The Trump administration's hopes for scoring a pre-midterm win by reworking the North American Free Trade Agreement are circling the drain.
U.S. trade negotiators are on the verge of blowing through their self-imposed Sept. 30 deadline for reaching a breakthrough with Canada. Major sticking points still divide the countries — including over access to Canada's dairy market and the fate of a dispute resolution process — and officials on both sides acknowledge they aren't close to resolving them.
In the face of the impasse, U.S. Trade Representative Robert Lighthizer said Tuesday that the Trump team is prepared to forge ahead alone with Mexico. But that approach invites both political and procedural problems.
Top congressional Republicans, whose support the administration will need to ratify a tweaked agreement, oppose leaving Canada behind. “Everyone’s desire is for this to be a three-country agreement,” House Ways and Means Committee Chairman Kevin Brady (R-Tex.) told reporters at the Capitol on Tuesday, according to The Washington Post’s David Lynch, Damian Paletta and Erica Werner. “That still is the top priority for everyone — Canada, the U.S., Mexico as well — and lawmakers.”
Business and labor groups likewise are largely united in demanding that policymakers keep all three countries in the fold. (Americans for Farmers and Families — a coalition that includes the U.S. Chamber of Commerce, the National Corn Growers Association and the Retail Industry Leaders Association — is leading a Twitter push today for preserving the pact, using the hashtag #NEEDNAFTA.)
And it’s not clear the Trump team could fast-track congressional approval for a Mexico-only deal. The administration is seeking to rely on trade promotion authority to submit an agreement for an up-or-down vote on Capitol Hill. When it invoked that process at the start of NAFTA talks last year, the administration pledged to include both neighboring countries in the final package. Some trade experts say a two-way agreement wouldn’t qualify. Here’s Jennifer Hillman, a former U.S. trade negotiator in the Clinton administration who now teaches at Georgetown University:
Still don't see how US-Mexico can be signed by Trump given that required 90 day notification of intent to enter negotiations clearly specified negotiations with both Canada and Mexico to "modernize" NAFTA. Bilateral deal is NOT modernization of NAFTA and not consistent w/notice.— Jennifer Hillman (@JAHillmanGULaw) September 25, 2018
In other words, Hillman tells me, the administration last spring told lawmakers “unequivocally that we’re negotiating with Canada and Mexico. The whole point of putting them on notice was to give them a chance to object.”
Yet the administration has been pushing to wrap up its work by Sunday in part to conform to the schedule for fast-track consideration in Congress. The procedure requires that the Trump team give lawmakers 60 days to review the text of the deal before the president signs it. The administration wants to start that clock by Sunday to ensure that Mexican president Enrique Peña Nieto can sign the deal before handing power over to his successor on Nov. 30.
“If we push it beyond that date, then we have a new negotiation with [incoming Mexican president Andres Manuel] Lopez Obrador, and we don’t know where that would go at all,” Lighthizer said Tuesday, per Bloomberg. “It would be unfair to all the people that have been involved — certainly the U.S. workers, farmers and ranchers — to start a new negotiation with a new president of Mexico.”
Regardless, my Post colleagues note, “Congress is unlikely to vote on any trade deal this year. Once the agreement is signed, the International Trade Commission has 105 days to prepare a required evaluation of the likely consequences. Brady, whose panel has jurisdiction over trade, said it would be difficult for Congress to act even in a lame-duck session.”
Considering the unlikelihood that Congress signs off on a move to gut the trade pact, two U.S. trade experts offered a word of advice to Canada in a Politico op-ed Tuesday: Do nothing. “The most Trump can do without congressional action would be to produce a kind of strange status quo—what you might call a ‘Zombie NAFTA,’ in which the U.S. formally abandons its participation in the pact while U.S. tariff laws remain in place, continuing to provide the original NAFTA trade benefits to Canada and Mexico,” write Roosevelt Institute fellow Todd Tucker and Vanderbilt Law School professor Timothy Meyer, who represents plaintiffs suing the administration over steel tariffs. “While [Canadian prime minister Justin] Trudeau may feel that Trump is giving him an offer he can’t refuse (in the Vito Corleone sense), the truth is, the Canadians are in a very strong position to ignore it.”
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— What to expect from the Fed. The Associated Press's Martin Crutsinger: “The Federal Reserve is all but certain Wednesday to raise its key short-term interest rate for the third time this year and to signal that another hike is likely before the year ends. But what about next year? Most economists foresee a slowdown in the nearly 10-year-old U.S. economic expansion as [Trump’s] trade war takes a toll and the benefits of tax cuts start to fade. . . . On Wednesday, in addition to announcing a likely rate increase — its eighth since late 2015 — the Fed will issue economic and interest-rate forecasts for the rest of 2018 and for 2019, 2020 and 2021. Those forecasts will signal how the policymakers see the economy and interest rates evolving.”
Debate over next year's rate path. "One camp of officials says so long as unemployment keeps falling farther below the level that they project is consistent with stable prices, the Fed will need to raise rates to prevent the economy from overheating. This is an uncontroversial strategy because it is what the central bank always does at this point in an expansion," the Wall Street Journal's Nick Timiraos writes. "Another camp argues for a relatively radical departure from this norm. These officials say if inflation doesn’t appear to be accelerating beyond 2%, the Fed could stop raising rates after reaching a 'neutral' setting designed to neither spur nor slow growth. Mr. Powell hasn’t revealed his preference."
Expect more hiking, says Pantheon's Ian Shepherdson: "Very strong growth numbers since June and an uptick in wage growth suggest to us that none of the relatively hawkish members will abandon their view that a December hike is likely, and we would not be surprised to see one or more of the doves becoming a bit more hawkish," he wrote in a Tuesday note to clients.
Markets anticipate rate hike. WSJ's Donato Paolo Mancini: “Global stocks were mixed Wednesday ahead of the Federal Reserve’s rate decision later in the day, with Asian shares higher, but European indexes down as Italy’s budget talks continued to be a source of concern. The Stoxx Europe 600 was down 0.1%, with Italy’s FTSE MIB down 0.2%. In the U.S., S&P 500 futures pointed to an opening rise of 0.1%. Markets expect the U.S. central bank will raise rates at the end of its two-day policy meeting Wednesday as it continues to gradually roll back easy-money policies. However, watchers will be keenly interested in any clues in its statement on its future rate path.”
— Consumer confidence surges. Reuters's Lucia Mutikani: “U.S. consumer confidence surged to an 18-year high in September as households grew more upbeat about the labor market, pointing to sustained strength in the economy despite an increasingly bitter trade dispute between the United States and China. . . . ‘The consumer is always in the driver’s seat when it comes to stoking the fires that run the engines of economic growth, but the million dollar question is what is going to happen down the road when the trade tariffs start to bite?’ said Chris Rupkey, chief economist at MUFG in New York.”
— Home prices growth cools. AP's Christopher Rugaber: “U.S. home prices rose in July at the slowest pace in 10 months as climbing mortgage rates become a more significant factor for a growing number of prospective buyers. . . . Home prices are rising at twice the rate of wages, which has likely contributed to a cooling in the market this year. Sales of existing homes have dropped 1.5 percent in the past 12 months. Mortgage rates last week reached their highest level since May. ‘Coupled with mortgage rate increases, higher prices are stifling home sales as more buyers are priced out of the market,’ Danielle Hale, chief economist at Realtor.com, said Tuesday after the report was released.”
— Shiller says 2018 isn't like 2000. CNBC's Michelle Fox: “Investors are no longer skeptical enough about corporate earnings and in turn have made the U.S. stock market the most expensive in the world, Nobel Prize winner Robert Shiller told CNBC on Tuesday. In fact, he cautions that a bear market could come without warning. However, Shiller said he doesn't feel as pessimistic as he did in 2000, when he wrote the book ‘Irrational Exuberance’ shortly before the dot-com bubble burst. ‘Sometimes I think these are crazy times but it's not particularly that people are talking the way they did at the peak of the new millennium. … We're not there,’ Shiller said.”
— More benefits slow wage growth. NYT's Binyamin Appelbaum: "One of the most perplexing questions about the nation’s economic recovery is why a tight labor market has not translated into faster wage growth. Part of the answer appears to be that American workers are receiving a growing share of compensation in the form of benefits rather than wages. The average worker received 32 percent of total compensation in benefits including bonuses, paid leave and company contributions to insurance and retirement plans in the second quarter of 2018. That was up from 27 percent in 2000... One recent survey reported that the share of Fortune 1000 companies offering 'summer Fridays' — days on which employees were allowed to leave early for a long summer weekend — doubled from 21 percent in 2015 to 42 percent in 2018."
— Trump defends trade views. CNBC's Jacob Pramuk: “Trump defended his administration's trade clashes on Tuesday, telling world leaders the U.S. will act in its ‘national interest’ when it feels cheated. . . . His administration slapped 10 percent tariffs on $200 billion in Chinese goods — a move he justified Tuesday as necessary to defend American workers. ‘We will no longer tolerate such abuse. We will not allow our workers to be victimized, our companies to be cheated, and our wealth to be plundered and transferred,’ Trump said during his remarks in New York. . . . He also cited efforts to renegotiate what he called ‘broken and bad trade deals’ with countries who he said gained an ‘unfair advantage’ over the United States in the past . . . Trump stressed the need to address the U.S. trade deficit with China, saying ‘our trade imbalance is just not acceptable.’ He added that any efforts by Beijing to distort markets ‘cannot be tolerated.’”
And reiterates oil demands. Reuters's Jessica Resnick-Ault: “Oil prices rose Tuesday on global supply concerns following U.S. sanctions on Iran’s oil exports, with benchmark Brent surging to a four-year high, then retraced gains to settle just slightly higher after [Trump] called again on OPEC to boost crude output.”
— Canadian dollar at risk. Bloomberg News's Katherine Greifeld: “Should the U.S. follow through on threats to withdraw from the North American Free Trade Agreement, the Canadian dollar would absorb much of the blow. That’s the view of JPMorgan Chase & Co., who forecast that the loonie could crumble nearly 10 percent against the dollar in the worst case ‘NoFTA’ scenario. A U.S. withdrawal would likely entail 25 percent tariffs on autos and dairy, disrupting supply chains and forcing the Bank of Canada to slash interest rates, according to analysts including Daniel Hui.”
— ECB: Trade war would damage the U.S. Reuters: “The United States would have most to lose if it started a trade war with other countries, while China would be better off after retaliating, a simulation by the European Central Bank showed on Wednesday. ... The ECB study simulates a 10 percent U.S. tariff on all imports and an equivalent retaliation from other countries. It suggests the United States would bear the brunt of diminished trade and of damage to consumer and investor confidence. ‘Estimation results suggest that the United States’ net export position would deteriorate substantially,’ the ECB said in the study. ‘In this model, U.S. firms also invest less and hire fewer workers, which amplifies the negative effect.’”
- “‘Back in the foxhole together’: Conservatives rally around Kavanaugh amid accusations.” The Post’s Bob Costa.
“Senate panel schedules Kavanaugh vote for Friday.” Politico’s Elana Schor, John Bresnahan, and Burgess Everett.
- “House conservatives threaten Rosenstein impeachment vote.” Politico's Kyle Cheney and Rachael Bade.
“Rod Rosenstein’s departure was imminent. Now he is likely to survive until after the midterms, officials say.” The Post’s Matt Zapotosky, Devlin Barrett and Josh Dawsey.
— Qualcomm's feud with Apple continues. WSJ's Tripp Mickle: “Qualcomm Inc. accused Apple Inc. of funneling proprietary information about the chip supplier’s technology to rival Intel Corp., broadening a long-running legal battle between two companies central to the smartphone industry. Apple engineers used its software and confidential files to help Intel engineers develop modem chips for iPhones, according to an amended complaint Qualcomm filed Tuesday in California’s Superior Court in San Diego County . . . An Apple spokesman referred to the company’s past statement on Qualcomm’s business practices, calling them illegal and harmful to the smartphone industry.”
— Amazon gives tiny raises. The Washington Post's Abha Bhattarai: “Amazon.com, fighting back against the image of poor working conditions at its warehouses, has been calling workers around the country into ‘all-hands’ meetings in the past week where they’ve been given raises — of 25 to 55 cents an hour, according to employees. One worker, in San Bernardino, Calif., says the 40-cent bump to $13.15 an hour is the first raise he has received since he began working at the company four years ago.” (Amazon.com founder and chief executive Jeffrey P. Bezos owns The Post.)
— Arby's parent company to buy Sonic. Bloomberg News's Craig Giammona and Gerald Porter Jr.: “The parent of Arby’s, Inspire Brands Inc., announced on Tuesday that it had agreed to acquire Sonic Corp. in a deal valued at about $2.3 billion, adding more than 3,600 locations of the burger chain to a portfolio that also includes Buffalo Wild Wings and Rusty Taco. The deal would give Inspire, controlled by private equity firm Roark Capital, a total of about 8,200 locations and make it one of the 10 largest restaurant companies in the U.S. by that measure. That scale could help Sonic compete in an industry where it’s been squeezed by tough competition from bigger rivals including McDonald’s Corp., Burger King and Yum! Brands Inc., which operates the KFC, Taco Bell and Pizza Hut chains. The larger companies have the advantage of using their scale to get supplies at a better price, said Michael Halen, an analyst at Bloomberg Intelligence.”
— How a Danish bank got away with massive money laundering. NYT's Peter Henning: "How can a small branch of a bank process over $200 billion in suspicious transactions for years without anyone in management noticing? That is the story emerging from Danske Bank, one of Denmark’s largest financial institutions. A report issued by the Danish law firm Bruun & Hjejle described how a small outpost of the bank in Estonia helped funnel huge amounts of money while the bank’s top executives ignored repeated warnings that it was the conduit for money laundering. The continual failure to stop the illicit transactions exposed many weaknesses in Danske’s money laundering controls. The report, though, exonerated the bank’s chief executive, Thomas Borgen, and the chairman of its board of directors, Ole Andersen, of mismanagement and other failures."
— Interest payments on track to eclipse military spending. NYT's Nelson Schwartz: "The federal government could soon pay more in interest on its debt than it spends on the military, Medicaid or children’s programs. The run-up in borrowing costs is a one-two punch brought on by the need to finance a fast-growing budget deficit, worsened by tax cuts and steadily rising interest rates that will make the debt more expensive... Within a decade, more than $900 billion in interest payments will be due annually, easily outpacing spending on myriad other programs. Already the fastest-growing major government expense, the cost of interest is on track to hit $390 billion next year, nearly 50 percent more than in 2017, according to the Congressional Budget Office."
— Watt accuser invited to testify. Politico's Katy O'Donnell: "The Federal Housing Finance Agency employee who accused director Mel Watt of sexual harassment has been invited to testify at a congressional hearing on oversight of the agency on Thursday... Committee Ranking Member Maxine Waters (D-Calif.) on Monday said Grimes should be allowed to speak, in a letter to Chairman Jeb Hensarling (R-Texas)."
— Bankers vs. activists: When Mnuchin faced community groups. WSJ's Rachel Louise Ensign and Ryan Tracy: "When Steven Mnuchin looked to sell his OneWest Bank for $3.4 billion in 2014, a community group with an $800,000 budget tried to block the deal. That led to a nine-hour public hearing where speakers compared the bank’s executives to the ebola virus and called for their imprisonment. Others voiced support.
"Afterward, Paulina Gonzalez, the head of the community group leading the charge, approached Mr. Mnuchin seeking a truce that included the bank setting aside billions of dollars more for lower-income communities, under a law called the Community Reinvestment Act, or CRA. 'I hope we can figure this out,' she said. 'No. We’re done,' Ms. Gonzalez recalls Mr. Mnuchin telling her before walking away. A spokeswoman for Mr. Mnuchin says he disputes saying that.
"Four years later, Mr. Mnuchin is the Treasury secretary and his fellow executive at the bank, Joseph Otting, is now comptroller of the currency. And one of their big agenda items is an overhaul of the CRA, a law passed in 1977 to combat redlining, a practice where banks wouldn’t lend in lower-income communities."
Mnuchin is selling his NYC co-op for $32.5 million. "Mnuchin had purchased the five-bedroom, seven-bathroom unit outright in 2000 for $10.5 million, according to the book '740 Park: The Story of the World’s Richest Apartment Building' by Michael Gross," The Post's Amy Dobson reports. "The building is home to high-profile residents, including billionaire businessman David Koch and Blackstone Group founder Stephen Schwarzman. Prominent New York families, including the Guggenheims, Vanderbilts, Rockefellers, Bouviers and Chryslers, have lived in the building at one time or another over its 88-year existence, according to the Gross book."
A look at the 800-square-foot living room with wood-burning fireplace:
- Senate Finance Committee hearing on the effect of tariffs on the U.S. auto industry.
- House Financial Services subcommittee hearing on “oversight of the SEC’s Division of Investment Management.”
- House Energy subcommittee hearing on “jobs and growth in the manufacturing sector.”
- Joint Economic Committee hearing on “the rise of American earnings and living standards.”
- Senate Homeland Security and Governmental Affairs subcommittee hearing on “the effects of regulatory policy on the economy and business growth” tomorrow.
- House Small Business subcommittee hearing on “the local impact of economic growth” tomorrow.
— A New Yorker cartoon from Teresa Burns Parkhurst:
Bill Cosby sentenced to at least three years in prison:
Gloom in newsrooms as Hungary's independent media recedes:
Kangaroo on the loose in Florida neighborhood: