President Trump isn’t holding his own hard line against China in the face of pushback from Beijing. Now the question becomes whether he will hold his new, softer line as he confronts pushback at home.
The president’s shock statement Sunday that he’s ordering his administration to ease severe penalties against Chinese telecom giant ZTE because officials were costing “too many jobs in China” met with a bipartisan backlash on Monday. The criticism forced Trump onto the defensive:
ZTE, the large Chinese phone company, buys a big percentage of individual parts from U.S. companies. This is also reflective of the larger trade deal we are negotiating with China and my personal relationship with President Xi.— Donald J. Trump (@realDonaldTrump) May 14, 2018
The company earned the crackdown for selling telecom gear to Iran and North Korea in violation of U.S. sanctions. But President Xi Jinping and his top trade negotiators demanded relief. In return, they reportedly are offering to buy more U.S. goods, end tariffs on American agricultural exports and remove roadblocks to Qualcomm’s acquisition of Chinese chipmaker NXP.
That would amount to a rotten deal, voices from across the spectrum warned Trump on Monday. Senate Minority Leader Chuck Schumer (D-N.Y.), who has offered the president rare praise this year for confronting Chinese mercantilism, accused Trump of embracing a “make China great again” policy:
This leads to the greatest worry, which is that the president will back off on what China fears most – a crackdown on intellectual property theft – in exchange for buying some goods in the short run. That’s a bad deal if there ever was one.— Chuck Schumer (@SenSchumer) May 14, 2018
Sen. Marco Rubio (R-Fla.) called ZTE a national security threat, saying the administration is “crazy” to let it operate without stricter oversight and worrying the Trump team is “backing down to China.”
Problem with ZTE isn’t jobs & trade, it’s national security & espionage. Any telecomm firm in #China can be forced to act as tool of Chinese espionage without any court order or any other review process. We are crazy to allow them to operate in U.S. without tighter restrictions https://t.co/AXtTDgufc9— Marco Rubio (@marcorubio) May 14, 2018
I hope this isn’t the beginning of backing down to China. While Chinese companies have unrestricted access to U.S. market & protection of our laws many U.S. companies have been ruined after #China blocked market access or stole their intellectual property https://t.co/zUFmiul786— Marco Rubio (@marcorubio) May 14, 2018
Hitting closer to home for Trump, his move drew critiques from a pair of conservative commentators on prime time cable whom the president is known to look to for validation:
China wins If U.S. Globalists prevail in this so-called "bargain" with ZTE: China will simultaneously gut WH trade initiatives and Trump Iran doctrine- Trump's grand bargain on China https://t.co/RZdoxTNF0W #AmericaFirst #MAGA @realDonaldTrump #TrumpTrain #Dobbs— Lou Dobbs (@LouDobbs) May 14, 2018
China has a plan to dominate the world in every major facet of innovation and manufacturing. An overly conciliatory approach merely facilitates China’s “Made in 2025” plan. @realDonaldTrump— Laura Ingraham (@IngrahamAngle) May 14, 2018
Trump’s about-face — after ages of talking tough about Chinese trading abuses, more than a year of campaigning on his singular ability to end them, and several months of pushing a confrontation aimed at seeing that through — caught his own team flat-footed.
“After Trump’s Sunday tweet, White House officials spent much of the next 24 hours attempting to walk back his statement, saying ZTE’s fate would ultimately be left up to a review by [Commerce Secretary Wilbur] Ross,” The Washington Post’s Damian Paletta, David J. Lynch and Josh Dawsey write. “And Monday afternoon, Ross insisted in a speech at the National Press Club that ZTE would not be a factor in the trade talks,” a claim Trump undermined just a few hours later with his tweet linking the two matters.
As Ross and his fellow trade hawks look boxed out, Treasury Secretary Steven Mnuchin appears to be leading a resurgence of the administration’s moderates. “Mr. Mnuchin has taken the lead role in trying to head off potentially harmful tariffs and investment restrictions on China and has succeeded, at least for now, in persuading Mr. Trump to adopt a more conciliatory approach than the president’s more hard-line advisers have advocated,” The New York Times’s Ana Swanson, Mark Landler and Keith Bradsher write.
The approach risks abandoning the structural reforms that the administration set out to secure in the first place. "The Chinese are playing chess with Deep Blue, and President Trump is playing tic tac toe," says Scott Mulhauser, former Chief of Staff at the U.S. Embassy in Beijing. "If you want to play a long-term strategy with China, you need to withstand some pain in the near term to get better outcomes. Some of that is sticking by tough penalties on companies that violate sanctions. Some of that is willingness to sustain difficult moments."
A more charitable view, from National Bureau of Asian Research President Richard Ellings, holds that Trump's moves have more to do with his North Korean diplomacy. "A possibility is that the unfolding, slow motion rapprochement with North Korea may be quite a pill for China to swallow," Ellings emails. "Trump may be signaling to China that he’ll work with it as well play a diplomatic card in its neighborhood."
Trump and his team likely will hear it from both sides today. “The rapidly changing U.S. position highlights the stakes — and the confusion — ahead of crucial negotiations Tuesday between Trump’s senior economic team and a Chinese delegation led by Vice Premier Liu He,” The Post team writes. Meanwhile, Trump is set to join Senate Republicans in the Capitol for their weekly lunch, where Senate Majority Whip John Cornyn (R-Tex.) said the issue could arise.
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— Goldman warns on interest rates. CNBC's Jeff Cox: "The unemployment rate is now at 3.9 percent and falling, while the budget deficit was at $668 billion in 2017 and is expected, according to the Congressional Budget Office, to top $1 trillion by 2020. That's a dual phenomenon that is highly uncommon in the U.S., according to Goldman economists... To meet the growing debt load, the U.S. will have to issue more bonds at a time when the Federal Reserve is no longer a player in the market. More supply and fewer buyers will mean the government will have to pay investors more to buy U.S. debt. And that will mean higher interest rates. Goldman specifically projects the benchmark U.S. Treasury note will be yielding 3.6 percent by the end of 2019, up from a shade below 3 percent where it's trading now and at a point where it could start applying pressure to economic growth."
— Dow rises as trade concerns ease. CNBC's Fred Imbert and Sam Meredith: "Stocks closed higher on Monday amid hopes of a potential breakthrough in trade tensions between the U.S. and China, the world's two largest economies. The Dow Jones industrial average rose 68.24 points to 24,899.41, with UnitedHealth and Walmart as the best-performing stocks in the index. The 30-stock index also extended its winning streak to eight straight days. The S&P 500 gained 0.1 percent to close at 2,730.13, with energy, health care and materials outperforming. The Nasdaq composite advanced 0.1 percent and finished at 7,411.32."
— Trump-linked project backed by $500 million in Chinese loans. This story published Friday but has gathered a lot more attention since Trump's Sunday tweet suggesting he's backing off his trade confrontation with China. AFP: "A billion-dollar Indonesian property development with ties to Donald Trump has become the latest project in China’s globe-spanning Belt and Road infrastructure project – just as Washington and Beijing are tussling over trade. A subsidiary of Chinese state-owned construction firm Metallurgical Corporation of China signed a deal with Indonesia’s MNC Land to build a theme park outside Jakarta as part of the ambitious project... The deal is the latest to raise questions about the extent of Trump’s financial exposure to Beijing. The park – expected to be backed with up to $500 million in Chinese government loans – is part of an 'integrated lifestyle resort', known as MNC Lido City. The project includes Trump-branded hotels, residences and a golf course, as well as other hotel, shopping and residential developments."
The report has Trump skeptics speculating that the president is taking official action to benefit his private investment.
From New Yorker writer Adam Davidson:
From NYT deputy Washington editor Jonathan Weisman:
Do you think a Democratic Congress might, say, hold a hearing about this? https://t.co/yvbz6PtRMF— (((JonathanWeisman))) (@jonathanweisman) May 15, 2018
— NAFTA negotiators set to miss deadline. Bloomberg's Eric Martin, Jenny Leonard, and Josh Wingrove: "Nafta negotiators from the U.S., Canada and Mexico are poised to miss the deadline this week cited by House Speaker Paul Ryan, the latest blown marker for reworking the 24-year-old deal. U.S. Trade Representative Robert Lighthizer, Mexican Economy Minister Ildefonso Guajardo and Canadian Foreign Affairs Minister Chrystia Freeland aren’t scheduled to meet together in person this week... The trio met at least bilaterally every day last week... The Trump administration is increasingly preoccupied with its efforts to reach a peace deal with North Korea and avoid a trade war with China... Lower-level Nafta talks will continue and could yield a breakthrough and a ministerial meeting, but none has been scheduled so far."
— Cook urged Trump against tariffs. Bloomberg: "Apple Inc. Chief Executive Officer Tim Cook said he criticized Donald Trump’s approach to trade with China in a recent White House meeting, while urging the president to address the legal status of immigrants known as Dreamers... In the interview on 'The David Rubenstein Show: Peer-to-Peer Conversations,' Cook acknowledged that previous trade policies were flawed but said Trump’s move is also problematic. 'It’s true, undoubtedly true, that not everyone has been advantaged from that -- in either country -- and we’ve got to work on that,' Cook said. 'But I felt that tariffs were not the right approach there, and I showed him some more analytical kinds of things to demonstrate why.'"
— Lagarde: Protectionism may sap growth. Bloomberg: "IMF Managing Director Christine Lagarde warned that a surge in trade protectionism could sap the momentum of the global economic upswing. 'The stakes are high because the health of the global economy depends on healthy trade flows. The rebound in trade has recently contributed to stronger global economic growth,' Lagarde said Monday, according to the prepared remarks of a speech in Portland, Oregon. 'And yet, rising protectionism could stop this positive momentum in its tracks... We at the IMF are keenly aware of what could happen when trade gets interrupted, when economic bridges are damaged,' she said, noting the International Monetary Fund was founded more than 70 years ago 'precisely to help prevent a return to the self-defeating policies of the Great Depression' such as protectionism."
— JPMorgan applies to set up majority-owned business in China. Reuters: "JPMorgan Chase said on Monday it has applied to China’s securities regulator to set up a securities business in which the U.S. bank would own a majority stake under recently relaxed ownership rules. The unit, in which JPMorgan would own 51 percent, would allow the firm’s corporate and investment banking divisions to seek more Chinese clients on the mainland in an effort to expand and grow their businesses, JPMorgan said in a statement. The U.S. bank also said it is looking to double its research coverage of China-listed companies across all sectors, and that it has appointed banking veteran Mark Leung as chief executive of its China business."
—China acknowledges stepped up pork inspections. Reuters: "China’s customs said on Monday it had ramped up inspections of U.S. pork and had taken unspecified regulatory steps on high-risk waste imports. China’s General Administration of Customs said it has increased inspections of U.S. pork imports after finding problems recently... It gave no details of the problems it had encountered."
— Democrats demand info from AT&T, Novartis. CNBC's Kevin Breuninger: "Senate Democrats sent dozens of questions to AT&T and Novartis on Monday, saying the multinational companies' recently revealed payments to the company of... Trump's lawyer 'raise obvious questions about corruption.' ... The letters sent to the two corporations were led by Sen. Elizabeth Warren, D-Mass., and signed by Sen. Richard Blumenthal, D-Conn. Sen. Ron Wyden, D-Ore., sent his own questions to Novartis' CEO on May 11, and signed Warren and Blumenthal's letter to AT&T. Both letters say that the 'unusual' series of payments to Cohen's company raise questions about a potential "pay-for-play operation' involving the companies and the Trump administration."
— Hedge fund execs cut off GOP over tax law. CNN's Rebecca Berg: "Some of the Republican Party's powerhouse donors in fact feel deeply stung by the law and have made their displeasure known to party leaders by keeping their wallets shut... All have so far withheld contributions to the House and Senate Republican campaign arms... The donors who have boycotted, all of whom are leaders of prominent hedge funds, include Paul Singer, of Elliott Management; Citadel's Ken Griffin; Warren Stephens of Stephens Inc.; Cliff Asness of AQR; Bruce Kovner, formerly of Caxton; and Third Point's Daniel Loeb. Combined, their donations accounted for more than $50 million to Republican groups during the 2016 election cycle; Singer ranked among the top 10 donors of either party, while Griffin and Stephens ranked in the top 20. Collectively, they have bristled at what they view as favored treatment for corporations under the law. While the corporate tax rate was slashed from 35% to 21%, hedge funds are largely taxed at the top individual rate, which ticked down from 39.6% to 37%."
Meanwhile, GOP tax cut claims don't add up. Politico's Brian Faler: "Republicans facing a tough midterm election season are pointing to the strong economy as proof their new tax law is working its magic. But as campaign ads tout swelling payrolls and lawmakers spotlight companies handing out employee bonuses, there’s little evidence the tax cuts are already having an impact across the economy, which was already humming even before the law was enacted. Unemployment, which dropped to 3.9 percent in April, has been declining for years, falling to 4.1 percent before the tax cuts were approved. The billions in bonuses being handed out are tiny compared to the trillions of dollars in overall wages that Americans workers earn – and with the tight labor market, they might have been handed out anyway... 'It's just way too early to see any kind of evidence of faster growth, faster investment, more labor supply — any of that stuff,' said Joel Prakken, chief economist at Macroeconomic Advisers by IHS Markit."
— Goldman shakes up trading unit. WSJ's Liz Hoffman: "Goldman Sachs is shaking up the leadership of its powerful trading arm, which was once the envy of Wall Street but has struggled in recent years. Pablo Salame and Isabelle Ealet, two of three executives who oversee the division, will leave the firm next month... Monday’s shake-up leaves Ashok Varadhan as the sole head of the division and could tee up an effective split of the firm’s fixed-income and equities arms, an idea that has gotten some discussion among executives, according to people familiar with the matter."
— Chinese tech threatens Silicon Valley. The Atlantic's Alec Ash: "China’s booming start-up scene has become as much a feature of its top-tier cities as traffic and smog... It used to be that college graduates applied for jobs at banks or state-owned enterprises, the proverbial 'iron rice bowl' that their parents sought for them after the chaos of the Cultural Revolution. But many of those jobs were unsatisfying: In a 2012 Gallup survey, 94 percent of Chinese respondents said they were unengaged with their jobs. Now, with public and private funding flowing into Chinese start-ups, entrepreneurship has become an appealing alternative for a generation disillusioned with the conveyor-belt career paths of their forebears... [Xi's] consolidation of power... means that policy can reshape economy through a level of top-down control that democracies cannot emulate. Chinese leaders are looking to young entrepreneurs to spearhead the transformation."
— Big companies refine robots' roles. WSJ's William Wilkes: "The big question surrounding automation has long been whether robots would compete with workers or help them... Today, the question is more precise: In which industries does automation help both employer and employee? The companies that may have cracked the code are those that can assign repetitive, precise tasks to robots, freeing human workers to undertake creative, problem-solving duties that machines aren’t very good at. That’s particularly relevant for manufacturing, the food sector and service sectors such as billing, where timetable spreadsheets can be automated, freeing up workers to do higher-value tasks...[Robots] have eliminated entire occupations, especially in simple manufacturing processes where there aren’t value-added jobs for displaced workers to move to," like mining.
— Volcker Rule 2.0. Bloomberg's Jesse Hamilton and Ben Bain: "Wall Street is poised to get a big reprieve from the Volcker Rule, as U.S. agencies prepare to scrap a restrictive presumption that most short-term trades violate the post-crisis regulation, three people with knowledge of the matter said. In a much anticipated overhaul of Volcker, the Federal Reserve and other regulators are planning to drop an assumption written into the original rule that positions held by banks for less than 60 days are speculative -- and therefore banned, the people said. Instead, banks would have leeway to conclude that their trades comply with the rule, putting the onus on regulators to challenge such judgments, the people said. The change is one of many that regulators appointed by President Donald Trump are expected to propose in the coming weeks when they unveil their revamp, known internally as 'Volcker 2.0.'"
— Clarida says he'll back banking reforms. Bloomberg's Christopher Condon: "Richard Clarida, President Donald Trump’s nominee for vice chairman of the Federal Reserve, told U.S. lawmakers he would support policies that take a 'balanced approach' to achieving the Fed’s goals of maximum employment and price stability... Clarida also pledged to support banking reforms instituted following the financial crisis of 2008-09. 'My priority will be to support policies that are effective, efficient, and appropriately tailored, and that preserve the far greater resiliency and stability of the financial system that has been achieved as a result of the significant reforms that have been put in place since the financial crisis,' he said."
- The Senate Banking, Housing and Urban Affairs holds a nomination hearing.
- 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. RSVP here.
- 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 Post's Tom Toles:
Seth Meyers takes a closer look at Michael Cohen's pay-to-play allegations:
Stephen Colbert on President Trump's defense of efforts to help Chinese telecom giant ZTE:
An auto exhibition in Saudi Arabia is giving women a chance to learn about finance and take cars for trial spins: