How the market could decide the trade war
With help from Hans von der Burchard and Doug Palmer
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— President Donald Trump’s trade policies and the resulting global tensions will increasingly weigh on markets in 2019, with Apple CEO Tim Cook already blaming the company’s poor returns partially on the U.S.-China trade war.
— An end to a partial government shutdown is nowhere in sight after Senate GOP leaders said they would not even take up House Democrats’ bills to reopen the government.
— European Trade Commissioner Cecilia Malmström will arrive in Washington next week to continue with her U.S. and Japanese counterparts a dialogue aimed at disciplining China’s trade practices.
IT’S THURSDAY, JAN. 3! Welcome to Morning Trade, where your host is ready to tackle the historic trade year that 2019 will likely be. Got any tips to help me out? Let me know: [email protected] or @abehsudi.
HOW THE MARKET COULD DECIDE THE TRADE WAR: Trump’s trade moves are expected to have an outsize impact on global markets this year, with some analysts readily placing the blame for any downturn squarely on the shoulders of the administration.
“The responsibility for the downturn in global corporate sentiment and stock markets lies at the doors of the White House,” Karen Ward, chief market strategist for EMEA at JPMorgan Asset Management, warned in the Financial Times this week.
There’s already evidence that trade tensions will increase pressure on companies this year. Apple told investors on Wednesday that revenue in the first quarter of the 2019 fiscal year is lower than projected. The tech giant said China’s economic malaise is responsible for a revenue shortfall and company CEO Tim Cook told CNBC that trade tensions put additional stress on the Chinese economy.
Deteriorating economies in China and the U.S. could force leaders from both countries to move toward a trade truce, whether Trump likes it or not, a top Wall Street strategist said on the latest POLITICO Money podcast.
Jim Paulsen, chief investment strategist at The Leuthold Group, said he doesn’t believe that Trump, who loves to extol a rising market, will want to risk the kind of crash that could occur if talks fall apart. “I think fairly soon we are going to see an announcement between China and Trump,” he said. “I think it will amount, basically, to a hill of beans. But it will be a face-saving announcement of something being done.”
NO END IN SIGHT FOR SHUTDOWN: Trump and congressional leaders made no progress toward resolving a fight that has led to a partial government shutdown. Democratic leaders threw down the gauntlet by saying they would vote on the same measure to fund the government that the Senate passed before the end of the year. However, Senate Majority Leader Mitch McConnell said the Senate will not take up that House bill, or any others that the president opposes.
“The Senate will be glad to vote on a measure that the House passes that the president will sign. But we’re not going to vote on anything else,” McConnell said after returning from a White House briefing with Trump and the top congressional leaders of both parties. POLITICO’s Sarah Ferris and Burgess Everett have the latest here.
USMCA analysis grinds to a halt: The U.S. International Trade Commission will remain shuttered for the length of the partial government shutdown, raising the possibility that it could delay the release of a highly anticipated report on the economic impact of the new U.S.-Mexico-Canada Agreement. The commission is required to submit the report, which many lawmakers will look toward to inform their positions on the deal, by March 15.
MALMSTRÖM COMES TO WASHINGTON: EU trade chief Cecilia Malmström, U.S. Trade Representative Robert Lighthizer and Japanese Economy Minister Hiroshige Sekō will meet again in Washington next week to advance their trilateral initiative to rein in market-distorting trade practices. The meeting is scheduled for Jan. 9, according to a notice in Malmström’s calendar.
The last time the ministers met as a group was in September in New York, where they agreed to launch a joint proposal for improving transparency and notifications for subsidies at the World Trade Organization. That proposal was presented to the WTO in November.
Clear target: Since the establishment of the trilateral group more than one year ago, Malmström, Lighthizer and Sekō have agreed to work toward improving the WTO rulebook in three areas: market-distorting subsidies, state-owned enterprises and forced technology transfer policies. There’s one big country that ticks all three boxes: China.
CHINA ENVOY: DISAGREEMENTS ARE MANAGEABLE: ICYMI, China’s envoy to the U.S., Cui Tiankai, said the U.S. and China have “once again come to a crossroads in history.” The ambassador, in an op-ed in USA Today, said the two countries should “avoid the entrapments of rivalry” but warned that disagreements can’t be resolved overnight. Still, he said the disagreements are “still manageable because the basic elements of the relationship remain unchanged.”
“With the guidance of our presidents, we must seize the hour, seize the day, advancing China-U.S. relations centered on coordination, cooperation and stability,” he wrote.
NO DATE YET FOR LAUNCH OF U.S.-JAPAN TALKS: USTR published its negotiating objectives for talks with Japan on a bilateral trade agreement just before Christmas. But it’s not ready to announce the date to start the talks, a USTR spokeswoman said Wednesday. USTR also is not ready to announce who will be lead U.S. negotiator, the spokeswoman said, when asked if Michael Beeman, the assistant U.S. trade representative for Japan, Korea and APEC, would fill that role.
POMPEO TALKS TRADE IN BRAZIL: No new trade initiatives were announced, but Secretary of State Mike Pompeo expressed Trump’s interest in developing stronger ties with Brazil when he met on Wednesday with the country’s new president, Jair Bolsonaro. Trump “is very pleased with the relationship that our two countries are on the precipice of beginning to develop,” Pompeo said before the two men headed into a closed-door meeting.
Those private talks focused on several regional issues, “including combating transnational crime and reinforcing democratic governance and human rights in Venezuela, Cuba, and Nicaragua,” State Department spokesman Robert Palladino said. “They also discussed further strengthening economic ties and trade.”
ICYMI: MAURITANIA BOOTED FROM AGOA PROGRAM: Shortly before Christmas, Trump issued a long proclamation that — among other things — kicked Mauritania out of the African Growth and Opportunity Act trade benefits programs for failing to make sufficient progress in eliminating hereditary slavery. USTR announced the move was coming in early November.
— The Trump administration is staying mum on what it thinks of China trade concessions ahead of talks in Beijing, Bloomberg reports.
— Tariff exclusions for certain steel imports continue to sow confusion, The Wall Street Journal reports.
— Incoming Florida Gov. Ron DeSantis is being urged to use his ties to Trump to help address the plight of the state’s produce farmers, Orlando Weekly reports.
— Hundreds of Hong Kong toy makers are looking to move production out of mainland China, the South China Morning Post reports.
— Former Treasury Secretary Robert Rubin says in a New York Times op-ed that the U.S. and China must get along to confront the world’s problems.
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