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President Trump trumpeted a “big leap forward” with Beijing but named a China hard-liner to lead trade talks. This could get interesting.
Good morning. Jeff Sparshott here to take you through key developments in the global economy. We’ll also take a peek at the trade agenda and potential economic fallout in the new year, dodge a government shutdown and check in on Brexit. Let us know what you think by replying to this email.
I WALK THE LINE
President Trump named a China hard-liner to lead negotiations with Beijing. Chinese leaders had hoped to deal with Treasury Secretary Steven Mnuchin. Instead, they’ll get U.S. Trade Representative Robert Lighthizer, who opposed China joining the World Trade Organization and persuaded the president to ditch potential deals with Beijing over the past two years. He has been pressing for more tariffs on China as a way to build leverage, Bob Davis and Vivian Salama report.
Mr. Trump’s choice indicates the U.S. will take a tough stance in contentious talks. Still, Mr. Trump was nothing but upbeat following his summit: “Very good things will happen. We are dealing from great strength, but China likewise has much to gain if and when a deal is completed. Level the field!”
I CAN NEITHER CONFIRM NOR DENY
Washington and Beijing are giving starkly different accounts of their weekend meeting. Chinese State media—which answer to the government—emphasized an agreement to refrain from further tariffs. Omitted were mentions of President Trump’s 90-day time limit and that talks would focus on trade practices the U.S. considers unfair. The Chinese Commerce Ministry declined to confirm an apparent concession on auto tariffs. The differing accounts underscore domestic political pressures facing both leaders.
WHAT TO WATCH TODAY
The New York Fed’s John Williams speaks at an economic press briefing at 10 a.m. ET.
President Trump’s temporary trade truces include the European Union and Japan, not just China. Could the cease-fires all end about the same time? The White House is expected to advance by February a plan for new tariffs on the Japanese and European auto industries. New China levies could be back on the table as early as March, William Mauldin reports.
It isn’t clear how far Mr. Trump will go with threats to increase or impose new tariffs—if they’re a negotiating tactic or a policy end. Uncertainty has complicated decisions for business leaders.
TRADE WAR? WHAT TRADE WAR?
Trade war talk has dominated headlines and businesses’ anxieties for the past year, but it hasn’t left any notable impact on U.S. economic growth. That isn’t surprising: The direct effects of trade barriers are usually rounding errors in an economy as large as the U.S.
The picture could change. The accumulating list of flashpoints between the U.S. and its trading partners could spill over through other, less obvious channels such as confidence, financial markets and investment, compounding other threats such as rising U.S. interest rates and capital flight from emerging markets. The risks are amplified by the readiness of the European Union, Canada, Mexico and China to retaliate, Greg Ip writes.
THE ELECTRIC COMPANY
The Trump administration is looking to eliminate subsidies on electric cars, a move that could hamper the auto industry’s push to broaden the market for battery-powered vehicles. “As a matter of our policy, we want to end all those subsidies,” White House adviser Lawrence Kudlow said. “And by the way, other subsidies imposed during the Obama administration—renewables, etc. We are a free market.” Last week, Mr. Trump said he is considering pulling all subsidies for General Motors, including for electric cars, after the auto maker said it would lay off nearly 15,000 salaried and factory workers, Vivian Salama and Mike Colias report.
TWO WEEKS’ NOTICE
Senate Majority Leader Mitch McConnell predicted lawmakers would avert a government shutdown. “I don’t think we’ll get to that point,” he said at the Wall Street Journal CEO Council. Mr. McConnell spoke hours after congressional leaders introduced a two-week spending bill to give lawmakers more time to avoid a partial shutdown; current government funding expires this weekend, Joshua Jamerson reports.
In the past, partial government shutdowns have sent ripples, not waves through the economy. Their impact is most acute for government contractors—including janitors, food-service and other low-wage workers—who lose their paychecks for several days or weeks.
BREAKING UP IS HARD TO DO
The U.K. can cancel Brexit. The European Court of Justice said the country can unilaterally reverse its decision to leave the European Union without consent of other members. If upheld, the opinion would add another twist to the Brexit saga, complicate Prime Minister Theresa May’s efforts to win approval for her plan and deliver a blow to Brussels, which contends all members must agree on such a reversal.
TWEET OF THE DAY
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WHAT ELSE WE’RE READING: BREXIT EDITION
Former Bank of England Governor Mervyn King has some choice words on Prime Minister Theresa May’s Brexit deal. “The withdrawal agreement is less a carefully crafted diplomatic compromise and more the result of incompetence of a high order. […] It is time to think again, and the first step is to reject a deal that is the worst of all worlds,” he says at Bloomberg Opinion.
Britain enjoyed rationing during World War II and its aftermath. Perhaps Brexit will bring those good old days back. “Theresa May’s cabinet is drawing up plans to ration space on ferries carrying vital supplies to Britain, as ministers prepare for a no-deal Brexit that could leave supermarket aisles devoid of some foods,” The Financial Times reports.
Brexit hasn’t even happened, of course. But… “Brexit uncertainty has already reduced growth in investment by 6 percentage points and employment by 1.5 percentage points, and is likely to reduce future UK productivity by half of a percentage point,” Nicholas Bloom, Scarlet Chen and Paul Mizen write at the Center for Economic Policy Research.
UP NEXT: WEDNESDAY
Wednesday is a national day of mourning for former President George H.W.Bush. Fed Chairman Jerome Powell’s scheduled appearance on Capitol Hill and most U.S. economic indicators have been postponed to Thursday or another later date.
The Bank of Canada releases a policy decision at 10 a.m. ET.
The Fed’s beige book is out at 2 p.m. ET.
Read more: blogs.wsj.com