President Trump crashed his own team’s China talks via tweet on Sunday, reminding Beijing of his prerogative to undermine his top negotiators. It remains unclear what, if anything, he'll have to show for it. 

But the aim, The Washington Post’s Damian Paletta, Ellen Nakashima and Steven Mufson report, is a mini-deal that would lift a U.S. crackdown on Chinese telecom giant ZTE in exchange for Beijing easing penalties on American agricultural exports. 

The president pledged to salvage ZTE — and with it, tens of thousands of Chinese jobs — just weeks after the Commerce Department slapped the company with a severe penalty for making illegal shipments to Iran and North Korea. 

He followed it up later Sunday with this: 

Commerce officials last month choked off ZTE's U.S. supply of microchips and other material, and the company announced last Wednesday that it had quit “major operating activities” as a result. The president’s decision to issue the company a last-minute reprieve “caught many advisers flat-footed because there had not been a broad agreement to change the administration’s position,” Damian, Ellen and Steven write. 

With good reason. 

Set aside the weirdness of the America First president — the one who made a campaign-trail refrain of blasting China for stealing American jobs, and who is edging the country toward a trade war in the name of bringing them back — advocating, suddenly, for Chinese jobs. Set aside that ZTE’s infraction was supplying two rogue regimes Trump is otherwise in the midst of attempting to bring to heel through new, dicey negotiations. And set aside, too, that Trump’s move yesterday kneecapped Commerce Secretary Wilbur Ross, one of his top deputies in the trade offensive who last month declared ZTE’s “egregious behavior cannot be ignored.” (In a Sunday statement clarifying Trump's tweet, White House spokeswoman Lindsay Walters said the president expects Ross to “exercise his independent judgment, consistent with applicable laws and regulations, to resolve the regulatory action involving ZTE based on its facts.”)

Trump has built his brand on the notion there’s no higher good than a huge deal, and he’s willing to do whatever it takes to secure one. But it’s difficult to discern how handing away key leverage — just as intense talks get underway — enhances the Trump team’s negotiating position. 

Before Trump’s tweet, the administration’s move against ZTE carried the implied threat of an even more damaging assault. The United States has also been investigating Huawei, ZTE’s much larger Chinese rival, for a similar set of alleged sanctions violations. “Much larger than ZTE and far more critical to China’s industrial policy plans, Huawei could be a much more significant chip in trade negotiations,” the New York Times’s Paul Mozur and Raymond Zhong write. And the penalty against ZTE suggested Huawei could be next. “While the sanctions at present are limited to ZTE, there is the obvious prospect/risk that similar sanctions ultimately will be imposed on Huawei,” Cowen Research Group’s Paul Silverstein wrote in a note last month.

Trump’s about-face looks primed to remove two threats for the price of one, undercutting the wider U.S. case against China’s intellectual property abuses in the process. Chinese officials raised the issue at a meeting in Beijing earlier this month as one of their demands for a broader agreement, the Financial Times's Sam Fleming and Shawn Donnan report. But Trump's act "appears to pull the rug out from under those in the administration trying to pressure China to restrain its industrial policies and better protect intellectual property,” Scott Kennedy, of the Center for Strategic and International Studies, tells The Post team. One potential beneficiary of Trump's move: Qualcomm, the American semiconductor maker, which had seen its bid to acquire NXP Semiconductors shelved by Chinese regulators. Bloomberg reports the Chinese have restarted that review.

Chinese President Xi Jinping, said to be irate about the ZTE sanctions, is pressing relief ahead of the next round of Sino-U.S. talks. A high-level Chinese delegation in Washington on Friday raised the issue with administration officials, The Post reports. Xi's top economic advisor, Liu He, is expected to resume negotiations with the U.S. side in Washington on Tuesday. 

(And read my colleague Derek Hawkins in today's Cybersecurity 202 about the national security implications of Trump's decision).


More Fed speak on the yield curve this week. Bloomberg's Brian Chappatta: "The fate of the flattening U.S. yield curve now rests squarely in the words of Federal Reserve officials. Bond traders have already reached their verdict. The yield spread between 5- and 30-year Treasuries narrowed last week to as little as 26.2 basis points, the lowest since August 2007. The prospect of an inverted curve, which has presaged past recessions, is as strong as ever... Several more central bankers will have a chance to opine on the phenomenon this week, including incoming New York Fed President John Williams, while the nominee for Fed vice chairman, Richard Clarida, will face Congress. What they signal may prove pivotal in a period otherwise lacking in debt auctions and top-tier data."

Trade friction threatens the dollar. WSJ's Chelsey Dulaney and Joshua Zumbrun: "For decades, central banks have held the bulk of their foreign-exchange reserves in the dollar, reflecting the dominant role the U.S. and its currency have played in global trade. As the U.S. pulls back from partnerships while countries like Mexico and Japan strike their own trade deals, the dollar’s dominance could be undermined, investors and analysts said. That dominance has been referred to as an 'exorbitant privilege,' allowing the U.S. to borrow cheaply and run persistent deficits. Though a less U.S.-centric trade system would take years to fully evolve, it would have significant implications for global central bankers charged with allocating some $11 trillion in reserves."

Health stocks rise after Trump's drug prices speech. Bloomberg's Timothy Annett: "Heading into the Trump administration’s unveiling of new measures to control drug prices, the market appeared to be braced for the worst. Some analysts feared the announcement could herald the dawn of an era of price controls... Shares of pharmacy-benefit managers, perceived by many to be primary targets of Trump’s overhaul, swooned at first as the president promised to take on unspecified 'middlemen' from the White House Rose Garden. As the speech went on, the selling stopped. Soon, PBMs like CVS Health Corp., which ended the day up 3.2 percent, and Express Scripts Holding Co., which bounced 2.6 percent, were on the upswing... 'We think this speech and White House PR are somewhat gentler than many feared,' said Eric W. Coldwell, an analyst at Baird Equity Research."

Corporate earnings have been rising at a torrid rate. While share prices haven’t followed, stock values are improving, our columnist says.
It’s a major symbolic win for China, which for years has craved greater global recognition of its financial markets and a bigger international role for its currency.

Trump keeps pressure on auto makers. WSJ's Mike Colias: "Trump made clear at a White House meeting Friday with top auto-industry executives that he wasn’t done prodding them on jobs—including foreign manufacturers. During a televised portion of the meeting, Mr. Trump told the executives he wants to see 'manufacturing of millions of more cars within the U.S.—for Michigan, for Ohio, for Pennsylvania.' ... Trump’s pressure on car companies could mount as midterm elections draw closer, especially because the auto sector has been a central focus in his effort to generate American factory jobs."

Kudlow tries kindness. Politico's Ben White and Nancy Cook: "Larry Kudlow thinks he can steer Donald Trump’s chaotic White House away from economic disaster by being the nicest guy in the West Wing. Unlike Gary Cohn, his hard-charging predecessor at the helm of the National Economic Council, Kudlow doesn’t yell. He doesn’t have a reputation for knifing policy opponents in the press or badmouthing them to colleagues, as do many aides in the fractious administration... Instead, he’s trying to avoid the collapse of the North American Free Trade Agreement and a bitter trade war with China — both of which could scramble the world’s economic power map — by seeking consensus with colleagues who are inclined to impose stricter trade barriers, staying close to his boss and wooing members of Congress. Even Kudlow doesn’t know if it will work."


Retailers debut new anti-tariff ad. The National Retail Federation is up with a new ad this morning featuring actor and former Nixon aide Ben Stein reprising his iconic classroom scene performance in Ferris Bueller’s Day Off. In the movie, Stein drones in front of a bunch of bored teenagers about the history of Depression-era tariffs; he updates the lesson in the NRF ad to make the case that tariffs are “bad economics.” NRF senior vice president of government relations David French tells me it’s premiering this morning on Fox News’s “Fox and Friends” and MSNBC’s “Morning Joe” and will run on Roseanne and during Saturday Night Live’s season finale next weekend. “It’s part of the cultural lexicon,” French says of Stein’s scene, adding the spot aims to make “ironic use of it to drive home the message that tariffs will raise prices on hardworking Americans.” See the ad here: 

Tariff exemption process creates a mess. NYT's Ana Swanson: "In the two months since the Trump administration’s steel and aluminum tariffs went into effect, the Commerce Department has been deluged with more than 8,200 exemption requests from companies that import foreign metals. With just a handful of countries temporarily exempted from Mr. Trump’s steel and aluminum tariffs, companies are scrambling to win exemptions for every screw and spring they import, with each width and length requiring stand-alone filings. One company alone has submitted 1,167 of the filings, according to government officials. The imposition of tariffs was supposed to help protect American companies from foreign competition. But they have also created a chaotic, time-consuming process and provoked deep uncertainty among executives, who are delaying investment, expansion and hiring as a result."

Companies will weigh in this week. WSJ's Andrew Tangel and William Mauldin: "The Trump administration is set to face criticism this week from a large cross section of corporations, including U.S. giants like General Electric Co. , over how the administration’s proposed tariffs on Chinese imports will affect American manufacturing. The U.S. trade representative’s office will hold three days of hearings from Tuesday on the proposed tariffs. The hearings will not only feature businesses facing supply-chain disruptions because of the tariffs proposed for $50 billion of Chinese imports, but will also feature exporters—from farmers to manufacturers—which are likely to suffer from retaliatory tariffs on U.S. exports threatened by China."


Buckle up as Mueller probe enters second year. The Post's Ashley Parker and co.: "The investigation of Russian interference in the 2016 election, which hits its one-year mark Thursday, has formed the cloudy backdrop of Donald Trump’s presidency — a rolling fog of controversy, much of it self-inflicted, that is a near-constant distraction for the commander in chief... The president vents to associates about the FBI raids on his personal attorney Michael Cohen — as often as “20 times a day,” in the estimation of one confidant — and they frequently listen in silence, knowing little they say will soothe him. Trump gripes that he needs better 'TV lawyers' to defend him on cable news and is impatient to halt the 'witch hunt' that he says undermines his legitimacy as president. And he plots his battle plans with former New York mayor Rudolph W. Giuliani, his new legal consigliere.  'We’re on the same wavelength,' Giuliani said. 'We’ve gone from defense to offense.'"

President Trump made waves in March when he declared that the Postal Service was losing money on every package it delivered for Amazon. But the release of its second quarter results paints a much more complicated picture.
Eli Rosenberg
Feinberg is the co-founder, executive chairman and co-chief executive officer of Cerberus Capital Management, an investment firm that also owns defense contractor DynCorp International.

Fed confirmation hearings Tuesday. The Senate Banking Committee will consider a pair of Federal Reserve nominations tomorrow: Richard Clarida to serve as vice chairman of the central bank and Michelle Bowman to become a member of its seven-member board of governors. Capital Alpha's Ian Katz writes both are expected to get through the hearing comfortably: "We don’t expect any big problems for Clarida and Bowman, unless they surprise us."

Freedom Caucus members face fall fights. WSJ's Kristina Peterson: "In a sign of the fight for control of the House, at least five members of the roughly three dozen caucus members face competition in the fall’s midterm elections. That’s a smaller percentage than within the whole House GOP, but Democrats need to net just 23 seats to retake control, and they are fighting for them everywhere—even in the most conservative pockets where seats are usually the safest. And, unlike many of the more centrist Republicans who are accustomed to battling Democratic challengers, many of the most vulnerable Freedom Caucus members are running with less money in the bank and in districts where their deeply conservative voting records might not be welcome."


States jammed by tax law. NYT's Ben Casselman: "The federal tax overhaul cut taxes for millions of American families and businesses. But the law also had an unintended effect: raising the state-tax bite in nearly every state that has an income tax. Now, governors and state legislators are contending with how to adjust their own tax codes to shield their residents from paying more or, in some cases, whether to apply any of the unexpected revenue windfall to other priorities instead... A handful of states have already taken action, in some cases using the extra revenue from the federal law as lubrication for deal-making. Colorado, for example, took advantage of its estimated $200 million in extra revenue to pass a budget that included extra funding for roads, public education and school security. Idaho, on the other hand, moved quickly to return the revenue windfall to residents through tax cuts."

Blockchain Week comes to NYC. CNBC's Evelyn Cheng and Kate Rooney: "Cryptocurrency conferences are still a massive business, even if bitcoin's price has plunged this year. When it kicks off this week, one ticket to CoinDesk's Consensus three-day conference in New York City can cost roughly $2,000. Well over 4,000 are expected to attend, up from 2,700 attendees last year. So at a minimum, the conference is likely bringing in $8 million. More than 20 other events, some with similarly high entrance fees, are also scheduled during the days around Consensus. The bitcoin conference that began with 400 attendees three years ago is now the centerpiece of a full-blown 'Blockchain Week NYC,' an event run in partnership with the New York Economic Development Corporation."

Two days after Chris Matta earned a prized promotion at Goldman Sachs, he decided to walk away from it all.
HSBC Holdings Plc said on Monday it had performed the world's first trade finance transaction using blockchain technology, a major step in boosting efficiency and reducing errors in the multi-trillion-dollar funding of international trade.
With Vincent Mai at Cranemere Group, they are rejecting the debt-fueled buy-and-sell grind of private equity and doing it old school like Buffett.
Thomas Heath

Credit union regulator works from home in Dallas. The Post's Robert O'Harrow and Andrew Ba Tran: "The man named by... Trump last year to oversee regulation of the nation’s $1.4 trillion credit union industry has taken a novel approach to the agency he leads. Instead of going to his office near Washington every day, J. Mark McWatters works from his home. In Dallas. McWatters, whose salary as chairman of the National Credit Union Administration board is $165,300, may be the federal government’s most unlikely telecommuter. The arrangement adds a wrinkle to the tendency among some Trump administration officials to spurn traditional government norms. An NCUA spokesman confirmed a Washington Post finding that McWatters works from Dallas and declined to say how often he travels to the headquarters in Alexandria, Va., where more than 400 of the agency’s 1,200 employees are based."

Industry lawyer to head FTC consumer protection. NYT's Jack Nicas: "The Federal Trade Commission is expected to appoint an industry lawyer who has represented Facebook, Uber and Equifax to lead the agency’s consumer protection bureau tasked with policing those companies. The lawyer, Andrew M. Smith, would recuse himself from any potential investigations or enforcement involving dozens of companies he has worked for over the past two years while at Covington & Burling in Washington, including many banks, lenders, credit-reporting agencies and technology companies... Those recusals would force Mr. Smith to step aside from his bureau’s most prominent investigations: the investigations into incidents at Facebook and Equifax that leaked the personal data of tens of millions of people. He also would not be involved in enforcing a F.T.C. settlement with Uber over a data breach."

SEC: BlackRock may keep Ohio fees. Reuters's Trevor Hunnicutt: "BlackRock Inc can keep fees from the state of Ohio despite a donation one of its top executives made to Governor John Kasich’s U.S. presidential campaign, according to a preliminary ruling late on Friday by a securities regulator. Mark Wiedman, a senior managing director for the world’s largest asset manager, donated $2,700 to Kasich’s unsuccessful campaign when the politician was seeking the Republican Party nomination in 2016, according to public records. The money was later returned. A federal securities rule prohibits companies’ executive officers from making donations to government officials who could influence the hiring of a fund manager and then providing asset management services to those governments for a fee. The ban is in effect for two years after the contribution is made."



  • The National Press Club holds a luncheon with Commerce Secretary Wilbur Ross.
  • The Center for Strategic and International Studies holds an event on China’s credit risks.

Coming Up

  • The Senate Banking, Housing and Urban Affairs holds an executive session on Tuesday.
  • The Senate Banking, Housing and Urban Affairs holds a nomination hearing on Tuesday.
  • The Hill holds an event on NAFTA on Wednesday.
  • The House Education and the Workforce Subcommittee on Health, Employer, Labor and Pensions holds a hearing on retirement security on Wednesday.
  • The House Ways and Means Committee holds a hearing on tax reform on Wednesday.
  • The House Financial Services Subcommittee on Terrorism and Illicit Finance holds a hearing on “Implementation of FinCEN’s Customer Due Diligence Rule” on Wednesday.
  • The House Appropriations Subcommittee on Transportation, Housing and Urban Development, and Related Agencies holds a markup on Wednesday.
  • The House Financial Services Subcommittee on Capital Markets, Securities and Investment holds a hearing on oversight of the SEC’s Division on Enforcement on Wednesday.
  • The House Financial Services Committee holds a hearing on “Community Development Block Grant-Disaster Recovery Program – Stakeholder Perspectives” on Thursday.
  • The Business Roundtable holds an event on infrastructure on Thursday.
  • The Consumer Financial Protection Bureau holds the spring 2018 credit union advisory council meeting on Thursday.
  • Politico’s Morning Money hosts a briefing with Rep. Jeb Hensarling (R-Tex.) on Thursday.

From the New Yorker: 

A cartoon by Kim Warp, from 2011. #TNYcartoons

A post shared by The New Yorker Cartoons (@newyorkercartoons) on

Republicans don’t want President Trump to fire special counsel Robert S. Mueller III. They just won't protect Mueller if Trump decides to fire him

Watch President Trump outline his plan to lower drug prices: 

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