THE TICKER

In yesterday's newsletter, we took a closer look at how struggling rural communities, defying the national economic bounce, could complicate President Trump’s reelection bid. 

But there’s another pillar of Trump’s base — the auto industry, which he promised to transform into the engine of a manufacturing revival — that is stalling at an inopportune moment for the president. 

Layoffs in the industry this year are at their highest since the economic crisis a decade ago — up to 19,802 through April, a dramatic rise over the 6,451 cuts through the same period last year, according to executive search firm Challenger, Gray and Christmas: 

The job cuts in the auto sector form part of a broader picture of industries chopping their workforces in the face of new pressure from the Trump administration’s trade wars. Employees in the industrial goods and retail sectors are also feeling the pain:  

And analysts expect the auto industry downturn to get worse before it gets better. John Murphy, who covers the sector for Bank of America Merrill Lynch, says the auto cycle has peaked, and he sees sales hitting a “trough” next year, according to a recent research note from the bank. That could mean more layoffs.

And that would run counter to Trump's overall message that he is putting American workers first in an effort to create a manufacturing renaissance over a number of industries.

Trump has made repeated pledges, starting in the 2016 campaign, to restore auto manufacturing jobs. He has yet to fulfill the promise. Instead, his tariffs on steel and aluminum imports have raised supply costs for domestic automakers: Ford and GM both reported a $1 billion hit to their 2018 profits, and Fiat Chrysler pegged the damage at $500 million. Trump decided earlier this month to delay for six months a decision on whether to declare foreign auto imports a national security threat and slap 25 percent tariffs on them. A study by the Center for Automotive Research found the tariffs would add $3,700 to the price of foreign cars and $1,900 for domestic ones. 

In the meantime, layoffs in the auto industry are spiking. For example, Ford — which announced last week it will trim a tenth of its salaried workforce, or 7,000 employees worldwide, including 2,800 in the United States, by August — will need to cut an additional 23,000 employees through 2022 to meet its cost-reduction and modernization goals, according to Morgan Stanley analyst Adam Jones. 

Or as industry adviser Jon Gabrielsen put it to Phoebe Wall Howard of the Detroit Free Press: “No one who analyzes the Ford situation believes that 7,000 job cuts remotely scratches the surface of what will be required for Ford’s long-term longevity.”

Trade war pain accounts for only some of the industry’s woes. Bank of America points to a “classic story of demand/supply mismatch” as production has increased amid softening demand. Consumers say prices are too high, and lenders are tightening standards for auto loans.

And while they should boost the long-run profitability of car companies, ongoing investments in automation diminish the need for workers. 

The phenomenon isn’t limited to the United States. “Carmakers are cutting shifts or closing factories altogether across the globe, but the culling goes beyond that,” Bloomberg News reported last week. “Several recent rounds also target salaried workers, reflecting sluggish sales in the world’s two largest auto markets — China and the U.S. — and the pivot auto companies are making toward a future of electric and self-driving vehicles.” Nissan, Honda, Daimler, and Fiat have all announced layoffs beyond the United States over the past two months. Outgoing Daimler CEO Dieter Zetsche last week urged even steeper cuts. 

Back at home, auto industry pain is falling unevenly across the map. In Detroit, in electorally critical Michigan, a spate of recent job and investment announcements in the sector suggest the nation’s car making capital is reemerging as a pocket of strength. Per a Moody’s Investors Service report, Waymo, Google’s self-driving car division, said last month it will lease a factory there and hire up to 400 people; Ford is launching a tech campus by redeveloping the city’s old passenger rail depot, with plans to create 5,000 jobs; and Fiat Chrysler has announced it will invest $2.5 billion at two sites in the city. 

“It’s definitely helpful to have that much larger employment base to offset some declines,” Moody’s Investors Service analyst David Levett says. “In the more limited regional economies, some of these job cuts can have a much more meaningful impact.”

That is, by contrast, in Lordstown, Ohio, where the recently-shuttered GM plant formed the town’s entire economic foundation, the local impact of the industry’s skid is devastating. 

MARKET MOVERS

Trade tensions weigh on stocks. WSJ's Michael Wursthorn and Avantika Chilkoti: "Major U.S. stock indexes fell Tuesday, as the dimming likelihood of an imminent trade deal upended earlier gains and sent investors seeking less risky assets like U.S. government bonds. The Dow Jones Industrial Average swung roughly 375 points from its high to its low before closing down 237.92 points, or 0.9%, to 25347.77. Losses widened among shares of consumer staples, utilities and health-care companies throughout the session, more than offsetting gains from communication stocks to set the Dow up for another tough week after falling for the past five straight."

Flashing red light: Yield curve inverts further. Bloomberg's Liz McCormick: "A key slice of the Treasuries yield curve became the most inverted since 2007, as growing angst over trade friction is overshadowing expectations that the Federal Reserve will cut interest rates by year-end. The gap between three-month and 10-year rates dipped Wednesday to negative 12.3 basis points, breaking past a March level, when it first reached levels last seen in the global financial crisis. The spreads between most other sectors of the curve have narrowed as well. Historically, an inverted curve has been a signal that a recession is looming...

"Global bond yields have resumed their slide after comments from [Trump] further dimmed the prospects of a U.S.-China trade deal and renewed tensions in Europe also damped demand for riskier assets."

TRUMP TRACKER

TRADE FLY-AROUND:

China makes a veiled threat about a key export: “Speculation that China could use its dominance in rare earth minerals as a weapon in the trade war intensified after a Chinese official warned that products made from the materials should not be used against China’s development,” CNBC’s Patti Domm reports. “The comment, reported by CCTV, was taken as a veiled threat aimed at the U.S. and its technology companies that are dependent on the materials.”

“Last week, Chinese President Xi Jinping visited rare earth mining and processing facilities, adding to speculation that China could make the minerals more expensive or unavailable if the trade war continues to expand.”

Trump administration declines to label China a currency manipulator. NYT's Alan Rappeport writes the decision came "despite [Trump’s] repeated complaint that Beijing has weakened the renminbi as a way to take advantage of the United States on trade. The decision to not formally accuse China of manipulating its currency could avoid further escalating tensions between Washington and Beijing... China remains on the Treasury Department’s watch list."

Dimon warns of fallout: “J.P. Morgan Chase CEO Jamie Dimon said that the escalating U.S.-China trade dispute is a 'real issue' that could damage corporate confidence,” CNBC’s Hugh Son reports. ‘Trade has gone from being a skirmish to being far more important than that,’ [Dimon said] ‘If this goes south in a bad way, and you have other surprises, that could be part of the thing that changes confidence, changes peoples’ willingness to invest.’ Dimon... was answering a question about the risks that could end the current economic expansion."

A new front? China's access to Wall Street. NYT's Keith Bradsher and Ana Swanson: "Some trade experts and others urging the Trump administration to keep a hawkish stance are discussing whether the White House should curb China’s access to Wall Street. Chinese companies have raised tens of billions of dollars through American financial markets in recent years.

"Stephen K. Bannon, Mr. Trump’s former chief strategist, said there were continuing efforts inside and outside the administration to rethink China’s role in American stock markets, in part because of a lack of transparency about the ultimate owners of Chinese companies."

Citi: Apple's sales in China could halve. Business Insider's Rebecca Ungarino: "Wall Street's warnings about Apple's business in China are growing louder. The technology giant's iPhone sales could get cut in half during the second part of this year as a direct result of the escalated trade tensions between the US and China, according to a Sunday report from Citi. That view prompted the bank to lower its estimates for iPhone sales in China for the remainder of 2019 and to trim its price target for the second time this year."

National Security
The company can afford to provide such steep discounts in part because it has a silent partner: the Chinese government. And European officials, uncertain of Washington’s true intent, fear that recent security moves might be used as leverage in trade talks with Beijing.
Ellen Nakashima
POCKET CHANGE

Canadian lawmakers fume at Zuckerberg: “Canadian lawmakers fumed on Tuesday when Facebook Inc founder and Chief Executive Mark Zuckerberg snubbed an invitation to Ottawa to testify on privacy and democracy before an international panel, slapping the billionaire with a standing summons,” Reuters’s Steve Scherer reports. “It was the second time in six months Zuckerberg and Facebook’s Chief Operating Office Sheryl Sandberg have failed to show up when invited to address a committee of international lawmakers investigating disinformation, privacy and how to protect democracy.”

—  Arguments in historic opioids trial begin in Oklahoma: "Motivated by greed, Johnson & Johnson and its subsidiaries deliberately flooded the market with prescription painkillers, deceptively promoted them and stood by as the opioid epidemic flourished, lawyers for the state of Oklahoma argued Tuesday, as a trial examining the company’s role in the drug crisis began,” our colleague Lenny Bernstein reports from Norman. "The company countered that its products make up just a tiny portion of the painkillers that have been consumed in Oklahoma, and it said its business — from the poppy farms of Tasmania to its products in U.S. drugstores — is closely regulated by federal and state agencies.”

"The health-care conglomerate’s conduct has emerged as an early test of whether the pharmaceutical industry will be forced to pay billions of dollars to more than 1,600 cities, counties, states, Native American tribes and others across the United States that have sued to recover the costs of coping with the crisis.”

— Nissan tries to find a way forward: “Nissan found out about Renault’s merger talks with Fiat Chrysler just days before they became public, four sources told Reuters, stoking fears at the Japanese carmaker that a deal could further weaken its position in a 20-year alliance with Renault,” Reuters’ Naomi Tajitsu and Norihiko Shirouzu report.

“The plan, which would create the world’s third-largest automaker, raises difficult questions about how Nissan would fit into a radically changed alliance. Renault Chairman Jean-Dominique Senard arrived in Japan on Tuesday to discuss the proposed tie-up — and presumably to try to smooth over ties.”

MacKenzie Bezos pledges to give half her fortune to charity: “MacKenzie Bezos has committed to giving away at least half her estimated $36 billion fortune to charity, joining more than 200 megadonors intent on using their billions to ‘help address society’s most pressing problems’ and promote a culture of philanthropy,’ our colleague Rachel Siegel reports.

“Bezos, a novelist and one of the original forces behind Amazon, announced that she has joined the Giving Pledge, a global initiative whose roster includes Bill Gates, Warren Buffett, Mark Zuckerberg, Michael Bloomberg and Robert F. Smith. The move comes just months after she finalized her divorce from Amazon founder and chief executive Jeff Bezos.” (Jeff Bezos owns The Washington Post)

Trump's son-in-law and senior adviser joins a group that features Credit Suisse CEO Tidjane Thiam, Bank of England Governor Mark Carney and former Google CEO Eric Schmidt. The secretive annual talk fest starts Thursday in Switzerland and runs through Sunday.
CNBC
MONEY ON THE HILL

House subpoenas for Trump's bank records on hold pending appeal. The Post's Renae Merle: "A Manhattan federal judge who rejected a request by [Trump] last week to block congressional subpoenas for his banking records has agreed to put the case on hold while Trump appeals the ruling. Trump and attorneys for the House committees that ordered Deutsche Bank, the president’s biggest creditor, and Capital One to turn over years of the president’s financial information jointly asked Southern District Court Judge Edgardo Ramos to delay enforcement of the subpoenas while an appeal is expedited through the courts. Ramos agreed to the request on Monday."

— Sanders backs policies to dramatically shift corporate power to workers: “Sen. Bernie Sanders (I-Vt.) will push new policies aimed at giving workers a greater ownership stake in companies, moves the 2020 presidential candidate is pitching as a dramatic transfer of power in the U.S. economy,” our colleague Jeff Stein reports.

“Sanders said his campaign is working on a plan to require large businesses to regularly contribute a portion of their stocks to a fund controlled by employees, which would pay out a regular dividend to the workers … Sanders also said he will introduce a plan to force corporations to give workers a share of the seats on their boards of directors. Sen. Elizabeth Warren (D-Mass.), another 2020 presidential candidate, proposed a similar idea last year.”

Biden to attend New York fundraiser with Gov. Andrew Cuomo: “Former Vice President Joe Biden is preparing for a June fundraising blitz in New York, where he will be joined by Gov. Andrew Cuomo and the short seller Jim Chanos, CNBC has learned,” the network’s Brian Schwartz’s reports. “The main event of Biden’s trip will be at Chanos’ home, according to people familiar with the matter. Cuomo will attend and introduce Biden there.”

Federal report: Tax cuts weren't rocket fuel. The Post's Philip Bump: "Analysis released this month by the nonpartisan Congressional Research Service shows that the effects of the tax law have been at best minimal... 'On the whole, the growth effects tend to show a relatively small (if any) first-year effect on the economy,' the report's summary reads in part... Although the economy did grow, the cuts came nowhere close to paying for themselves... Although wages grew, they grew more slowly than GDP... Although money was repatriated from offshore tax shelters, the money doesn’t appear to have been used for investment in expanding the companies.

THE REGULATORS

Mulvaney siezes power at Labor. Bloomberg Law's Ben Penn: "Trump‘s acting chief of staff, Mick Mulvaney, has seized power over the Labor Department’s rulemaking process out of frustration with the pace of deregulation under Labor Secretary Alexander Acosta... Upon arriving at the West Wing in January, Mulvaney instituted a formalized system for settling regulatory policy and timeline disputes between White House assistants and Acosta’s top aides, said people with direct knowledge of the process.

"Conflicts are elevated to Mulvaney for a final decision... Acosta and his staff have been losing these decisions so often that they’ve stopped bothering to appeal, said current and former DOL officials."

DAYBOOK

Note: Both the House and Senate are on recess until June 4.

Today:

  • The Institute of International Finance holds a symposium on digital finance, which will include an appearance by CFTC chairman Christopher Giancarlo.
  • The Washington Trade Association holds an event on how the U.S.-China trade war is affecting global value chains.
  • Dick’s Sporting Goods, Abercrombie & Fitch, Daktronics, are among the notable companies to reports its earnings, per Kiplinger.

Upcoming:

  • Dollar General, Costco, Gap, Dell, Lululemon, Movado Group, Burlington Stores and Game Stop are among the notable companies to reports its earnings on Thursday, per Kiplinger.
  • The Heritage Foundation holds an event on the state of the Chinese economy on Thursday.
  • Big Lots is among the notable companies to report its earnings on Friday, per Kiplinger.
THE FUNNIES

From The Post's Ann Telnaes:

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