The Trump administration’s failure to extract any meaningful concessions from Beijing in return for salvaging Chinese telecom giant ZTE is more than just a tactical defeat.
It portends a broader collapse of the U.S. push to force systemic reforms from the nation’s stiffest economic rival for its serial theft and abuse of American know-how.
News of the deal on Thursday drew denunciations from lawmakers in both parties — and a renewed promise from a bipartisan group of senators to pass an amendment aimed at spiking it. Congressional criticism focused on the ongoing national security risk posed by ZTE: The Pentagon, for example, ordered equipment made by the company off military bases last month after assessing the company could enable espionage.
Here was Sen. Marco Rubio (R-Fla.):
— Marco Rubio (@marcorubio) June 7, 2018
And Sen. Mark Warner (D-Va.), the ranking member on the Senate Intelligence Committee:
This idea of “embedding a compliance team” at ZTE is a nice talking point, but unless the Trump Administration plans to open an FBI counter-intel field office inside the company, Beijing is about to get one heck of a deal on a backdoor into US telecom networks. https://t.co/nlsTnnDci1
— Mark Warner (@MarkWarner) June 7, 2018
The administration’s cave poses an arguably graver concern for those rooting for an overdue confrontation with Beijing over its industrial policy and the intellectual property violations that support it. Commerce Secretary Wilbur Ross — who both forged the severe penalties against ZTE for selling wares to Iran and North Korea in breach of U.S. sanctions and announced the deal — has insisted the matter has nothing to do with trade policy. But Trump has repeatedly linked his administration’s handling of the ZTE matter with its broader trade confrontation with China.
“When Trump brought it up initially, I assumed he was going to use it as a negotiating tactic to get the Chinese to stand down from some of their more egregious 2025 policies,” says Rob Atkinson, president of the Information Technology and Innovation Foundation, referring to China’s 10-year plan to dominate the fields of robotics, electric vehicles, artificial intelligence and biotech, among others. “I had hopes this administration, unlike Obama’s, would really be tough on China and take them to task, and I don’t anymore. I’m extremely dismayed.”
Trump trade watchers have learned never to say never. Among other things, the ZTE deal could still fall apart. If the administration fails to mount a sufficient defense, “criticism is likely to become more bipartisan and more likely to turn into legislative action to stop the deal,” Evercore ISI wrote in a Thursday note. The administration has more leverage in reserve, in the form of $50 billion in tariffs on Chinese imports it has said it will list next week. And The Wall Street Journal reports that U.S. Trade Representative Robert E. Lighthizer — the chief advocate in Trump’s inner orbit for using the confrontation with Beijing to demand fundamental changes to its economic approach — is once again on top in the Trump trade team’s Big Ball of Violence.
Further, China has agreed to purchase $70 billion agriculture and energy products from the U.S. to narrow the trade imbalance between the countries.
But by all accounts, the Chinese are driven by the imperative to master the next generation of advanced industries in order to match and ultimately surpass U.S. economic might. In other words, while the Trump team wheels and deals over soybeans, the Chinese are fixated on semiconductors. That President Trump was willing to save a “national champion” company significant enough for Chinese President Xi Jinping to make a personal appeal on its behalf, while securing nothing — save, possibly, approval for a Qualcomm merger — conveys volumes to Beijing: The Trump trade team’s erraticism is exactly what it looks like, and the Chinese will face no sustained pressure to shape up.
PROGRAMMING NOTE: I’ll be away for two weeks and this newsletter will be operating on an abbreviated schedule, publishing Tuesdays, Wednesdays and Thursdays with an all-star roster of Post guest writers. See you in your inbox when I return.
|You are reading The Finance 202, our must-read tipsheet on where Wall Street meets Washington.|
|Not a regular subscriber?|
— Three biggest central banks to meet. Bloomberg’s Enda Curran, Craig Torres, and Piotr Skolimowski: “The world’s three most powerful central banks convene next week, with the U.S. Federal Reserve setting the pace in a retreat from the era of easy money. Three meetings within 36 hours of each other are set to conclude with the Fed raising interest rates, the European Central Bank potentially fleshing out its plan to cease buying bonds, and the Bank of Japan maintaining its massive stimulus program. Fed Chairman Jerome Powell’s relative hawkishness presents investors with reasons to buy the dollar as central banks for almost half the global economy, and three-quarters of the official currency reserves, diverge in their monetary policies. It also threatens to intensify pressure on emerging markets, which are already unnerved by the withdrawal of U.S. stimulus and increasingly calling on the Fed to slow down.”
— Economists see boost from bank deregulation. WSJ’s Ben Leubsdorf: “Most economists think the U.S. will experience somewhat stronger growth in the coming years due to recent legislation that relaxed postcrisis rules on some banks, though a sizable minority said the measure could at least modestly weaken financial stability. Among dozens of forecasters surveyed in recent days by The Wall Street Journal, 61% said they expected U.S. growth in the medium term would be modestly stronger thanks to the bill signed last month by…Trump. Some 33% said they expected no effect on economic growth from the rules-rollback. Few expected a decline or significant increase.”
— Macron rebukes Trump. The Washington Post’s Damian Paletta, David J. Lynch and Heather Long: “French President Emmanuel Macron on Thursday threatened to join with other world leaders to issue a rare rebuke of the United States at a global summit [in Canada] this weekend, drawing an immediate and sharp reply from… Trump. Macron threatened to exclude the United States from the joint statement issued every year at the end of the Group of Seven summit of industrial democracies, as part of an international pushback against Trump efforts to change trade rules. ‘The American President may not mind being isolated, but neither do we mind signing a 6 country agreement if need be,’ Macron wrote on Twitter. ‘Because these 6 countries represent values, they represent an economic market which has the weight of history behind it and which is now a true international force.’ Trump responded by accusing Macron and Canadian Prime Minister Justin Trudeau of hurting the United States with unfair trade practices.”
From Trump on Thursday night:
Please tell Prime Minister Trudeau and President Macron that they are charging the U.S. massive tariffs and create non-monetary barriers. The EU trade surplus with the U.S. is $151 Billion, and Canada keeps our farmers and others out. Look forward to seeing them tomorrow.
— Donald J. Trump (@realDonaldTrump) June 7, 2018
Prime Minister Trudeau is being so indignant, bringing up the relationship that the U.S. and Canada had over the many years and all sorts of other things…but he doesn’t bring up the fact that they charge us up to 300% on dairy — hurting our Farmers, killing our Agriculture!
— Donald J. Trump (@realDonaldTrump) June 7, 2018
Why isn’t the European Union and Canada informing the public that for years they have used massive Trade Tariffs and non-monetary Trade Barriers against the U.S. Totally unfair to our farmers, workers & companies. Take down your tariffs & barriers or we will more than match you!
— Donald J. Trump (@realDonaldTrump) June 8, 2018
And early Friday morning:
Canada charges the U.S. a 270% tariff on Dairy Products! They didn’t tell you that, did they? Not fair to our farmers!
— Donald J. Trump (@realDonaldTrump) June 8, 2018
Looking forward to straightening out unfair Trade Deals with the G-7 countries. If it doesn’t happen, we come out even better!
— Donald J. Trump (@realDonaldTrump) June 8, 2018
Trump to leave Quebec early, per The Post write-up: “The White House said Thursday evening that Trump now plans to leave Quebec on Saturday morning, several hours earlier than his counterparts. ‘The President will travel directly to Singapore from Canada in anticipation of his upcoming meeting with North Korea’s leader Kim Jong Un Tuesday,’ White House press secretary Sarah Huckabee Sanders said in a statement.”
May tells Europeans not to overreact. Bloomberg News’s Kitty Donaldson: “British Prime Minister Theresa May urged her European Union counterparts to show restraint when retaliating against U.S. tariffs on European steel and aluminum, saying any action should comply with World Trade Organization rules… ‘Obviously the European Union will be responding,’ May told reporters en route to the G-7 summit in Canada. ‘We want to ensure, and we’re working with others in the European Union to ensure that this response is proportionate, that it is within the WTO rules.'”
Putin says he saw it coming. The Post’s Anton Troianovski: “As he watches Europe’s confrontation with… Trump, Russian President Vladimir Putin appears to be enjoying an ‘I told you so’ moment … With Trump’s new metals tariffs, Putin said, Europeans are now finally getting their comeuppance for showing excessive deference to Washington — and getting a taste of the way the United States had long treated Russia. ‘In essence, these are sanctions,’ Putin said of the tariffs. ‘What, did they “annex Crimea,” as many of our partners say?’ Putin went on: ‘Our partners probably thought that these counterproductive policies would never affect them. . . . No one wanted to listen, and no one wanted to do anything to stop these tendencies. Here we are.'”
— The key to the U.S.-China trade dispute might be in Iowa. The New York Times’s James B. Stewart: “American farmers may be dwindling in absolute numbers, but they wield outsize influence in the raging war between protectionists and free traders in the Trump White House. That’s because of both the importance of their occupation to the balance of trade — United States agricultural exports have averaged nearly $140 billion a year since 2010 — and their geographical concentration in states that were critical to Mr. Trump’s 2016 electoral majority. Much of the farm belt is solidly Republican. But Iowa, Wisconsin and Minnesota are presidential battlegrounds, where even a small defection of farmers could doom Mr. Trump’s re-election prospects.”
— Tariffs on solar panels slow down investment. Reuters’s Nichola Groom: “Trump’s tariff on imported solar panels has led U.S. renewable energy companies to cancel or freeze investments of more than $2.5 billion in large installation projects, along with thousands of jobs, the developers told Reuters. That’s more than double the about $1 billion in new spending plans announced by firms building or expanding U.S. solar panel factories to take advantage of the tax on imports… GTM Research, a clean energy research firm, recently lowered its 2019 and 2020 utility-scale solar installation forecasts in the United States by 20 percent and 17 percent, respectively, citing the levies.”
— The administration sought help from Saudi Arabia over the Iran deal withdrawal. Reuters’s Rania El Gamal, Yara Bayoumy and Alex Lawler: “A day before … Trump withdrew from the Iran nuclear deal, one of his senior officials phoned Saudi Arabia to ask the world’s largest oil exporter to help keep prices stable if the decision disrupted supply … Riyadh has said that even though prices have spiked to over $80 per barrel, the highest since 2014, the market has yet to recover from a long slump. Until the phone call, Saudi officials had been saying it was too early to raise output … So there was shock among some of Saudi Arabia’s fellow OPEC members when it issued a supportive statement hours after Washington imposed new sanctions on Tehran. It said it was ready to raise output to offset any supply shortage.”
— Another jab at Mueller. The Post’s John Wagner: “Trump said Thursday that a special counsel was not needed to investigate Russian interference in the 2016 election and asserted unprecedented bias among the lawyers conducting what he termed a ‘Witch Hunt Hoax’… In one tweet, Trump quoted Alan Dershowitz, a professor emeritus at Harvard Law School, asserting that [Special Counsel Robert S.] Mueller’s work could have been done by the Justice Department rather than ‘a multimillion dollar group of people with a target on someone’s back.’ ‘So true!’ Trump wrote in his own voice.”
— Trump also airs grievances against the Obama administration. Politico’s Louis Nelson: “Trump on Thursday slammed the Obama administration over a waiver it issued that would have allowed the Iranian government to briefly route money through a U.S. bank, suggesting that… Mueller include the revelation in his current investigation. ‘The Obama Administration is now accused of trying to give Iran secret access to the financial system of the United States. This is totally illegal,’ Trump wrote on Twitter. ‘Perhaps we could get the 13 Angry Democrats to divert some of their energy to this “matter” (as Comey would call it). Investigate!'”
— Gig economy has shrunk. The Post’s Danielle Paquette and Heather Long: “The gig-economy, which has drawn billions of dollars in venture capital and praise but deep criticism from policymakers, appears not to have caused the massive disruption to the economy that many originally thought. A new report from the Bureau of Labor Statistics, the first in 13 years on the topic, says the share of U.S. workers in these types of jobs has shrunk from 7.4 percent in 2005, before Uber and its like existed, to 6.9 percent in 2017. The report, released Thursday, confounded economists who had expected that companies like Uber would have much more significantly changed the workforce.”
— McDonald’s plans layoffs. WSJ’s Julie Jargon: “McDonald’s Corp., battered by price wars and struggling to revive its U.S. burger business, said it will cut layers of managers as part of a half-billion-dollar plan to shrink administrative expenses by the end of next year. The latest reorganization comes as the fast-food chain has been working to turn around its crucial U.S. division for more than three years. The fast-food market has become increasingly competitive as rivals have come out with aggressive deals to attract customers… [McDonald’s USA President Chris] Kempczinski didn’t mention the scope of the head-count reduction but is expected to provide additional details during a town-hall meeting Tuesday.”
MONEY ON THE HILL
— Goldman, Morgan Stanley sidelined by new lobbying powerhouse. Bloomberg’s Robert Schmidt: “An effort by the nation’s largest banks to boost their lobbying clout in Washington is leaving three industry titans on the sidelines: Goldman Sachs, Morgan Stanley and Credit Suisse Group AG. Though the three firms were initially slated to be included in a newly merged trade association, they were blocked after some executives argued that adding more mega-banks would highlight the stigma that Wall Street still carries from the 2008 financial crisis. Others said that members should be limited to consumer-oriented lenders.
“The decision is part of a sometimes fractious debate playing out as high-profile CEOs, including Bank of America Corp.’s Brian Moynihan and JPMorgan Chase & Co.’s Jamie Dimon, work to combine the Financial Services Roundtable and the Clearing House Association. The tie-up, which comes at a time when banks are eager to capitalize on the Trump administration’s business-friendly agenda, has dredged up long-standing fissures over how to improve the industry’s image and rebuild its political standing. While the deal is still expected to go forward, disagreements have bogged down the launch of the new entity, according to people with direct knowledge of the negotiations. The tensions have even prompted some regional banks to discuss dropping out, the people added.”
— Economic satisfaction isn’t helping Republicans. NBC News’s Mark Murray: “By a whopping 25-point margin, voters say they’re more likely to back a congressional candidate who promises to serve as a check on President Donald Trump, according to a new national poll from NBC News and the Wall Street Journal. And by a similar margin, they say they’re less likely to vote for someone who has supported the president on most issues. At the same time, six-in-10 are satisfied with the U.S. economy, and a plurality of voters give Trump credit for the economic improvement. Despite that economic optimism, however, the poll shows that Democrats enjoy a 10-point advantage on congressional preference, with 50 percent of registered voters wanting a Democratic-controlled Congress, versus 40 percent who want a GOP-controlled one. Democrats held a 7-point edge on this question back in April, 47 percent to 40 percent.”
— Antitrust chief: We aren’t against vertical deals. Reuters’s Liana Baker: “A top antitrust official at the U.S. Justice Department attempted to reassure investors on Thursday that worries that regulators would crack down on proposed combinations of two companies on a supply chain — known as vertical mergers — were overblown. Makan Delrahim, the assistant attorney general for antitrust, said that most proposed transactions were either good for consumers or neutral… ‘I understand that some journalists and observers have recently expressed concern that the antitrust division no longer believes that vertical mergers can be efficient and beneficial to competition and consumers,’ he said. Delrahim said that some of these point at the decision to sue to try to stop AT&T from buying Time Warner ‘as a supposed bellwether,’ he said. ‘Rest assured these concerns are misplaced.’”
As Justice eyes as a horizontal deal. Reuters’s Sheila Dang: “The U.S. Department of Justice is examining how the proposed merger between T-Mobile US Inc and Sprint Corp could affect prices for smaller wireless operators… The Justice Department, which is evaluating T-Mobile’s $26 billion deal to buy Sprint, has been speaking with small wireless operators that buy access to the major wireless networks at wholesale rates, and is seeking their opinions about the merger … Antitrust investigations are a normal part of the merger approval process, especially for large deals like T-Mobile’s.”
— No systemic fake accounts. Reuters’s Pete Schroeder: “A U.S. bank regulator said on Thursday that an industry-wide review prompted by Wells Fargo & Co’s sales practices scandal had uncovered some instances of phony accounts at other lenders but little evidence of a ‘systemic’ problem. The Office of the Comptroller of the Currency reviewed more than 40 large and midsize banks after Wells Fargo’s phony accounts scandal first erupted in 2016, wrapping up the process at the end of 2017.”
— Stress test results coming. Reuters: “The Federal Reserve announced on Thursday it would release the results of its 2018 stress tests for large banks on June 21 and June 28. The U.S. central bank will report the results of the stress tests on June 21, and will follow with the results of its Comprehensive Capital Analysis and Review (CCAR) on June 28.”
— Mulvaney drops PHH case. American Banker’s Kate Berry: “Acting Consumer Financial Protection Bureau Director Mick Mulvaney on Thursday dismissed the bureau’s case against PHH Corp., ending a contentious legal battle that resulted in no fines against the company and no change to the independent agency’s structure. Mulvaney wrote in a two-paragraph legal filing that the Mount Laurel, N.J., company did not violate the Real Estate Settlement Procedures Act, which bans kickbacks in exchange for referrals.”
From The Post’s Christopher Ingraham: “For younger households, debt rises and assets decline:”
- The Bipartisan Policy Center holds an event with HUD Secretary Ben Carson.
- The Peterson Institute hosts a discussion on U.S.-China economic relations on June 11.
- The Bipartisan Policy Center holds an event on Alexander Hamilton’s views on institutions, trade, elections, and financial systems on June 11.
- The Senate Banking, Housing and Urban Affairs Committee will hold an executive session to vote on the nominations of Richard Clarida to be vice chairman of the Federal Reserve System and Michelle Bowman to be a member of the Federal Reserve’s board of governors on June 12.
- Comptroller of the Currency Joseph Otting testifies before the House Financial Services Committee on June 13.
- The House Small Business Committee holds a hearing on “The Impact of Category Management on the Small Business Industrial Base” on June 13.
- The Brookings Institution holds an event on “Building a more dynamic an competitive economy” on June 13.
- The American Enterprise Institute holds an event on central banking and the regulatory state on June 18.
Four times Trump got history a little wrong:
There are several theories about what IHOP’s new name could mean:
Watch the moment a tornado forms in Wyoming: