Agreement Reached on Top-Line Allocations for 12 Federal Funding Bills

What farmers are asking & saying | Ag Trade Caucus formed amid growing tensions over U.S. trade policy

Jim Wiesemeyer

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January 29, 2024 08:18 AM

What farmers are asking & saying | Ag Trade Caucus formed amid growing tensions over U.S. trade policy

Today’s Digital Newspaper

MARKET FOCUS

A packed week of earnings reports; about one-fifth of S&P 500 and Dow will report
Traders & analysts continue to debate how often Fed will cut rates this year
Malanga: Government expects slower GDP growth and low inflation; rate cuts ahead
Oil prices volatile
Average price for gallon of gas in U.S. is currently $3.10
IRS begins accepting and processing federal income tax returns for 2023
Ag markets today
What farmers are saying and asking
Indonesia indicates its intention to import significant quantity of cattle and beef
Cold snap helps India’s wheat crop, but warm weather forecasts pose risk
Ag trade update
NWS weather outlook
Pro Farmer First Thing Today items

CONGRESS

Negotiators reach deal on top-line allocations for 12 annual gov’t-funding bills
House returns with potential votes on tax and immigration-related measures
Biden officials face questions on proposal to remove four lower Snake River dams

ISRAEL/HAMAS CONFLICT

Joe Biden faces pressure to confront Iran after an attack on a U.S. base
Israeli army says special forces continuing to engage in ‘intensive battles’ in Gaza

RUSSIA & UKRAINE

EU mulls economic pressure on Hungary over Ukraine aid Veto and NATO block
Zelenskyy, Ukraine’s president, released details of his income

CHINA

Court orders Evergrande, a Chinese property giant, to liquidate due to its debt
Chinese Embassy in U.S. warned students to be careful
China’s industrial profits fell 2.3% in 2023

TRADE POLICY

Bipartisan Ag Trade Caucus formed amid growing tensions over U.S. trade policy
Poll: Rural voters largely support free trade agreements and oppose barriers to trade
WSJ: European officials concerned about America’s protectionist stance on trade

ENERGY & CLIMATE CHANGE

Biden moving aggressively on energy and environment rules before Nov. 5 elections
U.S. oil drillers shift to grid power, straining grid capacity

MARKET FOCUS

— Equities today: Asian stock markets were mostly up, and European stock markets were mixed overnight. U.S. stock index futures are set to open mixed. In Asia, Japan +0.8%. Hong Kong +0.8%. China -0.9%. India +1.8%. In Europe, at midday, London +0.3%. Paris flat. Frankfurt -0.4%.

A Philadelphia jury ordered Bayer to pay $2.25 billion in damages in the latest in a series of lawsuits over its Roundup weed killer. The German drug and pesticide maker’s stock fell about 5%. Bayer said it would appeal. More on this in The Week Ahead (link).

U.S. equities Friday: The Dow gained 60.30 points, 0.16%, at 38,109.43. The Nasdaq lost 55.13 points, 0.36%, at 15,455.36. The S&P 500 was down 3.19 points, 0.07%, at 4,890.97.

For the week, the Dow was up 0.7%, the Nasdaq rose 0.9%, and the S&P 500 rose 1.1%.

Earnings reports this week include:

Monday: Whirlpool and Nucor.
Tuesday: General Motors, United Parcel Service, Sysco, Pfizer, Alphabet (GOOG), Microsoft, Starbucks, Mondelez International, and Advanced Micro Devices.
Wednesday: Phillips 66, Boeing, Mastercard, MetLife, and Qualcomm.
Thursday: Merck, Honeywell, Altria, Amazon, Apple, Meta Platforms, Royal Caribbean Cruises, and Post Holdings.
Friday: Exxon Mobil, Chevron, AbbVie, and Charter Communications.

— Ag markets today: Corn, soybeans and wheat faced increased selling pressure during overnight price action and are trading near session lows this morning. As of 7:30 a.m. CT, corn futures were trading 2 to 4 cents lower, soybeans were 6 to 8 cents lower and wheat futures were 7 to 12 cents lower. Front-month crude oil futures were trading just above unchanged, and the U.S. dollar index was more than 100 points higher.

Bullish cash cattle hopes. Packers raised cash cattle bids last week and traders anticipate firmer cash prices again this week as plants try to normalize slaughter schedules following holiday- and weather-related delays. Packers are still thought to be short bought on near-term needs, though fresh availability of contract supplies with the flip of the calendar could somewhat limit their demand for cash cattle.

Cash hogs continue steady climb, pork prices stabilize. The CME lean hog index is up another 23 cents to $69.90 as of Jan. 25, extending the slow and steady seasonal climb this month. February lean hog futures finished Friday just over $5.00 above today’s cash quote. Wholesale pork prices firmed 60 cents on Friday to $89.51 and have stabilized in the upper $80.00 range after failing to sustain last Monday’s push above the $90.00 level.

— Agriculture markets Friday:

Corn: March corn futures lost 5 1/2 cents before settling at $4.46 1/4 but marked a 3/4 cent gain on the week.
Soy complex: March soybeans fell 13 3/4 cents to $12.09 1/4 and gave up 4 cents on the week. March soymeal plunged $9.20 to $349.00 and lost $7.50 week-over-week. March soyoil rose 40 points to 46.93 cents and gained a paltry 3 points on the week.
Wheat: March SRW wheat futures fell 12 cents to $6.00 1/4 and nearer the session low. For the week, March SRW rose 7 cents. March HRW wheat dropped 12 1/4 cents to $6.24 3/4 after hitting a new high for the month early on. For the week, March HRW gained 16 3/4 cents. March spring wheat futures fell 5 1/2 cents to $7.03 1/2 but picked up 8 cents on the week.
Cotton: March cotton plunged 139 points to 84.37 cents but picked up 42 points on the week.
Cattle: April live cattle futures rose 97 1/2 cents to $181.675, nearer the session high and hit a 2.5-month high. For the week April cattle gained $4.30. March feeder cattle futures gained $1.525 to $239.70, near mid-range and hit a 2.5-month high. For the week, March feeders rose $7.75.
Hogs: Hog futures continued their rally into the weekend, although nearby futures backed away from daily highs. Expiring February futures rose 62.5 cents to end the week at $74.925, which represented a weekly rise of $4.175. Most-active April futures climbed 70 cents to $83.25, marking a weekly gain of $5.10.

— Quotes of note:

Interest rate cuts: 6 vs 3. The CME’s FedWatch tool projects as many as six rate cuts by December. David Wilcox, a senior fellow at the Peterson Institute for International Economics, said the fight to bring inflation down to 2% has been “maybe completely won.” Wilcox expects six quarter-point reductions this year. Wednesday’s FOMC gathering won’t include a dot plot, but the last one released in December indicated three rate cuts (or by 0.75 percentage points) in 2024.
Shifting to a neutral bias doesn’t automatically mean the Fed will cut rates soon, Macquarie’s Thierry Wizman, global FX and interest rates strategist, told MarketWatch. He said the Fed has very good reasons to push the first rate cut to June.
Fed officials meeting this week face a conundrum. Price pressures have abated more than expected. That means real interest rates, which adjust for inflation, have risen and might be restricting economic activity too much, writes WSJ Fed reporter Nick Timiraos (link).

— Malanga: Government expects slower GDP growth and low inflation; rate cuts possible in the future. The government last week reported that in the final quarter of last year, real GDP (Gross Domestic Product) growth was at a rate of 3.3%, while inflation was at a rate of 1.5%. This growth was primarily driven by government spending and inventory investment. However, expectations for the current quarter suggest slower economic growth and continued low inflation.

Dr. Vince Malanga, president of LaSalle Economics, says the report suggests that the high nominal GDP growth of nearly 5% observed in the past is unlikely to be sustained unless productivity growth remains strong. Productivity growth exceeded its usual trend in the last quarter. Additionally, Malanga notes, softness in commodity prices and favorable yearly comparisons are expected to lead to a gradual decline in inflation, particularly in the spring. However, challenges may arise in the following periods, he adds.

Malanga notes the possibility of the Federal Open Market Committee (FOMC) considering a rate cut in March if labor market weakness becomes apparent. Although jobless claims have been surprisingly low recently, he says significant job cuts have been announced in various industries over the past two weeks, which could influence the FOMC’s decision.

Malanga anticipates that the FOMC this week is likely to maintain its current monetary policy while hinting at the possibility of rate cuts closer to the election. He signals that policymakers may consider tapering or ending the Fed’s quantitative tightening (reducing its balance sheet) earlier than scheduled. This move, he says, could help ease market congestion and provide liquidity to the economy, benefiting financial markets and corporate debt rollover.

On the fiscal side, Malanga details that the Biden administration has been active, with various initiatives, including student debt forgiveness, funding for plant modernizations, support for electric charging stations, and infrastructure projects. This government spending is expected to continue throughout the year.

In conclusion, Malanga believes that the FOMC may choose to adjust its quantitative tightening policies rather than cutting interest rates, but some rate cuts may still be implemented to align with market expectations. Combined with government spending, these measures are expected to support the economy through the year, barring any external shocks. Malanga suggests a range of 3.75% to 4.25% for the ten-year treasury yield, with short-term rates gradually decreasing to create a positive slope in the interest rate yield curve. However, he warns that concerns about inflation and capacity constraints may arise in the following year due to the economic stimulus in place.

— What farmers are saying and asking:

1. Commodity outlook: With all the meetings they go to, corn and soybean producers are hearing bearish outlook presentations from nearly every presenter.

2. A lot of corn and soybeans are still unsold. Some big piles of corn in some states (notably South Dakota) are evidence of this.

3. There is concern about what happens to the 2017 Trump tax cuts that mostly expire at the end of 2025. Some say they would be impacted if the estate tax exemption were halved from the present level, among other impacts.

4. Growing concern about the trade policy of the current Biden administration and what Trump says he will do relative to across-the-board tariffs to all exporting nations if he returns to the White House. Disgruntlement about the existing Biden administration trade policy focused on farmers saying it does not do much to increase market access for U.S. farm products. Of note: A bipartisan Ag Trade Caucus has been formed amid growing tensions over U.S. trade policy (see related item under Trade Policy).

5. Another trade issue of concern is China: Farmers think that whoever wins the White House, both parties will ramp up sanctions/tariffs on China, leading to a new trade war. They are extremely concerned about the future if China “deals” with Taiwan in some type of takeover.

6. Crop insurance: Although some crop insurance agents seem to be pushing ECO and less so SCO as crop insurance add-on(s), farmers think the ratios to get them are still too robust. But it appears ECO would benefit some Midwest farmers this year. This could have a farm bill impact in the future if premiums are decreased for these crop insurance options.

7. If Trump is the new president, there is ample farmer interest in who will be his vice president. There is hope it will be someone familiar with ag sector issues.

8. SAF: Corn producers are focused on whether corn-based ethanol will be an eligible feedstock for producing Sustainable Aviation Fuel (SAF). A final decision on this by the Treasury Dept. is expected this March.

9. Interest rate outlook is asked by most farmers. They want to know when rates are coming down and how aggressively, but are planning on lower borrowing costs for 2025 crops and livestock operations.

10. Increased regulations are a growing concern both at the federal (EPA) and state level. Farmers are notably more concerned about this should Democrats keep control of the White House, faring more restrictions on the use of pesticides and other inputs.

11. Digital dollar. Some ag sector interest in when the Fed will approve a digital dollar and the implications of this.

12. The growing U.S. debt brings questions of how it will be dealt with ahead and how that will impact farming operations and farm programs.

13. Farmers indicate they are pulling back on machinery purchases, having updated needs in recent years.

14. Regarding Nov. 5 elections, farmers and ranchers not only want to know who will win it, but what the implications to the ag sector are relative to who controls the White House, House and Senate.

— The IRS has commenced accepting and processing federal income tax returns for 2023. The standard filing deadline for most individuals is April 15. If you anticipate receiving a refund, which is the case for most taxpayers, the IRS typically issues refunds within 21 days after accepting your return. To expedite your refund, financial experts recommend the following steps:

Ensure your tax return is filled out accurately and completely.
Electronically file your return, as it speeds up the processing.
Choose “direct deposit” as your preferred method for receiving the refund.

It’s also advisable to review common and costly tax return mistakes that the IRS frequently encounters to help guarantee a swift refund payment.

Market perspectives:

— Outside markets: The U.S. dollar index was higher, with the euro, yen, and British pound weaker against the greenback. The yield on the 10-year U.S. Treasury note fell, trading around 4.11%, with a negative tone in global government bond yields. Crude oil futures turned lower ahead of U.S. trading after initial advances on Middle East uncertainties. U.S. crude was trading around $77.70 per barrel and Brent around $82.65 per barrel. Gold and silver futures were up, with gold around $2,028 per troy ounce and silver around $23.15 per troy ounce.

— Oil prices are volatile after a drone strike by Iran-backed groups in Syria and Iraq killed three U.S. service members in Jordan. Front-month March Brent crude rose to as high as $84.80/bbl, while U.S. WTI crude climbed to $79.10/bbl. Oil then eased off earlier gains.

— Average price for a gallon of gas in the U.S. is currently $3.10, a noticeable decrease from the record high of $4.67 in the fall of 2022. However, gas prices vary significantly across states, with California’s average price at $4.49, mainly due to factors like environmental regulations, higher taxes, and a declining number of regional refineries. Hawaii is the only state with even higher gas prices than California, largely due to its geographical isolation. Despite escalating violence in the Middle East, analysts predict that gas prices in the rest of the country will remain relatively stable. This is because certain economic factors, such as reduced demand in countries like China and Germany and an ample supply of oil and gas, are currently outweighing concerns about the Middle East’s instability.

— Indonesia is indicating its intention to import a significant quantity of cattle and beef due to an anticipated surge in demand that will surpass domestic production capacity. The country’s Agriculture Ministry reports that beef demand is projected to reach 720,375 metric tons, while domestic production is expected to be only 422,649 metric tons. Australia is expected to be the primary source of cattle for these import plans, with potential beef imports also coming from Australia, Brazil, and India, among other suppliers.

— Cold snap helps India’s wheat crop, but warm weather forecasts pose risk. An extended cold spell helped India’s wheat crop during its vegetative growth, but a rise in temperatures expected in the next few days, could impact the crop during the crucial grain formation stage. “Because of cold weather we’re expecting a little better yield than normal 3.5 tons per hectare, and that’s why we’ll easily achieve the production of the target of 114 million metric tons,” Gyanendra Singh, the director of the state-run Directorate of Wheat Research, told Reuters. Although India’s fertile plains have seen a chilly winter, a lack of snowfall in the mountainous regions has raised concerns of a sudden, abrupt rise in temperatures. Both minimum and maximum temperatures in northern and north-western states have started to rise, an official of the state-run India Meteorological Department said. In February, maximum temperatures could be 5 degrees Celsius above normal in Punjab, Haryana and Rajasthan states, part of India’s grain belt, he said. Weather during the next eight weeks will determine the crop size.

— Ag trade update: South Korea tendered to buy 100,000 MT of U.S. or Australian milling wheat. Jordan tendered to buy up to 120,000 MT of optional origin milling wheat. Turkey tendered to sell and export 150,000 MT of durum wheat. Egypt tendered to buy at least 20,000 MT of optional origin white, wholly milled short grain rice.

— NWS weather outlook: Light snow over parts of the Great Lakes and the Central Appalachians... ...Light rain over parts of the Pacific Northwest and Northern California... ...Temperatures will be 10 to 20 degrees above average over parts of the Northern/Central Plains into the Upper Midwest.

Items in Pro Farmer’s First Thing Today include:

• Grains solidly lower to start the week
• Crop stress will build in Argentina, mixed bag for Brazil
• Brazil’s soybean harvest continues rapid pace
• Egypt temporary suspends wheat futures trade

CONGRESS

— House and Senate negotiators have reached a deal on top-line allocations for the 12 annual government-funding bills, Bloomberg reports, citing three people familiar with the discussions, an agreement that allows lawmakers to start negotiating the details of a spending package for fiscal year (FY) 2024. Sen. Patty Murray (D-Wash.) and Rep. Kay Granger (R-Texas), the Appropriations Committees chairs, had been negotiating the funding amounts since a Jan. 7 agreement on high-level defense and non-defense levels. Congress faces funding deadlines on March 1 and March 8. The agreement was first reported by Congressional Quarterly on Saturday.

Four bills, comprising about 20% of discretionary funding (including USDA), face a March 1 deadline. The other eight bills, comprising about 80% of funds, have a March 8 deadline.

— House of Representatives is returning with potential votes on tax and immigration-related measures. These measures include a bipartisan tax package aimed at renewing business tax breaks and enhancing the child tax credit (see The Week Ahead, link, for details on this topic). The House Rules Committee is also meeting to set the terms for the floor debate on various immigration-related bills, including those that address penalties for individuals fleeing federal officers with a motor vehicle, deportation of noncitizens who drive under the influence or commit identity fraud, and blocking immigration benefits for those involved in the Oct. 7 attack on Israel by Hamas.

Of note: These immigration discussions are occurring while senators are negotiating a bipartisan package to overhaul U.S. border and immigration policies, along with providing additional aid to Ukraine and Israel. Speaker Mike Johnson (R-La.) has expressed skepticism about the emerging plan’s chances in the House (see more on this in The Week Ahead). Donald Trump in recent weeks has tried to kill the bipartisan legislation, in part, because he wants to campaign on the issue this November and doesn’t want President Biden to score a victory in an area where he is politically vulnerable. Components of the deal include a new authority that allows the president to shut down the border between ports of entry when unlawful crossings reach high levels, reforming the asylum system to resolve cases in a shorter timeframe and expediting work permits.

The House also plans to address eight measures under the suspension of the rules, which necessitates a two-thirds majority for passage. These measures include extending overtime pay for Secret Service agents and reviewing the potential national security risks posed by the lowest-cost procurement process.

The House is scheduled to be in session from today through Thursday, according to Majority Leader Steve Scalise’s (R-La.) weekly schedule.

— Biden administration officials will face questions on a proposal to remove four lower Snake River dams in the Pacific Northwest. Officials from the Energy Department, Council on Environmental Quality, and NOAA have been confirmed to appear at an Energy subcommittee hearing tomorrow.

ISRAEL/HAMAS CONFLICT

— Drone attack kills three U.S. troops; Biden vows revenge. A drone attack on a base in Jordan killed three U.S. troops on Sunday, and at least 34 others were injured, with President Joe Biden blaming Iran-backed militants and vowing to hold the perpetrators to account. It is the first time U.S. military personnel have been killed by hostile fire in the Middle East since the start of the Israel-Hamas war, and the incident will further raise tensions in the region and fuel fears of a broader conflict directly involving Iran. Hamas said the death of the soldiers shows Washington’s backing for Israel could put it at odds with the whole Muslim world if the Gaza war continues.

A spokesman for Iran’s Foreign Ministry, Nasser Kanaani, said at a news conference on Monday that the militias “do not take orders” from Iran and act independently to oppose “any aggression and occupation.” He said that accusations that Iran had ordered the strike were “baseless,” and blamed Israel and the United States for fueling instability in the region.

“We don’t want to go down a path of greater escalation that drives to a much broader conflict within the region,” Gen. Charles Q. Brown Jr., the chairman of the Joint Chiefs of Staff, said on Sunday. Asked in a prerecorded session on ABC News’s This Week whether he thought Iran wanted war with the United States, General Brown, echoing assessments from the U.S. intelligence agencies, said, “No, I don’t think so.”

“We must respond to these repeated attacks by Iran and its proxies by striking directly against Iranian targets and its leadership,” said Senator Roger Wicker of Mississippi, the top Republican on the Armed Services Committee. “The Biden administration’s responses thus far have only invited more attacks.”

House Armed Services Committee Chair Mike Rogers (R-Ala.) said Biden’s “fear of escalation has morphed into a doctrine of appeasement.”

Senate Minority Leader Mitch McConnell (R-Ky.) said Biden has been resorting to “hesitation and half-measures” in response to the recent growing spate of attacks. ““The entire world now watches for signs that the president is finally prepared to exercise American strength to compel Iran to change its behavior. Our enemies are emboldened. And they will remain so until the United States imposes serious, crippling costs — not only on front-line terrorist proxies, but on their Iranian sponsors who wear American blood as a badge of honor.”

Satellite view of U.S. military outpost in Jordan where a drone attack killed three American service members.

— The Israeli army on Sunday said special forces were continuing to engage in “intensive battles” in Gaza, where it said troops eliminated “terrorists and located large quantities of weapons.”

RUSSIA/UKRAINE

— EU mulls economic pressure on Hungary over Ukraine aid Veto and NATO block. The European Union (EU) is reportedly considering measures to exert economic pressure on Hungary if it continues to veto a €50 billion aid package for Ukraine. The Financial Times reports (link/paywall) that EU member states may coordinate efforts to negatively impact investor sentiment and target Hungary’s currency. These actions are seen to pressure Hungary’s Prime Minister, Viktor Orban, who is perceived as having pro-Russian leanings.

Besides the aid package issue, Hungary is also the sole country blocking Sweden’s bid for membership in NATO. These developments highlight ongoing tensions within the EU over Hungary’s foreign policy positions and its alignment with Russia, as well as broader geopolitical considerations involving Ukraine and NATO membership.

— Volodymyr Zelenskyy, Ukraine’s president, released details of his income over the past two years as part of a campaign to tackle corruption. On Saturday Ukraine’s security service announced that it is investigating officials in the ministry of defense and staff at an arms manufacturer accused of stealing $40 million, which should have been spent on mortar shells. This is one of the reasons some Republicans in the U.S. Congress are asking the Biden White House for a detailed list of where and how all the money U.S. taxpayers have sent to Ukraine has been utilized.

CHINA UPDATE

— Chinese Embassy in the U.S. warned students to be careful when flying through Washington Dulles International Airport, where it said “many” were interrogated or sent back to China.

— The troubled Chinese real estate giant, Evergrande, has received an order to undergo liquidation, marking a significant setback for China’s struggling property sector and potentially impacting the country’s second-largest economy. Court-appointed liquidators will oversee the company’s management and sell its assets to repay its debts. Upon completion of this process, Evergrande, which was once China’s second-largest real estate firm, will cease to exist.

This development comes amid various economic concerns in China, including a sharp decline in the real estate market, worries about deflation, mounting debt, a declining birthrate, a shrinking workforce, and Beijing’s shift towards ideology-driven policies that have unsettled the private sector and deterred foreign companies from operating in the country.

— China’s industrial profits fell 2.3% in 2023. Profits at China’s industrial firms fell 2.3% in 2023, their second straight yearly decline, due to sluggish demand at home and abroad. Last year’s profit decline was chiefly due to sharply lower factory-gate prices, driven by over-capacity in some industries, economist Nie Wen at Hwabao Trust in Shanghai told Reuters. Industrial profits will likely rise by between 5% and 6% this year, as a slight improvement in demand and historic lows in inventories in China, Europe, U.S. and Japan will lead to a rebound in industrial prices, Nie said. There were some signs of improvement at the end of the year. For December, industrial profits rose 16.8% from a year earlier, down from a 29.5% jump in November but showing gains for a fifth straight month.

TRADE POLICY

— Bipartisan Ag Trade Caucus formed amid growing tensions over U.S. trade policy. A bipartisan group of lawmakers is establishing an agricultural trade caucus to advocate for open markets, especially as concerns regarding the future of trade policy grow in both political parties. This move is in response to a recent survey conducted by data firm Morning Consult and advocacy group Farmers for Free Trade, which found that around 30% of rural voters believe Congress should have a greater role in shaping U.S. trade policy. This sentiment is shared by 36% of 2020 Biden voters and 25% of 2020 Trump voters. Only 12% of respondents think Congress should have a smaller role, while the majority, 60%, believes that Congress’s role in trade policy should remain roughly the same.

Some members of the House see an opportunity for congressional action on agricultural trade, particularly in the absence of new free trade agreements from the Biden administration. For instance, Rep. Adrian Smith (R-Neb.) has advocated for the renewal of trade programs that can temporarily reduce certain tariffs, stating that “with the administration asleep at the wheel on trade, Congress must step up.”

The Ag Trade Caucus will include Reps. Jim Costa (D-Calif.), Dusty Johnson (R-S.D.), and Jimmy Panetta (D-Calif.), in addition to Rep. Adrian Smith, and it will be officially announced on Wednesday.

President Joe Biden has faced criticism for not pursuing new free trade agreements. Farmers for Free Trade is pushing for more open markets for U.S. agricultural products, with 61% of the surveyed rural voters expressing the view that Washington should be doing more to support U.S. farm exports. Biden, however, has emphasized a focus on “worker-centered trade” to ensure the benefits of trade without offshoring American jobs. USDA has highlighted its efforts to open new agricultural export markets through trade missions to countries like Kenya.

The survey also revealed that rural voters largely support reducing tariffs and negotiating trade deals with other countries. Most respondents favored a hypothetical presidential candidate who would reduce tariffs and negotiate trade deals over one who would increase tariffs and negotiate less. This issue of trade policy is becoming increasingly divisive in both Democratic and Republican ranks, with debates over whether the advantages of free trade agreements outweigh the disadvantages. These debates are expected to continue as politicians seek to appeal to rural voters in the 2024 elections.

While free trade agreements used to enjoy bipartisan support, there is now a growing isolationist faction within the Republican party and skepticism on the left regarding the impact of globalization on American workers. The Biden administration is seen as shifting away from pursuing free trade agreements and focusing more on domestic manufacturing.

Populists on both the left and right worry that globalization may harm American workers as jobs in sectors like manufacturing disappear. They acknowledge that free trade agreements can lower the cost of goods but often at the expense of US labor.

The most recent free trade agreement, the U.S.-Mexico-Canada Agreement (USMCA), received bipartisan support and took effect during the Trump administration. However, Trump’s trade policies, which included a trade war with China involving tariff increases, were seen by some as causing job losses in the U.S., which could have significant implications for rural America since China is a major market for U.S. farm exports.

— European officials are increasingly concerned about what they perceive as America’s protectionist stance on trade, the WSJ reports (link). They had hoped that with the change in administration from Trump to Biden, certain trade policies would be reversed, but they have been disappointed to see many of these policies continue. Diplomats and officials in Europe are now grappling with how to navigate and collaborate with the United States’ protectionist trade position. There is a growing uncertainty about whether the European bloc can depend on the U.S. to support the rules-based trading system, or if there is a potential for economic conflicts to emerge between these long-standing allies.

ENERGY & CLIMATE CHANGE

— The Biden administration is taking steps to implement numerous energy and environmental regulations throughout this year before the November elections. These regulations encompass a wide range of issues, such as imposing stricter emissions standards on fossil fuel-powered plants and establishing more rigorous national standards regarding “forever chemicals” in drinking water.

However, the administration faces a delicate balancing act, aiming to gain the support of environmental and conservation groups while not alienating voters in red states and industry stakeholders during a pivotal election year.

In response, congressional Republicans are planning to challenge certain Biden energy regulations they find objectionable. Sen. Cynthia Lummis (R-Wyo.), who leads the Senate Western Caucus, noted that Republicans will introduce disapproval resolutions under the Congressional Review Act (CRA) to potentially roll back the administration’s actions. Lummis emphasized the importance of carefully reviewing these rules to assess their impact on states.

— U.S. oil drillers shift to grid power, straining grid capacity. U.S. oil drillers are experiencing a rising demand for electricity as they respond to investor and public pressure to reduce greenhouse gas emissions. In a rapid shift, they have abandoned polluting diesel-power generators and quickly connected to the electrical grid. However, this trend is leading to a significant increase in electricity consumption in states like Texas, New Mexico, and North Dakota, which have substantial oil and gas operations. The existing grid infrastructure has limitations, and as a result, many oil producers are taking matters into their own hands by building their electricity infrastructure to meet their needs. Link to more via the WSJ.

KEY LINKS

Policy Updates