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President Trump and Democrats have a shared skepticism of free trade. That doesn’t mean they’ll agree on a renegotiated Nafta—or the rest of the White House’s trade agenda. The new deal with Mexico and Canada could prove an early test when the administration seeks approval from a Democrat-controlled House next year.
Good morning. Jeff Sparshott here to take you through the latest developments affecting the global economy, including lessons and fallout from midterms, what to expect from the Fed, China’s surging exports, and big tech and dying startups.
DON’T BET THE HOUSE ON IT
President Trump said split control of Congress “could be a beautiful, bipartisan-type of situation.” He praised likely House Speaker Nancy Pelosi, saying he was prepared to negotiate over issues ranging from infrastructure to the environment. One sure policy test: trade. Securing congressional passage of the revamped North American Free Trade Agreement will get a lot harder with a divided Congress. A Democrat-led House gives Mr. Trump’s political opponents power to demand concessions in exchange for ratification of the new agreement, William Mauldin and Vivian Salama write.
My way or the highway? Mr. Trump still holds leverage. He has repeatedly warned he would withdraw from the current version of Nafta if he doesn’t get a new one. Faced with a choice between Mr. Trump’s U.S.-Mexico-Canada-Agreement or a withdrawal from the deal, many lawmakers could hesitate to take a hard line.
IT WASN’T THE ECONOMY, STUPID
The U.S. economy is in its best shape in at least a decade, and perhaps longer, yet that had little impact on Tuesday’s midterm elections, one more sign that politics is now driven by identity, culture and demography. True, the economy ranked as the most important issue to many, but far behind health care for Democratic voters and immigration for Republican voters, according to an Associated Press survey. The tax cut on which Republicans originally hoped to campaign barely mattered, even to Republican voters. Opinions of President Donald Trump seemed to drive opinions of the economy and his policies, rather than vice-versa: some 81% of Democratic voters thought Trump’s trade policies would hurt the economy; 77% of Republican voters thought they would help.—Greg Ip
What do you think is more likely for the White House and Congress next year: cooperation of confrontation? Write to Jeffrey Sparshott at realtimeeconomics@wsj.com, tweet to @WSJecon and visit wsj.com/economy for the latest news. (Responses may be quoted in this newsletter.)
WHAT TO WATCH TODAY
U.S. jobless claims, out at 8:30 a.m. ET, are expected to remain low.
The Federal Reserve releases a policy decision at 2 p.m. ET. Thursday’s meeting is likely to be a bit of a nothingburger. Officials are expected to hold the fed-funds rate steady and make few, if any, tweaks to their post-meeting statement. The WSJ’s Nick Timiraos takes a look at the main issues up for discussion, including the economy, financial conditions and the Fed’s bond portfolio.
China’s consumer-price index for October is out at 8:30 p.m. ET.
TOP STORIES
CHINA’S EXPORTS SURGE
October was the first full month covered by all the Trump administration’s tariffs on China. Nevertheless, China’s October exports to the U.S. grew 13% from a year ago. Imports from the U.S. dropped 1.8%. That puts China on track to post another record annual surplus with the U.S., and is certain to frustrate the White House. Punitive levies imposed by the U.S. and China now cover about 60% of their trade in goods.
What happened? China’s exports surged in October, defying many economists’ expectations for a slowdown. Demand for Chinese goods grew in developed and developing markets, from the U.S. to India, Liyan Qi and Grace Zhu report. The performance suggests China is getting a boost from surprisingly healthy global demand and perhaps from a weaker yuan.
TARIFF WATCH
Back in August, President Trump tweeted: “Because of Tariffs we will be able to start paying down large amounts of the $21 Trillion in debt that has been accumulated, much by the Obama Administration, while at the same time reducing taxes for our people.” How’s that going? Well, monthly tariff revenue in the third quarter was up a solid 39% from a year earlier. The Treasury brought in almost $4.6 billion in tariff revenue in September alone.
Really, though, that’s small potatoes. The U.S. has gone from paying for 0.9% of federal outlays with customs revenue to about 1.0% of federal outlays.—Josh Zumbrun
FROM RUSSIA WITH LOVE
The U.S. began enforcing a tough new slate of economic restrictions against Iran Monday. An early winner: Russia. Refineries in Europe and Asia are scrambling to replace the crude they had been buying from Iran. Russian oil companies have stepped in. But Moscow is also offering Tehran a lifeline for its stranded crude. It says it plans to defy U.S. sanctions and purchase Iranian imports. It’s offering to pay only in the form of barter, and then process the crude for domestic use. That would free up its own oil for more-lucrative crude export markets, Benoit Faucon reports.
“Russia is playing on all sides,” said Helima Croft, chief commodities strategist at Canadian broker RBC.
NOBODY GOES THERE ANYMORE. IT’S TOO CROWDED.
Google is gearing up for an expansion of its New York City real estate that could add space for more than 12,000 new workers, an amount nearly double the search giant’s current staffing in the city. The plan would give Google room for nearly 20,000 staff in the city, rivaling the approximately 25,000 jobs Amazon.com is projected to add if it completes plans for a major new office in New York, Douglas MacMillan, Eliot Brown and Peter Grant report.
The expansion is the latest sign of big tech’s rapid encroachment into cities beyond the industry’s traditional centers on the West Coast. Amazon, Google, Apple and others are racing to build offices in places where real estate and talent are cheaper and where city officials are sometimes willing to strike deals to land an employer with big growth potential.
START ME UP
The U.S. economy is booming. The tech-heavy Nasdaq Composite is up 87% over the past five years. And the American startup scene is languishing. Double-take: The share of jobs gains attributed to new businesses has been in long-term decline in the U.S.—a measly 11% in the first quarter, according to new Labor Department data. The reasons are something between complex and a mystery. The results may range from lower productivity to weaker wage growth.
Of course, there could be a more benign explanation of late: “It might be because the unemployment rate is so low that startups and new establishments are having a hard time finding employees. Larger firms have more resources to go out and recruit people when they need to create jobs or replace retirements,” says Robert Fairlie, an economics professor at UC Santa Cruz who studies entrepreneurship.
QUOTE OF THE DAY
If the U.S. and China cannot find a way to develop a workable consensus, it will pose a systemic risk of monumental proportions—not just to the global economy…but to international order as we know it and to world peace.—Henry Paulson, former Treasury Secretary and CEO of Goldman Sachs
TWEET OF THE DAY
[wsj-responsive-sandbox id = "0" ]WHAT ELSE WE’RE READING
Investing in technology boosts student achievement. “The effects are largest for middle schoolers, and are concentrated among low-socioeconomic students. The results of this study suggest that technology investment can help narrow the income achievement gap,” UC Irvine’s Brittany Bass writes in a job market paper.
Older people get really agitated about the stuff they see on TV. “We focus on crime perceptions and, combining channel-specific viewership and content data, we show that the reduced exposure to channels characterized by high levels of crime reporting decreases individual concerns about crime. The effect is driven by individuals aged 50 and over, who turn out to be more exposed to television while using other sources of information less frequently,” Nicola Mastrorocco and Luigi Minale write in the Journal of Public Economics.
UP NEXT: FRIDAY
U.K. gross domestic product for the third quarter is out at 4:30 a.m. ET.
The U.S. producer-price index for October, out at 8:30 a.m. ET, is expected to rise 0.3% from a month earlier. Excluding food and energy, the inflation gauge is expected to climb 0.2%.
The University of Michigan’s consumer sentiment index for November is expected to slip to 97.0 from 98.6 in October.
The New York Fed’s John Williams and the Philadelphia Fed’s Patrick Harker speak at the New York Fed at 8:30 a.m. ET, and Fed vice chairman for supervision Randal Quarles speaks on stress testing and financial regulation at 9:05 a.m. ET.
from Real Time Economics https://ift.tt/2yWEnsU
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