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The U.S.-China trade fight isn’t going away soon, U.S. tariff revenue is surging and central banks around the world are slashing rates. Good morning. Jeff Sparshott here to take you through key developments in the global economy. Send us your questions, comments and suggestions by replying to this email.
The Long Game
China is digging in for a protracted trade war with the U.S. One big reason: President Xi Jinping isn’t in a position to make big concessions. His government is struggling to rejuvenate a sluggish economy and quell antigovernment protests in Hong Kong, leaving little room for steps that would undercut his strongman image, Chao Deng and Chun Han Wong report.
- China also doesn’t want to be the party escalating tensions further. Throughout the trade fight it has waited for the U.S. to impose tariffs before retaliating.
- Beijing believes it can wait for the tariffs to damage the U.S. economy and for the declining U.S. stock market to force President Trump into making concessions.
Heard on the Street’s Nathaniel Taplin says China’s leaders are trying to inflict maximum political damage on Mr. Trump—and hoping a weakening U.S. economy delivers a new president.
WHAT TO WATCH TODAY
The Chicago Fed’s Charles Evans speaks at a media breakfast at 9:30 a.m. ET.
U.S. consumer credit for June is out at 3 p.m. ET.
Japan’s trade balance for June is out at 7:50 p.m. ET.
TOP STORIES
Budget Booster
President Trump’s tariffs have infuriated Beijing and escalated the U.S.-China trade war, but there has been at least one beneficiary: the U.S. Treasury. As of June 30, the U.S. government has collected $63 billion in tariffs over the preceding 12 months. What’s more, the tariff bounty is on the rise. The U.S. is now on a pace to generate $72 billion in tariffs annually, and could well hit the $100 billion if new 10% tariffs on $300 billion in untaxed imports take effect on Sept. 1, Josh Zumbrun reports.
One caveat: For every dollar brought in by the new tariffs, a dollar has been authorized to fund rescue programs for farmers who have been harmed by retaliation from China and other countries. And the outlook for farmers is getting worse: China said it would suspend all imports of U.S. agricultural goods, erasing what had been one of the biggest export destinations for U.S. agriculture.
- Heard on the Street’s Lauren Silva Laughlin says the trade fight is punishing industrial, farming, oil and transportation companies. Business leaders are starting to speak up, and President Trump may be forced to listen. Yes, China’s economy is slumping, but Mr. Trump is the leader at the table who has voters to think about.
Everyone’s Doing It
India’s central bank cut its key lending rate to its lowest level in nine years on Wednesday as it tried to kick-start lending in Asia’s third-largest economy.
The Reserve Bank of New Zealand stunned traders with a 50-basis-point cut in its official cash rate, and signaled it could soon adopt unorthodox policy to spark growth.
The Bank of Thailand unexpectedly lowered its benchmark interest rate in a bid to combat a weak economic outlook in an environment of tepid inflation.
Next up: The Philippine central bank releases a policy statement Thursday.
Will the Fed Follow?
Two Federal Reserve officials said lower interest rates might be warranted later this year amid a more uncertain trade outlook. But St. Louis Fed President James Bullard and San Francisco Fed President Mary Daly said it’s premature to say when or how aggressively the central bank should act, Nick Timiraos reports.
- “I think we’ve done a lot,” Mr. Bullard said. “I’d like to see how much effect that has going forward.”
- Ms. Daly and Mr. Bullard both said escalating trade tensions make the economic outlook unusually complicated.
Lucky 7
China on Wednesday set a daily anchor for trading in its currency at the weakest since 2008 but again avoided moving the official rate beyond the symbolic 7-yuan-per-dollar level, helping reassure markets it didn’t intend to pursue a sharp depreciation, Joanne Chiu reports. U.S. stocks recouped some of their losses Tuesday after China backed off from a further escalation in the country’s trade and currency dispute with Washington, while on Wednesday Asian stocks slipped and European shares edged up early in the day.
One for the Road
One of the world’s biggest car-parts makers is saying goodbye to the internal combustion engine. In a major strategy shift, Hanover, Germany-based Continental AG said it would cut investment in conventional engine parts because of a faster-than-expected fall in demand as major auto makers accelerate their shift to electric vehicles.
The U.S. market for heavy-duty trucks is running out of road. Orders for class 8 trucks fell last month to their lowest level since 2010. The waning demand follows heavy investment in new equipment last year, and faltering freight-market demand and weakness in the manufacturing sector this year. FTR, which tracks equipment purchases by freight transportation carriers, expects factory output of heavy-duty trucks to decline 22% next year.
TWEET OF THE DAY
[wsj-responsive-sandbox id = "0" ]WHAT ELSE WE’RE READING
The Federal Reserve’s job is to protect the economy—even from President Trump. “At this point, why the Fed does something is just as important as what it does. And what it should do is to continue to cut rates—making it abundantly clear that it is doing so not to enable Trump’s trade war, but to contain the damage from it,” Karl Smith writes at Bloomberg Opinion.
The U.S.-China trade dispute is much deeper and more dangerous than you think. “If President Trump and President Xi Jinping don’t find a way to defuse it soon, we’re going to get where we’re going—fracturing the globalization system that has brought the world more peace and prosperity over the last 70 years than at any other time in history,” Thomas Friedman writes in the New York Times.
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