Newsletter: Trade Tensions Return

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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.

Tariff Man Is Back

The Trump administration proposed tariffs of up to 100% against $2.4 billion of French imports and said it was raising tariffs on steel and aluminum imports from Brazil and Argentina.

The tariffs against France would be punishment for that country’s new digital-services tax. French Finance Minister Bruno Le Maire on Tuesday said the European Union would retaliate if President Trump follows through.

Argentina and Brazil in 2018 hammered out exemptions to the Trump administration’s global tariffs on steel and aluminum. Mr. Trump on Monday said the two nations had since devalued their currencies and he would immediately “restore” the duties. The weaker currencies have made their crops cheaper, creating another problem for U.S. farmers hard hit by the Trump administration’s fight with China.

The move to revive trade tensions over metals caught many observers off guard. The U.S. has been making conciliatory moves on other fronts, including progress toward a limited pact with China. Then again, Mr. Trump on Tuesday said he has “no deadline” for a trade deal with China: “In some ways I like the idea of waiting until after the election for the China deal.”

WHAT TO WATCH TODAY

President Trump is in London for a NATO summit.

The Bank of Canada releases an interest-rate announcement at 10 a.m. ET.

The Federal Reserve’s Randal Quarles testifies on bank supervision and regulation before the House Financial Services Committee at 10 a.m. ET.

U.S. auto sales for November are out today.

China’s Caixin composite index for November is out at 8:45 p.m. ET.

TOP STORIES

Sympathy for Millennials

Many millennials entered the job market during or in the aftermath of the Great Recession. Gen Z is entering during the longest stretch of job creation on record. The result: The kids are getting hired at higher and higher salaries while labor-market veterans are locked into a lower pay scale. “In recent years, the faster wage growth of new hires versus the stagnation of salary increase budgets is leading to historic levels of pay compression—when the wage premium for experience shrinks,” Conference Board economists Gad Levanon and Frank Steemers write in a recent report.

As of the second quarter of 2019, workers age 20-24 made 71% as much as workers age 25-34, the smallest gap in records dating back to 1985. One possibly positive byproduct: “Such pay compression is leading to higher labor turnover of more experienced workers who can easily find new jobs in this tight labor market,” Messrs. Levanon and Steemers write.

OK, When Will the Worst Be Over for Manufacturers?

The good news is that the manufacturing sector ought to start doing better soon. The bad news is that it isn’t doing better already. The Institute for Supply Management’s manufacturing index fell to 48.1 in November, below the 50-mark that separates expansion from contraction for the fourth straight month. Manufacturers face manifold problems but better times should be coming: Trade tensions between the U.S. and China seem to have cooled, the global economy appears to be on the mend and Boeing hopes to resume 737 MAX deliveries before the end of the year, which could ripple through the entire supply chain. The best bet is that November was just a temporary setback, and that data in the coming months will make it clear that the bleeding in manufacturing has been stanched. But until the data actually show it, there is reason to be nervous, Justin Lahart writes.

One positive sign: IHS Markit’s U.S. manufacturing index gained ground for the third straight month, with new orders and production rising at the fastest rates since January. “Some caution is needed, as these improved survey numbers merely translate into very subdued growth in comparable official gauges of manufacturing production and factory payrolls. Business sentiment also remains worryingly subdued,” said IHS Markit economist Chris Williamson.

Why the difference between ISM and IHS Markit? “The ISM panel skews towards larger, globally-connected firms,” says Nomura economist Lewis Alexander. That suggests soft global growth and trade policy are significant factors in the factory slowdown.

Don’t Know Much About History

U.S. teenagers made no significant gains on an exam taken by students around the world, and continue to trail students in Asian countries. The exam, given every three years, is considered a barometer of future economic competitiveness. The U.S. ranking improved to eighth in reading, 30th in math and 11th in science compared with 63 other educational systems. Federal education officials, however, said the results weren’t measurably different from the last testing cycle in 2015. China had the highest scores in all three subjects, Tawnell D. Hobbs reports.

Cashless Society

Need to pay the babysitter? Don’t even think about using cash. People often use mobile payment services like Venmo and Cash App to reimburse friends for office gifts or dinner. But with young people snubbing cash altogether, parents and grandparents now are being forced to join in if they want to compensate them for chores or babysitting, Julie Jargon reports.

WHAT ELSE WE’RE READING

Do voters care about the economy? “The state of the economy must still matter in extremis: would President Donald Trump’s approval rating really hold up if unemployment went from 4% to, say, 20%? But the old rules of thumb about the business cycle and voting patterns are being replaced by a new narrative. This holds that ups and downs in GDP or wages matter less in elections than they used to. Instead, economic factors that shape people’s sense of identity matter more—and could help explain the shift towards populism in many places. Two are particularly important. The first is the sense of insecurity that accompanies globalisation. The second is frustration about sky-high housing costs,” the Economist writes.

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