Senate Farm Bill, Currency Markets, and Forced Labor

I'm Scott. >> I'm [music] Bill. >> And we're the Trade Guys. >> You're listening to the Trade Guys, a podcast produced by CSIS, where we talk about trade in terms that everyone can understand. I'm Alex Kissling, [music] and I'm here with Scott Miller and Bill Reinsch, the CSIS Trade Guys. >> Thanks for listening to the Trade Guys. On today's episode, we break down the trade provisions in the Senate Farm Bill, the US-Japan intervention in currency markets, and the Trump administration's latest enforcement actions targeting goods linked to forced labor. All that and more on this episode of the Trade Guys. >> [music] >> Welcome back to the Trade Guys, everybody. We have a few great topics to cover today, but before we dive in, I want to go back to Bill at the newsdesk. It's been a few weeks since we've done this, Bill, but you have a number of updates on refunds and legal issues that we have covered over the past couple of months. So, what are we looking at today? >> Well, yes, there's a bit of a litigation update. Their lawsuits are multiplying like rabbits as the tariffs have multiplied initially like rabbits, and now they're all being followed by lawsuits. The 301 case now has three lawsuits pending against the 301 tariffs. The plaintiffs are small watch company in California called Collective Horology. That's horology with an H. Burlap and Barrel, which is in New York, imports spices. And a separate group of companies, including our old friend Rick Woldenberg from Learning Resources and others we had on this program in the past. And then the third set of plaintiffs are the usual collection of 25 attorneys general and governors, all from Democratic states. So, what's going on there is that there seems to be some agreement on timing and scheduling. Meaning that it looks like there's an agreement that the Burlap and Barrel plaintiffs will be the master case, and they set up a schedule that culminates with I think all briefings and presumably the hearing to be held by October 2nd. The three-judge panel has been announced, so you know, all wheels are turning on that one, although there's not going to be any kind of a a decision anytime soon. In addition, in the Section 122 cases, that's on appeal to the Court of Appeals for the Federal Circuit, and that's expected to be decided sometime in the fall, and I've got no further news on that. On the AEPA front, there are two things going on that are kind of interesting because they're complementary. They're designed to achieve the same problem. I think the refunds for the unliquidated entries continue to proceed normally and as planned. The controversy has been over refunds for tariffs that were finally liquidated by CBP, where the Justice Department uh and CBP, for that matter, has argued that refunds cannot be made in those cases except pursuant to court orders that are specific to each case. In other words, each importer has to go and sue and win in order to get their money back. An incredibly inefficient process. >> [laughter] >> You'll recall when we began all this in the spring, Scott and I both predicted that the government could make it hard or easy, and it's apparent in this case the government's making it hard, but apparently on the assumption that a lot of people won't bother, and they'll save some money. That's being fought on two fronts. The Justice Department has appealed Judge Eaton's order that the tariffs be refunded on the grounds that it was a universal injunction. In other words, it was granting universal relief to all the people that were affected, even those that were not parties to the actual litigation. The Supreme Court issued a decision last summer in Trump v. Casa, c i s a, that basically shut the door on most universal injunctions by ruling that the Judiciary Act of 1789 didn't give the judiciary authority to do that, but they left one door open, which was the class action door, that if you can organize and get certified as a class, then you can sue as a class that covers everybody that's a member of the class, whether they filed lawsuits themselves or not. So, what's happening right now is literally right now, today, one track of this has been the plaintiffs, with the meaning the aggrieved importers, are trying to get certified as a class, so they could get around the Justice Department's protest and appeal, and stay within the ambit of last year's Supreme Court decision. CIT is sure it has a hearing today, today is August 6th, on precisely that question, whether they could be certified as a class. So, we'll see how that works out. Meanwhile, the appeal of the Justice Department decision continues as well, and so the plaintiffs really are fighting this issue on two fronts. They're fighting the Justice Department's position in court and arguing that there should be a universal injunction issued in this case, and that it's at a minimum inefficient not to do that. But, that one doesn't succeed, they're also pursuing the class action front, and there, since the hearing was today, and the CIT tends to work fairly efficiently, we can expect a decision about that fairly quickly. Now, that, of course, isn't going to settle the issue, because the issue on the table is simply can't we get certified as a class? If the answer to that ends up being yes, then of course the the Justice Department may appeal that, but if the answer ultimately gets settled as being yes, then they have to file a class action suit in order to get the money back. So, this is on a slow track either way. But, wheels are turning and lawyers are making piles of money and we will continue to report on it. >> The three of us went into the wrong field for our careers. I know that. >> You can have a happy life and not be a lawyer, but there does appear to be some money in it. >> [laughter] >> We're doing the people's work, sort of. >> That's right. >> [laughter] >> At a lower pay, to be sure, but that's right. >> Well, Bill, thanks for all the updates and I want to dive into our first topic here today and that is the farm bill. Arkansas Senator John Boozman, chairman of the Senate Ag Committee, is working to pass the first five-year reauthorization of the farm bill since 2018 with a Senate Committee's markup happening as we are recording this episode. So, Scott, there are a few angles here to unpack, but let's just take a step back for our listeners and tell us what's in the bill and why it's important for our trade watchers out there. >> Oh, look, the farm bill is one of these tasks in Washington that is no longer what it once was. When I was back in the last century, when I first started in this business, the best example of coalition building, lobbying, and influence was watching the Agriculture Committee or the members of Congress who cared about agriculture make things happen. The ags were amazing at the what they could get done and they designed bills to pass. They looked for ways to incorporate and add other constituents to their programs. It was very impressive and very impressive operation. It appears now that while there are many impressive members of Congress who are part of the Ag Committee, don't get me wrong about that, what we have is the farm bill has fallen into one of the category of issues in Washington that seem to be designed not to get things done. So, the budget's the classic example. We haven't had a appropriations bills passed since 1996. And what we have is a budget process that just kicks the can. It doesn't leads to continuing resolutions. It doesn't lead to solving problems. And now with the farm bill being in its third or fourth year of one-year renewals instead of their full five-year renewal, it appears to be just one more casualty of function Washington. But be that as it may, there are important issues to be worked out. The trade title per se is manifestly different than in past years. But one issue to keep an eye on and one that will continue to cause tension with Europe is the so-called geographical indication or the naming of common agricultural products. Now, in the last two round of the World Trade Organization, the Uruguay Round, in the intellectual property section of the agreements, there was an attempt to deal with geographic indications. In fact, there are two kinds of them in that agreement. One is an absolute protection for geographical indications on wines and spirits. So, as an example, only bourbon processed in Kentucky can be called Kentucky bourbon. It is an absolute protection. Doesn't matter whether the consumer's confused or not. Good example is the company that markets Moët & Chandon champagne has vineyards in Napa Valley, California. The grape plants are from the Champagne region of France. They planted the same and use the same cuttings. So, they have a grape orchard that produces the same grapes. And they have a product that is, at least in my poor judgment, is is indistinguishable from the stuff that comes out of the Champagne region. But because Champagne is a place name and it is a spirit or wine, it has absolute protection. So, Moët & Chandon's White Star, for instance, is a champagne. Whereas when Napa Chandon or Chandon Napa, from the same cuttings with the same ownership, is a sparkling wine. Okay? Now, there was a lot of heartburn when this was first implemented because many places that followed the conventional naming, and uh there wasn't a lot of consumer confusion in things like wines grown in the Napa Valley or grown in Australia or anywhere else. But, there was real cost associated with changing. There's been a stubborn demand from Europeans to expand the list of absolute protections to things like hams, cheeses, and you name it. If it's grown in Europe, they want special protection. Keep in mind that geographic names are already protected from consumer confusion. So, this is this lower standard does work. So, if I were to market, you know, Scott's number one Parma ham and fail to mention that it's from ham it's from processing in North Carolina instead of the Parma region of Italy, that would be something that would violate the rules as they are today. But, the Europeans would like to go further. So, this is one of those tripwires that that is affecting more and more varieties of agriculture, and with more and more challenges as the people who originated these products and special things seek protection, and uh the rest of us are are left. The The funny thing is uh Idaho potatoes, which is good enough for a license plate, famous potatoes in the uh Iowa state plates, but Idaho potatoes does not qualify in Europe as a geographic indication. >> Interesting. >> Someday I'll understand this or be dead. >> [laughter] >> The US argument here, right, is that their some food names are so generic. And I think the examples I've seen are Parmesan and Gorgonzola that it's kind of absurd to try to say that there's no middle ground to be reached here. But, I guess the question is in this within the the farm bill is is I understand it, and Bill or jump in here, is that it kind of directs the USTR to make this a priority in trade discussions, although it doesn't bind them to do anything. Is that right? >> It doesn't bind them. It directs them to try to negotiate resolution on these issues. This is not a new problem. I mean, multiple administrations going back years have fought the EU and before that the European Community on this issue. The American position has been bipartisan and clear. This is not a Trump thing. It is particularly a thing that is that applies in agriculture. It's a sore point, particularly in cheese, because there's, you know, a lot of American production of cheese that is called Parmesan, even though it's not from Parma, or cheddar, even though it's not from There actually is a place called cheddar in England, or Stilton, well, I guess they can't do Stilton in the United States. But, it's a sore point for Americans, and one of the things, to the credit of the Trump administration, that they did was they built into a number of last year's reciprocal trade agreements a provision in which the other party agrees not to recognize those particular GIs. That's what we call them. It's not gastrointestinal disease, it's geographical indications, not to recognize those GIs if they conflict with their obligations in the US agreement. That's kind of untested yet, and it's awkward for the countries if they also have an agreement with the EU, because what the EU likes to put in its agreements is commitments by the other party to accept EU GIs, to acknowledge them, and to, you know, regulate consistently with that. So, this is an issue that's going to get worse, I think, rather than better. It is I've never had much sympathy for. I think it's an effort primarily in Europe simply to protect regional agriculture products, but people get very excited about it and in the Doha round trade negotiations, the conclusion of that ministerial in 2001 was held up for a day over an argument about feta cheese and whether countries outside of Greece, namely in that case Bulgaria, could be allowed to call their cheese feta. Well, you know, the Bulgarian argument I think is we're next door. We border the country. It's the same cheese. So, people take this very seriously. I'd also just comment that another element of the ag bill this year is a significant, I mean doubling really, increase in funding for export promotion and market access programs in agriculture. This is something that the farm community has wanted for years and it's purely, you know, it's a budget issue at one level. It's an expenditure of money of several hundred million dollars. >> Can you just explain what we're talking about here? >> The government has several different programs designed to help farmers export more agriculture products and some of it is agriculture promotion, some of it is just is marketing assistance, you know, helping them figure out find customers basically. That's not novel and it's not actually restricted to agriculture. The XM Bank does something similar. The Commerce Department does something similar, but of course it's if it's agriculture program, it's in the farm bill. It's not in other legislation. And finally they've got a significant budgetary increase in both farm bills. So, it looks like it may get through. Today, however, the Senate Agriculture Committee met to consider all this and failed to approve the bill by a 10 to 11 vote, which I thought was kind of interesting. The issue there and this goes back to Scott's comment about agriculture strategy. The issue was not over any of the stuff we're talking about. The issue was over SNAP benefits. SNAP is the current term for food stamps for those of you that are as old as I am. And one of the reasons why the ag folks were so successful in the '70s, '80s, and '90s, and even aughts, as Scott was talking about, is that basically they formed a coalition with urban members of Congress who cared about nutrition programs and food benefits. Cared about food stamps. And the deal was that the urban representatives would support the farm bill if it had appropriate levels of snap benefits and nutrition assistance, and they go along with, you know, whatever the farm the Republicans wanted to put in the bill for to help the farmers. And it was a convenient coalition that produced, you know, 300-plus votes. The current problem they have now is the both the administration and the Republicans want to cut back on the benefits, and that's unacceptable to the representatives of urban communities, and been a difficult point of contention not just this year, but it's one of the reasons why the farm bill keeps getting extended from year to year because they can't reach agreement on this. The other thing that happened that I thought was interesting that does have some relevance to trade was that there's this other issue about whether or not people can sue for immediate health harm that was caused to them by pesticides or other chemicals that were not properly labeled. And courts have generally made that difficult. And for a variety of reasons. And uh Senator Booker, who is a really more or less an urban senator, he represents New Jersey, but sits on the agriculture committee, had an amendment that would have allowed more individuals lawsuits on the pesticide issue. And that was rejected on a party line vote, as I recall. So, there's a lot of issues here that have delayed the farm bill because the coalition has crumbled, really. But they're probably large not trade issues, but we'll keep track of it because one of the things that happens when this bill comes on the floor, at least in the Senate, the House has already passed the farm bill by the way, so the action is in the Senate in the for the time being. One of the things that always happens when the bill comes to the Senate floor is there will be amendments and there will probably be trade amendments. You can expect, I know speculating, maybe Canada dairy amendments, maybe GI amendments, who knows what and probably China amendments as well to the extent that we bring in Chinese agriculture imports, which we do to not the most significant thing we import, but it's there. So, stay tuned. >> I think this is a fascinating debate. Let's move on here and I want to turn next to some really big news over the past week with the US joining together with Japan to prop up the yen. The move came after months of sustained weakness in the yen, which has increased the cost of imports for Japan and raised concerns about financial stability. Scott, I'm going to turn back to you. This was an unusual step, so what prompted the move and why does it matter? >> Yes, it is an important issue, but it's also it's very important given Japan's position in the world economy and there are alliance structure that we get along with Japan, particularly when it comes to financing. Japan remains, has long been and remains the largest holder of US debt outside the United States. So, they're pretty good customer for what we have to sell, which is Treasury bills, but more importantly, there's been close coordination with the Treasury Department of the United States and the Japan Finance Ministry to try to keep the yen from falling further in a in efforts to improve the level of domestic investment, the yen fell to a roughly 40-year low. So, it got down as far as 164 yen to the dollar, which is quite low and so the intervention was something that big economies often do, their central banks do, and their treasury departments do, to try to stabilize or make somewhat more predictable the ongoing pricing of the currencies underneath. Now, currency can be prices can be affected by a couple of things. Mostly, it's buying and selling a counter instrument. So, if you want the yen to rise, you buy yen and sell dollars. And so, the coordination with dollars, given it's the it is the largest and deepest liquidity of any currency is dollars, and you can trade a lot of dollars without any effect on the price. So, it's it's the it's the ideal instrument to use. Doing it in coordination with the Treasury is a smart thing to do. Uh the last time this happened between the United States and Japan, by the way, was 2011. During that period of time was the Obama administration, and I believe that that was Tim Geithner was the Treasury Secretary, but it was a different condition. In that case, the yen was too strong after the Fukushima reactor crash and the earthquakes and tsunamis that they were facing. So, it was a weather condition that provoked the difficulty, but uh we do these stabilizing things. In fact, the original G7 was a group called the Library Group that met in the White House library, and it was only finance ministers for this very kind of thing. So, it's not a bad thing. It's a reasonably wise move on the part of Japan and the United States, given that that there's a lot of dollars held by Japan, and Japan has some fiscal policy goals they're trying to achieve. And one of the issues that continues to come up is Japan has very low interest rates, which leaves room for something called the carry trade. The carry trade is a very interesting way to leverage higher interest rate currencies versus lower. And so, we have a zero interest rate or near-zero interest rate currency like the yen, it becomes the funding currency, and then you pair that with a higher interest rate currency or assets that are denominated in a target or the carry currency and you profit off the difference in rate which you can leverage. In stable currency relationship that happens a lot. So, the Japanese carry trade is one of the reasons that there's a slight decline and that's also pressure on uh Japanese interest rates. But, overall this is a good example of financial coordination among allies that is clear. It's been They've been transparent about it and they're stabilizing Japan for good investment reasons. >> Yeah. Bill, I've seen a lot of commentary this week arguing that the intervention was perhaps less about the yen itself and more of a signal about growing stress in the global financial system. Is that right or is it just really about the yen here? >> I mean, everything I agree with everything that Scott said. There are macroeconomic factors at stake here that that actually I think have more impact over the long term. There's a long history of currency intervention in particular to stop to normalize markets and to stop people from panicking and things getting out of hand. But, when you've got a disparity in particular for example Scott cited, disparity in interest rates where in Japan it's hovering I think around 1% and here it's, you know, up above three, you know, up above three and a half, there's really an incentive there for people to sell yen and buy dollars or to invest their yen in US Treasuries because they can get a higher return. And that's a good difference in macroeconomic policy between the two countries. One of the things that set Secretary Yellen has been also doing in addition to the intervention issue has been encouraging the Japanese to raise their interest rates. And they've done that because it's gone from near zero now to I think one or maybe a little bit more than 1%. That has other consequences in the economy, of course. If you start raising interest rates, then in theory anyway you may start yourself into more of an inflationary cycle. I mean, Japan doesn't really have to worry about that because uh they've been in a deflationary cycle for the better part 20 years and you know right now and a 1% interest rate isn't going to make that much difference and if they jack it up a little bit more it's still not going to make much difference. But this is a question of you know the the Fed deals with this in the United States all the time which is the the inevitable dilemma between you know raising rate or lowering rates to control inflation and at the same time thinking about the macroeconomic impact that will have on employment, wages and things like that. So you know I think that the current situation is less of a problem than we had in the 80s for example when we ended up having the the so-called Plaza Accord where basically the G7 got together and pushed Japan to make some adjustments into allow its a currency to appreciate and at that time actually the currency at that time was not that different from where it is now. Come to think of it it's fluctuated over the years and I used to chuckle about this because our old friend Fred Bergsten who for years ran the Peterson Institute of International Economics and was a Treasury Department alumnus would frequently talk about exchange rates and particularly about Japan because that was the problem of the 70s, 80s and well 1990 anyway and when it was 200 to the dollar he would say well when it's 150 all of our troubles would go away. Well it actually went down to 150 and nothing changed. We still had an enormous deficit with Japan. So then he said well if it goes down to 100 all our problems will be solved. Well it actually did go down to 100. In fact at one point it reached around 80 and the deficit still didn't change very much. So there's a lot of other issues that are involved here as well. I'd also say just a word about China. >> Yes yes please. >> Where we have the same problem. The S current estimates are that the Chinese uh the RMB, or the yuan, is undervalued by, you know, people say 20 to 30%. This is not a new argument. There was a huge debate about this in the Congress in the teens. In, uh, in Obama's late first term and early second term, there was an amendment that was designed to impose, basically, sanctions on China if it didn't allow its currency to appreciate. It didn't become law, but it was a huge debate at the time. We may be heading back into that. Now, there's a difference, of course, because the Chinese currency doesn't float freely. It floats within a very narrow range that's set daily by the Chinese government. So, it has, in fact, appreciated a little bit. It's been, in the worst case, more than seven to the dollar. And now it's down into the six range, but from the estimate of a number of observers, probably needs to come down closer to five in order for it to reflect actual value. And, of course, there's an edge to that particular debate, too, because to the extent it's undervalued, that it contributes significantly to China's trillion-dollar-plus trade surplus. >> Sure. Exports competitive here. >> Because it makes their exports cheaper. >> Mhm. >> It definitely has clear macroeconomic consequences for practically everybody. So, that's another one of these issues that's lurking out there. It's harder to deal with through currency intervention since it's not a convertible currency, and the rate is set by the Chinese government. The United States can't go in and start buying RMB in order to get the currency to appreciate. It really depends on persuading the Chinese government to do something that you certainly would be in our interest, but would probably be in their long-term interest, as well. >> Yeah, Scott, do you have anything on the China angle here? >> Well, China's a controlled currency, and because of that, there is not particularly deep liquidity on that currency outside of China. So, settlements really don't happen in the RMB. For practical all a domestic currency that is used in trades and in settlements for Chinese goods. And as a result, it has fewer spillover effects. It's not part of the global trade and payments economy system to the extent that, say, that the euro or the yen would be. So, but it's a sensitive one. >> China's doing its best to change that. They're trying to internationalize their currency. They're setting up alternative payment procedures that allow for settling accounts outside the dollar and in RMB. They're making small progress there, but I think the number of international transactions that are settled in RMB is still well less than 10%. >> Yes, you got to find traders who want to settle in RMB and who trust the Chinese. Good luck with that. >> Well, or you find people like the Russians who don't have a lot of choice. >> Yeah, a good point. >> And that bumps up the data. >> Yes. >> Because, you know, there's a lot of trade between Russia and China right now, particularly Russia's exports of oil and gas, and to the extent those end up being settled in yuan or RMB, that makes it look like more is going on than actually is going on, I think. >> True. Interesting. >> All right, good point. So, I want to turn finally today to some news from the Department of Homeland Security, which has added 43 companies to the Uyghur Forced Labor Prevention Act entity list, which bans these entities from shipping goods to the United States. This is notable because this is the first time the Trump administration has made additions to the list. So, Bill, I'm going to turn to you here first. How notable do you view this move to be? >> There's not a lot to say about it. I mean, the administration has begun to come under some criticism for hypocrisy on the forced labor issue. They have, you know, determined that 60 other countries are guilty of either not having a forced labor law or not adequately enforcing the one they do have, and at the same time, this is an administration that has made no changes in the list of entities that fall under the US forced labor statute, which we've talked about ad nauseam in previous years. This is famous UFLPA, but the Uyghur Forced Labor Prevention Act. And as near as I can tell, you know, enforcement there has been proceeding all right. There have not been any dramatic developments that I'm aware of recently, but one of the promises of the act was that the administration whoever it was, this was enacted in the Biden administration, was that the administration would be diligent in searching out companies that in fact engage in forced labor and to identify those companies for the public so the people would know who they were and could avoid buying from them. And it's now been, well, 18 months. The last update of that list was in January 2025 before President Biden left office. And so this is the first one in 18 months, which suggests that, you know, probably their resources have been focused on other things. This is not a USDR issue. This is administered by the Treasury Department, I think, isn't it, Scott? >> Yes, with the Department of Labor providing input, yes. >> Okay. Yeah. So, you know, welcome development, I think, from the standpoint of UFLPA enforcement. I don't know the merits of the individual entities that have been put on them put on the list. I think they're mostly, if not all, Chinese, but it does counter one argument that has been cropping up lately that, you know, the administration has been selective in its in its handling of this issue and has been very quick to criticize everybody else, but has not done much to expand its own efforts. >> You know, it would be an an awful shame to lose hypocrisy in matters like this because we'd have to rewrite half the jokes of this program. >> [laughter] >> So, it we can't rely only on irony. >> [laughter] >> We just got to have hypocrisy. This is one of these examples. >> Well, we've have said hundreds of times that there is no trade rule against hypocrisy. >> That's right. >> And this is one more example. >> Yeah. >> We utilize them well. And of course this is an entity's list that you really don't want to be on. >> No. >> Because the standard in this particular enforcement operation are basically guilty till proven innocent. You have to work to get off the list and the US government's wrong about a little less than half the time about what they've described and what penalties they've been acted on you. So it's a list you don't really like to be on. So it always contains some pushback but there is at least some addition to the list. What we'll have to survive with for the moment. >> Yep. At least the tune of 43 entities. So we're going to leave it there for today. Thanks as always to our listeners for joining us. We'll be back next week with a special guest episode. So we look forward to you joining us then. Take care everyone. >> Thank you. >> Thanks. >> You've been listening to the Trade Guys, a CSIS podcast. For more audio content, visit csis.org/podcasts. Thanks for tuning in. >> [music]