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The U.S. and China are working toward a partial trade deal, a year of healthy living has a price tag, investors think the U.S. economy is pretty darn good, China cuts a key rate, and India bails out of a big, regional trade deal. Let’s take a look at the day’s top economic news.
Tariff Two-Step
U.S. and Chinese officials are considering rolling back some tariffs to clinch a partial trade deal, William Mauldin and Alex Leary report.
- The U.S. and China have agreed in principle on “phase one” of an accord to end a dispute that has penalized hundreds of billions of dollars of trade between the two countries.
- “If there’s a deal, [removing] tariffs will be part of it,” a senior administration official said late Monday.
- The pact would include Chinese purchases of American farm goods, rules to deter currency manipulation and some provisions to protect intellectual property and open up Chinese industries to U.S. firms.
- The negotiations haven’t concluded, and President Trump and top Chinese officials are yet to sign off on a final version of the phase one pact. It isn’t clear when any future phases might be negotiated.
WHAT TO WATCH TODAY
The Richmond Fed’s Thomas Barkin speaks on monetary policy at 8 a.m. ET.
The U.S. trade deficit for September is expected to narrow to $52.2 billion from $54.9 billion a month earlier. (8:30 a.m. ET)
IHS Markit’s U.S. services index for October is out at 9:45 a.m. ET.
The Institute for Supply Management’s nonmanufacturing index for October is expected to rise to 53.5 from 52.6 a month earlier. (10 a.m. ET)
The U.S. job openings and labor turnover survey is out at 10 a.m. ET.
The Bank of Japan releases minutes from its Sept. 18-19 meeting at 6:50 p.m. ET.
TOP STORIES
A Model of Health
A little-known Boston nonprofit is using a complex economic model to shame drug manufacturers to lower their prices. The Institute for Clinical and Economic Review, an outgrowth of Harvard Medical School with no political affiliation or official policy-making role, has latched onto a concept called the QALY, for “quality-adjusted life year,” Denise Roland reports.
- QALY puts a dollar figure on a year of healthy life, calculates how much health a drug restores to a sick patient, then prices drugs accordingly. With public and bipartisan political pressure mounting over high drug prices, pharmaceutical companies have started paying attention.
- The model, pioneered by U.S. and Canadian economists in the 1960s, has been used for years in slightly different form in many countries. American insurance companies have begun embracing the approach, and some pharmaceutical companies say they will at least compare their own pricing assessments with ICER analyses.
USA! USA!
The Dow Jones Industrial Average climbed Monday to its first record since mid-July, the latest example of investors’ faith in the domestic economy powering U.S. stocks to fresh highs. Stocks, bonds and commodities have all posted outsize gains, with resilient consumer spending and labor-market strength easing fears of an imminent economic downturn. The latest record for U.S. shares also underscores its recent leadership in global markets, Amrith Ramkumar reports.
Global stocks rose Tuesday as investors grew hopeful that the U.S. and China would strike a trade deal. And the Chinese yuan hit its strongest level in three months on optimism about a potential deal.
China’s Central Bank Looks to Boost Economy
China’s central bank cut a key interest rate that could help lower funding costs for businesses. A continued economic slowdown and Beijing’s ongoing trade spat with Washington have prompted the central bank to take steps to loosen monetary policy, Liyan Qi and Grace Zhu report.
Underscoring challenging economic conditions, China’s services activity expanded at its weakest pace in eight months in October. The Caixin China services purchasing managers index remained above the 50-mark separating expansion from contraction.
Yes, growth is slowing in the world’s second-largest economy, but the country’s citizens are consuming more dairy in the form of baked goods and beverages such as tea topped with cream and cheese. That’s driving up milk prices around the world, Lucy Craymer and Julie Wernau report.
How Is the Fed Like the New York Jets?
It looks like they’re going three and out. Federal Reserve Bank of San Francisco President Mary Daly said the central bank did the right thing to lower short-term rates three times this year. She doesn’t see a need to lower rates further: “The economy is in a really good place and it would take material change in the outlook for me to think further accommodation would be required.”
Paper Tiger, Hidden Tariff
Asia’s Regional Comprehensive Economic Partnership, billed as a mammoth that could be China’s alternative to the Trans-Pacific Partnership, is shaping up to look more like a mouse. The second-biggest economy involved, India, bailed out. The tariff-related liberalizations are modest. The most comprehensive study into the deal, by Renuka Mahadevan of the University of Queensland and Anda Nugroho of Indonesia’s Ministry of Finance, shows an RCEP excluding India would add just 0.08% to China’s 2030 gross domestic product. The only two countries for which the deal would be worth more than 0.5% of GDP over the same period are South Korea and Vietnam, Mike Bird reports.
WHAT ELSE WE’RE READING
Did Trump’s trade war impact the 2018 election? “We find that Republican candidates lost support in the 2018 U.S. congressional election in counties more exposed to trade retaliation, but saw no commensurate electoral gains from U.S. tariff protection. The electoral losses were driven by retaliatory tariffs on agricultural products, and were only partially mitigated by the U.S. agricultural subsidies announced in summer 2018,” Emily Blanchard, Chad Bown, Han Ping and Davin Chor write in a Center for Economic Policy Research discussion paper.
Australia’s economy has been growing for 28 years straight. But “Australia has had three recessions since 1991 when looking at GDP per capita, the most recent one being from the second quarter of 2018 to the first quarter of 2019. This discrepancy between the growth rate of per capita GDP and the growth rate of GDP implies that population growth has been a key factor for Australia’s economic expansion,” the St. Louis Fed’s Paulina Restrepo-Echavarria and Brian Reinbold write in a blog post.
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