THE TICKER

Prospects have faded badly for a U.S.-China trade deal that forces serious structural changes from Beijing. 

Chances have all but disappeared for an agreement that backs the Chinese off anticompetitive subsidies they use to prop up favored industries, China watchers say. 

That’s in part because after talks between the two sides blew up in May, their scope narrowed, says Derek Scissors, a China scholar at the American Enterprise Institute and White House whisperer on trade. 

“We had all this stuff about how we wouldn’t take a partial deal. Of course that’s what we took,” Scissors tells me, referring to the mini-deal Trump has pitched as a major achievement. President Trump, he says, remains fixated on the bilateral trade imbalance and compelling the Chinese to increase their purchases of American farm products. 

Backing off demands that the Chinese change their approach to subsidies demonstrates how far the Trump administration has drifted from its intent in launching the trade war, Chad Bown of the Peterson Institute for International Economics and Jennifer Hillman of the Council on Foreign relations say. 

“There is little hope of easing US-China tensions if that issue remains unresolved,” they write in a new piece. Yet “not once during his meandering, 40-minute Oval Office ‘lovefest’ with China [earlier this month] did Trump or any other administration official mention how his deal would tackle the Chinese subsidies that were the impetus for launching this trade war in the first place. Trump’s silence was deafening.”

It’s difficult to nail down just how distorting an effect Beijing’s subsidies have on the scramble between Chinese firms and their competition abroad. Examining only those directed to research and development, though, suggests the Chinese are spending dearly to tip the playing field in their favor. U.S. federal and state governments provided about $24 billion for business research and development in 2016 — or 6.4 percent of the total that year, according to figures from the Organization for Economic Cooperation and Development. 

The Chinese, by contrast, provided 22 percent of that spending the year before, per a Harvard Business School study cited by Rob Atkinson and Caleb Foote of the Information Technology and Innovation Foundation. (Matching that spending would require Congress to spend an extra $86 billion per year, they note.) 

“But even these figures understate the disadvantage most innovative businesses in the United States face due to Chinese R&D, because U.S. government R&D subsidies are largely confined to a modest number of firms producing weapons systems for the government,” Atkinson and Foote write. The broader picture suggests the Chinese plow hundreds of billions of dollars into industries included in its plan for long-term dominance, Made in China 2025. 

Addressing this Chinese behavior “is a key part” of a real, breakthrough trade agreement, Atkinson writes in an follow-up email. “But it’s not clear the Trump administration will even get a deal; if they get a deal, whether it will include these kinds of subsidies… and if it does include them, whether the Chinese will actually take meaningful action.”

For now, as far as structural reforms, U.S. negotiators are focused instead on compelling the Chinese to stop stealing American intellectual property and forcing American firms to share their technological know-how, Scissors says. “The real problem with the president’s approach is he doesn’t care” about those issues, he says. 

MARKET MOVERS

Stocks barely budge after mixed earnings reports. AP's Alex Vega: "U.S. stock indexes eked out tiny gains Wednesday following a wobbly day of trading as investors reviewed another set of mixed quarterly report cards from big companies. Some of the companies’ earnings topped analysts’ expectations. Others put traders in a selling mood after warning that the slowing global economy and trade tensions are hitting their profits.

"While it’s still early this earnings season, traders are trying to gauge how much the U.S. trade war with China and a slowdown in global economic growth is hurting Corporate America. The lack of direction in earnings Wednesday was reflected in the market, which spent most of the day wavering between tiny gains and losses."

Fed steps up help to financial system, again. CNBC's Jeff Cox: "The Federal Reserve is ramping up the amount of temporary liquidity injections it is providing for overnight lending markets. Starting Thursday, the repo operation offerings will escalate to $120 billion from the current $75 billion as the central bank continues to calibrate the right amount of funding needed to keep the markets operating properly and to hold the overnight funds rate within its target range.

"The announcement came from the New York Fed, which did not elaborate on the reason for the increase. However, it comes a day after the Fed injected just shy of $100 billion into the system via an operation where it provides banks with cash in exchange for high-quality assets like government bonds."

Trump official to resign and call for student debt relief. WSJ's Josh Mitchell: "A senior student-loan official in the Trump administration said he would resign Thursday and endorse canceling most of the nation’s outstanding student debt, calling the student-loan system 'fundamentally broken.'

"A. Wayne Johnson was appointed in 2017 by Education Secretary Betsy DeVos as chief operating officer of the Office of Federal Student Aid, overseeing the $1.5 trillion student-loan portfolio. After seven months, he moved into a different role as chief strategy and transformation officer, leading a revamp of how the agency deals with borrowers and the companies that service the debt. Mr. Johnson said repayment trends suggest much of the debt will likely never be repaid, and he is calling for moving toward a system that gets the government out of student lending."

Companies have binged on share buybacks in recent years, pumping up prices, but their appetite could wane as economic uncertainty rises.
NYT

TRUMP TRACKER

TRADE FLY-AROUND: 

Pence to walk tightrope with China speech. Reuters's Alexandra Alper: "A year after the U.S. Vice President’s hawkish speech on China caused an uproar in Beijing, Mike Pence is expected to strike a gentler tone in a second policy address on the country Thursday, as hopes blossom for a partial trade deal with Beijing. Pence, who frequently takes a tough line on China, could easily use the speech to harp on growing American frustration over Chinese treatment of democracy protesters in Hong Kong and Muslim minority Uighurs held in Chinese detention camps. But with the speech coming just weeks before [Trump] attends a summit in Chile where he hopes to close a 'phase one' trade deal with Chinese President Xi Jinping, Pence may be forced to stick to more dovish language."

Trump officials split over China's tech access. NYT's Ana Swanson: "The Trump administration is divided over how aggressively to restrict China’s access to United States technology as it looks for ways to protect national security without undercutting American industry... Trump and many of his top advisers have identified China’s technological ambitions as a national security threat and want to limit the type of American technology that can be sold overseas.

"But a plan to do just that has encountered stiff resistance from some in the administration, who argue that imposing too many constraints could backfire and undermine American industry. The debate underscores the extent to which Mr. Trump’s trade fight with China has left many issues unresolved."

A yearlong trade war has stoked a surge in Chinese nationalism and anti-American sentiment that’s increasingly bleeding into marketing decisions and consumer buying habits.
Bloomberg

POCKET CHANGE

Wall Streeters line up for Saudi investment conference. Bloomberg's Matthew Martin, Archana Narayanan, and Dinesh Nair: "For the second straight year, the risks of doing business in Saudi Arabia are pushing their way onto the agenda of Saudi Crown Prince Mohammed bin Salman’s glittering investment showcase. The elites of global finance are descending on Riyadh from Oct. 29, days after Saudi Aramco delayed its on-again off-again initial public offering in the wake of a missile attack that crippled its biggest oil processing facility. The company is pushing to complete the sale this year after international money managers’ skepticism at its touted $2 trillion valuation.

  • Big bankers will make the trip: "Senior executives from many of the 25 banks working on Aramco’s mammoth deal -- which could see advisers sharing a fee pool of as much as $450 million -- are set to attend next week’s meeting. Credit Suisse Group AG’s CEO Tidjane Thiam, Citigroup’s top dealmaker Tyler Dickson and JPMorgan Chase & Co.’s head of global banking Carlos Hernandez -- who led their banks’ pitches to Aramco and are actively involved in the deal -- are to due attend the event, where Chairman Yasir Al-Rumayyan will host thousands of delegates alongside the crown prince. Deutsche Bank AG CEO Christian Sewing is also set to be there. He did not attend last year."
  • The Trump administration will also send a healthy contingent. Per Axios, it will be represented by "Treasury Secretary Steven Mnuchin, Energy Secretary Rick Perry, and White House senior adviser Jared Kushner. Former Treasury undersecretary David Malpass, now the president of the World Bank, is also on the list, as is former White House communications chief Anthony Scaramucci."

WeWork chief gets golden parachute; WeWork employees, not so much. WSJ's Eliot Brown: "Adam Neumann stands to receive up to $1.7 billion as part of a deal with SoftBank Group Corp. to step away from office-space startup WeWork. The company’s employees aren’t doing as well.

"Thousands of staff are slated to be laid off soon as the company rapidly tries to cut costs and steer the money-losing company toward a path to profit, according to people familiar with the strategy. And for more than 90% of current and former employees, the price of the SoftBank deal, which values WeWork at about $8 billion, is below the grant price for stock awards and options they hold, former executives said. That means the vast majority of employees would get nothing if they sold their holdings today."

Carlos Ghosn pleads not guilty, blames conspiracy. Bloomberg's Kae Inoue: "Lawyers for Carlos Ghosn entered pleas of not guilty on all charges against him, saying Nissan Motor Co.’s former chairman is the victim of a conspiracy between prosecutors, the government and the automaker to bring about his downfall. All charges against Ghosn, who was arrested almost a year ago in November for alleged financial misconduct, should be dropped, his attorneys argued in documents submitted to the Tokyo District Court. Pretrial hearings are being held Thursday in the case against Ghosn and former Nissan executive Greg Kelly, who are free on bail in Japan ahead of a trial next year."

Business
Revenue fell to $20 billion in the third quarter, down 21 percent from a year earlier, Boeing said in a statement on Wednesday. Profit fell 51 percent to $1.17 billion.
Douglas MacMillan
Mr. Fisher compared the wooing of wealthy clients to “trying to get into a girl’s pants.” Investment funds have since pulled nearly $2 billion from his firm.
NYT
The private-equity industry has absorbed criticism from politicians as presidential campaigns heat up.
WSJ
Tech consulting firm Rheingans Digital Enabler says its employees can deliver the same output during a focused 25-hour week as in 40 hours interrupted with email and social-media distractions.
WSJ

MONEY ON THE HILL

Zuckerberg gets roughed up on the Hill. The Post's Tony Romm: "Congressional lawmakers delivered a broad lashing of Facebook chief executive Mark Zuckerberg on Wednesday, sniping at his company’s plans to launch a digital currency, its pockmarked track record on privacy and diversity, and its struggles to prevent the spread of misinformation.

"The wide-ranging criticisms came largely from Democrats during a hearing of the House Financial Services Committee, which convened the session to probe Facebook’s plan to launch a cryptocurrency, called Libra. Facebook’s efforts have catalyzed a rare alignment of opposition from the party’s members of Congress and some Trump administration officials, who are concerned Libra could trouble the global financial system.

"Quickly, though, the hearing expanded in focus, reflecting the simmering frustrations on Capitol Hill with practically the entirety of Facebook’s business."

This exchange with Rep. Alexandria Ocasio Cortez (D-N.Y.) in particular drew a lot of attention: 

Who are Warren's Wall Street fans? (They exist.) Vox's Emily Stewart: "On Wall Street, there are rich guys, and then there are very rich guys. And in the first camp, there are a surprising number who think an Elizabeth Warren presidency would not be the apocalypse. 'You know what I like about Warren? Warren doesn’t want my money, actually,' said one mid-level hedge fund executive who has already maxed out on his donation to the Massachusetts Democrat in the 2020 presidential primary. 'My firm is great, but some people in the industry are scumbags.'"

Some financiers know "if she lands in the White House that may make their jobs a bit different, their companies a little less lucrative, or mean they’ll pay more in taxes. And they think that’s great. They support Warren because of her policies, not in spite of them. 'Even though, on a personal basis, Elizabeth Warren may be bad for me economically, she would be better for society, which I want my kids to grow up in,' a director at Citi told me."

THE FUNNIES

From The Post's Tom Toles

BULL SESSION