The Finance 202: Trump's trade offensive is producing brutal local headlines

It also stands in stark contrast to the cavalcade of positive headlines rolling in six months ago as employers handed out bonuses in the wake of tax cuts. Republicans hoped the momentum from that package — their only major legislative achievement of the Trump era — would power them through a difficult midterm season. The stories now plastering the outlets that had trumpeted the bonuses show how dramatically the narrative has shifted at a critical moment for the president’s party. 

A fly-around of pieces from over the last few days paints the picture. Several of these were tweeted by Scott Lincicome, a CATO Institute scholar and trade attorney critical of the Trump trade offensive. And as he noted, a simple Google search turns up many more:

• In Iowa, Mike Naig, the state’s Republican secretary of agriculture, told a crowd at the Central Iowa Fair on Friday the administration needs to resolve its fight with Beijing. “When retaliation comes targeted at agriculture we are bearing the brunt. We cannot continue to bear the full brunt,” he said. “Current commodity prices are not equaling the cost of production … There has been a 20 percent drop in prices.”
• In South Dakota, Kolberg-Pioneer, which manufactures equipment for making crushed stone and gravel, is contemplating its second price increase of the year to deal with higher steel prices thanks to Trump's metals tariffs. “Those costs are going to have to be passed along. All that variability really hurts your business,” Jeff May, president of the company, tells the Yankton Daily Press & Dakotan. ““At the end of the day, I don’t know what the end game is out there and what we get out of this.” Meanwhile, the Sioux Falls Argus Leader’s Dana Ferguson and Jeremy Fugleberg report the trade fight has “already cost South Dakota farmers and ranchers hundreds of millions of dollars, experts said, as the value of their crops has dipped ... It's a loss that many can't sustain and one that elected officials and others worried could tank the state's economy.”
• In Utah, the steel tariffs could add roughly $15 million to the cost of a new state prison already over budget. “That's the bad thing about a war, even a trade war, you never know which direction it will go, and unfortunately it could get could worse; I hope that it doesn't,” Derek Miller, president of the Salt Lake Chamber and Downtown Alliance, tells KUTV in Salt Lake City. 
• In Wisconsin, a range of businesses are feeling the effects of retaliatory tariffs from Canada, designed as a “surgical strike” on the state and others that backed Trump, Scott Gordon of WisContext writes: “With new tariffs on greeting cards, tissue paper, napkins, toilet paper and even playing cards, Canada puts pressure on a range of products that has represented more than $2 billion in exports from Wisconsin to that nation over the past decade.”
• In New Hampshire, the administration’s confrontations with China and Canada are “making some goods costlier, leaving some Granite State companies to change their plans - putting jobs at risk in some cases,” the New Hampshire Union Leader’s Michael Cousineau writes. Among those feeling the burn: the Little Bay Lobster Co. in Newington. The company “had shipped more than 50 percent of its lobsters to China - or around 50,000 pounds a week. But after China imposed a 25 percent tariff this month on U.S. lobster exports, things changed. ‘We ship to China every week, and all of a sudden we didn't have any orders,’ manager Amy Shafmaster said. ‘The Canadian lobster is so much cheaper than the U.S. lobster now.’”

That's just a sampling. Some other headlines: 

• From WECT in North Carolina: “Trump’s trade war with China could affect local jobs”
• From the Springfield News-Leader in Missouri: “'Trying to keep the faith': Missouri farmers brace for Trump's trade war — and drought”
• From WKRG in Mobile, Ala.: “Local leaders say Trump tariffs threaten Mobile economy”
• From The Day in New London, Conn.: “Local manufacturers feel the pain of aluminum, steel tariffs”
• From the South Bend Tribune in Indiana: “Indiana farmers not exempt from prolonged tariff battle”

Trade watchers will learn more about how the trade war is playing locally with the release of the Federal Reserve’s latest “beige book” on Wednesday. But the profusion of headlines on the matter spells out an emerging consensus: State businesses caught in the tariff crossfire are suffering already and bracing for worse. And the darkening coverage could further turn an already skittish public against the administration's strategy.

— Powell to the Hill. Bloomberg's Craig Torres: "Two of the biggest risks to Jerome Powell’s monetary policy -- trade tensions and loose fiscal policy -- are also the stickiest political traps he’ll try to avoid when he appears before lawmakers this week. Powell... delivers his second testimony to lawmakers as Fed chief when he answers questions from the Senate Banking Committee on Tuesday at 10 a.m. in Washington, followed by the House Financial Services Committee the next day.

"Powell previewed his outlook in an interview Thursday with American Public Media’s “Marketplace” and said the economy was in a 'good place.' The Fed chairman signaled no urgency to rate interest rates faster than the Fed already envisions... Powell, a former private-equity banker, hedged his bets when asked about trade and fiscal policy in the interview Thursday. If the trade skirmish results in lower tariffs, 'that’ll be a good thing for our economy.' If there is a sustained period of high tariffs 'that could be a negative.' He took a similar line on fiscal policy. The tax cuts could result in 'higher investment and higher productivity.' In the longer-run, the U.S. is on an 'unsustainable fiscal path.'”

— Stocks keep rallying. The Wall Street Journal's Akane Otani and Ben Eisen: “U.S. stocks are rising even as financial markets from Tokyo to Frankfurt reel from the growing trade rift between the White House and China, raising questions about whether investors are underestimating the risks of a deeper downturn. The S&P 500 and Dow Jones industrial average have gone up all but one day since the U.S. and China imposed tariffs on $34 billion of each other’s goods on July 6. The broad index is now up 4.8% for the year, while the Shanghai Composite has dropped 14%, South Korea’s Kospi Composite Index has shed 6.3%, Germany’s DAX has lost 2.9% and Japan’s Nikkei Stock Average has declined 0.7%. The U.S. stock market’s resilience in the face of tense trade talks suggests investors are largely shrugging off escalating tensions, viewing trade-related market ructions as buying opportunities instead of warning signs.”

— Economists see rising sales, employment. AP's Dee-Ann Durbin: "Most U.S. business economists expect corporate sales to grow over the next three months and hiring and pay to rise with them. But a majority of the economists surveyed by the National Association for Business Economics say the corporate tax cuts that the Trump administration pushed through Congress have yet to affect their plans for hiring or investment... The NABE also said a majority of respondents from goods-producing companies said their companies were delaying investment, raising prices or taking other steps in response to the Trump administration’s trade conflicts with other nations."

— Chinese growth drags. Bloomberg News's Enda Curran: “Confirmation that China’s economy is slowing amid an escalating trade war is a worrying omen for global growth. Data released since Friday has affirmed what’s been expected for some time: That an ongoing campaign to curtail credit is putting the brakes on the world’s second-largest economy. Given that China generates as much as a third of global growth, that’s adding to signs that the best world expansion in years is plateauing. The International Monetary Fund, which has repeatedly warned that the trade spat between the U.S. and China will reverberate globally, is scheduled to release fresh growth forecasts later Monday. The Chinese economy grew at an expected 6.7 percent in the second quarter, its slowest pace since 2016.”

ZTE stock surges as U.S. supplier ban lifted though outlook remains uncertain (Reuters)

TRADE FLY-AROUND:

— Trump calls the EU a “foe” on trade. The Washington Post's Josh Dawsey and Seung Min Kim: “Trump told British Prime Minister Theresa May that she should 'sue' the European Union for a quicker Brexit, May said Sunday. ... Trump also continued his public criticisms of the E.U., calling it a 'foe' in a CBS interview that aired Sunday. 'I think we have a lot of foes. I think the European Union is a foe, what they do to us in trade,' Trump said in the interview. 'Now, you wouldn’t think of the European Union, but they’re a foe. Russia is a foe in certain respects. China is a foe economically; certainly they are a foe. But that doesn’t mean they are bad.'”

— China files WTO challenge. AP: "China announced it filed a World Trade Organization challenge Monday to... Trump’s proposal for a tariff hike on $200 billion of Chinese goods, reacting swiftly amid deepening concern about the economic impact of their spiraling technology dispute. The one-sentence Commerce Ministry statement gave no legal grounds for the challenge or other details. It was an unusually rapid move for a trade case, coming less than one week after the U.S. Trade Representative announced the tariff plan, which wouldn’t take effect until at least September.

Brady: Trump and Xi should talk. Reuters: “The top Republican lawmaker overseeing trade policies on Sunday called for a meeting between... Trump and Chinese Premier Xi Jinping to ease trade tensions, warning that U.S. tariffs would likely dampen U.S. economic growth this year. House Ways and Means Committee Chairman Kevin Brady said U.S. tax cuts had helped drive stronger U.S. growth but trade tariffs on steel and aluminum, and against Chinese imports, could now undermine that impact.”

— Johnson worries about lasting damage. The Hill's Jacqueline Thomsen: “Sen. Ron Johnson (R-Wis.) warned on Sunday that... Trump’s policies on trade are starting to do 'permanent damage.' Johnson said... that his state of Wisconsin has 'been particularly targeted' by China’s recently imposed tariffs, which came in response to Trump’s trade measure against the country. Johnson [said] that the steel tariffs are 'hitting us pretty hard,' adding that he’s heard of price increases of 30 to 40 percent.”

— Boeing chief executive says tariffs haven't hurt the company yet. Reuters's Eric M. Johnson, Tim Hepher: “Boeing Co . . . is concerned about the impact of possible trade tariffs on the cost of running its supply chain, but has not yet seen any impact from U.S.-Chinese trade tensions on its business, Chief Executive Dennis Muilenburg said on Sunday. 'The discussion right now is proposed tariffs, ongoing discussions. So in terms of actual implementation and things that are impacting us, we haven’t seen a material impact yet,' Muilenburg told reporters. 'We are very much engaged in the discussion. We are concerned that it could affect supply chain costs. But note that supply chains are flowing in both directions between (these) countries as we both support existing fleets as well as build new airplanes.'”

— Critics say Kushner company was a rough landlord. AP's Bernard Condon and Garance Burke: “More than a dozen current and former residents of the building told The Associated Press that they believe the Kushner Cos.′ relentless construction, along with rent hikes of $500 a month or more, was part of a campaign to push tenants out of rent-stabilized apartments and bring high-paying condo buyers in. If so, it was a remarkably successful campaign. An AP investigation found that over the past three years, more than 250 rent-stabilized apartments — 75 percent of the building — were either emptied or sold as the Kushner Cos. was converting the building to luxury condos. Those sales so far have totaled more than $155 million, an average of $1.2 million per apartment. . . . This up-close look at one of the Kushner Cos.′ largest residential buildings in New York illustrates what critics describe as the firm’s sharp-elbowed business practices while it was run by . . . Trump’s son-in-law and eventual White House adviser Jared Kushner.”

MELTDOWN WATCH:

— Trump says his expectations for his meeting with Putin are low. The Post's Anton Troianovski and Philip Rucker: “Coming into Monday’s one-on-one summit, Trump faces intense pressure back home to confront Putin over Russia’s interference in the 2016 presidential election, especially in the wake of Friday’s indictment of 12 Russian intelligence officers for hacking and releasing Democratic Party emails. ... But Trump’s week-long tour through Europe underscored his common ground with Putin more than their differences. ... Trump landed in Helsinki on Sunday night with what he said were low expectations and an unusually loose agenda for the kind of high-stakes international meeting that typically is tightly scripted and has predetermined outcomes . . . In an indication of his friendly posture, Trump said, under prompting in an interview with CBS News anchor Jeff Glor, that he 'hadn’t thought' of asking Putin to extradite the 12 Russian agents indicted by the U.S. Justice Department.”

— Goldman will make it official. NYT's Kate Kelly: “Goldman Sachs is expected to name its president, David M. Solomon, as its next chief executive early this week, according to people briefed on the plan. The announcement would formally establish Mr. Solomon as the successor to Lloyd C. Blankfein as one of the most powerful executives on Wall Street. Mr. Blankfein, who presided over record earnings during his 12 years atop Goldman, will stay on for an interim period. Anointing Mr. Solomon, however, most likely makes it easier for him to put his future lieutenants in place. The announcement could be made as soon as Monday, according to people briefed on the plan who requested anonymity because they were not authorized to discuss it.”

— European banks are eager for risky U.S. debt. Bloomberg News's Donal Griffin: “When an indebted infant health-care company in Atlanta wanted to borrow hundreds of millions of dollars to buy a rival in Pasadena, it turned to a lender thousands of miles away in London. Barclays Plc is helping Aveanna Healthcare LLC get a $221 million loan for its purchase of Premier Healthcare Services LLC, adding to a $900 million debt last year. The deal will push Aveanna’s borrowings to more than 10 times its earnings and leave it with 'little room for error,' S&P Global Ratings said. The proposed loan is among tens of billions of dollars of borrowings that European lenders are arranging for riskier American clients, a business they’re targeting to ease the pain from revenue slumps in other areas. They’re so keen to take market share from their U.S. rivals that even Deutsche Bank AG, the embattled lender that’s giving up much of its Wall Street ambition, has earmarked more funds for such deals.”

— Deutsche Bank surprises. Bloomberg's Steven Arons: “Deutsche Bank AG surprised investors with second-quarter earnings that were higher than analysts had expected, driving one of Europe’s worst-performing bank stocks up the most in more than a year. The Frankfurt-based bank sees net income of about 400 million euros ($468 million) and income before income taxes of about 700 million euros, 'considerably' above estimates. The preliminary results -- nine days before its official earnings date -- were published according to regulatory guidelines.”

— Boeing and Airbus are having trouble with deliveries. The WSJ's Robert Wall and Doug Cameron: “Boeing Co. ... and Airbus SE... swamped with orders for new jets, are struggling to deliver them all on time—in some cases angering customers and delaying payments. Airbus has missed a number of deadlines for deliveries, forcing airline customers to find alternatives, change routes or cancel flights. It has delivered fewer planes than it did by this time last year, despite promising 80 more this year. The missed deliveries mean delayed payments, because most cash changes hands only upon delivery. That has hit Airbus’s closely followed cash flow over the year. Boeing hasn’t missed any deliveries and says it won’t. But it is straining with the same supplier shortfalls as Airbus, particularly when it comes to engines.”

— 2020 WATCH: Warren, others edge into the race. NYT's Alex Burns and Jonathan Martin: "During a campaign-style tour of the West late last month, Senator Elizabeth Warren did not announce she was running for president. But in private events and public speeches, her message about 2020 was as clear as it was rousing... Before the trip and since, Ms. Warren and her emissaries have been reaching out to key Democratic officeholders in Iowa, Nevada and South Carolina — three states early in the presidential primary calendar — making introductions and offering help in the midterm campaign. Altogether, her moves are among the most assertive steps taken by any Democrat to prepare for 2020.

"Ms. Warren, 69, now leads a small advance guard of Democrats who appear to be moving deliberately toward challenging President Trump. Former Vice President Joseph R. Biden Jr., wielding a political network cultivated over decades, has been reasserting himself as a party leader, while Senators Cory Booker of New Jersey and Kamala Harris of California have emerged as fresher-faced messengers for the midterms. And Senator Bernie Sanders of Vermont, the runner-up in the 2016 primaries, has been acting like a candidate as he considers another race. All five have been traveling the country, raising money for Democrats and gauging the appeal of their personalities and favorite themes."

— DOJ scrutiny weighs on Comcast-Fox deal. CNBC's Alex Sherman: "The Department of Justice has not given up: It's still trying to block AT&T's acquisition of Time Warner (now named Warner Media). And it probably dooms Comcast's chances of buying Fox. For Comcast it doesn't really matter that the only way the Department of Justice can win is if the D.C. Circuit Court of Appeals rejects the fundamental premise behind U.S. District Judge Richard Leon's 172-page decision. The appeal itself may cast enough doubt on Comcast's chances that it will more formally shift its attention to acquiring Sky rather than the remainder of Fox, which includes the Fox movie studio, Sky India, a 30 percent stake in Hulu and other assets, according to a person familiar with the matter."

Today

• Municipal Finance Conference at the Brookings Institution in Washington today through tomorrow.

Coming soon

• Federal Reserve Board Chair Jerome H. Powell appears before the Senate Banking Committee tomorrow.
• House Energy subcommittee hearing on oversight of the Federal Trade Commission on July 18.
• House Agriculture Committee hearing on cryptocurrencies on July 18.
• House Ways and Means subcommittee hearing on the effects of tariffs on U.S. agriculture on July 18.
• Senate Finance subcommittee hearing on trade and commerce at ports of entry on July 18.
• House Oversight subcommittee hearing on “regulatory divergence” on July 18.
• House Intelligence Committee hearing titled “China’s threat to American government and private sector research and innovation leadership” on July 19.

A New Yorker cartoon from Tom Chitty:

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