Newsletter: Is the Trade War Ending?

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China says Beijing and Washington have agreed to roll back tariffs, U.S. productivity is sputtering, and cleaner air in China might be good news for joggers but could signal weakness for the country’s heavy industry.

Sign of Progress in Trade Talks

China said Beijing and Washington agreed to phase out existing tariffs if they strike a trade deal. “This is what [the two sides] agreed on following careful and constructive negotiations over the past two weeks,” Commerce Ministry spokesman Gao Feng said at a routine briefing, Grace Zhu reports.

• If a phase-one deal is signed, China and the U.S. should remove the tariffs at the same time and by the same amount, Mr. Gao said, adding that it was an important condition for a deal.
• He didn’t give any information on when and where a deal could be signed. “The trade war started with increasing tariffs and should end in removing all tariffs,” Mr. Gao said.

 

U.S. importers would be pleased with a rollback. The U.S. collected a record $7 billion in import tariffs in September as new duties kicked in on apparel, tools, electronics and other consumer goods from China. The revenue is a bounty for the U.S. Treasury, but is an increasing burden on the American businesses that import Chinese products, Josh Zumbrun reports.

WHAT TO WATCH TODAY

The Bank of England releases a policy statement at 7 a.m. ET.

U.S. jobless claims are expected to fall to 215,000 from 218,000 a week earlier. (8:30 a.m. ET)

U.S. consumer credit is out at 3 p.m. ET.

The Dallas Fed’s Robert Kaplan speaks in Dallas at 1:05 p.m. ET and the Atlanta Fed’s Raphael Bostic speaks on monetary policy at 5:30 p.m. ET.

Japan’s household spending for September is out at 6:30 p.m. ET.

TOP STORIES

Productivity Sputters

A late-cycle productivity breakout? Nah. U.S. worker productivity in the third quarter posted its first quarterly decrease since late 2015. From a year earlier, productivity advanced 1.4%, close to the 1.3% annual average from 2007 through 2018. Productivity data appears to be following the same pattern as job and economic output figures: moderating back to its trend for this cycle after a brief acceleration following tax cuts. The current rate of productivity growth is well behind the 2.1% annual average since the end of World War II. —Eric Morath

Weaker productivity growth alongside rising labor costs could squeeze corporate profits as well as the broader economy.

• NatWest’s Michelle Girard: “These trends, if extended, would add to our concern over the outlook for corporate profits and growth prospects for the business sector.”
• Heard on the Street’s Justin Lahart: “With population growth slowing and the workforce aging, there are limits to how much total U.S. hours worked can grow, so productivity really matters for the economy now. Until it really gets going, neither will the economy.”

Europe Downgrades Growth Forecast

The European Union trimmed its economic forecast. Gross domestic product in the 19-member eurozone will grow by 1.1% in 2019, the EU said in its quarterly report, cutting its 1.2% forecast from July. The expansion rate is seen rising to 1.2% next year, down from the previously expected 1.4%. The EU’s economic outlook is deteriorating as the U.S.-China trade war saps global growth. That in turn is dampening investments and manufacturing in Europe, Emre Peker reports.

Air Supply

There is a running joke in Beijing that if you want to know how the Chinese economy is doing, just look out of your window. The thicker the smog, the better things are. In reality, air pollution lines up best with particular parts of the economy—especially the housing-driven heavy industry sector. During the last two big run-ups in home prices in early 2017 and late 2018, pollution levels roared back. In recent months they have been trending sharply lower. That adds to other signs that China’s construction sector is starting to weaken, Nathaniel Taplin writes.

Let it Go, Let it Go

China is embracing U.S.-style bankruptcy to help cushion its slowing economy. After years of pumping out financial support to keep the economy humming and workers happy, China has embarked on a debt reckoning. The country now has more than 90 U.S.-style specialized bankruptcy courts to help sort through a morass of corporate debt that, until recently, would have been swallowed by state banks and other creditors. It is a sign that Beijing is worried about the number of failing companies and trying to find a fix, Zhou Wei and Serena Ng report.

Huawei to U.S.: We Don’t Need You

Huawei Technologies Chief Executive Ren Zhengfei says he doesn’t expect the U.S. to remove his company from a technology black list. That’s fine. “They may as well keep us there forever because we’ll be fine without them,” Mr. Ren said in an interview with the WSJ. In May the U.S. added Huawei to a Commerce Department “entity list,” preventing many American suppliers from doing business with the company. The world’s largest maker of networking equipment and No. 2 smartphone vendor has emerged as a central issue in the trade war, and Beijing has insisted on a reprieve as a condition for any deal, Dan Strumpf and Eva Dou report.

Seriously Guys, Rates Are on Hold

Two top Federal Reserve officials said they don’t see a need right now for more rate cuts, Michael S. Derby reports.

• “The three rate cuts we did were very effective at managing the risks” slowing global growth and trade uncertainty, New York Fed President John Williams said.
• After three rate cuts this year, “policy is not that far off neutral, I would say it’s accommodative,” Chicago Fed President Charles Evans said.

 

Messrs. Williams and Evans aren’t the only Fed officials signalling a steady rate stance. Earlier this week, the Minneapolis Fed’s Neel Kashkari and San Francisco Fed’s Mary Daly separately indicated they were satisfied with the current state of monetary policy.

WHAT ELSE WE’RE READING

Bridgewater Associates founder Ray Dalio says the world has gone mad. “At the same time as money is essentially free for those who have money and creditworthiness, it is essentially unavailable to those who don’t have money and creditworthiness, which contributes to the rising wealth, opportunity, and political gaps. … Because the ‘trickle-down’ process of having money at the top trickle down to workers and others by improving their earnings and creditworthiness is not working, the system of making capitalism work well for most people is broken,” he writes on LinkedIn.

The health of millennials is declining faster than its GenX counterparts. “Without intervention, millennials could feasibly see mortality rates climb up by more than 40% compared to Gen-Xers at the same age. … Poorer health among millennials will keep them from contributing as much to the economy as they otherwise would, manifesting itself through higher unemployment and slower income growth. Under the most adverse set of projections, lower levels of health alone could cost millennials more than $4,500 per year in real per capita income compared to similarly aged Gen-Xers,”  Moody’s Analytics writes in a report for Blue Cross Blue Shield.

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