THE TICKER

President Trump’s favored gauge for the health of U.S. trade is veering hard in the wrong direction. 

The country’s trade deficit reached a 10-year high in October, the Commerce Department reported Thursday. The U.S. bilateral trade deficit with China also reached a monthly record, rising 7.1 percent to $43.1 billion. 

Trump has been calling out that gap since the campaign trail as a sign that China is taking advantage of the United States. Never mind that a trade deficit doesn’t mean, as Trump argues, that the United States is losing money to China — rather, simply, that Americans are buying more from the Chinese than the Chinese are buying from Americans.

But the trade war Trump is pushing in part to narrow the difference is making it worse, for the time being at least. Key exports such as soybeans continued to drop as a result of retaliatory Chinese tariffs on the crop. At the same time, imports rose, a development attributable at least in part to American businesses stockpiling Chinese goods ahead of the holidays and a dramatic increase in the tariff rate that was scheduled to bite on Jan. 1. (Americans are also in a buying mood, following Trump’s tax cuts.)

“Pumping up domestic demand with fiscal easing and picking fights with trading partners does that,” Pantheon Macroeconomics chief economist Ian Shepherdson wrote in a Thursday morning note to clients. The broader trade deficit increased 1.7 percent to $55.5 billion, its highest level since October 2008, and it has widened for five straight months. It has risen 11.4  percent since October 2017.

Top Trump trade adviser Peter Navarro, in a Thursday night interview on CNN’s “"Erin Burnett OutFront,” said Beijing is purposefully driving up the deficit — and that is “precisely why it will be difficult to trust them when it comes time to sign any kind of deal.” He said the Chinese have artificially deflated the value of their currency and pushed their exports to counteract the administration’s tariffs. And while it will take some time, he said, “we will see structurally that deficit begin to come down.”

In the meantime, lower-income earners are bearing a disproportionate burden from the tariffs, according to a study out this week from the Tax Foundation.

It found the Trump administration’s tariffs amount to $42 billion in new taxes. In the long run, they would sap .33 percent from the after-tax income of the lowest quintile, compared to a .23 percent reduction for the top 1 percent of earners. 

Roughly half the goods coming in from China now face import duties. And while the Trump administration initially tried to minimize the direct impact on consumers, American shoppers now face higher prices on everything from fruit juice to suitcases and furniture. 

“As it relates to how goods flowing out of China come into other markets including the United States, it creates uncertainty as it relates to pricing. It causes us to start thinking about where we want to source goods from,” Walmart CEO Doug McMillon told CNBC in a Thursday interview.

“We buy more merchandise made in the USA here by far than we do anywhere else. But China is second on that list. So we worry about next spring, next summer, next fall, what customers will have to pay if tariffs do escalate… So far we’ve been able to manage it. We try to go up as little as we can and as late as we can for customers but there are some categories where over time this will show up.”

Tariffs are continuing to drive up prices through the economy, according to the Fed’s latest Beige Book, out Wednesday. “Most Districts reported that firms remained positive; however, optimism has waned in some as contacts cited increased uncertainty from impacts of tariffs, rising interest rates, and labor market constraints,” the Fed said. “Reports of tariff-induced cost increases have spread more broadly from manufacturers and contractors to retailers and restaurants.”

— Strong jobs report expected. The Post’s Danielle Paquette: “Even in the face of economic curveballs — trade tensions, jittery markets, hurricanes — hiring has remained strong as 2018 wraps up: American employers have added more than 200,000 jobs in four of the past six months. Analysts predict that payroll growth in 2018 is on track to beat the previous year’s average monthly gains of 182,000 positions and could surpass 2016’s particularly solid levels (195,000). ‘Most measures of the U.S. economy have been holding up quite nicely,’ said Mark Hamrick, senior economic analyst at Bankrate, a personal finance website. ‘The question is: How much slowing is there on the horizon?’”

MARKET MOVERS

Powell eyes wait-and-see approach to hikes. WSJ's Nick Timiraos: "Federal Reserve officials are considering whether to signal a new wait-and-see approach after a likely interest-rate increase at their meeting in December, which could slow down the pace of rate increases next year. Officials still think the broad direction of short-term interest rates will be higher in 2019, according to recent interviews and public statements.

"But as they push up their benchmark, they are becoming less sure how fast they will need to act or how far they will need to go, and they want to assess how the economy is holding up under moves they have already made. How they manage this new, less-predictable approach will depend in large part on the performance of the economy and markets in the weeks ahead."

The report helped stem losses in a wild day of trading. Stocks sold off sharply in part on investor angst about prospects for U.S.-China trade talks after the arrest of Huawei's chief financial officer, "coupled with omens of a recession in the bond market and a steep drop in oil prices. It was a nerve-racking ride down: 500 stocks had hit new 52-week lows by 11:30 a.m.," The Washington Post's Taylor Telford writes.

"At its low, the Dow Jones industrial average had fallen 784 points, or 3.1 percent. By the final hour of trading, it had clawed its way back and closed the day down 79 points, or 0.3 percent, at 24,947.67. In a tremendous late-day rally, the tech-heavy Nasdaq composite index pulled into positive territory, ending up 0.4 percent. And the Standard & Poor’s 500-stock index came back to finish down just 0.2 percent."

Bostic: Interest rates are ‘within shouting distance of neutral.’ CNBC's Jeff Cox: “Atlanta Fed President Raphael Bostic said the central bank may not have to go much further with interest rates to achieve a proper balance between slowing and overheating. Addressing the key concept of where a 'neutral' rate is for the economy, Bostic said the exact rate is hard to determine, but signs are indicating that it’s close."

— OPEC delays oil output decision pending Russia talks. AP's Kiyoko Metzler and Carlo Piovano: “OPEC countries hoping to support the price of oil put off their decision Thursday on how much to reduce oil production until they negotiate with ally Russia on Friday on how much it will contribute to the cut. Some saw it as a sign that the group of oil-producing nations may not have the political unity to rein in supply and is suffering under political pressure from [Trump] to not push prices up again. Others interpreted it as a tactic to get Russia to agree to big cuts as well.

"The price of oil has fallen about 25 percent because major producers — including the U.S. — are pumping oil at high rates. It fell further on Thursday after OPEC’s lack of action and amid broader concerns about global economic growth.”

The U.S. is a net oil exporter for the first time in 75 years. Bloomberg's Javier Blas: “America turned into a net oil exporter last week, breaking 75 years of continued dependence on foreign oil and marking a pivotal — even if likely brief — moment toward what [Trump] has branded as 'energy independence.' The shift to net exports is the dramatic result of an unprecedented boom in American oil production, with thousands of wells pumping from the Permian region of Texas and New Mexico to the Bakken in North Dakota to the Marcellus in Pennsylvania.... Given the volatility in weekly data, the U.S. will likely remain a small net importer most of the time.”

Business
Pro tip: Save yourself the time and aggravation of trying to figure out why the Dow just slid 500 points
Steven Pearlstein
Faced with a choppy stock market and fears of an economic downturn, Uber and Lyft are moving toward the public markets as other private tech companies also get ready.
NYT
TRUMP TRACKER

TRADE FLY-AROUND:

— China promises prompt action on US trade pact. AP's Joe McDonald: “China’s government said Thursday it will promptly carry out a tariff cease-fire with Washington and is confident they can reach a trade agreement, suggesting Beijing wants to avoid disruptions due to the arrest of a tech executive. Talks during the 90 day period during which [Trump] has agreed to suspend U.S. tariff hikes will start by focusing on farm goods, energy and automobiles . . . 

“Asked to confirm whether Beijing promised to buy American goods immediately, Gao said China will 'immediately implement the consensus reached by the two sides on farm products, cars and energy.' He said nothing about purchases. That optimistic tone contrasted with Chinese criticism of Canada’s arrest of an executive of technology giant Huawei who a Toronto newspaper said is accused by the United States of trying to violate trade curbs on Iran. That suggested President Xi Jinping’s government sees the trade negotiations as too important to disrupt.”

Beijing mulls response to the Huawei arrest. Analysts in Beijing agree the government will attempt to contain the fallout from the arrest to keep it from derailing trade talks, The Post's Anna Fifield reports from there.  But Bloomberg reports Chinese national security officials want to mount a more forceful response. 

What was behind the arrest? NYT's Mark Landler, Edward Wong and Katie Benner: "The timing of the arrest, some experts said, could feed the suspicion of Chinese officials that nationalist factions in the Trump administration were trying to sabotage the trade deal. Their mood had already soured since Saturday, when the White House announced the two sides had agreed to 90 days of talks, amid confusion over the timetable and doubts that the Chinese would agree to the trade concessions described by Mr. Trump... 

"For American officials and the White House, the fact that Mr. Trump went into the meeting without knowing about the arrest raised questions about whether the president was properly briefed before a sensitive meeting with a foreign leader."

CNN reports the view among some administration officials is that Meng could be used as leverage in trade talks. 

U.S. execs in China, beware. China expert Bill Bishop writes in his Sinocism newsletter that American companies operating in China should be bracing for major disruptions anyway. "Any foreign and especially US technology firm that has supply chain reliance on China needs to be deep into planning for reducing that reliance, no matter how hard, painful and expensive such a shift would be. Frankly boards of directors of those firms are negligent at this point if they are not pushing the company to do this planning... 

"I have seen speculation that China may retaliate by arresting a US tech executive. That would certainly be explosive, but I am not sure Beijing would do that without a very clear legal case as it would undermine the massive propaganda campaign the Party has undertaken to portray the PRC as open for foreign business and as the defender of the global trading system. However, if I were a US tech executive I would delay travel to China for a bit or go on a vacation if based there."

World
Britain is likely to find it difficult to forge new trading pacts while still tethered to E.U. rules and regulations.
Karla Adam and William Booth
With so many global companies hoarding supplies ahead of Brexit to shield themselves from border disruptions, some face shortages of storage facilities in parts of the U.K. Makers of perishable food items and pharmaceutical companies are particularly vulnerable to the problem.
WSJ

MELTDOWN WATCH:

POCKET CHANGE

— It’s not looking great for the Justice Department’s appeal of the AT&T-Time Warner merger. The Post's Hamza Shaban: “The Justice Department urged a federal appeals court Thursday to reconsider AT&T’s $85 billion acquisition of Time Warner, arguing that the judge who approved the deal in June misunderstood fundamental economic principles and ignored how AT&T could unfairly extract higher fees from rivals by threatening to black out popular TV channels.

“The Department of Justice delivered oral arguments in its appeal of a lower court decision that handed the agency a major defeat in one of the most closely followed antitrust trials in decades. The blockbuster case — the first time since the Nixon era that the government has gone to court to challenge this type of deal — was seen as a landmark legal dispute because it signaled how regulators and courts might treat mergers between companies that don’t compete with each other.”

— Trump’s tax promise of millions back to the U. S.? Not so far. Bloomberg's Laura Davison: “The amount of offshore cash U.S. corporations have returned home so far this year is just a fraction of what [Trump] had promised. A Morgan Stanley report released Thursday estimates companies brought back from $50 billion to $100 billion in the third quarter — which would bring the total repatriated back to the U.S. to as little as $514 billion, based on previously released figures for the first and second quarters from the Commerce Department. The tax overhaul signed into law by Trump in December gave companies incentives to bring money back to the U.S. by offering a one-time low tax on repatriated profits. Even though companies are less restricted in moving their offshore profits under the U.S. tax overhaul, corporations, in aggregate, are choosing to keep earnings in their foreign subsidiaries.”

— Walmart and Target are pushing the Fed to get them paid faster. WSJ's AnnaMaria Andriotis: “Walmart Inc. and Target Corp. want the Federal Reserve to help them get paid in real time. The retail giants are among the companies urging the Fed to develop a service to settle interbank transfers in real time, 24 hours a day, seven days a week. Such a service could ultimately eliminate the lag between when consumers use debit cards to pay for items and stores receive the funds.

"The Federal Reserve in October announced potential actions to help develop a faster payments system in the U.S., including creating a real-time settlement service. Walmart, Target and trade groups including the National Retail Federation have been in discussions with the Fed regarding faster payments for years . . . Action by the Fed could enable merchants and others to develop faster payment services that allow consumers to pay for items from their checking account without using existing debit-card rails. Potential options include payment services integrated into mobile wallets and merchant smartphone apps with in-store rewards that incentivize shoppers to use them.”

MONEY ON THE HILL

Little hope for a wall deal. The Post's David Nakamura: "Despite [Trump’s] threats to shut down the government this month to win border-wall funding, there appears to be little appetite in Washington for a compromise deal that has been viewed as a potential win for both political parties. Trump and Democratic leaders are rejecting talk of a grand bargain on immigration that would provide $25 billion for the wall at the U.S.-Mexico border in exchange for permanent legal status, and possible citizenship, for up to 1.7 million young undocumented immigrants known as 'dreamers.'"

"That plan was reportedly on the table in January before the White House derailed the talks by insisting on additional concessions, including slashing legal immigration and speeding up deportations. Asked by reporters Thursday whether House Democrats would be interested in the original deal, possible incoming Speaker Nancy Pelosi (Calif.) bluntly replied: 'No.' The wall money and the dreamers 'are two different subjects,' she said."

One incoming House Democratic freshman didn't appreciate Gary Cohn's talk at member orientation. Rashida Tlaib, a newly elected lawmaker from Detroit,  dismissed an apparent warning from the former top Trump economic adviser and Goldman Sachs president (whom she misidentified as the bank's former CEO): 

Fact Checker
The senator from Ohio said GM's tax rate would be cut in half if it moved its Lordstown plant to Mexico. That's open to interpretation.
Glenn Kessler
OPINIONS
THE REGULATORS

Kraninger confirmed to CFPB. The Post's Renae Merle: "The Senate on Thursday confirmed President Trump’s nominee to lead the Consumer Financial Protection Bureau, ushering in business-friendly leadership for a polarizing watchdog agency long detested by Republicans and the banking industry. The chamber voted 50 to 49, along party lines, in favor of Kathy Kraninger’s nomination.

"Kraninger will replace the bureau’s acting director, Mick Mulvaney, who is also the White House budget chief and Kraninger’s current boss. Her nomination took much of Washington by surprise. Kraninger, the associate director of general government at the Office of Management and Budget, has no experience in consumer finance but now will become one of the country’s most powerful banking regulators."

From Sen. Elizabeth Warren (D-Mass.), who hatched the idea for the bureau before running for office: 

From Richard Cordray, whom President Obama appointed as the CFPB's first director: 

SEC will rein in proxy advisers. WSJ's Gabriel Rubin: "Securities regulators will consider a series of changes to curb the impact of consultants who advise on shareholder votes at public companies, Securities and Exchange Commission Chairman Jay Clayton said Thursday, responding to business groups who have argued they wield outsize influence. The SEC will consider whether to impose new disclosure requirements for such so-called proxy advisers, who make recommendations to institutional investors about issues such as executive pay and environmental initiatives... Reining in proxy advisers has been a priority of corporate groups like the U.S. Chamber of Commerce, which took out advertisements earlier this year in major newspapers urging the SEC to limit their influence."

CHART TOPPER

Comparing the Trump stock market. One sign the stock market hasn't performed well in recent weeks: Trump hasn't tweeted about it since Nov. 12. Over the course of his presidency, the market's climb ranks somewhere in the middle of the pack, relative to his predecessors, as this Yahoo Finance chart demonstrates. 

DAYBOOK

Coming soon:

THE FUNNIES

The New Yorker's Liana Finck

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BULL SESSION

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