Trump's tariff tirade Presented by U.S. Bank

TRUMP’S TARIFF TIRADE — President Donald Trump has driven some of his economic advisers crazy — Gary Cohn most of all — with his insistence that tariffs are smart policy and hurt adversaries much more than the United States. He was at it again on Sunday with a pair of tweets about the nature of tariffs and who pays them.

Number one: “Tariffs are working big time. Every country on earth wants to take wealth out of the U.S., always to our detriment. I say, as they come, Tax them. If they don’t want to be taxed, let them make or build the product in the U.S. In either event, it means jobs and great wealth.”


The facts: Tariffs are not taxes on foreign governments or foreign companies. They are taxes paid once goods enter the U.S. by those buying them. Those taxes are often passed on to U.S. consumers. They can indirectly harm foreign companies or governments by making foreign products more expensive and thus less attractive to U.S. consumers. But they are in the first instance taxes on Americans.

Number two: “Because of Tariffs we will be able to start paying down large amounts of the $21 Trillion in debt that has been accumulated, much by the Obama Administration, while at the same time reducing taxes for our people. At minimum, we will make much better Trade Deals for our country!”

The facts: Hard to know where to start on this one. In part, see above. This is like saying we raise taxes in order to reduce taxes. It doesn’t make much sense. And the amount the government will collect in these new taxes on Americans — somewhere around $20 billion at the moment — would not make a dent in the annual $1 trillion-plus deficits the U.S. is currently expected to run for many years, never mind the current $21 trillion national debt.

Trump appears impervious to Cohn or Larry Kudlow or Steven Mnuchin or anyone else arguing to him that the mercantilist approach — which went out of fashion when the U.S. established an income tax to collect revenue in the early 20th century — has never proven effective when employed in fits and starts over the last 100 years.

The 3-D chess view: MM doesn’t buy into this. But there are those who think Trump knows very well that his descriptions of what tariffs are and what they do bears little relation to reality but that he needs to make adversaries like China THINK he believes it. That it’s all part of the tariffs as a bluffing strategy to get better deals. It’s comforting at times to believe this.

But Trump has spent a lifetime extolling mercantilism and tariffs. It does not seem like an act. WP’s Heather Long has more here on how the math doesn’t add up on Trump’s tariff tweets.

ARE WE IN A MANUFACTURING RENAISSANCE? — Trump loves to tout the number of manufacturing jobs created under his watch. And indeed the numbers are rising, so it’s a perfectly legit thing to boast about. But it’s probably too soon to say they are really breaking out of the recent trend lines. MM asked a couple of economists to interpret the latest figures, which included 37,000 in the July jobs report.

Manulife’s Megan Greene: “Nearly all the gains in manufacturing were in durable goods. 13,100 in transportation equipment, of which 5,900 were motor vehicles and parts. This may have been tariff related as Trump started his tweeting about Germany and auto tariffs in late June. 5,100 were in fabricated metal products, which are probably tariff pull-aheads (avoiding the tariffs).

Moody’s Mark Zandi: “This is simply a cyclical rebound in manufacturing employment, unrelated to Trump’s economic or regulatory policies. Fueling the rebound is a pick-up in the global economy and trade over the past two years, and the somewhat softer value of the U.S. dollar. The increase in energy and other global commodity prices during this period has also supported the stronger manufacturing activity. …

“It is also worth noting that manufacturing productivity growth has flat-lined during the economic expansion, which has supported employment gains despite weaker gains in manufacturing output.”

“Prospects for manufacturing employment look noticeably darker by early in the next decade, once the stimulus fades and the economy is adjusting to higher interest rates. The escalating trade war also poses a serious threat. … I wouldn’t be surprised if when Trump’s term is over manufacturing employment is about where it was when he took the oath of office.”

THE BIG IDEA: IS THE MARKET REALLY THAT CONCENTRATED? — The NYT wrote last week that Apple and other tech giants are now dominating corporate earnings in ways rarely seen before.

Goldman Sachs sees it differently in their latest Weekly Kickstart note: “Unlike past episodes of narrow market breadth, the earnings environment today appears healthy and broad-based. The top 10 S&P 500 stocks currently account for 20 percent of index earnings, roughly the same as in each of the last few years, and slightly below the 30-year average of 21 percent. In 2019, consensus expects the median S&P 500 stock to grow EPS by 10 percent, slightly faster than the 9 percent growth expected for the index.

Elizabeth Warren sure sounds like a 2020 candidate. | AP Photo

GOOD MONDAY MORNING — Happy Monday, everyone. Congress is gone and Trump is (mostly) on vacation. Should be kind of quiet but probably won’t be. Email me on [email protected] and follow me on Twitter @morningmoneyben. Email Aubree Eliza Weaver on [email protected] and follow her on Twitter @AubreeEWeaver.

DRIVING THE WEEK — Trump is mainly on “executive time” at his golf club in Bedminster, NJ, which probably means plenty of tweets … House and Senate are both out … Producer Prices at 8:30 a.m. Thursday expected to rise 0.2 percent headline and 0.3 percent core … Consumer Prices at 8:30 a.m. Friday expected to rise 0.2 percent headline and core …

ALSO THIS WEEK: BIG SPECIAL ELECTION — POLITICO’s Alex Isenstadt in Westerville, Ohio: “The entire Republican Party machinery has converged on this suburban Columbus district for a furious 11th hour campaign aimed at saving a conservative House seat and averting another special election disaster. But in the final days of ahead of Tuesday's election, signs were everywhere that Democrats are surging — from recent polling to the private and public statements of many Republicans, including the GOP candidate himself.

“The district has been reliably red for more than three decades, but the sheer size of the Republican cavalry made clear how worried the party is about losing it. … At a Saturday evening rally … Trump tried to juice conservative excitement for mild-mannered Republican candidate Troy Balderson while foisting a Trumpian nickname upon 31-year-old Democratic hopeful Danny O’Connor: ‘Danny boy.’” Read more.

PEIRCE PUSHBACK — Better Markets’ Dennis Kelleher emails on last week’s POLITICO interview with SEC Commissioner Hester Peirce: “SEC Commissioner Peirce’s view that the SEC should allow corporations to take away the rights of ripped off shareholders to recover their money in court and force them into unfair, biased and expensive arbitration violates the SEC’s primary mandate to protect investors.

“It also fails to punish lawbreakers and actually enriches them because corporations will be able to keep the tens of billions of dollars wrongfully taken from their investors, rather than being forced by class actions to return those ill-gotten gains to investors.”

INVESTORS DRINKING FROM THE FIRE HOSE — Mohamed A. El-Erian on Bloomberg View: “For at least two weeks now, traders and investors could be forgiven for feeling like they have been trying to drink from a fire hose, and a multi-flavor one at that. Virtually every day, they have been confronted by some combination of market-moving corporate earnings and economic news, supplemented by competing policy signals and volatile technical influences.

“As confusing as this situation may seem, it speaks to a fundamental transition in markets that I have described before. It has two major characteristics: increasing divergence in economic and corporate performance, as well as policy; and increasing dispersion in asset valuations. Both are underpinned by macro themes that are playing out in real time.” Read more.

WARREN SOUNDS LIKE A CANDIDATE — POLITICO’s David Siders: “Sen. Elizabeth Warren on Friday called the criminal justice system ‘racist … front to back,’ while further hinting at a potential presidential run. … The Massachusetts Democrat, appearing alongside Congressional Black Caucus Chairman Cedric Richmond at the historically black university, faulted a criminal justice system that she said disproportionately jails black people for drug-related crimes. …

“Warren has not said if she will run for president in 2020. But Richmond asked her what, if anything, had changed since her decision not to run in 2016, Warren replied, ‘Two words: Donald Trump.’” Read more.

PROFITS SURGE AT BIG FIRMS — WSJ’s Thomas Gryta: “America’s biggest companies are reporting some of the strongest earnings growth since the recession, boosted by lowered tax rates and a robust U.S. economy that is fueling demand across industries. Profits at S&P 500 companies jumped an estimated 23.5 percent in the three months through June, according to data from Thomson Reuters, more than 21/2 times revenue growth in the same period.

“The profit gains, which stretched across all S&P sectors, from energy to health care, have helped sustain a stock-market rally that sent major indexes to near records and made Apple Inc. the first U.S. company worth $1 trillion.” Read more.

Speaking of profits … — AP’s Josh Boak: “Berkshire Hathaway Inc. on Saturday reported a $12 billion second-quarter profit. Warren Buffett’s conglomerate reported a profit of $4.87 per Class B share. A year ago, Berkshire reported $4.3 billion in net income, or $1.73 per Class B share.

“Buffett has long said Berkshire’s operating earnings offer a better view of quarterly performance because they exclude investments and derivatives, which can vary widely. By that measure, Berkshire reported operating earnings of $6.9 billion, or about $2.79 per Class B share. That’s up from $4.1 billion, or about $1.67 per B share, a year ago.” Read more.

GOLDMAN CEO-IN-WAITING INCHES EVEN CLOSER — CNBC’s Hugh Son: “David Solomon, Goldman Sachs' incoming CEO, is wasting no time getting his house in order. Solomon, who takes over for current CEO Lloyd Blankfein on Oct 1., will name Jim Esposito global co-head of the firm's trading division as soon as Monday, according to a person with knowledge of the plans.

“Esposito, a partner who was co-chief operating officer of the bank's fixed income business, will join Ashok Varadhan as leaders of the trading organization, one of the largest on Wall Street. In June, Varadhan's former co-heads Pablo Salame and Isabelle Ealet departed — leaving at least one opening at the top of the business, which is typically led by two or more executives.” Read more.

ASIA TECH HAVE MORE SWAY THAN FANG — WSJ’s Steven Russolillo and Saumya Vaishampayan: “Three of Asia’s big stock markets are each dominated by a single tech giant, a dynamic that fueled strong gains last year but is now becoming a source of frustration for some investors.

“Tencent Holdings Ltd. in Hong Kong, Samsung Electronics Co. Ltd. in South Korea and Taiwan Semiconductor Manufacturing Co. Ltd. boast market capitalizations far bigger than most local peers. The trio’s collective valuation has fallen to about $924 billion, from a peak of $1.1 trillion in January” Read more.

ICYMI: WELLS FARGO HIT WITH ANOTHER PROBE — Reuters: “Wells Fargo & Co is facing government probes into its use of low-income housing tax credits, and has also set aside $8 million to compensate borrowers who were incorrectly denied mortgage modifications under a federal assistance program, the bank said in a regulatory filing on Friday …

“The tax inquiries are being conducted by multiple agencies, which Wells Fargo did not name in its 10-Q filing with the U.S. Securities and Exchange Commission. They focus on how the bank purchased or negotiated the purchase of the credits in connection with financing of low-income housing developments.” Read more.

BANK STOCKS BOUNCE BACK — WSJ’s Michael Wursthorn: “Shares of Wall Street’s biggest banks are booming again after a string of strong earnings reports and higher payouts to shareholders re-established their status as some of the stock market’s most appealing investments.

“An index of the 24 biggest banks in the U.S., known as the KBW Nasdaq Bank Index, is on pace to notch its first positive quarter this year. Its latest gains came after several lenders said steady economic growth around the world, a pickup in loan activity, rising interest rates and resurgent volatility in stock prices all helped to push profits and revenue sharply higher.” Read more.

BANKRUPTCY BOOMS AMONG OLDER AMERICANS — NYT’s Tara Siegel Bernard: “For a rapidly growing share of older Americans, traditional ideas about life in retirement are being upended by a dismal reality: bankruptcy. The signs of potential trouble — vanishing pensions, soaring medical expenses, inadequate savings — have been building for years. Now, new research sheds light on the scope of the problem: The rate of people 65 and older filing for bankruptcy is three times what it was in 1991, the study found, and the same group accounts for a far greater share of all filers.

“Driving the surge, the study suggests, is a three-decade shift of financial risk from government and employers to individuals, who are bearing an ever-greater responsibility for their own financial well-being as the social safety net shrinks. The transfer has come in the form of, among other things, longer waits for full Social Security benefits, the replacement of employer-provided pensions with 401(k) savings plans and more out-of-pocket spending on health care. Declining incomes, whether in retirement or leading up to it, compound the challenge.” Read more.

TRADERS TALK UP CRYPTO, ONLY TO DUMP THEM — WSJ’s Shane Shifflett and Paul Vigna: “Dozens of trading groups are manipulating the price of cryptocurrencies on some of the largest online exchanges, generating at least $825 million in trading activity over the past six months—and hundreds of millions in losses for those caught on the wrong side, according to a Wall Street Journal analysis. In a review of trading data and online communications among traders between January and the end of July, the Journal identified 175 ‘pump and dump’ schemes involving 121 different digital coins, which show a sudden rise in price and an equally sudden fall minutes later.

“A pump-and-dump scheme is one of the oldest types of market fraud: Traders talk up the price of an asset before dumping it for a profit and leaving fooled investors with shrunken shares. The Securities and Exchange Commission regularly brings civil cases alleging pump and dumps using publicly traded stocks. Manipulations of cryptocurrencies are no different, but regulators have yet to bring a case in the more opaque market for them. The SEC declined to comment.” Read more.

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