On The Money: US, China brace as tariffs poised to take effect | Mexico retaliates against US goods | Fed warns US businesses have ‘scaled back’ investments | Merkel floats easing car import tariffs

Happy Thursday and welcome back to On The Money, where we’re cruising into the second weekend of the week like a cargo ship racing to avoid tariffs. I’m Sylvan Lane, and here’s your nightly guide to everything affecting your bills, bank account and bottom line.

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Write us with tips, suggestions and news: slane@thehill.com, vneedham@thehill.com, njagoda@thehill.com and nelis@thehill.com. Follow us on Twitter: @SylvanLane, @VickofTheHill, @NJagoda and @NivElis.

 

THE BIG DEAL: The global trade showdown over President Trump’s tariffs is ratcheting up this week as analysts and businesses intensify their warning about the potential costs of a trade war.

Mexico on Thursday imposed a second round of retaliatory tariffs on U.S. goods, most of which will be applied to U.S. agricultural products. The new levies cover apples, cranberries, cheeses, potatoes, pork and whiskey. The products will be hit with a tariff of between 15 and 25 percent, and come three days after Canada applied tariffs on $13 billion in U.S. agricultural products.

The Trump administration is also set to impose tariffs on $34 billion of Chinese imports, a move that Beijing has promised to retaliate over in the latest escalation between the world’s two largest economies.

The Hill’s Vicki Needham tells us that Chinese officials said Thursday they were prepared to respond with tariffs on $34 billion worth of American goods, raising serious concerns among industry leaders in the U.S. agricultural, manufacturing and technology sectors and increasing the odds of billions more in import taxes for both countries in the coming months.

“China will never fire the first shot. However, if the United States adopts taxation measures, China will be forced to fight back to defend the core interests of the nation and the interests of the people,” Commerce Ministry spokesman Gao Feng said.

 

The escalating tensions and tit-for-tat tariffs have raised concerns among economists and central banks around the world.

Federal Reserve officials said during their June 12-13 meeting that tariffs imposed by President Trump and retaliatory action from key trading partners has forced American companies to scale back or abandon plans to expand and invest in new capital, according to minutes released today.
Officials said risks and uncertainty related to global trade policy had “intensified,” according to the minutes, and warned that further trade tensions “could have negative effects on business sentiment and investment spending.”

The World Trade Organization (WTO) also said Thursday that the number of new trade restrictions among the world’s top economies has doubled in the past six months, posing a threat to the global economy.
“This continued escalation poses a serious threat to growth and recovery in all countries, and we are beginning to see this reflected in some forward-looking indicators,” said WTO Director-General Roberto Azevêdo.

 

Even so, there are some signs that trade tensions between Trump and Europe could be easing.

German Chancellor Angela Merkel said Thursday she would support lowering tariffs on U.S. car imports amid an escalating trade dispute that could decimate automakers. 

Reuters reported that Merkel said tariff negotiations are ongoing, and that any changes would require full European support. 

“I would be ready to support negotiations on reducing tariffs, but we would not be able to do this only with the U.S.,” Merkel said.

 

Reactions:

• “China is engaged in industrial policies and theft of intellectual property that merits a response, but across the business community we feel that tariffs are not the answer.” — John Murphy, senior vice president for international policy at the U.S. Chamber of Commerce.

• “Combining this with China’s promise to retaliate against U.S. products and agricultural commodities only further erodes the benefits of last year’s tax reform.” — Association of Equipment Manufacturers President Dennis Slater.

• “We can expect further damage to the U.S. economy, workers, companies and consumers.” — U.S. Council for International Business President and CEO Peter Robinson.

 

What comes next: The Trump administration is prepping another $16 billion worth of Chinese export tariffs after a public comment period and hearing scheduled for July 24. China is expected to respond with tariffs on $16 billion worth of U.S. goods like machinery and plastics.

Together, the two rounds — $34 billion and $16 billion — would comprise the $50 billion in tariffs that Trump announced in May.

 

ON TAP TOMORROW

• June jobs report released, 8:30 a.m.

 

LEADING THE DAY

Credit Suisse to pay $77M over bribery law violations: Credit Suisse Group will pay $77 million to settle charges that the bank violated anti-bribery laws by hiring employees connected to foreign government officials, the Securities and Exchange Commission (SEC) announced Thursday.

The Swiss investment bank agreed to pay $30 million to the SEC and a $47 million criminal penalty to the Justice Department to resolve claims it violated the Foreign Corrupt Practices Act.

Credit Suisse hired more than 100 employees to its Asia-Pacific division at the request of officials from foreign governments between 2007 and 2013, the SEC alleged. The hires included more than 60 employees referred by foreign officials at more than 20 Chinese state-owned business that were Credit Suisse clients, according to the complaint. I’ve got more on the settlement here.

 

Dem report: GOP tax law helps developers, hurts homeowners: House Oversight and Government Reform Committee ranking member Elijah Cummings (D-Md.) on Thursday released a report that argues that the GOP tax law hurts homeowners while benefiting real estate developers.

The report comes as Democrats work to make the case against the tax law ahead of the November midterm elections.

It includes a new estimate from the Joint Committee on Taxation (JCT) that several tax breaks for real estate developers will lead to $66.7 billion in lost federal revenue over a decade.

“Republicans in Congress punished middle-class American homeowners while lavishing tens of billions of dollars in tax breaks on wealthy real estate developers like President Trump and his rich friends,” Cummings said in a statement. The Hill’s Naomi Jagoda breaks it down here.

 

Businesses see Trump, not López Obrador, as greater threat to NAFTA: Mexico’s election of leftist candidate Andrés Manuel López Obrador as president may have portended more trade trouble between the two countries, but businesses see President Trump as the greater threat on North American Free Trade Agreement (NAFTA).

López Obrador, known as AMLO, opposed NAFTA at the time it was signed. But like many on the Canadian left, he has since come around as Mexico’s economy opened and the conventional wisdom in the country saw the deal as central to its economic prospects.

While businesses worried about some of López Obrador’s economic plans, his election has prompted muted concern over NAFTA. The Hill’s Niv Elis tells us why here. 

 

MARKET CHECK: From CNBC: “Stocks closed higher on Thursday as technology shares rose, but investors remained on edge as the U.S. prepared to slap tariffs on goods imported from China.

“The Dow Jones Industrial Average rose 181.92 points to 24,356.74, with Intel and Walgreens Boots Alliance outperforming. The S&P 500 gained 0.9 percent to close at 2,736.61 as tech climbed 1.5 percent. The Nasdaq composite advanced 1.1 percent to 7,586.43 as Facebook, Amazon, Netflix and Google-parent Alphabet all rose.”

 

GOOD TO KNOW

• The Washington Post explores why, and how, the Securities and Exchange Commission is looking into Facebook’s reaction to Cambridge Analytica.
• Commerce Secretary Wilbur Ross appears to have earned seven figures from his failure to divest stock holdings until months after he was required to do so, according to a Center for Public Integrity analysis.
• The New York Times explains why the Fed can’t do much to limit the damage of a trade war.
• Op-Ed: Mark Heppenstall, chief investment officer at Penn Mutual Asset Management, writes for The Hill on how signs of global stress will test the Federal Reserve.
• A record $2.5 trillion in mergers were announced in the first half of 2018, according to The New York Times.
• Chinese telecommunications company ZTE has reportedly named a new chief executive and other leaders as it seeks to comply with U.S.-imposed requirements to get back in business in the country.

ODDS AND ENDS

• A House Republican is joining a growing group of lawmakers, most of them Democrats, who are calling for regulators to crack down on Google’s market dominance.