Those developments came following a recent intensification in tensions, with both China and the U.S. announcing that new tariffs will be slapped on billions of dollars worth of each others goods.
“President Trump’s continued escalation of tensions gives little room for China (or indeed the US) to compromise without losing face, which makes a deal less likely in the near term,” Tapas Strickland, an economist at National Australia Bank, wrote in a morning note.
It’s “clear” that Trump and his administration still want to get a deal with China, if it “meaningfully addresses some of the concerns” raised surrounding issues such as forced technology transfer and intellectual property theft, Clete Williams, partner at Akin Group, told CNBC’s “Squawk Box” on Tuesday.
“That said, I do think you’re seeing the president say one thing on Friday, something else today,” Williams said. “A lot of folks are trying to understand that, my advice to them is stay calm, don’t read into every single comment. If you can’t stay calm, bet on volatility because you’re gonna see a lot of ups and downs and back and forth between now and when a deal … is reached.”
Archil Cheishvili, CEO for GenesisAi, which uses artificial intelligence to form an analytics platform for capital markets, said he believes the trade war …
WASHINGTON (CN) – Escalating a trade war with no end in sight, President Donald Trump said Thursday he will impose a new 10% tariff on $300 billion worth of Chinese goods beginning in September.
“Trade talks are continuing, and during the talks the U.S. will start, on September 1st, putting a small additional Tariff of 10% on the remaining 300 Billion Dollars of goods and products coming from China into our Country,” Trump tweeted. “This does not include the 250 Billion Dollars already Tariffed at 25%.”
The president also criticized China for not buying large quantities of American agricultural goods and for not stopping the sale of fentanyl to the U.S.
While Trump said Thursday trade talks between the two economic superpowers were positive and the future is bright, he implied two days earlier that negotiating a trade agreement with his administration would be harder if he is re-elected in 2020, claiming Chinese representatives were waiting to “rip off” an incoming Democrat.
The president has routinely taken shots at Chinese integrity through Twitter, saying they “just don’t come through” in negotiations. He promised during his 2016 presidential campaign to brand the country as a currency manipulator, but has yet to do so.
Last year, Trump met with Chinese President Xi Jinping in Argentina at the G20 Summit and agreed to a deal for China to purchase more American products, among other trade-specific stipulations. But the deal hiccupped when Trump announced higher tariffs on $200 billion worth of Chinese goods in May.
In June, Trump and Xi symbolically agreed to a second deal for China to purchase a large amount of agricultural products at this year’s G20 Summit in Japan, but Trump accused China of reneging on that deal in announcing the new tariffs.
The trade war between the two countries was a key factor in the Federal Reserve’s decision Wednesday to cut interest rates for the first time since the start of the recession more than a decade ago.
Archil Cheishvili, CEO for GenesisAi, which uses artificial intelligence to form an analytics platform for capital markets, said he believes the trade war will only get worse. The ongoing battle will devastate the Chinese economy before it affects the American economy, he said.
Cheishvili said America already has experience in busting foreign economies, comparing the current trade war between China and the U.S. to a trade war between the U.S. and Japan in the 1980s.
“People saw that Japan would overtake the U.S. as the largest power country in the world,” Cheishvili said in an interview Thursday. “In the 1980s, the U.S. imposed a 100% tariff on electronics and other imports coming from Japan. … Japan is pretty much still in recession right now.”
He said Trump has two things in mind when it comes to the trade war, one of them being that an American recession is unlikely to occur before the 2020 election.
“The second thing that he cares about is that it will affect China much, much worse than it will affect the U.S., and he will be absolutely right about that,” Cheishvili said. “China has much more non-performing loans than it had in recent history. Much more than Greece had, much more than Italy had. …We think that this will trigger a recession in China, which will trigger a global financial crisis afterwards.”
In addition to the stock-market selloff, the U.S. dollar jumped and the … surprise in tomorrow’s data releases to be negative news for equity markets …
Stocks fell Thursday, giving up strong, early gains, after President Donald Trump announced plans to impose additional tariffs Chinese imports to the U.S., even though the trade talks between the two countries are due to resume September.
The Dow Jones Industrial Average DJIA, -1.05% lost 280.85 points, or 1.1%, to 26,583.42, while S&P 500 index SPX, -0.90% fell 26.82 points, or 0.9% to end at 2,953.56. The Nasdaq Composite Index COMP, -0.79% closed down 64.30 points, or 0.8%, at 8,111.12.
The Dow has now fallen for three days in a row to its lowest close since June 27, and is 2.8% below its record high of 27,369 seen on July 15, but remains up 14% year-to-date.
The benchmark S&P 500 index on Thursday saw its lowest close since June 28, and is 2.3% off its record high of 2025.86 on July 26, but remains up 18% year-to-date.
What’s driving the market?
The unexpected move by Trump to ratchet up the trade war with China reversed Thursday morning’s gains in stocks when investors were betting the Federal Reserve would cut interest rates again in September given weakening economic data.
A draft list of $300 billion worth of targets published by the Trump administration in May included a raft of consumer and technology goods, including Apple’s iPhone, along with toys, footwear and clothing.
“When you build plant equipment, you’re buying steel, you’re buying aluminum, you’re buying imported products and then we put tariffs on those, so literally the tax incentive we gave you with one hand was taken away with the other hand,” the former Goldman Sachs president said.
The stronger U.S. dollar was seen impacting earnings of companies with international operations and lower U.S. Treasury yields supported stock market valuations.
“The minimal size of the cut, the dissents (by two FOMC members), and Powell’s press conference disappointed markets, and undercut our expectation,” Morgan Stanley economist Ellen Zentner said in a note. “We expect a follow-up cut of 25bp this year, and we judge October as the most likely timing”.
The prospect of further Fed rate cuts was enhanced also by data showing a further weakening in the U.S. manufacturing sector.
In the U.S., the Institute for Supply Management said its manufacturing index slipped to 51.2% in July, the lowest reading since August 2016. Meanwhile the IHS Markit U.S. manufacturing index fell to its lowest since September 2009 at 50.4%. Of further concern, the employment subindexes showed employment contracting for the first time since June 2013.
Meanwhile investors were also digesting more second quarter corporate earnings reports. Following Thursday morning‘s batch of earnings, just over 71% of S&P 500 companies have now reported. According to FactSet, results from actual earnings blended with estimates for companies still to report, projects earnings will fall 1.4%.
On the earnings front, shares of Dow component Verizon Communications Inc. VZ, -0.02% rose after the telecommunications giant beat Wall Street expectations for second-quarter earnings, but fell short on revenue.
Treasury yields fell sharply on the news of new tariffs on Chinese imports. The benchmark 10-year yield TMUBMUSD10Y, -5.83% slid to 1.89%, hitting its lowest level since November 2016. The 2-year rate dell to trade at 1.726%.
The U.S. dollar gave up Thursday’s earlier gains on the tariff news, with the ICE U.S. Dollar Index DXY, -0.13% slipping to 98.28, after earlier hitting a two-year high.
Crude oil prices fell 7.9% CLU19, -6.96%, declining for the first time in six days to levels seen six weeks ago, after the tariff announcement.
In Asia overnight, stocks closed mostly lower, with China’s CSI 300 000300, -0.83% declining 0.8%, Japan’s Nikkei 225 NIK, +0.09% rose 0.1% and Hong Kong’s Hang Seng Index HSI, -0.76% retreated 0.8%. In Europe, stocks were virtually unchanged, as measured by the Stoxx Europe 600 SXXP, +0.50%.
Clive McKeef is a MarketWatch editor and writer based in New York.
LAYOFFS AT UBER: Uber Chief Executive Dara Khosrowshahi announced in an email to staff Monday that the company was laying off about 400 …
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With help from Ian Kullgren
Editor’s Note: This edition of Morning Shift is published weekdays at 10 a.m. POLITICO Pro Employment & Immigration subscribers hold exclusive early access to the newsletter each morning at 6 a.m. Learn more about POLITICO Pro’s comprehensive policy intelligence coverage, policy tools and services at politicopro.com.
— The Labor Department will allow small businesses to band together to provide their workers retirement savings plans.
— Attorney General William Barr is making it harder for migrants to receive asylum based on the claim that their families are being targeted for persecution.
— The Senate HELP committee will vote on two EEOC nominees today.
DOL PUBLISHES NEW RETIREMENT RULE: The Labor Department published a final rule Monday that allows small businesses to band together to offer retirement savings plans, POLITICO’s Ian Kullgren reports. “The rule establishes a system through which small employers could offer workers 401(k)s sponsored by a larger association, such as a local Chamber of Commerce. In theory, it will enable businesses to offer retirement plans comparable to larger corporations.”
“Under the rule released Monday,companies in different industries—for example, landscaping companies and real-estate firms—could create a joint plan as long as they are located in the same state or metropolitan area,” explains the Wall Street Journal’s Sarah Chaney. “The rule also would clarify that similar companies—for example two landscaping companies—located in different regions of the country could join together.” More from The Journal.
FAMILY ASYLUM CLAIMS RESTRICTED: A precedent-setting immigration court opinion issued Monday by Attorney General William Barr “will restrict the ability of migrants to claim asylum based on their family relations,” POLITICO’s Ted Hesson and Josh Gerstein report. Barr said that being part of a family targeted for persecution doesn’t qualify as a “particular social group” eligible for asylum in the United States.
“The fact that a criminal group— such as a drug cartel, gang, or guerrilla force — targets a group of people does not, standing alone, transform those people into a particular social group,” the attorney general wrote. Barr’s ruling will guide future decisions in the immigration courts, which fall under the purview of the DOJ, and marks the latest escalation of the Trump administration’s efforts to tighten access to asylum. Former Attorney General Jeff Sessions issued a similar decision in June 2018 that made it more difficult for victims of domestic violence and gang violence to receive asylum. A D.C. federal judge blocked key parts of a policy related to the decision six months later. More from POLITICO.
GUATEMALAN OFFICIAL SEEKS TO NULLIFY ASYLUM DEAL: Human rights prosecutor Jordán Rodas asked Guetemala’s Constitutional Court on Monday to nullify a deal President Jimmy Morales’ government signed with President Trump that will require migrants who pass through Guatemala en route to the U.S. to first seek asylum in that nation, the Associated Press reports. “The appeal argues that the agreement was signed under threats from U.S. President Donald Trump, who’d warned of possible tariffs or other consequences for Guatemala if it didn’t get on board.”
“Article 52 of the Vienna Convention signals that any treaty or agreement … that has been obtained under threats is null,” Rodas said, who also requested the removal and investigation of Foreign Minister Enrique Degenhart, who signed the deal last week, according to the AP. President Trump announced that the U.S. struck a “safe third country” asylum agreement with Guatemala on Friday after he threatened a possible travel ban, tariffs, and a fee on remittances against the country for allegedly terminating negotiations with the U.S. “Prior to the signing, the Constitutional Court had granted three injunctions ordering the government not to enter into a deal without approval from the country’s Congress — a ruling it ignored.” More from the AP.
EEOC NOMINEES FACE COMMITTEE VOTE: This morning at 10 a.m. the Senate HELP committee will consider the nomination of Sharon Fast Gustafson for EEOC general counsel and the renomination of Charlotte Burrows for EEOC member. Burrows’ confirmation will allow the EEOC to maintain functioning. The agency restored a quorum in May when the Senate confirmed Republican Janet Dhillon, but Burrows’ term expired July 1. Burrows does have the option to remain on the board until her renomination is confirmed.
Gustafson told Kainethat Congress had the right to pass whatever legislation it deemed necessary. “It would be very nice if we had a simple decision, either because Congress had made it clear to us in [a] statue, or because the Supreme Court made it clear for us,” she said. Janet Dhillon, who was recently confirmed by the Senate to chair to commission, also refused to commit to maintain the EEOC’s current position. More on the meeting.
Around the Agencies
CHIEF APPRENTICESHIP ADVISER IS LEAVING: Laurie Rowe, former Labor Secretary Alexander Acosta’s chief apprenticeship adviser, will vacate her post at the end of the week, according to a DOL official. The reason stated to staff was a death in the family.
POWER RESTORED TO WAGE AND HOUR FIELD OFFICES: DOL’s Wage and Hour chief Cheryl Stanton in May “restored subpoena authority to field offices, just days after she revoked it,” Bloomberg Law’s Chris Opfer reports. Ten days after assuming her post April 29, Stanton had told Wage and Hour staff that green-lighting investigative actions “taken by others besides me are invalid,” POLITICO’s Ian Kullgren reported. That decision consolidated Stanton’s control over the department’s investigations of workplace violations such as minimum wage and overtime. More from Bloomberg Law.
TRUMP SIGNS BILL PROVIDING FUNDS TO 9/11 FIRST RESPONDERS: “President Donald Trump signed a law to permanently extend aid to first responders who fell ill after working at Ground Zero following the Sept. 11 terrorist attacks,” Erin Durkin reports for POLITICO. Trump signed the $10 billion legislation, at a White House ceremony Monday morning, permanently reauthorizing the fund set up to ensure that first responders and others who have been diagnosed with cancers and illnesses linked to the toxins in the air near the World Trade Center site are compensated. The fund was running dry and began cutting payments earlier this year. But shortly after the bill was signed Monday, the fund announced that it now has cash “sufficient to pay all pending and projected claims without the need for any continued reductions in awards.”
“It reiterates that America understands that these 9/11 related illnesses are a direct result of the selfless sacrifice of so many fire fighters and other responders from throughout our great nation who answered the call when our nation was attacked,” the International Association of Fire Fighters said in a statement on the bill’s signing.
In the Workplace
LAYOFFS AT UBER: Uber Chief Executive Dara Khosrowshahi announced in an email to staff Monday that the company was laying off about 400 employees in its global marketing department, The Los Angeles Times’ Johana Bhuiyan reports.
The company’s initial public offering in May “was marred by doubts on Wall Street that Uber can pare back its steep losses and become profitable,” Kate Conger writes for the New York Times. “At the end of May, Uber reported its slowest growth in years and a loss of more than $1 billion for the first quarter.”
The gig company has also faced recent criticism and protests from its drivers over pay. Thousands of drivers in cities across the country, including New York and Los Angeles, logged off their apps ahead of Uber’s IPO in May. Uber and competitor Lyft are also working to broker a compromise with California legislators over a law that could lead many workers to be reclassified as employees rather than independent contractors.
DIVERSITY DIVIDING DCCC: “The top echelon of staffers at the Democratic Congressional Campaign Committee left their jobs Monday, a shakeup following a pair of POLITICO stories detailing deep unease with the party’s campaign apparatus over a lack of diversity,“ POLITICO’s Heather Caygle, Laura Barrón-López and Jake Sherman report. POLITICO reported last week that black and Hispanic lawmakers are furious with DCCC chair Rep. Cheri Bustos‘ (D-Ill.) leadership. Lawmakers, aides and strategists have questioned Bustos’ efforts to retain staffers of color in top positions, to boost Latino voter outreach, and to hire firms run by people of color.
“There is not one person of color — black or brown, that I’m aware of — at any position of authority or decision-making in the DCCC,” said Rep. Marcia Fudge (D-Ohio), a former chairwoman of the Congressional Black Caucus. “It is shocking, it is shocking, and something needs to be done about it.” A DCCC aide told POLITICO “nearly 50 percent of the senior staff identifies as racially diverse,” but this person declined to name a senior staffer who is a person of color.
On Monday morning, Allison Jaslow, the DCCC’s executive director and a close Bustos ally resigned during a tense meeting at the party’s Capitol Hill headquarters. “And in the next 10 hours, much of the senior staff was out: Jared Smith, the communications director; Melissa Miller, a top DCCC communications aide; Molly Ritner, the political director; Nick Pancrazio, the deputy executive director; and Van Ornelas, the DCCC’s director of diversity.“ More from POLITICO.
What We’re Reading
— “Harris floats Wall Street tax to one-up Sanders in ‘Medicare for All’ debate,” from POLITICO
— “Democrats say Goodyear Mexico plant raises concerns about USMCA labor accountability,” from POLITICO
— “Judge blocks New Hampshire Medicaid work rules,” from POLITICO
— “Anonymous Workplace Harassment Suits Double in #MeToo Era,” from Bloomberg Law
— “How Cargill Went From Environmental Leader to ‘Worst Company in the World,’” from The New York Times
— “‘It’s Not Shameful to Work in the Fields. But It’s Hard.’” from The Nation
— “The 2020 Democratic immigration debate, explained,” from Vox
US President Trump declared that Libra, Facebook’s proposed virtual currency, “will have little standing or dependability.” The Twitter-troll-in-chief …
Facebook just did the unthinkable in the Donald Trump era: give America’s Republicans and Democrats something on which to agree. Same with the Group of Seven nations taking a dim view of the social media giant minting its own money.
US President Trump declared that Libra, Facebook’s proposed virtual currency, “will have little standing or dependability.” The Twitter-troll-in-chief didn’t stop there, saying he’s “not a fan” of Bitcoin and the cryptoworld in general, assets he argues are “not money, and whose value is highly volatile and based on thin air.”
Many members of US Congress said as much in a raucous July 17 hearing on Libra. New York Democratic Congresswoman Alexandria Ocasio-Cortez spoke for many by questioning the “public good” of a “currency controlled by an undemocratically selected coalition of largely massive corporations,” one that doesn’t include any banks. Added Senator John Neely Kennedy, a Louisiana Republican: “Facebook now wants to control the money supply. What could go wrong?”
There are, of course, more supportive voices. For example, David Lipton, acting chief of the International Monetary Fund, warns that financial innovation might be the biggest casualty if lawmakers “squelched” Libra out of hand. Such views, significantly, have support from a vital, if unlikely, global power: Japan.
In Chantilly, France last week, G7 officials tripped over themselves to head off Mark Zuckerberg at the pass – none more acerbically than Steven Mnuchin, Trump’s Treasury secretary. Mnuchin has voiced “grave concerns” about Libra, saying it “could be misused by money launderers and terrorist financiers.” When a US finance czar calls your big project a “national security issue,” you know you’re is courting trouble.
That’s doubly so when the likes of Bruno Le Maire, France’s finance minister, says “I fully share the concerns expressed by Mnuchin. We cannot accept any exchange currencies with the same kind of power and same kind of role as a sovereign currency.” Nor is German Finance Minister Olaf Scholz exaggerating when he says “Libra is on everyone’s mind.”
The good news: that includes Taro Aso in Tokyo. In Chantilly, the Japanese finance minister countered that “users would find [Libra] useful in making international money transfers because it would be cheaper than the current system. But whether it will be reliable is another issue.” In other words, let’s talk about how to make a private unit of exchange like Libra work.
Here, Japan is again proving itself to be the major economy most open to cultivating a crypto revolution that most of its peers are keen to squelch, and fast. In 2017, Tokyo was the first government of a developed nation to recognize Bitcoin as legal tender. Since then, Tokyo has made significant strides in regulating and licensing crypto assets.
In June, when Japan hosted the annual Group of 20 summit, it put crypto-assets on the discussion table – a first for the grouping. Along with circulating a guide for cryptocurrency regulation, based on its own experiences, Japan insisted the topic be included in the formal communique. And using language that played up how “technological innovations can deliver significant benefits” over the panicky verbiage used in Trump’s Washington.
There’s great irony in this push. Typically, risk-averse, aging Japan seems the last place that might welcome blockchain innovators disrupting the system faster than Aso, 78, and his team can grasp. The crypto game, meanwhile, has covered the city in crime tape enough times to warrant a “CSI: Tokyo” series.
The mystery surrounding the 2014 Mt. Gox heist, where hackers made off with US$450 million of tokens, still has sleuths entranced. Ditto for the more than US$500 million of coins that vanished from the Coincheck exchange in 2018. Another episode earlier this month saw roughly half the 110,000 customers at the Bitpoint exchange become victims.
But Tokyo is right to keep an open mind on two fronts. One, it positions Tokyo as a global hub for crypto-trading and issuance. This, of course, is part of a broader goal of Prime Minister Shinzo Abe’s government. Tokyo has looked on with alarm as Hong Kong, Singapore and Shanghai and Shenzhen became premier financial centers. It also hopes to nurture more tech “unicorns” since Japan trails even Indonesia in producing US$1 billion-plus startups. While crypto-asset growing pains are numerous, Japan will be front and center when Bitcoin and the blockchain boom grow up.
Two, Japan is bowing to the inevitable. Today, it’s Facebook turning heads at government offices and central banks. It would be naïve, though, to think Alibaba’s Jack Ma, Amazon’s Jeff Bezos, SoftBank’s Masayoshi Son, Tesla’s Elon Musk and others aren’t scrambling to create Libra competitors. Or, for that matter, the People’s Bank of China. What better way to dent America’s global clout than eclipsing the dollar?
Facebook, arguably, may have been the wrong messenger. In Washington, it’s the target of bipartisan anger and suspicion. Democrats blame its anything-goes news feed for helping elect Trump; Republicans believe Zuckerberg’s platform is biased against conservatives. What if, for example, Apple’s Tim Cook had been the Silicon Valley mogul to unveil Libra? Might there have been less of a backlash?
Far from going away, though, this global game of Whack-A-Mole will only intensify. Officials in Tokyo are, for better or worse, resigning themselves to a coming bull market in both proposed private currencies and financial innovation in general.
Libra, and its yet-to-be-announced rivals, might not happen. The virulence of the push-back in G7 circles speaks to the level of skepticism. As France’s Le Maire puts it: “We won’t allow private states to emerge that would have the same privileges of a state but without the controls that go with it.”
G7 officials get that cryptocurrencies could lower transaction costs, improve efficiency and make life easier for the unbanked masses. But the lack of transparency and reporting norms, they argue, would make money laundering, terror financing and tax evasion great again. If officials from Washington to Brussels to Tokyo worry about North Korea, Iran and other rogue actors now, just wait until they can spirit money around via social media.
Yet Japan’s pragmatism is a welcome voice in the debate. Bank of Japan Governor Haruhiko Kuroda views Libra as a useful test case to “see if cryptocurrencies can gain people’s confidence as a means of payment.” Key to that confidence taking hold, though, is Kuroda and fellow policymakers helping build a credible market infrastructure.
Money laundering and terror capital concerns mean governments will demand to play a central role. This, Aso says, requires a balancing act among crypto issuers, punters and governments. “Applying existing regulations alone may not be enough,” he says. “A comprehensive examination is needed to see if Libra poses new challenges that existing rules don’t take into account.”
Again, it’s entirely possible that Facebook’s currency won’t fly. Yet Zuckerberg is hardly alone in his desire to devise a new business model that harnesses the crypto boom. And if following the proverbial money is any guide, Tokyo will have a pivotal role in how that model develops. As Tokyo keeps the door open, no less than 110 crypto exchanges are lining up to launch in the Japanese capital. The “likes” Facebook and others are getting from Japan could be a game-changer.