President Trump on Tuesday warned the Chinese not to wait until after the 2020 election to strike a trade deal. But the two sides remain far apart on key issues, and the possibility of a breakthrough this year remains remote.
That’s the candid assessment of three people close to the talks, who spoke on the condition of anonymity to provide me their unvarnished views of the state of play between the world’s two largest economies. In short, these people agreed, the two sides still have miles to go to resolve U.S. demands for major, structural change in how the Chinese government manages its economy.
And for the time being, with the Chinese economy showing signs of stress, Trump appears to feel no urgency to forge anything the administration would tout as a comprehensive agreement.
“I think there’ll be a deal maybe soon, maybe before the election, or one day after the election," Trump said yesterday. "And if it’s after the election, it’ll be a deal like you’ve never seen, it’ll be the greatest deal ever and China knows that." Trump said he told Chinese leaders: "If it’s after the election, it’s going to be far worse than what it is right now."
That said, with the two sides restarting mid-level talks this Thursday, they could strike an interim agreement — a “skinny deal” — that averts the next round of U.S. tariff escalations, and whatever countermeasures the Chinese would impose in response. Trump has already delayed dialing up tariffs on $250 billion of Chinese imports from 25 percent to 30 percent, a hike previously scheduled to bite Oct. 1 that will now take effect on Oct. 15.
But the biggest intensification of the trade war yet is set for Dec. 15, when the Trump administration has pledged to slap a 15 percent import duty on about $160 billion in new goods, most of which are consumer staples.
“There has been discussion about smaller deal that gets back to $250 billion in tariffs. They are trying to figure out what is in fact possible,” one person close to the talks said. “The chances of an interim deal are reasonable, though it doesn’t suit either side to talk about it.”
The second person agreed: “We might see some delay on some of the tariffs, but we’re certainly not going to see any reversal of tariffs unless there’s a significant structural deal that addresses the issues on the table.”
Indeed, both sides have shown some willingness to soften their respective approaches in recent weeks. Trump — under heavy pressure from business leaders and donors — pushed some September tariffs until December. He delayed the October tariffs, he said, to avoid interfering with the Chinese celebration of the 70th anniversary of their revolution. And Beijing last week announced it was easing tariffs on 16 U.S. products and canceling planned tariff increases on imports of American pork and soybeans.
But each side still has an armory of trade weapons aimed at the other and have also demonstrated they won’t shy from deploying them. The Trump administration on Tuesday rolled out new rules that would give the government greater say in controlling foreign investment — and the ability to block China from gaining access to sensitive U.S. assets.
And it continues threatening Chinese tech giant Huawei with a ban on doing business with American companies: A second 90-day reprieve the administration granted the company will expire in mid-November. “It’s a national security concern,” Trump told reporters earlier this month. “Huawei is a big concern of our military, of our intelligence agencies, and we are not doing business with Huawei.”
U.S. Trade Representative Robert Lighthizer — the architect of Trump’s get-tough approach and a leading voice among the China hawks in the administration — told business executives Monday that the two sides remain far apart. "He laid it out by saying this is an extraordinary challenge, and when it all fell apart some months ago they were very, very close to a workable agreement,” U.S. Chamber of Commerce President Tom Donohue, who hosted Lighthizer, said at a press conference Monday, per Politico’s Adam Behsudi. And Donohue said Lighthizer didn’t mention the possibility of an interim agreement.
Nevertheless, Chris Krueger of Cowen Washington Research Group wrote in a Monday note, “the new thrust seems to be a ‘down payment’ or ‘interim deal’ that could come with *some* tariff relief… With his flair for the dramatic, we believe it is unlikely this ‘deal’ would be signed without a Trump-Xi bilateral meeting - most likely at the APEC Summit [in mid-November] in Santiago, Chile."
As for a bigger deal, Trump looks likely to hold out for major concessions on Chinese practices the administration has identified as abusive, including forced transfer of American technology, intellectual property theft, and state subsidies of favored national industries. “He believes his own rhetoric, has for a long time, and he knows a bunch of soybean purchases are not going to make anybody really happy,” the second person close to the talks told me. “And, at the end of the day, he does like tariffs."
— Fed forced to step into money markets. WSJ's Nick Timiraos and Daniel Kruger: "For the first time in more than a decade, the Federal Reserve injected cash into money markets Tuesday to pull down interest rates and said it would do so again Wednesday after technical factors led to a sudden shortfall of cash. The pressures relate to shortages of funds banks face resulting from an increase in federal borrowing and the central bank’s decision to shrink the size of its securities holdings in recent years. It reduced these holdings by not buying new ones when they matured, effectively taking money out of the financial system...
"The New York Fed moved Tuesday morning to inject $53 billion into the banking system through transactions known as repurchase agreements, or repos. The bank said Tuesday afternoon it would inject up to $75 billion more on Wednesday morning, but many in the market were looking beyond that decision... In the short run this likely affects only market participants who borrow in the overnight markets, but if the strains last long enough it can affect the rates other businesses and consumers pay."
Fed faces another challenge today: Managing expectations about interest rates. CNBC's Patti Domm: The Fed is expected to cut interest rates for the second time in a decade Wednesday, but Fed Chairman Jerome Powell is unlikely to deliver the message markets want to hear on plans for future rate cuts. 'He’ll underwhelm everyone and not overwhelm anyone,' said Diane Swonk, chief economist at Grant Thornton. She expects a cut of 25 basis point, taking the fed funds target rate range to 1.75 to 2.0%, following the last quarter point cut on July 31.
"At the Fed’s last meeting, Powell rocked markets, sending stocks lower and bond yields higher when he described the rate cut as a 'mid-cycle adjustment,' meaning it was not part of a larger rate cutting cycle... The Fed’s approach may make some market pros unhappy, and it will certainly disappoint [Trump] who said the Fed were boneheads and called for zero or even negative rates."
— Saudi Arabia on track for quick restoration of oil. The Post's Taylor Telford and Thomas Heath: "Saudi Arabia has restored half of the crude production that was lost to devastating attacks on its oil industry, and the kingdom said output will be fully restored by the end of this month... Saudi Aramco’s critical Abqaiq processing plant has restored 2 million barrels day that was lost due to the wave of drone and missile attacks on the Saudi oil fields, bin Salman said. The energy minister said production will reach 11 million barrels per day by the end of September.
- Stocks rallied on the news: "The Dow Jones industrial average was up on Tuesday, one day after it fell on concerns that a protracted loss of Saudi oil production could harm the global economy. The Dow closed at 27,110, up 34 points from where it started the day. The Standard & Poor’s 500 index finished on the day positive at 3,005, a slight gain of 0.26 percent. The Nasdaq Composite gained 0.40 percent at 8,186."
— Manufacturing rebounds. WSJ's Harriet Torry: "U.S. industrial production rose in August, a welcome sign of resilience in the economy after recent weak readings. Industrial production, a measure of factory, mining and utility output, rose a seasonally adjusted 0.6% in August from the prior month, the Federal Reserve said Tuesday, well above economists’ expectations for a 0.2% increase... Tuesday’s report runs counter to earlier signs of weakness in the industrial sector. Output at U.S. factories, which accounts for about 75% of the nation’s total industrial output, rose 0.5% last month from July."
Pelosi says Dems are on ‘a path to yes’ on USMCA: “Democrats hope to approve a replacement of the North American Free Trade Agreement, but still have concerns about enforcing the deal, House Speaker Nancy Pelosi said Tuesday,” CNBC’s Jacob Pramuk reports.
- She also dismissed that it mattered if it helps Trump: “The idea that we would give a victory to the president is irrelevant. It’s a victory for the American people,” Pelosi said.
- Reality check, via Beacon Policy Advisors: "Pelosi has remained steadfastly 'hopeful' that an agreement can be reached since negotiations between US Trade Representative (USTR) Robert Lighthizer and a working group of House Democrats she chose began negotiations over the summer. Yet this is not so much a clear sign that she wants the USMCA to pass as it is a clear sign that she does not want Democrats to be blamed if it fails... The reality is that it will be very difficult for her to get the support she would need to ensure the new NAFTA is not passed largely by Republican votes in the House, and it is not clear that she would want that even if it could be easily achieved."
— Trump eyeing head of embattled mortgage firm to run Ginnie Mae: “A mortgage industry executive with ties to a firm penalized in a U.S. predatory lending crackdown is being considered by the Trump administration to run Ginnie Mae, a government corporation that backs $2 trillion in home-loan securities, according to people familiar with the matter,” Bloomberg’s Elizabeth Dexheimer and Saleha Mohsin report.
"Joseph Murin, who previously headed Ginnie Mae for about 13 months under Presidents Barack Obama and George W. Bush, is among candidates the White House is looking at to fill the post, said the people, who requested anonymity because the discussions haven’t been made public. Others have been considered for the job leading the mortgage guarantor and it’s not clear when a decision will be announced, the people said."
— Trump’s Cabinet is stocked full of ex-lobbyists: “In less than three years, [Trump] has named more former lobbyists to Cabinet-level posts than his most recent predecessors did in eight, putting a substantial amount of oversight in the hands of people with ties to the industries they’re regulating,” the Associated Press’s Richard Lardner reports.
“The Cabinet choices are another sign that Trump’s populist pledge to ‘drain the swamp’ is a catchy campaign slogan but not a serious attempt to change the way Washington works. Instead of staring down ‘the unholy alliance of lobbyists and donors and special interests’ as Trump recently declared, the influence industry has flourished during his administration.”
— White House reportedly intervening in GM strike: “The White House is seeking to end the United Auto Workers strike against General Motors with an agreement that would reopen an assembly plant in Lordstown, Ohio that GM shut down in March,” Politico’s Ian Kullgren, Ben White and Daniel Lippman report. According to the report, the White House and GM initially declined to comment for the story but after its publication both sides denied that the White House is involved. Politico says it stands behind its story.
“The effort, described to POLITICO by two people close to the matter, would effectively put the White House on the side of the UAW … One person close to the matter said National Economic Council Director Larry Kudlow and White House trade and manufacturing adviser Peter Navarro are both involved in the talks. This individual, who was not authorized to speak publicly, cautioned that discussions are still in early stages and that the White House may not be able to broker a deal.”
- Meanwhile, GM stopped paying for health care of striking workers: “... GM said coverage for the striking workers’ health insurance reverted to the union, which unsuccessfully sought to have the No. 1 U.S. automaker cover those costs through the end of the month. That places another drain on the union’s strike fund,” Reuters’s Bryan Woolston reports.
— AT&T CEO pushes back after hedge fund’s attacks: “AT&T Inc. Chief Executive Randall Stephenson defended his strategy and likely successor in his first public remarks since an activist hedge fund challenged the company to change direction,” the WSJ’s Drew FitzGerald reports.
“Speaking at a Goldman Sachs conference in New York, the telecom boss said newly named chief operating officer John Stankey was the right pick to make the Dallas company’s telecommunications, media and advertising businesses work together more effectively. The chairman and CEO said his board considered a short list of potential candidates who could turn around divisions with old business models, succeed in telecom and manage a media division.”
— Walmart likely discriminated against female workers: “Walmart Inc. likely discriminated against 178 female workers by paying less or denying promotions because of their gender, the Equal Employment Opportunity Commission said in memos viewed by The Wall Street Journal,” WSJ’s Sarah Nassauer reports.
“The EEOC documents ask Walmart and the women who filed complaints to come to a just resolution of the matter, which could include a settlement and changes to Walmart’s practices, say labor lawyers. If Walmart and the women don’t reach an agreement, the EEOC could file a lawsuit against the retailer.
- Why this is a big deal: The determination by the federal regulator marks a milestone in a nearly two-decade effort by current and former store workers to seek damages from the retail behemoth for discrimination.”
— Juul’s struggles continue: “E-cigarette maker Juul Labs Inc.’s sales have been halted in China, days after the startup launched its products in the world’s biggest tobacco market,” WSJ’s Jennifer Maloney reports.
“Juul’s sleek vaporizers went on sale early last week online on both JD.com Inc. and Alibaba Group Holding Ltd.’s Tmall, with refill pods in flavors such as mint, Virginia tobacco, mango and cream. But by the end of the week, they had been taken off both ecommerce sites. That left Juul at a loss as to why, according to people familiar with the matter.”
— Biden’s economic balancing act: “Some Democrats seeking to challenge [Trump] have pursued significant changes to tax policy and business regulation, and would shower benefits on the less fortunate. Sens. Elizabeth Warren of Massachusetts and Bernie Sanders of Vermont advocate a clean break not just from Mr. Trump but also from the party’s past economic policies,” WSJ’s Jacob M. Schlesinger and Ken Thomas report.
“Mr. Biden is charting a different course, envisioning, as he put it in June, a ‘reordering’ of capitalism that ‘doesn’t require some fundamental shift.’”
— The Valley is not green for Trump: “Silicon Valley stands in contrast with other prominent donor industries such as Wall Street and real estate, where many executives—including hedge-fund billionaire Paul Singer, real-estate investor Stephen Rosenberg and TD Ameritrade ’s founder Joe Ricketts —have warmed to Mr. Trump after initially opposing him,” WSJ’s Rebecca Ballhaus and Chad Day reports. “In Silicon Valley, the president has made few inroads—and has in fact lost some supporters.”
— Banks set for $40 billion win from Trump regulators. WSJ's Lalita Clozel: "Banking agencies moved to ease a postcrisis rule that could free up nearly $40 billion for big global banks, the latest regulatory victory for Wall Street. The Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency approved a proposal that would reduce the amount of cash large lenders, including JPMorgan Chase & Co. and Goldman Sachs Group Inc., must post to cover the risk of trades going bad in the swaps market."
"Swaps are contracts in which two parties agree to exchange payments based on fluctuations in interest rates or other benchmarks. Financial regulators in 2015 required banks to put down a set amount of collateral, or initial margin, in swaps transactions between affiliates of the same firm. The FDIC, led by Chairman Jelena McWilliams, voted 3-to-1 on Tuesday to advance a proposal eliminating the requirement."
Biden is winning the Google primary. Via Oxford Economics chief U.S. economist Gregory Daco:
- The FOMC releases its decision on whether or not to cut interest rates, which will be followed by Fed Chair Jerome Powell's press conference on Wednesday.
- General Mills is among the top companies reporting its earnings, per Yahoo Finance.
- The National Association of Relators releases its U.S. existing-home sales figures for August on Thursday.
- The CFPB holds a symposium on behavioral economics, featuring remarks from its Director, Kathleen Kraninger on Thursday.
From The Post's Tom Toles: