President Trump — newly recommitted to his gut instincts — is priming for a trade showdown with China.
His administration is considering slapping tariffs on up to $60 billion of Chinese imports, focusing on the technology and telecommunications sectors, according to a Reuters report. Those could come as part of a broader package that includes limits on Chinese investment and visa restrictions on Chinese travelers, CNBC reports. And the president is encouraging his team to dial up the heat, telling his top trade negotiator in a meeting last week that a proposed $30 billion target was too meager, Politico reports: Top officials are rushing this week to assemble a plan for tariffs on more than 100 Chinese products.
Typical Trump-era provisos apply. Nothing’s done until it is officially done, and maybe not even then. The president rattled allies and markets this month when he announced global tariffs on steel and aluminum imports, then ratcheted them back by granting exemptions to Canada and Mexico while opening the door to further carve-outs.
But the Trump who fired Secretary of State Rex Tillerson via Twitter on Tuesday looks decreasingly inclined to heed his advisers’ attempts to rein him in. “Trump’s moves have shaken and alarmed a West Wing staff who fear the president has felt less restrained about acting on his whims amid the recent departures of several longtime aides, including communications director Hope Hicks and staff secretary Rob Porter,” The Washington Post’s David Nakamura and Damian Paletta write. “White House allies in Washington suggested that Trump has been liberated to manage his administration as he did his private business, making decisions that feel good in the moment because he believes in his ability to win — regardless of whether they are backed by rigorous analysis or supported by top advisers.”
Lashing out with new protectionist measures would scratch Trump’s long-running itch to confront U.S. trading partners, China prime among them. Some trade experts warn that the administration risks provoking an escalating, tit-for-tat cycle with China, which could retaliate by punishing American agricultural exports, such as soybeans. But Trump has been marginalizing those voices in his orbit.
Back in August, the president ordered U.S. Trade Representative Robert Lighthizer to probe Chinese violations of American intellectual property. "Beijing often requires foreign companies to surrender trade secrets in return for the right to operate in China, where rampant piracy of products including clothes and computer software has long bedeviled multinational corporations," The Post's David Lynch writes. Lighthizer has a year to assemble the report, "but his boss is impatient for action, and some trade analysts say they expect an announcement of new U.S. trade measures next week."
Even free-trade skeptics are sounding concerns about the prospect of the Trump administration pursuing a go-it-alone strategy that bypasses the World Trade Organization. “It’s important to make a sincere effort to approach the thing multilaterally,” Clyde Prestowitz, president of the Economic Strategy Institute and a former Reagan administration trade official, tells me. “But I think we also need to make it clear to our trading friends and partners that if there can’t be a fair multilateral settlement that we would be prepared to move unilaterally.”
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— Stocks dip on D.C. turmoil. Reuters's April Joyner: "Wall Street’s major indexes fell on Tuesday as the dismissal of [Tillerson] and the possibility of additional U.S. import tariffs against China dragged down stocks across sectors... 'Any time there’s change, investors get nervous,' said John Carey, portfolio manager at Amundi Pioneer Asset Management in Boston. 'They have to go back to the drawing board to figure out what the implications might be.' ... U.S. stocks added to losses after Politico reported that a package of tariffs targeting $30 billion a year in Chinese imports could be rolled out as soon as next week."
A trade war remains the real worry. Dan Clifton, head of policy research at Strategas, via CNBC: "If you start having a Chinese trade war or greater geopolitical risk, then it starts to become a greater worry for the market overall."
Investors need details. Evercore ISI's Terry Haines, in a note to clients; "At first blush specific sectoral or industry impacts would be mixed on this very incomplete news: the market positive potential for greater IP protections for US tech and pharma companies could be lessened, erased, or worsened by restrictions or loss of access to the Chinese marketplace — or not, depending on final Trump decisions… Our joint concern that what might come next and how dangerous it is for these two largest countries in the world to get crossways is more elevated today."
— Inflation cools. Bloomberg's Katia Dmitrieva: "The great U.S. inflation scare of 2018 may be over -- for now. U.S. consumer prices in February were not too hot, not too cold, but just right to reinforce the outlook by Federal Reserve policy makers for three interest-rate hikes this year, Labor Department data showed Tuesday. The lack of a major surprise may help calm financial markets that were roiled last month by data showing wages and prices rising faster than anticipated. The last major consumer-price report before Fed officials meet next week indicated that inflation is gradually picking up without any big breakout."
— Schumer on hot seat over bank bill. Politico's Burgess Everett, Elana Schor and Zachary Warmbrodt: "Midway through Elizabeth Warren's fire-breathing campaign to tank a bank deregulation bill backed by more than a dozen Senate Democrats, Chuck Schumer invited her to his office. Warren had just sent a fundraising email blasting fellow Democrats who supported the legislation, and Senate Democrats had just had an ugly caucus meeting at which the rift over the measure was laid bare. And now Schumer wanted to hear what was on the mind of one of his most prominent senators, according to a person familiar with the conversation. 'This is what I said I was going to do,' Warren told the Senate minority leader in a lengthy conversation last Wednesday, the person said. ''This is why I ran for the Senate.' Schumer didn’t tell Warren to stop attacking the bill or to dig in.
But he urged her to focus her opposition on the bill’s policies — not individual Democratic senators, as her fundraising plea had done, said a second person briefed on the conversation... For Schumer, the banking bill and its rollback of some of the Dodd-Frank financial reform law’s regulations has been quite the tightrope to walk. The minority leader has to balance the needs of moderate caucus members who are desperate for a bipartisan accomplishment heading into brutal reelection races, and the priorities of liberals like Warren who believe they are fighting for the heart and soul of the Democratic Party. Plus, the New Yorker is already viewed with suspicion by liberals for his own ties to Wall Street."
Hensarling wants a conference. The Hill's Sylvan Lane: "Rep. Jeb Hensarling (R-Texas), chairman of the House Financial Services Committee, said he's not holding talks with key senators on making changes to a banking bill set to pass the Senate this week. The Senate bill faces opposition from House conservatives who want the measure to include more input from the lower chamber. K Street sources told The Hill that the bill faces a growing chance of dying in the House unless senators agree to go to a conference with the House. Hensarling said he expects a conference to be formed, and repeated his call for the Senate to include in its legislation some of the more than two dozen bills his committee passed with bipartisan support."
Senators race to wrap up. American Banker: "Senators on Tuesday continued debating a thicket of proposed additions to [the banking bill] on their way to a final vote likely to occur as early as midweek. Among key items under debate are an amendment proposed Monday by Sen. Bob Corker, R-Tenn., dealing with custodial banks. Sen. Sherrod Brown, D-Ohio, the Banking Committee's ranking member, also offered an amendment aimed at preserving restrictions on foreign banks."
Frank downplays. American Banker: "Former Rep. Barney Frank rejected concerns voiced by other Democrats that a Senate bill rolling back some provisions of the Dodd-Frank Act will fuel another financial crisis. 'Nothing in this bill in any way weakens the prohibition about making shaky loans to people with weak credit and then packing them into a security,' Frank, a Massachusetts Democrat, told the radio station WBUR in Boston on Monday. 'Frankly, I think there is less here than meets the eye.'"
Regions' very good year. The Post's Renae Merle: "For a bank seeking relief, Regions Financial is certainly having a good year.The Alabama-based institution is on track to post near-record profits. Already one of the country’s largest banks with operations in more than a dozen states and more than $120 billion in assets, Regions Financial is growing at a quick pace. The Republican-led 2017 tax bill even provided an additional boost... And with the Congress racing to ease regulations on the banking industry, Regions could soon be doing much better... Regions has suddenly found itself in the middle of the debate over the bill, held up as an example of all that is right and wrong about redrawing the lines for how to regulate banks that many say are too big to fail."
— FSR, Clearing House merge. Reuters's Pete Schroeder: "Two of Wall Street’s largest Washington-based trade groups said on Tuesday that they were merging, as big banks rethink their lobbying strategies under [a] business-friendly administration... The Clearing House Association and the Financial Services Roundtable, which both count the likes of Citigroup, Bank of America and JP Morgan Chase among their members, will combine to form a single group to push policy changes in the nation’s capital, they said in a joint statement. Greg Baer, TCH’s president, will serve as CEO of the new group, which has yet to be named. FSR announced in February that its chief, former Minnesota Governor Tim Pawlenty, would leave the organization this month. The merger combines TCH’s focus on research and regulatory issues with the FSR’s experience in lobbying lawmakers, said one person familiar with the deal."
— Tax cuts flop in PA-18 as Conor Lamb claims victory. Politico's Kevin Robillard: "Republicans backed away from their signature tax-cut law in the final days of a closely watched special House election in the Pittsburgh suburbs — even though it's the very accomplishment on which they had banked their midterm election hopes. Instead, GOP groups that once proudly declared the tax law would be the central fight of the midterms are now airing ads on so-called sanctuary cities and attacking Democrat Conor Lamb’s record as a prosecutor as they try to drag GOP state Rep. Rick Saccone over the finish line in Tuesday‘s election... If the tax law isn’t a reliable vote-winner, it means Republicans may have to find different midterm messaging to go along with a consistent wave of attacks linking Democratic candidates to House Minority Leader Nancy Pelosi."
Democrat Lamb took a victory lap last night despite the fact the race in a district that went for Trump by nearly 20 points in 2016 was still too close to call. Lamb led Saccone by .2 percentage points as of this writing. Here's more on the race.
— McConnell downplays tariff intervention. WSJ's Siobhan Hughes: "Senate Majority Leader Mitch McConnell all but ruled out advancing legislation to undo [Trump’s] steel and aluminum tariffs, saying that such an action would be unlikely to succeed. 'On the trade issue, as all of you know, the administration pretty much has ball control,' Mr. McConnell (R., Ky.) told reporters. 'The thought that the president would sign a bill that would undo actions he’s taken strikes me as remote at best. I like to use floor time in the Senate for things that actually have a chance to become law. So I think it’s highly unlikely we’d be dealing with that in a legislative way.'"
OECD warns. WSJ's Paul Hannon: "U.S. tax cuts and government spending increases will likely deliver a boost to the global economy this year and next, but that could be offset by an escalation of tensions over trade, the Organization for Economic Cooperation and Development said Tuesday... There are clouds on the horizon, as the OECD warned the global pickup could be weakened by a series of tit-for-tat tariff increases initiated by proposed U.S. charges on steel and aluminum imports. Citing the negative impact of previous trade conflicts on growth and jobs, the OECD appealed to U.S. trade partners not to rush into retaliatory action."
CEOs nervous, too. FT's Andrew Edgecliffe-Johnson: "Trump’s proposed tariffs on steel and aluminium imports could undermine or even reverse the economic benefits of recent tax reforms, one of Washington’s largest business lobby groups warned on Tuesday, even as it reported soaring optimism among US chief executives. The Business Roundtable’s quarterly index of CEO confidence hit its highest levels in February since it launched 15 years ago, as companies responded to the tax cuts and deregulatory measures pushed by the Trump administration. The group’s members now see US GDP growth hitting 2.8 per cent this year, up from their estimate of 2.5 per cent three months ago. The survey captures a buoyant moment for American businesses, but was conducted before... Trump announced plans for sweeping tariffs on foreign steel and aluminium. These could break the wave of boardroom optimism, the BRT warned."
— Trump shouts out Kudlow. The Post's Jeff Stein: "Trump signaled Tuesday morning that Larry Kudlow is his leading candidate to take the helm of the national economic council, further boosting the chances of a longtime conservative commentator and self-described “supply-side” economist who championed the Republican tax law passed this fall... 'I’m looking at Larry Kudlow very strongly. I’ve known him a long time — we don’t agree on everything, but in this case I think that’s good,' Trump told reporters outside the White House. 'He’s a very talented man, a good man, and I think he has a good chance [at the job].'"
— Broadcom intervention had been brewing. WSJ's Ted Greenwald, Kate O’Keeffe and Tripp Mickle: "The Trump administration’s extraordinary intervention against the $117 billion takeover of Qualcomm Inc. QCOM -4.95% surfaced suddenly last week. But it was months in the making. In December, Qualcomm’s leaders, reeling from a year of battles with customers and regulators in the U.S. and abroad, faced the prospect of losing the company to a hostile takeover by Broadcom Ltd. in what would be tech’s biggest-ever takeover. One potential hurdle to the bid, Qualcomm executives discussed, was a protracted national-security review, according to people familiar with the matter. Qualcomm lawyers reached out to Covington & Burling LLP, which suggested filing unilaterally and proactively for review of a possible deal by the Committee on Foreign Investment in the U.S. to understand the risks, the people said...
Qualcomm’s Jan. 29 filing to CFIUS helped trigger a chain of events that culminated in President Donald Trump’s decision Monday to block the deal. Qualcomm’s appeal tapped into gathering concern among some congressional Republicans and the Trump administration about U.S. national security and competitiveness with China, especially in advanced technologies—sentiment that already was fueling an effort to expand the power of CFIUS. The company also got help from sympathetic senators and representatives who pressed the administration."
— Could Bear Stearns happen again? WSJ's Justin Baer and Ryan Tracy: "A major investment bank careens toward bankruptcy. It has $400 billion in assets, 85 years of history and deep ties to every major bank on Wall Street. As word of its troubles spreads, a run begins, sending its stock plummeting. Ten years ago Wednesday, that was Bear Stearns Cos., a once-storied firm whose excessive leverage had helped put it on the brink. The Federal Reserve tried to limit the damage with extraordinary actions, first extending the firm credit before forcing it into a hasty weekend shotgun marriage to JPMorgan Chase & Co., with $29 billion in assistance. It was the first time the Fed had intervened with a noncommercial bank since the Great Depression... Today, those involved with the unprecedented Bear bailout agree it only temporarily staved off a broader meltdown."
— SEC's new crypto headache. Bloomberg's Ben Bain, Olga Kharif and Matt Robinson: "Wall Street’s main regulator has a new worry in its race to keep tabs on the cryptocurrency craze: hedge funds. The U.S. Securities and Exchange Commission is examining the business practices of a cadre of funds set up to invest in cryptocurrencies and initial coin offerings -- digital-token sales that give buyers stakes in companies, said three people with knowledge of the matter. Since hedge funds manage money for outside investors, the SEC wants to make sure firms are appropriately valuing holdings and keeping clients’ assets safe... The focus on hedge funds stems from concerns that have bothered SEC officials for months: They believe that investors are pouring billions of dollars into crypto assets without adequately assessing the risks and that some people profiting from the red-hot market may be breaking the law."
- Former Comptroller of the Currency Keith Noreika addresses the Consumer Bankers Association conference on the new leadership at the OCC and CFPB and the top priorities for regulators. Livestreaming here at 10 a.m.
- The House Foreign Affairs Committee holds a hearing on modernizing export controls.
- The House Oversight and Government Reform Committee holds a hearing on the federal regulatory process.
- The House Budget Committee holds a hearing on CBO oversight.
- The House Financial Subcommittee on Capital Markets, Securities and Investment holds a hearing on cryptocurrencies and ICO markets.
- The House Ways and Means Subcommittee on Tax Policy holds a hearing on recently expired tax provisions.
- The House Financial Services Subcommittee on Terrorism and Illicit Finance holds a hearing on “The Monetization and Illicit Use of Stolen Data” on Thursday.
- The House Financial Services Subcommittee on Monetary Policy and Trade holds a hearing on “Evaluation CFIUS” on Thursday.
- Transportation Secretary Elaine Chao testifies before the House Appropriations Subcommittee on Transportation, Housing and Urban Development, and Related Agencies on Thursday.
- Politico Playbook co-authors will interview Bill Gates live on Thursday.
- The SEC holds an open meeting on Thursday.
- The Brookings Institution holds an event about creating more efficient infrastructure on Friday.
- The Heritage Foundation holds an event on the national security implications of a NAFTA withdrawal on Friday.
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