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Dec 13, 2018

Real Time Economics: China Wants the Trade Fight with the U.S. to Go Away

The Wall Street Journal.
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Real Time Economics
Beijing is trying to ease trade tensions, the FBI is warning about China's corporate espionage and Canada is caught in the middle.
Good morning. Jeff Sparshott here to take you through key developments in the global economy. We'll also look at where inflation is heading, Apple's big investment in Austin and the muddy path forward for Brexit. Let us know what you think by replying to this email.

China Looks to Ease Trade Tension

China is promising greater access for foreign companies, the country's latest effort to resolve trade tensions with the U.S. Officials in Beijing are drafting a replacement for Made in China 2025, a blueprint to make the country a leader in high-tech industries. The revised plan would play down China’s bid to dominate manufacturing and be more open to foreign participation, Lingling Wei and Bob Davis report.
The Trump administration has called Made in China 2025 protectionist and a threat to U.S. industry. Odds are long that Beijing’s new policy will go far enough in addressing complaints: Some U.S. officials are likely to see the changes as more cosmetic than real.

What to Watch Today

The European Central Bank releases a policy statement at 7:45 a.m. ET.
U.S. jobless claims, out at 8:30 a.m. ET, are expected to slide to 225,000 from 231,000 a week earlier.
U.S. import prices for November, out at 8:30 a.m. ET, are expected to fall 1.1% from the prior month.
The WSJ’s monthly survey of economists is out at 10 a.m. ET.
U.S. federal budget figures for November are out at 2 p.m. ET. The Congressional Budget Office estimates a $203 billion deficit for the month, up $64 billion from a year earlier. (In yesterday’s newsletter, this item was incorrectly listed as scheduled for release on Wednesday.)
European Union leaders meet Thursday and Friday to discuss Brexit, budget, migration and other issues.
China retail sales, industrial production and investment figures for November are out at 9 p.m. ET.

Top Stories

Deeds vs. Words

The FBI warned that Beijing is stealing American technology to develop its own economy, threatening America's prosperity and place in the world. “I believe this is the most severe counterintelligence threat facing our country today,” Bill Priestap, the FBI’s top counterintelligence official, told lawmakers. “Every rock we turn over, every time we looked for it, it’s not only there, it’s worse than we anticipated.”
The FBI's comments highlight the multiple avenues the federal government is pursuing to counter China—from tariffs to trade talks to legislation to counterespionage to criminal charges. It's not yet clear if legal and legislative actions will affect ongoing negotiations. 

Rule of Power

Another Canadian has gone missing in China. The second case of a Canadian citizen detained by Chinese authorities comes after the arrest of Huawei Technologies Co. finance chief Meng Wanzhou in Canada at the request of the U.S. The U.S. seeks the executive’s extradition to face charges over violating Iran sanctions.
“There’s no coincidence in China and I see a clear link here with the Meng case,” said Guy Saint-Jacques, a former Canadian ambassador to China. “I see this as part of the big game that is going on with China putting pressure on Canada to try to secure the return of Meng.”

Inflated Expectations

Inflation stayed muted last month, defying economic theory that says low unemployment, rising wages and strong economic growth should push prices higher and higher. The consumer-price index in November rose 2.2% from a year earlier while core prices, which strip out volatile food and energy categories, did the same. The WSJ's Justin Lahart says it's just the sort of report that's allowed investors to ignore inflation and concentrate instead on whether the Fed might dial back rate increases amid market tumult and other global worries.
But the tight labor market should keep pushing prices higher, especially for services where there aren’t globally traded alternatives (think haircuts). Meanwhile, tariffs will likely make imports costlier. JPMorgan economists estimate the Fed’s preferred measure of core inflation could be increasing at a 2.4% annual rate by the second quarter of next year. That is probably the upper edge of the central bank’s comfort zone, making it harder to hold off on rate increases.

Who Needs Amazon?

Apple said it plans to invest $1 billion to build a new campus in Austin, Texas, that could eventually accommodate 15,000 employees. The tech giant said it would also open new offices in Seattle, San Diego and Culver City, Calif.—adding more than 1,000 employees in each place. It also plans to add hundreds of jobs in Pittsburgh, New York, Boulder, Colo., Boston and Portland, Ore., over the next three years.
Austin was an also-ran in the much more public Amazon HQ2 sweepstakes. Apple is a pretty nice consolation prize.

Live to Fight Another May

British Prime Minister Theresa May beat back a leadership challenge, subduing a rebellion within her party but leaving her politically wounded and the route to Brexit muddier than ever. To recap: she's received lukewarm support from her own party and most lawmakers from opposition parties are likely to reject her Brexit deal. Almost any version she negotiates with the EU could well be rejected by Parliament. That suggests the likelihood of two extreme outcomes: either leaving the EU without a deal, a path that could lead to serious economic dislocation, or not leaving the EU at all, Max Colchester and Jason Douglas report.

What Else We're Reading

It's the ghost of labor markets present. "Economists report that workers are starting to act like millennials on Tinder: They’re ditching jobs with nary a text," The Washington Post's Danielle Paquette reports. "Recruiters at global staffing firm Robert Half have noticed a 'ten to twenty percent increase' in ghosting over the past year.... Applicants blow off interviews. New hires turn into no-shows. Workers leave one evening and never return."
The average earned income tax credit recipient makes less than $20,000 a year. "EITC recipients were audited at twice the rate of taxpayers with income between $200,000 and $500,000. Only households with income above $1 million were examined at significantly higher rates," ProPublica's Paul Kiel and Jesse Eisinger report.

Up Next: Friday

European Union leaders meet Thursday and Friday to discuss Brexit, budget, migration and other issues.
U.S. retail sales for November, out at 8:30 a.m. ET, are expected to rise 0.1% from the prior month.
U.S. industrial production for November, out at 9:15 a.m. ET, is expected to rise 0.3% from a month earlier.
Markit's U.S. flash manufacturing index for December, out at 9:45 a.m. ET, is expected to inch down to 55.0 from 55.3 at the end of November. The flash services index is expected to slip to 54.5 from 54.7.

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