THE TICKER

President Trump should think twice before concluding that midterm voters handed him a mandate to escalate his trade war. 

Yes, a trio of moderate Senate Democrats lost their reelection bids in Trump-friendly states after arguing that the president’s tariffs were only importing economic pain. But a wider look at the results from Tuesday’s balloting suggests the administration’s trade offensive dragged down a number of House Republicans in the same region. 

The Washington Post’s Jeff Stein writes that in House races, Democrats who ran against Trump’s trade policy “fared much better and may have even helped swing control of the chamber to Democrats, underscoring the mixed political ramifications of one of the administration’s key economic policies.” Candidates and campaigns “pointed in particular to races along the Upper Mississippi Valley, which encompasses northwest Illinois, northeast Iowa, southeast Minnesota and southwest Wisconsin.”

In Iowa, for example, Democrats knocked off a pair of House Republican incumbents — Reps. Rod Blum and David Young — and almost ousted a third, Steve King. Aaron Lehman, president of the Iowa Farmers Union, chalked that up to farmers who formerly backed Trump but felt “discouraged and not as motivated to go out and vote” because of the tariffs. Democrats who featured the issue also flipped a Republican seat in northern Illinois and two more in Minnesota.  

Beijing targeted the region by imposing retaliatory duties on soybeans and other agriculture products after Trump levied the first round of tariffs on Chinese exports in June. The regime hoped to pressure Trump to back off by stirring resistance to his trade push in areas home to some of his core supporters. 

Soybean exports to China have fallen 94 percent since then. “It’s very clear, based on how they lost seats in the Upper Midwest, that declining agricultural markets likely led to the overturning of the GOP majority in the House,” Joe Brusuelas, an economist with international accounting firm RSM, tells Jeff. 

Others aren’t as sure. The New York Times reported last week the GOP “continued to perform strongly in agriculture-rich House districts — which helped create a rural firewall that largely limited the party’s losses to suburban areas. Republicans held onto 17 of the 25 districts that are the most dependent on agricultural jobs. Democrats retained the four they held, with two seats held by Republicans yet to be decided.”

CNN exit polls showed 29 percent of voters nationally said Trump’s trade policies hurt their local economy; 91 percent of Republicans said they helped. Yet as Jeff notes, a recent Gallup poll showed 61 percent of voters described Trump’s trade policy as either very or extremely important to their midterm decision-making — though that ranked it behind health care, immigration and the economy as a top issue. 

But instead of chastening Trump, many trade watchers expect the Democratic takeover of the House will embolden him. By this line of thinking, the president will intensify his focus on trade since the issue allows him to wield unilateral power instead of wrangling with the opposition on Capitol Hill. 

And in the days since the election, Trump has sounded as aggressive as ever. In a post-election news conference last week, Trump told a Japanese reporter to say hello to Japanese Prime Minister Shinzo Abe. “I’m sure he’s happy about tariffs on his cars,” Trump said. Axios’s Jonathan Swan reports the president is “as jazzed as ever about hitting foreign-made cars with steep tariffs. Just about every member of his senior economic team besides Peter Navarro believes this is a terrible idea. But they haven’t swayed him.”

Trump returned from his trip to France over the weekend saber-rattling over trade deficits with European allies: 

MARKET MOVERS

— Investors look for safe bets. The Wall Street Journal's Michael Wursthorn: “Investors coming back to U.S. stocks this month are going retro. Old-economy companies like Procter & Gamble Co. and Walgreens Boots Alliance Inc. have surged in recent days, helping the Dow Jones Industrial Average to retrace much of its October market swoon and move within striking distance of its 16th record of the year . . . Bluster over trade on Friday from [Trump’s] trade adviser, Peter Navarro, halted the advance and weighed on trade-sensitive stocks like Caterpillar Inc. and 3M Co., as well as the technology shares whose rapid gains fueled the market rally of the first nine months of 2018.

"Friday’s declines show that concerns persist among investors about rising costs, the possibility for slowing U.S. economic expansion and friction with China, analysts and money managers said . . . Investors have shifted from seeking out the companies with the highest profit growth rates to those that are expected to generate more stable earnings and issue large dividends, and tend to hold up better during turbulent economic conditions.”

— Inflation clues loom. Bloomberg News's Katherine Greifeld and Sho Chandra: “A debate is breaking out in the Treasury market before Wednesday’s release of U.S. consumer-price data as tumbling crude oil leads investors to ratchet back inflation expectations. In one camp, you have the likes of Societe Generale SA. The bank sees price pressures building into 2019, fueling demand for inflation protection, in part as investors anticipate more U.S. tariffs on Chinese goods. Morgan Stanley agrees, saying the import levies and job-market strength should pressure consumer prices higher next year. Traders are skeptical. . . . The biggest question for bond investors is whether policy makers agree with their tempered outlook for consumer prices, or foresee accelerating inflation that could require additional rate hikes.”

— Fed looks to Australia. Bloomberg News's Michael Heath: “Federal Reserve officials are looking to Australia’s record run of economic growth for hope that a U.S. recession may not be inevitable. But have policy makers Down Under really mastered the business cycle? While their economy has entered its 27th year of expansion, it’s been assisted by a commodities boom, the world’s biggest immigration program, a run up in household debt and a particularly stringent definition of what actually constitutes a recession. Fluke or not, it’s alluring to a Fed that’s hiking interest rates in an economy approaching its own record expansion — a mix that normally suggests a downturn is in the offing. ‘Australia shows there is no cosmological constant that says expansions must cease after a certain number of years,’ said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York.”

— Oil producers consider reducing output. WSJ's Summer Said, Christopher Alessi and Benoit Faucon: “Plummeting oil prices and signs of a coming global oversupply are bringing producers closer to a pact to cut output. Saudi representatives said Sunday that the kingdom would slash its exports unilaterally next month, as a broader OPEC alliance debated — but didn’t agree to — a collective production cut. Meanwhile, Russia, the world’s largest producer, sent mixed signals on whether it would pull back on supply — after moving in lockstep on such matters with OPEC for more than two years. . . . Saudi Arabia, Russia and other producers met here in the United Arab Emirates capital over the weekend to debate whether reductions of about one million barrels a day might be necessary next year, with a decision expected at an OPEC meeting next month.”

May faces Brexit pushback. Bloomberg: “Pressure is building on U.K. Prime Minister Theresa May to ditch her Brexit plan or face a catastrophic defeat in Parliament. Britain and the European Union have been edging toward an agreement after 16 months of talks, with the aim of getting a deal wrapped up at a summit in November. But as domestic opposition builds, momentum seems to be fading for getting a deal done quickly. The pound fell. The Cabinet had been expected to meet as soon as Monday to sign off on May’s plans, but late on Sunday there was no sign of further progress, according to three people familiar with the matter.”

Retailers’ fortunes have diverged in the wake of the financial crisis. Some have found ways to compete in an increasingly online world, while others are still finding their way—or fighting to stay alive.
The Wall Street Journal
TRUMP TRACKER

TRADE FLY-AROUND:

Dems could trip up NAFTA 2.0. NYT's Glenn Thrush: “Trump’s promise to quickly pass a revamped North American Free Trade Agreement has been upended by the midterm elections, with Democrats who will soon control the House vowing to withhold their support to extract greater protections for American workers. Administration officials remain confident they will corral the votes for the new United States-Mexico-Canada Agreement, which Mr. Trump speedily negotiated in September to claim a big win on one of his signature issues before the November elections... Democrats, emboldened by their midterm win and eager to outshine Mr. Trump as defenders of the American worker, are unlikely to sign off on any deal that does not include significant changes that labor leaders and newly elected progressives are demanding. That could involve reopening negotiations with Mexico, although American and Mexican negotiators have both publicly ruled out that possibility.”

Trudeau, Trump talk tariffs. Reuters: “Canadian Prime Minister Justin Trudeau said on Monday he had discussed U.S. steel and aluminum tariffs with [Trump] over the weekend and that he hoped to reach a resolution on the matter by the G20 summit in Argentina. 'I absolutely brought up the issue of steel and aluminum tariffs,' Trudeau told a news conference in Paris on Monday.”

— Pence to replace Trump at summits. Bloomberg News's Toluse Olorunnipa: “Mike Pence will stand in for [Trump] at several international gatherings this week in Asia, a region where the U.S. faces increasing doubts about its commitment and consistency. The vice president visits Tokyo, Singapore and Papua New Guinea with the goal of reassuring allies about U.S. policy toward Asia. His main problem in doing so: he’s not the president. Trump, by opting to skip meetings hosted by the Association of Southeast Asian Nations and a gathering of the 21-member Asia Pacific Economic Cooperation this week, became the first U.S. president not to attend since 2013, when then-President Barack Obama canceled his visit to deal with a government shutdown.”

U.S., China showdown rattles supply chains. Bloomberg: "Even if the two sides’ deep differences can be overcome, any peace is likely to take months to wrangle and is unlikely to bring immediate relief for companies from the tit-for-tat tariffs that have hit almost 60 percent of goods traded between the U.S. and China. As a result, companies around the world are being forced to re-examine where they make and buy components and products, with one eye fixed on what has become a new long-term risk to their business models. And, as they do so, an awkward reality is emerging: Any decoupling is likely to take longer and be more disruptive than Trump’s 'America First' protectionists argue. 'This is the struggle of our times,' said Paul Triolo, head of global technology policy analysis at Eurasia Group in Washington. 'And there will be lots of collateral damage.'"

China's trade pact has a ways to go. Reuters: "China will further open its economy in the face of rising protectionism, Premier Li Keqiang said as he arrived in Singapore on Monday for meetings with Asia-Pacific leaders that will focus on speeding up work on a major new trade pact... Li said China would 'work with all relevant parties to expedite' negotiations on the Regional Comprehensive Economic Partnership (RCEP), showcased to be a free trade deal that will encompass more than a third of the world’s GDP... Regional diplomats said substantial work had been done on the trade deal, but it was not likely to be fully concluded until next year."

MELTDOWN WATCH:

Linda McMahon is favored by President Trump to replace Ross, sources said. He is also considering Ray Washburne, president and CEO of Overseas Private Investment Corporation, according to one source.
CNBC
POCKET CHANGE

— Banks want help from the DMV. WSJ's Telis Demos and Emily Glazer: “Big banks are enlisting the local DMV in their fight against identity fraud. Lenders including JPMorgan Chase & Co., Bank of America Corp. , Wells Fargo & Co. and Citigroup Inc. are looking for ways to link up with databases at state departments of motor vehicles and other government offices to make sure potential customers are who they say they are. Motor-vehicle departments are appealing partners for banks as more people are opening accounts online. At the DMV, applicants typically must appear in person, at least initially, with a stack of documents including birth certificates and social security cards that are verified by trained staffers. Identity verification, a perennial problem for banks, has taken on greater importance since some high-profile data breaches exposed loads of customer data that fraudsters can exploit to open accounts. Banks also are looking for ways to combat a rapidly growing and particularly vexing scam that involves made-up borrowers.”

— Traders look to intelligence expert for advice. NYT's Landon Thomas Jr.: “Shane Parrish was a cybersecurity expert at Canada’s top intelligence agency and an occasional blogger when he noticed something curious about his modest readership six years ago: 80 percent of his followers worked on Wall Street. The blog was meant to be a method of self-improvement, helping Mr. Parrish deal with a job whose pressures had increased with the growing threat of global hacking. . . . Few Wall Street obsessions surpass the pursuit of an investment edge... And the edge belongs to algorithms, data sets and funds that track indexes and countless other investment themes. This has been devastating for hedge fund and mutual fund managers who make their living trying to outsmart the stock market. With their business models under attack, they are searching for answers. And Mr. Parrish has a simple solution: reading, reflection and lifelong learning.”

— Alibaba reports strong Singles' Day sales. Bloomberg News: “As Jack Ma prepares to step down as chairman of Alibaba Group Holding Ltd., he does so after the online sales promotion he has championed for a decade notched another record. In its 10th iteration, the annual Singles’ Day event on Nov. 11 notched 213.5 billion yuan ($30.7 billion) in merchandise sales, an increase of 27 percent, according to a tally posted at the event’s media center in Shanghai. The final number compares with 39 percent growth last year. Ma will hand the chairman’s role to Chief Executive Officer Daniel Zhang next year, passing along one of China’s highest profile corporate roles at a time when the country is embroiled in a trade spat with the U.S. Concerns about the impact of those tensions on a slowing economy have contributed to a 16 percent slump in Alibaba’s share price this year.”

The case has high stakes for Pabst, whose lawyers argue that the company's very existence relies on the partnership with Chicago-based MillerCoors, which produces, packages and ships nearly all its products.
AP
MONEY ON THE HILL

— Debt on course to outstrip defense. WSJ’s Kate Davidson and Daniel Kruger: “In the past decade, U.S. debt held by the public has risen to $15.9 trillion from $5.1 trillion, but financing all of that debt hasn’t been a problem. Low inflation and strong global demand for safe U.S. Treasury bonds held the government’s interest costs down. That’s in the process of changing…

“The government is expected to pass the following milestones: It will spend more on interest than it spends on Medicaid in 2020; more in 2023 than it spends on national defense; and more in 2025 than it spends on all nondefense discretionary programs combined, from funding for national parks to scientific research, to health care and education, to the court system and infrastructure, according to the CBO.”

DAYBOOK

Coming soon

THE FUNNIES

— From the New Yorker's Lars Kenseth:

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A cartoon by @LarsKenseth. #TNYcartoons

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BULL SESSION

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