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Good morning. Jeff Sparshott here to take you through key developments in the global economy, where U.S.-China trade tensions remain in focus.
Do you think President Trump will raise tariffs on Chinese goods Friday? Send us your response by replying to this email.
Consumers in the Crosshairs
The U.S.-China trade conflict is headed for America’s shopping centers. When the Trump administration began placing tariffs on Chinese imports last year, it cushioned the blow to consumers by targeting items purchased by U.S. manufacturers and other businesses. But the higher tariffs set to go into force Friday would apply 25% levies on more than $40 billion worth of items purchased directly by consumers—furniture, handbags, clothing, Christmas decorations, fire alarms and other items shoppers find on the shelves at Target, Walmart, Macy’s and other stores, Josh Zumbrun reports.
- Consumers pay: One of the administration’s earliest tariffs, in January 2018, was a 20% duty on washing machines. Prices of both washing machines and dryers rose by about 12% as appliance makers spread the cost increase across both items, even though dryers weren’t tariffed.
- Drop in the bucket: Though consumers are much more likely to notice if tariffs increase to 25%, the move isn’t likely to derail the U.S. economy. Oxford Economics estimated that tariffs of 25% against all Chinese imports would reduce economic growth by 0.3%. That may push the growth rate below 2% by the end of the year, but still nowhere near a recession.
WHAT TO WATCH TODAY
European Central Bank President Mario Draghi speaks at youth dialogue event at 7:30 a.m. ET.
Federal Reserve governor Lael Brainard speaks at community listening session at 8:30 a.m. ET.
The Central Bank of Brazil releases a policy statement at 5:00 p.m. ET.
China’s consumer-price index for April is out at 9:30 p.m. ET.
TOP STORIES
Tough Talks
U.S.-China trade negotiations resume Thursday, just ahead of a deadline set by President Trump to raise tariffs on Chinese goods. At the top of the agenda: a U.S. demand that a trade agreement lay out an inventory of laws and regulations that Beijing must revise for compliance. China has objected to including the list. The U.S., though, sees it as essential to ensuring China delivers on promises of structural change. The disagreement adds to a pile of still-to-resolve issues that include China’s subsidies to domestic companies and opening key Chinese markets, such as cloud computing, Chao Deng and Lingling Wei report.
The latest trade developments jolted investors.
China’s Exports Wobble
China’s exports dropped in April as demand weakened across most major markets. Trade, once a source of growth for China, now may become an additional drag as Beijing tries to shore up an economy amid rising trade tensions, Liyan Qi, Grace Zhu and Lin Zhu report.
Inflation, Poverty, Taxes and You
The Trump administration is weighing changes to a federal poverty measure that could reduce eligibility for a number of federal safety-net programs. The switch: using the chained consumer-price index rather than the standard consumer-price index to measure inflation. Right now, a family of four making less than $25,750 is eligible for benefits such as the school lunch program and Head Start. That threshold would rise more slowly if the alternative measure of inflation is used, Stephanie Armour reports.
- Tax bite: The 2017 tax overhaul made a similar change to calculate adjustments on the standard deduction and tax brackets. The IRS shift on inflation will cost Americans $133.5 billion over a decade, Richard Rubin reported in November.
- Social Security next? Many economists view chained CPI as more accurate because it better reflects consumers’ tendency to buy cheaper alternatives as prices increase.
Student Debt
U.S. officials no longer think the government will make money off the federal student-loan program, Josh Mitchell reports.
- Why? The program is losing money after a surge of borrowers defaulting on loans or enrolling in plans that ultimately will forgive a portion of their debt.
- How much? The Congressional Budget Office said the program will cost taxpayers $31.5 billion over the next decade, once administrative costs are factored in. The agency said a year ago that the program would return a profit of $8.7 billion.
It’s Getting Hot in Here
The Federal Reserve is preparing banks and other financial institutions for severe weather events related to climate change, Michael S. Derby reports.
“Over the short term, these events have the potential to inflict serious damage on the lives of individuals and families, devastate local economies (including financial institutions), and even temporarily affect national economic output and employment,” Fed Chairman Jerome Powell wrote in a letter to Sen. Brian Schatz (D., Hawaii). “As such, these events may affect economic conditions, which we take into account in our assessment of the outlook for the economy.”
Kiwis on the Move
The Reserve Bank of New Zealand lowered its official cash rate Wednesday, making it the first rich country out of the gate with interest-rate cuts since global growth stumbled late last year. The official cash rate was cut by 25 basis points to 1.5%. “There is uncertainty about the global economic outlook. Trade concerns remain,” RBNZ Governor Adrian Orr said.
QUOTE OF THE DAY
“If Trump’s threat becomes reality, it will be a game changer for the global economy. This is the worst-case scenario we modeled last year that resulted in recession conditions in the U.S., a rapid reduction of growth in China, and slower global trade from which no country is immune.” —Steve Cochrane, Moody’s Analytics
TWEET OF THE DAY
[wsj-responsive-sandbox id = "0" ]WHAT ELSE WE’RE READING
How much credit does President Trump deserve for U.S. job creation? “Since the election, Trump has made 35 claims that companies would create 8.9 million jobs in the U.S. thanks to his policies and actions. … We found that only about 154,000 of those jobs have been created so far,” Daniela Porat, Lena Groeger and Isaac Arnsdorf write at ProPublica.
Bright lights, big city. New York City randomly allocated temporary streetlights to public housing developments in 2016. “We find evidence that communities that were assigned more lighting experienced sizable reductions in crime. After accounting for potential spatial spillovers, we find that the provision of street lights led, at a minimum, to a 36 percent reduction in nighttime outdoor index crimes,” Aaron Chalfin, Benjamin Hansen, Jason Lerner and Lucie Parker write in a National Bureau of Economic Research working paper.
from Real Time Economics https://on.wsj.com/2WvOWwJ
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