Trump's midterm strategy emerges Presented by U.S. Bank

TRUMP’S MIDTERM STRATEGY EMERGES — President Donald Trump’s plan to help Republicans hold onto the House and Senate this fall is now becoming clear and it includes scorched earth immigration policies and trade battles with both our allies (Canada, Mexico, EU) and our adversaries (China). Trump, while attempting to deflect blame to Democrats, is clearly inclined to do nothing to stop the forced separation of children and their parents and the U.S. border that has sparked outrage across the world and condemnation from former presidents and first ladies of both parties.

In fact, as POLITICO’s Nancy Cook reports, the White House is preparing even more immigration moves to excite the Republican base: “Among the fresh ideas being circulated: tightening rules on student visas and exchange programs; limiting visas for temporary agricultural workers; making it harder for legal immigrants who have applied for any welfare programs to obtain residency; and collecting biometric data from visitors from certain countries.”


And Trump on Monday ratcheted up his trade battle with China, as POLITICO’s Doug Palmer reports, by “ordering trade officials to draw up a list of $200 billion worth of Chinese goods that would be hit with an additional 10 percent tariff, after Beijing retaliated in kind to Trump's decision to hit an initial $50 billion worth of Chinese goods with a 25 percent tariff last week.

“Trump also promised to keep upping the ante if China retaliates to his latest action by pursuing additional tariffs on another $200 billion worth of goods, for a grand total of $450 billion. That would encompass roughly 90 percent of the $505 billion worth of goods that China exported to the United States in 2017.”

THE ENORMOUS RISKS — The immigration issue is likely to excite the GOP base, which polling shows remains with Trump even on the family separation issue. But it’s a very different story in more moderate states and districts that are likely to decide the outcome of the midterms. A Quinnipiac poll out Monday showed that roughly two-thirds of voters oppose splitting families apart at the border.

Only slightly more than half of Republicans support it. And from an economic standpoint, further limits on legal immigration are likely to pinch companies that are already having trouble filling jobs with the unemployment rate at just 3.8 percent.

If all of the China tariffs go into effect they will almost certainly wind up hitting consumers with higher prices on clothing, phones and other items. Because the U.S. will quickly run out of room on other more technical items. It will also cost exporters from farmers to bourbon and blue jean makers. A collapse of NAFTA would be potentially devastating for both markets and U.S. companies. Trump’s tough rhetoric could wind up winning some concessions from the Chinese and pay off for him both politically and economically.

But that would have a higher chance for success if the U.S. were acting in concert with allies to pressure China. Instead, the U.S. is battling its allies on trade at the same time. The strategy appears to be in place for Republicans – whether many of them like it or not – and it has a significant risk of disaster.

HOW THE WHITE HOUSE FEELS ABOUT KRANINGER — Senior administration officials feel pretty good about their rollout of little-known OMB official Kathy Kraninger to lead the CFPB, noting to MM that opposition on the right remains minimal while all the big trade groups are behind her.

They also say they have assurances from GOP Senate Banking staff that the committee if fully behind moving the nomination this summer. The Saturday nomination was … odd. But White House officials believe they landed on a capable nominee, well liked by the GOP on the Hill who should win confirmation.

Democrats, of course, have other ideas, at POLITICO’s Katy O’Donnell reports: “Democrats criticized … Kraninger … signaling that the White House budget official will have a tough path to confirmation. … Former CFPB Director Richard Cordray called her a ‘Mulvaney flunky,’ tweeting that he has ‘zero confidence that she will be any better for consumers.’

“The Republicans only have a 51-vote majority in the Senate, meaning they can't afford to lose any GOP support for the nominee if the Democratic opposition is united.

The longer it takes to get Kraninger confirmed, meanwhile, the longer Mulvaney can stay on as acting director. Hill Democrats indicated they plan to go after Kraninger's lack of financial-policy experience.”

SENATE REBUKES TRUMP ON ZTE — Via POLITICO: “The Senate voted Monday night to reimpose the U.S. ban on Chinese telecom giant ZTE, in a rebuke to … Trump and his efforts to keep the company in business. The provision targeting ZTE was part of the National Defense Authorization Act, a must-pass defense spending bill that passed in the Senate.”

TRADE BLOWBACK — Via The National Retail Federation on Monday night: “This is just what we predicted – a tit-for-tat trade war has erupted and American families are caught in the middle. Higher prices for everyday essentials and lost jobs threaten to sap the energy out of the strong U.S. economy just as most Americans are starting to enjoy the benefits of historic tax reform.”

KELLY GIVES UP — Remarkable reporting from POLITICO’s Eliana Johnson and Annie Karni on White House chief of staff John Kelly: “According to four people close to Kelly, the former Marine general has largely yielded his role as the enforcer in the West Wing as his relationship with Trump has soured.

“While Kelly himself once believed he stood between Trump and chaos, he has told at least one person close to him that he may as well let the president do what he wants, even if it leads to impeachment – at least this chapter of American history would come to a close.”

John Kelly has given up on managing the Trump White House. | Getty

GOOD TUESDAY MORNING — Email me on [email protected] and follow her on Twitter @morningmoneyben. Email Aubree Eliza Weaver on [email protected] and follow her on Twitter @AubreeEWeaver.

THIS MORNING ON POLITICO PRO FINANCIAL SERVICES — Katy O’Donnell on the tough road ahead for Trump’s pick to lead the CFPB. To get Morning Money every day before 6 a.m., please contact Pro Services at (703) 341-4600 or [email protected].

DRIVING THE DAY — President Trump speaks to the National Federation of Independent Businesses at 12:25 p.m. and meets with King Felipe VI and Queen Letizia of Spain at 2:00 p.m. At 5:40 p.m., Trump speaks to the House GOP conference about immigration …

SIFMA and the Clearing House hold a prudential regulation conference featuring remarks from FDIC Chairman Jelena McWilliams, Comptroller of the Currency Joseph Otting, Senate Pat Toomey and the Fed’s General Counsel Mark Van Der Weide, among others. … Goldman Sachs CEO Lloyd Blankfein speaks at the Economic Club of New York luncheon, which will air on Bloomberg Television

READ UP ON CRYPTO — Via Cowen’s Jaret Seiberg on the Sunday release on Sunday of a report on digital currencies from the Bank of International Settlements report on digital currencies, including Bitcoin: “We believe this study is important because it explains in an easy-to-read and succinct manner why regulators have worries about digital currencies and why they are dubious about their long-term use. At the same time, the report makes clear that the block chain technology is likely to be useful for some purposes such as international trade finance.”

SENATE GOP TRIES TO FIX IMMIGRATION MESS — POLITICO’s Burgess Everett: “Senate Republicans are racing to come up with a solution to stop the separation of parents from their children on the border with Mexico. Senate Majority Whip John Cornyn of Texas is working to come up with a legislative fix for the Trump administration’s practice of splitting up families that cross the border illegally.

“Cornyn is leading a small group of Senate Republicans who recognize that Congress may have to step in and do something if … Trump won’t back down. ‘You can keep families intact and enforce the law,’ Cornyn said. … Sen. Ted Cruz (R-Texas) separately plans to introduce a bill that would add 375 more federal immigration judges, allow more family shelters, mandate that families be kept together if there’s no threat of harm to children, and encourage resolving asylum cases within two weeks. It does not appear to have support from GOP leaders.” Read more.

STOCKS RECOVER FROM SHARP EARLY DROP — AP’s Marley Jay: “U.S. stocks shrugged off early losses and wound up with a mixed finish Monday. Household goods companies took some of the worst losses as the S&P 500 index fell for the third time in four days.

“The S&P 500 dropped as much as 22 points early on. Consumer products and packaged foods companies stumbled and drug makers and distributors fell, as did health insurers. That came after indexes in Europe and Asia fell. German stocks took steep losses as investors wondered if a dispute over migrants could eventually threaten the German government.” Read more.

TARIFFS CAUSE CHINA MARKET STRUGGLES — Bloomberg’s Matthew Burgess: “China’s stocks, already languishing at the lowest level in almost two years, face another setback after the U.S. outlined $34 billion of tariffs that include products made by high-flying listed firms.

“The first wave of 25 percent import levies will take effect on July 6, the White House said last week, in response to what President Donald Trump has called decades of theft of American know-how. The tariffs target Chinese President Xi Jinping’s Made in China 2025 plan that seeks to develop sophisticated manufacturing capabilities. For example, printed circuit boards; China’s biggest maker of those, Shennan Circuits Co., has tripled since its December initial public offering.” Read more.

PRIVATE EQUITY FIRM TAPS GOLDMAN EXEC — Grain Management has announced a new addition to the private equity firm’s group of senior advisors. Edith Cooper heads to Grain from Goldman Sachs, where she served as the Global Head of Human Capital Management and “oversaw the recruitment, development and well-being” of the company’s 35,000 employees. Prior to Goldman, Cooper also worked at Morgan Stanley and Bankers Trust.

ECONOMIC CONFIDENCE UP AMONG LOW-INCOME AMERICANS — WSJ’s Sarah Chaney: “Economic confidence among lower-income Americans has taken a recent leap, the latest evidence that benefits of the economic expansion are reaching a broader swath of workers. Sentiment among lower-income consumers still trails that of their higher-earning counterparts. But the gap has narrowed in recent months.

“In the University of Michigan’s consumer-sentiment index, confidence among households in the bottom third income tier has risen 11.4 points since February, an IHS Markit analysis of sentiment figures shows. Meanwhile, sentiment among Americans in the highest third of incomes has fallen more than eight points. The recent improvement in confidence for lower-income Americans coincides with a falling unemployment rate and faster wage growth for workers at the margin.” Read more.

JPMORGAN FINED $65M — Bloomberg’s Matt Robinson: “JPMorgan Chase & Co. agreed to pay $65 million to settle a U.S. regulator’s allegations that its traders attempted to manipulate a benchmark for interest-rate derivatives, making it the latest bank fined in a years-long investigation.

“A JPMorgan swaps trader tried to ‘muscle’ what’s known as ISDAfix, which helps determine the value of trillions of dollars of derivatives, the Commodity Futures Trading Commission said in a Monday statement. Among traders, it was common knowledge that they could move prices with some openly joking about it, according to the regulator.” Read more.

WELLS FARGO RESTRUCTURES WEALTH MANAGEMENT BIZ — WSJ’s Emily Glazer: “Wells Fargo & Co. is expected to announce a restructuring of its wealth management business, according to people familiar with the matter, as it grapples with government investigations tied to client referrals and other related matters.

“The bank is planning to combine two large divisions within the business, known internally as Wealth Brokerage Services and Private Client Group, the people said. Both are brokerages serving mass affluent customers. The private client group has about 9,500 brokers who work out of Wells Fargo’s brokerage offices, and Wealth Brokerage Services has around 3,400 brokers who work out of retail bank branches.” Read more.

MORGAN STANLEY CHIEF ISSUES WARNING — FT’s Ben McLannahan: “Bankers on Wall Street need to be ‘a little paranoid and a little scarred’ from the last crisis, according to James Gorman, Morgan Stanley chief executive, who has warned that rising profits and a strong economy should represent ‘the most scary time’ for the industry.

“Shares in the big banks have more than quintupled since March 2009, boosted latterly by higher interest rates and lower taxes, while multibillion-dollar settlements with regulators are also mostly in the rear-view mirror. But Wall Street cannot afford to let its guard drop against some of the behavioral excesses that fed the Lehman crisis, said Mr. Gorman on Monday morning, during a conference in New York. After a few good years, the ‘tyranny of success’ can set in, he said, when lessons learned from setbacks get forgotten.” Read more.

COULD BIG BANKS USE A THRILL? — WSJ’s Aaron Back: “Bad news wasn’t such great news for the bulge bracket. A bit of tension in global markets usually spurs trading activity. The second quarter saw plenty of it, with eurozone fears following Italian elections, intensifying trade conflicts, and continued Federal Reserve tightening. Nonetheless, trading commissions for major investment banks are believed to have lagged behind. Luckily, conditions were placid enough for lending and investment banking fees to act as a saving grace.

“This year through May, average daily bond trading volumes were up just 6 percent from a year earlier, according to data from the Securities Industry and Financial Markets Association. Speaking at a conference last week, Citigroup Chief Financial Officer John Gerspach said he expects the bank’s trading revenue to experience ‘a normal seasonal slowdown’ in the second quarter compared with the first.” Read more.

WARNING TO DEMS — Jeff Hauser in The Hill: “In May, the Revolving Door Project and over 30 other organizations urged Senate Democrats to push for strong progressives for the leadership positions at key financial agencies allocated to Democrats. In the not too distant past, Democrats appointed revolving-door figures to these agencies little different than Republican nominees.

“Democrats now have a chance to demonstrate that they have become the party of the people by whom they choose for open leadership positions at the Securities and Exchange Commission (SEC) and the Federal Deposit Insurance Corporation (FDIC).” Read more.

FINANCE FOLLOWS HOLLYWOOD ON INCLUSION — NYT’s Andrew Ross Sorkin: “Throughout Hollywood, the concept of an inclusion rider — a special clause in the contract of a lead actor or actress or prominent director that insists on a guarantee of gender and ethnic diversity among the cast and crew — has become increasingly popular

… But what if inclusion riders took the leap from Hollywood to Wall Street? …

“Goldman Sachs has privately been working on what might be considered a first step toward the advancement of female investment managers. The firm is working on a $500 million initiative to fund female-led investment firms using its own capital and that of its clients, according to an internal memo and people involved in the effort who were not authorized to discuss the initiative because it had not been publicly announced.” Read more.

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