For weeks, those hopeful for trade peace to break out between the United States and China foresaw the pieces falling into place right about now. Developments over the past few days suggest the conflict is only getting worse.
A summit that brought Vice President Pence and Chinese President Xi Jinping together in Papua New Guinea over the weekend ended without a joint communique for the first time in its 29-year history — a breakdown owing to building tensions between the two superpowers. Pence, in a speech there, restated President Trump's threat to more than double tariffs on Chinese imports, and said the U.S. "will not change course until China changes its ways."
China’s top trade negotiator Liu He has reportedly scrapped plans for a trip to Washington this week to continue talks. Instead, those negotiations will resume in Buenos Aires, where Xi and Trump will meet for an increasingly high-stakes huddle at the G-20 summit next week.
Stocks rallied Friday after Trump told reporters that China “wants to make a deal” and said Beijing recently sent a list of points over which it is willing to negotiate. “I think we’ll have a deal. We’ll find out very soon,” Trump said. But a clarification erased the market gains, when CNBC’s Eamon Javers tweeted that White House officials followed up to say no deal is imminent:
White House officials tell me that the president was simply expressing optimism about ongoing negotiations with the Chinese when he said the US may not have to impose additional tariffs. I’m told we should not read into that that there is a deal imminent. All eyes still on G20.— Eamon Javers (@EamonJavers) November 16, 2018
It was the second time last week the administration sent mixed signals: Top Trump economic adviser Larry Kudlow on Tuesday blasted a recent speech by top Trump trade adviser Peter Navarro that was hawkish on China as “way off base.”
The Americans aren’t the only ones seemingly off-balance. China’s former chief trade negotiator issued a rare public criticism of his own government’s tactics, calling the regime’s decision to impose tariffs on U.S. soybeans badly conceived. "If we have people who always talk about politics engaging in [trade] negotiations, we will never have a deal,” Long Yongtu said, according to a report in the South China Morning Post. “We don’t think deeply enough.”
That rebuke speaks to deep reservations rumbling behind the scenes in Beijing about Xi’s management of the conflict. “The Chinese still don’t know how to handle Trump, and they don’t really know what they’re doing,” says Trey McArver, founding partner of Beijing-based consultancy Trivium China. “They don’t have any new ideas. I think they’re just spinning their wheels.”
Pence, in his swing through Asia last week, kept up his recent tough talk on China. He warned in a Thursday speech in Singapore that “empire and aggression have no place in the Indo-Pacific.” In Papua New Guinea, he invoked China’s "Belt and Road Initiative" to offer the country’s neighbors a “a better option.” “We don’t drown our partners in a sea of debt. We don’t coerce or compromise your independence,” Pence said. “We do not offer a constricting belt or a one-way road.”
Xi, in his speech at the summit, tried to position China as a defender of the international order, warning that “confrontation, whether in the form of a hot war, cold war or trade war, will produce no winners.” But a senior Trump official cited by the Wall Street Journal blamed a Chinese objection for sinking a communique the other 20 nations endorsed. The official said the Chinese opposed the inclusion of a sentence — “We agreed to fight protectionism including all unfair trade practices” — they believed singled them out.
“Could anything be more emblematic of a deteriorating world order?" McArver says. “For 29 years we’ve been able to agree on something. This is the first year they haven’t. If 30 years from now, we look back at a mega-trend of deglobalization, this summit may be one of the important events along the way.”
Programming note: We’re publishing an abbreviated version of the newsletter through Wednesday this week and then will be dark on Thursday and Friday in observance of Thanksgiving. We’ll be back to our normal offering and frequency starting Monday.
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— May scrambles to save Brexit deal. FT's Jim Pickard and Sarah Gordon: "Prime Minister Theresa May insisted on Monday her Brexit deal would give Britain “control over our borders” by bringing an end to free movement once and for all. After Brexit the UK would be “fully in control” of who comes in, with EU nationals no longer able to “jump the queue” ahead of engineers from Sydney or software developers from Delhi, she told the Confederation of British Industry’s annual conference in east London… The British prime minister is struggling to win support from her own MPs for her withdrawal agreement with Brussels, with critics insisting they almost have enough signatures for a vote of no confidence in her leadership.”
Global markets are mostly quiet. WSJ's Riva Gold: "Stocks in Europe and Asia were mostly higher Monday in a week expected to be dominated by Brexit developments and fresh readings on the U.S. and European economies. The Stoxx Europe 600 edged up 0.3% in morning from its lowest close this month, while futures pointed to a flat opening on Wall Street. Asian markets mostly rallied despite lingering trade tensions between the U.S. and China at the Asia-Pacific Economic Cooperation summit."
— Gloomy investors shrug off strong earnings. WSJ's Akane Otani: "Many on Wall Street are weathering the autumn technology rout by buying the shares of firms with slower, steadier earnings growth, the latest sign that investors largely remain sanguine about U.S. stocks despite recent reversals. Trading has turned rocky since the S&P 500 finished the third quarter with its biggest gain since 2013. The broad index is down 6.1% since the end of September...
"Nine years into the U.S. stock rally, investors are grappling with two forces. Many feel the best days of this economic cycle are past, especially with windfalls from 2017’s tax overhaul set to fade. Though few economists foresee a recession soon, analysts and portfolio managers say the fall pullback offers a reminder of the ever-present risk that markets will fall sharply as rising interest rates and slowing growth hit corporate profits. But a hefty contingent contends there are still significant gains to be had, thanks to the robustness of companies’ bottom lines."
— Slowing global growth could compel Fed to pause. NYT's Peter Eavis: "One of the biggest threats to stock prices is suddenly looking less scary. Investors’ concerns about rising interest rates have helped fuel the recent selling that has left the S&P 500 stock index nearly 6.6 percent off its high. But there have been signs in recent days that interest rates may not rise as quickly as investors previously expected. Officials at the Federal Reserve, which sets interest rates, made remarks last week that suggested they were becoming more mindful of a slowing global economy. While that may mean stock investors will soon be able to worry less about rising rates, the slowdown in growth could still weigh on stock prices."
— Tracking China's unlikely rise as a global economic superpower. The New York Times's Philip P. Pan goes deep to explain the origins of the Chinese juggernaut: "The Chinese economy has grown so fast for so long now that it is easy to forget how unlikely its metamorphosis into a global powerhouse was, how much of its ascent was improvised and born of desperation. The proposal that Mr. Xu took from the mountain retreat, soon adopted as government policy, was a pivotal early step in this astounding transformation. China now leads the world in the number of homeowners, internet users, college graduates and, by some counts, billionaires. Extreme poverty has fallen to less than 1 percent. An isolated, impoverished backwater has evolved into the most significant rival to the United States since the fall of the Soviet Union.
An epochal contest is underway. With President Xi Jinping pushing a more assertive agenda overseas and tightening controls at home, the Trump administration has launched a trade war and is gearing up for what could be a new Cold War. Meanwhile, in Beijing the question these days is less how to catch up with the West than how to pull ahead — and how to do so in a new era of American hostility."
- “Trump says he wouldn’t stop acting attorney general from curtailing Mueller inquiry.” The Washington Post’s Felicia Sonmez.
“Trump says he won’t listen to Khashoggi ‘suffering tape.’” Felicia Sonmez and Karen DeYoung.
— Nissan chairman Carlos Ghosn arrested. WSJ's Sean McLain: "Nissan Motor Co. Chairman Carlos Ghosn was arrested Monday in Tokyo, Japanese media reported, and Nissan said it intended to oust Mr. Ghosn from his post after uncovering “significant acts” of financial misconduct. Japanese prosecutors couldn’t immediately be reached to confirm the arrest, which was reported by public broadcaster NHK and other media.
"The sudden allegations are a blow to the legacy of Mr. Ghosn, 64 years old, who was credited for rescuing Nissan from near-bankruptcy starting in 1999. They also call into question the future of the alliance between Nissan and partners Renault and Mitsubishi Motors Corp. Mr. Ghosn is also chief executive of Renault and chairman of Mitsubishi.Nissan said Mr. Ghosn worked with another executive at Nissan to underreport his compensation in securities filings—the same allegation that Tokyo prosecutors cited in arresting Mr. Ghosn, according to Japanese media."
— Facebook at war. WSJ's Deepa Seetharaman: "Mark Zuckerberg gathered about 50 of his top lieutenants earlier this year and told them that Facebook Inc. was at war and he planned to lead the company accordingly. During times of peace, executives can move more slowly and ensure that everybody is on board with key decisions, he said during the June meeting, according to people familiar with the remarks. But with Facebook under siege from lawmakers, investors and angry users, he needed to act more decisively, the people said.
"Mr. Zuckerberg’s new approach is causing unprecedented turmoil atop Facebook, driving several key executives from the company, according to people familiar with the matter. At times, it has created tensions with his longtime chief operating officer, Sheryl Sandberg… The 34-year-old CEO believes Facebook didn’t move quickly enough at key moments this year and increasingly is pressing senior executives to “make progress faster” on resolving problems such as slowing user growth and securing the platform, said people familiar with the matter.
Facebook's former chief security officer Alex Stamos, writing in The Post: "No one at the company ever told me not to examine Russian activity, nor did anyone attempt to lie about our findings, but Facebook should have responded to these threats much earlier and handled disclosure in a more transparent manner."
— What's next for HQ2 losers? NYT's Neil Irwin: "Some promising answers are bubbling up, although there may not be a single plan that all the people who study these issues can agree upon. A new paper by Clara Hendrickson, Mark Muro and Bill Galston at the Brookings Institution aims to summarize the facts about these regional divides, as well as how policy contributes to them and how it could help reduce them. They argue for heavy investment in digital skills, even in areas without a large existing high-tech sector. They seek new channels to ensure that businesses in struggling areas have access to capital, including small-business lending from banks and venture capital for start-ups."
Related: Trump country is falling further behind. Anthony W. Orlando, writing for The Post: "How have Trump voters fared economically, compared with Hillary Clinton voters? Not noticeably better, according to the data. By most measures, my latest research shows, Trump counties — and especially counties with higher proportions of Trump voters — continue to fall farther behind the rest of the country economically. The story of our economy, like the story of our politics, continues to be a story of division and divergence."
— Deutsche Bank no longer indispensable. Bloomberg's Steven Arons and Chris Reiter: "As Deutsche Bank AG approaches its 150th anniversary, Germany’s biggest lender is facing an inconvenient truth: it is no longer irreplaceable for the country’s economic elite. From corporate giants to specialist engineering firms, Germany Inc.’s once-solid allegiance to Deutsche Bank is waning after years of crises stemming from efforts to emulate Wall Street investment banks, according to discussions with numerous executives. After working with Deutsche Bank for more than half a century, 'I feel genuine regret for the decline of this once so proud and trusted institution,' said Reinhold Wuerth, the 83-year-old billionaire and patriarch of building-materials maker Wuerth Group."
— Waters's Trump probe could meet Dem resistance. Politico's Zachary Warmbrodt: "Rep. Maxine Waters is running into an unexpected obstacle in her bid to investigate a president who has mocked her as a 'low IQ person': members of the California Democrat's own party. Waters, the incoming chairwoman of the House Financial Services Committee, has promised to follow the 'Trump money trail,' targeting the Trump Organization’s hundreds of millions in loans from Deutsche Bank, the German lender that has been under scrutiny in connection with Russian money laundering. But the committee has a handful of moderates who worry that such aggressive moves will backfire.
"'The American people will understand thoughtful, well-grounded investigations,' said Rep. Jim Himes, a Connecticut Democrat. 'But they will bridle at investigations that seem overtly political.' That tension between cautious Democrats and those who want to train their subpoena firepower at the White House is being repeated throughout the House, as establishment veterans face off against progressives out for revenge against [Trump]."