THE TICKER

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President Trump is operating in an economic reality of his own creation that has left him both increasingly emboldened and isolated as he escalates trade hostilities over the objections of key aides and allies. 

The outlook threatens to plunge an otherwise expanding economy further into a fight that is already rattling supply chains around the globe, spooking investors, delaying investment plans and prompting layoffs. And the president is set to take things from bad to worse this week.

With his threat of new tariffs on auto imports looming, Trump will huddle Wednesday in Washington with European Commission President Jean-Claude Juncker in what Europeans are calling a last-minute bid to ramp down transatlantic tensions. Yet Trump has all but shattered hope for a breakthrough, last week accusing the European Union of currency manipulation and lashing out after they announced a $5 billion antitrust fine on Google, tweeting, “They truly have taken advantage of the U.S., but not for long!”

Trump continues to insist all is well at home. He said Friday he is playing with “the bank’s money” in the trade conflagration, thanks to a runup in the stock market under his watch. He is talking up second-quarter GDP numbers, due Friday, that he believes will touch 4.8 percent. On Twitter over the past few days, the president has blamed the Fed, foreign currency manipulation, and a “downward trend” in agriculture for economic speed bumps. And he continues to believe his trade offensive provides a winning issue for his party in the midterms.

The world beyond his blinders looks very different. 

The stock market, which does not mirror the health of the broader economy, has tripped this year amid trade fears: The S&P 500 is up 31 percent since Trump’s election, but it has slowed considerably, gaining 4.9 percent this year, CNBC notes

As for growth in the quarter that ended last month, economists also expect to see a big number post this week. Yet they chalk it up to a flurry by companies bracing for higher tariffs. Morgan Stanley economists, for example, project 4.7 percent growth, but estimate companies stockpiling goods alone could account for 1.5 percent of that activity. In short, one bank strategist wrote in a note, “Enjoy the 2Q GDP number, which may be the last best” report for “a while.” 

Most significantly for Trump and his party, the metric most important to the most voters — their own paychecks — isn't offering the same good news. Worker pay actually fell by a nearly a full percentage point in the second quarter, according to the PayScale Index, which uses private data. “Year-over-year, rising prices have eaten up still-modest pay gains for many workers, with the result that real wages fell 1.4 percent from the prior year,” CBS Moneywatch’s Irina Ivanova wrote this month. “The drop was broad, with 80 percent of industries and two-thirds of metro areas affected.”

Conditions for workers will deteriorate, erasing the benefits of the GOP’s tax cut package, if Trump follows through with the full suite of tariffs he has proposed, according to an estimate by the Tax Foundation:

Trump is whistling past these warning signals, leaving his aides scrambling to rein him in and clean up his latest pronouncements.

The president continues to favor imposing tariffs of up to 25 percent on autos and parts — a position opposed even by hawkish U.S. Trade Representative Robert E. Lighthizer, Politico’s Ben White reports: “The auto industry, Republicans in Congress, U.S. trading partners and even some of Trump’s top advisers argue that the tariffs could be major political and economic negatives. Trump takes the opposite view, arguing that auto tariffs would be a political winner in Rust Belt states like Ohio and Michigan in the midterms.”

Indeed, the president is “determined to make trade part of the midterm discussion,” The Washington Post's Michael Scherer and Josh Dawsey write. As one White House official tells them, “It’s not like you are going to change his mind. So we just have to message it the right way.” The issue is driving complaints to the White House from GOP incumbents, as retaliatory tariffs from trading partners take a toll on agricultural exports.

On Sunday, Treasury Secretary Steven Mnuchin tried to assuage fellow G-20 finance chiefs at a summit in Buenos Aires that there's no chance of a currency war erupting. He was responding to fears sparked by a pair of Trump tweets Friday morning complaining about “illegal currency manipulation” he alleged by China and the European Union to gain a trading advantage over the United States. 

The second of those tweets also doubled down on criticism Trump first leveled Thursday at Federal Reserve Chair Jay Powell for raising interests rates. The critique broke a quarter-century tradition of presidents taking a hands-off approach to monetary policy — and prompted an attempt later that day by the White House to clarify that Trump respects the central bank’s independence. (For his part, Powell, in congressional testimony earlier in the week, warned that trade war fears “may well” depress wage growth and business investment.) 

As Trump’s rhetoric promises a one-way ratchet in his trade confrontations, allies who otherwise agree that China has engaged in abusive behavior nevertheless fear the president is stumbling forward without a plan. “We’re playing Russian roulette with the American economy,” Myron Brilliant, executive vice president of the U.S. Chamber of Commerce, tells The Post’s David Lynch. “The administration has a tool that they think provides leverage over other countries. But I don’t think it has a good strategy for getting a deal done.”

TRUMP TRACKER

TRADE FLY-AROUND:

Trump threatens Iran. At 10:24 p.m. EST last night, the president tweeted: 

Context, from the The Post's Carol Morello: "Trump’s message came as Secretary of State Mike Pompeo said the United States would step up broadcasts into Iran critical of the country’s theocratic rulers... Iran’s state-owned Islamic Republic News Agency replied within hours, dismissing Trump’s tweet and describing it as a “passive reaction” to Rouhani’s remarks. Earlier Sunday, Rouhani said the United States should avoid inciting Iranians against the government as the Trump administration is poised to reimpose sanctions suspended under the 2015 nuclear deal that Trump withdrew from in May."

— Mnuchin amends Trump. The New York Times's Alan Rappeport: “At a gathering of finance ministers from the world’s largest economies on Saturday... Mnuchin... sought to clarify remarks by [Trump] this week, insisting that the administration would not interfere with the decisions of the Federal Reserve or move to manipulate the value of the dollar... 'The president is prepared to deal with different issues where he has opinions, but let me be clear, this is not in any way the president trying to intervene in the currency markets whatsoever,' Mr. Mnuchin said, adding that a strong dollar over the long term was in the interests of the United States."

China says it won't devalue yuan. Reuters: "China said on Monday the value of its currency is driven by market forces and that it has no intention to devalue the yuan to help exports, after Washington said it was monitoring the currency’s weakness amid the escalating bilateral trade row... [Chinese Foreign Ministry spokesman Geng Shuang] said the value of the yuan was subject to the forces of demand and supply, and that healthy economic performance offered support for its level."

Call for more dialogue. The Associated Press's Luis Andres Henao: “The world’s top financial officials meeting in Argentina’s capital on Sunday called for more dialogue on trade disputes that threaten global economic growth with one official warning that differences remain and tensions could escalate further. ... A final communique from the meeting said that although the global economy remains strong, growth is becoming 'less synchronized' and risks over the short and medium terms have increased."

— U.S. goods in the spotlight. Reuters's David Shepardson: “Trump will showcase American-made products ranging from beef jerky and cowboy boots to the Lockheed Martin Corp F-35 fighter jet on Monday, as his administration wages trade battles on a series of fronts. A White House spokeswoman said on Sunday that Trump would make remarks at the exhibit designed to demonstrate the administration’s 'commitment to ensuring more products are made in America.' Vice President Mike Pence, six Cabinet secretaries and some dozen other senior officials will also attend. ... Other products to be displayed at the White House on Monday include Wiffle balls and bats from Connecticut, Viking Range LLC stoves from Mississippi and Moon Pies sweets from Tennessee.”

— Tariffs hit close to Pence's home. The Washington Post's Gabriel Pogrund: “One company and one family loom large over this city, intertwined for decades. Cummins Inc. is the biggest employer in Columbus, built into a $20 billion heavy equipment manufacturer with the help of Mike Pence, who as governor passed pro-business tax cuts and made trade visits to China on its behalf. Pence’s older brother Edward joined Cummins after graduating from college and worked there for four decades, running one of its most lucrative engine plants before retiring last December. A second brother, Greg, is running for the 6th congressional district seat and visited Cummins during a recent campaign stop. But the alliance of the past is being threatened by the administration Mike Pence now serves, as... Trump’s trade war with multiple nations clobbers Cummins and other local companies. According to the Brookings Institution, the Columbus area is the most export-reliant region in the country, with just over half of its economic output linked to foreign purchases.”

— Meat pile-up. The Wall Street Journal's Jacob Bunge: “Meat is piling up in U.S. cold-storage warehouses, fueled by a surge in supplies and trade disputes that are eroding demand. Federal data, coming as early as Monday, are expected to show a record level of beef, pork, poultry and turkey being stockpiled in U.S. facilities, rising above 2.5 billion pounds, agricultural analysts said. U.S. consumers’ appetite for meat is growing, but not fast enough to keep up with record production of hogs and chickens. That leaves the U.S. meat industry increasingly reliant on exports, but Mexico and China — among the largest foreign buyers of U.S. meat — have both set tariffs on U.S. pork products in response to U.S. tariffs on steel, aluminum and other goods. U.S. hams, chops and livers have become sharply more expensive in those markets, which is starting to slow sales, industry officials said.”

— AMLO pitches NAFTA. Bloomberg News's Justin Villamil: “Mexico president-elect Andres Manuel Lopez Obrador called on [Trump] to pursue renewed North American Free Trade Agreement negotiations aimed at a final agreement including all three countries in the pact. In a letter to Trump, delivered July 13 and read aloud by his proposed foreign minister Marcelo Ebrard at a press conference Sunday, Lopez Obrador said U.S. and Mexican administrations should work together on key themes including trade. Other areas mentioned by Lopez Obrador included migration, development and security. 'Prolonging the uncertainty could slow down investments in the medium and long-term,' Lopez Obrador wrote in the letter, which was posted to his website. 'I propose to resume negotiations with the participation of representatives from Mexico, Canada and the United States.'”

Amid new optimism. Reuters's Luc Cohen and David Lawder: “The finance ministers for Mexico and Canada on Sunday said they were optimistic about NAFTA talks with the United States, even as trade tensions spurred by U.S. tariffs dominated the G20 meeting of world economic leaders in Argentina. Mexico Finance Minister Jose Antonio Gonzalez Anaya said there were still several chapters of NAFTA that had not yet been closed, but that the renegotiation could be completed before... Lopez Obrador takes office on Dec. 1 after his landslide victory in this month’s election. 'There exists a possibility that we can arrive at some type of arrangement,' Gonzalez Anaya told Reuters in an interview, adding that he discussed the talks to modernize the 24-year-old North American Free Trade Agreement during a bilateral meeting with his Canadian counterpart, Finance Minister Bill Morneau.”

— Japan: There's no deal. Bloomberg News's Connor Cislo and Emi Nobuhiro: “One of Japan’s top policy makers indicated the government will continue to resist U.S. efforts to create a bilateral free trade agreement between the two nations. 'Japan is not going to do anything with any country that harms the national interest,' said Chief Cabinet Secretary Yoshihide Suga. 'With FTA negotiations too, we’ll handle them in that way.' ... Suga said that he knows the U.S. side is keenly interested in a bilateral trade deal, but Japan will continue to insist that the U.S. returning to the Trans-Pacific Partnership trade agreement is in the best interests of both countries.”

MELTDOWN WATCH:

— Carter Page responds. The Post's Elise Viebeck: “Former Trump campaign adviser Carter Page on Sunday denied he was an intelligence agent for Russia, while lawmakers appeared on the morning political shows to urge... Trump to act tougher toward the Kremlin. Page’s denial was his first public response to the release on Saturday of a wiretap application that said he engaged in 'clandestine intelligence activities' on behalf of Russia. He said allegations he worked on the country’s behalf as an agent or an informal adviser were 'ridiculous' and a 'complete joke.' 'I’ve never been an agent of a foreign power by any stretch of the imagination,' Page said on CNN’s 'State of the Union.' ”

Accused Russian spy landed Treasury, Fed meetings. Reuters's Sarah Lynch: "Maria Butina, accused in the United States of spying for Russia, had wider high-level contacts in Washington than previously known, taking part in 2015 meetings between a visiting Russian official and two senior U.S. officials. The meetings, disclosed by several people familiar with the sessions and a report prepared by a Washington think tank that arranged them, involved Stanley Fischer, then Federal Reserve vice chairman, and Nathan Sheets, then Treasury undersecretary for international affairs. Butina traveled to the United States in April 2015 with Alexander Torshin, then the Russian Central Bank deputy governor, and they took part in separate meetings with Fischer and Sheets to discuss U.S.-Russian economic relations during Democratic former President Barack Obama’s administration."

— Manafort trial starts. The Post's Rachel Weiner: “Paul Manafort, President Trump’s onetime campaign chairman, is to appear in federal court in Virginia on Monday for a flurry of motions in advance of his bank and tax fraud trial, which is set to begin Wednesday. The trial will be the first prosecuted by the special counsel investigating Russian interference in the 2016 election, and on Monday morning, both sides will have their last chance to shape the course of the trial. It is also the first time Manafort is to appear in court in person since he was jailed by a judge in Washington, where he faces related charges.”

Jared Kushner and his partner in peacemaking, Jason D. Greenblatt, have declared that no foreign investors will pour money into Gaza during what they call a Hamas-driven conflict.
NYT
MARKET MOVERS

— Some investors leave bond markets. WSJ's Riva Gold and Christopher Whittall: “Many bonds around the globe are becoming harder to trade, prompting some investors to shift to other markets and raising concerns about a broad decline in liquidity. The median gap between the price at which traders offer to buy and sell, a proxy for the ability to move in and out of markets quickly, has widened this year across European corporate debt and emerging-market government and corporate bonds, according to data from trading platform MarketAxess. Trading in some derivatives has picked up as traders pull back from bond markets they view as increasingly unruly and expensive. Liquidity, a measure of the capacity to trade securities without significantly affecting the price, has been a growing concern since the financial crisis. Traders say it has generally weakened across markets including stocks, bonds and commodities as the large banks that once kept these markets running have pulled back in response to limits on their risk-taking.”

POCKET CHANGE

— New CEO at Fiat. WSJ's Chester Dawson: “The deteriorating health of Sergio Marchionne forced Fiat Chrysler Automobiles NV to replace him as CEO this weekend, a sudden change at a company dealing with a rapidly evolving industry and a global trade dispute. ... Fiat Chrysler named Mike Manley to succeed Mr. Marchionne as chief executive. The 54-year-old was one of Mr. Marchionne’s top lieutenants since 2009 and most recently ran the auto maker’s Jeep SUV and Ram truck brands — two of the company’s most profitable units. The British-born executive inherits a company that in recent years has made progress paying down its debt and improving its balance sheet, due in large part to the success of its highly profitable trucks and sport-utility vehicles in the U.S. Fiat Chrysler has doubled down on a continued shift in demand toward larger vehicles by retooling its factories and largely exiting the sedan business.”

Tesla asks suppliers for cash. WSJ's Tim Higgins: "Tesla has asked some suppliers to refund a portion of what the electric-car company has spent previously, an appeal that reflects the auto maker’s urgency to sustain operations during a critical production period. The Silicon Valley electric-car company said it is asking its suppliers for cash back to help it become profitable, according to a memo reviewed by The Wall Street Journal that was sent to a supplier last week. Tesla requested the supplier return what it calls a meaningful amount of money of its payments since 2016, according to the memo."

— Mondelez recalls crackers.  WSJ's Annie Gasparro: “Mondelez International Inc. ... is recalling some Ritz crackers made with an ingredient that could have salmonella bacteria. Mondelez said the supplier of whey powder for its crackers recalled the ingredients due to the potential presence of the bacteria. There have been no complaints of illness reported to Mondelez in connection with the crackers, the company said. 'The company is conducting this recall as a precaution,' a statement said.”

MONEY ON THE HILL

Hensarling, Waters form unlikely alliance. Politico's Zachary Warmbrodt: "When Maxine Waters was sparking outrage among [Trump's] allies by calling for the public shaming of his advisers, one key conservative was quietly courting her: Waters' old adversary, Jeb Hensarling of Texas. What emerged from their talks over the past few weeks surprised many in Washington: a wide-ranging and broadly bipartisan bill that would ease financial regulations and protect investors. The House passed it this week in a 406-4 vote. The bill is a milestone for Hensarling and Waters, who have been at odds for nearly six years as the top Republican and top Democrat on the often deeply partisan House Financial Services Committee... Yet even with an overwhelming vote at their backs, the package that Hensarling and Waters crafted faces an uncertain fate in the Senate."

THE REGULATORS

Regulators struggle over $600 trillion market. NYT's Emily Flitter: "In the maze of subsidiaries that make up Goldman Sachs Group, two in London have nearly identical names: Goldman Sachs International and Goldman Sachs International Bank. Both trade financial instruments known as derivatives with hedge funds, insurers, governments and other clients. United States regulators, however, get detailed information only about the derivatives traded by Goldman Sachs International. Thanks to a loophole in laws enacted in response to the financial crisis, trades by Goldman Sachs International Bank don’t have to be reported. A decade after a financial crisis fueled in part by a tangled web of derivatives, regulators still have an incomplete picture of who holds what in this $600 trillion market."

Google's $5 billion missed opportunity. Bloomberg's Aoife and Stephanie Bodoni: "European Union Competition Commissioner Margrethe Vestager coolly hit Google with a 4.3 billion-euro ($5 billion) fine last week, the biggest penalty in the history of antitrust enforcement. It didn’t have to be that way. A year earlier, when the company -- already reeling from a 2.4 billion-euro fine in another EU case -- made quiet attempts to settle the probe into deals it has with Android phone makers, the response was equally chilly. The Silicon Valley search giant had waited at least a year too long to broach the subject of a settlement, the 50-year-old Vestager said in an interview. When a company wants to settle, it needs to "reach out immediately after" getting the EU’s initial complaint or statement of objections."  

DAYBOOK

Coming soon

THE FUNNIES

A New Yorker cartoon by Kaamran Hafeez:

A cartoon by Kaamran Hafeez, from 2015. #TNYcartoons

A post shared by The New Yorker Cartoons (@newyorkercartoons) on

BULL SESSION

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