Newsletter: Calling a Truce

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Do You Really Want to Hurt Me

The U.S. and China are prepared to sign an initial trade deal Wednesday, formally calling a truce in the two-year trade war. The fallout from the dispute? It took a measurable toll on the U.S. economy. Just not a big one. Farmers took a hit. Importers of auto parts, furniture and machinery choked down punishing tariffs. Investment between the world’s two largest economies dropped. But much of the U.S. economy is largely unscathed. Even so, most Chinese imports are still subject to U.S. tariffs, and many trade issues remain the subject of sharp disagreement. Economists warn it could take years for the full consequences to be realized, Josh Zumbrun and Anthony DeBarros report.

The U.S. and China have agreed to semiannual talks to push for economic reform and resolve disputes. The effort will be headed by Treasury Secretary Steven Mnuchin and Chinese Vice Premier Liu He, among other senior officials. It is set to be announced on Jan. 15 as part of the signing of the phase-one trade deal, Bob Davis and Alex Leary report.

WHAT TO WATCH TODAY

U.S. federal budget figures for December are out at 2 p.m. ET.

Federal Reserve: Boston’s Eric Rosengren speaks at a Connecticut Business and Industry Association meeting at 10 a.m. ET, Atlanta’s Raphael Bostic speaks on the economy and monetary policy at 12:40 p.m. ET and Minneapolis’s Neel Kashkari gives opening remarks at an education conference at 3 p.m. ET.

Japan’s balance of payments for November is out at 6:50 p.m. ET.

TOP STORIES

I Like to Move It Move It

Manufacturers are paying thousands of dollars in relocation costs and bonuses to move new hires across the country at a time of record-low unemployment and intense competition for skilled workers. Close to half a million U.S. factory jobs are unfilled, the most in nearly two decades. At the same time, Americans are moving around the country at the lowest rate in at least 70 years. To entice workers to move, manufacturers are raising wages, offering signing bonuses and covering relocation costs, including for some hourly positions. They are betting that spending on higher wages and moving incentives will help them find workers to fill their backlogs of orders, Austen Hufford reports.

Here’s a bit of a paradox: Manufacturers are having a hard time finding workers even as the sector shed jobs in December and slowed the pace of hiring sharply in 2019. Tariffs, trade disputes and strength in the dollar globally weighed on U.S. factories much of the year. So did a General Motors strike and Boeing’s trouble with the grounding of the 737 MAX. Despite the ratcheting down of trade tensions between the U.S. and China, manufacturing could remain in a funk for a while—most of the tariffs that have hit the sector look likely to remain in place, while uncertainty over U.S. trade policy might leave manufacturers unwilling to step up operations, Justin Lahart writes.

I’m Old Enough to Remember When We Had Inflation

What happens when people aren’t old enough to remember rising prices? A 20-year-old in Japan today has experienced average inflation of 0.1% over his or her lifetime, Megumi Fujikawa reports. “Those who were born in the 1980s and 1990s almost have no experience of inflation. So even if they were told inflation was coming, they didn’t believe it,” said Tsutomu Watanabe, a Tokyo University professor and former central banker.

• The Federal Reserve, like the Bank of Japan, seeks 2% inflation because it sees that level as consistent with a healthy economy.
• The problem? Central bankers believe low-inflation expectations can be self-fulfilling if they cause consumers to balk at higher prices and businesses to refrain from raising prices and wages.

The Bank of Japan’s decision to raise its inflation target from 1% to 2% in 2013 and its subsequent difficulty to boost prices suggests simply announcing a higher inflation target—even by providing a historically unprecedented level of monetary stimulus—offers a cautionary tale for other central banks, Fed economist Taisuke Nakata writes in a new brief. “For the central bank to convince the public that it is capable of raising inflation to a new, higher target, it is likely useful for the central bank to have achieved the old, lower target in a sustainable manner before adopting a higher target,” he said. —Nick Timiraos

Ford Tough

Ford Motor’s China sales fell for the third year in a row in 2019, dropping to less than half of what it sold at its zenith in 2016. Ford sold 567,854 vehicles last year in China. The Dearborn, Mich.-based car maker said the broader market is likely to get worse in 2020. China’s market for automobiles grew for decades but over the past year-and-a-half, it has contracted due to an economic downturn that has dented consumer demand and tighter emissions standards that hurt auto makers and dealers. The state-backed China Association of Automobile Manufacturers on Monday said auto sales in China fell 8.2% in 2019 from a year earlier, a second consecutive drop in the world’s largest auto market, Yoko Kubota reports.

Tax the Rich

The latest wealth-tax study finds that the proposal would reduce economic growth and the capital stock with negative effects on U.S. jobs and wages. The study was conducted by EY LLP, the accounting firm, and released by the American Action Forum, a conservative think tank. But some scenarios in the analysis offer a silver lining for wealth-tax advocates, who often argue the tax should be analyzed along with the spending it would fund, including programs to lower the cost of college and housing. “Elizabeth’s wealth tax will produce trillions in revenue to fund middle-class investments that will grow our economy and provide families with more financial security,” said Saloni Sharma, a spokeswoman for presidential candidate Elizabeth Warren.  —Richard Rubin

WHAT ELSE WE’RE READING

Happiness is U-shaped. Dartmouth economist David Blanchflower looks at well-being and age to find people around the world are at their most miserable close to the half-century mark of life. “Averaging across the 257 individual country estimates from developing countries gives an age minimum of 48.2 for well-being and doing the same across the 187 country estimates for advanced countries gives a similar minimum of 47.2. The happiness curve is everywhere,” he writes in a National Bureau of Economic Research working paper.

from Real Time Economics https://ift.tt/2NnyUlV