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In today’s issue, the battle over steel and aluminum tariffs heats up, President Trump’s top economic adviser resigns, markets react poorly to the latest trade developments, Mnuchin links Nafta talks to steel and aluminum tariffs, Washington obsesses over China’s Huawei, exports power Europe’s economy, and the economic gap between red and blue America is wider than many thought.
‘TRADE WARS AREN’T SO BAD’
Industry groups, congressional allies, trade partners and some White House aides are urging President Donald Trump to reconsider steel and aluminum tariffs.
The latest: Republican lawmakers met privately with the president’s chief of staff, Senate Majority Leader Mitch McConnell warned that “this could metastasize into a larger trade war,” and an association representing 114 aluminum companies called on Mr. Trump to scrap sweeping tariffs in favor of remedies targeting China, Peter Nicholas, Nick Timiraos and Siobhan Hughes report.
Mr. Trump doesn’t seem phased. “You know, when we’re behind on every single country, trade wars aren’t so bad,” the president said Tuesday.
The biggest casualty, for now, is Gary Cohn. Mr. Trump’s top economic adviser announced his resignation after losing an internal battle that pitted globalist against nationalist aides in the White House.
MARKETS TAKE SHELTER
Markets aren’t taking the latest developments so well. Mr. Cohn’s resignation from the White House hit world stocks and global currencies Wednesday, Riva Gold and Gregor Stuart Hunter report.
The reason? “His resignation has been taken as a strong indication Trump would go ahead with a set of less measured tariffs, risking a larger trade war,” said Sue Trinh, strategist at RBC Capital Markets.
Asian markets closed down, with Japan’s Nikkei Stock Average off 0.8%. The Stoxx Europe 600 fell in morning trade as the auto and basic resources sectors—seen as some of the biggest losers from escalating trade friction—led declines. Futures pointed to an opening fall for the S&P 500 and the Dow Jones Industrial Average.
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WHAT TO WATCH TODAY
The ADP jobs report for February is out at 8:15 a.m. ET. Economists expect private-sector payrolls to increase 180,000 from the prior month. A number wildly off the mark can lead some forecasters to revise their call for Friday’s more closely watched government jobs report, though monthly ADP and Labor Department numbers often diverge.
The U.S. trade deficit is expected to widen for the ninth straight month. Economists expect a trade gap of $55.1 billion for January. The politically sensitive number may stoke the debate on tariffs and other measures to shelter domestic industries from foreign competition. The trade deficit in goods with China may get especially close attention.
U.S. productivity for the fourth quarter is expected to be revised down to a 0.3% decline (at a seasonally adjusted annual rate) from a 0.1% decline.
The Federal Reserve’s beige book is out at 2 p.m. ET.
U.S. consumer credit for January is out at 3 p.m. ET.
We also get some Fedspeak. The Atlanta Fed’s Raphael Bostic speaks at 8 a.m. ET and the New York Fed’s William Dudley at 8:20 a.m.
TOP STORIES
TRUMP ALIENATES POTENTIAL ALLIES
President Trump has an opportunity to lead a coalition against China’s predatory trade behavior. Instead, he is threatening trade war with the countries that would make up such a coalition, Greg Ip writes.
Chinese forced technology transfer, commercial espionage and intellectual-property theft are all aimed at creating Chinese champions in key industries by 2025. These pose a far greater threat to U.S. technological leadership and the enormous value it adds to U.S. exports than do growing imports of steel and aluminum.
“Chinese misbehavior with respect to intellectual property and economic espionage is a real problem that requires a response,” said Sen. Patrick Toomey (R., Pa.). “We are much more likely to get our allies to work with us if we aren’t punishing them for selling us steel that our consumers want to buy.”
TARIFFS LINKED TO NAFTA TALKS
Treasury Secretary Steven Mnuchin told lawmakers new tariffs on steel and aluminum wouldn’t apply to Canada and Mexico if the U.S. is able to successfully renegotiate the North American Free Trade Agreement, Kate Davidson reports.
Mr. Mnuchin said the administration is trying to balance protecting the U.S. steel and aluminum industries “with making sure we don’t do undue harm to the economy.”
U.S. LIKES ITS TARIFFS
One last note on trade: The U.S. was the most prolific user of protectionist measures last year, according to data compiled by trade credit insurer Euler Hermes.
The U.S. imposed the most new tariffs of any country. That’s a mantle the world’s largest economy has claimed in three of the past four years, Gregor Stuart Hunter reports. The insurer defines protectionist measures as tariffs, quotas or other regulations that don’t enable trade.
WASHINGTON’S OBSESSION WITH HUAWEI
The U.S. Treasury, which chairs the Committee on Foreign Investment in the U.S., has the power to kill foreign takeovers of U.S. companies. This week, it sent a detailed letter to Broadcom and Qualcomm explaining concerns over a proposed hostile takeover of Qualcomm.
So what’s it all about? The panel cited its worry that China, specifically equipment maker Huawei, could gain the upper hand in the development of 5G technology, Stu Woo writes.
American officials and some Western telecom companies worry that if China gains widespread 5G before the U.S. does, it could have a head start in technologies like self-driving cars. Removing an able U.S. competitor to Huawei risks strengthening the Chinese company at the expense of the American wireless industry.
EXPORTS POWER EUROZONE
An increase in exports of goods and services drove economic growth in the eurozone during the final three months of 2017, a sign the currency area’s recovery may be vulnerable to the euro’s appreciation and a brewing trade conflict with the U.S.
On an annualized basis, the economy grew by 2.4% in the quarter, Paul Hannon writes, a slowdown from the 2.8% growth recorded in the third quarter. The eurozone recorded its strongest expansion in a decade during 2017.
RED VS. BLUE
The economic gap between blue and red America may be wider than you think.
The Institute of International Finance compared the labor-force participation rates between cities and states that voted for Donald Trump and those that voted for Hillary Clinton in the last election. The gap in labor-force participation was about four percentage points, Bob Davis reports.
“Much of red America isn’t participating in the jobs growth. They’re on the fringe,” said the IIF’s chief economist Robin Brooks.
TWEET OF THE DAY
[wsj-responsive-sandbox id = "0" ]WHAT ELSE WE’RE READING
It’s not just you or your parents who help determine your economic lot in life. It’s also your grandparents and great-grandparents, according to a new study by Sebastian Braun and Jan Stuhler in the latest issue of the Royal Economic Society’s Economic Journal. “This article shows that across multiple generations, the persistence of occupational and educational attainment in Germany is larger than estimates from two generations suggest.”
Central banks are more open and their leaders chattier than 20 years ago. That hasn’t helped people figure out what central banks are doing. “The column argues that more speeches, more forward guidance, and more transparency has often worsened the accuracy of private-sector forecasts. Too much communication may be the problem, creating a cacophony of policy voices,” the Swiss National Bank Thomas Lustenberger and Enzo Rossi write.
The decline in U.S. steelworker jobs has in large part been the result of increases in efficiency. “The U.S. steel industry has been holding its own, thanks to advances in productivity and the spread of cheap natural gas and gas-fired electricity,” The Washington Post reports.
UP NEXT
U.S. jobless claims, out at 8:30 a.m. ET on Thursday, are expected to rise slightly 220,000 from 210,000.
The European Central Bank wraps up a two-day policy meeting on Thursday. A statement is due out at 7:45 a.m. ET, followed by ECB President Mario Draghi’s press conference.
from Real Time Economics http://ift.tt/2FkCv2p
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