Any trade watcher who slipped into a coma ten days ago would wake up today without much apparent catching up to do: The Trump administration is pressing ahead with $50 billion in tariffs on Chinese imports as it prepares a deal to roll back severe penalties on Chinese telecom giant ZTE.
Yet the White House's decision Tuesday to break the truce it recently called with Beijing by announcing it will, in fact, impose a first round of import duties threatened to upend pending talks with the Chinese. Commerce Secretary Wilbur Ross is due to lead a trade mission to Beijing on Saturday to try to forge an agreement. The trip could be scrapped, though, The Wall Street Journal reports overnight, if an advance team set to arrive this afternoon fails to reach agreement with the Chinese on topics.
Some trade watchers sized up the Trump team's latest aggressive tack as a bid to seize leverage ahead of the talks. But a growing band of skeptics saw something else: Confusion, wrought by competing factions in the White House that have yet to settle on a unified strategy for confronting the Chinese.
There was one new substantive wrinkle as the White House completed a full 360 on tariffs: The administration said it will also introduce new restrictions on Chinese investments in American tech companies. That comes “as part of a broad campaign to crack down on Chinese acquisition of U.S. technology,” The Washington Post’s David Lynch writes.
The White House in a statement said it would apply “specific investment restrictions and enhanced export controls for Chinese people and entities related to the acquisition of industrially significant technology.” Details are coming June 30, and the administration pledged to list by June 15 the imports that will get slapped with tariffs. (Politico has a good chronological rundown of the head-spinning developments in the Trump administration’s trade confrontation with Beijing here.)
It wasn't immediately clear how that initiative relates to an advanced, bipartisan effort on Capitol Hill to achieve seemingly the same ends. The legislation would beef up federal oversight of foreign investment in the tech industry by broadening the power of the CFIUS panel — the Committee on Foreign Investment in the United States — to review takeover deals and potentially block them on national security grounds. Versions of the bill, which the White House endorsed in January, cleared the Senate Banking Committee and the House Financial Services Committee last week.
Business groups complained that the mixed messages from the White House are creating disruptive and needless uncertainty. “The ultimate approach to China is very much at play within the White House,” said Information Technology Industry Council CEO Dean Garfield. “They’re figuring it out while they’re flying the plane, which sometimes you have to do because it’s necessary. But in this instance, it behooves everyone to figure it out sooner so the plane can in fact land. That’s the solution we’re advocating for.”
Some observers spied strategy at play in the Trump team’s latest tack toward hawkishness. As this thinking goes, the administration is turning up the heat to maximize leverage ahead of a trip that Commerce Secretary Wilbur Ross is leading to Beijing at the end of the week. Lester Ross, a top policy hand for the American Chamber of Commerce in China, for example, called it "fundamentally a negotiating step," per the Journal.
Others see another spin of the wheel in the constantly rotating fortunes of warring trade factions in the White House. “The latest signal from the White House sounds like the more hawkish wing of Trump’s trade team is trying to amplify its hard line,” Bloomberg’s Jenny Leonard and Andrew Mayeda write, “after Treasury Secretary Steven Mnuchin said this month that any talk of a trade war was suspended for now. ‘Mnuchin’s “trade war on hold” comments look to have been repudiated this morning, and possibly his investment stance, too,’ said Derek Scissors, a China analyst at the American Enterprise Institute in Washington. ‘It may be the administration has shifted somewhat to appease the Congress on the lifting of the ZTE sanctions.’”
And still others suggested there is no more to the latest change of posture than meets the eye. Here was Oregon Sen. Ron Wyden, the top Democrat on the Senate Finance Committee:
Another day, another trade announcement. But it still doesn’t look like @realDonaldTrump and his admin really intend to crack down on China.— Ron Wyden (@RonWyden) May 29, 2018
Per the Wall Street Journal, Wyden called the Tuesday development a "baby step" back from President Trump's plan, announced earlier this month, to provide relief to ZTE. "I can’t see any rhyme or reason to these erratic policy shifts," he said.
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— Stocks tank. The Post's Tom Heath: "Markets plunged worldwide Tuesday as investors worried that a growing political crisis in Italy could lead to its withdrawal from the Eurozone in a replay of Britain’s vote to exit two years ago. The Dow Jones industrial average sank 505 points before a slight recovery to close down 391 points — 1.58 percent — on worries that the Italian crisis could bleed throughout the Eurozone. The Standard & Poor’s 500-stock index, tech-heavy Nasdaq Composite and Russell 2000 all suffered losses Tuesday as the concerns in Italy spread to U.S. traders.
"Investors sold out of bonds in the southern European countries and the Italian banks and stock markets were hit on worries that Italians might eventually ditch the euro. The Italian and Spanish stock markets suffered the worst, with stock market drops in the 2.5 percent range. Italy’s UniCredit, among its most important banks, saw its stock decline sharply."
The through-line is pain. "None of the narratives floating around the market make any sense. Bond yields are too high, and too low. Politics don’t matter, then they do. There’s excessive inflation, or not enough," Bloomberg's Lu Wang and Elena Popina write. "But one message the market keeps sending: don’t get comfortable, because around the corner is pain. Stock traders have been chained to their screens in a year when the average down day is 24 percent bigger than the average up one, the biggest gap since 1948."
Bank stocks all seeing red now. Bloomberg's Luke Kawa: "JPMorgan Chase & Co. tumbled into negative territory for the year on Tuesday, joining rivals who were already there. Coupled [with] a plunge in Treasury yields, the move helped spur an almost 4 percent retreat in the KBW Bank Index. 'That’s something that has not happened all year,' Matt Maley, equity strategist at Miller Tabak Co., wrote in a note to clients. In many ways, JPMorgan’s late to the party. Every major money center bank such as Bank of America Corp. and Citigroup Inc., as well as large investment banks like Goldman Sachs Group Inc. and Morgan Stanley, has already endured a period of year-to-date declines prior to the selloff.
— Bond traders' confidence in rate hike path crumbles. Bloomberg's Alex Harris and Edward Bolingbroke: "The latest bout of market turmoil is denting investor confidence in how aggressively the Federal Reserve will tighten policy this year. Activity in options on eurodollar futures shows traders are starting to unwind bets that the central bank will hike four times in 2018. The evaporation of that wager, which implied one more increase this year than indicated in officials’ quarterly projections, is also apparent in rallying fed funds futures."
— New limits on Chinese visas. AP's Josh Lederman and Ted Bridis: "The Trump administration plans to shorten the length of validity for some visas issued to Chinese citizens, the State Department said Tuesday, as... Trump works to counter alleged theft of U.S. intellectual property by Beijing. The changes begin June 11. The State Department said that under the new policy, U.S. consular officers may limit how long visas are valid, rather than the usual practice of issuing them for the maximum possible length."
The damage is done on ZTE. CNN's Sherisse Pham and Daniel Shane: “China's ZTE will struggle to recover from a ban on buying U.S. components even if the Trump administration throws the tech company a controversial lifeline ... The Trump administration has a tentative deal to get it back into business by lifting the ban and imposing other punishments instead. But a backlash from members of Congress has added uncertainty to the outcome. Whatever happens next, experts say ZTE is facing a long list of problems, including billions in lost revenue, strained relationships with major customers and a tarnished brand ... Its repeated tussles with the U.S. government could hurt its main business of selling equipment like wireless base stations and fiber optic cables to telecom operators around the world.”
Business group calls on China to open up. AP's Joe McDonald: "An American business group called on Beijing on Wednesday to allow the same access to its state-dominated economy that China’s companies have to U.S. markets... The American Chamber of Commerce in China said this country can no longer justify the protections it was granted as a developing country when it joined the World Trade Organization in 2001. The group said regulators should ease or scrap restrictions on foreign investment and activity in fields including aerospace, finance, retailing and technology."
China eyes U.S. coal. Bloomberg: "China is considering a plan to buy more American coal as part of an effort to narrow its trade deficit with the U.S... Chinese officials are currently looking at boosting purchases from West Virginia in particular... A final decision hasn't been made... More imports by the Asian nation would be a boon for American coal-producing states -- including West Virginia -- that supported Donald Trump’s presidency on the back of his pledge to revive the ailing industry."
— Trudeau's version of “The Art of the Deal." Bloomberg News's Josh Wingrove and Stephanie Flanders: “Canadian Prime Minister Justin Trudeau has a message for Donald Trump on NAFTA: Canada would rather see a trade deal die altogether than accept certain hardline demands ... 'No NAFTA is better than a bad deal, and we’ve made that very clear to the president,' Trudeau said Tuesday ... 'We are not going to move ahead just for the sake of moving ahead.' A deal that could be a political win for Trump, Trudeau and Mexican President Enrique Peña Nieto is possible, the Canadian prime minister said ... The Canadian leader also downplayed the impact a NAFTA collapse would have."
And the clock is ticking on NAFTA talks. Reuters's David Lawder and David Ljunggren: “Trump is running out of time to deliver a revamp of ... NAFTA he promised for this year and people involved in the talks say the crunch is largely of his administration’s own making ... Negotiators, industry lobbyists, trade experts and lawmakers briefed on the talks described how precious months passed before the U.S. team presented its proposals and how the talks stalled because the demands far exceeded what Canada and Mexico had expected and Washington signaled no readiness to compromise. In the end, an unusually tight timetable allowed little space to bridge differences on the core issues, such as U.S. and regional content requirements for the auto industry.”
— Canada might strike back over tariffs. Reuters's Lawder and Ljunggren: “Canadian Foreign Minister Chrystia Freeland vowed on Tuesday to defend Canada’s workers from U.S. steel and aluminum tariffs, signaling the potential for retaliation if the Trump administration fails to grant Ottawa a permanent exemption by Friday ... Freeland repeated her view that the metals tariff issue was 'entirely separate' from negotiations to revamp [NAFTA] and that quotas or tariffs for Canada based on national security concerns were 'entirely inappropriate' given the high level of security cooperation and steel industry integration between the United States and Canada ... Asked if Canada were prepared to retaliate should Washington impose the tariffs, Freeland said: 'Our government always is very ready and very prepared to respond appropriately to every action. We are always prepared and ready to defend our workers and our industries.'”
— More tariffs drama. Bloomberg's Patrick Donahue and Birgit Jennen: “Chancellor Angela Merkel’s top envoy pilloried the Trump administration for considering tariffs on auto imports to protect national security, saying German cars 'make American roads safer.' News that President Donald Trump was investigating tariffs on car and truck imports — a move that would hit German manufacturers the hardest — reached Foreign Minister Heiko Maas just before his first meeting with new U.S. Secretary of State Mike Pompeo in Washington last week. 'So I asked Mike Pompeo, 'Mike, you guys can’t be serious that German cars affect your national security, "' Maas said at the Global Solutions Summit in Berlin on Tuesday. 'Quite the contrary — German autos make American roads safer.'"
— Trump leaned on Sessions to maintain control of Russian probe. NYT's Michael Schmidt and Julie Hirschfeld Davis: “By the time Attorney General Jeff Sessions arrived at ... Trump’s Mar-a-Lago resort for dinner one Saturday evening in March 2017, he had been receiving the presidential silent treatment for two days ... The president objected to his decision to recuse himself from the Russia investigation. Mr. Trump, who had told aides that he needed a loyalist overseeing the inquiry, berated Mr. Sessions and told him he should reverse his decision, an unusual and potentially inappropriate request. Mr. Sessions refused. The confrontation, which has not been previously reported, is being investigated by the special counsel, Robert S. Mueller III, as are the president’s public and private attacks on Mr. Sessions and efforts to get him to resign.”
Giuliani doesn't want Trump to interview with Mueller, for now. The Post's Josh Dawsey and John Wagner: “Trump’s lawyer Rudolph W. Giuliani said Tuesday that Trump will not agree to an interview with the special counsel until prosecutors allow the president’s legal team to review documents related to the FBI’s use of a source to interact with members of Trump’s 2016 campaign. 'We need all the documents before we can decide whether we are going to do an interview,' Giuliani said in an interview with The Washington Post, using Trump’s term 'spygate' to refer to the FBI actions, which former officials have said were well within bounds. Giuliani’s latest demand further ratcheted up the pressure that Trump and his lawyers are trying to place on special counsel Robert S. Mueller III’s team as his investigation into alleged coordination between Trump’s campaign and Russia reaches a key juncture.”
— Millions still under water on mortgages. Bloomberg's Alexandre Tanzi: "A staggering number of American homeowners remain under water on their mortgages a decade after the housing bubble burst. Almost 4.5 million households -- or 9.1 percent -- owed more than their homes are worth in the fourth quarter of 2017, according to data firm Zillow, with an estimated 713,000 owing at least twice as much as their property’s value. While the percentage is declining, families in communities with stagnant property values are 'trapped in their homes with no easy options to regain equity other than waiting,' said Aaron Terrazas, a senior economist at Zillow."
— Banks temper Volcker hopes. Reuters's Michelle Price and Pete Schroeder: "U.S. regulators are set to rewrite rules reining in banks’ risky trading behavior, making changes that will cut compliance costs but stopping far short of allowing firms to return to their gambling days seen before the 2007-2009 global financial crisis. The Federal Reserve’s long-anticipated proposal to alter the so-called Volcker Rule on Wednesday marks another step by Trump administration regulators to ease banking rules in a bid to boost lending and economic growth... Still, Wednesday’s proposal should provide clarity over how banks can show trades qualify for certain safe harbors, especially when facilitating client trades."
— DOJ approves Bayer-Monsanto merger. The Post's Brian Fung and Caitlin Dewey: "Federal antitrust regulators have granted agribusiness giants Bayer and Monsanto permission to merge after the two companies agreed to spin off $9 billion worth of assets, the largest such sale of corporate assets ever required by the Justice Department. Under the proposed settlement filed Tuesday, Bayer will sell its seed and herbicide businesses to a third party, the German chemical company BASF. It also will sell its emerging digital farming business as well as a variety of intellectual property and R&D projects. The targeted spinoffs are aimed at preventing Bayer and Monsanto from using their combined control over seeds and seed treatments to raise the price of agricultural products to farmers and consumers."
— CFPB developing fintech sandbox. American Banker's Neil Haggerty: "The Consumer Financial Protection Bureau is developing a regulatory sandbox for fintech firms, with help from the Commodity Futures Trading Commission, acting CFPB Director Mick Mulvaney said Tuesday. Mulvaney provided little detail about the sandbox project, but said the bureau is looking at what some states have done and is working 'very closely' with the CFTC. In his remarks, Mulvaney also addressed his previous comments about the CFPB complaint database. A sandbox, which provides relief from certain regulatory requirements in a space where fintech startups can test products and government authorities can offer guidance, would follow progress the United Kingdom has already made to provide startups with such a testing ground."
- Federal Reserve Board of Governors holds its meeting.
- The Peterson Institute for International Economics holds an event on “What we can do to make open economics inclusive."
- The American Enterprise Institute holds a conversation with former Federal Reserve chairman Ben S. Bernanke on June 7.
From The Post's Tom Toles:
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