If the Chinese have any lingering doubts about whether the Trump team remains divided over the trade war, Larry Kudlow just laid them to rest.  

President Trump’s top economic adviser — an advocate of negotiating economic peace with Beijing — on Tuesday morning blasted recent comments on the matter from Peter Navarro, the president’s top trade adviser and a China hawk. Kudlow said Navarro was “way off base,” “freelancing,” and “not representing the president or the administration,” when he warned unnamed financiers to stay away from U.S.-China trade talks. 

Navarro, in a fiery Friday speech at the Center for Strategic and International Studies, accused unnamed people of acting as “unpaid foreign agents,” trying to put “the imprimatur of Goldman Sachs and Wall Street” on a deal between the superpowers (see the full address here). Kudlow responded in a CNBC interview Tuesday, saying Navarro was “not authorized by anybody” to make those remarks and adding they had done “a great disservice” to the president.

The clash comes as the Trump administration is reengaging with Beijing ahead of a meeting this month between Trump and Chinese President Xi Jinping at the G-20 summit in Buenos Aires. That huddle likely provides the last best hope for heading off a dramatic escalation of the trade conflict. Barring a breakthrough, Trump has threatened to levy tariffs on the remaining $267 billion in Chinese imports — and 10 percent duties that are  in place on $200 billion of Chinese goods are set to climb to 25 percent at the start of next year.  

Treasury Secretary Steven Mnuchin talked trade by phone on Friday with his Chinese counterpart, Vice Premier Liu He, the Wall Street Journal reported. That conversation followed one this month between Trump and Xi. And Kudlow told reporters yesterday the U.S. and Chinese governments are now “communicating at all levels and that’s a very good thing.” Ahead of the G-20 meeting, he said the administration is working on “background materials in preparation and we’re waiting for China to come back with some thoughts.”

Vice President Pence, meanwhile, tells The Post’s Josh Rogin that Xi will need to pledge massive changes to secure a deal. Per Josh, “In addition to trade, Pence said China must offer concessions on several issues, including but not limited to its rampant intellectual property theft, forced technology transfer, restricted access to Chinese markets, respect for international rules and norms, efforts to limit freedom of navigation in international waters and Chinese Communist Party interference in the politics of Western countries.”

The big question hanging over the conflict remains what kind of deal Trump will accept. And the Kudlow-Navarro spat appears to offer China watchers some fresh clues.

Navarro’s speech “was a clear tip-off that a deal is in the works,” says Fred Bergsten, the founding director of the Peterson Institute for International Economics. “He doesn’t want a deal, so he’s going public with his complaints about it.”

Some aren’t convinced. Another person close to the process noted Trump has been talking up his nationalist bona fides recently: “He may be saying to the free traders, ‘Go bring me a deal, while also saying to the other faction, 'Give me some tariffs. Help me ensure the Chinese pay a price for pillaging and plundering.’ I think they coexist.” 

The U.S. and China last arrived at such a potentially decisive moment in May, when Mnuchin negotiated a deal with Liu that Trump ultimately rejected, heeding his hawks, including Navarro and U.S. Trade Representative Robert Lighthizer.

“We’re at a similar intersection,” says Scott Kennedy, director of the Project on Chinese Business and Political Economy at CSIS. “The two presidents meeting at the G-20 is the next opportunity for them to find a potential resolution, limited or larger, so there’s been a lot of lobbying inside and outside the administration to suggest even a limited deal, like a freeze of further hostilities, is warranted. We’re seeing the consequences of that effort in the sparring back and forth in public.”

That lobbying has included cameo appearances by former treasury secretary Hank Paulson and former secretary of state Henry Kissinger. Paulson, the former Goldman Sachs CEO, warned in a speech in Singapore last week that an “economic iron curtain” threatens to divide the world if the U.S. and China can’t resolve their differences; Kissinger, at the same conference, said “fundamental conflict” between the countries “will destroy hope for the world order.” Both have met with Chinese leaders in the past two weeks, the Journal reports. 

It’s not clear who Navarro had in mind when he called out Wall Streeters. But Blackstone Group CEO Stephen Schwarzman, “who has one of the closest relationships to Beijing of any American executive, is in many ways the president’s de facto China whisperer,” The Washington Post’s Michael Kranish reported in March. Schwarzman, he wrote, helped “persuade the man who said Beijing’s leaders were ‘raping’ the United States not to follow through on a campaign promise to declare China a ‘currency manipulator.’” 

The divisions aren’t new: Navarro and Mnuchin had an “expletive-packed shouting match” in Beijing back in May after Navarro complained he was being excluded from meetings with Chinese leaders, The Post reported at the time.

But the tensions are spilling back into the open at a critical moment. If Trump and Xi can’t strike a deal, they may not get another chance to hash one out in person until the next G-20 summit in Osaka, in late June. 


— Brexit deal in sight. WSJ's Max Colchester and Laurence Norman: “Negotiators for Britain and the European Union on Tuesday hammered out a draft Brexit deal, setting up a critical endgame in which Prime Minister Theresa May must now try to sell the plan to her skeptical ministers and Parliament. Following more than two years of wrangling over Brexit, Mrs. May is set to put the proposed pact before her deeply divided cabinet on Wednesday. Her political future and that of her Conservative Party could well depend on the outcome. If the prime minister doesn’t get the necessary backing, she could face the prospect of being unseated by her party or forced into calling new elections.

— Greenspan: Watch out for inflation. Bloomberg News's Sarah Foster: “Former Federal Reserve Chairman Alan Greenspan said a rising U.S. debt burden could derail the current expansion and warned the tight labor market could lift inflation. ‘I’m beginning to see the first signs of it,’ Greenspan said about inflation during an interview on ‘The David Rubenstein Show: Peer-to-Peer Conversations’ on Bloomberg Television. ‘We’re seeing it basically in the tightening of the labor markets first, which, as you know, have gotten very tight now. We’re beginning finally to see average wages rise, and clearly there’s no productivity behind it.’ ... Greenspan said a lack of productivity growth meant ‘you’re getting into a system now which has no outcome that’s in equilibrium other than inflation and no productivity growth.’”

Oil rout rattles markets. WSJ's Georgi Kantchev: "Global stocks dropped Wednesday amid continued concern about volatile oil prices and mounting questions about global growth. The Stoxx Europe 600 was down 0.6% in midmorning trade, as energy and resources stocks dropped despite stabilizing oil prices. Asian markets broadly fell... Oil prices edged up Wednesday after sinking deeper into a bear market Tuesday as concerns about oversupply and weakening demand engulfed the market... The recent drop in crude prices added to a volatile stretch for broader financial markets, already under pressure from international trade frictions, a selloff in the tech sector and problems in the eurozone.

The Federal Reserve is paying close attention to how it might regulate artificial intelligence and machine learning, Fed Gov. Lael Brainard said in a speech Tuesday.
American Banker


No auto tariffs, yet. Bloomberg's Jennifer Jacobs and Jenny Leonard: "The Trump administration will hold off for now on imposing new tariffs on automobile imports as top officials weigh revisions to a report on the national security implications, according to two people familiar with the matter. [Trump] met with his top trade advisers on Tuesday at the White House to discuss a draft report on a Commerce Department investigation into the impact of car imports. The people, who spoke on condition of anonymity because the meeting wasn’t publicly announced, said the administration wasn’t ready to act on tariffs and that the report would be subject to further changes."

EU threatens retaliation. Reuters: "The European Union will respond with countermeasures if the United States imposes tariffs on its cars, the bloc’s trade commissioner told Germany’s Die Zeit weekly on Wednesday. 'Then we will hit back, we can very quickly put together a long list of countermeasures that conform to World Trade Organisation rules,' Cecilia Malmstrom told the paper, adding the list could include cars, farming products and machinery."

— Trump blasts Macron. The Washington Post's John Wagner and James McAuley: “Trump unleashed verbal attacks Tuesday on French President Emmanuel Macron, taking aim at his approval rating, his country’s employment rate, its trade policies on wine and his vision for the military. The broadside on Twitter escalated a spat that began Friday when Trump took umbrage at Macron’s call in a radio interview for a ‘true European army’ so that the continent can defend itself without relying on the United States . . . In another tweet Tuesday, Trump complained of a trade disparity suggesting that it makes it harder for U.S. winemakers to sell their products in France. ‘On Trade, France makes excellent wine, but so does the U.S.,’ the president wrote. ‘The problem is that France makes it very hard for the U.S. to sell its wines into France, and charges big Tariffs, whereas the U.S. makes it easy for French wines, and charges very small Tariffs. Not fair, must change!’ Trump made no mention of the winery he owns in Charlottesville, which he bought at a foreclosure auction in 2011 and is now run by his son Eric.”

Soybean farmers could feel trade effects for years. Bloomberg: "A flashback to Richard Nixon’s 1973 soybean embargo and Jimmy Carter’s 1980 Soviet grain ban suggest that what’s already happened this year may lead to permanent changes ahead as China seeks alternatives to the U.S. market. Nixon’s move spurred Japan to invest in Brazil’s then-nascent soy industry, setting the Latin America giant on a path to become the world’s top exporter. Carter’s ban was met with trade flow changes that rendered it ineffective and tarnished the U.S.’s reputation as a reliable supplier. 'It’s possible that China will never fully trust the U.S. as a reliable trade partner again,' said Ann Berg, an independent consultant and veteran trader who started her career at Louis Dreyfus Co. in 1974."


Trump's 2020 challenge: A potential recession. The Post's Heather Long: "Most economists are predicting that the economy will be weaker — or even in a recession — by the time voters go to the polls in 2020. For Trump and the GOP, the economy was probably a tail wind in these midterms, but it could turn into a substantial head wind by then... The president will have to decide: Does he take further action to boost growth, or does he blame others for any slowdown? Pessimism is growing on Wall Street about future prospects for earnings and the economy. More than a third of top economic forecasters now predict a U.S. recession in 2020, according to the latest Blue Chip forecast, and 44 percent of fund managers in the latest Bank of America Merrill Lynch survey expect global growth to slow in the next year, the worst outlook for the world economy since November 2008."


— Amazon HQ2 sparks a backlash. The Post's Taylor Telford: “The drawn-out theater of Amazon’s decision Tuesday to split its second headquarters between New York’s Long Island City and Arlington, Va.’s Crystal City was met with a maelstrom of criticism from local officials and professionals. While Amazon has touted the prosperity the headquarters would bring — pledging to make $5 billion in capital investments and create 50,000 jobs between the two headquarters — politicians voiced concerns that the influx of tech workers would fuel inequality and hurt lower-income populations. . . . 

"Democratic Rep.-elect Alexandria Ocasio-Cortez tweeted Monday that her office had been flooded with calls from residents who were outraged by the pending Amazon deal. She also questioned who would truly benefit from — and who would pay for — the transformation the company touted. . . . In a statement, Amazon founder and chief executive Jeff Bezos painted the selection of two major East Coast cities as a means of keeping the company competitive when it comes to talent. (Bezos owns The Washington Post.).”

Amazon invites new political scrutiny. The Post's Jonathan O'Connell and Rachel Siegel: “The concerns about Amazon’s process for selecting the winning cities — as well as the taxpayer subsidies it gained — underscore how the company’s furious expansion is inviting increasing political scrutiny. And as the company prepares to enter its 25th year in existence, the political risks aren’t likely to ease...

“Many of the technology industry’s giants are facing extra political skepticism today. But Amazon is unusual in that it is becoming geographically entrenched across America — offering it potential grass-roots support — as it also becomes formidable in a number of sectors such as retail, government contracting and entertainment. Amazon is now the second-largest employer in the United States after Walmart, giving it access to more lawmakers, mayors and public officials whom it can try to influence and whose support it can try to enlist.”

HQ2 decision could feed Trump's resentment of Bezos. “Anything that makes Bezos more prominent in Washington is going to irritate Trump and he will take it personally,” Michael D’Antonio, author of the 2015 Trump biography ‘Never Enough,' tells Politico's Eric Engleman and Steven Overly. “He will think Bezos made this decision to stick it to him.”

— Starbucks to cut jobs. Bloomberg News's Leslie Patton: “Starbucks Corp., on a mission to boost profit and appease apprehensive investors, is dismissing about 5 percent of its non-restaurant workers. The company said it’s laying off about 350 corporate employees, most of whom work in its Seattle headquarters. Starbucks had said in September that an unspecified number of job cuts were coming. The coffee chain is restructuring to speed innovation and pump slowing sales. ‘Today will be a difficult day for all of us,’ Chief Executive Officer Kevin Johnson said in an internal email to employees viewed by Bloomberg News. ‘As we continue evolving our core areas of marketing, creative, product, technology and store development, we are making some significant changes to these areas, as well as other functions across our global business.’ ”

— Whistleblower's lawyer warns about money laundering. Reuters's Kirstin Ridley and Simon Jessop: “Danske Bank’s 200 billion euro ($225 billion) money laundering scandal might be the ‘tip of the iceberg’ and investigators should examine whether major Western banks played a role, a lawyer for the whistleblower said. Stephen Kohn, a partner at U.S. law firm Kohn, Kohn and Colapinto who is representing Danske whistleblower Howard Wilkinson, told Reuters that Danske may be only a bit player in a scheme to move wealth from countries like Russia to the West . . . ‘If this is properly investigated, and the money followed all the way to the end — it all went to large, multinational Western financial institutions and either the U.S. government or other authorities have the ability to track down every transfer and any account,’ he said, without providing evidence for the allegation.”

A top regulator recently sent a letter rebuking Wells Fargo’s chief administrative officer, Hope Hardison, leading her to take a leave of absence and showing the issues between the lender and its overseers are far from over.

Deficit stretched to $100 billion in October. WSJ's Kate Davidson: "The U.S. government ran a $100 billion deficit last month, compared with a $63 billion budget gap in October 2017, as spending growth outpaced revenue growth, the U.S. Treasury said Tuesday. The Treasury Department said federal outlays rose 18% in the first month of the 2019 fiscal year compared with the same period a year earlier, in large part because of higher spending on Medicare, national defense and interest payments on the debt... A strong economy typically leads to narrower deficits, as rising household income and corporate profits help boost tax collections, while spending on safety-net programs tends to decline.

— Fed nominees may have to wait. American Banker's John Heltman: “The Senate is expected Tuesday to move one step closer to confirming Michelle Bowman, the Kansas state banking regulator, to the Federal Reserve Board. But the nominations for two other open Fed seats on the seven-person board are still in limbo. A crowded lame-duck session and lingering concerns among some senators about Brookings Institution fellow Nellie Liang and Carnegie Mellon professor Marvin Goodfriend both cast doubt how quickly their nominations will go forward — if at all. Bowman was nominated in April to serve as a statutorily mandated Fed governor with ‘community bank experience.’ ”

Pelosi, who expects to be the speaker of the House when Democrats take power in January, discussed strategy and thanked donors for helping the party triumph last week.
Outgoing House Ways and Means Committee Chairman Kevin Brady (R-Texas) on Tuesday outlined several pieces of tax legislation he'd like to see enacted in the lame-duck session, though he said it was unclear how many of the items would be taken up i
The Hill

Coming soon


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