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President Trump and President Xi walked away from their weekend summit with an agreement that puts new tariffs on hold but offers an uncertain path to resolving deep-seated differences.
Good morning. Jeff Sparshott here to take you through key developments in the global economy. We’ll dive into the U.S.-China truce, oil prices, Brexit’s toll on health care, EU-Swiss tensions, and President George H.W. Bush’s economic legacy. Let us know what you think by replying to this email.
The U.S.-China trade cease-fire eased concerns over a possible new Cold War. China agreed to cut tariffs on American cars and start buying more American agriculture and energy products, the White House says. That could be a big help for American farmers, who have been hit hard by Chinese retaliation. The deal also will ease pressure on manufacturers to quickly alter supply chains.
What happened? The U.S. postponed its threat to increase tariffs on $200 billion in Chinese goods to 25% from 10%. But it set a timeline of only about three months to negotiate seemingly intractable issues. Still on the table: forced technology transfer; intellectual-property protection; nontariff barriers that impede U.S. access to Chinese markets; and cyberespionage, Bob Davis writes.
In a sign of the difficulty ahead, Chinese officials haven’t acknowledged they accept the U.S. negotiating agenda or any deadline for talks. Nor is it clear what China needs to do for the U.S. to hold off on raising tariffs when its deadline expires.
It’s the economy: “If the economy slows down, it’s very unlikely U.S. will ever ratchet up tariffs,” says the Brookings Institution’s David Dollar. “But if the U.S. economy is roaring and the negotiations are especially frustrating, 90 days from now we could be headed into a serious trade war.”
WHAT TO WATCH TODAY
Markit’s U.S. manufacturing index for November is out at 9:45 a.m. ET.
The Institute for Supply Management’s manufacturing index for November, out at 10 a.m. ET, is expected to tick up to 57.9 from 57.7 a month earlier.
U.S. construction spending for October, out at 10 a.m. ET, is expected to increase 0.3% from a month earlier.
U.S. auto sales for November are expected to ease to an annual pace of 17.2 million from 17.57 million a month earlier.
There’s a surfeit of Federal Reserve speakers on Monday: Vice Chairman for Supervision Randal Quarles is at the Council on Foreign Relations at 8 a.m. ET, New York’s John Williams opens a Treasury market conference at 9:15 a.m. ET, governor Lael Brainard keynotes the Treasury market conference at 10:30 a.m. ET, and Dallas’s Robert Kaplan speaks at a community forum in Loredo, Texas, at 1 p.m. ET.
HE SAID, XI SAID
There are discrepancies between what the U.S. and China are saying following the Trump-Xi meeting. High Frequency Economics’s Carl Weinberg dissects some of the bigger gaps:
What’s China going to buy? Beijing may use this new “agreement” to lobby for the United States to make more industrial and high-tech goods available for export to China… without tariffs, of course. There is no good news for U.S. farmers in this “deal.”
What Will They Talk About Next? China sees the next round of talks as aimed at ending existing tariffs, while the U.S. side sees them as aimed at unresolved trade issues. These are very different perspectives.
Bottom line: China has conceded no ground. Xi wins domestic political points for standing up to the United States. For President Trump, the takeaway is that he does not have to impose new taxes on U.S. consumers and other users of goods made in China.
If the U.S.-China deal deserves some skepticism, markets weren’t showing it. Stocks around the world rallied, oil prices climbed and China’s yuan rose. The trade detente comes as stock markets have stabilized after a bruising autumn, though they remain well below the highs hit earlier in the year. Trade fears, falling oil prices and worries about slowing global growth all curbed risk appetite, Mike Bird and Georgi Kantchev report.
DRILL BABY, DRILL
President Trump likes to cheer low oil prices. His view may not have fully caught up with the economy. In the past, declining oil prices were a bounty to U.S. households and boosted U.S. economic output. That was before the U.S. oil boom. Now, a growing chunk of domestic investment, manufacturing output and employment has become tied to oil. When prices fall, it risks hurting investment and hiring in important parts of the economy, Paul Kiernan and Christopher M. Matthews report.
At the same time, a decades-long transition toward more energy-efficient living has left businesses and consumers less sensitive to prices at the pump. Some economists still believe lower oil prices are a net economic positive, but the resurgence of the U.S. oil industry has upended the conventional wisdom.
THE PATIENT MUST MINISTER TO HIMSELF
The U.K.’s planned exit from the European Union is fueling an exodus of European workers. That’s what many “yes” voters wanted. But their departure is worsening British labor shortages in critical industries. The squeeze is especially pronounced in health care. The number of surgeons who are citizens of another EU country, for example, is down 23% from its 2014 peak. Overall, the number of specialized doctors from elsewhere in the EU has reached an eight-year low in 2018, Donato Paolo Mancini and Jason Douglas report.
A KICK IN THE ALPS
Switzerland has long had a friends-with-benefits relationship with the European Union. It isn’t part of the EU, but maintains extensive trade and financial ties. This may be changing. The EU has escalated pressure on Switzerland to accept an overhaul of their complex bilateral relations. On Friday, Switzerland moved to protect its stock exchanges should the EU press forward with plans to end a longstanding market-access agreement. The Swiss said that, effective Jan. 1, EU-based trading venues must cease trading in Swiss shares. The Swiss billed the move as protective, not retaliatory. There is an escape clause in the measure that would nullify it if an equivalence agreement is reached, Brian Blackstone and Laurence Norman write.
THE BUSH LEGACY
George H.W. Bush was president for just four years but his economic legacy on taxes, banking and trade reverberate today. 1.) Mr. Bush famously struck a budget deal that broke his no new taxes pledge, helping restore some fiscal balance but teaching Republicans to never get caught raising taxes. 2.) Mr. Bush’s recession ended in 1991 but turned into a jobless recovery in part because banks weren’t lending. Bush Treasury officials, including current Fed Chairman Jerome Powell, had to clean up the mess and learned how financial imbalances can threaten growth. 3.) Mr. Bush negotiated Nafta, a deal that came to symbolize the collision of interests between blue-collar workers on one hand, and consumers, corporations and geostrategic cooperation on the other, Greg Ip writes.
QUOTE OF THE DAY
If we were to overdo on interest rates, I do think that could cause a recession, and I know none of us want that to happen.-Minneapolis Fed President Neel Kashkari, in an interview with the WSJ
TWEET OF THE DAY[wsj-responsive-sandbox id = “0” ]
WHAT ELSE WE’RE READING
A bad economy begets a bad economy. One legacy of Greece’s deep and prolonged economic crash: “a baby bust that has raised the likelihood of a shrunken, weakened Greece for years to come,” The Washington Post reports.
Millennials aren’t trying to be weird or different. Instead, they’re “less well off than members of earlier generations when they were young, with lower earnings, fewer assets, and less wealth,” Christopher Kurz, Geng Li, and Daniel Vine write in a Federal Reserve discussion paper. “These balance sheet comparisons likely reflect, in part, the unfavorable labor and credit markets conditions that prevailed during the 2007–09 recession, some of which had prolonged effects.”
Read more: blogs.wsj.com