THE TICKER

U.S. business executives are becoming increasingly concerned that President Trump is on the brink of accepting a bad deal from China.

As a Beijing delegation arrived in town for two days of trade talks, allies and representatives of major American businesses are worried that there is far too much focus on narrowing the trade deficit between the United States and China, and not nearly enough on fixing the structural problems with what they admit is a lopsided relationship.

“It does seem now that the president has said to Secretary Mnuchin, ‘Bring me a deficit reduction deal,’ ” a source with knowledge of the talks says. “And the Chinese offer is heavily weighted toward deficit reduction, with a sprinkling of mostly cosmetic commitments to improving intellectual property rights protection and open markets. … It’s inherently short term and fleeting in nature. It doesn’t fundamentally change the terms of competition.”

Led by Chinese Vice Premier Liu He, the Chinese are planning to make an offer to buy $200 billion in U.S. goods. By breaking out a checkbook to buy down the trade imbalance — a fixation of Trump’s — the regime aims to skip a more painful reckoning over its industrial policy and the intellectual property abuses that serve it. 

The Trump administration hasn’t delivered a direct response to the Chinese pitch, which Trump officials confirmed Thursday to the New York Times and others (though China is casting doubt on it). 

But those nervous Trump will accept it in the interest of declaring a quick victory have good reason to worry, based on recent developments: Trump’s cave on the crackdown against Chinese telecom giant ZTE after its acknowledged sanctions violations (though a House committee is bucking him); the sidelining of trade czar Peter Navarro, the Trump team’s most stalwart China hawk; and a reported push by Treasury Secretary Steven Mnuchin, Trump’s de facto top deputy in the talks, to drop the U.S. case against Chinese intellectual property theft in return for a reduced trade deficit. 

In return, the Chinese are asking the administration to drop tariffs it has pledged to impose on $150 billion worth of imports. U.S. businesses would also like the two countries to back away from threats of retaliatory levies. 

But over three days of testimony convened by the U.S. trade representative, American business executives zeroed in on structural reforms in the Chinese economy that they view as top priorities.

“Even companies and industry groups opposing the tariffs or asking for exemptions for their products agreed that action must be taken to change China’s trade practices,” Bloomberg’s Mark Niquette  and Andrew Mayeda write. “‘We support the administration’s goal of promoting a level playing field for international trade,’ Karan Bhatia, president of government affairs and policy at General Electric Co. and a former deputy U.S. trade representative, said in his written testimony.”

The U.S. Chamber of Commerce, in a submission, asked the administration to push for four systemic changes, including opening up Chinese enterprises to foreign ownership and “dramatically curtailing state financial support and regulation that distorts market competition.” 

Not everyone is convinced that Trump is poised to accept a quick and narrow deal. "This administration didn’t produce a 400-page report analyzing all the systemic problems with intellectual property abuses and forced technology transfers to end this investigation without outcomes to address the underlying issue,” Linda Dempsey, vice president for international economic affairs at the National Association of Manufacturers said of the administration's 301 report detailing Chinese practices. “I think there's an administration-wide recognition that the job is not just to solve the trade balance, but also to address and build concrete pathways to address China’s unfair trade practices.”

Trump himself expressed skepticism  that a breakthrough is at hand. "Will that be successful? I tend to doubt it," the president told reporters as he met in the White House with NATO Secretary-General Jens Stoltenberg. "The reason I doubt it is because China has become very spoiled. The European Union has become very spoiled. Other countries have become very spoiled, because they always got 100 percent of whatever they wanted from the United States… And as the expression goes, when you’re losing $500 billion a year on trade, you can’t lose the trade war; you’ve already lost it.”

There’s evidence this week, though, that the Chinese are more hopeful about a thaw.

After the president’s surprise tweet indicating he wants to ease restrictions on ZTE, the Chinese government appeared to change its posture toward Qualcomm’s bid to acquire chipmaker NXP. “A few hours after the president's tweet, people started calling back, and we made progress understanding their issues over the weekend,” says Chris DeMuth, a partner at Rangeley Capital, which holds a stake in NXP, though DeMuth doesn’t speak for it. “Over the last few days, there’s been a back and forth.” The Chinese on Thursday ended a months-long holdup of regulatory approval for another deal — a sale by Toshiba of its chip unit to a group led by Bain Capital. And the government is ending an anti-dumping and anti-subside probe into U.S. sorghum imports. 

In Washington, meanwhile, an understaffed Trump trade team is showing the stresses of trying to process multiple, high-stakes negotiations at once.

The administration is also aiming to rework the North American Free Trade Agreement — a process that’s appeared to absorb USTR Robert Lighthizer, another China hawk, in recent days — and deal with exemptions to steel and aluminum tariffs. “Since Rob Porter, the former White House staff secretary, resigned in early February, the weekly Tuesday meetings he convened have often been canceled, several business executives said,” The Washington Post’s David J. Lynch, Damian Paletta and Erica Werner write. “The disorganization has been apparent to business executives. ‘There is very little coordination within the administration and between the administration and Congress,” said attorney Dan Ujczo of Dickinson Wright. ‘Companies are advising other administration officials of what they hear from other departments and it’s as if those officials are hearing it for the first time.’”

He, the top economic advisor to Chinese President Xi Jinping, is set to present his government's offer to Trump officials today. Economists are already raising questions about whether it's feasible.

"Even if the Chinese stopped buying other foreign products, like Airbus airplanes from the European Union or soybeans from Brazil, and purchased solely American products, it would add up to only a small fraction of the $200 billion total they are promising to purchase," The Times's Mark Landler and Ana Swanson write. "That is because the United States economy is already running near its full productive capacity, meaning it would not be able to produce enough new goods to meet Chinese demands, especially in the short term."

MARKET MOVERS

10-year Treasury yield reaches new high. Reuters's Lewis Krauskopf: "Yields on benchmark 10-year U.S. Treasuries rose on Thursday to their highest level in about seven years, extending this week’s bond market selloff and pushing the U.S. dollar to a four-month peak against the yen. Oil prices topped $80 a barrel for the first time since November 2014 before pulling back... The rising U.S. Treasury yields have been a driver across financial markets this week and come as data shows a strong U.S. economy that could indicate firming inflation. The benchmark 10-year U.S. Treasury note yield rose above 3.1 percent, continuing a surge from earlier in the week."

Oil briefly tops $80. WSJ's Christopher Alessi: "Oil prices rose Friday, with Brent crude trading close to the $80-a-barrel threshold, in anticipation of renewed U.S. economic sanctions on Iran. Brent crude, the global oil benchmark, was up 0.5% to $79.69 a barrel on London’s Intercontinental Exchange, having on Thursday briefly breached $80 a barrel for the first time in 3½ years... Trump last week pulled the U.S. out of a 2015 international agreement to curb Iran’s nuclear program, setting the stage to reinstate sanctions on the Islamic Republic, a member of the Organization of the Petroleum Exporting Countries."

Wall Street ended a choppy trading session lower on Thursday, as investors grappled with escalating trade tensions and rising oil prices.
Reuters
Investors and economists are increasingly at odds over the outlook for the world economy.
Bloomberg
TRUMP TRACKER

TRADE FLY-AROUND:

Lighthizer downplays NAFTA progress. WSJ's William Maudlin and Siobhan Hughes: "Trump’s trade chief said Thursday the U.S. is 'nowhere near' a deal on the North American Free Trade Agreement, effectively brushing aside an offer from House Speaker Paul Ryan for more time to conclude a deal that could be considered in Congress this year. 'The Nafta countries are nowhere near close to a deal,' ... Lighthizer said in a statement, citing 'gaping differences' on intellectual property, agricultural trade, duty-free levels for shipments, labor rules, and other areas... All three Nafta countries—Mexico, Canada and the U.S.—had sought to wrap up a deal before the height of the U.S. midterm season and before Mexico’s presidential election on July 1. Mr. Ryan (R., Wis.), who had originally set Thursday, May 17 as a deadline, sought to offer Mr. Lighthizer and his Canadian and Mexican counterparts more time to reach a deal this spring that could still get a vote before a new Congress takes office in January."

Legislation to limit Chinese investment advances. WSJ's Kate O’Keeffe: "As... Trump sought to forge a delicate China trade deal on Thursday, lawmakers from both sides of Congress looked set to advance a bill that would give the U.S. greater power to block deals between American and Chinese companies that could risk national security.... The bill—which has prompted debate among lawmakers and U.S. businesses active in China—would affect both foreign firms seeking deals in the U.S. and American companies doing business abroad by tightening the processes for vetting inbound and outbound investment. The congressional effort to strengthen U.S. defenses would expand both the remit and resources of the Committee on Foreign Investment in the U.S. CFIUS is an interagency committee that reviews proposed foreign takeovers of U.S. businesses."

Chinese tech firms aim to avoid ZTE fallout. Axios's Joe Uchill: "ZTE isn't the only Chinese tech manufacturer trying to navigate a volatile trans-Pacific trade climate. Of course, there's Huawei, another giant that, like ZTE, has long faced charges of assisting Chinese intelligence efforts. Then there's Coolpad, a phone maker that's hoping U.S. consumers won't judge every firm by its nation of origin... Chinese companies are sending a loud 'we're not all the same' message to the world. Despite the cloud over ZTE and the looming threat of a wider U.S.-China trade war, Coolpad hopes to break the perception of cheap products made with fealty to Beijing, and insists its business is different. 'Those companies are under investigation for business practices, not the location of their headquarters,' said Charlie Parke, senior vice president of sales at Shenzhen-based Coolpad. 'The reality is, ZTE was caught breaking the rules.'”

Macron rules out trade war. Reuters's Gabriela Baczynska: "French President Emmanuel Macron ruled out on Thursday any trade war with the United States over its withdrawal from the Iranian nuclear deal as a wave of European companies quit business with Tehran, fearing the global reach of U.S. sanctions.  European Union leaders united behind the 2015 accord, and Brussels announced it would launch a legal process banning EU-based firms from complying with the sanctions that... Trump has reimposed on Iran. However, corporations face the choice of trading with the biggest economy in the world, the United States, or with Iran, risking sanctions and massive fines as well as losing access to the dominant U.S. financial system."

MELTDOWN WATCH: 

A tale of two skyscrapers. One, Trump World Tower Moscow, never got built. But the saga of the Trump business empire's failed pursuit of it remains a matter of interest to federal investigators — and could go a long way toward explaining the president's odd allergy to criticizing Russian President Vladimir Putin. BuzzFeed's Anthony Cormier and Jason Leopold have a bombshell report on the backstory: "All through the hot summer campaign of 2016, as Donald Trump and his aides dismissed talk of unseemly ties to Moscow, two of his key business partners were working furiously on a secret track: negotiations to build what would have been the tallest building in Europe and an icon of the Trump empire — the Trump World Tower Moscow. Talks to construct the 100-story building continued even as the presidential candidate alternately bragged about his relationship with Vladimir Putin and rejected suggestions of Russian influence, and as Russian agents worked to sway US public opinion on Trump’s behalf."

The other tower — 666 Park Ave. in Manhattan — has proven an unshakable migraine for the Kushner family. Until nowNYT's Charles V. Bagli and Jesse Drucker: "The company controlled by the family of the White House adviser Jared Kushner is close to receiving a bailout of its troubled flagship building by a company with financial ties to the government of Qatar, according to executives briefed on the deal. Charles Kushner, head of the Kushner Companies, is in advanced talks with Brookfield Asset Management over a partnership to take control of the 41-story aluminum-clad tower in Midtown Manhattan, 666 Fifth Avenue... Brookfield is a publicly traded company, and its real estate arm, Brookfield Property Partners, is partly owned by the Qatari government, through the Qatar Investment Authority. Charles Kushner and his son Jared, President Trump’s son-in-law and one of his key advisers, bought the office tower, which is between 52nd and 53rd Streets, 11 years ago for a record-setting $1.8 billion. But the building today only generates about half its annual mortgage payment, and 30 percent of the 41-story tower is vacant."

Manafort's ex-son-in-law strikes plea deal. Politico's Josh Gerstein: "Jeffrey Yohai, an ex-son-in-law of former Trump campaign chairman Paul Manafort, secretly entered a guilty plea earlier this year to criminal charges of fraud in obtaining real estate loans... Manafort, who is facing a pair of criminal cases brought by special counsel Robert Mueller, invested with Yohai in real estate deals in New York and California. Yohai’s plea deal with federal prosecutors based in Los Angeles requires cooperation with ongoing federal investigations such as Mueller’s, but there is no clear indication yet of the special prosecutor’s interest in his testimony."

Politics
The Treasury Department’s inspector general will examine the uncorroborated allegation that records were removed from a government database of suspicious transactions.
Beth Reinhard and Emma Brown
MONEY ON THE HILL

McConnell warns Senate is in play. The Post's Sean Sullivan and Seung Min Kim: "Senate Majority Leader Mitch McConnell (R-Ky.) warned Thursday that control of the Senate is 'absolutely' in play in the midterm elections, identifying the nine battleground states he believes will decide the outcome in November.  In an interview with The Washington Post, McConnell also confidently predicted that the government will not shut down in September just weeks before the midterms, despite recent agitation from President Trump that there will be 'no choice' but to shutter the government in September if he doesn’t get funding for his border wall. 'I always think it’s better to be candid and not try to spin people into thinking this isn’t going to be a challenging election,' McConnell said in the Thursday morning interview. 'I think the safest place to be is just to say that this is going to be a very challenging election, and I don’t think we know in May . . . whether it’s Category 3, 4 or 5.'"

Hensarling says he's going home. Washington Examiner's Joseph Lawler: "Rep. Jeb Hensarling, the conservative outgoing chairman of the House Financial Services Committee, said Thursday that he’ll return to Dallas when his term expires rather than seeking another job in Washington. In making his remarks, Hensarling took himself out of consideration to become the regulator in charge of the bailed-out mortgage giants Fannie Mae and Freddie Mac, which he has pushed to reform. 'It would be tempting. But my future has me going back home to Dallas, Texas,' the Texas Republican said of the prospect of being nominated by President Trump in a public interview with Politico in Washington. 'It was never my intention to be part of the permanent ruling class,' he added, explaining that he wants to spend more time with his children and make more money in the private sector."

Business
The amendment would have started to dismantle the price-support system for sugar.
Erica Werner and Caitlin Dewey
Business
Paul said his aim was to expose what he termed “hypocrisy” on the part of GOP colleagues.
Erica Werner
Wonkblog
Universal health care and universal child care, a ban on fracking, and higher taxes on millionaires and businesses topped their promises.
Jeff Stein
POCKET CHANGE

Wells Fargo employees altered business customers' info. WSJ's Emily Glazer: "Some employees in a Wells Fargo unit that handles business banking improperly altered information on documents related to corporate customers... The behavior again raises questions about Wells Fargo’s risk-management practices and controls. The bank has been sanctioned in recent months by federal regulators for problems in these areas and as a result can’t grow its balance sheet. The employees in Wells Fargo’s so-called wholesale unit, which is separate from its retail bank, added or altered information without customers’ knowledge... The information added varied from social security numbers to addresses to dates of birth for people associated with business-banking clients... The behavior took place in 2017 and early 2018 as Wells Fargo was trying to meet a deadline to comply with a regulatory consent order related to the bank’s anti-money-laundering controls." 

The bank's stock slid on the report. And Sen. Elizabeth Warren (D-Mass.), a leading critic of the bank's practices, renewed her call for CEO Tim Sloan to be fired: 

Vatican slams financial industry abuses. Politico's Victoria Guida: "The Catholic Church on Thursday issued a blistering critique of the global financial industry, arguing that not enough has been done in the wake of the 2008 housing market crash to stop unethical, risky and reckless behavior. In a 10,000-word document approved by Pope Francis, the Vatican attacked everything from CEO compensation to the rise of the payday lending industry. It said derivatives, the complex securities contracts that fueled the market meltdown, were still 'a ticking time bomb.' The document said the crisis presented an opportunity to move toward a world economy that is 'more attentive to ethical principles, and a new regulation of financial activities that would neutralise predatory and speculative tendencies and acknowledge the value of the actual economy.'"

PayPal to buy iZettle. NYT's Michael J. de la Merced and Nathaniel Popper: "Seeking to extend its global reach, PayPal has reached a deal to buy iZettle, Europe’s answer to the mobile payments company Square, for about $2.2 billion. The deal would be the company’s biggest takeover — and would underscore the arms race in the world of payments, especially as digital and mobile transactions are increasingly being adopted across the world... The agreement is the latest example of a promising European start-up selling itself to a larger American company."

Business
Traffic to Walmart’s website is growing at twice the rate of Amazon’s.
Abha Bhattarai
Microsoft co-founder tells foundation meeting it was ‘kind of scary’ how much Trump knew about what Gates’ daughter looked like
The Guardian
DAYBOOK

Coming Up

  • The Brookings Institution holds an event on “The Future of U.S.-China Relations” on May 21.
  • The Peterson Institute for International Economics holds a webcast on “What We Can Do to Make Open Economies Inclusive” on May 30.
  • The American Enterprise Institute holds a conversation with former Federal Reserve chairman Ben S. Bernanke on June 7.
THE FUNNIES

From The Post's Ann Telnaes:

BULL SESSION

A year of Trump's attacks on the special counsel probe:

The Air Force tweeted a joke about a deadly battle in Afghanistan:

The White House weighs in on ‘"Yanny or Laurel:"