Canadian negotiators will today resume trade talks with their U.S. counterparts knowing that it was only sleight of hand that stopped the president from attempting to withdraw from the North American Free Trade Agreement last year.
The two countries have less than a month to work through a pile of sticky issues still dividing them, from Canadian protection of its dairy industry to Trump’s threats to slap tariffs on auto imports (my colleague Heather Long ran down the big issues here).
Gary Cohn's surreptitious move last spring to block Trump from tearing up NAFTA is one of the bombshell revelations Tuesday from The Washington Post’s early look at Bob Woodward’s forthcoming book on the inner workings of this White House. It only underscores the volatility of Trump's team and the president himself. The detailed look at the chaotic life inside the White House could be impacting major players in the NAFTA negotiations.
Canadian Prime Minister Justin Trudeau sought to place some demands of his own on the negotiations hours after the story about Woodward's book posted online. He told reporters he will not agree to a deal that shreds the dispute resolution provision of the pact, known as Chapter 19. That measure allows countries to challenge each other on tariffs and other trading practices before an independent panel. And Trudeau also wants to preserve special protections for Canada’s broadcasting and publishing industries.
But Woodward’s reporting highlights that Trudeau is negotiating against a president with an entirely different view of the quarter-century-old pact. Indeed, Trump not only threatened to shoot the hostage, he attempted to shoot it, but his gun jammed. That is, Cohn had to intercede to prevent the president from following through with his intention to pull out of the deal.
From my colleagues Phil Rucker and Bob Costa: “In spring 2017, Trump was eager to withdraw from NAFTA and told [then-White House staff secretary Rob] Porter: ‘Why aren’t we getting this done? Do your job. It’s tap, tap, tap. You’re just tapping me along. I want to do this.’ Under orders from the president, Porter drafted a notification letter withdrawing from NAFTA. But he and other advisers worried that it could trigger an economic and foreign relations crisis. So Porter consulted Cohn, who told him, according to Woodward: ‘I can stop this. I’ll just take the paper off his desk.’ ”
Cohn used a the same tactic to keep Trump from pulling out of the South Korean free trade agreement, stealing a letter off the president’s desk that he was intending to sign to formalize the move. “Cohn later told an associate that he removed the letter to protect national security and that Trump did not notice that it was missing,” Phil and Bob write, citing Woodward’s reporting. The White House aggressively pushed back on the book Tuesday, with White House press secretary Sarah Huckabee Sanders denouncing as “nothing more than fabricated stories.” Trump, in an interview with The Daily Caller, attacked Woodward's credibility — though he praised him in a phone call just last month.
For all the heartburn the Trump administration has induced at home and abroad by ramping up trade tensions and imposing tariffs, it has yet to successfully finalize any new deals. The South Korean pact and NAFTA are both inching forward, in spite of Trump’s original designs: The office of the U.S. Trade Representative over the weekend published details of the modified Korean deal, six months after the nations announced an agreement; and the administration forged a breakthrough with Mexico last week that could set the stage for progress with Canada this month. U.S. officials say they face a hard deadline of Sept. 30 to submit text of a deal to Congress.
Trump has made no secret of his opposition to NAFTA. From the campaign trail to the Oval Office, he has repeatedly slammed the pact as a “horrible disaster.” The president told The Post last April he had been on the verge of moving to terminate the deal but his top advisers convinced him to reconsider. Trump last week told Bloomberg last Thursday — in off-the-record remarks that later leaked — he had no intention of making compromises with Canada. And he continued over the weekend to threaten Canada with leaving it out of a reworked agreement with Mexico.
But Trump’s leverage is limited ultimately by his need to earn congressional sign-off for a new deal, as Bloomberg’s Shawn Donnan writes: “The debate over how and whether to include Canada in a new Nafta that must be ratified by Congress illustrates Trump’s political isolation in his trade wars, something both Chinese and European officials have noted. It also comes just eight weeks before mid-term elections in which control of the U.S. legislative body is at stake and trade has already become a volatile issue.”
The appeal of securing a win to tout before the midterms leads Chris Krueger of Cowen Washington Research Group to argue in a Tuesday note to clients that the administration will look to strike a deal. “A deal announcement would provide a much-needed victory ahead of the November 6 midterms for Trump,” Krueger writes. “A deal by month's end with Canada would also increase the potential of NAFTA 2.0's passage. And it would allow the Administration to turn its attention to China, where there seems more uniformity among Trump's senior advisors on taking a tough line.”
That would require the president to act in his own strategic self-interest — a path that Woodward’s reporting shows his own top deputies haven't trusted him to follow.
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— Economy shows news strength. For one, manufacturing looked surprisingly robust in August. The Wall Street Journal's Sharon Nunn: “American factory activity in August expanded at the strongest pace in more than 14 years, despite rising tensions with some of the U.S.’s largest trade partners. The Institute for Supply Management on Tuesday said its manufacturing index rose to 61.3 in August, the highest level since May 2004, from 58.1 in July. Sales of factory-made products, or new orders, output and employment all grew at a faster pace in August . . . Despite the headline growth in factory activity, there are latent signs recent trade actions may be beginning to take a toll. An underlying gauge of new export orders for primary metals, transportation equipment and machinery declined in August, with machinery last declining at the beginning of 2017.”
And GDP is surging, the Atlanta Fed says. Reuters: “The U.S. economy is growing at a 4.7 percent annualized rate in the third quarter, the Atlanta Federal Reserve’s GDPNow forecast model showed on Tuesday . . . This was faster than the 4.1 percent GDP growth pace calculated by the regional Fed’s forecast program on Aug. 30.”
Plus, customer service is degrading. And that's actually a sign of a tightening labor market, per The Post's Danielle Paquette: “As the competition for labor intensifies, the quality of service at businesses tends to deteriorate, said Forrest Morgeson, director of research for the American Customer Satisfaction Index, which crunches more than 200,000 consumer survey responses each year. The ACSI’s national measure of consumer happiness, which ranks moods on a scale of 1 to 100, has slid from 77 in the first quarter of 2017 to 76.7, where it has sat all year — the longest period of stagnation since 1993."
— Envisioning the next crisis. CNBC's Hugh Son: “Sudden, severe stock sell-offs sparked by lightning-fast machines. Unprecedented actions by central banks to shore up asset prices. Social unrest not seen in the U.S. in half a century. That's how JPMorgan Chase's head quant, Marko Kolanovic, envisions the next financial crisis. The forces that have transformed markets in the last decade, namely the rise of computerized trading and passive investing, are setting up conditions for potentially violent moves once the current bull market ends, according to a report from Kolanovic sent to the bank's clients on Tuesday. His note is part of a 168-page mega-report, written for the 10th anniversary of the 2008 financial crisis, with perspectives from 48 of the bank's analysts and economists. . . . In his report, Kolanovic explains how the major market trends that occurred after the 2008 crisis exacerbate selling during moments of panic. The massive shift from active to passive managed investments — he estimates that $2 trillion has moved that way in the past decade — has removed a pool of buyers who can swoop in if valuations tumble, he wrote.”
— U.S. companies expect trade war escalation. The Post's Danielle Paquette: “Days before [Trump] is expected to impose tariffs on an additional $200 billion in Chinese goods, some U.S. businesses here are reluctantly drafting plans for a new era of hindered trade between the world’s two largest economies . . . Trump’s latest threat, which could take effect as early as Sept. 6, would amplify the commercial battle fourfold. Analysts say U.S. firms caught in the crosshairs are taking steps that executives tend to dread: They are preparing to reshape supply chains and raise prices. ‘These are not the kinds of decisions companies want to undertake,’ said Jacob Parker, vice president of China operations at the U.S.-China Business Council, which represents about 200 firms, including PepsiCo, Apple and General Motors.”
— China spells out its ambitions. Bloomberg News: “Conflict over China’s industrial policies is at the center of a trade war that’s set to escalate should [Trump] go ahead with planned tariffs on another $200 billion of Chinese goods as soon as this week. The core of those industrial policies is the Made in China 2025 plan to dominate industries from robotics to new-energy vehicles and aerospace. A key element of that blueprint is an unofficial document that’s slipped largely under the radar: The Made in China 2025 Major Technical Roadmap, better known as the Green Book after the color of its original cover. Whereas the official Made in China 2025 plan has no specific targets for Chinese companies to seize domestic and global market share and even says implementation must be dominated by markets, the Green Book’s 296 pages are full of goals. They are jaw-dropping targets, too, that if met would virtually lock foreign companies out of many industrial segments in China and threaten market disruption for businesses across the globe.”
- “Mueller tells Trump’s legal team that he will accept written answers on campaign questions.” The Washington Post's Carol D. Leonnig.
— Amazon (briefly) reaches $1 trillion milestone. AP's Joseph Pisani and Marley Jay: “Amazon on Tuesday became the second publicly traded company to be worth $1 trillion, hot on the heels of iPhone maker Apple. . . . Amazon stock has increased almost 600 percent in the last five years, including a 70 percent surge so far in 2018 alone. On Tuesday, the stock climbed enough to push the company’s valuation pass the $1 trillion mark, although it dropped back slightly after that. Apple topped the $1 trillion mark in early August. Saudi Arabia’s national energy company, Aramco, is widely believed to be worth much more than either Amazon or Apple.” (Amazon founder and chief executive Jeffrey P. Bezos is the owner of The Post.)
The company is facing new growing pains, in part from Washington, Bloomberg's Brad Stone writes: "Here’s the funny thing about a $1 trillion valuation: it’s less a time for celebration than an occasion to wring hands about the future. And Amazon’s current challenges seem even more daunting than the tests of 20 years past. The president is not a fan, tweeting that the company exploits the post office, squeezes small businesses and evades taxes. On the left, Senator Bernie Sanders charges that Amazon pays its workers such a low wage that many of them have to apply for public assistance... And politicians on both sides of the aisle seem to be wondering about a company whose rigorous commitment to low prices is seen as limiting inflation and wage growth and eclipsing the authority of central bankers."
But Bezos sees blue skies. "For all practical purposes, the market size is unconstrained," the CEO tells Forbes.
Amazon's growth has added an eye-popping $67 billion to Bezos's fortune. Bloomberg considers just how much that is:
— Theranos to dissolve. WSJ's John Carreyrou: "Theranos Inc., the blood-testing company accused of perpetrating Silicon Valley’s biggest fraud, will soon cease to exist. In the wake of a high-profile scandal, the company will formally dissolve, according to an email to shareholders. Theranos will seek to pay unsecured creditors its remaining cash in coming months, the email said. The move comes after federal prosecutors filed criminal charges against Theranos founder Elizabeth Holmes and the blood-testing company’s former No. 2 executive, alleging that they defrauded investors out of hundreds of millions of dollars and defrauded doctors and patients."
From Fortune editor Daniel Bentley:
Elizabeth Holmes pictured holding what Theranos creditors will receive. pic.twitter.com/4dg3Crrxk3— Daniel Bentley (@DJBentley) September 5, 2018
— Goldman gender bias suit advances. Bloomberg: "A 13-year gender-discrimination fight against Goldman Sachs Group Inc. just moved closer to trial. Four women who worked for the bank won class-action status in March, allowing them to represent more than 2,000 current and former female Goldman Sachs employees. The bank asked to immediately appeal that decision, and a panel of three U.S. Court of Appeals judges in New York rejected that request in a ruling issued Tuesday."
— Kaepernick ad draws intense media attention. Bloomberg News's Eben Novy-Williams: “The controversy surrounding Nike Inc.’s new Colin Kaepernick ad can’t be a surprise to the sportswear company. And in spite of the backlash, it’s probably pretty good for the brand. In less than 24 hours since Kaepernick first revealed the spot on Twitter, Nike received more than $43 million worth of media exposure, the vast majority of it neutral to positive, according to Apex Marketing Group. That far outweighs the risk of alienating some customers, said Bob Dorfman, a sports marketing executive at Baker Street Advertising . . . The company’s shares fell as much as 3.9 percent in New York Tuesday.”
— Trump weighs a shutdown. Bloomberg's Jennifer Jacobs and Erik Wasson: "Trump is asking advisers whether it would be good politics to provoke an October government shutdown fight over money for his border wall, even though Republicans in Congress say a closure before the midterm elections in November would backfire. Republican leaders thought they had persuaded Trump weeks ago to delay any such confrontation until later in the year, but the president raised the prospect of an earlier showdown in conversations in recent days with at least three aides and outside advisers... Trump has long said a 'good shutdown' may be needed to get his full $23 billion in funds for a border wall. House Speaker Paul Ryan of Wisconsin, Senate Majority Leader Mitch McConnell of Kentucky and other conservative lawmakers have told the president in recent weeks that a shutdown before the election is a bad idea."
— Dorsey, Sandberg climb the Hill. NYT's Cecilia Kang and co.: "Sheryl Sandberg, Facebook’s chief operating officer, and Jack Dorsey, the chief executive of Twitter, will testify in Washington on Wednesday about their companies’ response to foreign interference in elections and the moderation of online content. It will be the first time that either executive has testified on Capitol Hill... According to written testimony, they plan to answer lawmakers’ questions using two main tactics: a conciliatory and apologetic approach, as well as a rundown of the growing number of efforts that the companies have taken to deal with manipulation and disinformation problems."
Facebook CEO Mark Zuckerberg argues in a Post op-ed the company is doing an effective job cleaning itself up. "When you build services that connect billions of people across countries and cultures, you’re going to see all of the good that humanity can do, and you’re also going to see people try to abuse those services in every way possible," he writes. "Our responsibility at Facebook is to amplify the good and mitigate the bad."
— Volcker comment time extended. Reuters's Pete Schroeder: "U.S. regulators said on Tuesday they will giving the public an extra 30 days to comment on a proposed rewrite of the “Volcker Rule” banning proprietary trading by banks. The five regulators charged with enforcing the rule will now accept comments until Oct. 17. Regulators announced a proposal to simplify the rule at the end of May, after years of complaints from banks that the original rule was too complicated."
- Senate Health, Education, Labor and Pensions Committee hearing on “the impact of zero tariffs on U.S. autoworkers.”
- House Financial Services subcommittee hearing titled “The future of money: coins and banknotes.”
- The Heritage Foundation hosts a discussion on private placement brokers.
- House Financial Services Committee hearing titled “A failure to act: How a decade without GSE reform has once again put taxpayers at risk” tomorrow.
— From The Post's Tom Toles: “Republicans know exactly what kind of flexibility they are getting with Brett Kavanaugh.”
Highlights from the chaotic first day of Brett Kavanaugh's confirmation hearing:
Fleeing suspect overcome by Florida algae:
Starbucks's Pumpkin Spice Latte is back earlier than ever, and not everyone is excited: