THE TICKER

The Trump administration has declared a cease-fire in the trade hostilities it initiated this year against the Chinese. But don’t mistake that for progress toward a meaningful deal between Washington and Beijing. 

The move comes as the U.S. finds itself badly off-balance. Internal strife among President Trump's top trade negotiators is preventing the team from presenting a united front on basic points. The division reads as sloppy, weak or both to a foe that makes decisions based on 10-year plans. And while the pause could allow the Trump team to sort out their aims and terms, their display over the past several days reveals how much work they must do to get there. 

Consider the administration's conflict or confusion over the following: 

— The muscle behind the threats. Treasury Secretary Steven Mnuchin, who has been working to secure a deal as the Trump administration’s lead negotiator, said Sunday the United States will hold off on imposing tariffs on imports of Chinese goods while the two sides continue trying to forge an agreement. But U.S. Trade Representative Robert E. Lighthizer, who hails from the administration’s hawkish camp, undercut the message with a statement of his own later Sunday suggesting the threat of tariffs and other forms of muscle remain very much alive. “As this process continues, the United States may use all of its legal tools to protect our technology through tariffs, investment restrictions and export regulations,” Lighthizer said. “Real structural change is necessary.”

— Narrowing the trade deficit. National Economic Council Director Larry Kudlow on Friday said China had agreed to buy “at least $200 billion” more of U.S. goods as part of an agreement to narrow the trade imbalance. He had to walk back the claim in a pair of Sunday show appearances. “Maybe I got ahead of the curve, but the number 200 billion deficit reduction, which is something that the president likes, has been around by all the people on both sides. But it's too soon to lock that in,” he said on CBS’s Face the Nation. And Kudlow acknowledged to ABC News’s This Week that, “there’s no agreement for a deal. We never anticipated one. There's a communique between the two great countries, that's all.”

— A ZTE crackdown. Trump last Sunday tweeted he was ordering his administration to back off severe sanctions against Chinese telecom company ZTE for violating a ban against selling its wares to Iran and North Korea. The move sparked a bipartisan backlash last week, and Mnuchin signaled Sunday the administration plans to revert to a tough stance once again. “This is an enforcement issue. It’s not a trade issue,” Mnuchin said on Fox News Sunday. But Trump himself said the opposite last Wednesday, tweeting that his administration was considering the ZTE matter “as it pertains to the larger trade deal.”

— Sensitive exports. Mnuchin is facing resistance from Defense Department officials in a push to relax restrictions on exports with potential military applications, the New York Times’s Ana Swanson reports. Mnuchin sees the move as a means to “forestall the possibility of a trade war and secure China’s purchase of additional goods from the United States in the coming years,” while military brass “fear such sales could compromise American national security,” Swanson writes. 

Parsing the joint statement released by the U.S. and China on Saturday, my colleague Heather Long finds more evidence the Trump administration is losing the early rounds. She notes the statement was “brief and lackluster” on the matter of Chinese intellectual property theft — a core U.S. complaint — with Beijing avoiding specific commitments. And the Chinese likewise sidestepped any pledge to curb subsidies to the tech sector as part of its “Made in China 2025” plan for dominance of advanced manufacturing. “It was always unlikely that the United States would get China to alter its marquee economic growth plan, but it's yet another reminder that the Chinese gave a few concessions on things that aren't sacrifices for China,” Heather writes. 

Some Trump supporters noticed the administration has little to show for its efforts so far, The Washington Post’s David Lynch points out. Here, for example, was the reaction by Dan DiMicco, a former steel executive and trade adviser to Trump during the campaign: 

And here was Sen. Marco Rubio (R-Fla.), who’s been increasingly critical of the Trump team’s negotiating approach: 
 

Mnuchin is due this week to deliver recommendations for new restrictions on Chinese investment in the U.S. But Heather reports that those limitations are “on hold,” with the American Enterprise Institute’s Derek Scissors, who has also advised the Trump team on trade, expressed skepticism the Treasury secretary would push for tough curbs, saying that Mnuchin “never had any intention of recommending anything serious.”

Meanwhile, Mnuchin said Sunday that Commerce Secretary Wilbur Ross is heading to Beijing “immediately” to nail down the terms of stepped-up Chinese purchases of U.S. goods. 
 

Trump defended his approach to the negotiations on Twitter this morning:

And appeared to tie the North Korean denuclearization negotiations to the trade back-and-forth with China:

MARKET MOVERS

U.S. debt yield crosses a threshold. WSJ's Daniel Kruger: "U.S. government bonds are paying more than debt from other developed countries for the first time in almost two decades, a new sign of investors’ struggle to reconcile expectations for faster U.S. growth with concerns about the impact of deficits and inflation. The yield on the benchmark 10-year Treasury note, a key barometer for borrowing costs for consumers and companies, last week topped 3.1%, its highest close in almost seven years. It’s a climb that’s rippling through markets, buffeting stocks and helping fuel a surprise rally in the dollar as higher rates attract yield-seeking investors to the currency. Analysts said the rise in yields in part reflects optimism about the U.S. economy and expectations for a pickup in inflation... The climb also shows the impact of the recent tax cut package and a surge in government spending."

Goldman Sachs raises the alarm about the deficit. "The US fiscal outlook is not good," Goldman economists wrote in a Sunday note. "An expanding deficit and debt level is likely to put upward pressure on interest rates, expanding the deficit further... While we expect Congress will eventually address the widening budget gap, it also seems quite likely to take longer than most market participants might expect."

Futures jump on Mnuchin's trade comments. Reuters's Hideyuki Sano: "Stocks rose on Monday as... Mnuchin declared the U.S. trade war with China “on hold” following an agreement to drop their tariff threats that had roiled global markets this year... 'The weekend talk appears to have made progress. While they still need to work out details of a wider trade deal, it is positive for markets that they struck a truce,' said Hirokazu Kabeya, chief global strategist at Daiwa Securities."

"Sell in May and go away," arguably the most well-worn axiom on Wall Street, has proven to be shrewd advice during previous midterm election years. But this year, investors may be better served by eschewing the adage as stocks look positioned to buck the trend.
Reuters
TRUMP TRACKER

TRADE FLY-AROUND: 

Japan pushes back against tariffs. NYT's Motoko Rich: "After months of taking hits from the United States over North Korea policy and trade, Japan has decided that it will only be pushed so far, and is threatening to punch back. On Friday, Japan notified the World Trade Organization that it was reserving the right to impose retaliatory tariffs against the United States in response to tariffs on steel and aluminum imports proposed by President Trump. Japan has not yet filed a formal complaint with the W.T.O., but is signaling that it could impose the retaliatory measures if it does not gain tariff exemptions that it has been seeking from Washington."

Mnuchin deemphasizes NAFTA deadline. Bloomberg's Josh Wingrove and Andrew Mayeda: "The U.S. is still far apart from Mexico and Canada on a revised Nafta accord, and... Trump is more focused on reaching a good deal than an immediate one... Mnuchin said. 'So whether we pass it in this Congress or we pass it in the new Congress, the president is determined that we renegotiate Nafta,' Mnuchin said in an interview on 'Fox News Sunday.' 'That’s something we’re doing.' Mnuchin’s comments are the latest to suggest the door has opened for talks to stretch past Mexican elections on July 1, though he raised the prospect of unspecified alternatives the president could take. Trump has regularly threatened to quit the current Nafta pact if a deal can’t be reached to update it."

Trump's ZTE push imperils money for terrorism victims. The Post's Devlin Barrett: "Families of terrorism victims are warning the Trump administration may negotiate away $150 million that a Chinese firm was expected to pay for violating U.S. sanctions — a move that they say would send a terrible message to global firms thinking of doing business with rogue regimes. At issue is... Trump’s recent public statement urging the U.S. Commerce Department to find a way to help ZTE... stay in business. Advocates for terrorist attack victims say the remarks could have major consequences for a fund designed to compensate such victims... Under the terms of the 2017 plea deal ZTE struck with a number of U.S. government agencies, ZTE agreed to combined fines of nearly $1.2 billion — but $300 million of that was suspended, to be paid only if the company violated its deal with Commerce... After the president’s pronouncement, those families now fear the administration may back out of collecting that penalty on behalf of victims."

Kudlow says ZTE needs to change management. Bloomberg's Jennifer Epstein  and Justin Sink: "ZTE will have to change its management, including by possibly appointing new board members, to win a reprieve from U.S. sanctions that shut it off from key suppliers, [Kudlow] said. 'We’re not talking about letting them off scot-free by any stretch,' Kudlow... said in an interview on Fox Business Network. 'Commerce Secretary Wilbur Ross is having a second look at remedies. If there are any structural changes in their case they will be very harsh: Change of management. Change of board. Change of everything.'”

Chinese bank offers chance to meet Trump. FT's Gabriel Wildau: "Invitations from one of China’s biggest state-owned banks asked wealthy clients to pay $150,000 for a ticket to attend a Republican party fundraiser in the US and meet... Trump, according to an invitation seen by the Financial Times. The invite from the private banking unit of China Construction Bank, the country’s second-largest state-owned lender, offered participants the chance to take photos with Mr Trump and mingle with US political and business figures. It also said that representatives from ZTE Group, the Chinese telecom company that is facing crippling US sanctions, would attend the event, to be held in Dallas."

MELTDOWN WATCH: 

DOJ calls for inquiry after Trump demands probe of FBI. The Post's Matt Zapotosky, Bob Costa and David Nakamura: "Under pressure from... Trump, the Justice Department on Sunday asked its inspector general to assess whether political motivation tainted the FBI investigation into ties between Russia and Trump’s campaign — a remarkable step officials hoped might avert a larger clash between the president and federal law enforcement officials. Trump, who spent much of Sunday railing against the year-old special counsel probe, tweeted in the afternoon that 'I hereby demand, and will do so officially tomorrow, that the Department of Justice look into whether or not the FBI/DOJ infiltrated or surveilled the Trump Campaign for Political Purposes — and if any such demands or requests were made by people within the Obama Administration!'

"Hours later, the Justice Department responded by saying it had asked its inspector general to expand an ongoing review of the applications to monitor a former Trump campaign adviser 'to include determining whether there was any impropriety or political motivation in how the FBI conducted its counterintelligence investigation of persons suspected of involvement with the Russian agents who interfered in the 2016 presidential election.'”

Cohen payments put spotlight on investment firm. The Post's Roz Helderman, Michael Kranish and Steven Mufson: "In June 2017, Michael Cohen... Trump’s longtime personal attorney, had an invitation for one of his other clients: Would he like to attend a fundraiser for Trump’s reelection? Andrew Intrater — the chief executive of Columbus Nova, a New York-based investment management firm linked to a Russian billionaire — paid the $35,000 donation to attend the event, which also benefited the Republican National Committee. The contribution was one of several ways that Columbus Nova and people associated with it lent support for Trump and his allies last year. It underscores how Cohen, who was seeking to raise money for the RNC as a deputy finance chairman, sought to use his new standing after Trump’s election to bolster both his finances and political clout."

Top White House officials, including Jared Kushner, have given Thiel the cold shoulder, sources tell CNBC.
CNBC
MONEY ON THE HILL

Crapo bill gets House vote Tuesday. The Senate bill aimed at rolling back pieces of Dodd-Frank should pass easily. House Financial Services Committee Chairman Jeb Hensarling (R-Tex.) had tried to demand that package include a number of additional measures from his panel, but he backed off after receiving a commitment from Senate Majority Leader Mitch McConnell (R-Ky.) for a separate vote on them. "We view the chances of a second package of FinReg reforms getting through Congress this year as no higher than 35 percent," Capital Alpha's Ian Katz wrote in a Sunday note. 

Farm bill fate turns on immigration. Bloomberg's Alan Bjerga  and Erik Wasson: "A fight over U.S. immigration policy -- not agriculture -- led to the demise of farm legislation on Friday. The House’s $867 billion farm bill had a narrow path to passage because Democrats opposed work requirements for beneficiaries of the measure’s most costly program: food stamps. That left the bill’s fate in the hands of a group of Republican lawmakers demanding new restrictions on legal immigration.

"When the conservative House Freedom Caucus failed to win an immediate vote on immigration legislation that its members favor, some of them joined Democrats to reject the farm bill. The measure -- relied on by farmers and ranchers in many states dominated by Republicans -- would renew agriculture programs, including subsidies for farmers and government-backed crop insurers. Whether the legislation is revived, perhaps as soon as next week, depends on how -- and if -- the immigration impasse is resolved, with either a revised bill that could attract Democrats or a GOP deal on immigration."

POCKET CHANGE

Blankfein likely to step down in December. NYT's Kate Kelly: "A new era at Goldman Sachs is taking shape. The Wall Street giant’s president, David M. Solomon, is likely to be named chief executive officer by the end of this year, and he is already structuring his senior management team... The time frame for Mr. Solomon’s ascension has evolved since he was named sole president of the firm in March, establishing him as the heir apparent to longtime Chief Executive Lloyd C. Blankfein, who is 63... In recent weeks, Mr. Blankfein has quietly laid the groundwork to step down late this year. His exit will likely take place in conjunction with the firm’s annual dinner for retired partners in December... Mr. Solomon, who is 56, would step in shortly after that."

Hedge funds, private equity jostle Main Street banks. WSJ's Cristina Rexrode: "Main Street banks are feeling squeezed by competition from new rivals: nonbanks like hedge funds and private-equity firms that are elbowing into business loans. The situation is forcing the banks to rethink a business that is a key part of their revenue but which is now weighing down what many had hoped would finally represent a banner year in commercial lending. Growth in business lending has picked up recently—it was up 3.3% year over year as of May 9, according to Federal Reserve data released Friday, after falling below 1% earlier this year. But the growth rate is still far below where it’s been in recent years, when loans to businesses grew at a double-digit clip for much of 2014, 2015 and 2016. Banks have been blaming a variety of factors for the lending falloff, including political uncertainty over things like trade policy."

With oil prices at their highest level in three years, it would seem a good time to cash out of energy investments purchased cheaply during the oil rout. Hedge-fund manager Fir Tree is finding it isn’t.
WSJ
Paul Achleitner made Goldman Sachs a force in Frankfurt and shook up corporate Germany. But he is increasingly blamed for problems at Deutsche Bank.
NYT
DAYBOOK

Today

  • The Brookings Institution holds an event on “The Future of U.S.-China Relations.”

Coming Up

  • The Senate Appropriations Subcommittee on Agriculture, Rural Development, Food and Drug Administration, and Related Agencies holds a markup of the Agriculture Appropriations Bill on Tuesday.
  • The Senate Appropriations Subcommittee on Financial Services and General Government holds a hearing on the 2019 Treasury Department budget request on Tuesday.
  • The Senate Budget Committee holds a hearing on the Government Accountability Office’s annual report on Wednesday.
  • The House Education and Workforce Subcommittee on Workforce Protections holds a hearing on “Regulatory Reform: Unleashing Economic Opportunity for Workers and Employers” on Wednesday.
  • 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 Tom Toles: 

BULL SESSION

President Trump said mass shootings have been "going on too long in our country:"

Gun rights and gun control advocates disagree on the path forward after the school shooting in Southeast Texas: