China experts say President Trump doesn't have a clear goal in escalating aggressions with China, all but assuring the confrontation will get uglier.
The Trump team “hasn’t made clear what it’s seeking nor is it clear whether anyone in the administration has been charged with coming up with a specific proposal to serve as the basis of a negotiation with China,” says Barbara Weisel, who served as chief U.S. negotiator for the Trans-Pacific Partnership. “This lack of clarity and specificity increases concerns that we are on course toward a trade war."
Indeed, it’s yet not clear what concessions Beijing could offer to defuse the conflict, which ramped up significantly this morning when the United States imposed tariffs on $34 billion in American goods and China retaliated in kind, including slapping tariffs on soybeans, corn, pork and poultry.
In targeting China, Trump has harped on the $375 billion bilateral trade deficit between the world’s two largest economies and demanded greater market access for American companies. But the latest round of tariffs is aimed at Chinese intellectual property abuses, and trade watchers say the United States hasn’t named a price for deescalating.
“Prospects for a negotiated settlement, akin to the Chinese purchase pact negotiated earlier this spring, are becoming more problematic as the U.S. side ratchets up other demands,” says Jeff Schott of the Peterson Institute for International Economics.
As former U.S. trade negotiator Wendy Cutler tells The Washington Post’s David Lynch, Danielle Paquette and Emily Rauhala, “I don’t know if there is a strategy… He’s been very quick to pull the trigger. I don’t know that he knows how to get off the cliff.”
Trump will stand down once he “decides he has gotten his due from China,” Claire Reade, a former assistant U.S. trade representative for China Affairs, emails. “I am not sure how he will measure ‘enough’ though, since three separate and potentially conflicting goals are on the table — reduce the trade deficit, make tariffs the same and open markets so trade is ‘reciprocal,’ and defend the U.S. against Chinese predatory industrial policies.”
Political considerations at home could provide a circuit-breaker, Weisel says: "We’re getting close to an election window that would make going forward with tariffs of that magnitude quite risky. So it may be they allow things to simmer for a while. But they don't seem to be seeking a negotiated resolution with any resolve or urgency."
Trump himself underlined the stakes Thursday to reporters aboard Air Force One: The administration is poised to impose another $16 billion in duties on Chinese imports in two weeks, potentially followed by $200 billion more, with an additional $300 billion possible after that. “It's only on China,” Trump said. But that sum alone would overtake the entire value of goods the U.S. imported from China last year — $505.5 billion, as the Financial Times recently noted.
The new duties brings the total amount of Trump tariffs now in force up to $165 billion, per Chad Bown of the Peterson Institute for International Economics:
Since January 2018, Trump’s policies have led to new tariffs on about $165 billion worth of trade so far— Chad P. Bown (@ChadBown) July 5, 2018
• new China tariffs
• washing machines
• solar panels
...and RETALIATION against US exports
By @Lingling_Wei & @BobDavis187 https://t.co/60CbHjzZxn
The gathering storm clouds are already putting a damper on business investment: The Federal Reserve, in minutes released Thursday from its most recent meeting, noted that executives say “capital spending had been scaled back or postponed as a result of uncertainty over trade policy.” And, as my Post colleagues point out, ”even in the steel and aluminum industries, protected by tariffs Trump imposed in March, producers were not planning new investments to increase their capacity, the Fed reported.”
Other industries with gripes about Chinese trade practices nevertheless say the Trump administration's approach misses the mark. "We’re still quite distressed that tariffs, including those on our own products, seem to be the sole policy tool under discussion when there’s a wide range of them available to our government," Jimmy Goodrich, vice president of global policy for the Semiconductor Industry Association, tells me.
The tariffs now in force aren’t likely to take a big bite out of economic activity, but that could change if the escalation continues. Per Bloomberg Economics, “under a full-blown trade war in which the U.S. slaps 10 percent tariffs on all other countries and they respond, the economists reckon U.S. growth would slow by 0.8 percentage point by 2020.”
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Chinese retaliation was immediate. The Post's Paquette and Rauhala: “The United States imposed the first duties on $34 billion in Chinese goods early Friday, officially launching a trade war between the world’s two largest economies. Moments later, the Chinese side fired back, accusing the United States of violating WTO rules setting off 'the largest trade war in economic history to date.' 'In order to defend the core interests of the country and the interests of the people, we are forced to retaliate,' said the Chinese Commerce Ministry in a statement. Although the Chinese statement did not outline targets, Beijing has promised to slap levies on an equal amount of American goods, including heartland staples like soybeans, corn, pork and poultry — a move... Trump said would compel the U.S. to hit China with levies on up to $500 billion in products.”
From the Wall Street Journal's Lingling Wei:
From The Post's Rauhala:
With 15 mins until Trump's tariffs hit, the American Chamber of Commerce issues a statement: "There are no winners in a trade war. Counter-productive import tariffs, such as these, hurt not only the economies of the U.S. and China, but those of every country around the world." pic.twitter.com/4CtjXjZrCS— Emily Rauhala (@emilyrauhala) July 6, 2018
Markets seem unfazed so far. The Wall Street Journal's Georgi Kantchev: “Global stocks edged higher Friday as investors bet that the intensifying trade battle between the U.S. and China won’t be a significant drag on the economy. The Stoxx Europe 600 was up 0.2% in early trading. Markets across Asia recovered from recent falls to trade mostly higher. On Wall Street, futures pointed to a broadly flat open for the S&P 500. . . . 'Trade threats have to ratchet up significantly to have an actual impact on the economy,' said Andrew Jackson, head of fixed income at Hermes Investment Management.”
The tariffs will do damage even if they get dropped later. The Post's Lynch, Paquette and Rauhala: “Even if eventually reversed, the moves will mark a historic break with nearly a quarter-century of growing integration between the U.S. and Chinese economies. The U.S. tariffs — intended to spare consumers by aiming at industrial products — are designed to force China to drop numerous trade practices that the president says discriminate against U.S. companies. After months of rhetorical exchanges between Washington and Beijing, the imposition of the new import taxes makes real a conflict that has rattled markets, scrambled corporate supply networks and chilled business investment. . . . 'The net impact of the trade war on the U.S. economy is going to be negative,' Torsten Slok, chief international economist for Deutsche Bank Securities, said via email. 'Most importantly, the risks are rising that the negative effects on the economy of the administration’s trade war will be bigger than the positive effects of the corporate tax cut.'”
From Sen. Marco Rubio (R-Fla.):
Instead of tariff fight it would be better to first work together with #Canada #Mexico #Japan & #EU to confront our common challenge, #China unfair trade practices & intellectual property theft. Our trade issues with allies need to be addressed,but we should first focus on China— Marco Rubio (@marcorubio) July 5, 2018
Trump counties will bear the brunt. "Beijing’s retaliation will affect huge swaths of the American heartland, according to an analysis from Moody’s Analytics, which calculated how much of gross domestic product in each county is in industries that would benefit from the protection or be hurt by the retaliation," WSJ's Maureen Linke and Josh Zumbrun write. "The retaliatory tariffs will fall especially hard—affecting more than 25% of a county’s economy—in nearly 20% of the counties that voted for Trump, affecting eight million people. Only 3% of the counties that voted for Democrat Hillary Clinton, with a total population of 1.1 million, would be so heavily hit. In contrast, only 8% of counties that voted for Mr. Trump, a Republican, have protective buffers for more than a quarter of their economy."
Chinese shoppers fret. NYT's Raymond Zhong: "China has become a key market for brands such as Apple, Nike, Starbucks and General Motors. Consumer boycotts have proven effective in Beijing’s earlier disputes with South Korea, Japan and the Philippines. But targeting American goods could be trickier. The iPhones, Chevrolets and other goods that American companies sell in China are often made in China, and by Chinese workers... 'High-quality fresh food is already quite expensive, and with tariffs, prices will go up even further,' said Wan Yang, a 27-year-old seafood dealer who imports black cod and king crab from Alaska. Health and hygiene concerns have led China’s increasingly well-off shoppers to prefer food imported from the United States or elsewhere."
As others root for a ship carrying soybeans. Reuters: "It is not often that the niche world of commodities trading enters the public conversation, but on Friday China’s social media was rooting for a ship carrying soybeans from the United States to beat the deadline before Chinese tariffs kicked in. Tracking the journey of the vessel, Peak Pegasus, as it motored toward the northern Chinese port of Dalian was the 34th-highest trending topic on the country’s Twitter-like Weibo on Friday, beating out the World Cup, showbiz gossip and Beijing’s escalating trade war with Washington."
U.S. businesses wonder what comes next. Reuters's Collin Eaton, Mark Weinraub: “Lobbying efforts are now focused on convincing... Trump to not put tariffs on a second list of mainly energy, plastics and chemicals worth about $16 billion, said industry officials... The American Petroleum Institute, which represents oil and gas producers, backed a bill that would have Congress vet future tariffs proposed on national security grounds. The bill has stalled in the Senate. 'We’ve had meetings with members of Congress to press the issue,' said Lee Fuller, a vice president at oil and gas trade group Independent Petroleum Association of America. It is requesting the administration 'look at better alternatives than they have so far.'”
France expresses alarm. The Associated Press: “France’s foreign minister has criticized... Trump’s economic policy, which includes hiking tariffs on Chinese imports as of Friday. Jean-Yves Le Drian told France’s RTL radio the policy could affect global growth and that pressure should be brought on the U.S. to avoid descending into an all-out trade war. He said: 'It is an infernal logic, a dangerous logic, a logic that is in nobody’s interest, starting with the U.S.' . . . Le Drian said such policies have victims, 'but the victims tomorrow will be the Americans themselves.'”
— Trump's businesses retain ties to China. The Post's Jonathan O'Connell and David A. Fahrenthold: “As the Trump administration initiates a possible trade war with China, the president’s businesses continue to benefit from partnerships involving the Chinese government, via state-backed companies and investors. Chinese government-backed firms are slated to work on parts of two large developments — in Dubai and Indonesia — that will include Trump-branded properties. The Trumps are the landlord to one of China’s top state-owned banks, which has occupied the 20th floor of Trump Tower in Manhattan since 2008. The bank’s lease is worth close to $2 million annually, according to industry estimates and a bank filing. And despite the Trump administration’s focus on American manufacturing, assembly-line workers in China still produce blouses, shoes and handbags for the clothing line created by Trump’s daughter Ivanka, a White House adviser.”
— What about those tariffs already on the books? The Post's Brittany Renee Mayes, Ted Mellnik, Kate Rabinowitz and Shelly Tan explore the effects of tariffs on washing machines, solar panels and later steel and aluminum. Take washing machines: “The 20 percent tariff on washing machines in January was a boon to Whirlpool Corp. The company had been losing market share to Korean manufacturers LG and Samsung and repeatedly petitioned the government for protection from competitors. The week its request was granted, Whirlpool saw its steepest week-long stock price rise in nearly two years, and shortly afterward LG announced it would be raising the price of its washing machines by 4 to 8 percent, or around $50 per machine. Months later, American consumers began to feel this tariff fallout. In April, the price of washing machines increased by 9 percent. The next month they increased by 6 percent. Both are the largest monthly price increases since the Bureau of Labor Statistics began collecting such data in 1977.”
— Merkel suggests a change in auto tariffs. Reuters's Markus Wacket: “German Chancellor Angela Merkel said on Thursday she would back lowering European Union tariffs on U.S. car imports, responding to an offer from Washington to abandon threatened levies on European cars in return for concessions. However, she added EU tariff negotiations required a 'common European position and we are still working on it.' . . . Merkel said any move to cut tariffs on U.S. vehicles would require reductions on those imported from other countries to conform with World Trade Organization rules.”
— Trump's tweets about oil prices overlook some key facts. The Post's Steven Mufson: “On Independence Day, Trump resumed his Twitter assault on OPEC and high oil prices. 'The OPEC Monopoly must remember that gas prices are up & they are doing little to help. If anything, they are driving prices higher as the United States defends many of their members for very little $’s.' He added, 'This must be a two way street. REDUCE PRICING NOW!' Antoine Halff, formerly a chief oil market analyst at the International Energy Agency and now senior fellow at Columbia University, said that Trump made three errors in his tweet: OPEC can influence market prices but is not a monopoly. OPEC is doing something to help with its recent agreement to raise production but may soon use up its entire spare capacity. And then, Halff added, Trump assumed 'that the increase in prices has nothing to do with the United States when the price increase is to some degree self-inflicted since it is driven by concern about the removal of Iranian barrels from the market.' Saudi Arabia, the world’s biggest exporter with the largest amount of spare capacity, has given only a muted response to Trump. It had urged Trump to withdraw from the deal with its rival, Iran. Without specifying a number, the official press agency said the kingdom would do what is necessary to balance oil prices.”
— Pruitt resigns. The Post's Brady Dennis and Juliet Eilperin: “Scott Pruitt, the former Oklahoma attorney general who relentlessly pursued President Trump’s promises of deregulation at the Environmental Protection Agency, resigned Thursday after controversies over his lavish spending, ethical lapses and management decisions eroded the president’s confidence in one of his most ardent Cabinet members. Pruitt’s reputation as a dogged deregulator and outspoken booster of the president allowed him to weather ethics scandals in recent months, including questions about taxpayer-funded first-class travel, a discounted condominium rental from the wife of a D.C. lobbyist and the installation of a $43,000 soundproof phone booth in his office. But revelations about his behavior continued to mount, including reports that he repeatedly enlisted subordinates to help him search for housing, book personal travel and help search for a six-figure job for his wife. That quest included setting up a call with Chick-fil-A executives in which he discussed his wife’s becoming a franchisee, as well as outreach to a conservative judicial group that eventually hired Marlyn Pruitt.”
— Fed signals intention to pursue gradual rate raise. Bloomberg News's Craig Torres: “Federal Reserve officials reaffirmed their commitment to gradually raising the benchmark lending rate amid rising risks from trade battles and emerging-market turmoil that could blunt the tailwind from fiscal policy. The minutes of the Federal Open Market Committee’s June 12-13 gathering in Washington, released Thursday, also highlighted a debate among policy makers over how many more rate increases would be needed to keep the economy on a stable footing in the long run. A 'number' of officials said it might 'soon be appropriate' to modify language in the Fed’s post-meeting statement language that describes rates as 'accommodative,' according to the minutes. 'Participants generally judged that, with the economy already very strong and inflation expected to run at 2 percent on a sustained basis over the medium term, it would likely be appropriate to continue gradually raising the target range for the federal funds rate to a setting that was at or somewhat above their estimates of its longer-run level by 2019 or 2020,' the minutes said.”
— The WTO says trade barriers keep going up. The Hill's Niv Elis: “The number of new trade restrictions among the world’s top economies has doubled in just six months, according to a report from the World Trade Organization, a trend the organization’s leader said was hurting global economic growth. . . . The WTO report says that between mid-October 2017 and mid-May 2018, countries in the G20 group of large economies imposed 39 new trade restrictions, a figure that was twice as much as the previous period.”
— ADP: 177,000 new jobs last month. AP's Josh Boak: “American businesses added 177,000 workers in June, a sign of health and resilience for the U.S. labor market and economy, according to a private survey. Payroll processor ADP said Thursday that hiring was led by employers with more than 50 workers, accounting for 84 percent of the job growth. The education and health sector led the gains by adding 46,000 workers. Leisure and hospitality added 33,000 jobs, as did professional and business services. . . . The ADP figures come one day before the government releases its monthly employment report. Economists have forecast that Friday’s official report will show solid job growth of 195,000. The unemployment rate is expected to hold at 3.8 percent.”
— Iran: Blame Trump if oil prices rise. Reuters's Alex Lawler: “Oil will soon cost $100 per barrel due to supply disruptions caused by . . . Trump, Iran’s OPEC Governor told Reuters on Thursday, as he warned expectations that Saudi Arabia and Russia would help bring down prices were in vain. . . . Iran, OPEC’s third-largest producer, is facing U.S. sanctions on its oil exports that are prompting some buyers to cut purchases. Iranian OPEC Governor Hossein Kazempour Ardebili told Reuters that Trump 'should have expected' when blocking Iran’s access to the global markets that it would end up as 'hostage (to) Saudi Arabia and Russia', who he said had little vested interest in bringing down prices.”
— JPMorgan's London exodus. Reuters's Sinead Cruise: “JPMorgan . . . has asked 'several dozen' employees to lead a first wave of relocations from Britain to continental Europe by early 2019, kicking off plans to protect its business post-Brexit, a memo to staff shows. In its first Brexit-related mass communication to its 16,000-strong workforce in the UK this year, JPMorgan highlights the organisational and strategic challenges facing global banks as they prepare for Britain’s European Union exit. . . . Signed by Daniel Pinto, chief executive of JPMorgan’s Corporate & Investment Bank and Mary Erdoes, chief executive of the bank’s Asset & Wealth Management division, Thursday’s email also outlined JPMorgan’s plans to beef up its presence in other EU cities including Paris, Madrid and Milan.”
— Boeing absorbs Embraer's commercial jet branch. WSJ's Andrew Tangel and Robert Wall: “Boeing Co. . . . is taking control of Embraer SA’s . . . commercial jetliner business, extending the U.S. aerospace giant’s reach into the market for smaller passenger planes. . . . Chicago-based Boeing said Thursday that it will take an 80% stake in Embraer’s commercial airplane and services business. Embraer will own the remaining 20% of what the two plane makers cast as a joint venture valued at $4.75 billion. Boeing will pay its new partner $3.8 billion in cash once the deal closes, Embraer executives said. Embraer will also commit cash and debt to the commercial joint venture, they said, without providing more details.”
— Elon Musk manages virtually every aspect of Tesla's production. The Post's Drew Harwell: “Musk’s bursts of energy have helped make Tesla one of the country’s most prominent and valuable automakers, a Silicon Valley challenger to Detroit that even its rivals contend has shoved American cars into the 21st century. . . . But that same energy has also made Musk one of the most polarizing corporate leaders in America, a brash and demanding captain of industry who risks overshadowing his own creation. . . . At Tesla, there is only what workers call the 'Elon Way.' Musk is head engineer, designer, salesman, financier and marketer, with full power over everything from global sales strategy to the look of the retractable door handles. In a companywide email in April ordering the Model 3 be made '24/7,' Musk ordered a review of 'every expense worldwide, no matter how small,' banned the use of acronyms, and urged workers to hang up on phone calls 'as soon as it is obvious you aren’t adding value.'”
— Walmart shows less reluctance to take political positions. WSJ's Sarah Nassauer: “Political divide in the country is creating a new landscape for business, in which fierce debates often lead consumers and employees to demand that corporations and chief executives take positions on big issues. That is increasingly pulling Walmart, the world’s largest retailer and largest private employer, into weighing in on issues such as immigration, the Confederate flag and gay rights — generally after other companies or politicians have done the same. . . . Under its 51-year-old chief executive, Doug McMillon, Walmart has often taken a more liberal stance on issues in recent years — a gamble for a company based in Red State Arkansas. But executives see its approach as part of its mission to let potential shoppers and employees know the company aims to be socially engaged.”
— Harvard prez heads to Goldman. Bloomberg: "Goldman Sachs Group tapped former Harvard University president Drew Faust as a director, making her the third woman on an expanded 12-member board. Faust, 70, starts as an independent director this month after an 11-year tenure at Harvard, the New York-based bank said Thursday in a statement. She will be a part of the governance, public responsibilities and risk committees."
— SEC announces Credit Suisse settlement. The Hill's Sylvan Lane: “Credit Suisse Group will pay $77 million to settle charges that the bank violated anti-bribery laws by hiring employees connected to foreign government officials, the Securities and Exchange Commission (SEC) announced Thursday. The Swiss investment bank agreed to pay $30 million to the SEC and a $47 million criminal penalty to the Justice Department to resolve claims it violated the Foreign Corrupt Practices Act. Credit Suisse agreed to pay the SEC $24.9 million to cover profits made from the referral hires, along with $4.8 million in interest.”
— New guidance from the CFPB to be released. American Banker's Kate Berry: “The Consumer Financial Protection Bureau plans to issue guidance later this summer on how it will give community banks partial exemptions from Home Mortgage Disclosure Act requirements. The CFPB and the Office of the Comptroller of the Currency issued identical press releases Thursday informing banks and financial firms about the status of the forthcoming HMDA guidance. HMDA data has been collected since 1975 to help root out discrimination in mortgage lending.”
- Panel discussion on globalization at the American Enterprise Institute on July 11.
- Senate Banking Committee hearing on “credit bureaus and the Fair Credit Reporting Act” on July 12.
- Conference on manufacturing at the Brookings Institution on July 12.
- Panel discussion on “what corporate America can do for employees” at the American Enterprise Institute on July 13.
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