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Jul 24, 2018

The Finance 202: China Exerts Soft Power In ZTE WIN I The Washington Post

The Finance 202: China exerts soft power in ZTE win


A security guard walks past a building of ZTE Beijing research and development center in Beijing. (Reuters/Jason Lee)
Amid President Trump’s trade war hardball, China is demonstrating it can use soft power to get what it wants. 
Witness Chinese telecom company ZTE, which just spent a small fortune lobbying Washington to try to claw its way out of a crackdown that posed an existential threat. The effort appears to have worked.
Senate Republicans late last week dropped their demands that a defense bill restore penalties on the company that would have driven it out of business. Instead, under a compromise provision in a package the House will vote on as soon as this week, ZTE can keep doing business with private American suppliers. That's despite violating sanctions by making sales to North Korea and Iran.
The company forked over what amounts to a princely K Street sum to snatch its victory from the jaws of defeat: It paid the law firm Hogan Lovells $1.3 million over the past quarter — pocket change for ZTE considering the stakes, yet the priciest single lobbying contract of the period, Politico Influence noted on Monday. Lobbyists working on the matter, including former Republican senator Norm Coleman of Minnesota, pressed ZTE’s case on both sides of the Capitol, at the Commerce and Treasury departments, and within the White House, its latest lobbying disclosure report shows. A spokesman for the firm didn’t respond to a request for comment.
ZTE had an even more powerful advocate in its corner. After the Commerce Department banned U.S. firms from doing business with the company in April, Chinese President Xi Jinping made a personal appeal to Trump. His phone call in May yielded a surprise tweet from Trump announcing the two were “working together” to salvage the company.
News of the deal drew some bipartisan outrage in the Senate. Sen. Marco Rubio (R-Fla.), among those leading the charge to apply a maximum penalty to ZTE, decried the compromise as a cave in a Monday tweet:
No nation steals from or spies on us more than #China & they use telecomm companies like #ZTE to do it. That’s why I fought so hard to put ZTE out of business in the U.S. & why its shocking some decided to cave & let them survive. We got played by China again. This can’t continue
— Marco Rubio (@marcorubio) July 23, 2018
And Senate Minority Leader Chuck Schumer (D-N.Y.) in a Friday statement said Trump and congressional Republicans “have once again made President Xi and the Chinese government the big winners and the American worker and our national security the big losers.”
The Wall Street Journal’s Kate O’Keeffe and Siobhan Hughes provide the context: “Many lawmakers were dissatisfied with Mr. Trump’s deal, and the Senate struck back on June 18, voting to reinstate the ban on selling U.S. parts to ZTE by wrapping the measure into the defense bill. But in order for the provision to become law, the House, which had already passed its own version of the legislation without the sales ban, would have had to agree to the ZTE measure, and the reconciled text would have had to survive a potential veto by Mr. Trump.”
ZTE isn’t the only Chinese interest leaning on Washington hands. The Daily Beast’s Bethany Allen-Ebrahimian writes that both “the Chinese government and Chinese companies, often with close state ties, have retained lobbying and public-relations firms in the Beltway, in some cases hiring former U.S. officials as personal lobbyists.” The roster includes former House speaker John A. Boehner (R-Ohio), former U.S. ambassador to China Clark Randt, and former CIA Beijing station chief Randall Phillips.
Earlier this month, the Chinese commerce ministry urged American companies operating in Beijing to lobby Washington against escalating the trade fight. And Beijing is finding more unconventional ways of getting the point across. CGTN, an English-language operation produced by state TV broadcaster China Central Television, on Friday posted a cartoon featuring a talking soybean warning that American farmers could face long-term damage if the Trump administration persists with tariffs. See it here:
Hi, everybody. I am a #soybean. I've been in the news lately because I'm caught in the middle of a trade war involving the two powerful countries of China and the United States.
— China Plus News (@ChinaPlusNews) July 20, 2018
But the takeaway from the ZTE episode may be less than encouraging for Beijing. As Height Analytics wrote in a Monday note, “The final version of the [defense package] appears to have been shaped heavily by input from House members unwilling to block President Trump on trade… Trump's actions on ZTE provide an important read-through to how he will react to Congressional efforts to limit his authority in other trade actions. Specifically, Trump is unlikely to moderate his actions.”
Indeed, the president's intervention on ZTE's behalf defied his otherwise steady progress toward ratcheting up the trade war with Beijing. The U.S. Trade Representative today kicks off two days of public hearings on the next round of possible tariffs on $16 billion worth of Chinese imports. Trump himself is already eyeing a massive escalation, telling CNBC last week he is “ready” to slap duties on all $505 billion worth of goods the U.S. imports from China.
Lobbyists and cartoons may meet their match.
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President Trump and European Commission President Jean-Claude Juncker at the G-20 economic summit in Hamburg on July 8, 2017. (Sean Gallup/Getty Images)
— Juncker is on a mission. The Wall Street Journal's Valentina Pop: “The European Union is cautiously betting on its unconventional top official, Jean-Claude Juncker, to persuade [Trump] not to escalate the trans-Atlantic trade fight. Appeals from European leaders have failed to dissuade Mr. Trump from imposing tariffs on imports of steel and aluminum and threatening new ones on cars, but officials say they believe Mr. Juncker’s blunt-speaking and disdain for protocol has won some begrudging respect from the U.S. leader. During a White House visit slated for Wednesday, the European Commission president will focus on arguing the EU is Washington’s friend, not foe, as Mr. Trump has labeled the bloc, he said.”
Trump welcomed Juncker and others, sort of, in a tweet this morning:
Countries that have treated us unfairly on trade for years are all coming to Washington to negotiate. This should have taken place many years ago but,
as the saying goes, better late than never!
— Donald J. Trump (@realDonaldTrump) July 24, 2018
Then touted tariffs as "the greatest":
Tariffs are the greatest! Either a country which has treated the United States unfairly on Trade negotiates a fair deal, or it gets hit with Tariffs. It’s as simple as that - and everybody’s talking! Remember, we are the “piggy bank” that’s being robbed. All will be Great!
— Donald J. Trump (@realDonaldTrump) July 24, 2018
Companies scramble. Bloomberg's Mark Niquette and Andrew Mayeda: "U.S. companies and industry groups are returning to Washington this week in an increasingly futile effort to get relief from [Trump's] tariffs on Chinese imports. More than 80 witnesses are scheduled to testify during the two-day hearing starting Tuesday on the $16 billion in Chinese goods targeted for 25 percent duties, which could be imposed after a comment period ends July 31... While companies successfully lobbied to remove some consumer goods from the administration’s initial list of targets and the USTR will act in good faith, there’s less flexibility because items removed must be replaced to reach Trump’s total."
Dimon warns. CNN Money's Julia Horowitz: "JPMorgan Chase CEO Jamie Dimon is worried the economy's momentum could be derailed by [Trump's] trade wars. ‘If you do another $200 billion of tariffs and this national security thing about cars, I think that you're getting pretty close to reversing some of the benefits you've seen in the economy,’ Dimon [said]." More from Dimon: "I would remind folks that the president's team has already said, 'There will be no retaliation.' They've already been wrong... If I was the president, I'd be a little ticked off at some of my advisers, to tell you the truth."
China adjusts. Bloomberg: “China unveiled a package of targeted policies to boost domestic demand as simmering trade tensions threaten to worsen the nation’s economic slowdown. From a tax cut aimed at fostering research spending to special bonds for infrastructure investment, the measures announced late Monday following a meeting of the State Council in Beijing are intended to form a more flexible response to 'external uncertainties' than had been implied by budget tightening already in place for this year. Fiscal policy should now be 'more proactive' and better coordinated with financial policy, according to the statement — a signal that the finance ministry will step up its contribution to supporting growth alongside the central bank.”
— Renewing NAFTA push. Bloomberg's Eric Martin: “Mexico is redoubling its efforts to reach a Nafta agreement with the U.S. and Canada by the end of August to increase certainty for investors and take the heat off incoming President Andres Manuel Lopez Obrador, according to three people familiar with the negotiations. A deal next month would allow Lopez Obrador to focus on domestic priorities when he takes office Dec. 1, while shielding him from any potential criticism involving the outcome of the negotiations... Republicans in November’s midterms could also tout the deal as proof that [Trump] made good on his 2016 presidential campaign pledge to fix or abandon Nafta. High-level Nafta negotiations are set to resume this week after a two-month hiatus for Mexico’s July 1 presidential elections.”
— Trump highlights U.S. goods. The Washington Post's Deanna Paul: “Trump touted the economy Monday at a White House event showcasing American-made merchandise, even as some members of the manufacturing industry worried that the president's trade policies threaten recent progress. At the second annual 'Made in America' event, the president strolled among snowboards from Colorado, cowboy boots made in Texas and campers from Indiana... Trump called present-day America a time of 'great economic revival in the United States,' crediting the shift in growth to his policies, tax cuts and deregulation.”
— High stakes for oil. Bloomberg News's Anthony Dipaola: “The war of words between [Trump] and his counterpart in Iran over oil exports and sanctions is shining a spotlight on the narrow, twisting conduit for about 30 percent of the world’s seaborne-traded crude. The Middle East’s biggest oil exporters rely on the Strait of Hormuz, the passage linking the Persian Gulf with global waterways, for the vast majority of their crude shipments — some 17.5 million barrels a day. Should a regional conflict block that bottleneck, three of the largest Gulf Arab crude producers have pipeline networks that would potentially enable them to export as much as 4.1 million barrels via alternative outlets, according to Bloomberg calculations. Even so, this amount of oil, if sent by pipeline, would be less than a quarter of the total that typically sails on tankers through Hormuz.”
A “sale pending” sign outside a home in East Derry, N.H., on June 15. (Charles Krupa/AP)
— Existing home sales dip. WSJ's Laura Kusisto and Sharon Nunn: “Home sales slumped in the second quarter despite what was likely the strongest period for U.S. growth in years, the latest sign that the economic expansion faces headwinds... Compared with a year earlier, sales in June declined 2.2%. Home sales have now declined on an annual basis in five of the first six months this year, a worrying trend since housing is considered a crucial indicator of overall economic health, economists say. By a number of measures, the economy looks to be accelerating after a long stretch of subpar growth... But weakness in the housing market could muddy the picture. Housing contributes about 15% to 18% of gross domestic product.”
— Earnings look strong. The New York Times's Matt Phillips: “The quarterly earnings season is upon us once again, and analysts expect the strong economy and Trump administration’s tax cuts to lead to another batch of knockout earnings reports. Per-share profits at companies in the Standard & Poor’s 500-stock index are forecast to have risen 20.8 percent in the second quarter compared with the prior year, according to analyst estimates compiled by the data provider FactSet. ... Measures of sales, which are closely tied to the health of the economy, are also expected to rise at a robust 9 percent in the second quarter, compared with the prior year, according to FactSet.”
But third-quarter hopes lag. CNBC's Jeff Cox: “A strong start to second-quarter earnings season isn't doing very much for future expectations, which in turn could put a drag on where the stock market is headed. S&P 500 companies are off to a glittering start, with 87 percent reporting better-than-expected profits as compared with the same period in 2017, according to FactSet. Though it's still a relatively small sample — 17 percent of the index — the early results are encouraging. What is somewhat concerning, though, is that the strong second quarter is not inspiring hopes for a more powerful third quarter. Expectations for the July-to-September period have changed little even as earnings momentum otherwise has grown.”
Alphabet shares were up significantly as Google shook off a $5 billion fine from the European Union.
Hayley Tsukayama
Sergio Marchionne, then chief executive of Fiat Chrysler, in Balocco, Italy, on June 1. (Luca Bruno/AP)
— More trouble at Fiat. AP's Colleen Barry: “Fiat Chrysler shares were volatile Monday as investors expressed worry about the exit of ailing CEO Sergio Marchionne, whose driven and creative management style has been the company’s fortune. Shares in the Italian-American carmaker closed down 1.5 percent after a harder 4 percent opening tumble in the first trading since Marchionne’s grave health condition was disclosed over the weekend. Trading was volatile, particularly after news that the head of the big European operations, who had been considered one of Marchionne’s potential successors, was quitting. Ferrari, where Marchionne was also replaced at the helm, closed down about 5 percent.”
— Trump blasts Amazon. The Washington Post's John Wagner: “Trump on Monday used his Twitter account to make false and misleading attacks against The Washington Post and Amazon, the behemoth online retailer whose founder owns The Post. In the first of his tweets, Trump said the 'Amazon Washington Post has gone crazy against me ever since they lost the Internet Tax Case in the U.S. Supreme Court two months ago.' The president was apparently referring to a Supreme Court case decided last month that will allow state governments to compel retailers beyond their borders to collect sales tax revenue from consumers. Amazon... already collects taxes on its sales in all states.” Amazon stock dropped 2.4 percent after the tweets before making up some ground. The company reports its second-quarter earnings Thursday.
— Deadline nears for Qualcomm. WSJ's Tripp Mickle: “Qualcomm Inc. . . . is set to find out this week if its $44 billion deal to buy chip maker NXP Semiconductors . . . NV will become one of the biggest casualties in the escalating U.S.-China trade battle. Wednesday is the expiration date for its merger agreement with NXP, a deal struck in October 2016 that Qualcomm touted as transformational, saying it would diversify a largely smartphone-driven business into the fast-growing automotive chip market. China is the last of nine markets where Qualcomm and NXP need approval from competition authorities, but that decision has been snarled in the wider trade feud for months. Beijing’s State Administration for Market Regulation could still sign off, but trade specialists said [Trump’s] threat Friday to put tariffs on $500 billion in Chinese imports makes that highly unlikely by Wednesday.”
The announcement comes as Fannie Mae promoted David Benson to serve as president of the government-sponsored enterprise.
American Banker
House Ways and Means Committee Chair Kevin Brady (R-Tex.). (Alex Wong/Getty Images)
Brady to roll out Tax Cuts 2.0. The Hill's Naomi Jagoda: "House Ways and Means Committee Chairman Kevin Brady (R-Tex.) said that he will lay out to House Republicans an outline for a second package of tax cuts on Tuesday... [Brady said] he will hold a series of 'listening sessions' with GOP lawmakers and get their feedback on the outline over the August recess, so that the House can vote on legislation in September... Brady has said that he expects tax cuts 2.0 to consist of multiple bills, with the centerpiece focusing on making the 2017 tax law's cuts for individuals permanent. Other parts of the package may focus on encouraging retirement savings and business innovation."
Shutdown odds rising? From longtime budget expert Stan Collender: "The deadline for Congress and President Donald Trump to come to an agreement that will avoid a government shutdown this fall — which may be a much more frequent threat and occurrence these days than it used to be but would still be anything but routine – is approaching quickly and neither the White House, House Speaker Paul Ryan (R-WI) or Senate Majority Leader Mitch McConnell (R-KY) have done anything to make it less likely. Because of that, because the time left to prevent it from happening is steadily dwindling and because the other must-do tasks Congress has left are still multiplying, the chances of a shutdown happening this year are greater now than they were even a few week ago. For these reasons I’m raising my previous estimate of a government shutdown occurring this fall from 50 to 60 percent."
From The Post's Andrew Van Dam:
Coming soon
From the New Yorker's Danny Shanahan:
Sanders says Trump is “exploring” how to remove ex-intel chiefs' security clearances:
Does Sean Spicer have regrets?
Why Sacha Baron Cohen’s “Who is America?” has people divided:

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