A few shafts of light seemed to pierce the gathering gloom of President Trump’s trade offensive on Wednesday.
On several critical fronts, the administration looked to be ratcheting back tensions. Treasury Secretary Steven Mnuchin said Trump’s trade team probably would return to Beijing soon to continue negotiations. He said negotiators are also close to reaching a deal with Canada and Mexico that would lift steel and aluminum tariffs the administration imposed a year ago. And the president, several outlets reported, would delay for six months a decision on imposing import duties on foreign cars and parts, avoiding a move the auto industry has said would be crippling.
Investors took the developments as a sign that trade peace is primed to break out: Stocks rallied for the second day in a row.
But developments later in the day should dash that nascent optimism — and provide a warning to anyone inclined to conclude the Trump administration wants to wind down its trade fights any time soon.
Trump on Wednesday evening declared a national emergency, via an executive order, to protect American communications networks from espionage by foreign suppliers, a move directed at Chinese telecom giant Huawei. Then the Commerce Department effectively banned the sale of American tech to the company, my colleagues Ellen Nakashima and Josh Dawsey report.
And rather than declare a temporary cease-fire on autos, Trump will give the European Union and Japan six months to agree to limit their imports into the United States, Bloomberg News’s Jenny Leonard and Shawn Donnan report. “According to the order, which people familiar with the matter say Trump is expected to sign this week, the administration has determined that imports of cars into the U.S. present a threat to national security because they have hurt domestic producers and their ability to invest in new technologies,” they write.
The lesson for investors, business owners and everyone else with a stake in the outcome of the trade wars is clear enough: Although Trump may be focused for now on dialing up his confrontation with Beijing, he is still intent on forcing a reckoning with Europe and Japan.
Close observers of Trump’s handling of his trade agenda say his get-tough approach to erstwhile allies and strategic competitors alike should come as no surprise. “Trump loves leverage. So he sees the auto tariffs as a leverage point with the E.U. and also with Japan, primarily for agriculture because the E.U. is refusing to include agriculture in the negotiations,” says Stephen Myrow, managing partner of policy research firm Beacon Policy Advisors. “The protectionism angle is going to be with us indefinitely as long as he’s in office.”
In a note this week, Chris Krueger of Cowen Research Group reached the same conclusion about Trump’s attitude toward auto tariffs. “There is a strong belief in the Administration that the only reason USMCA was signed and that the Chinese are negotiating is because tariffs were not only threatened, but imposed,” he writes. “The general idea is in order for Japan and EU negotiators to open up agricultural markets to U.S. farmers, auto (and auto parts) tariffs will be required.”
And even before Trump’s executive order on autos, industry sources responded tepidly to the news of the tariff postponement. “Manufactures and suppliers do best when there’s certainty in the economic environment. And these continued negotiations, with the cloud of not having agreement on what we’re negotiating, just extends the uncertainty,” said Anne Wilson, a top lobbyist for the Motor & Equipment Manufacturers Association. “This will lead to loss of jobs and loss of investment in the U.S.”
Or as the Alliance of Automobile Manufacturers put it in a Wednesday statement, “The case remains clear — cars are not a national security threat. We are deeply concerned that the administration continues to consider imposing auto tariffs.”
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— Hope for USMCA: "[Trump’s] flailing domestic agenda received a spark of life on Wednesday, with top lawmakers in both parties expressing new hope that the president’s North American trade pact could be ratified by Congress this year," Politico's Heather Caygle, Burgess Everett and Sabrina Rodriguez report. "Key officials negotiating the deal with Mexico and Canada are working both sides of the Capitol in an effort to ease concerns not only over the provisions of the pact but Trump’s ongoing tariff war with Mexico, Canada, Europe and China."
- Even Pelosi might be changing her tune: "Speaker Nancy Pelosi and her leadership team were upbeat about the U.S.-Mexico-Canada Agreement as they left a meeting with Robert Lighthizer, Trump’s top trade official, saying he finally seemed to take heed of their demands to modify the trade deal after weeks of the two sides mostly talking past each other."
- But as Caygle, Everett and Rodriguez point out, "whether Pelosi is ultimately willing to give Trump a huge bipartisan accomplishment to run on in 2020 is unclear, and her caucus’ left flank is almost certain to oppose the trade deal on its merits."
— Xi speaks, brushes back critiques of Chinese culture. Chinese President Xi Jinping repeated his rallying cry about his nation's culture on Wednesday, continuing his call “on Asian countries to stand together with self-confidence and promote their culture as the world becomes 'multipolar,' my colleague Gerry Shih reports from Beijing. “Wednesday’s conference came weeks after a top State Department official drew heavy criticism from within U.S. policy circles and from China for remarks casting U.S. competition with China as a cultural and racial clash.”
- “We’re moving toward a multipolar world, economic globalization, cultural diversity, social digitization — human society is full of hope,'" Xi said in a lofty speech that presented China as a peaceful leader, but also a humble peer, on a continent full of soaring civilizations and rich histories.”
Addressing the “clash of civilizations”: “There is no clash between different civilizations,” Xi said. “We just need to have an eye to appreciate each civilization.”
— Alibaba reports slower growth. Chinese e-commerce giant Alibaba “appears to be feeling the effects of China’s economic slowdown and the trade war with the United States,” the New York Times’s Raymond Zhong reports. “[Alibaba] Group said on Wednesday that revenue increased by 51 percent in the March quarter from the same period last year. That topped Wall Street’s expectations, and was a pickup from the quarter before. But it was still the company’s second-slowest pace of revenue expansion since early 2016.”
“Alibaba’s enormous size makes the company a closely watched bellwether for consumer and business sentiment in China, even if it’s an obstacle to finding new ways to make money.”
— North Carolina sues Juul: “North Carolina Attorney General Joshua Stein filed a lawsuit Wednesday against popular e-cigarette maker Juul Labs, making it the first state to take legal action against the company,” my colleague Deanna Paul reports. “The suit, filed in state court, alleges that Juul caused addiction in consumers by “deceptively downplaying the potency and danger of the nicotine” and employed advertising campaigns that targeted people under the legal smoking age.”
— The Met turns down Sackler money: “The Metropolitan Museum of Art said on Wednesday that it would stop accepting gifts from members of the Sackler family linked to OxyContin, severing ties between one of the world’s most prestigious museums and one of its most prolific philanthropic dynasties,” the Times’s Elizabeth A. Harris reports.
“The decision was months in the making, and followed steps by other museums, including the Tate Modern in London and the Solomon R. Guggenheim Museum in New York, to distance themselves from the family behind Purdue Pharma, the maker of OxyContin.”
— Former Bush NEC director dishes on China's view of Trump: “President George W. Bush’s National Economic Council director [Larry Lindsey], spoke Tuesday separately to both the elected House GOP leadership and top committee Republicans, and his presentation about China and trade turned a lot of heads, according to multiple people who were in both meetings,” Politico's Anna Palmer, Jake Sherman, Daniel Lippman, Eli Okun and Garrett Ross report. “China views [Trump] as a 'total narcissist' — 'a 10-out-of-10 narcissist,' he said. Lindsey attributed this to the president’s upbringing and said his mother didn’t pay him adequate attention in childhood.”
"[Lindsey] said Trump has no long-term plans or ability to think ahead. He said the president has the long-term decision-making ability of an 'empty chair.' "
My colleague Josh Dawsey reports this nugget on the Trump-Lindsey nexus:
In a March Roosevelt Room meeting on trade with Republican lawmakers, Trump praised Lindsey and suggested he might be a good pick for the Federal Reserve. https://t.co/2ogxrX0DTk— Josh Dawsey (@jdawsey1) May 15, 2019
— Warren slams Treasury official over Wells Fargo. Sen. Elizabeth Warren (D-Mass.) has lashed out at Wells Fargo for more than two years. On Wednesday, she “turned her ire on one of the San Francisco bank’s main regulators, the Office of the Comptroller of the Currency, which provides day-to-day oversight of large national banks,” my colleague Renae Merle reports. “Wells Fargo is conducting a nationwide search for a new chief executive — its third in three years — and Warren wanted to know whether the OCC would exercise its 'veto' power over the bank’s choice. It would, agency head Joseph Otting told Warren during a Senate Banking Committee hearing.”
“Things went awry when Warren asked Otting to share the results of the OCC’s review of Wells Fargo chief executive candidates. Otting declined, saying it would be confidential and his ‘prerogative” to keep it that way.’ ”
Then came the key exchange: “Warren told Otting that the OCC had repeatedly 'ducked' its oversight responsibilities,” Renae writes.
- Otting: “No one has been more tougher on Wells Fargo than myself. No one has been more outspoken.”
- Warren: “You mean at the OCC? That’s a low bar.”
- Otting: “I would disagree with that. I find it insulting that you would make that comment.”
- Warren: “Good. People all across this country were scammed and squeezed by Wells Fargo . . . and the OCC never uttered a peep about the executives who were leading this.”
— Mnuchin says Trump tax fight will be settled in court. “Mnuchin testified before a Senate Appropriations subcommittee that he and his department had not yet made a formal decision on whether to comply with the subpoenas for six years of Trump’s tax returns,” CNBC’s Kevin Breuninger reports. “But he added that lawmakers can probably 'guess which way we’re leaning.'”
- Key quote: “I know there’s a lot of interest on both sides” of the issue, Mnuchin said. But where there’s a dispute between the executive and legislative branches of government, “I think it’s better that we have the court’s interpretation,” he said, rather than “establish a precedent that is weaponizing the IRS.”
— Phil Swagel to head CBO. WSJ's Kate Davidson and Kristina Peterson: "Congressional leaders have chosen Phillip Swagel, a top Treasury Department economist during the George W. Bush administration, as the next director of the Congressional Budget Office, the chairmen of the Senate and House Budget Committees said Wednesday... Mr. Swagel, who served as assistant Treasury secretary for economic policy from 2006 to 2009, will succeed Keith Hall starting June 3."
— CFPB official leaves under fire. Bloomberg Law's Evan Weinberger: "A Consumer Financial Protection Bureau political employee who drew fire for racist blog posts is leaving the bureau, according to an email obtained by Bloomberg Law. Eric Blankenstein, a policy associate director overseeing the CFPB’s supervision and enforcement division, will depart the CFPB for a new job on May 31, according to the internal email sent May 15.
"Blankenstein, who was put into that position by former acting Director Mick Mulvaney, faced criticism from consumer advocates, Democratic lawmakers and even some CFPB colleagues after pseudonymous blog posts he wrote in 2004 emerged last year. Those blog posts included claims that most hate crimes reported by minorities were hoaxes and questioning whether using the 'n-word' was racist."
- Walmart reports its earnings, per Kiplinger.
- The House Oversight and Reform Committee Subcommittee on Economic and Consumer Policy holds a hearing on the Consumer Financial Protection Bureau’s “role in empowering predatory lenders."
- The Brookings Institution and the Washington Center for Equitable Growth host a joint event on preparing for the next recession.
- The National Economists Club holds an event with Intel’s chief economist.
- The House Ways and Means Committee’s subpoenas for Mnuchin and IRS Commissioner Charles Rettig to produce Trump’s tax returns and audit reports require a response by Friday.
- The University of Michigan releases its latest survey of consumer sentiment on Friday.
What Trump gets wrong about the trade war with China:
Point for the senator from California: