 deadline to hand over Trump’s tax returns to House Democrats. But the president’s personal lawyer claims that the move would turn the IRS into a political weapon.

  • Deutsche Bank subpoenaed over Trump business. Congressional investigators have subpoenaed Deutsche Bank as House Democrats step up their probes into President Trump and his longtime lender. The subpoenas from the House Intelligence and Financial Services committees mark an escalation of Democratic-led probes into Trump's business dealings. The committees also subpoenaed multiple other financial institutions, including JPMorgan, Bank of America and Citigroup as part of their investigations.

  • Midwestern climate change confab. Officials from Illinois, Michigan, Minnesota and Wisconsin will meet in Chicago to explore options for regional cooperation on combatting climate change. All four states elected Democratic governors in 2018 who campaigned in part on ramping up low-carbon energy, with three of the four unseating Republican administrations. The meeting is being convened by a series of environmental groups, including the Natural Resources Defense Council and the League of Conservation Voters.

  • Next week, the Supreme Court will consider whether the Trump administration may add a question about citizenship to the 2020 census. If the question is added, it could lead to a possible decrease in participation.

Markets. The Dow on Monday lost 27.53 points, 0.10%, at 26,384.77. The Nasdaq declined 8.15 points, 0.10%, at 7,976.01. The S&P 500 edged down 1.03 points, 0.06%, at 2,905.58.

Fed should target an inflation range: Boston Fed President Rosengren. The Fed should shore up its ability to fight economic downturns by committing to let inflation run above 2% "in good times," according to Boston Fed President Eric Rosengren. "My own preference would be an inflation range of 1.5%-2.5%" because hitting the current target will only get harder with rates as low as they are, he said at Davidson College in North Carolina. "Even though we're only missing by a little bit it actually does matter if you miss by a little bit on a regular basis." Rosengren said “It appears that the 2% inflation goal has essentially acted more like a ceiling” for price rises. "We might be forced to accept below-2% inflation during recessions, but we would commit to achieving above 2% inflation in good times, so as to provide more policy space to counteract the next recession,” Rosengren stated. The current voter on monetary policy, however, did not tip his hand on the path for interest rates in his remarks. Inflation — or the lack thereof — has been one area that has confounded Fed officials and has factored into the expectation there is not a need to increase rates in 2019.

Chicago Fed's Evans confident in U.S. economy, sees potential for rate decrease. The U.S. economy could still perform in a manner this year that could prompt the Fed to increase interest rates one time in the latter half 2020, Chicago Fed President Charles Evans said in an interview with the Wall Street Journal. But he also signaled conditions could warrant a rate decrease, depending on the economic data. Evans said, "I do have the expectation that towards the fall of 2020 we have one rate increase, and one more rate increase the following year." He labeled the current Fed funds rate target of 2.25% to 2.5% "about neutral," saying that gives the Fed options. The current Federal Open Market Committee (FOMC) voter put a special focus on inflation. "Anything that’s sustainable that looks like it’s moving downward, not upward, I would be extremely nervous about and I would definitely think about taking out insurance in that regard,” Evans said. However, he noted that should inflation run "too low," that would be a "justification for deciding our setting for monetary policy is actually restrictive and we need to make an adjustment downwards in the funds rate." He identified 1.5% core inflation as being a potential target for prompting a rate decline. Evans comments are perhaps not a unified view on the Fed, but he is in line with a majority who do not see a need to raise rates this year, and opening the door to a rate decline could be an important signal.


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