THE TICKER

Weakness is the gravest sin in the Trumpian creed. In buckling to Chinese demands that the United States ease penalties on telecom giant ZTE, President Trump is now seeing the consequences of breaking his cardinal rule.

Trump’s surprise move to reverse his administration’s crackdown on the company — an admitted violator of American sanctions against Iran and North Korea that also has been tagged by the intelligence community as a national security threat — looks to be rippling beyond the U.S.-China trade spat

North Korea made a sudden announcement of its own Tuesday, declaring joint military drills between the United States and South Korea a “provocation” that could imperil next month’s planned summit between its leader Kim Jong Un and Trump. It later expanded on the threat, saying the U.S. must stop pushing for it to abandon its nuclear program. The country’s response to exercises the United States called routine could simply reflect unsteadiness within the North Korean government about the talk of denuclearization. But as it moves the goal posts for the summit, there’s also the prospect that the regime, watching Trump’s engagement with its superpower neighbor, senses weakness and is moving swiftly to capitalize on it

From The Post's Josh Rogin

From The Post's Glenn Kessler: 

Ditto European powers assessing whether they will be able to sidestep a Trump-directed effort to isolate Iran. “Trump is expecting America's European partners to go along with the crippling sanctions and divest from Iran. And in theory they won't have much of a choice because America's economy is so much bigger than Iran’s,” Bloomberg News's Eli Lake writes. But “if everything is negotiable for Trump, then Europe may have more options than previously thought … Why wouldn't France, Germany and the U.K. threaten tariffs on U.S. imports as a bargaining chit, to secure exemptions from U.S. Iran sanctions? It worked for China.”

That is, Trump’s team is reportedly working to forge a “mini-deal” to relieve ZTE with arguably limited returns for the United States. Under such an agreement, Beijing would roll back tariffs on American agricultural exports, narrow the bilateral trade gap, and greenlight Qualcomm’s takeover of Chinese chipmaker NXP. But none of those concessions addresses the structural reforms that U.S. Trade Representative Robert E. Lighthizer, and a number of American businesses, hope to force from the Chinese. 

And Trump’s ZTE flip-flop could provide a road map for the company’s larger Chinese rival, Huawei. Both are key to Beijing’s ambition to develop the next-generation mobile network called 5G. And Huawei, like ZTE, faces scrutiny from the United States and elsewhere over suspicions it aims to infiltrate and sabotage foreign networks. 

The Chinese government served up its demand for the United States to back off ZTE in a document it handed Trump administration negotiators in Beijing two weeks ago, The Post’s Josh Rogin reports. The Chinese asks ranged “from the reasonable to the ridiculous,” including a request that the United States strengthen protections for Chinese intellectual property.

In caving to the ZTE request, “Trump is signaling he’s willing to give up the one piece of leverage that is actually getting the Chinese government’s attention before receiving anything concrete in return,” Rogin writes. “That’s not only bad negotiating. It also sends the message that the United States doesn’t have the stomach for the larger economic battles with China to come.”

In a Wednesday morning tweet, Trump insisted the U.S. side has not seen China’s demands yet -- and that there has been "no folding as the media would love people to believe":  

Perhaps unsurprisingly, given how liberally Trump sprayed accusations of weakness in recent years, he warned against the consequences of weakness in negotiations when he perceived President Barack Obama to be showing insufficient spine against the Chinese. 

We'll assume he meant kowtowing. Otherwise, those are words Trump might want to revisit. 

MARKET MOVERS

Bond yields surge. WSJ's Akane Otani: “Bets on the U.S. economy gaining momentum sent investors fleeing from government bonds, driving the yield on the benchmark 10-year Treasury note to levels it last touched nearly seven years ago. The yield on the 10-year Treasury note, used as a reference rate for everything from mortgages to auto loans to corporate debt, settled Tuesday at 3.082%, compared with 2.995% Monday, marking its biggest one-day advance since March 2017. The latest wave of selling began early Tuesday, when data from the Commerce Department showed American consumers ramped up spending for everything from food to clothing to gasoline in April.”

Fed policy clash brewing. Reuters's Howard Schneider and Ann Saphir: “Federal Reserve Chair Jerome Powell’s top deputies are edging toward a clash that could shape the pace of interest-rate hikes in coming months, as well as how the Fed should prepare for and combat the next economic downturn. The fault lines are technical as well as philosophical and include a debate over whether the economy has shifted into a higher gear, giving the Fed room for more interest-rate hikes and perhaps reducing the need for controversial tools like bond-buying to fight future recessions.

“They come as tax cuts and government spending boost growth and inflation, giving policymakers the breathing room to debate whether to retool the Fed’s basic policy approach to give themselves more firepower even if slower future economic growth is unavoidable. San Francisco Fed President John Williams launched a critical salvo in the debate on Tuesday with a speech underscoring his view that the Fed has only a few more rate hikes ahead of it before rates reach a level of borrowing costs that allows the economy to coast along, without stimulating or slowing its progress.”

Clarida, Bowman back independent Fed. WSJ's Nick Timiraos: “Two of ... Trump’s nominees to the Federal Reserve’s board of governors Tuesday signaled a strong commitment to making policy decisions independently of the executive branch. Richard Clarida, the economist tapped to serve as the central bank’s No. 2 official, told lawmakers he had never been pressed by the president or other officials on how he would set interest rates. 'In no meeting, at no time, did I ever have any reason to question the independence of the Federal Reserve, absolutely not,' Mr. Clarida told the Senate Banking Committee at his confirmation hearing.”

U.S. stocks fell Tuesday, with the Dow Jones Industrial Average breaking an eight-session streak of gains.
Reuters
Sentiment among U.S. homebuilders rose for the first time in five months as job gains and tax cuts helped keep buyer demand healthy amid rising prices and mortgage rates, according to data Tuesday from the National Association of Home Builders/Wells Fargo.
Bloomberg
TRUMP TRACKER

TRADE FLY-AROUND: 

Kudlow believes in Trump-Xi "bromance." Axios: "Larry Kudlow says the president doesn't want a trade war with China, adding that Trump is a free trader... 'There's a little bit of a bromance' between Chinese President Xi Jinping and Trump, Kudlow told Axios' Mike Allen on Tuesday. 'Bromances are always good.'"

But the U.S. and China remain have a ways to go, U.S. Ambassador Terry Branstad says. FT: "The US and China are 'still very far apart' on disputes over trade, technology and market access, the US ambassador to China said on Tuesday, managing expectations ahead of a visit to Washington by a senior Chinese official. Speaking at a conference in Tokyo, Terry Branstad said his country wanted to see a 'specific timetable' on market opening, following demands presented by a US delegation that visited Beijing earlier this month. Mr Branstad was one of seven US representatives who participated in the trade talks. 'The Chinese have said "we want to see the specifics". We gave them all the specifics in terms of trade issues. So they can’t say they don’t know what we're asking for,' he said, according to Reuters. 'We’re still very far apart.'"
 

NAFTA rewrite looks unlikely this year. WSJ: “Trump’s plans to rewrite the North American Free Trade Agreement this year looked unattainable Tuesday after negotiators appeared too far apart to strike a deal before a deadline this week. U.S. House Speaker Paul Ryan had set this Thursday as an informal deadline if the administration were to push a pact through the Republican-controlled Congress before a new slate of lawmakers arrives in Washington next year, possibly led by Democrats. The U.S. and Mexican governments had hoped to reach at least the general terms of an agreement this week to allow enough time for legislative approval before year’s end.”

(Kudlow, at the Axios event, put the odds for NAFTA optimism at 51-49. "That's not great for Kudlow optimism," he said.)

Businesses race to Washington to sound off on tariffs. NYT's Ana Swanson: “Over the next three days, business owners, trade groups and other industry representatives will testify before United States trade officials about the administration’s plan to impose tariffs on more than 1,300 Chinese imports, including flat-screen TVs, steel and medical devices, and as it threatens levies on an additional $100 billion of Chinese goods. For business owners like Ms. Buchzeiger, the hearings are a last-ditch attempt to shift the White House away from punitive trade measures that are putting American companies at risk, as the two countries engage in tit-for-tat tariffs that could hurt businesses dependent on access to China.” 

 — Dems slam Trump's ZTE decision. The Post's Damian Paletta: "Top Senate Democrats on Tuesday slammed... Trump’s decision to rescue the giant Chinese technology firm ZTE, saying relief for a company that violated U.S. law and then lied about its behavior should not be offered as a concession during trade talks. Senate Minority Leader Charles E. Schumer (D-N.Y.), along with Sens. Ron Wyden (D-Ore.) and Sherrod Brown (D-Ohio), wrote in a letter to Trump that easing U.S. penalties on ZTE would 'call into grave doubt whether this Administration will put American jobs and national security first.'"

MELTDOWN WATCH: 

Trump plans to turn one-year anniversary of the Mueller probe against it. Bloomberg's Shannon Pettypiece: "Trump and his legal team are planning to use the one-year anniversary this week of Robert Mueller’s appointment to ratchet up pressure on the special counsel to close his investigation. Trump and his lawyers are trying to set up the milestone on Thursday as a turning point in their campaign to end Mueller’s probe into Russian election meddling and obstruction of justice, Rudy Giuliani, Trump’s personal lawyer, said Tuesday in an interview. While he isn’t threatening specific actions, Giuliani said they haven’t ruled out additional steps if Mueller doesn’t heed their calls. 'We are going to try as best we can to put the message out there that it has been a year, there has been no evidence presented of collusion or obstruction, and it is about time for them to end the investigation,' Giuliani said."

MONEY ON THE HILL

House to vote Tuesday on bank bill. CNBC's Kayla Tausche and Jacob Pramuk: "The House expects to vote next Tuesday on a Senate-passed bill that would roll back some regulations on banks, four sources told CNBC. One source cautioned, however, that schedules can be fluid and the day of the vote could change. The legislation would mark the biggest rewrite of financial laws since the Dodd-Frank reform act passed after the global financial crisis."

Ginnie Mae has been without a permanent leader since January 2017, but that could soon change, as the Trump administration announced Tuesday that it is formally nominating Michael Bright to serve as president of Ginnie Mae. If confirmed, Bright would take over officially for former Ginnie Mae President Ted Tozer, who stepped down at the beginning of the Trump administration.
Housing Wire
POCKET CHANGE

RIP, Tom Wolfe. Among many, many other achievements, Wolfe introduced the term "Masters of the Universe" in his searing satire of 1980s New York, “The Bonfire of the Vanities,” to describe a new breed of young, hyper-greedy lords of finance on Wall Street. He wrote an obit of sorts for his own coinage in a late September 2008 New York Times op-ed, amid the throes of the financial crisis: 

"Be aware that your correspondent is merely bringing you the news when he reports how many people have besieged the author of 'The Bonfire of the Vanities' over the past week with the question, 'Where does this leave the Masters of the Universe now?'

"'This' refers to the current credit panic. The Masters of the Universe is a phrase from that book referring to ambitious young men (there were no women) who, starting with the 1980s, began racking up millions every year — millions! — in performance bonuses at investment banks like Salomon Brothers, Lehman Brothers, Bear Stearns, Merrill Lynch, Morgan Stanley and Goldman Sachs. The first three no longer exist. The fourth is about to be absorbed by Bank of America. The last two are being converted into plain-vanilla Our Town banks with A.T.M.’s in the lobby and, instead of Masters of the Universe, marginally adult female cashiers with wages in the mid-three figures per week, stocked with bags of exploding dye to hand the robbers along with the cash. American investment banking, the entire industry, sank without a trace in the last few days. So where does this leave the Masters of the Universe? In Greenwich, Conn., mainly."

More: 

  • Bloomberg's Joe Mysak recounts how he ended up in the book.
  • Wolfe started as a city desk reporter for The Post in 1959, and his writing then showed flashes of the style that would become his trademark. 

It's a good time to be a rich heir. Bloomberg's Ben Steverman: "Many of the biggest beneficiaries of President Donald Trump’s tax overhaul haven’t even been born yet. The new law doubles the amount that can be passed to heirs without worrying about estate and gift taxes, to about $22 million for a married couple. But the thresholds are in place only until 2025, and the ultra-rich are turning to a key tool—the dynasty trust—to secure the financial futures of their grandchildren, great-grandchildren and beyond... Dynasty trusts let the richest Americans protect and preserve wealth for generations, while minimizing tax bills. Treasury Secretary Steven Mnuchin appears to have used one prior to assuming his government role."

Satellite data suggest China, Russia overstate GDP. The Post's Christopher Ingraham: "China, Russia and other authoritarian countries inflate their official GDP figures by anywhere from 15 to 30 percent in a given year, according to a new analysis of a quarter-century of satellite data. The working paper, by Luis R. Martinez of the University of Chicago, also found that authoritarian regimes are especially likely to artificially boost their gross domestic product numbers in the years before elections, and that the differences in GDP reporting between authoritarian and non-authoritarian countries can't be explained by structural factors, such as urbanization, composition of the economy or access to electricity. Martinez's findings are derived from a novel data source: satellite imagery that tracks changes in the level of nighttime lighting within and between countries over time."

The investment firm founded and chaired by billionaire George Soros took a stake in Tesla Inc bonds during the first three months of the year, giving the electric carmaker run by Elon Musk a prominent supporter.
Reuters
Wan Long helped turn a humble state-owned meat processor into the world’s biggest pork producer.
Bloomberg
JPMorgan Chase & Co shareholders on Tuesday voted to back the bank's management on all of its propositions at the annual shareholder meeting in Plano, Texas, including to reelect the entire board of directors and to approve executive compensation.
Reuters
DAYBOOK

Today

  • The House Education and the Workforce Subcommittee on Health, Employer, Labor and Pensions holds a hearing on retirement security.
  • The House Ways and Means Committee holds a hearing on tax reform.
  • The House Financial Services Subcommittee on Terrorism and Illicit Finance holds a hearing on “Implementation of FinCEN’s Customer Due Diligence Rule."
  • The House Appropriations Subcommittee on Transportation, Housing and Urban Development, and Related Agencies holds a markup.
  • The House Financial Services Subcommittee on Capital Markets, Securities and Investment holds a hearing on oversight of the SEC’s Division on Enforcement.
  • The Hill holds an event on NAFTA.

Coming Up

  • 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.
THE FUNNIES

From The Post's Tom Toles: 

BULL SESSION

Remembering Tom Wolfe, author of "The Right Stuff":

Here's how Democrats are planning to win more state and federal seats than Republicans:

Stephen Colbert on the leaks coming from inside the White House: