In its confrontation with China, the Trump administration is proving it’s possible to seek a trade peace while escalating a trade war.
President Trump himself is talking up progress. He prompted a short-lived market rally Tuesday morning with a tweet teasing a breakthrough with Beijing. Later, in an interview with Reuters, he said he is willing to consider intervening in the arrest of Huawei Chief Financial Officer Meng Wanzhou if it would help seal a trade deal without compromising national security. (The offer undermined his top lieutenants, who have insisted since Meng’s arrest became public that the case has nothing to do with the broader trade showdown.)
But his administration is moving on multiple fronts to impose new pain on the Chinese.
Just this week, the Trump team is “preparing a series of actions” to target “what it says are China’s continued efforts to steal America’s trade secrets and advanced technologies and compromise sensitive government and corporate computers,” The Washington Post’s Ellen Nakashima and David Lynch report. The administration is also advancing a push to choke off technology exports to China that it deems a national security risk, per Bloomberg News. And the Securities and Exchange Commission is renewing a more than decade-old fight over its access to the books of Chinese companies that trade on American stock exchanges — a development it says is unrelated to the trade confrontation.
The two-track approach suggests an emerging good cop, bad cop strategy -- with Trump, who touts a warm personal relationship with Chinese President Xi Jinping, playing pacifier as his administration ratchets up the stakes.
“Nearly every factual data point since the G-20 has been a net-negative on the U.S.-China conflict — except for the Tweets,” Cowen Washington Research Group’s Chris Krueger wrote in a midday research note, suggesting Trump is hoping to contain stock market damage from more discouraging headlines.
The Chinese look to be trying to ease tensions by pledging to buy more American soybeans and other products while reducing tariffs on American cars to the 15 percent rate they faced before the trade war’s eruption. Chinese Vice Premier Liu He announced those concessions in a Monday night conference call with Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer, the Wall Street Journal’s Bob Davis and Lingling Wei report.
The administration’s complaints with Beijing run deeper than cars and produce, though. Indeed, Nakashima and Lynch write, the Trump team is seeking nothing less than to “dismantle China’s state-led economic model.” They characterize the coming announcements as a “a major broadside against China over its mounting aggression against the West” that demonstrates the limits of the temporary truce that Trump and Xi reached on the sidelines of the G-20 summit in Buenos Aires earlier this month.
Per the Post reporting, multiple agencies are set to condemn Chinese violations of a 2015 pact banning hacking for commercial gain. “In perhaps the most significant move, the Justice Department is expected to announce the indictments of multiple hackers suspected of working for a Chinese intelligence service and participating in a long-running espionage campaign that targeted U.S. networks,” they write. “Along with that, the administration is planning to declassify intelligence relating to the breaches, which date to 2014, and to sanction some of those believed responsible, according to people familiar with the plans.”
In a vivid demonstration of the ongoing nature of the breaches, the New York Times reports the Chinese Ministry of State Security ordered the cyberattack on Marriott Hotels discovered this fall that exposed the personal information of some 500 million guests. “The hack of Marriott’s Starwood chain, which was only discovered in September and revealed late last month, is not expected to be part of the coming indictments,” the Times reports. “But two of the government officials said it has added urgency to the administration’s crackdown, given that Marriott is the top hotel provider for United States government and military personnel.”
Trump, in his Tuesday interview with Reuters, said Huawei’s Meng could be released. “Well, it’s possible that a lot of different things could happen. It’s also possible it will be a part of negotiations. But we’ll speak to the Justice Department, we’ll speak to them, we’ll get a lot of people involved,” he said. Of the allegations that the company has committed fraud and violated U.S. sanctions on Iran, he added, “This has been a big problem that we’ve had in so many different ways with so many companies from China and from other places.”
Secretary of State Mike Pompeo better reflected the attitude of the rest of Trump’s administration when he identified China as the greatest threat to the West in a Monday interview with conservative radio host Hugh Hewitt. “Over the five, ten, twenty-five year time horizon, just by simple demographics and wealth, as well as by the internal system in that country,” Pompeo said, “China presents the greatest challenge that the United States will face in the medium to long term.”
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— BREAKING: Theresa May faces no confidence vote. The Post's William Booth and Karla Adam: "Lawmakers in Britain’s Conservative Party on Wednesday triggered a 'no confidence' vote against Prime Minister Theresa May, threatening her leadership as she struggles to secure a deal for Britain to leave the European Union. May quickly responded that she would not resign but would defend her vision for Brexit. She warned the rebellious lawmakers that ousting her will not make getting a Brexit deal any easier, and instead will bring delay and confusion. 'I will contest that vote with everything I’ve got,' said May, speaking outside of Downing Street. 'I stand ready to finish the job.'
"Removing and replacing the prime minister would take weeks. Changing leaders now, May warned, would 'put our country's future at risk and create uncertainty when we can least afford it.' The vote over the prime minister’s fate will take place Wednesday evening... The looming no confidence vote throws May’s Brexit deal and Britain’s future relationship with Europe into chaos."
Currency traders are betting May survives. The pound is rallying.
— More market whiplash. CNBC's Fred Imbert: "The Dow Jones Industrial Average closed lower on Tuesday after alternating between gains and losses throughout the session in the latest bout of market volatility. The 30-stock Dow fell 53.02 points to 24,370.24. At its high of the day, the Dow rose as much as 368 points. It also fell as much as 202 points. The S&P 500 also slipped to close at 2,636.78 while the Nasdaq Composite rose 0.16 percent to 7,031.83. Stocks initially rose more than 1 percent across the board amid signs that U.S.-China trade relations could be improving."
Trump drove much of the action. The Post's Thomas Heath: "At lunchtime, during a tempestuous live broadcast of a White House meeting, [Trump] told Democratic congressional leaders Nancy Pelosi and Charles E. Schumer that he would shut down the government if he does not get $5 billion in funding to pay for partial construction of a wall along the southern U.S. border. In the course of the meeting, stocks swung into the red. The Dow sank more than 150 points in minutes."
Market swings are coming faster than any time since 2011, per Bloomberg's Lu Wang: "So far, there have been six days this quarter when stocks completely reversed an intraday move of at least 1 percent, the most since 2011, when Standard & Poor’s downgraded the U.S. sovereign rating, sending stocks to the brink of a bear market.
GE shares on Tuesday touched $6.66, an ominous price that happened to be the stock's low during the financial crisis, per CNBC.
— Investors aren't scared of the corporate debt bubble. Jeff Cox at CNBC: "The corporate debt scaring policy experts like former Fed Chair Janet Yellen isn't throwing too much of a fright into market participants. In fact, some of them are continuing to load up on lower-grade corporate debt because it's managed to be a better performer than some of the investments considered to be safer. ...
"BBB-rated companies are outperforming their A-rated counterparts. BBB is the last rung before junk, and the increasing level of company bonds going to that level is causing concern. Some investors worry that the companies whose debt is in danger of slipping into high-yield territory will have trouble meeting their obligations during the next economic downturn."
— IMF warns of looming financial crisis. The Guardian's Richard Partington: "The storm clouds of the next global financial crisis are gathering despite the world financial system being unprepared for another downturn, the deputy head of the International Monetary Fund has warned. David Lipton, the first deputy managing director of the IMF, said that ‘crisis prevention is incomplete’ more than a decade on from the last meltdown in the global banking system. ‘As we have put it, “fix the roof while the sun shines.” But, like many of you, I see storm clouds building and fear the work on crisis prevention is incomplete.’
“Lipton said individual nation states alone would lack the firepower to combat the next recession, while calling on governments to work together to tackle the issues that could spark another crash.”
— Another arrest stokes the China-Canada feud. Bloomberg's Josh Wingrove and Greg Quinn: "A former Canadian diplomat has been detained in — a potentially explosive development in the aftermath of the arrest of a top Huawei Technologies Co. executive in Vancouver. The ex-diplomat, Michael Kovrig, who works now with the International Crisis Group, was reported detained in China Tuesday. Prime Minister Justin Trudeau’s government responded to questions about his case by confirming a Canadian had been arrested, though stopped short of identifying him. His employer said it was seeking more information. ...
"It remains to be seen if Kovrig’s detention is linked to Canada’s arrest of Huawei Chief Financial Officer Meng Wanzhou this month; [Canadian officials] said there is 'no explicit indication of that at this point.' The Chinese executive’s bail hearing is midway through its third day in Vancouver. The situation adds to a brewing feud between China and Canada, which detained Meng after a request from U.S. authorities. Chinese officials have expressed outrage over her arrest and observers have warned about the risk of retaliation."
— Lighthizer has doubts about NAFTA withdrawal. Politico's Adam Behsudi: "Lighthizer has signaled to lawmakers doubts about the effectiveness of [Trump’s] threat to withdraw from NAFTA as a way to force a divided Congress to vote on a new trade agreement with Canada and Mexico. In recent discussions with Democratic lawmakers, Lighthizer indicated he is not necessarily supportive of that tactic and is instead committed to a constructive dialogue for getting the deal passed in Congress next year, according to sources on Capitol Hill with knowledge of recent meetings. Lighthizer made clear in one recent conversation with a Democratic lawmaker that the White House would be making the decision to potentially withdraw from NAFTA on its own, said one source familiar with the exchange."
- "Manafort may not contest Mueller’s lying charges." Politico's Darren Samuelsohn.
“Trump says ‘the people would revolt’ if he were impeached.” The Post’s Deanna Paul.
- "Judge orders Stormy Daniels to pay Trump $293K in legal fees." The Hill's Avery Anapol.
- "Special counsel Robert Mueller may have more to reveal about ex-Trump campaign boss Paul Manafort's alleged lies." CNBC's Kevin Breuninger.
“Gap continues to widen between Trump and intelligence community on key issues.” The Post’s Greg Miller.
— Not lovin' it. Tom Polansek at Reuters: "McDonald’s Corp said on Tuesday it plans to reduce the use of antibiotics in its global beef supply, fueling projections that other restaurants will follow suit. The move by the world’s biggest fast-food chain addresses concerns that the overuse of antibiotics vital to fighting human infections in farm animals may diminish the drugs’ effectiveness in people. McDonald’s becomes the biggest beef buyer to tackle the issue in cattle, potentially creating a new standard for livestock producers and threatening sales by drug companies such as Merck & Co and Elanco Animal Health."
— Want diversity in the boardroom? Pass a law. Jeff Green at Bloomberg: "Diversity advocates have been trying for two decades to sell the corporate world on gender balance in the boardroom. Maybe they should be lobbying lawmakers instead. A new study ... points out that among countries that average three or more women on large company boards — thought to be the threshold at which diversity starts to yield higher returns — all but one operate under government-mandated quota systems. ...
"In the U.S., big companies have on average 2.5 female directors, and representation has barely increased since 2012 ... There’s no national requirement for having women on the board, though California this year passed a law that will require at least one woman on boards with headquarters in the state by 2019 and three on most of those boards by 2021."
— Dems introduce Trump to divided government. The Post's Philip Rucker, Josh Dawsey and Robert Costa: "In an extraordinarily heated public fight with the nation’s top two Democratic leaders, the combustible president confronted for the first time the enormity of the challenge he will face over the next two years: divided government. House Minority Leader Nancy Pelosi (D-Calif.), the likely next speaker, and Senate Minority Leader Charles E. Schumer (D-N.Y.) called out Trump’s falsehoods. They exposed him as malleable about his promised border wall. They lectured him about the legislative process and reiterated to him that he lacked the votes to secure the $5 billion he seeks for the wall...
And no apparent progress was made — perhaps a harbinger for what lies ahead. 'Unfortunately, this has spiraled downward,' Pelosi interjected midway through the televised meeting."
Trump said he'd be proud to shut down the government if he doesn't get wall funding. The Post's Erica Werner and John Wagner: "If the president follows through on the threat, about 25 percent of the federal government would begin to run out of money on Dec. 21, putting hundreds of thousands of federal workers at risk of getting furloughed without pay just before Christmas."
— Fed, big banks clash on payments. Politico's Victoria Guida: "The Federal Reserve, in an effort to speed up paychecks, rent and other transactions, is floating the idea of building a new infrastructure for faster payments. The nation's big banks are not happy about that. The central bank for years has been talking about achieving the goal of so-called real-time payments, which would allow people to receive money in their bank accounts within 15 seconds after it’s sent to them — lightning speed by today's standards. Consider: The Automated Clearing House network, which handles card payments and direct deposits, settles transactions en masse three times a day, and only during business hours.
"To try to make faster payments a reality, the Fed in October asked for input on whether it should build a new system that could allow individual payments to settle in real time, any time of day and any day of the year; comments are due Friday. But the Clearing House Payments Co., whose members are large banks, last year launched its own real-time payments system and says a Fed alternative could bog down its effort to make that system available to all U.S. financial institutions."
- Brookings hosts "India and the Indo-Pacific: Trade, aid and security" in New Delhi on Wednesday.
- American Enterprise Institute hosts "Enterprise-driven development: A conversation with US Agency for International Development Administrator Mark Green" in Washington on Wednesday.
- The Carnegie Endowment for International Peace hosts "How Can U.S. Foreign Policymakers Do Better for the Middle Class?" in Washington on Thursday.
- The Wilson Center hosts "Electricity Market Reforms in Ukraine: Challenges and Opportunities" in Washington on Friday.
— From The New Yorker's Jason Adam Katzenstein:
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