Business executives across the country are registering alarm about the Trump team's aggressive push on trade even as the president's base largely embraces the moves.

The Fed’s latest beige book report released Wednesday  — for which each of the nation’s 12 regional banks survey business leaders, investors and economists in their areas — included 36 mentions of tariffs. The last such survey, published in early March, included none. These widespread fears of a trade war are darkening the picture for an economy otherwise expanding at a healthy clip, and stand in stark contrast to recent polling that shows GOP voters are lining up behind Trump in his trade fight with China. 

In Washington, the Trump team’s protectionist pivot still looks like more talk than action: The administration announced global tariffs on steel and aluminum last month, then issued exemptions for most of the imports of both metals; it has proposed $50 billion in tariffs on Chinese electronics, machinery and aerospace products but won’t finalize that list until May 22 and may take longer still to impose them if it does so at all; and it has followed up by threatening an additional $100 billion in duties on Chinese products but has yet to name them. 

Out in the states, the Fed report showed the specter of a jarring trade war is anything but hypothetical for some executives. In the Boston area, a toy manufacturer relying heavily on Chinese production called tariffs a major risk. Another who uses Chinese aluminum said the tariffs “are now killing high-paying American manufacturing jobs and businesses.” A Virginia display-case manufacturer reported stockpiling steel in anticipation of higher prices. An architecture firm in the Dallas area noted rising steel costs could force clients to cancel construction projects. The New York Times, meanwhile, finds plenty of raw nerves in farm-belt states — and rising danger for Republicans as a consequence. 

New York Fed president William Dudley put a finer point on the anxiety reflected in the beige book during an appearance in the Bronx on Wednesday. “A tariff war would be a terrible, terrible outcome,” he said. “I would not look at a trade war as something we can win. I don’t really think a trade war is a winnable proposition.”

The measures and countermeasures that Washington and Beijing have pledged aren’t sufficient to take a meaningful bite out of economic growth. And there’s no indication that the action is prompting the Fed to shift its schedule for raising interest rates. That could change if the tensions spiral into a tit-for-tat cycle of recriminations. “I think the Fed’s on high alert,” says Moody’s Analytics Chief Economist Mark Zandi. And though the trade threats aren’t yet making an impression on the data that policymakers examine, “the fear of tariffs is clearly having some economic consequence.”

One potential flashing red light on policymakers’ dashboard: The New York Fed’s manufacturing survey, out yesterday, showed a sharp drop in expectations for the next six months — a decline that High Frequency Economics Chief Economist Jim O’Sullivan said may owe to trade fears. 

Although investors appear increasingly inclined to look past the saber-rattling, O’Sullivan said he has “little doubt that the equity market would be stronger if it weren’t for worries about a trade war, given earnings strength.” Investors and executives alike need to stay tuned to see how the Trump administration shapes its approach over the weeks ahead. “I think a lot could happen between now and the first of June on this,” O’Sullivan said. 


Banks break records, markets shrug. Bloomberg News's Laura Keller and Sonali Basak: “U.S. banks are churning out profits like never before, and shareholders just aren’t feeling it. Corporate tax cuts helped the six largest U.S. banks produce combined net income that surpassed $30 billion for the first time ever. Their trading revenue was the highest in three years as they capitalized on volatile equity markets. Rising interest rates fueled revenue from lending. Yet, most of the banks’ stocks have followed a similar pattern in recent days, initially rising as each company posted results only to erase gains as the hours wore on. Analysts and even some bank executives poured cold water on the sustainability of the performance.”

Flattening yield curve raises alarms. WSJ's Daniel Kruger and Sam Goldfarb: "The gap between short- and long-term Treasury yields is at its narrowest in more than a decade, reflecting investors’ confidence that the Federal Reserve will maintain its current pace of interest-rate increases despite continuing skepticism about the longer-term outlook for economic growth and inflation. The difference between the two-year Treasury yield and the 10-year Treasury yield, known on Wall Street as the 2-10 spread, settled Tuesday at 0.428 percentage point, its tightest since 2007, before steepening modestly Wednesday. Two-year yields tend to rise along with investors’ expectations for tighter Fed interest-rate policy, while longer-term yields are more responsive to sentiment about prospects for the economy."



NAFTA deal in three weeks. CNBC's Kayla Tausche: "The U.S. is aiming to reach a deal in principle with Canada and Mexico on the North American Free Trade Agreement in the next three weeks, according to congressional aides and industry executives who have been briefed by the Trump administration. In the last week, U.S. Trade Representative Robert Lighthizer told lawmakers in one-on-one phone calls to allow two weeks for high-level talks to conclude, and an additional two weeks for the fine print to be hammered out, according to aides. A senior administration official confirmed that this was the timing the U.S. expected."

Trump-Abe bromance finds its limits. AP: "Trump appeared to be successful Tuesday in reassuring [Japanese Prime Minister Shinzo] Abe that he would take Japan’s concerns to heart during his upcoming meeting with North Korea’s Kim Jong Un. But Wednesday brought public disagreements, as Trump spurned his guest’s top economic and trade priorities. Principal among them: Allowing Japan an exemption from new U.S. steel and aluminum tariffs and persuading Trump to re-join the Trans-Pacific Partnership trade deal... When pressed on the economic disagreements, Abe repeatedly consulted notes as he tried to sidestep questions on the contentious issues, instead returning to Trump’s favored call for developing a 'reciprocal' trade relationship with the U.S. It marked a stark departure from Abe’s pre-summit hopes of coaxing the U.S. back into the TPP. And Japan remains the only major U.S. ally not to be exempted from the tariffs announced last month."

World learns to ignore Trump. Politico's Ben White and Megan Cassella: "Wall Street, corporate America and the diplomatic world are settling on a strategy to deal with President Donald Trump’s rapidly shifting statements on critical issues like trade deals and Russia sanctions: Just ignore him. Trump last week shocked the world by suggesting he might rejoin the giant Trans-Pacific Partnership, an 11-nation pact among nations representing 13 percent of the global economy. He reversed himself days later... In ordinary times, a declaration like the one Trump made about TPP would have sent stocks soaring, thrilled exporters and sent corporate strategists scrambling to assess the impact. But none of that really happened. Financial markets and America’s trading partners largely ignored the comments as a throwaway line."

Tax cuts will deepen trade deficit. WSJ's Greg Ip: "Among... Trump’s most deeply held economic convictions is that trade deficits are bad, yet his signature economic policy—a major tax cut—likely will deepen the trade deficits he abhors for years to come. For now, that’s more a problem of optics than economics, albeit one that may prompt Mr. Trump to dial up trade tensions with other countries. But in the long run wider trade deficits will make Americans poorer. That’s not because foreigners are stealing American jobs, as Mr. Trump often contends. Rather, it’s because Americans will increasingly borrow from foreigners to sustain their standard of living. Paying them back will wipe out a sizable chunk of the tax cut’s benefit."

Qualcomm caught in crossfire. NYT's Ana Swanson and Alexandra Stevenson: “A major supplier in both China and the United States, the San Diego-based chip maker has long managed to play the trading relationship between the world’s two largest economies to its advantage. But an escalating trade battle over which country will dominate the technologies of the future is now threatening Qualcomm’s business and its growth. On Monday, Qualcomm lost the ability to export semiconductors to one of its biggest customers after the United States banned Chinese telecom equipment maker ZTE Corporation from purchasing American technology for seven years. In China, Qualcomm’s plan to acquire NXP Semiconductors, a critical part of its growth strategy, has been stalled by a prolonged antitrust review, a move critics see as Chinese retaliation for ... Trump’s aggressive trade moves.”

Trump eases off Mueller, Rosenstein? The Washington Post's Anne Gearan: “Trump suggested Wednesday that he is in no hurry to fire either special counsel Robert S. Mueller III or Mueller’s boss, Deputy Attorney General Rod J. Rosenstein, and asserted again that the inquiry into Russian interference in the 2016 election is part of 'a hoax.' 'They’ve been saying I’m going to get rid of them for the last three months, four months, five months, and they’re still here,' Trump said. 'So we want to get the investigation over with, done with, put it behind us.' Trump also said he would impose additional sanctions on Russia when needed, and he bristled at the notion that he had backed away from a new round of penalties associated with alleged Russian help for Syrian chemical weapons production.”

Denies Russia was behind Comey firing. The Post's John Wagner and Devlin Barrett: "Trump on Wednesday took to Twitter to deny that he fired James B. Comey as FBI director because of the bureau’s 'phony' investigation into Russian interference in the 2016 elections, including possible interaction with the Trump campaign. The tweet came shortly after an appearance by Comey on NBC’s 'Today' show to promote his new book, during which he said there 'could be” an obstruction-of-justice case to be made against Trump, given the circumstances under which Comey was fired.'"

 The tweet: 

The agency said there was no reason to believe taxpayers’ private data had been breached.
Jeff Stein

Senate votes to kill anti-bias rule. The Post's Renae Merle: “The Senate on Wednesday voted to kill a five-year-old Obama administration policy warning auto lenders not to discriminate against minority borrowers. The legislation, which passed 51 to 47 largely along party lines, is the latest Republican rebuke of the Consumer Financial Protection Bureau’s history of aggressive tactics. Sen. Joe Manchin III (W.Va.) was the only Democrat to vote in favor of the measure. The auto industry complained for years about the CFPB guidance, which they said was unfair... Democrats and consumer advocates cautioned that rescinding the CFPB guidance would encourage bad behavior in the more than $1 trillion auto finance market.”

GOP divided on new tax cuts. The Post's Erica Werner: "Heading into a contentious campaign for control of Congress, Republicans are increasingly divided over how to bolster their signature legislative achievement — a $1.5 trillion tax cut — amid signs it is not the political gift they had expected it to be last year. House Speaker Paul D. Ryan (R-Wis.) aims to pass another massive tax cut this summer, which Republicans hope will rev up the GOP base and improve the standing of Republicans at the polls. But Senate Majority Leader Mitch McConnell (R-Ky.) is under pressure to block a vote, which Republican campaign strategists worry could allow red-state Democrats to vote for additional tax cuts and undermine one of the GOP’s most effective lines of attack in conservative-leaning states: that Democrats voted against a big tax cut last December."

How Tony Podesta lost it all. WSJ's Brody Mullins and Julie Bykowicz serve up a must-read about how the stunning collapse of a K Street kingpin: "His lobbying firm ended 2015 as the third largest in Washington, D.C., with nearly $30 million in revenue from more than 100 clients, spanning Alphabet Inc.’s Google to Wells Fargo & Co. With his longtime friend Hillary Clinton expected to win the White House, 2016 promised to be even better.

"Mr. Podesta, a conspicuous presence in his red shoes and Italian suits, hosted lawmakers and power brokers at his flat in Venice during the Art Biennale. It was one of many homes around the globe, including the Washington mansion where he displayed a collection of museum-grade artwork. In early 2016, he was ready to buy a $7.4 million condo overlooking Madison Square Park in New York City. Then he fell, a calamitous collapse propelled by unexpected blows, delivered by fate and made worse by hubris. Financial problems, legal threats and the election of... Trump took it all away—the clients, the firm and, finally, Mr. Podesta’s position as one of Washington’s most influential players."

House Republicans unanimously voted to advance their Farm Bill, even as Democrats excoriated it as an “ideological crusade” that would hurt the poor.
Caitlin Dewey

Bewkes blasts the feds. The Post's Brian Fung: “Time Warner chief executive Jeff Bewkes denied Wednesday that AT&T will raise the price of TV channels such as CNN and TBS as a result of the two companies’ $85 billion merger, calling the Justice Department’s landmark case to block the deal 'ridiculous.' 'I think it’s ridiculous,' he said. 'It’s not how this works.' Testifying in federal court, Bewkes alleged that the tech industry — propelled by, Facebook, Google and Netflix — has dealt a 'double-whammy' to his business, and that Silicon Valley poses a greater threat to Time Warner’s survival than AT&T and Time Warner pose to other TV providers, such as Comcast or Cox Communications.”

Goldman's makeover. FT's Ben McLannahan: Goldman Sachs "is trying to pull off a radical makeover, offsetting persistent weakness in its core business of trading by pushing into lending. The most obvious sign of that effort is Marcus, the online-only bank: it has raced to about $3bn of consumer loans in 18 months of operations, and is busily buying businesses like Clarity Money, that steers people toward cheaper loans. The lending push is across the board: from Goldman’s investment banking unit, where bankers are under orders to offer clients humdrum services such as revolving lines of credit; to the private-banking division, where wealth managers are urging clients to borrow against their stock portfolios or other assets such as paintings, boats or property."

Facebook downgraded. Bloomberg News's Elena Popina: “Shares of social media giant Facebook Inc. fell Wednesday after the stock got its first downgrade since January. Research firm OTR Global cut its rating to mixed versus positive amid concern that year-over-year growth in advertisement spending moderated in the first quarter of 2018. The last downgrade of the stock prior to OTR was made by Stifel Nicolaus & Co.’s Scott Devitt in January, before the scandal involving Cambridge Analytica.”

Puerto Rico forges turnaround plan. Reuters's Nick Brown: “Puerto Rico’s federally-appointed oversight board on Wednesday unveiled a framework for the bankrupt island’s fiscal turnaround that breaks with Governor Ricardo Rosselló’s vision, pushing pension cuts and labor reforms while hinting at layoffs. The plan, expected to be approved by the board at a public hearing beginning Thursday in San Juan, forecasts $6.7 billion in debt payment ability through 2023. Tasked with helping the U.S. territory regain access to debt markets, the board has been negotiating with Rossello for months on a fiscal blueprint for Puerto Rico’s recovery from the dual scourges of fiscal insolvency and natural disaster. But the board can impose a plan unilaterally if it cannot reach terms with the governor.”

(Meanwhile, the island was hit by another island-wide blackout Wednesday. The Puerto Rico Electric Power Authority said it could last from 24 to 36 hours.)

JPMorgan Chase comes to Washington. The Post's Aaron Gregg: "JPMorgan Chase, America’s largest bank, is opening its first consumer banking branches in the D.C. area as part of an aggressive push to put brick-and-mortar branches in up to 20 new U.S. markets within the next five years, chief executive Jamie Dimon said Wednesday on CBS Evening News. The expansion will bring 70 commercial banking branches to the region, resulting in an estimated 700 new hires, the company said. JPMorgan Chase also said it would provide $4 billion in home and small-business loans around the region, boost affordable-housing lending by 50 percent to $500 million and increase an earlier philanthropic donation from $10 million to $25 million."

More than 100 million people globally are now paying for Amazon Prime, a sign of how Inc. has used the service to evolve from an online marketplace that struggled with profitability into an e-commerce powerhouse.
Jessica Casucci, who’s filed a complaint with the Equal Employment Opportunity Commission, claims three employees sexually assaulted and harassed her.
Daily Beast
Globalization has brought the most advanced trading networks the world has seen, with the biggest, fastest vessels, robot-operated ports and vast computer databases tracking cargoes. But it all still relies on millions and millions of paper documents.

SEC pitches fiduciary rule. Reuters's Elizabeth Dilts: “The U.S. Securities and Exchange Commission on Wednesday proposed a new rule that would require brokers at firms like Morgan Stanley and Merrill Lynch Wealth Management to clearly explain the fees investors pay and commissions brokers earn when giving financial advice. The 1,000-page Regulation Best Interest would require brokerages to put that information, along with any conflicts of interest and questions clients should ask, in a four-page disclosure document that brokers would be required to give investors ... If passed, it would replace the Obama-era fiduciary rule, which was issued by the Labor Department and was overturned in March by the 5th U.S. Circuit Court of Appeals.”



  • The American Enterprise Institute holds an event on the future of corporate taxation.
  • Vice chairman of the Federal Reserve Randal Quarles testifies before the Senate Banking, Housing and Urban Affairs Committee.
  • The American Bankruptcy Institute’s annual spring meeting begins.

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