The Finance 202: Trade truce with China caps good week in Washington for Trump’s economy

THE TICKER

President Trump meets with Chinese President Xi Jinping in June. (Reuters/Kevin Lamarque)

President Trump declared a trade truce with the Chinese, just days before the hammer blow of new tariffs on consumer goods is set to fall — and two months after he first trumpeted a major breakthrough with Beijing.

The deal will put off the levies looming on $160 billion of Chinese imports and also ease those already on the books for $360 billion of goods. To secure that de-escalation, Beijing has agreed to buy $50 billion of American agricultural products next year, increase intellectual property protections, and give greater access to U.S. financial services firms, per my colleague David Lynch.

It’s unclear whether the deal has been put on paper yet, as is the White House plan for announcing it. And China, notably, has yet to confirm it has signed off. Here’s what else we do know:

• The United States has offered to halve the existing tariffs, an offer it made within the past five days, according to the Wall Street Journal.
• Both sides would agree not to manipulate their currencies, per Bloomberg News.
• If China violates the terms of the agreement, the tariffs would snap back into place.
• U.S. Trade Representative Robert Lighthizer and Chinese Ambassador to the U.S. Cui Tiankai could sign the deal as soon as today, Lynch reports.

The “phase one” deal leaves the knottiest issues — those prompting the Trump administration to launch the trade war in the first place — for later rounds of negotiations. “China’s massive subsidies for state enterprises and its practice of forcing foreign companies to surrender technology secrets in return for access to the Chinese market will be the subject of ‘phase two’ of the talks,” Lynch writes. Trump told one outside adviser he expects those negotiations to continue past next year’s elections.

U.S. Trade Representative Robert Lighthizer. (AP Photo/Marco Ugarte)

In the immediate term, though, the development means a week that started out packed with Washington-born peril for investors ended up delivering bullish news across the board. The threat of new tariffs on Chinese goods loomed largest. But lawmakers also struck an agreement with the administration on a spending deal that will head off a government shutdown later this month. They also forged a deal on updating the North American trade pact. And the Federal Reserve signaled it intends to hew to an accommodative monetary policy next year, leaving in place the cushion it put under the economy in part because of uncertainty from the trade war.

Investors bought the news, with stocks breaking through to record highs. The S&P 500 climbed 0.86 percent, the Dow Jones industrial average gained 0.79 percent, and the Nasdaq closed up 0.73 percent.

Others were underwhelmed, noting the Trump team’s deal so far only moves toward restoring the status quo, rather than rooting out core Chinese trading abuses. As JPMorgan economists noted, per Lynch, “It is unclear that much will really be gained from the deal other than partially unwinding some of the disruptions created earlier this year while leaving other uncertainties in place.”

Here was Sen. Marco Rubio (R-Fla.):

And RSM chief economist Joe Brusuelas:

Rob Atkinson, president of the Information Technology and Innovation Foundation, said the deal “should be seen only as a starting point. The United States must still comprehensively address China’s rampant innovation mercantilist practices – the most critical issue at stake in the U.S.-China trade relationship.”

MARKET MOVERS

— Boris wins big. The Post’s William Booth, Karla Adam and James McAuley: “Prime Minister Boris Johnson won a sweeping, decisive and powerful majority of parliamentary seats — and a mandate to deliver Brexit — in Thursday’s general election. Ballots tallied through the night affirmed that Johnson and his Conservative Party had achieved a smashing success, the largest win for the Tories since the days of Margaret Thatcher — while the opposition Labour Party and its hard-left leader, Jeremy Corbyn, suffered their worst defeat in four decades.

“Friday morning, with one constituency still to declare, the Conservatives had won 364 spots in the 650-seat Parliament… Johnson — the bombastic showman who led the campaign to leave the European Union in the June 2016 referendum — is now positioned to be the prime minister to see Britain set sail from Europe next month.”

• Pound surges: “The pound sterling surged in after-hours trading when voting ended and the national exit poll showed the Conservatives forecast to win 368 out of 650 seats.”
• Corbyn stepping down: “Corbyn, after winning in his own Islington constituency, announced he would not lead his party in any future general-election campaign but that he intended to stay on as leader during a period of reflection.”

— Fed preps for year-end repo shakeups. WSJ’s Michael Derby: “The Federal Reserve Bank of New York said Thursday it is again increasing the scope of liquidity operations it is willing to offer financial markets to ensure money-market rates remain relatively calm over an uncertain year-end. 

“The bank, which handles the implementation of monetary policy goals laid out by the rate-setting Federal Open Market Committee, said its provisions of liquidity available via overnight repurchase agreements will rise to $150 billion, from the current $120 billion cap, in operations planned for between Dec. 31 and Jan. 2. Overnight repos between Friday and Dec. 30 will hold steady at the current size of $120 billion, and repos of that same size will return each business day between Jan. 3 and Jan. 14.”

TRUMP TRACKER

Ren Zhengfei, founder and CEO of Huawei, poses for a portrait in a reception room in Huawei’s headquarters in Shenzhen, China. (Peng Ke for The Washington Post)

— Huawei CEO says company needs time to recover from ban: “Chinese tech giant Huawei will survive a U.S. trade blockade, its chief executive said, but may need two or three years to overcome the damage the sanction has caused,” my colleagues Jeanne Whalen and Anna Fifield report from China in an exclusive interview with Ren Zhengfei.

“Zhengfei said the U.S. ban has had a ‘pretty big impact’ on the company, forcing it to scramble to redesign products to try to eliminate U.S. parts. He said Huawei is now producing telecom network equipment without U.S. chips or components, and it has shipped such gear to more than 40 telecom companies, including some in Europe. Huawei has also reduced U.S. parts in its cellphones, he said … Ren described Trump as “trying to crush businesses and intimidate countries around the world,” and he said the trade ban on Huawei would backfire on the United States by depriving tech companies of sales.”

IMPEACHMENT MINUTE: A speed read on the latest from the congressional impeachment inquiry.

“House Judiciary Committee abruptly adjourns after marathon debate, will vote on articles of impeachment Friday morning.” By The Post’s Rachael Bade, John Wagner, Colby Itkowitz and Toluse Olorunnipa 

“Name-calling, insults and scandals dominate all-day impeachment hearing.” By The Post’s Elise Viebeck, Rachael Bade and Colby Itkowitz 

“6 takeaways from the impeachment articles markup.” By The Post’s Amber Phillips 

MONEY ON THE HILL

House Appropriations Chairwoman Nita M. Lowey (D-N.Y.) speaks with Senate Appropriations Chairman Richard C. Shelby (R-Ala.), left, and Sen. Patrick J. Leahy (D-Vt.) before a meeting at the U.S. Capitol on Jan. 30. (Bonnie Jo Mount/The Washington Post)

— Congress reaches tentative spending deal: “Top congressional negotiators said they had reached a deal in principle to approve $1.3 trillion in federal spending for 2020, likely averting a government shutdown next week,” my colleague Mike DeBonis reports.

“The announcement, from House Appropriations Committee Chairman Nita M. Lowey (D-N.Y.) and Senate Appropriations Committee Chairman Richard C. Shelby (R-Ala.), came after Treasury Secretary Steven Mnuchin visited Capitol Hill midday to review a final list of sticking points. The tentative agreement sets the stage for a remarkable sequence of events next week in the House, with a presidential impeachment vote sandwiched between bipartisan deals on federal spending and North American trade. The House could vote on the spending bill as soon as Tuesday, with the Senate acting before the end of the week.”

• Not everything is settled: “Lowey and Shelby declined to discuss details of the deal Thursday afternoon, but a key final obstacle was [Trump’s] border wall — the very issue that sparked last year’s record shutdown.”
• Trump’s support is also not a given: But Mnuchin’s role in the talks is viewed as encouraging.

Democratic presidential candidate Sen. Elizabeth Warren (Mass.) delivers an economic policy speech in Manchester, N.H. (Scott Eisen/Getty Images)

— Warren unloads on Buttigieg, Biden: “Elizabeth Warren went after Joe Biden and Pete Buttigieg in some of the most pointed language of her campaign … accusing them in a speech of catering to ultra-wealthy donors and being ‘naive’ about what it will take to achieve real progressive change,” Politico’s Alex Thompson reports. 

• What she said: “ ‘Unlike some candidates for the Democratic nomination, I’m not betting my agenda on the naive hope that if Democrats adopt Republican critiques of progressive policies or make vague calls for unity that somehow the wealthy and well-connected will stand down,’ Warren said at the New Hampshire Institute of Politics at Saint Anselm College.”
• What it means for her campaign: “The direct engagement with Buttigieg and Biden is part of a tactical shift for Warren in recent weeks that also includes a more aggressive appeal to female voters, and a revised stump speech. The changes come as Warren has stalled or dipped in national and early-state polls heading toward a decisive month of campaigning before the Feb. 3 Iowa caucus.”

Buttigieg draws protests. NYT’s Matt Stevens writes the candidate “faced back-to-back days of protest this week, as liberal activists dogged his high-dollar fund-raisers with calls of ‘Wall Street Pete,’ amid a growing effort by progressives to try to halt his momentum in the Iowa and New Hampshire nominating contests. The protests, while modest, are a sign of bubbling frustration on the left with the candidate’s gradual embrace of more moderate politics and his practice of soliciting donations from the wealthy…

“Mr. Buttigieg, who opened his fund-raisers to the news media this week after Ms. Warren pressured him to do so, had been holding court Wednesday night inside a brownstone on the Upper West Side of Manhattan when protesters began banging pots and pans outside the residence… ‘Wow, they’re excited,’ Mr. Buttigieg joked… ‘One of the things you learn on a deployment is dealing with distracting noises.'”

See it here: 

— Bloomberg’s doc says he’s healthy: “Former New York mayor Mike Bloomberg released a doctor’s letter that described him as a ‘77-year-old man in outstanding health’ who has no medical concerns that would prevent him from serving as president of the United States,” my colleague Michael Scherer reports.

“Bloomberg is the second septuagenarian presidential contender to assure the public of their health, following a glowing report by a doctor for [Warren]. Other candidates in the Democratic race, including [Biden] and Sen. Bernie Sanders (I-Vt.), have promised to release medical details before the Iowa caucuses on Feb. 3.”

POCKET CHANGE

Facebook CEO Mark Zuckerberg is seen in 2018. (Andrew Harnik/AP)

— FTC weighs injunction against Facebook: “Federal officials are considering seeking a preliminary injunction against Facebook Inc. over antitrust concerns related to how its products interact, according to people familiar with the matter,” the Wall Street Journal’s John D. McKinnon and Emily Glazer report.

“If it materializes, the action by the Federal Trade Commission would focus on Facebook’s policies concerning it how it integrates its apps or allows them to work with potential rivals, these people said. Alongside its core social network, Facebook’s key products also include Instagram, Messenger and WhatsApp. The potential FTC action would likely seek to block Facebook from enforcing those policies on grounds that they are anticompetitive, the people said. An injunction could seek to bar Facebook from further integrating apps that federal regulators might look to unwind as part of a potential future breakup of the company, one of the people said.”

— 737 Max continues to haunt Boeing: “Boeing Co “abandoned its goal of winning approval this month from the Federal Aviation Administration to unground the 737 MAX after Chief Executive Dennis Muilenburg met with senior U.S. aviation officials,” Reuters’s David Shepardson reports.

“The announcement came after a congressional hearing on Wednesday in which numerous lawmakers prodded the FAA to take a tougher line with Boeing as it continues to review the plane that has been grounded since March after two fatal crashes in Indonesia and Ethiopia that killed 346 people.”

• What’s next: FAA Administrator Stephen Dickson said on Wednesday he would not clear the plane to fly before 2020 and disclosed the agency has an ongoing investigation into 737 production issues in Renton, Washington. He added there are nearly a dozen milestones that must be completed before the MAX returns to service. Approval is not likely until at least February and could be delayed until March, U.S. officials told Reuters.”

— Liberty Media wants a larger stake in iHeartMedia: “An affiliate of John Malone’s Liberty Media Corp. is seeking Justice Department permission to buy a larger piece of iHeartMedia Inc., according to people familiar with the matter, a deal that would put the nation’s largest radio broadcaster under the same corporate umbrella as the leading concert promoter and satellite-radio giant SiriusXM,” the WSJ’s Anne Steele, Brent Kendall and Cara Lombardo report.

“Liberty owns a 4.8 percent stake in iHeart through Liberty SiriusXM Group; the deal now under consideration could give it control or outright ownership of the broadcaster, according to people familiar with the matter.”

— Lyft is getting into rental cars: “Lyft said that it’s introducing a car rental service, allowing customers to rent a vehicle without having to go to the counter. Hertz and Avis shares plunged on the news,” CNBC’s Ari Levy reports.

“The service is initially available for select customers in the Bay Area and Los Angeles. Users tap the key icon on their app to start the process. The rental option includes unlimited miles, and Lyft said it will handle refueling at market price.”

THE REGULATORS

A sign stands outside a home for sale in southeast Denver. (AP Photo/David Zalubowski)

— Bank regulators pitch overhauling anti-redlining law. The Post’s Renae Merle: “Financial regulators proposed Thursday an overhaul of a 40-year-old anti-discrimination law, potentially upending the way banks make loans to low-income communities. The proposal is potentially another big win for the banking industry, which has argued for years that 1977’s Community Reinvestment Act was outdated and didn’t account for the popularity of online banking. 

“Under the proposal, the industry would gain new flexibility when attempting to comply with the law aimed at stamping out redlining, in which banks either refused to lend to people in minority neighborhoods or charge those borrowers more. It is also the Trump administration’s latest effort to radically transform the housing market, including a massive plan released this year to shrink the government’s role in making mortgages.”

CHART TOPPER

Impeachment has Trump breaking his personal tweeting record, via The Post’s Philip Bump: 

DAYBOOK

Today:

• The Commerce Department releases the latest retail sales numbers

THE FUNNIES

From The Post’s Ann Telnaes:

BULL SESSION