Senate Agriculture Committee Chairman Pat Roberts: “The Entire Food & Agriculture Value Chain Relies on Trade….Over the time that NAFTA has been in force, the total value of U.S. agriculture exports has increased from $43 billion to over $138 billion.”
Trade correspondent L.C. reports: President Trump says he is about to impose $200 bn. in new tariffs on the next tranche of targeted Chinese exports, though the interest rate may be 10%, not the 25% earlier contemplated. Nevertheless, Washington appears to be wary of the response — Chinese and domestic — to new US tariff escalation. Today’s Wall Street Journal reports that some Republican congressmen may lose their November races because of economic damage the administration’s trade policies are causing to their districts. Republicans want to campaign on the strong economy and don’t want actions taken that could disrupt the rosy picture. Thus, on September 11th, Treasury Secretary Steven Mnuchin sent an invitation to China to resume high-level trade talks. But China will reportedly “cancel talks if Trump moves ahead with tariffs,” Bloomberg reports.
The President added that he is preparing, at some later time, to slap tariffs on the rest of China’s exports to the US, worth another $267 billion.
Some analysts now say that they don’t see any path toward resolving the trade clash apart from direct talks between Presidents Trump and Xi Jinping. Such a summit is expected to take place during the late-November G20 Summit, but without the ground prepared in advance, even that top-level meeting wouldn’t have significant results.
The question would be just what China could offer. Previous offers to increase purchases from the US and change some joint venture requirements as well as an offer to trim excess steel capacity were rejected as inadequate, while the structural, market-oriented changes the US has demanded would be politically and economically difficult for Xi to commit to.
The US would have a stronger negotiating position for such structural changes if China were to be confronted with a united US-EU-Japanese-NAFTA united front. That is what China most fears, but the US President’s continuing trade battles with his allies are thwarting such a development.
Alarm on the farm
US officials were grilled by farm-state senators at a September 13th Senate Agriculture Committee hearing that revealed growing frustration and loss of patience with Administration trade policy. Senators of both parties noted the downturn in the farm economy and harm being done to farmers from a combination of the retaliatory tariffs to the US’s Section 232 and 301 tariffs and the loss of US competitiveness in foreign markets as other countries forge free trade agreements that provide greater access than is given to US exporters. As Sen. Joe Donnelly (D-IN) put it, “It seems like the light at the end of the tunnel is a train coming at my farmers.” And Sen. John Thune (R-SD) said, “The concern and anxiety level is continuing to rise in farm country. My impression is it seems to fall on deaf ears around here.”
Senators called for the US to make a greater effort to negotiate the promised bilateral free trade agreements (FTAs) while they also said the US should consider multilateral trade agreements including rejoining the Trans-Pacific Partnership (TPP).
Bipartisan dissatisfaction with Trump trade policy is considerable, and much of it comes from legislators who represent states won by the President in the last election. Administration officials were put on the defensive, with their main defense being that something has to be done about China’s transgressions. None of the senators disagreed with that – but what did that have to do with the administration’s trade wars with everyone else?
Administration officials said that the US is pushing hard for new trade deals. But many senators expressed skepticism about this claim, with Thune declaring, “I’ve heard that now for the last couple of years, since we decided to pull out of TPP, that we’re working on bilateral trade agreements. But I don’t see any evidence that we are.”
Several were especially miffed about the lack of progress toward a trade agreement with Japan. Senators Steve Daines, John Thune (R-SD), and Committee chairman Pat Roberts (R-KS) called for the US to rejoin the TPP. Thune asked Administration Chief Agricultural Negotiator Gregg Doud what the chances of this are, and he answered with a reply that didn’t satisfy them,
Sen. Michael Bennett (D-CO) pointed out that since Trump assumed office, 11 FTAs have been signed that don’t include the US, “opportunities we’ve missed to open new export markets that cause real concern for my farmers and ranchers.” Moreover, he said, “provoking a trade war with Mexico, Canada and the EU when the issue is fundamentally with China — and when the growth for all of our farmers and ranchers in the West is going to come from the Pacific Rim — seems insane.”
EU
USTR Lighthizer met with EU Trade Commissioner Cecilia Malmstrom in Brussels on September 10th for a session of the US-EU Executive Working Group created by Presidents Trump and Juncker at their July 25th meeting. The September 10th meeting appears to have gone well. This should be adequate for President Trump to retire his immediate threat of imposing tariffs on automotive imports, which is a key reason Brussels wanted these new talks.
However, it appears that a comprehensive deal along the lines of a full FTA is not in the works. The Europeans have, reportedly, pointed out that for an FTA to be World Trade Organization (WTO) compliant, it must cover “substantially all” trade, and that would mean tariff elimination in the automotive sector. Since President Trump has already rejected this – he won’t give up the US 25% truck/SUV duty – the idea of tariff-free trans-Atlantic trade that he had been touting as his end-goal is not something he wants and is off the table. Europe, for its part, doesn’t want agriculture included in the talks.
Japan
Japan has not responded directly to the threats lobbed by President Trump at Japan last week. The Abe government must still fend off pressure from the US to enter talks for a bilateral FTA, and calm tensions with the US enough to escape possible Section 232 tariffs on automotive trade. It does appear to have a strategy for doing so: it is greatly increasing its purchases of advanced US military technology – which it is not doing to placate Washington but to boost its defensive capabilities – and it is preparing to purchase much more US liquefied natural gas, some of which it will then sell to other Asian buyers, a good way to decrease the bilateral trade imbalance with the US.
G20 ministers agree: WTO needs reform
Group of 20 (G20) trade ministers reportedly spent much of their September 14th meeting in Mar del Plata, Argentina, discussing WTO reform. All apparently agreed the WTO needs reform. Follow-up is expected to take place at WTO headquarters in Geneva and several other venues that trade ministers will be attending this fall.
Click here to go to the previous Founders Broadsheet (“Why the Republican House is pushing ‘Tax Reform 2.0’”)
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