THE TICKER

A new North American free trade pact offers what probably is the last flicker of hope for a breakthrough amid gale-force partisan crosswinds in Washington. But people close to the process aren’t necessarily holding their breaths. 

Negotiators from the Trump administration and House Democratic leadership have offered some encouragement to those pushing Congress to ratify the U.S.-Mexico-Canada Agreement (USMCA). The Trump White House has called ratifying the deal, which updates the 25-year-old North American Free Trade Agreement, its top legislative priority.

Earlier this month, the administration removed tariffs on metals imports from Canada and Mexico to smooth a path for the deal. And sources both in favor and opposed to the agreement give U.S. Trade Representative Robert Lighthizer credit for working closely with Democrats to address their concerns. 

Meanwhile, House Democratic leaders are at least acting like they are serious about working through their objections to the current deal. Per Bloomberg News’s Jenny Leonard and Nacha Cattan, a bipartisan team of congressional staffers is expected to travel to Mexico City next week to gather information on recently passed Mexican labor changes — a sticking point for Speaker Nancy Pelosi (D-Calif.) and American labor. 

Yet a this turbulent political moment threatens to sink the whole project. Pelosi remains the linchpin to a deal but relations between her and the president have never been worse.

“Clearly, Speaker Pelosi has the power to bring this to a vote,” says Phil Cox, co-chair of the business-backed Trade Works for America, which formed to promote the pact. 

After a White House meeting on infrastructure melted down last Thursday, the speaker and ther president spent the rest of the day trading insults. Trump suggested the trade deal was too complicated for Pelosi to understand, and the speaker later offered that “when the ‘extremely stable genius’ starts acting more presidential, I’ll be happy to work with him on infrastructure, trade and other issues.” The New York Times's Glenn Thrush and Ana Swanson report that Pelosi is slow-walking negotiations, telling colleagues a study of the pact could extend into the fall. 

“We’d like to see the president and Congress trying to cooperate on this stuff, but we’re in a frustrating situation,” says Rufus Yerxa, president of the National Foreign Trade Council, which represents several multinationals pushing for the pact. “The broader relationship is not good and hasn’t been good, and we’re worried about how that impacts on this.”

The Trump-Pelosi feud isn’t the only unusual hurdle facing the deal.

Corporate interests that would otherwise form the tip of the lobbying spear for the deal have been transfixed instead by the administration’s global supply-chain-rattling showdown with China, which has only intensified this month.

And the political calendar is working against ratification, too: The fast-track procedure allowing the White House to submit the deal for an up-or-down vote in Congress requires it spend 45 legislative days in the House Ways and Means Committee. That means the soonest the deal could reach the floor would be the fall.

“It’s totally hopeless,” one top Democratic aide says. “Nobody’s talking about it — not local businesses, constituents, members of Congress — and there just isn’t any pressure … It’s not going to happen before August. And then you come back in September, and it’s the silly season.”

Substantively, it’s not clear just how much Pelosi will demand before agreeing to support the pact.

Last month, she put it starkly: “No enforcement, no treaty.”

Cathy Feingold, the AFL-CIO’s international director, called the April passage of labor reforms by the Mexican Congress a “very big step,” but, she added, “getting to implementation is still a ways away.”  And Feingold said the AFL-CIO wants negotiators from all three countries to return to the table to agree on a mechanism for strictly enforcing new labor rights protections and other provisions. No past trade agreements have achieved that, she said, “so we want to make sure we get it right for the first time.” 

Cox said his group is focused on building grassroots support for the pact, and is targeting television and digital ads at freshman House Democrats in Republican-leaning districts.

This week, in a shift, it is also spending “multiple six-figures” on ads in the districts of House Democratic leaders — a nod to their centrality to the pact’s fate. Cox said he hopes the deal “gets more attention, and that there will be engagement from the business community, and industries across the board, reaching out to Members of Congress and urging them to pass this agreement.”

He also acknowledged USCMA’s boosters are competing for attention with some much bigger forces. “We’re focused on the things we can control,” he said. 

MARKET MOVERS

Trade fears send stocks even lower. CNN Business's Matt Egan: "The Dow fell 221 points, or 0.9%, on Wednesday on mounting concerns about the impact of the US-China trade war. The index had been down by as much as 410 points and even briefly dropped below the 25,000 level before recovering. The Dow still closed at its weakest point since mid-February. The S&P 500 declined 0.7%, while the Nasdaq lost 0.8%. Nervous investors continue to flock to the bond market, sending the 10-year Treasury yield to levels unseen since late 2017."

The bond market's warning. NYT's Neil Irwin: "The fall in longer-term bond yields has not been matched by a fall in shorter-term rates. For example, a 30-day Treasury bill is yielding 2.35 percent — meaning you can earn more on your money tying it up for a month risk-free than you can tying it up for a full decade. This is not normal... What has happened in the last few weeks involves the specter of a longer, more painful form of damage. There have been signs that the world’s two largest economies might not simply be experiencing some tensions and trading a few tariffs, but could be heading toward a broader split."

The Fed is in a bind. WSJ's Nick Timiraos: "Officials see trade tensions as a rising risk to the U.S. expansion that complicates their current make-no-moves policy posture, and bond investors are increasingly betting that economic weakness will lead the central bank to cut interest rates to bolster the economy... Fed officials would likely want to see proof that growth was slowing more than they currently expect—weaker data on consumer and business confidence, spending and hiring—before reducing rates, even though this raises the odds of the too-little, too-late reaction to a downturn that they want to avoid.

All eyes on upcoming economic readings. Bloomberg's Katia Dmitrieva and Liz McCormick: "Economic data in coming days will go a long way to show whether market concern of an imminent U.S. recession is justified... It all puts even more weight than usual on the next round of economic reports, starting with Thursday’s revised reading of first-quarter growth and culminating with the May jobs report on June 7."

TRUMP TRACKER

TRADE FLY-AROUND:

On the U.S.-China front:

China halts U.S. soybean purchases. Bloomberg: "China, the world’s largest soybean buyer, has put purchases of American supplies on hold after the trade war between Washington and Beijing escalated, according to people familiar with the matter... Still, China currently has no plans to cancel previous purchases of American soybeans... Government data indicates China bought about 13 million metric tons of American soybeans after the countries agreed to a truce in December, in a move that showed goodwill toward getting the trade dispute resolved. 

And levels a threat: “The biggest Chinese newspaper explicitly warned the U.S. on Wednesday that China would cut off rare earth minerals as a countermeasure in the escalated trade battle, using an expression the publication has only used twice in history, both of which involved full-on wars,” CNBC’s Yun Li reports. ‘We advise the U.S. side not to underestimate the Chinese side’s ability to safeguard its development rights and interests. Don’t say we didn’t warn you!’ the People’s Daily, [the official newspaper of the Communist Party of China] said in a commentary …”

"The phrase ‘Don’t say we didn’t warn you’ was only used two other times in history by the People’s Daily — in 1962 before China’s border war with India and ahead of the 1979 China-Vietnam War."

But the country is sending mixed messages: “China hopes to appeal to potentially sympathetic voices on the other side of the trade war by asking its government officials and state media outlets to avoid being overly and often unnecessarily critical of the United States and its key players, even as it prepares for a protracted trade and technology confrontation with Washington, according to sources who were briefed on the latest government instructions,” the South China Morning Post’s Zhou Xin reports.  

“Internal briefings held this week reflected the Chinese leadership’s line of thinking that China has to make serious preparations for the worst-case scenario of an intense, broad-based and extended confrontation with the US on the trade, technology and geopolitical fronts, while also keeping open the option that tensions with Washington could ease.”

— Huawei punches back: “China’s Huawei Technologies Co Ltd has filed a legal motion seeking to declare a U.S. defense law unconstitutional, in the telecom equipment maker’s latest bid to fight sanctions from Washington that threaten to push it out of global markets,” Reuters’s Sijia Jiang reports.

“The [National Defense Authorization Act] bill, passed by the U.S. Congress last summer, places a broad ban on federal agencies and their contractors from using Huawei equipment on national security grounds, citing the company’s ties with the Chinese government.”

It’s hard for a small, China-dependent company to reorient its supply chain on a dime.
NYT
POCKET CHANGE

— Retail stocks take a beating: “Retail stocks took a beating Wednesday, hurt by a handful of poor earnings reports and the looming threat of tariffs on clothing imported from China,” CNBC’s Lauren Thomas reports.

“Canada Goose shares lost more than a quarter of their value, shaving roughly $1.49 billion off the retailer’s market cap, after the company said sales growth in the coming three years wouldn’t be as robust as in the past … Abercrombie & Fitch shares closed down 26% on Wednesday, wiping more than $441.5 million off the company’s market cap, as momentum cooled off at its Hollister brand during the latest quarter. That news also sent shares of rival teen apparel retailer American Eagle down about 6%. And Michael Kors owner Capri Holdings’ stock fell nearly 10%, taking more than $580 million off its market cap, as it’s suffering from poorer demand for its pricey handbags.”

— Boeing 737 Max return might not be possible until August: “Boeing Co’s 737 Max is unlikely to return to service before August, the head of the International Air Transport Association (IATA) said on Wednesday, adding that the final say on the timing rested with regulators,” Reuters’s Heekyong Yang reports.

“The 737 Max was grounded globally in March after a crash in Ethiopia killed all 157 people on board, the model’s second deadly crash in five months.”

— Porsche’s offices are raided: “On Tuesday, prosecutors in Stuttgart, Germany, raided Porsche's headquarters, reportedly including the offices of CEO Oliver Blume (pictured above), chief financial officer Lutz Meschke, and HR chief Andreas Haffner. Their purported offense: overpaying the notorious head of the works council, Uwe Hück,” Car and Driver’s Jens Meiners reports.

“[The] raids were carried out by 10 prosecutors assisted by 176 additional personnel, including police. Data carriers and mobile phones were seized. The raids also covered a second topic: A member of the financial authorities is suspected to have passed secret information to an accountant retained by Porsche.”

MONEY ON THE HILL

— Pelosi slams Facebook over refusal to remove videos: “House Speaker Nancy Pelosi (D-Calif.) said Wednesday that Facebook’s refusal to take down an altered video of her shows that the company’s leaders were active contributors to online disinformation and ‘willing enablers’ of Russian interference in the 2016 election,” my colleague Drew Harwell reports.

“Pelosi’s comments to KQED News, her first public response to the video since The Washington Post first reported its spread online last week, revealed a dramatic escalation of tensions between the Democratic leader and the world’s most popular social network.”

DAYBOOK

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

Today:

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

Upcoming:

  • Big Lots is among the notable companies to report its earnings on Friday, per Kiplinger.
THE FUNNIES

From The Post's Ann Telnaes:

BULL SESSION

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