THE TICKER

If you think President Trump is running out of options for expanding his trade offensive, think again. The president will more than double the total value of goods that he has already subjected to tariffs if he moves ahead with duties on auto imports. 

The move has not been getting as much attention as the Trump administration’s latest tit-for-tat escalation with China, negotiations toward salvaging the North American Free Trade Agreement and the effort to forge a trade truce with the European Union. But lobbyists for the U.S. auto industry, which roundly opposes the proposed global auto tariffs, say a decision to announce them could come at any time. 

Republicans on the Senate Finance Committee are set to register their objections Wednesday morning, when the panel convenes a hearing to highlight “the potential harm tariffs could have on the industry and how they may be passed along to consumers,” as Sen. Orrin Hatch (R-Utah), the committee’s chairman, put it in a release last week. 

Following through with 25 percent duties on imports of all cars and car parts — which Trump advisers believe the president has been eyeing — would raise the total value of goods subject to import taxes from $285 billion to $645 billion, according to some Washington Post number-crunching.

At that point, nearly 27 percent of goods coming into the United States would face a tariff. (That number could climb still, to about 38 percent of all imports, if the Trump administration also slaps tariffs on the remainder of Chinese imports, as the president has threatened.)

Some auto industry sources and other trade watchers believe the fate of the auto tariffs is bound up in the Trump administration’s haggling with Canada over new NAFTA terms. The matter remains a sticking point for Canadian negotiators, who want a guaranteed exemption from any car levies the Trump administration might impose. The talks are approaching a deadline Trump set for the end of the month, to try to finalize a reworked agreement before a change of power in Mexico. Two industry sources tell me they believe the Trump team wants to delay an announcement on auto tariffs to maintain leverage in talks with Canada. 

Beacon Policy Advisors, in a Monday note to clients, came to a similar conclusion. “As long as talks appear to still be progressing, we expect that Trump will not move forward with his threats to dissolve NAFTA or to impose auto tariffs, even if the deadline is passed,” the firm wrote. “But if talks break down as a result of the self-imposed political deadline, then there is greater risk of the auto tariffs moving closer to becoming a reality.”

The matter will factor into ongoing trade disputes with Europe and Japan, as well. Trump on Monday signed a revised South Korean trade deal that the administration hopes will pave the way. It most notably tweaked the existing agreement by doubling the cap on the number of autos that U.S. companies can sell in South Korea — a fact Trump underlined at the signing ceremony. 

“Mr. Trump’s threat of global auto tariffs—announced in May—has put new pressure on Japan, the largest exporter of autos to the U.S.” the Wall Street Journal’s Jacob Schlesinger and Vivian Salama report. “Many Japanese officials have concluded that some kind of new formal trade talks may be the price they have to pay to win protection from those tariffs, say people familiar with the discussions.”

Today, U.S. Trade Representative Robert Lighthizer is scheduled to meet in New York with Japanese economy minister Toshimitsu Motegi; Trump is set to huddle with Japanese Prime Minister Shinzo Abe there Wednesday, on the sidelines of the United Nations General Assembly meeting. 

That morning, David Britt, who leads economic development for the Spartanburg County Council in South Carolina, will appear before the Senate Finance Committee to make a case against the tariffs. He attributes BMW’s 1991 decision to build its first plant outside Germany in Spartanburg, and the $9 billion it has invested there since, with saving a community ravaged by the decline of the local textile industry.

Britt says the benefits of that investment are now manifest in a supplier network that’s spread throughout the state and, more broadly, in South Carolina’s revived manufacturing sector. “The people who will suffer the most from these tariffs — it’s not foreign manufacturers or governments. It's the citizens of this country, of South Carolina, of Spartanburg,” Britt says. “It’s nothing more than a tax on them.”

The Peterson Institute for International Economics predicts more than 600,000 job losses nationwide if the Trump administration imposes the auto tariffs and other countries hit back.

MARKET MOVERS

— Powell faces reckoning with Trump's trade fights. The Associated Press's Martin Crutsinger: “The Federal Reserve is set this week to raise interest rates for a third time this year to prevent the economy from growing too fast. But with [Trump’s] trade fights posing a risk to the U.S. economy, the Fed may soon be ready to slow its hikes. Many analysts expect the economy to weaken next year, in part from the effects of the conflicts Trump has pursued with China, Canada, Europe and other trading partners...

"An economic slowdown would likely lead the Fed to throttle back on its rate increases to avoid stifling growth. In that scenario, it might raise rates only twice in 2019 and then retreat to the sidelines to see how the economy fares... Any light the Fed might shed on those questions could come in the statement it will make after its latest policy meeting ends Wednesday, in updated economic and rate forecasts it will issue or in a news conference that Chairman Jerome Powell will hold afterward.”

— Tariffs, Rosenstein roil Wall Street. Reuters's Sinéad Carew: “Wall Street’s three main indexes were lower on Monday after a new round of U.S.-China trade tariffs kicked in and investors expected an interest rate hike a day ahead of the U.S. Federal Reserve’s two-day meeting. Investors’ nerves were also rattled by reports about whether U.S. Deputy Attorney General Rod Rosenstein would quit. But indexes steadied after the White House announced a Thursday meeting between [Trump] and Rosenstein, who oversees the special counsel’s probe into Russia’s role in Trump’s 2016 election... 

"‘Investors are resigned to the fact this is going to be an ongoing situation for a while,’ said Brad McMillan, Chief Investment Officer for Commonwealth Financial Network, in Waltham, Mass., referring to the U.S.-China trade spat. ‘There’s still some feeling this is a slow-moving train. It’s not too late to stop the train or bring it back to the station, but the fact is that the train has left the station.’”

— Dollar lifts U.S. earnings. Bloomberg News's Vildana Hajric: “A strong dollar is boosting the earnings of domestically focused companies in the S&P 500 Index more than those with foreign exposure, according to a study by Bank of America Merrill Lynch. The valuation gap between the U.S. and other global equity markets is at an all-time high, according to a report by the bank. ... Among global markets, the U.S. is the only region with more positive earnings revisions than reductions over the last three months, wrote Savita Subramanian, head of equity and quantitative strategy at Bank of America Corp.’s Merrill Lynch unit.”

— Oil prices surge. The Washington Post's Thomas Heath: “Global oil prices on Monday topped $80 a barrel for the first time in four years as a confluence of world events, including the renewed sanctions against Iran, stifle global supply. The surge on Monday comes after a weekend report from JPMorgan Chase that forecast oil prices could spike to $90 a barrel in upcoming months, especially if the United States does not allow its trading partners to buy Iranian oil... U.S. producers, which have pushed domestic production to an all-time high of 11 million barrels a day, have slowed drilling activity after pressure from investors to spend less.”

— Dimon cheerleads the economy. CNBC's Matthew J. Belvedere: “The U.S. economy is humming along with little in the way to derail its recently stronger growth trajectory, J.P. Morgan Chase Chairman and CEO Jamie Dimon told CNBC on Monday. ‘In America, the economy is quite strong. It's growing at 3 percent. And it has been now for a couple of quarters,’ he said. ‘There are no great potholes. So that may very well continue.’ Dimon said he can't tell whether the U.S. dispute with China over trade will be a drag on the American economy. ‘I worry about it. But I just don't know,’ he said. . . . ‘The president raised very, very good issues [on China],’  Dimon said, but he added tariffs are ‘not a great way to go about it.’ They ‘could easily offset some of the benefits from regulatory reform and tax reform,’ he argued.”

Comments suggest ECB is on track to hike rates late next year
Bloomberg News
TRUMP TRACKER

TRADE FLY-AROUND:

Official: China won't negotiate under duress. AP's Joe McDonald: "China cannot hold talks with Washington on ending their escalating trade dispute while the United States “holds a knife” to Beijing’s neck by imposing tariff hikes, a Chinese official said Tuesday... Beijing is open to negotiations but whether they proceed is up to Washington, said a deputy commerce minister, Wang Shouwen... 'Now that the United States has adopted such large-scale restrictive measures and holds a knife to another’s neck, how can negotiations proceed?' said Wang at a news conference. 'It would not be negotiations of equality.'"

Leaving China is no easy task. The New York Times's Alexandra Stevenson: “As tariffs begin to make China look more expensive, many companies are considering cheaper places to make their products, like Vietnam, Cambodia, Bangladesh and Ethiopia. Already, companies with significant American business like Steve Madden, the fashion designer, and Puma, the German sports brand, have said they will look to shift production out of China. 

"But China will be hard to quit. From zippers and rivets on jackets and jeans to the minerals used in iPhones, China makes or processes many of the ingredients that go into today’s consumer goods. It has a dependable source of workers who know how to hold down factory jobs. It has reliable roads and rail lines connecting suppliers to assembly plants to ports. Countries like Vietnam and Cambodia, by contrast, lack China’s vast supplier base and dependable roads. More workers have to be trained. Many companies have to start from scratch.”

CEOs sweat the trade wars, per a new Business Roundtable survey. WSJ's Sarah Chaney: "The economic outlook among chief executives of America’s largest companies cooled slightly in the third quarter, as confrontational U.S. trade policies weighed on planning for capital spending and hiring... Close to two-thirds of surveyed CEOs said recently enacted tariffs and pending trade policies will have a 'moderate or significant negative effect' on their capital spending decisions in the coming months. In the third quarter, the share of firms planning to increase capital investment over the next six months decreased to 55% from 61% in the second quarter, while the share planning to expand hiring fell to 56% from 58%."

MELTDOWN WATCH:

POCKET CHANGE

— More trouble for Deutsche Bank. Bloomberg News's Nicholas Comfort: “In the latest reprimand, the German markets regulator on Monday said it ordered Deutsche Bank to improve money-laundering and terrorism-financing controls, and took the unprecedented step of appointing a monitor to oversee the efforts. The move is a reminder of the scale of the challenges Deutsche Bank faces in improving compliance and oversight of its businesses after spending some $17 billion on fines for misconduct and to resolve other legal claims over the past decade. The Federal Reserve last year designated the bank’s U.S. business as ‘troubled’ and in June Deutsche Bank failed its annual stress tests in part because of ‘widespread and critical deficiencies’ in internal controls.”

— Sears's future in the balance. The Post's Abha Bhattarai: “Sears could face bankruptcy if it doesn’t meet its next debt payment, due in the coming weeks. Now, the retailer’s chief executive has come up with a last-minute plan to save it, after already shuttering thousands of stores and selling off some of its key brands. Eddie Lampert, who owns the hedge-fund ESL Investments and is also the retailer’s largest shareholder and creditor, has asked creditors to refinance $1.1 billion in debt before a $134 million debt payment is due Oct. 15, according to a Sunday filing with the U.S. Securities and Exchange Commission. ... In the filing, Lampert’s hedge fund said it ‘must act immediately to have sufficient runway to continue its transformation’ if Sears is to become profitable again.”

— The gig economy is no panacea. AP's Christopher Rugaber: “The ‘gig’ economy might not be the new frontier for America’s workforce after all. From Uber to TaskRabbit to YourMechanic, so-called gig work — task-oriented work offered by online apps — has been promoted as providing the flexibility and independence that traditional jobs don’t offer. Yet the evidence is growing that over time, these jobs don’t deliver the financial returns many workers expect. And they don’t appear to be reshaping the workforce. Over the past two years, pay for gig workers has dropped, and they are earning a growing share of their income elsewhere, a new study finds. Most Americans who earn income through online platforms do so for only a few months each year, according to the study by the JPMorgan Chase Institute released Monday.”

The Switch
The co-founders of the photo-sharing app Instagram, Kevin Systrom and Mike Krieger, have submitted their resignations to Facebook chief executive Mark Zuckerberg.
Elizabeth Dwoskin
The Switch
The transaction is valued at $3.5 billion and would create one of the country's largest audio entertainment companies, Pandora said Monday.
Hamza Shaban
MONEY ON THE HILL

— Warren’s sweeping affordable housing pitch. The Atlantic’s Madeleine Carlisle: “On Tuesday, Senator Elizabeth Warren (D-MA) introduced a bill tackling the issue head on, trying to lower the cost of a home in a neighborhood with greater economic opportunity. The legislation, titled The American Housing and Economic Mobility Act, is perhaps the most far-reaching assault on housing segregation since the 1968 Fair Housing Act. It’s ambitious, pouring half a trillion dollars over 10 years into affordable housing programs, funded by raising the estate tax to Bush-era levels. An outside study by Mark Zandi at Moody Analytics found that raising the estate tax would ensure the bill did not create a deficit…

“It tries to increase the supply of affordable housing by pouring billions of federal dollars into programs that subsidize developments in rural, low-income, and middle-income communities. From the other end, the bill attempts to strip away the zoning laws that made developing housing so expensive in the first place.”

Senate Dems try to force donor disclosure. The Hill's Naomi Jagoda: "Sens. Jon Tester (D-Mont.) and Ron Wyden (D-Ore.) on Monday announced an effort to force a Senate vote on IRS guidance that reduces donor disclosure requirements for certain tax-exempt groups. The senators introduced a resolution to overturn the guidance under the Congressional Review Act. They argued that undoing the guidance is necessary to prevent the erosion of transparency in politics... Under the IRS guidance, issued in July, certain tax-exempt groups no longer are required to disclose to the agency the names and addresses of significant donors on annual forms. Groups that would no longer have to disclose this donor information include social-welfare organizations such as the National Rifle Association and the Koch-backed Americans for Prosperity."

THE REGULATORS

European banks seek lighter regulation. FT’s Laura Noonan, Robert Armstrong, and Sam Fleming: “European banks and US senators are warning that America’s banks face retaliation overseas if the lighter-touch regime promised to domestic lenders is not extended to foreign competitors. European lenders are seeking a relaxation of rules around stress tests and capital requirements, according to senior bankers working on US policy issues, on the basis that their US operations are of a similar size to the mid-tier US banks which were given relief under legislation signed by [Trump]… Seven Republican senators have weighed in on behalf of the foreign banks. In an August letter to Randal Quarles, the Federal Reserve’s vice-chairman for Supervision, they argued that international bank holding companies ‘should receive comparable regulatory treatment of US [banks] of similar size and risk profile’.”

Citi settles robo-signing case. Reuters's Jonathan Stempel: "Citigroup will pay $5 million to address 'robo-signed' proofs of claim filed in consumer bankruptcy cases involving 71,448 Macy’s-branded credit card accounts, the U.S. Department of Justice announced on Monday. The proofs of claim were filed between 2012 and 2015 by employees of a third-party vendor who did not review their contents, and had been working on behalf of Citigroup affiliate Department Stores National Bank, which issued the accounts."

CHART TOPPER

Via the Pew Research Center's Brad Jones, evidence that the U.S. leads the world in partisanship coloring economic perceptions: 

DAYBOOK

Coming soon

THE FUNNIES

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