And Trump has limited room to maneuver in the face of rising bipartisan hostility toward China on Capitol Hill.
The president appeared to acknowledge a bigger breakthrough faces long odds. “I think that we’ll just have to see what happens,” Trump told reporters in the Oval Office. “I would much prefer a big deal. And I think that’s what we’re shooting for. Can something happen? I guess, maybe, who knows? But I think it’s probably unlikely.”
A major agreement already looked remote in recent weeks. The House Democratic impeachment inquiry — and the revelations it has brought forward about Trump’s dealings with China — have rendered it all but impossible. “The impeachment contagion is now in the U.S.-China bloodstream,” Chris Krueger of Cowen Washington Research Group wrote in a note.
That is, while the impeachment push launched over pressure the president put on his Ukrainian counterpart to dig up dirt on former vice president Joe Biden and his son, Trump himself broadened its scope when, live on national television last week, he urged China to join the effort. The comment drew condemnation from Republican Sens. Mitt Romney (Utah), Susan Collins (Maine) and Ben Sasse (Neb.).
Sen. Marco Rubio (R-Fla.) deflected a question about Trump’s call for China to investigate the Bidens by arguing the president had been kidding (he didn't appear to be; here's the video). But the president refused to answer questions about whether he was joking:
And top economic adviser Larry Kudlow said he didn't know what Trump meant. But he said there was “no linkage between that and the trade talks … I guarantee there will be no linkage.”
Trump in June also reportedly told Chinese President Xi Jinping he would remain silent on pro-democracy protests in Hong Kong while trade talks continued, per recent reporting by CNN. The unrest in Hong Kong has taken on new urgency after the NBA apologized for a tweet the Houston Rockets general manager sent backing the protesters. The basketball association’s handling of the matter drew fiery responses from both Democrats and Republicans on Capitol Hill, highlighting the emerging consensus there that China is a bad actor that needs to be confronted and contained.
Here, for example, was Sen. Josh Hawley (R-Mo.), a Trump ally:
And here was Sen. Elizabeth Warren:
That response offered the White House a preview of what it can expect if it tries to pass off as a game changer an agreement that doesn’t include Chinese commitments to structural reforms like rolling back state subsidies and curbing its industrial policy. But that is precisely what Chinese negotiators have taken off the table before talks resume.
“Vice Premier Liu He, who will lead the Chinese contingent in high-level talks that begin Thursday, told visiting dignitaries he would bring an offer to Washington that won’t include commitments on reforming Chinese industrial policy or the government subsidies that have been the target of longstanding U.S. complaints, one of the people said,” Bloomberg’s Shawn Donnan and Jenny Leonard report.
More: “That offer would take one of the Trump administration’s core demands off the table. It’s emblematic of what analysts see as China’s strengthening hand as the Trump administration faces an impeachment crisis -- which has recently drawn in China -- and a slowing economy blamed by businesses on the disruption caused by the president’s trade wars.”
And Xi has his own pressures at home to navigate, with the Hong Kong mess chief among them. “Even if China could see a basis for a deal purely on economic grounds, the domestic political situation makes it very hard for [Xi] to negotiate with a tariff gun to his head,” Pantheon Macroeconomics’ Ian Shepherdson wrote in a note. “The message that would send to rebellious Hong Kongers—that Mr. Xi will cave if pushed hard enough—is just too dangerous to be allowed.”
The Trump administration just threw some more sand in the gears by placing eight Chinese tech giants on the Commerce Department's blacklist, banning them from doing business with American companies. The administration said the Chinese firms, two of which provide video surveillance, are implicated in human rights abuses against Chinese Muslim minorities.
Another question is whether both sides can strike a short-term detente. Such an agreement could stave off a dramatic tariff escalation Trump has pledged to impose over the next two months.
Tariffs on $250 billion of Chinese imports are set to rise from 25 percent to 30 percent on Oct. 15 barring an agreement to delay them. And Trump has pledged to slap 15 percent duties on another $156 billion of Chinese products on Dec. 15. Added to a June tariff hike, those increases would more than double the average levy on Chinese imports, to 26.6 percent, according to a Peterson Institute analysis.
Bill Reinsch, who served in the Commerce Department during President Clinton’s impeachment, said that process made administration aides "reluctant to take on new fights and more inclined to settle old ones, because they had too much to deal with.”
“What may have ticked up marginally, despite the president denying it today, is the prospect for an interim agreement,” Reinsch tells me. Such a skinny deal would “avoid blowback from consumers around the holidays, relieve pressure on farmers and save the real agreement for later, as long as it’s called an ‘interim deal.’ I still think that’s likely, and impeachment may make it more so.”
— Trump signs limited deal with Japan: “The United States and Japan signed a limited trade agreement Monday, a deal that would win back benefits American farmers lost when [Trump pulled] out of a broader Asia-Pacific pact his first week in office,” the Associated Press’s Paul Wiseman reports.
“U.S. farmers have been operating at a disadvantage in Japan since Trump withdrew from the Trans-Pacific Partnership agreement, which had been negotiated by the Obama administration. The other 11 Pacific Rim countries, including big farm producers such as New Zealand and Canada, went ahead without the United States and were enjoying preferential treatment in Japan.”
- What was left out of the deal: “While rewarding American farmers, the new U.S.-Japan mini-deal does not resolve differences over trade in autos. Trump has said the two countries continue to work on a more comprehensive agreement.”
- What about Congress?: According to a previous WSJ report, the deal is so limited in scope that it does not require congressional approval.
— USMCA edges toward the finish line. NYT's Carl Hulse and Emily Cochrane: "The escalating impeachment drama between Congress and the White House that has all but doomed hopes of most legislative progress this fall has instead enhanced the prospects for approval, within weeks, of one major initiative: a sweeping new trade agreement among the United States, Canada and Mexico.
"Top lawmakers in both parties and others closely following the talks said that substantial progress had been made in resolving the sticking points, and that a decisive House vote on the accord to replace the North American Free Trade Agreement could occur before Congress departed for Thanksgiving. The deal may be a rare bright spot in an otherwise dysfunctional dynamic that has taken hold in the capital, and it owes its progress to a coincidence of timing, productive negotiations that have unfolded behind closed doors for months and political necessity for two parties that each has distinct reasons to hope it succeeds."
Henry Cuellar helps lobby fellow Democrats on USMCA: “As a cheerleader for USMCA, [Texas Rep. Henry Cuellar] courts skeptical Democrats and keeps track of who can be persuaded to support the pact. Other times, he compares notes with some of the big business groups pushing for USMCA passage, such as the U.S. Chamber of Commerce. Or, he works with high-level Mexican officials in an effort to soothe concerns on the American side,” Politico’s Sabrina Rodríguez writes in a profile of the lawmaker.
— Lira drops after Trump threatens to 'destroy' Turkey's economy if they overstep: "The Turkish lira slumped by the most since August after [Trump] warned the nation against acting in excess in a military operation targeting Kurdish forces in Syria," Bloomberg's Constantine Courcoulas, Tugce Ozsoy, and Selcuk Gokoluk report.
"The lira weakened 2% to a session low of 5.82 against the dollar after Trump warned Ankara in a tweet that he would 'totally destroy and obliterate' the nation’s economy if takes unspecified 'off limits' actions. Whether the Turkish lira will 'really be impacted' by U.S. threats will depend on a possible response by President Recep Tayyip Erdogan and whether he moves forward with an invasion into Syria, said Brendan McKenna, a currency strategist at Wells Fargo Securities in New York."
— Federal judge rules Trump must turn over his tax returns to Manhattan DA: “A federal judge dismissed [Trump’s] lawsuit seeking to block the Manhattan district attorney from obtaining the president’s tax returns as part of an investigation into hush-money payments during the 2016 campaign,” my colleagues David A. Fahrenthold and Ann E. Marimow report.
“That decision does not mean Trump’s tax returns will be handed over immediately. Trump appealed within minutes, and an appeals court put the case on hold until it can hear the president’s challenge. But the ruling “by U.S. Judge Victor Marrero was still a broad rejection of Trump’s precedent-shattering argument in this case. The president argued that, as long as he is president, he cannot be investigated by any prosecutor, anywhere, for any reason.”
— Chao faces more questions over whether she favored Kentuckians: “In her first 14 months as Transportation secretary, Elaine Chao met with officials from Kentucky, which her husband Mitch McConnell represents in the Senate, vastly more often than those from any other state,” Politico’s Tanya Snyder, Tucker Doherty and Arren Kimbel-Sannit report.
“In all, 25 percent of Chao’s scheduled meetings with local officials of any state from January 2017 to March 2018 were with Kentuckians, who make up only about 1.3 percent of the U.S. population. The next closest were Indiana and Georgia, with 6 percent of meetings each, according to Chao’s calendar records, the only ones that have been made public.”
— OMB gets subpoenaed for Ukraine docs: “House investigators subpoenaed documents from the Department of Defense and Office of Management and Budget about the withholding of military aid to Ukraine as the Democratic-led impeachment inquiry barreled forward,” my colleagues John Wagner, Felicia Sonmez and Brittany Shammas report.
— Powell pushes back on Trump, obliquely. WSJ's Paul Kiernan: "Federal Reserve Chairman Jerome Powell highlighted the importance of an independent central bank on Monday, amid steady criticism of the Fed’s monetary policy from President Trump in recent weeks. Speaking at the premiere of a documentary about the late Marriner S. Eccles—the Fed’s chairman from 1934 to 1948—Mr. Powell focused on his predecessor’s efforts to distance the central bank from political considerations.
"'From my perspective as Fed chair, he is responsible more than any other person for the fact that the United States today has an independent central bank—a central bank able to make decisions in the long-term best interest of the economy, without regard to the political pressures of the moment,' Mr. Powell said of Mr. Eccles."
Trump's attacks on the Fed have escalated in recent months, as this Financial Times chart shows, via economist Adam Tooze:
— SCOTUS to hear oral arguments over LGBT workers' rights case: "The Supreme Court is set to hear arguments in two of the term’s most closely watched cases over whether federal civil rights law protects LGBT people from job discrimination," AP's Mark Sherman reports.
"The cases [today] are the court’s first on LGBT rights since Justice Anthony Kennedy’s retirement and replacement by Justice Brett Kavanaugh. A decision is expected by early summer 2020, amid the presidential election campaign. The issue is whether a key provision of the Civil Rights Act of 1964 that bars discrimination in employment because of sex covers LGBT people."
- Why the case is so important: "A ruling for employees who were fired because of their sexual orientation or gender identity would have a big impact for the estimated 8.1 million LGBT workers across the country because most states don’t protect them from workplace discrimination. An estimated 11.3 million LGBT people live in the U.S., according to the Williams Institute at the UCLA law school."
— Southwest pilots sue Boeing over 737 Max: “The union for Southwest Airlines Co. pilots sued Boeing Co., saying the manufacturer rushed output of the 737 Max jet to stay competitive, withholding key information about a feature that contributed to two fatal crashes within five months,” Bloomberg News’s Mary Schlangenstein reports.
“The union said it’s seeking at least $115 million for damages sustained through the end of this year, primarily for lost pay and legal expenses … The lawsuit and public criticism from Southwest’s pilots undermine Boeing’s effort to rebuild confidence in its best-selling airplane after months of bruising publicity. The planemaker has invited pilots from Max operators to fly the updated software as part of outreach to flight crews.”
— WeWork’s IPO mess could linger: “WeWork parent We Co. misstated the number and cost of the working desks it set up in the first half of the year when it first filed in August to go public. The company also omitted information about its governance, including that its then-Chief Executive Adam Neumann had been on the board’s compensation committee,” the Wall Street Journal’s Jean Eaglesham and Eliot Brown report.
“With the IPO shelved, We’s incomplete financial data makes it harder to assess the company’s prospects as it tries to adapt to a future without an expected injection of $9 billion from the IPO and bank lending tied to the offering. The information gaps in the prospectus also mean New York-based We likely faces tougher scrutiny by the Securities and Exchange Commission, should the company — as it says it intends — try to go public again in the future.”
SoftBank's losses from the IPO stretch into the billions. Bloomberg's Pavel Alpeyev and Takahiko Hyuga: "SoftBank may book a $3.54 billion drop in the value of its Uber stake, a $750 million decline for Guardant Health Inc. and take a $350 million hit for Slack, according to Chris Lane, an analyst at Sanford C. Bernstein. Lane said the combined writedown for WeWork may be as much as $2.82 billion...
"In an interview with the Nikkei Business magazine, Son said he is unhappy with how far short his accomplishments to date have fallen of his goals. 'The results still have a long way to go and that makes me embarrassed and impatient,' Son said."
— Kroger joins other chains in ending e-cig sales: “ Kroger Co and Walgreens Boots Alliance Inc said “they would stop selling e-cigarettes at their stores, amid heightened regulatory scrutiny of the product and reports of lung disease and some deaths linked to vaping.” Reuters’s Nivedita Balu and Richa Naidu report. “Their move comes weeks after Walmart Inc said it was pulling the plug on [their sales].”
— Climate protesters vandalize Wall Street bull. CNBC's Yun Li: "A group of protesters calling for more action to stop climate change vandalized the iconic Wall Street charging bull on Monday, pouring red paint on it while climbing atop it. The climate protesters responsible belong to an organization called Extinction Rebellion, which organized a demonstration starting at 10 a.m. ET on Monday in 60 cities worldwide, according to its website. The protests are slated to last two weeks." The protest:
Note: Congress remains on recess.
- Delta Airlines is among the notable companies reporting its earnings on Thursday, per Kiplinger.
- The American Enterprise Institute hosts an event called “Monetary policy in the 21st century: An Allan Meltzer perspective” on Thursday.
- Yahoo Finance hosts its “All Markets Summit” in New York on Thursday, featuring Blackstone CEO Stephen Schwarzman, Nasdaq CEO Adena Friedman, Merck CEO Kenneth C. Frazier, Barclays CEO Jes Staley, Verizon CEO Hans Vestberg, CFTC chairman Heath Tarbert and Minnesota Fed President Neel Kashkari
- Bloomberg hosts an event on the future of corporate governance on Thursday.