The dust is taking a long time to settle from the U.S.-China trade breakthrough Saturday at the G-20: We still don't know key details about what the two sides resolved, what they didn’t and on what terms.
Trump administration officials compounded the confusion Monday by sending conflicting messages about some basic points. For example, it took the White House all day to correct top economic adviser Larry Kudlow's statement that the 90-day clock for the next round of talks would begin Jan. 1. In fact, the administration clarified, it started on Dec. 1. And the administration struggled to explain President Trump's claim the Chinese have agreed to eliminate tariffs on U.S. auto imports.
But even as investors cheered the broad strokes of an agreement — the Dow Jones industrial average climbed 288 points Monday in a relief rally — American trade hawks pointed to one concrete development that suggested the Trump team will demand a high price from Beijing for a lasting peace. Trump is deputizing U.S. Trade Representative Robert E. Lighthizer to lead talks with the Chinese. That means Beijing will be squaring off against a steely negotiator who has led the administration’s fact-finding into Chinese trading abuses and other forms of economic espionage.
“This is not a stock market guy. This is not a finance guy. This is not somebody looking at general indicators of the economy,” Richard Ellings, president of the National Bureau of Asian Research, tells me. “This is a guy who’s in the nuts and bolts and understands the Chinese system. So that’s a very interesting and strong message.”
And Lighthizer will take over for Treasury Secretary Steven Mnuchin and his team, who hail from the administration’s dovish camp and have tried to strike a deal burying hostilities between the world’s two largest economies. President Trump surprised Chinese President Xi Jinping with the move when he informed him of it at their Saturday night dinner in Buenos Aires, the Wall Street Journal reports. The paper writes the Chinese had favored Mnuchin.
“If there’s anyone who can successfully conclude the negotiations, it’s Bob,” Michael Wessel, a member of the U.S.-China Economic and Security Review Commission, a congressional watchdog agency, said in an email. “The last time the U.S. had to deal with a country employing a range of predatory and protectionist policies, it was Japan, and Bob had a prominent role. He’s got the knowledge, the creativity and the commitment to get it done. And right now, he’s got the president’s trust. That’s a powerful combination.”
Ellings notes the presence of national security officials at the dinner — Trump was also flanked by Secretary of State Mike Pompeo, national security adviser John Bolton and National Security Council Asia chief Matt Pottinger — further signaled the administration is viewing the confrontation with China in terms of a broader strategic competition. That would indicate a quick deal that simply, say, narrows the bilateral trade deficit won’t be sufficient.
Yet the Trump team has never spelled out precisely what the Chinese need to offer to achieve a permanent armistice. And Trump has sent a number of tweets hinting a big deal is already near at hand:
My meeting in Argentina with President Xi of China was an extraordinary one. Relations with China have taken a BIG leap forward! Very good things will happen. We are dealing from great strength, but China likewise has much to gain if and when a deal is completed. Level the field!— Donald J. Trump (@realDonaldTrump) December 3, 2018
Farmers will be a a very BIG and FAST beneficiary of our deal with China. They intend to start purchasing agricultural product immediately. We make the finest and cleanest product in the World, and that is what China wants. Farmers, I LOVE YOU!— Donald J. Trump (@realDonaldTrump) December 3, 2018
President Xi and I have a very strong and personal relationship. He and I are the only two people that can bring about massive and very positive change, on trade and far beyond, between our two great Nations. A solution for North Korea is a great thing for China and ALL!— Donald J. Trump (@realDonaldTrump) December 3, 2018
I am certain that, at some time in the future, President Xi and I, together with President Putin of Russia, will start talking about a meaningful halt to what has become a major and uncontrollable Arms Race. The U.S. spent 716 Billion Dollars this year. Crazy!— Donald J. Trump (@realDonaldTrump) December 3, 2018
Trump’s cheerleading for a deal has some China hawks on edge, especially if the economy turns south as talks drag on. “What I would worry about — and nobody can predict with this president — is that he might be willing to accept something that’s a lot less than what he’s been pushing for and reshape it as a victory,” says Robert Atkinson, president of the Information Technology and Innovation Foundation.
“That’s possible particularly if the stock market is down, farm exports are down, and he faces continued blowback from the business community. You could imagine him trying to find some out that allows him to claim progress and save face but get rid of the tariffs and move on.”
Josh Kallmer — executive vice president for policy at the Information Technology Industry Council, a tech industry trade group — described himself as “cautiously optimistic” the talks will yield fundamental Chinese reforms. He ascribed that sentiment to a seeming change in China’s willingness to engage and to Lighthizer’s appointment. “Having Ambassador Lighthizer at the core of this is a really positive thing, because institutionally he and the USTR have been at the heart of articulating the tapestry of practices and policies that have been making life difficult for our firms,” he said.
In contrast to a negotiated reconciliation, Ellis forecasts a permanent cleavage ahead. “What you might have is a settling in of long-term policies that slowly disengage the U.S. economy from the Chinese economy,” through export controls, investment limits, and more direct action against intellectual property theft. “Instead of high-profile, big-time tariffs, it would be a broad effort oriented around economics and national security that will disengage the two economies.”
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— Stocks rise. But bonds signal anxiety. WSJ's Akane Otani and Georgi Kantchev: "Global stocks and oil prices flew higher Monday after an easing of geopolitical tensions, but bond investors signaled the anxiety that has gripped markets for the past two months has yet to abate... The Dow Jones Industrial Average and S&P 500 both climbed 1.1%, while U.S. crude oil surged 4%—its biggest one-day gain since June. ... Markets’ mixed messages Monday led some observers to say there isn’t likely to be much of a respite from the kind of volatility that has shaken investors this fall and led some to question the durability of the nine-year-old bull market for stocks."
The post-G-20 party in the stock market may be over already, Bloomberg's Moxy Ying and Harry Suhartono write.
And the yield curve inverted. Bloomberg's Katharine Greifield: "A section of the U.S. Treasuries yield curve just inverted for the first time in more than a decade. The spread between 3- and 5-year yields fell to negative 1.4 basis points Monday, dropping below zero for the first time since 2007, and the 2- to 5-year gap soon followed... Monday’s move could be the first signal that the market is putting the Federal Reserve on notice that the end of its tightening cycle is approaching."
— Powell testimony canceled. WSJ's Nick Timiraos: "Federal Reserve Chairman Jerome Powell’s congressional testimony on the economic outlook has been canceled after lawmakers were unable to reschedule the hearing due to a conflict with ceremonies honoring the late former President George H.W. Bush. ... Lawmakers were unable to find a new date for the hearing as they juggle a crowded end-of-year calendar. After this week, the Fed is set to begin their self-imposed premeeting blackout period in which they stop making public comments on monetary policy. Mr. Powell served as a senior Treasury Department official in Mr. Bush’s administration."
Mnuchin: Trump happy with Powell comments. WSJ's Kate Davidson: "Trump was pleased with a speech last week by [Powell] in which he said interest rates are 'just below' a range of neutral estimates, [Mnuchin] said Monday. 'He liked the speech,' Mr. Mnuchin said in an interview with CNBC Monday, referring to the president."
— How May's Brexit deal vote will unfold. Bloomberg's Thomas Penny and Robert Hutton: "The House of Commons debate on Theresa May’s Brexit deal starts on Tuesday, with five days of consideration. All the voting is on Dec. 11. May will kick off the debate with a speech in the House of Commons on Tuesday afternoon. ... The debate itself will resume after that and continue for eight hours on Dec. 5, 6, 10 and 11. Each day’s debate will be led by a different cabinet minister. The motion simply states that “this House approves” of the withdrawal agreement and framework for the future relationship negotiated with the EU...
"The government has repeatedly refused to say what it would do if it loses the vote. The options include putting it to Parliament again, pursuing a no-deal exit instead, a general election, and even a second referendum. The Labour Party says it will seek a vote of no-confidence in the government. May’s Tory colleagues could also seek to oust her as leader."
— Uncertainty surrounds NAFTA deal, too. The Post's Damian Paletta and Erica Werner: "Trump’s updated North America trade proposal was encountering a rough reception on Capitol Hill, where both parties have deep divisions over trade that will be on full display as a newly Democratic-controlled House takes up the pact along with the Republican-led Senate... The outcome is uncertain because of labor, agricultural, manufacturing and environmental concerns raised by a number of lawmakers.
"Sen. Patrick J. Toomey (R-Pa.), a prominent free-trade advocate, said in an interview that he could not support the agreement as drafted because he believes it would diminish trade across the continent... 'I don’t see how they get this ratified by Congress,' Toomey said."
— Euro officials criticize Trump meeting with German car CEOs. WSJ's William Boston and Valentina Pop: "German car makers’ plans to meet with U.S. officials in Washington on Tuesday drew intense criticism in Berlin and Brussels, where concerns are growing that such talks could undermine trade negotiations. European officials’ criticism reveals growing impatience with what they say are repeated attempts by Washington to reach out directly to companies in an effort to pressure governments to bend in trade talks."
— Ag Secretary: China will buy soybeans again. Reuters: "China will probably resume buying American soybeans around Jan. 1 because of limited supplies in Brazil after slashing imports from the United States due to the U.S.-China trade war, U.S. Agriculture Secretary Sonny Perdue said on Monday. It has 'yet to be determined' whether China will remove tariffs on imports of American soybeans as part of a truce agreed between [Trump] and [Xi] in Argentina on Saturday, Perdue said."
- "Trump says Michael Cohen deserves a ‘full and complete’ sentence." The Washington Post's John Wagner and Matt Zapotosky.
- "Trump: Roger Stone has 'guts' for not testifying against me." Politico's Rebecca Morin.
“Trump’s latest tweets cross clear lines, experts say: Obstruction of justice and witness tampering.” The Post’s Deanna Paul.
“Why Michael Cohen, Trump’s fixer, confessed to it all.” NYT’s Benjamin Weiser.
- "Where does the Trump-Russia Investigation Go From Here?" The New Yorker's John Cassidy.
- "Corsi files complaint with DOJ alleging misconduct in Mueller probe." The Hill's Jacqueline Thomsen.
— Ford's restructuring may cut 25,000 jobs. Keith Naughton at Bloomberg: "Ford Motor Co.’s $11 billion restructuring could cost 25,000 employees their jobs, exceeding the cutbacks General Motors Co. announced last week, according to Morgan Stanley. Ford has yet to detail its job cuts, but Morgan Stanley analyst Adam Jonas predicts they could be larger than GM’s in a note to investors. 'We estimate a large portion of Ford’s restructuring actions will be focused on Ford Europe, a business we currently value at negative $7 billion,' Jonas wrote. 'But we also expect a significant restructuring effort in North America, involving significant numbers of both salaried and hourly UAW and CAW workers.' Ford’s 70,000 salaried employees have been told they face unspecified job losses by the middle of next year as the automaker works through an 'organizational redesign' aimed at creating a white-collar workforce 'designed for speed.'"
Fiat Chrysler went all-in on trucks and it's paying off. Bloomberg's Gabrielle Coppola , David Welch , and Keith Naughton: "Fiat Chrysler Automobiles NV was first with a plan to cull its car lineup. A week after General Motors Co. followed suit and sounded a death knell for many of its sedans, the merits of this move are coming into clearer focus. Fiat Chrysler’s 17 percent jump in November U.S. deliveries led a better-than-expected month for the industry ... and it’s easy to see Fiat Chrysler’s strategy of focusing on light trucks is paying off."
Kudlow, meanwhile, says the administration is looking to eliminate subsides for all electric vehicles.
— Amazon becomes Wall Street's most valuable company — but only for a few seconds. Noel Randewich at Reuters: "Amazon.com briefly became the most valuable company on Wall Street in intraday trade on Monday, days after Microsoft Corp dethroned long-time leader Apple Inc. ... Amazon’s lead lasted only a few seconds. At the close, Apple was back on top with a 3.49 percent increase in its stock that put its total value at $877 billion."
— Marriott should pay for new passports compromised by data breach, Schumer says. The Post's Taylor Telford: "Sen. Charles E. Schumer (D-N.Y.) is calling on Marriott International to cover the $110 cost of replacing passports for consumers impacted by the breach of the hotel giant’s Starwood systems, which compromised the personal information of as many as 500 million guest accounts. Of the bevy of personal data mined by the hackers — which included mailing and email addresses, flight information, phone numbers and birth dates, among other things — passport numbers might be the most troubling. ... On Friday, the company said in a release that a “smaller subset” — up to 327 million customers — may have seen their passport numbers stolen."
— 'The Pence Effect' hits Wall Street. Bloomberg's Gillian Tan and Katia Porzecanski: "No more dinners with female colleagues. Don’t sit next to them on flights. Book hotel rooms on different floors. Avoid one-on-one meetings. In fact, as a wealth adviser put it, just hiring a woman these days is 'an unknown risk.' What if she took something he said the wrong way? Across Wall Street, men are adopting controversial strategies for the #MeToo era and, in the process, making life even harder for women.
"Call it the Pence Effect, after U.S. Vice President Mike Pence, who has said he avoids dining alone with any woman other than his wife. In finance, the overarching impact can be, in essence, gender segregation... The upshot is forceful on Wall Street, where women are scarce in the upper ranks. The industry has also long nurtured a culture that keeps harassment complaints out of the courts and public eye, and has so far avoided a mega-scandal like the one that has engulfed Harvey Weinstein."
— Congress moves to avert shutdown. The Post's Erica Werner: "Congressional leaders and White House officials agreed Monday to extend a government funding deadline by two weeks, until Dec. 21, setting up the possibility of a shutdown showdown just ahead of Christmas. The decision, confirmed by aides involved in the talks, was made because of the observances surrounding the death of former president George H.W. Bush. The former president will lie in state in the Capitol Rotunda ahead of a service at Washington National Cathedral on Wednesday. The House has canceled all votes for this week.
"The current deadline is midnight on Friday, Dec. 7. The House and Senate are expected to approve the new deadline at some point this week. That could be done in the House by unanimous consent, without lawmakers present to vote."
— Otting warns on leveraged debt. Reuters's Pete Schroeder: "A U.S. bank regulator believes that banks should be increasingly aware of activity in the leveraged lending market, cautioning rapid growth in that sector by nonbanks could pose future risks to the financial sector. The U.S. Office of the Comptroller of the Currency highlighted loans to highly-indebted companies in its semiannual risk report issued on Monday. While lending by banks in that sector does not seem exceedingly risky, the OCC cautioned near-record issuance in that sector, driven by nonbanks like private equity firms and hedge funds, merits closer attention."
— CFPB name change could cost $300 million. The Hill's Sylvan Lane: "Changing the name of the Consumer Financial Protection Bureau (CFPB) could cost the businesses it regulates more than $300 million, according to an internal agency analysis obtained by The Hill. Banks, lenders and other financial services firms subject to CFPB supervision could be required to spend millions of dollars if the agency goes through with a rebranding proposal from acting Director Mick Mulvaney... A name change would cost the agency between $9 million and $19 million, by updating internal materials and its website, according to the analysis. The CFPB is funded through the Federal Reserve system, with fees paid by U.S. banks."
— New York state probes small-biz lending abuse. Bloomberg's Zeke Faux and Zachary Mider: "New York’s attorney general has opened an investigation into potential abuses by finance firms that offer quick money to small businesses nationwide, according to a person familiar with the probe. Attorney General Barbara Underwood’s office is looking into whether merchant cash-advance companies engaged in fraud or abused the state court system, said the person, who spoke on the condition of anonymity. Last week the office subpoenaed one of the largest cash-advance companies, Yellowstone Capital LLC, the person said."
Per Deutsche Bank chief international economist Torsten Slok, the 1 percent have seen higher income growth since the 1980s:
- The Hamilton Project at the Brookings Institution hosts an event on “policy options to promote employment” on Thursday in Washington.
- Senate Banking Committee hearing on “oversight of the U.S. Securities and Exchange Commission” on Dec. 11.
— From The New Yorker's Roz Chast:
How a mussel farm off the California coast could be the agricultural future
Man mistakes fake Clark Griswold decoration for real man hanging from roof
Mexico puts the president's luxury jet up for sale