with Brent D. Griffiths
A rising tide of anti-China sentiment in Washington amid the coronavirus pandemic is swamping the economic detente the Trump administration reached with Beijing just months ago.
The economic crisis is fueling a new push by China hawks to de-link the world’s two largest economies. American multinational corporations with major operations in China risk getting squeezed in the process.
Some Republicans in particular, both in the administration and on Capitol Hill, are seizing on the Chinese government’s mishandling of the original outbreak of the coronavirus to argue the regime can’t be trusted. They are moving to deploy both policy carrots and sticks to bring supply chains back to the United States, limit American investment in China and erect new barriers to Chinese companies seeking to expand here.
President Trump remains conflicted, and his team divided, over just how hard to push against Beijing.
The tension is coming to a head in an internal struggle over a proposal by White House trade adviser Peter Navarro to force the American production of medical supplies through an executive order, Jeff Stein, Robert Costa and Josh Dawsey report this morning.
Election-year politics are turbocharging the push for the GOP, as the party spies an opportunity to deflect from Trump’s sinking approval ratings on his efforts to contain the crisis while harnessing growing popular animus toward China for its role in launching it. If all the anti-China talk translates into action, however, the economic consequences will be vast.
Trump has complained about Chinese leadership in recent Oval Office meetings but has yet to sign the proposed order.
Navarro's proposed order would eventually force the federal government to buy pharmaceuticals and medical supplies manufactured domestically, my colleagues report.
“Although it has the support of some officials at the State Department and the National Security Council, [Treasury Secretary Steven] Mnuchin and several business leaders close to Trump are averse to making a major push on supply chains at a fragile moment for the economy," two former officials told The Post. “And Trump’s son-in-law and senior adviser, Jared Kushner, shares Mnuchin’s caution about Navarro’s push to do this executive order at this time.”
Trump's indecision follows weeks of public about-faces on Chinese culpability for the crisis. He initially praised Chinese President Xi Jinping’s handling of the it, as his economic advisers worried a confrontational approach would scuttle the trade agreement the two countries announced in January. Later, Trump began blaming Chinese leadership for the spread of the disease and sought to brand it the “Chinese virus” and the “Wuhan virus.”
He then dropped those references, explaining earlier this month he is seeking economic engagement with the country. Yet Monday, Trump said at a news conference he is seeking to hold the Chinese accountable and pursue hundreds of billions of dollars in damages from the country. “We're doing very serious investigations,” he said, adding his administration hasn't “determined the final amount yet.”
Elsewhere, Trump's administration is pushing ahead against China.
Among the latest moves:
- The administration “is tightening the country’s export-control restrictions to prevent U.S. companies from sending products abroad that could strengthen China’s military,” the Wall Street Journal’s Katy Stech Ferek reports. “The new rules, announced by the Commerce Department on Monday, expand the list of U.S.-made products and technology that need to be reviewed by national security experts before shipments can be sent overseas.”
- The administration moved “aggressively on national security grounds against Chinese telecom firms, with key agencies… recommending that a subsidiary of China’s largest landline provider have its U.S. license revoked” Ellen Nakashima reported earlier this month. “The advice to pull a license from China Telecom Americas was prompted by long-standing concerns that the firm, whose parent company is state-owned, poses unacceptable risks of Chinese espionage and disruption of U.S. networks, U.S. officials said.”
- And it administration continues exploring ways to tie the hands of Huawei, including by limiting the global supply of chips to the Chinese telecom giant.
Closer to the president, Matthew Pottinger has emerged as a key hardliner.
David Nakamura, Carol D. Leonnig and Ellen Nakashima have more details about the former Beijing correspondent for the Wall Street Journal now serving as Trump’s deputy national security adviser.
At a forum in India back in January, Pottinger said the economic decoupling of the two countries "is something that’s been underway for quite a long time — and it is not driven by the United States.”
Congressional Republicans already are firing off a battery of proposals to sever U.S.-China commercial ties.
Most are focusing on addressing vulnerabilities they say the pandemic has exposed to Chinese-based supply chains for critical pharmaceuticals, medical equipment and personal protective gear. Others are looking further afield. Hill staffers and lobbyists say some could get a look from lawmakers in the coming weeks as they consider another economic rescue package.
- Sen. Ted Cruz (R-Tex.) unveiled a measure Tuesday targeting Hollywood studios that accede to demands from Chinese censors. It would block the Defense Department from cooperating on movie projects with those that continue to do so, Politico’s Betsy Woodruff Swan reports.
- Sen. Marco Rubio (R-Fla.) has bipartisan support — including from Sens. Elizabeth Warren (D-Mass.) and Tim Kaine (D-Va.) — for a bill that would require drug companies to report how many active ingredients they source from China. Rubio is also pushing to ban a federal employee retirement fund from investing in Chinese companies.
- Sen. Josh Hawley (R-Mo.) is calling for requirements on drugmakers and medical equipment manufacturers to source an increasing amount of their components domestically; subsidies to help those that can’t find domestic suppliers build the capacity for themselves; and export controls on equipment such as ventilators. The pandemic, he wrote in a memo outlining his views, “exposed a Grand Canyon size fault in our supply chain … If we need it, we should make it.”
- Sen. Lindsey Graham (R-S.C.) in recent television appearances has called for “canceling the U.S. debt with China, slapping a ‘pandemic tariff’ on Chinese goods and imposing unspecified sanctions on Chinese officials,” David Lynch reports.
- Sen. Tom Cotton (R-Ark.), who blames the pandemic on a Chinese coverup, has pitched “imposing sanctions on Chinese officials and has introduced legislation permitting U.S. citizens to sue China for pandemic damages,” per David.
Proposals offering tax benefits to American companies that move production home probably will be in the mix soon.
Plans to impose mandates on companies struggling through the pandemic-induced economic shock are less viable.
“When you get into sticks, people get defensive, and it’s harder to reach agreement,” Russ Sullivan, a former staff director of the Senate Finance Committee who now lobbies on tax matters, tells me. “More likely are incentives centered around how we bring onshore businesses that are critical to prepare for future pandemics or disasters.”
Derek Scissors — an American Enterprise Institute scholar and self-described “multiyear pre-Trump supporter of decoupling” — agrees. “This is not the time to smash down burdens on U.S. companies,” he says. Besides, he remains skeptical policymakers are ready to consider how to relocate the most entrenched supply chains, such as those for consumer electronics. “The fact that we’re talking about it doesn’t mean we’re anywhere close to dealing with the real issues,” he says.
For the time being, investors don’t appear spooked that drugmakers or medical suppliers will face costly requirements to uproot their Chinese operations. 3M, for example, has found itself in the headlines after its production of N95 masks in China became a diplomatic hot potato between Beijing and Washington. The Minnesota-based company saw its stock surge Tuesday after beating expectations with its first-quarter earnings.
Merck and Pfizer saw their shares slide after reporting quarterly results Tuesday. But executives for both drugmakers, who acknowledged earlier this year the pandemic could pinch their supply chains or depress sales, said on earnings calls they have experienced no production interruptions. And both expect an economic rebound in the second half of the year.
The Dow snapped a four-day winning streak.
Big tech stocks slide considerably: “Alphabet fell 3 percent ahead of its latest earnings release, which was scheduled for after the close. Facebook dropped 2.5 percent while Amazon slid 2.6 percent. Netflix shares fell 4.2 percent while Apple lost 1.6 percent,” CNBC's Fred Imbert and Maggie Fitzgerald report.
“Stocks that would benefit the most from a reopening led the market higher on Monday and were up again Tuesday. Shares of Simon Property Group and Kohl’s rose 10.7 percent and 6.7 percent, respectively, after big gains on Monday. Bank stocks such as Citigroup and JPMorgan also rose more than 0.7 percent each.”
Powell expected to promise an aggressive posture. The Federal Reserve is unlikely to unveil much in the way of new moves to stabilize the economy after its meeting today, “putting attention on Chairman Jerome Powell’s subsequent news conference, which will be conducted remotely,” WSJ's Nick Timiraos reports. “With the prospect of a sharp economic rebound fading because of uncertainty about the novel coronavirus pandemic, Mr. Powell has to walk a line between shoring up confidence in policy makers’ response to the crisis without sounding unduly optimistic.”
Investors and economists say trillions more needed to help economy: “The economy could take one to two years to rebound to full strength and the Federal Reserve and Congress, having already committed historic sums to fight [the pandemic], will have to commit trillions more, according to respondents to the CNBC Fed Survey,” Steve Liesman reports.
“With the Federal Reserve’s balance sheet already at an unprecedented $6.45 trillion, the 36 respondents see it rising on average to $9.8 trillion. The additional trillions will be added by the end of the current quarter, the respondents expect. Congress, having already committed about $2.5 trillion, is seen putting in an additional $2 trillion.”
Wells Fargo predicts 10-year Treasury yields are on the verge of a comeback: “Michael Schumacher, the firm’s chief macro strategist, expects improving economic conditions will push Treasury yields higher and prices lower,” CNBC's Stephanie Landsman reports. “Schumacher’s base case points to a better jobs picture as businesses reopen. A rebound in hiring won’t happen overnight, but he feels it’ll be enough to inject investor confidence into the markets and provide a catalyst for yields.”
Latest on the PPP
The Trump administration is scrambling to address mounting criticism of PPP loans.
Mnuchin said large loans will be closely scrutinized: “Mnuchin said that any small business loan over $2 million will be subject to ‘full review’ before it could be forgiven,” Erica Werner reports.
“Amid an outcry about large companies receiving the loans, the [Los Angeles] Lakers repaid the $4.6 million government-backed loan it took out. Mnuchin said in an interview on CNBC that it was ‘outrageous’ the NBA franchise had obtained the money in the first place. It’s unclear if other professional sports teams received similar loans. The organizations aren’t required to disclose it, and the government has not provided any records. Mnuchin also said, while appearing on Fox Business, that firms that improperly took these loans could be subject to ‘criminal liability.’ ”
- The uproar comes as oversight lags: “A congressional oversight commission created to oversee a $500 billion treasury fund for major industries and others has not yet gotten up and running because the group’s chair, who has to be jointly selected by House Speaker Nancy Pelosi (D-Calif.) and Senate Majority Leader Mitch McConnell (R-Ky.), has not been named. A separate select committee that Pelosi created also has not gotten off the ground. And the White House has named its future nominee to serve as special inspector general for pandemic recovery, but the nomination has not been considered yet by the Senate.”
Trump orders meat plants to remain open.
The move comes despite concerns about worker safety: “[The president] invoked the Defense Production Act to classify meat plants as essential infrastructure that must remain open. Under the order, the government will provide additional protective gear for employees as well as guidance, according to a person familiar with the action who spoke about the order before it was signed by the president," Taylor Telford, Kimberly Kindy and Jacob Bogage report.
“Worker safety experts say such an order would prevent local health officials from ordering meat companies to use their the most effective weapon available to protect their employees from the coronavirus — closures. They also fear that it would also undercut newly issued federal health guidelines designed to put space between plant workers.”
The White House is also mulling aid to help energy companies: “In conversations with independent analysts, senior administration officials have floated a variety of ideas including the imposition of tariffs on imported crude oil; purchasing oil in the ground and leaving it there until prices rebound; providing cash in return for equity stakes in faltering companies; and creating a government lending program similar to one for the airline industry,” Steven Mufson reports.
“The Federal Reserve could provide backing to some oil companies, just as it is doing with other businesses short on credit. The president could also try to build on his diplomatic work to persuade Saudi Arabia to divert some of the tankers heading this way. Saudi Arabia has announced cutbacks in production effective May 1, but the decision to send these tankers to the United States was made a month ago when the Saudis were still trying to flood the global markets in a dispute with Russia.”
In the U.S.:
- Cases topped one million and the death count has climbed past 58,000.
- Push to reopen runs up against workers' fears: “Hanging over plans to restart the nation’s economic engine are unprecedented health concerns, as individuals balance each shopping trip, airplane flight and restaurant meal against the risk of catching a sometimes-fatal illness,” David J. Lynch and Abha Bhattarai report.
- Antibody tests show once again that covid is worse than the flu: “… When all the serological data is compiled and analyzed, the fatality rate among people who have been infected could be less than 1 percent. But as infectious disease experts point out, even a seemingly low rate can translate into a shockingly large death toll if the virus spreads through a major portion of the population,” Joel Achenbach reports.
- Trump sends gushing letter to 90 million people: “The one-page letter, with one side printed in English and the other in Spanish, was required by the economic package approved by Congress as a record of a deposit from the Treasury Department … But in classic Trump style, the letters now arriving in mailboxes across the country carry no shortage of brio, underscoring the president’s penchant for personalizing his administration’s response to the pandemic," Lisa Rein and Michelle Singletary report.
- Fast-food companies hope stimulus checks will boost sales: “McDonald’s Corp. and Starbucks Corp. issued earnings updates on April 8 that showed a sales hit … Investors will get more information this week — along with updated outlooks — when they and other companies officially report,” Hilary Russ and Nivedita Balu report.
- Southwest cuts Boeing deliveries: “Southwest, which only operates Boeing 737s and is the world’s largest customer of the grounded 737 MAX, will take no more than 48 new 737 MAX jets before Dec. 2021, a fraction of the 123 it had originally scheduled,” Reuters's Tracy Rucinski reports. Southwest previously reported its first Q1 loss in nine years.
- Ford expects $5 billion loss: The car company said its second-quarter loss "would more than double to over $5 billion from $2 billion in the first quarter … but added it had enough money despite the crisis to last the rest of 2020,” Reuters's Ben Klayman and Nick Carey report.
Around the world:
- China resists Australia's push for a covid probe: “The dispute intensified after Frances Adamson, the head of Australia’s Department of Foreign Affairs and Trade, called [Cheng Jingye, China’s ambassador to Australia] to express concern on Monday. In a move that the Australian Broadcasting Corp. described as ‘the equivalent of lobbing a small hand grenade,’ the Chinese embassy publicized details of the call on its website the following day,” Antonia Farzan reports.
- Lufthansa, Germany fight over aid: “Deutsche Lufthansa is balking at a request by the German government for two board seats at the carrier in exchange for what is shaping up to be one of the world’s biggest airline bailouts so far …,” the Wall Street Journal's Bojan Pancevski and Benjamin Katz report.
- British Airways may cut up to 12,000 jobs: “The airline’s parent company, IAG, said on it needed to impose a ‘restructuring and redundancy’ program until passengers start traveling again as often they did last year,” Teo Armus reports. That's about one quarter of its overall workforce.
Money on the Hill
The House will stay home for now.
The chamber scuttled plans to return after a backlash from some lawmakers: “House Speaker Nancy Pelosi (D-Calif.) said Tuesday she had ‘no choice’ but to heed warnings from Brian P. Monahan, the attending physician of Congress, that bringing the chamber back for routine work after more than six weeks of limited operation would place lawmakers and support staff at heightened risk,” Mike DeBonis and Seung Min Kim report.
“[Senate Majority Leader Mitch] McConnell has chosen to accept the risk, bringing senators back for work starting with a Monday evening vote on Trump’s nominee for inspector general of the Nuclear Regulatory Commission. Two days later, the Senate Judiciary Committee plans to hold a confirmation hearing for Justin Walker, a McConnell protege nominated to the U.S. Court of Appeals for the D.C. Circuit.”
A House lawmaker announced a third-party presidential bid.
Rep. Justin Amash (I-Mich.) will seek the Libertarian Party's nomination: “Amash, who turned 40 this month, was elected in the 2010 tea party wave and grew increasingly distant from Republicans as the decade went on, fending off a primary challenge from a business-backed conservative in 2014. He was deeply critical of Trump’s 2016 campaign, and even more critical of what the GOP did with control of the legislative and executive branches,” David Weigel reports.
“In 2019, Amash became the only Republican to call for Trump’s impeachment. Not long after, he left the party and continued to vote against spending bills, while opposing many White House priorities. He faced a tough reelection in his Grand Rapids, Mich.-based district, with Republicans and Democrats both filing against him.”
Boeing encounters another probe over the 737 Max.
The company faces a number of previously unreported investigations: “Boeing Co. faces criminal and civil scrutiny into years of widespread quality-control lapses on its 737 MAX assembly line, according to people familiar with the details, potentially exposing the plane maker to greater legal liability than previously anticipated by industry and government officials,” WSJ's Andy Pasztor and Andrew Tangel report.
“The inquiries build on a federal grand-jury investigation into hazardously designed flight-control systems, these people said. As part of the expanded probes, Justice Department prosecutors and federal air-safety regulators have been scrutinizing potentially significant safety problems stemming from 737 MAX production missteps.”
- Q1 U.S. GDP numbers are released at 8:30 a.m
- The Fed concludes a policy meeting
- Boeing, Carnival, Royal Caribbean, Yum! Brands, Facebook, General Electric, Valero Energy Microsoft, Spotify, Tesla, Aflac, Hasbro and eBay are among the notable companies reporting their earnings.
- The Labor Department releases the latest jobless claims numbers
- Amazon, Apple, American Airlines, Gilead Sciences, ConocoPhillips, McDonald’s, Hanesbrands MGM Resorts, Molson Coors, Visa, Twitter, Whirlpool, Six Flags, Dunkin’, Kellogg and Planet Fitness are among the notable companies reporting their earnings
- The Institute for Supply Management’s manufacturing index for April
- Chevron, Clorox, AbbVie, Honeywell, Phillips 66 and DISH Network are among the notable companies reporting their earnings
- Warren Buffet's Berkshire Hathaway holds its annual shareholders meeting and announces its Q1 earnings
From The Post's Tom Toles: