with Bastien Inzaurralde
It stands no chance of passage this year. Republicans didn’t adopt budget rules that would allow them to approve it in both chambers on party-line votes, as they did for last year’s bill. But it will give Republicans an opportunity to highlight the strength of the economy — a rare bright spot with voters — while working to improve the standing of their signature domestic achievement. Polling shows they need it: Democrats enjoy an eight-point advantage on the generic ballot. And while President Trump claimed narrow majority support for his handling of the economy in a recent Washington Post survey, just 37 percent of respondents to a Politico/Morning Consult poll said they supported the tax cuts.
“President Trump’s tax cuts have really transformed the future of America for the better,” House Ways and Means Committee Chairman Kevin Brady (R-Tex.) said in a Fox and Friends interview Wednesday. “Remember, it wasn’t that long ago that our economy was sluggish, paychecks were going nowhere, jobs were going overseas. All that’s changed. So now the question is, do we lock that in?” Brady added there is another point Trump and the GOP want to make with their bill: “Not only do we lock it in, we lock it away from frankly Democrats who want to steal those tax cuts back.”
Trump was evidently watching, as he tweeted a statement host Brian Kilmeade made to Brady in the setup to a question:
“A lot of Democrats wished they voted for the Tax Cuts because the economy is booming - we could have 4% growth now and the Fed said yesterday that unemployment could drop again.” @foxandfriends @kilmeade
— Donald J. Trump (@realDonaldTrump) July 18, 2018
And he later added more cheerleading for his own economic stewardship:
3.4 million jobs created since our great Election Victory - far greater than ever anticipated, and only getting better as new and greatly improved Trade Deals start coming to fruition!
— Donald J. Trump (@realDonaldTrump) July 18, 2018
As my colleague Philip Bump notes, “It’s a weird tic of Trump’s that he keeps highlighting economic numbers that don’t really show the strength he insists is happening.” For example, here's how job creation since Trump’s victory compares to similar periods dating back to the 2012 presidential election:
And on tax cuts specifically, the data so far suggest voters come by their skepticism honestly. As Bloomberg Opinion’s Noah Smith writes, “The tax reform hasn’t yet resulted in appreciably higher wages for American workers. Real average hourly compensation actually fell in the first quarter after the tax reform was passed:”
Smith continues, “Huge, immediate gains for wealthy shareholders combined with tepid increases in business investment and decreases in real wages don’t paint a flattering picture of the tax cut’s impact so far… There’s still the possibility that Trump’s tax reform will bear fruit in the long term. But early results are pointing to another possibility — that tax cuts have run their course as an economic policy.”
House Republicans tried, unsuccessfully, to compel Jay Powell to affirm that tax cuts have boosted wages when the Federal Reserve chairman testified Wednesday before the House Financial Services Committee. The New York Times’s Jim Tankersley captured one particularly tortured exchange:
Here are nearly 500 words of a Republican congressman trying, and mostly failing, to get Fed Chair Jay Powell to credit tax cuts for the economy right now. pic.twitter.com/92TE1uNMBO
— Jim Tankersley (@jimtankersley) July 18, 2018
A day earlier, testifying before the Senate, Powell said it is “early to look for a bill that was signed into law less than a year ago to be affecting much of anything,” though he added the Fed expects it to boost both supply and demand over the next two to three years. The Politico poll underlined the urgency for House Republicans in getting their point across: Only a quarter of voters said they had seen a bump in their paychecks since the law’s passage; 52 percent said they noticed no increase.
“I get a mixed reaction when I talked to members,” Jon Traub, managing director of Deloitte’s tax policy practice, tells me. “I think they have some very good anecdotal stories about how people are responding positively. But they’re aware they have a broader job to do to make the electorate understand it and have it reflected in outcomes at the polls in November… Members are frustrated that the focus of the attention is on trade and not tax. They’d like to be playing offense on tax, not defense on trade.”
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TRUMP TRACKER
TRADE FLY-AROUND:
— Uranium tariffs would target Canada, Australia. The Washington Post's Steven Mufson: "Commerce Secretary Wilbur Ross took a first step to expanding the trade war to uranium Wednesday, saying that he would launch an investigation into whether quotas should be used to restrict imports in the name of national security. But utilities with nuclear plants fear such actions would raise the cost of electricity and nuclear experts said the military already has stockpiles big enough to last for decades... Much of the imported uranium comes from friendly nations. In 2017, Canada and Australia provided more than half of U.S. uranium consumption, Commerce said. Russia provided 16 percent... Independent nuclear experts said that the U.S. military can rely on large stockpiles."
— Trump hints at Mexico deal. Bloomberg News's Toluse Olorunnipa: “Trump said he may prioritize a bilateral trade deal with Mexico over Canada and that he’s building a good rapport with Mexican President-elect Andrés Manuel López Obrador. The U.S. and Mexico are 'getting closer' to reaching a trade deal, and the administration may advance separate talks with Canada later, Trump told reporters at the start of a cabinet meeting in Washington on Wednesday. The president added that he and newly elected López Obrador are 'doing great.'”
And threatens Europeans. The Wall Street Journal's Chester Dawson and Joshua Zumbrun: “Trump stood by his threats to levy sweeping tariffs on automobile imports as a way to extract concessions from trading partners, despite opposition from the industry and discontent in Congress with the White House’s proposal. Resistance to the tariffs is strong and growing. ... Still, at a cabinet meeting on Wednesday, Mr. Trump threatened 'tremendous retribution' against the European Union, specifically mentioning auto tariffs, if his meeting with EU officials next week doesn’t yield what he considers a fair auto trade deal. ... The issue of auto tariffs is the subject of a Commerce Department hearing on Thursday and is expected to be high on the agenda of the July 25 White House visit by European Commission President Jean-Claude Juncker.”
Europeans to respond. Bloomberg News's Viktoria Dendrinou and Alexander Weber: “The European Union is preparing a new list of American goods to hit with protective measures, according to a person familiar with the move, in case a mission to Washington next week fails to persuade... Trump not to raise car tariffs. The European Commission briefed EU ambassadors Wednesday on trade relations with the U.S., and said it was working on so-called rebalancing measures that would be ready immediately if the U.S. imposes levies on European car exports.”
— Powell warns on trade again. Reuters's Howard Schneider, Lindsay Dunsmuir: “Federal Reserve Chairman Jerome Powell, questioned by members of a House congressional committee, repeated on Wednesday that rising world protectionism would over time pose a risk to a U.S. and global expansion that appears largely on track to continue. 'If this process leads to a world of higher tariffs on a wide range of goods and services that are traded and those are sustained for a longer period of time, if it results in a more protectionist world, that would be bad for our economy,' Powell told the House Financial Services Committee. 'It isn’t up to us to criticize (administration) policies. But the evidence is clear that countries that remain open to trade have higher productivity. They have higher incomes.' Powell’s appearance largely retraced the testimony and questioning from a Tuesday hearing with the Senate Banking Committee.”
Other central bankers are nervous, too. Bloomberg reports alarm bells are rising among the G20 central bankers and finance ministers preparing the gather this weekend in Buenos Aires for their first meeting since Trump imposed tariffs on imports from China and the EU.
Beige book shows rising concern. WSJ's Sarah Chaney and Sharon Nunn: "Manufacturers across the U.S. expressed concern about tariffs, with many reporting higher prices and supply-chain disruptions in the wake of new trade policies, according to a Federal Reserve report released Wednesday. Ten of the Federal Reserve’s 12 districts reported moderate or modest economic growth so far this summer, the Fed said in its latest roundup of anecdotal information about regional economic conditions known as the beige book. The report was based on information collected on or before July 9 and showed many businesses expressing uncertainty regarding the impact of trade."
— Kudlow chides Xi. Politico's Adam Behsudi: “White House National Economic Council Director Larry Kudlow said Chinese President Xi Jinping is showing no signs of wanting to compromise on U.S. trade demands and said the onus is on Beijing to try to reach a deal. 'I don’t think President Xi at the moment has any intention of following through on the discussions we made, and I think the president is so dissatisfied with China on these so-called talks that he is keeping the pressure on, and I support that,' Kudlow said Wednesday morning at the Delivering Alpha conference.”
China responds: "Bogus." Reuters: "Asked about Kudlow’s comments, China’s foreign ministry spokeswoman Hua Chunying said: 'That the relevant United States official unexpectedly distorted the facts and made bogus accusations is shocking and beyond imagination.'"
— Senators may act. Politico's Burgess Everett: “Sens. Doug Jones and Lamar Alexander are planning to introduce a bill next week to halt... Trump's proposed tariffs on European automakers, hoping to shield the automotive industries in the South from more economic blowback from U.S. allies. The Alabama Democrat and Tennessee Republican said on Wednesday they are working on legislation with support from senators in both parties aimed at preventing the president from imposing unilateral tariffs on foreign automakers. ... 'The president's proposed auto tariffs have the potential to inflict serious damage on a booming industry in my state and other leading auto-producing states like Tennessee,' Jones said.”
Car industry petitions Trump. WSJ's Chester Dawson and Josh Zumbrun: “Auto makers, parts suppliers and dealers are joining forces to push back against the Trump administration’s proposal to apply tariffs of up to 25% on vehicles and components imported into the U.S., contending the administration’s trade policy will backfire and lead to higher prices and lost jobs. ... Auto industry representatives have petitioned... Trump to back off on his threats to place tariffs on imports, with plans to amplify their message in digital and newspaper advertisements. 'Raising tariffs on auto and auto parts would be a massive tax on consumers, who buy or service their vehicles,' according to an open letter to the president and jointly submitted by the auto industry’s main lobbying groups.”
The Commerce Department holds a hearing on the proposed tariffs this morning. Linda Dempsey, vice president of international economic affairs for the National Association of Manufacturers, will testify against them. Here's a snippet from her prepared remarks: "The broad, unilateral import restrictions, be they tariffs or quotas, that a Section 232 investigation could authorize, however well-intentioned, would ultimately be counterproductive, giving an edge to foreign production at the expense of U.S. manufacturing.”
— Tariff backlash in Missouri. The Post's Erica Werner and Kevin Sieff: “When a Mexican company bought Mid Continent Nail Corp. in 2012, workers at the factory here feared it was the beginning of the end. Their jobs, they suspected, would be given to lower-paid workers in Mexico, more casualties of the hollowing out of U.S. manufacturing driven in part by an embrace of global trade. Instead, Mid Continent’s factory has doubled in size since Deacero’s purchase. The company, facing fewer restrictions on steel exports after the North American Free Trade Agreement, shipped steel into Missouri, willing to pay skilled workers more to take advantage of cheaper energy costs in the United States and a location that allowed swift delivery to U.S. customers. But President Trump has put 25 percent tariffs on steel imports, bumping production costs and prompting Deacero to reconsider this arrangement. ... And so trade restrictions aimed at preventing U.S. jobs from heading to Mexico and elsewhere have instead hampered a Mexican company’s multimillion-dollar effort to create jobs in the United States — an unintended consequence of Trump’s trade war that demonstrates the difficulty of attacking trading partners without hurting workers at home. The layoffs have already begun.”
Shipping in the crosshairs. Bloomberg News's Kyunghee Park: “Christmas is looking a little less bright for container-shipping companies. As the industry enters what’s typically its busiest quarter before the year-end holidays, an escalating trade row between China and the U.S. may lead to higher prices for China-made goods from Christmas lights to cooking stoves. With about 90 percent of global trade carried by sea, that could mean a big dent on shipments. ... In a worst-case scenario, world traffic could be reduced by almost 1 percent, or as many as 1.8 million 20-foot containers, due to the intensifying trade dispute, according to Drewry Shipping Consultants Ltd.”
MARKET MOVERS
— Powell still sees some slack. Bloomberg News's Reade Pickert and Christopher Condon: “Powell said the U.S. economy may not yet have reached full employment, while also noting that risks to the central bank’s inflation forecast were 'roughly balanced.' 'We need people, we need more people who are going to fill these jobs that are going to be coming open,' Powell told the House Financial Services Committee Wednesday on his second day of semi-annual testimony before Congress. 'We’re close to full employment, maybe not quite there.'”
And warns on cryptocurrencies. CNBC's Fred Imbert: “The head of the Federal Reserve raised concerns about cryptocurrencies on Wednesday, saying they present serious risks to investors. . . . Powell told members of Congress that 'relatively unsophisticated investors see the asset go up in price, and they think: “This is great; I'll buy this.” In fact, there is no promise of that.' ”
POCKET CHANGE
— Morgan Stanley posts profit. AP's Ken Sweet: “Investment bank Morgan Stanley said its second-quarter profits rose by 39 percent from a year ago, driven by another strong performance in trading and investment banking, as well as a lower tax bill. The New York-based bank said Wednesday that it earned $2.44 billion in the second quarter, up from $1.76 billion in the same period a year earlier. On a per-share basis, Morgan Stanley earned $1.30 a share, up from 87 cents a share. Analysts were expecting Morgan to earn $1.11 a share, according to a survey of analysts by FactSet.”
And laments stress tests. Reuters's Matt Scuffham: “Morgan Stanley’s top executive criticized the Federal Reserve’s annual health checks of the biggest U.S. lenders and predicted changes to the tests going forward after his bank reported better-than-expected quarterly earnings on Wednesday. ... The tests, set up to prevent a repeat of the 2007-2009 financial crisis, have become 'increasingly more demanding' each year, and are now more severe than what the banks experienced during the crisis itself, Chief Executive Officer James Gorman said on a conference call with analysts. 'Ten years on, it’s time to take a fresh look,' he said. 'We don’t want to be chasing in the last crisis, we’re trying to figure out the next one.' ”
— Amazon.com keeps climbing. Reuters's Noel Randewich: Amazon.com’s . . . stock market value reached $900 billion on Wednesday for the first time, marking a major milestone in its 21-year trajectory as a publicly listed company and threatening to dislodge Apple . . . as Wall Street’s most valuable jewel. . . . After announcing on Wednesday that it sold more than $100 million products during its annual Prime Day sale, the Seattle, Washington company’s stock briefly touched $1,858.88, giving Amazon a stock market value of $902 billion. It later reversed, trading down 0.16 percent for the session.”
MONEY ON THE HILL
— Retirement plans gain momentum. The Post's Thomas Heath: "Legislation that could affect how millions of Americans save for retirement and how they cash out those nest eggs in their golden years has attracted interest in both the House and the Senate. The proposed legislation, known as the Retirement Enhancement and Savings Act, could add millions of people to the rolls of tax-deferred retirement accounts by juicing incentives for employers and workers to participate... The incentives would make it easier for small companies to pool together to reduce the costs of maintaining retirement plans. They would also extend the age at which people can contribute to Individual Retirement Accounts beyond 70½ . And they would allow the purchase of annuities, which are attractive because of their lifetime income streams."
THE REGULATORS
— CFPB nominee faces grilling over family separation. The Hill's Sylvan Lane and Lydia Wheeler: "The Trump administration’s controversial policy of separating families at the southern border will surprisingly take center stage at a Senate Banking Committee hearing Thursday for the nominee to lead the Consumer Financial Protection Bureau. Banking panel Democrats called on Chairman Mike Crapo (R-Idaho) Tuesday night to delay Kathleen Kraninger’s confirmation hearing until she answers questions about her role in implementing the controversial 'zero tolerance' policy for immigrants seeking asylum, as well as the administration’s response to Hurricane Maria in Puerto Rico. Crapo, however, is pressing ahead, setting the stage for fireworks on Thursday as Democrats use the hearing to demand answers from Kraninger on the contentious immigration policy. The fight is putting Kraninger, who has spent over a decade in government but is not well known publicly, in the spotlight."
— SEC eyes ETFs. Bloomberg's Rachel Evans: "The U.S. Securities and Exchange Commission, which is working on an ETF-specific oversight regime and considering reviving a proposal to limit the use of derivatives in the funds, is also asking questions about the stock and bond benchmarks that underpin 98 percent of the $3.6 trillion market for exchange-traded products. Currently the firms that create the indexes supporting these funds do so without SEC supervision... It’s all part of a broader effort by regulators to get their arms around the fast-growing business that’s seen its U.S. assets triple since 2011, yet has spent decades in the shadows of the investment world."
DAYBOOK
Today
- The Senate Banking Committee holds a confirmation hearing for Kathy Kraninger, Trump's nominee for director of the Consumer Financial Protection Bureau, and Kimberly A. Reed, Trump's nominee for president of the Export-Import Bank.
- House Intelligence Committee hearing titled “China’s threat to American government and private sector research and innovation leadership.”
Coming soon
- Two House Small Business subcommittees hold a joint hearing on financial investment in rural areas on July 24.
- Senate Foreign Relations subcommittee hearing on Chinese “economic coercion” on July 24.
- Liam Fox, Britain's international trade secretary, delivers a speech on free trade at the Heritage Foundation in Washington on July 25.
THE FUNNIES
From the New Yorker's Ellis Rosen:
BULL SESSION
Trump calls his foreign meetings “a tremendous success”:
Turkish court rules to keep American pastor in prison:
Rescued Thai soccer team greets media in first public appearance: