The Finance 202: Trump buys Chinese line on tariffs

THE TICKER

President Trump gestures as he and Chinese President Xi Jinping walk after their meetings at Mar-a-Lago last year. (AP Photo/Alex Brandon)

President Trump seized on what looked like a bright spot Tuesday amid the gathering gloom of his legal troubles, thanking Chinese President Xi Jinping for turning down the heat in the trade confrontation between the two countries. 

Investors took the same message from a speech Xi delivered Tuesday in which he promised the sort of market changes the Trump administration has demanded, as stocks rallied around the world on the news. But some China watchers aren’t so impressed. 

The speech “underdelivers after all the hype from Beijing,” Eurasia Group’s Evan Medeiros and Michael Hirson wrote in a research note. “We assess that nothing in the speech will deter the U.S. from moving forward with tariffs.”

In Xi’s speech — delivered at a forum billed as the “Asian Davos,” in the tropical Chinese city of Boao — the Chinese leader talked up lowering tariffs on automobiles, improving intellectual property protections, reducing barriers to foreign financial institutions, and boosting imports. Those changes leap from the Trump administration’s list of grievances, although Xi didn’t mention his government’s simmering standoff with the United States.

Skeptical observers of Xi’s regime pointed out the proposed changes amount to rehash. A Citigroup note to clients quoted by the finance blog Zero Hedge said a “careful read of the original text in Chinese reveals that the speech was more a reiteration of existing commitments rather than new major initiatives or concessions to Trump.”

From Silvecrest Asset Management chief strategist Patrick Chovanec:

From Matt Schrader, editor of the Jamestown China Brief: 

Xi’s boldest step toward a new offer centered on cars. The Chinese president pledged to “significantly lower” tariffs on auto imports while moving "as soon as possible” to ease rules restricting foreign ownership in the industry. “It’s the first time that Xi in a major statement like this has committed to more equal terms for the automobile trade,” says Stephen Ezell, director of global innovation policy at the Information Technology & Innovation Foundation.

And the commitment appeared to respond to a Monday gripe from Trump: 

Even that move may not help American automakers, Bloomberg Gadfly’s David Fickling and Anjani Trivedi write. “China imports just over 1 million cars into its 20 million-a-year-plus auto market. Of that amount, most are German-branded luxury SUVs,” they write. “It’s simply cheaper to build cars in China than in North America, so the only major beneficiaries of lower import tariffs are likely to be makers of prestige vehicles whose volumes aren't large enough to justify a local plant -- think Toyota Motor Corp.'s Lexus, Honda Motor Co.'s Acura and Hyundai Motor Co.'s new Genesis marque.”

The skeptics have recent history on their side: Beijing has amassed a long record of making big guarantees when it comes to trade and then failing to follow through. Indeed, the report by U.S. Trade Representative Robert E. Lighthizer that forms the basis of the Trump administration’s case against the Chinese includes a rundown of eight broken promises dating to 2010. (You can find that summary on page 8 of the report, here).

But Trump himself — who has demonstrated repeatedly that he places a premium on his warm personal relationship with Xi — is less hardbitten than his own cabinet about the Chinese leadership’s empty pledges. For the time being, the Eurasia Group’s Hirson says, “Trump has a lot of confidence in Lighthizer and the approach he’s taking.”

That could fray if the wages of the confrontation rise and the president grows anxious to declare victory before Beijing delivers. 

ZUCK'S DEBUT: 

— Mark Zuckerbeg didn't wilt under the Capitol Hill klieg lights, which served to highlight just how tech ignorant the majority of senators are. The Post's Craig Timberg, Tony Romm and Elizabeth Dwoskin: "Zuckerberg ...repeatedly apologized and promised privacy reforms but also pointedly defended his company against the threat of new legislation ... for more than four hours, there was no flash point or loss of composure for Zuckerberg, who was appearing in his first congressional hearing after avoiding such scrutiny for years. His steadiness in the face of tough questioning helped quell the air of crisis that surrounded not just Facebook but also Silicon Valley in general, where collecting user data is essential to many businesses."

Find a transcript here. 

Lots of the chatter focused on senators' struggles to understand the basics of Facebook's business and the tech behind it. This moment was emblematic: 

Investors approved. Facebook stock had its best day in two years, per CNBC's Anita Balakrishnan: "Facebook shares surged 4.5 percent on Tuesday as CEO Mark Zuckerberg appeared before U.S. lawmakers on Tuesday. The stock was already up about 2.5 percent at 2:20 p.m. ET, around the time the hearing was set to begin."

Zuck's notes. AP photographer Andrew Harnik snapped this photo of two pages from the binder of notes the CEO brought with him for guidance. It's a revealing look at the prep work that went into his appearance and the messages that the company wanted to emphasize. 

Cooperating with Mueller. Politico's Ashley Gold: "Zuckerberg confirmed Tuesday that his company has been contacted by special counsel Robert Mueller's team investigating Russian interference in the 2016 presidential election. Media reports earlier this year disclosed that Mueller's team had interviewed at least one Facebook employee, and Mueller subsequently secured an indictment of alleged Russian trolls in part based on their activity on the social media network. But Zuckerberg's testimony in today's Senate hearing was the first time Facebook has confirmed the information."

Zuck goes to the Hill (MICHAEL REYNOLDS/EPA-EFE/REX/Shutterstock)

The scene:

Zuck suits up. The Post's Robin Givhan: "Zuckerberg was dressed in a navy suit that looked rather large for his modest frame. His shirt collar was most certainly too big, and his pale blue tie was knotted so loosely that it hung from his neck as if it had been pre-tied and quickly looped over his head. He was wearing the tie, but he clearly didn’t want to be."

This was the line to get in to the hearing room, via NBC's Frank Thorpe

Meanwhile, outside: A global activist network called Avaaz placed 100 life-size cutouts of Zuckerberg on the lawn outside the Capitol in a display designed to call attention to the fake accounts that spread disinformation on the social network:

— Bank bill in limbo. The Post's Erica Werner: "Congress appeared on the cusp of rolling back post-financial-crisis banking rules last month after Republicans and moderate Democrats passed a bill in the Senate despite opposition from high-profile progressives. But now a stubborn standoff between a powerful House Republican, Senate Democrats and the White House threatens to derail the effort entirely. Rep. Jeb Hensarling (R-Tex.), chairman of the House Financial Services Committee, wants to change the Senate bill to bring it closer to a more expansive version of the rollback the House passed last year. For Hensarling, it is a last chance before retirement to take aim at the banking rules against which he has struggled for years, only to see his previous efforts stall in the Senate... The Democrats who backed the Senate bill are telling Hensarling their version is a take-it-or-leave-it proposition, saying changes would imperil their coalition.

Trump listens as he meets with the Emir of Qatar Sheikh Tamim bin Hamad al-Thani in the Oval Office of the White House on Tuesday. (AP Photo/Evan Vucci)

TRUMP MELTDOWN WATCH:

— Trump unglued. NYT's Julie Hirschfeld Davis and Maggie Haberman: "Mr. Trump’s public and private wrath about the special counsel’s investigation into Russia’s meddling in the 2016 election are nothing new. But the raids on Monday on Mr. Cohen’s Rockefeller Center office and Park Avenue hotel room have sent the president to new heights of outrage, setting the White House on edge as it faces a national security crisis in Syria and more internal staff churn. On Tuesday, top White House aides described themselves as deeply anxious over the prospect that the president might use the treatment of his lawyer as a pretext to fire Robert S. Mueller III, the special counsel."

Mueller endangered. More from the NYT: "In early December... Trump, furious over news reports about a new round of subpoenas from the office of the special counsel... told advisers in no uncertain terms that Mr. Mueller’s investigation had to be shut down."

Trump eyes Rosenstein. CNN: "Trump is considering firing Deputy Attorney General Rod Rosenstein, multiple people familiar with the discussions tell CNN, a move that has gained urgency following the raid of the office of the President's personal lawyer. Such an action could potentially further Trump's goal of trying to put greater limits on... Mueller."

GOP leaders dismiss calls to protect Mueller. The Post's Sean Sullivan, Seung Min Kim and Karoun Demirjian: "Senate Republican leaders sharply warned ... Trump not to fire... Mueller on Tuesday — but they once again stopped short of embracing legislation to protect the special counsel. Their reluctance to take more-forceful action came as Democratic leaders voiced new urgency about shielding Mueller a day after Trump said he had been encouraged by some to dismiss the special counsel. At least one rank-and-file Republican endorsed moving forward soon with a bill to protect him. But Senate GOP leaders were not budging from their position against taking preventive action, underscoring the downside they have long seen in being too confrontational toward the leader of their party."

— Kudlow vs Kelly? Vanity Fair's Gabriel Sherman: National Economic Council director Larry "Kudlow has also tangled with [White House chief of staff John] Kelly. Recently, according to sources, Kudlow told press secretary Sarah Huckabee Sanders that he would like his own press person. Sanders explained that the press office could handle his media and that he didn’t need a dedicated person. “Larry was like, I’m not asking for permission,” a person briefed on the conversation said. When Kelly found out about Kudlow’s request, he blocked it. Kudlow, according to sources, didn’t force the issue with Kelly. But he wasn’t happy about it."

Trump welcomed Kudlow, and his other new hire, in tweets this morning:

TRADE FLY-AROUND:

— China files WTO complaint. AP: "China has filed a World Trade Organization complaint challenging U.S. President Donald Trump’s tariff hike on imported steel and aluminum, the trade body said Tuesday... China has requested 60 days of consultations with the United States on the steel and aluminum dispute, according to the WTO. If that fails, the next step could be for Beijing to request a ruling from a panel of trade experts. Beijing says Trump’s decision to impose additional duties of 25 percent on steel and 10 percent aluminum violate international trade rules."

The Post's Erica Werner reports trade talk dominated Senate Republicans' weekly lunch:

A trade war could hit Dems, too. The Post's Danielle Paquette: "Chinese tariffs could threaten business in thousands of U.S. counties that voted for Donald Trump in the 2016 presidential election, shrinking sales for soybean farmers and pork producers. But 15 of the 20 counties with the most jobs at risk supported Democrat Hillary Clinton, according to a new analysis from the Brookings Institution. Blue states such as Washington and California, cradles of aerospace and wine production, stand to lose access to one of the world’s fastest-growing markets if the trade war between the United States and China escalates, said economist Mark Muro, who co-authored the report. The Asian giant could slap tariffs on 234 American products, including airplanes and plastics, in response to American levies on roughly 1,300 Chinese goods. Such actions could jeopardize up to 2.1 million jobs, Muro said."

Dalio worried. CNN Money's Paul La Monica: "One prominent investor is still very, very concerned about the possibility of a trade war. Ray Dalio, the billionaire founder of hedge fund Bridgewater Associates, said that he's increasingly nervous about President Trump's antagonistic stance towards China. 'I'm worried and forced to look harder at the question of where Donald Trump is leading us. What is his real agenda?,' Dalio wrote Monday in a LinkedIn post titled 'More on Trade and Other Wars.' 'Right now, I don't think it's clear to anyone, including some of the people closest to Donald Trump, what exactly his strategic objectives are,' he added."

Business

Trump executive order strengthens work requirements for neediest Americans

Initiative seeks to require people receiving Medicaid, food stamps, and housing benefits to work.

Tracy Jan

Fed Minutes to Hint at How Trade Spat Could Affect Outlook

Federal Reserve policy makers have been publicly cautious about what a U.S. trade dispute with China could mean for their outlook if it escalates, but investors will get a peek at what they really think when the central bank publishes an account of its March meeting.

Bloomberg

Stock Rally Fades Ahead of Fed Minutes, Inflation Data

Global stocks mostly cooled after Wall Street benchmarks posted their biggest daily gain this month, with many investors watching for an update on U.S. inflation and monetary policy later in the day.

WSJ

The Bank of America Corp. logo is displayed inside of a branch in Charlotte, N.C. (Davis Turner/Bloomberg)

— BofA cuts off gun makers. NYT's Tiffany Hsu: "Bank of America will stop lending money to gun manufacturers that make military-inspired firearms for civilian use, such as the AR-15-style rifles that have been used in multiple mass shootings, a company executive said Tuesday. The policy is the latest example of Wall Street wading into the divisive gun control debate after Citigroup’s announcement last month that it would require business customers to restrict certain types of firearms sales. 'We want to contribute in any way we can to reduce these mass shootings,' Anne M. Finucane, vice chairwoman at the Bank of America, said on Bloomberg TV. The bank works with 'just a handful of manufacturers,' with whom it has had 'intense conversations over the last few months,' Ms. Finucane said."

— Big banks find backdoor to subprime lending. WSJ's Peter Rudegeair and co.: "These days, Wells Fargo Co. and Citigroup are unlikely to make a $14,000 auto loan to a borrower with a subprime credit score. That is now the domain of direct lenders such as Exeter Finance LLC, based in Irving, Texas. But where does Exeter get the money to make subprime auto loans? From Wells Fargo and Citigroup. They have helped lend Exeter $1.4 billion for that very purpose. Bank loans to Exeter and other nonbank financial firms have increased sixfold between 2010 and 2017 to a record high of nearly $345 billion, according to a Wall Street Journal analysis of regulatory filings. They are now one of the largest categories of bank loans to companies."

U.S. companies found ways to avoid taxes before tax bill: report

Fifteen U.S. corporations including online retailer Amazon.com Inc, power company Duke Energy Corp and insurer Prudential Financial Inc avoided U.S. tax on nearly $25 billion in combined profits last year, a tax watchdog group said on Tuesday.

Reuters

Puerto Rico Bondholders Make Final Court Pitches in Key Dispute

Competing groups of Puerto Rico bondholders made their final pitches in court Tuesday to settle one of the most significant questions in the island’s record-setting bankruptcy: Who has the right to its sale-tax revenue, a major source of cash.

Bloomberg

Theranos Lays Off Most of Its Remaining Workforce

Blood-testing firm Theranos laid off most of its remaining workforce in a last-ditch effort to save cash and avert or at least delay bankruptcy for a few more months.

WSJ

The Federal Reserve. (AFP / Karen Bleier) 

— Fed to retool capital rules, stress tests. WSJ's Ryan Tracy and Liz Hoffman: "The Federal Reserve proposed retooling capital rules and annual 'stress tests' for the largest U.S. financial firms, the first major big-bank rule change of the Trump era. The Fed on Tuesday said the changes would simplify rules for big banks such as JPMorgan Chase & Co. and Wells Fargo & Co. without endangering the financial system. 'This proposal significantly simplifies our capital regime while maintaining its strength,' Fed Vice Chairman for Supervision Randal Quarles said. Some parts are likely to be welcomed by big banks. The changes would reduce the possibility banks would fail the Fed’s annual stress tests, which examine whether firms can continue lending during a severe recession."

— Mulvaney on the hot seat. Bloomberg's Elizabeth Dexheimer: "Starting Wednesday when he appears before the House Financial Services Committee, [CFPB director Mick] Mulvaney will endure two days of congressional scrutiny over his role leading a financial regulator that he once called a 'sick, sad' joke... A highlight will be Mulvaney’s faceoff with Senator Elizabeth Warren, the financial industry’s most vocal congressional critic and the CFPB’s biggest defender. Since Mulvaney took over in November, Warren has scrutinized everything from his hiring of GOP congressional aides to his decisions to drop enforcement actions. Mulvaney’s Thursday appearance before the Senate Banking Committee will be the Massachusetts Democrat’s first chance to spar with him publicly."

From GOP lobbyist Bruce Mehlman's latest quarterly report, a look at the return of market volatility this year, which he chalks up to trade uncertainty: 

Today

• The House Financial Services Committee holds a hearing on “The 2018 Semi-Annual Report of the Bureau of Consumer Financial Protection.”
• Facebook CEO Mark Zuckerberg will testify before the House Energy and Commerce Committee.

Coming Up

• The Senate Finance Committee holds a hearing on the 2018 tax season and future IRS challenges on Thursday.
• The Securities and Exchange Commission holds an event on Thursday.
• The House Ways and Means Subcommittee on Human Resources holds a hearing on jobs and opportunity on Thursday.
• The House Ways and Means Committee holds a hearing on the effects of tariff increases on Thursday.
• The Heritage Foundation holds an event on the tax provisions that expired in 2017 on Thursday.
• The House Financial Services Subcommittee on Monetary Policy an Trade holds a hearing on Thursday.
• The House Financial Services Subcommittee on Oversight and Investigations holds a hearing on oversight of the FHFA on Thursday.
• The American Action Forum holds an event on CFIUS reform onFriday.

Here were five of the awkward moments at Zuckerberg's Tuesday hearing: 

Facebook's Zuckerberg has a lot of things to ‘"follow up" on after Hill hearing:

On The Late Show with Stephen Colbert, the Facebook reactions react to Tuesday's hearing: 

And former speaker John Boehner has a new and surprising gig:

Correction: An earlier version gave an incorrect name for Matt Schrader, editor of the Jamestown China Brief.