Newsletter: Paying for Tariffs, Waiting on Oil Prices

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President Trump gives a much-anticipated speech at the Economic Club of New York today. Investors, observers and trade partners will be watching closely for clues on a U.S.-China trade deal and potential tariffs on European and Asian autos. Trade-policy moves have rippled through the economy this year, affecting individual industries, markets and broader growth trends.

Tariffs in Action: A Bookcase Study

The furniture business is one of many caught up in the Trump administration’s tariff campaign against China, and the pain has started to grow. China was the top furniture exporter to the U.S. last year, shipping $34 billion in tables, chairs, couches and other furnishings. These imports were hit with 10% duties in September 2018. The tariffs jumped to 25% in May, Katy Stech Ferek reports.

• The tariff pain has been dulled by furniture shipments from countries other than China and suppliers who agreed to cover some of the costs. But data shows furniture prices are indeed going up.
• Prices began to climb in 2018 as the tariffs took effect. They rose 2.3% for the year ended Sept. 30.
• Arnold’s Office Furniture generates about 80% of its revenue on imports from China. CEO Jay Berkowitz said the tariffs are forcing his company to operate at a loss even after raising prices: “They better yank that tariff back soon or we’re going to have a big problem. We’ll be out of business if they don’t.”

WHAT TO WATCH TODAY

President Trump speaks at the Economic Club of New York at 12 p.m. ET.

The Richmond Fed’s Thomas Barkin speaks on workforce development at 12 p.m. ET, and the Philadelphia Fed’s Patrick Harker speaks on the economy and the Fed at 1 p.m. ET.

TOP STORIES

Oil Patch

After pushing U.S. oil and natural-gas production to record levels, some shale companies plan to pump less. Voluntarily restricting growth is a new dynamic for the industry and reflects a calculus that it is better to spend and produce less while hoping for higher commodity prices. A pullback by oil producers would likely cause U.S. oil production growth, already slowing this year, to flatten further in 2020, Rebecca Elliott and Christopher M. Matthews report. “I don’t think OPEC has to worry that much more about U.S. shale growth long term,” Scott Sheffield, chief executive of Pioneer Natural Resources, told investors.

What about the broader economy? Higher commodity prices might help energy producer profits but would squeeze consumers forced to spend more on gasoline. A pullback in spending by oil producers, meanwhile, could dent business investment, already a drag on economic growth.

Not So Fast

President Trump this spring called deploying a superfast 5G wireless network a national priority. But behind the scenes, there is as much fracture as focus: Several arms of the government are at odds over how to allocate space on the radio-frequency spectrum for 5G. The resulting delays threaten to undermine America’s efforts to dominate the wireless technology. The country that takes the lead in 5G will pave the way for its companies to access more-powerful wireless technology sooner than foreign rivals. That means more profits and more jobs for the country that comes out ahead, Ryan Tracy and Drew FitzGerald report.

The people left behind. In southeastern Ohio, as in many rural areas, people aren’t waiting for 5G. They’re waiting for any broadband service at all.

Port Volumes Plummet

Seaborne imports into the largest U.S. gateway for trans-Pacific goods plummeted last month. The ports of Los Angeles and Long Beach handled 120,077 fewer loaded inbound containers in October than a year ago, a 14.1% drop. The Pacific ports together handle about 37% of U.S. seaborne container import volume, and are considered a bellwether of U.S. trade. The decline in container volume followed the U.S. implementation of a new round of tariffs in September on more China-made products, including the first large swath of consumer goods to be slapped with levies, Paul Page reports.

Another Day, Another Record

The Dow Jones Industrial Average eked out a gain in a quiet trading session Monday, notching its ninth record close of the year. With the bulk of third-quarter earnings results out, investors’ attention has lately turned back to the U.S. and China’s trade talks. After some optimism around the prospects of a “phase one” trade deal last week, some analysts have flagged concerns that investors could be disappointed by the scope of any agreement, Akane Otani reports.

Adidas Is All Out

Adidas plans to close its only sneaker factories in the U.S. and Germany, shifting cutting-edge automated footwear production to Asia and reversing an effort to make products closer to shoppers in the West. The closure of the facilities in Ansbach, Germany, and suburban Atlanta—both opened within the past three years—raises questions about the feasibility of bringing manufacturing jobs back to developed markets, Sara Germano reports.

Careful What You Wish For

The Federal Reserve successfully beat back high inflation spells of the 1970s and early 1980s. That’s created a new challenge: less scope for monetary policy to combat future downturns. Fed Vice Chairman Richard Clarida highlighted how both lower global bond yields and low, stable inflation have left central banks with less room to reduce rates to stimulate growth. The Fed has typically cut its benchmark interest rate by more than 5 percentage points in recent downturns, Nick Timiraos reports. The target range for the fed-funds rate is now 1.5% to 1.75%.

Chart of the Day: Trade

WHAT ELSE WE’RE READING

Want to buy a student? “Combine a crisis in college affordability with yield-starved investors and you get one of the more unusual financial products of the past decade: shares in students. … A student funding their education with an [income share agreement] gets money upfront in exchange for offering a share of their income after graduation—ranging from nothing if they are unemployed or on a low salary to potentially several multiples of what they received. Graduates continue paying a slice of their income until the ISA expires, usually after about a decade, or when they hit a repayment cap. Risk, in short, is shifted from borrower to lender,” Archie Hall reports in the Financial Times.

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