How we got here with China
HOW WE GOT HERE WITH CHINA — I go long this morning with colleagues Andrew Restuccia, Nancy Cook, Doug Palmer and Megan Casella on the long road to the trade war with China that has roots in President Trump’s grievances in the 1980s and his expletive-laded diatribe in Las Vegas in 2011
“So when the clock flipped to 12:01 a.m. on Friday morning and the U.S. fired the first major shot in a trade war with China that has Wall Street and corporate America petrified, those who know the president mostly shrugged it off as Trump doing what he was always going to do, no matter the dire warnings from his ‘globalist’ advisers.
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“‘I always believed he was deadly serious about China from the very beginning,’ said Stephen Moore, a conservative economist and outside White House adviser, recalling his time with Trump during the campaign. ‘I’m not at all surprised that we’ve come to this point. I am a little surprised that China hasn’t been more conciliatory. But I think Trump can’t back down, he just can’t. He has to stand toe to toe with China.’
Here’s what former Trump senior adviser Steve Bannon told us: “He has preached a confrontation with China for 30 years. The one thing he has been the most consistent on for his entire career is the economic threat posed by China. … This is a huge moment, a historical moment. It’s really Trump against all of Wall Street.”
And this from Bannon: “Reagan had Russia; Trump has China. For over four decades the establishment said this day could never happen — with Trump it did.”
DITCHING THE GRAND BARGAIN — People close to the president told us he was always skeptical of the kind of grand bargain with China on trade that Treasury Secretary Steven Mnuchin attempted to bring back from Beijing. In the end, Trump was unsatisfied with the early contours of the agreement, which included a demand to cut China’s trade surplus by $200 billion. And he rejected it during an Oval Office meeting last month.
WHAT’S NEXT — There is little sense, even among the free-traders inside the administration, that the White House will back down from the Chinese tariffs anytime soon. It’s a defining issue for Trump, according people close to the White House.
Administration officials told people last week not to expect the White House to “blink” on its tariffs in the near term. Right now, the president views the tariffs as a winning political issue heading into the midterms, despite the protests of the Wall Street Journal editorial board, business groups, or so-called elites or donors.
“Obviously, Trump realizes that if you extrapolate things out over the next 10 to 15 years, the U.S. is at a disadvantage compared to other countries unless we fix the trade set ups,” said one of the Republicans close the White House. “The president is looking down the road to try to help the workers or industries most affected by this.”
WELCOME TO SCOTUS DAY— President Trump is expected to reveal his Supreme Court nominee for retiring Justice Anthony Kennedy’s seat in typical reality TV style. In a somewhat ironic twist, NBC said it would break into an episode of “The Bachelorette” to carry the announcement live.
The pick is potentially key for the financial services industry given issues that could come before the high court including the constitutionality of the CFPB. One of the finalists, U.S. Court of Appeals for the DC circuit Judge Brett Kavanaugh, has been outspoken in agreement with critics who say the single-director structure is unconstitutional.
The other three reported finalists are appeals court judges Raymond Kethledge, Amy Coney Barrett and Thomas Hardiman. Per FORTUNE, Kethledge wrote an opinion in 2014 “that upheld private employers’ ability to use credit checks to screen potential employees, striking down an Equal Employment Opportunity Commission lawsuit.”
TRADE WAR SCREWS UP ECONOMIC DATA — Looks like the trade war dramatically boosted China’s importing of soybeans in May and June to beat the deadline, thus likely (temporarily) jacking up Q2 GDP and artificially lowering the trade deficit.
Per Pantheon’s Ian Shepherdson: “Friday’s detailed international trade report for May showed that more than two thirds of the $3.0B drop in the deficit was due to a surge in exports of soybeans. … Soybean exports likely have been driven higher by Chinese importers seeking to build inventory ahead of the tariffs imposed by the U.S. last week.
“Weekly data show that soybean exports rose again in June, but we’re then expecting to see a steep fall in July. In the second quarter, though, we estimate that soybean exports will contribute some 0.6 percentage points to GDP growth, at an annualized rate. This probably will reverse in full in the third quarter.”
GOOD MONDAY MORNING — Welcome to a normal full work week. Yay. Email me on [email protected] and follow me on Twitter @morningmoneyben. Email Aubree Eliza Weaver on [email protected] and follow her on Twitter @AubreeEWeaver.
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DRIVING THE WEEK — Trump expected to make his SCOTUS announcement in the at 9:00 p.m. on Monday … Later in the week he goes to Europe for the NATO summit in Brussels, bi-lateral talks with UK Prime Minister Theresa May and Helsinki to meet with Russian president Vladimir Putin.
House Small Business Committee has a hearing at 11:00 a.m. Wednesday on IP and small business … Brookings Institution conference on manufacturing on Thursday at 9:00 a.m. … Senate Banking Committee holds a hearing on Thursday at 10:00 a.m. on credit bureaus … CFTC meeting on priorities and agenda on Thursday at 10:00 a.m.
Producer Prices at 8:30 a.m. on Wednesday expected to rise 0.2 percent headline and core … Consumer Prices at 8:30 a.m. Thursday also expected to rise 0.2 percent headline and core … Univ. of Michigan Consumer Sentiment at 10:00 a.m. Friday expected to dip to 98.0 from 98.2.
FIRST ALUMINUM EXEMPTION GRANTED — Bloomberg’s Joe Deaux: “The U.S. granted its first waiver to the aluminum-import tariffs enacted last quarter for a distributor that said the metal it uses isn’t available domestically.
The Trump administration approved a request to exempt aluminum plate for Franklin Park, Illinois-based Mandel Metals Inc., according to a government document.
“Mandel listed China, Russia, South Africa, Switzerland and Austria as the countries that supply the product. ‘Arconic is the only U.S. manufacturer but they have denied us capacity,’ the company said in its request for the waiver. … The department has taken action on 16 requests, denying 15 and granting only one to Mandel”
IVANKA’S BUSINESS ROLLS ON — South China Morning Post’s Kinling Lo in partnership with POLITICO: “President Donald Trump’s daughter has long had her apparel and shoes made in China and thanks to a major exemption for Chinese garment and footwear in the tariffs dispute, the clothing industry looks likely to be left unscathed.
“The U.S. imposed an additional 25 percent tariff on $34 billion worth of Chinese goods on Friday. Among the sectors affected were nuclear reactors, boats and aircraft, but clothing was exempted. According to the American Apparel and Footwear Association, about a third of the clothing and 72 percent of the shoes sold in the U.S. are from China.
One of those importers is the eponymous fashion label of Ivanka Trump, the president’s daughter and adviser.” Read more.