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Huge day for China talks — We are now less than 24 hours away from tariffs on $200 billion of Chinese imports more than doubling to 25 percent barring significant progress on Thursday in afternoon talks between top Trump administration officials and a Chinese delegation led by Vice Premier Liu He. The Chinese will quickly hit back if U.S. tariffs go up, though they will have to rely mostly on non-tariff barriers.
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Wall Street didn’t care at all about it on Wednesday but that will change with the first signals that the Chinese are not willing to recommit to earlier pledges. President Trump and USTR Bob Lighthizer are clearly willing to go ahead with the tariff increase on Friday.
At a breakfast on Wednesday, one banker expressed significant concern to MM about the outcome of the trade talks and said investors were “seriously underpricing” the risk of full-scale trade war. (More below).
Trump on China — The president on Wednesday confirmed our reporting from earlier this week that he believes the Chinese are trying to stall and run out the clock in hopes of negotiating with a different president, possibly former VP Joe Biden, in 2021. If this is the case, it’s a serious miscalculation by the Chinese.
Speaking of Biden — He’s likely to have his own issues on the left on trade given his support both in the Senate and in the Obama administration for permanent normal relations with China and deals like the Trans Pacific Partnership.
** A message from Wells Fargo: $1.6 billion committed to Washington, D.C communities. Wells Fargo’s Where We Live program is combining lending and philanthropy to help expand affordable housing, grow small businesses and teach job skills, with a special focus on distressed areas in Wards 7 and 8. Read more **
China talks are scheduled to begin in the late afternoon, so any breakdown would likely occur after U.S. markets close and in time for the Asia open … Producer prices at 8:30 a.m. expected to be up 0.2 percent headline and core … President Trump delivers remarks on medical billing at 11:45 a.m. and welcomes the World Series Champion Red Sox to the White House in the afternoon …
JOIN ME TODAY — MM is moderating a pair of panels in DC on Thursday morning at POLITICO’s The United States of Entrepreneurs event. Great lineup of speakers including senior lawmakers and job creators. Check it out here.
WHY SO CHILL ON WALL STREET? — Allianz’s Mohamed A. El-Erian emails MM: “In shrugging off the trade news, markets are assuming that a deal gets done.
“What they are missing, however, is that the deal won’t prevent more tensions with China down the road given that the underlying drivers go well beyond economics and involve national security issues. As such, they are becoming even more dependent on continued loose Fed liquidity support.”
Trump at his Florida rally on Wednesday said China “broke the deal,” though no deal has yet been reached. … And shares in Asia hit six-week lows.
NEW THIS A.M.: SKILLS OUTLOOK 2019 — The OECD this morning released its “Skills Outlook 2019 – Thriving in a Digital World.” Among the findings: “The U.S. has an average level of skill proficiency relative to other OECD countries but the share of young people lacking basic skills is high … 10.2% of U.S. workers are in occupations at high risk of automation” Read more.
DECISION DAY ON TRUMP TAX RETURNS — Our Heather Caygle and Aaron Lorenzo: “House Democrats are expected to decide on Thursday whether to go straight to court to obtain … Trump’s tax returns, a move that would escalate their ongoing war with the president over his most sensitive financial documents.” Read more.
GOP SENATE RELENTS ON EX-IM — Our Zachary Warmbrodt: “The Senate on Wednesday agreed to replenish the board of the hobbled Export-Import Bank with three Trump appointees, after Republican opponents spent years blocking nominees to lead the trade-finance agency.
“The bank, which has provided billions of dollars in loan guarantees to foreign buyers of U.S. exports, will now be able to return to full operation for the first time since 2015, when its board lost a quorum necessary to approve transactions larger than $10 million.” Read more.
Via the Eurasia Group: “While Trump may expect the added pressure will force China to compromise, he is prepared to escalate if China walks away. … Beijing is unlikely to deliver the kind of last-minute concessions that the US side is looking for.”
Cowen’s Chris Krueger on China’s options given that only around $10B in untariffed U.S. exports remain: “Government-encouraged boycotts of U.S. products; Increased customs inspections; Enforcement of anti-monopoly laws; Patent invalidation; Aggressive factory inspections; Rare Earth export ban; Increased tax scrutiny on U.S. earnings, etc.”
STOCKS SLIDE AS MODEST RALLY FADES — AP’s Damian Troise and Alex Veiga: “A modest rally faded in the last few minutes of trading on Wall Street, leaving stocks slightly lower Wednesday ahead of the latest round of trade talks between the U.S. and China.” Read more.
Why markets aren’t sweating the trade war (much) — NYT’s Neil Irwin: “The real question is not why the stock market is down this week. It is why it is down so little. After all, the world’s two largest economies have seemed to be hurtling toward a major escalation of their trade war. American officials have complained that Chinese negotiators have been playing a bait-and-switch, backing away from concessions they had agreed to. … The answer to the puzzle lies in a few words: the Trump Put.” Read more.
And fast money never liked the rally anyway — Bloomberg’s Justina Lee: “On the way up, the lack of conviction in this year’s U.S. stock rally was a source of vexation and fear for many bulls. Now some hope it will be their salvation. Swaths of Wall Street’s investing elite never bought into the 2019 rebound, so now that it’s threatening to turn sour they don’t have much to sell.” Read more.
MARKET PULLBACK PAYS OFF FOR VIX WAGERS — WSJ’s Asjylyn Loder: “Traders betting on a spike in Wall Street’s fear gauge are the big winners from Tuesday’s market turmoil.” Read more.
TRUMP CLAIMS WIN IN OHIO — Our Tanya Snyder: “General Motors is selling its plant in Lordstown, Ohio, to a small electric truck-maker called Workhorse … Trump tweeted Wednesday — news that could blunt anger in the battleground state over the impending loss of 1,700 jobs.
“GM confirmed that it is ‘in discussions’ with Workhorse. Workhorse could not immediately be reached for comment. … The acquisition confused some observers, who noted that Workhorse is a company with just 98 full-time employees, a $63 million market cap and a $36.5 million net loss for 2018” Read more.
LOUISE LINTON, THE PLAYER — Hollywood Reporter’s by Kim Masters: “The U.S. Treasury Secretary’s spouse is trying to remake her image as an entitled Washington wife and focus on her aspirations as an actress and producer. But Congress still has questions about her husband’s remaining ties to entertainment and her role in his controversial assets” Read more.
WELLS FARGO CREATES NEW REGULATORY UNIT — Reuters’ Imani Moise: “Wells Fargo & Co is creating a new unit tasked with satisfying U.S. regulatory requirements … Derek Flowers, who has been with the San Francisco-based bank for more than two decades, will become head of strategic execution and operations and will focus on the bank’s regulatory priorities” Read more.
TRANSITIONS — Larry Di Rita has been named the new market president for Greater Washington at BofA. He will continue to be SVP and lead external affairs. Read more.
OPPORTUNITY ZONE CREATOR GOES PRIVATE — Via Bloomberg Tax: “A staffer for Sen. Tim Scott (R-S.C.), one of the creators of the 2017 tax law’s opportunity zone tax breaks, has left the senator’s office to launch a trade group that will represent investors taking advantage of the tax incentives.
“Shafron ‘Shay’ Hawkins, who confirmed his departure to Bloomberg Tax, founded the Opportunity Funds Association, a Section 501(c)(6) trade association, with Surya Gunasekara, a lobbyist and former chief of tax and tax counsel to former Rep. Jim Renacci (R-Ohio). The association will lobby on policy surrounding opportunity zones at the federal, state, and local levels, according to its website.” Read more.
SUNTRUST INVESTS IN DC — Per release: “SunTrust Banks … announced that it will make a $10 million equity investment in JBG SMITH’s Washington Housing Initiative Impact Pool. The Initiative is a transformational market-driven approach to producing affordable housing in the Washington, D.C. region.” Read more.
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