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In today’s issue, the fallout from President Trump’s steel and aluminum tariffs, White House intervention into tech takeovers and online sales tax, and Italy’s political disarray.
THE FALLOUT
Well, that escalated quickly.
President Donald Trump’s announcement of steel and aluminum tariffs are provoking severe responses from U.S. allies abroad and political partners at home. House Speaker Paul Ryan warned of a trade war, the European Union prepared to hit back, and Nafta partners suggested the president’s threats could stall efforts to renegotiate the pact.
Let’s start with Mr. Ryan. “We are extremely worried about the consequences of a trade war and are urging the White House to not advance with this plan,” a spokeswoman said. Mr. Trump’s response: “We’re not backing down.” The GOP-led Congress and the White House could be on a collision course—Republican leaders aren’t ruling out potential legislative action aimed at blocking such tariffs, Siobhan Hughes, William Mauldin and Jacob M. Schlesinger report.
Canada and Mexico, meanwhile, rejected Mr. Trump’s effort to link Nafta talks with the steel and aluminium tariffs. “As far as we are concerned, these are separate negotiations,” Canada Foreign Minister Chrystia Freeland said.
All this before the White House has even announced details on the tariffs.
EU: ‘WE CAN ALSO DO STUPID’
One possible source of GOP angst: Any countermeasures may hit lawmakers right in the district.
The European Union is planning levies totaling $3.5 billion on U.S. agriculture, steel and industrial products, as well as iconic American products including Harley-Davidson motorcycles, Levi’s jeans and bourbon whiskey, Emre Peker reports. Roughly 95% of all bourbon comes from Kentucky, home of Senate Majority Leader Mitch McConnell. Mr. Ryan hails from Wisconsin, home to Harley-Davidson.
“It’s actually a stupid process that we must to do this, but we have to,” European Commission President Jean-Claude Juncker said. “We can also do stupid.”
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WHAT TO WATCH TODAY
On the indicator front, at least, it’s a fairly quiet day.
U.S. factory orders for January are out at 10 a.m. ET. Economists expect a 1.5% drop from the prior month.
The New York Fed’s William Dudley speaks at 7:30 a.m. ET, Fed governor Lael Brainard speaks at about 5:30 p.m. ET, and the Dallas Fed’s Robert Kaplan speaks at 8:30 p.m. ET. “Governor Brainard will be particularly important, as we have not heard her views on the economy since October,” economists at Deutsche Bank said. “She has traditionally been one of the more dovish members and we are interested in how recent developments such as tax reform and the stronger inflation data have affected her outlook.”
On Wednesday, we’ll get the latest data on the topic of the day: international trade. Let’s leave aside for a second whether trade deficits are good or bad. The picture for the goods-producing segment of the economy has been masked by resurgent U.S. oil production. Knock out petroleum and adjust for inflation, and the U.S. trade deficit is well into record territory.
TOP STORIES
ASIA TAKES A SOFTER TONE
U.S. allies in the Asia-Pacific region so far are avoiding outright threats of retaliation against American goods, Peter Landers and Rob Taylor report. They believe that could be counterproductive when Mr. Trump has yet to make his plans final.
Japanese trade minister Hiroshige Seko said Japan was approaching the U.S. in “various forms” to express its view that Japanese steel wasn’t a threat to U.S. national security. South Korea dispatched its trade minister to the U.S., where he will “strongly request that the U.S. side make South Korean steel exempt.” Australia’s trade minister played down suggestions that Australia could follow Europe and retaliate with tariffs of its own.
WHITE HOUSE STEPS INTO TECH TAKEOVER
The Trump administration inserted itself into the technology industry’s biggest potential takeover, postponing a key shareholder vote on grounds that the deal could endanger the country’s technological prowess and, in turn, national security, Kate O’Keeffe, Stu Woo and Ted Greenwald report.
The Committee on Foreign Investment in the U.S., an interagency group chaired by the Treasury Department that can recommend the president block deals, ordered Qualcomm to delay its annual shareholder meeting by 30 days to give CFIUS time to review Singapore-based rival Broadcom’s proposed $117 billion takeover of the chip maker.
WHITE HOUSE BACKS INTERNET SALES TAX
The Trump administration is urging the Supreme Court to expand states’ authority to collect sales tax on internet transactions, Jess Bravin reports.
That adds to a chorus of state officials seeking to overrule a 1992 precedent exempting many online retailers from having to add taxes to a consumer’s final price. “In light of internet retailers’ pervasive and continuous virtual presence in the states where their websites are accessible, the states have ample authority to require those retailers to collect state sales taxes owed by their customers,” Solicitor General Noel Francisco wrote in a friend-of the-court brief.
MEANWHILE, IN ITALY
Italy entered a period of political instability after national elections boosted populists but failed to produce a winner with enough support to patch together a parliamentary majority, Eric Sylvers and Marcus Walker report.
Sunday’s two big winners—the 5 Star Movement and a center-right coalition including former Premier Silvio Berlusconi and the anti-immigrant League—each claimed to have won enough support to earn the right to try to form a government. But with neither group having won an outright majority, Italy is likely to face weeks or months of consultations among the parties.
With virtually all votes counted early Monday, the antiestablishment 5 Star Movement won just over 32% of the vote, exceeding expectations and emerging as Italy’s largest party. All together, antiestablishment parties won just over half of all votes, raising concerns in the EU about the strength of anti-incumbency sentiment in one of the bloc’s founder members.
THEY DON’T CALL IT THE SAFE HAVEN FOR NOTHING
At a time of global economic and political turbulence, there’s Switzerland.
Inflation is still ultra-low, with consumer prices up just 0.6% on the year in February and core inflation at 0.5%. As a result, look for its central bank to keep its policy rate deeply negative for a long time to come, even as central banks like the Federal Reserve tighten policy.
“Since the franc has already strengthened against the euro in the early part of 2018, we doubt that the SNB will want to risk any further rise that could choke off the recovery in inflation. We therefore expect it to repeat next week its commitment to currency intervention and to keep the policy rate at -0.75%,” wrote analysts at Capital Economics.
TWEET OF THE DAY
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WHAT ELSE WE’RE READING
Post-millennials are old enough to drink. “Anyone born between 1981 and 1996 (ages 22-37 in 2018) will be considered a Millennial, and anyone born from 1997 onward will be part of a new generation,” the Pew Research Center said. The think tank’s definitions for generations are often followed by other researchers and journalists. It sets Generation X from 1965 to 1980 and Baby Boomers from 1946 to 1964. Boomers are the only generation with an official Census Bureau designation.
Trade agreements are good economic insurance during an economic downturn. “Uncertainty about foreign income, trade protection and their interaction dampens export investment. This can be mitigated by trade agreements, which are particularly valuable in periods of increased demand volatility,” University of Colorado’s Jeronimo Carballo, University of Michigan’s Kyle Handley and University of Maryland’s Nuno Limão write. They find that the collapse and slow recovery of U.S. exports around the last recession was particularly acute for countries with no trade deal.
UP NEXT
The ADP jobs report for February is out at 8:15 a.m. ET on Wednesday. Economists expect private-sector payrolls to increase 180,000 from the prior month.
The U.S. trade deficit for January is expected to widen to $55.1 billion.
U.S. productivity for the fourth quarter is expected to be revised down to -0.3% from-0.1%.
U.S. consumer credit is due out at 3 p.m. ET.
from Real Time Economics http://ift.tt/2oSatAb
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