Real Time Economics: U.S. Threatens Tariffs, Italy Rattles Markets

This is the web version of the WSJ’s economic newsletter. You can sign up for daily delivery here. Good morning! Today we look at the Trump administration’s latest threat and China’s unhappy reaction, worries over the euro’s future, the seemingly inexorable march of home prices, and how many hours a Swiss woman has to work to pay for a haircut. U.S.-CHINA: TARIFFS ON! The Trump administration sent a sudden, harsh message to Beijing: The U.S. is moving forward with tariffs on Chinese imports and restrictions on China’s access to sensitive U.S. technology. The White House plans to announce a final list of $50 billion in targeted Chinese imports by June 15. Planned investment restrictions are due by June 30. The move startled officials in Beijing, as the White House had for days suggested it would put such measures on hold during negotiations to narrow the $375 billion annual trade gap between the William Mauldin and Lingling Wei report. SO WHAT? The White House’s surprise decision to move forward with the tariffs and other sanctions threatens to derail trade talks scheduled for this weekend. A U.S. advance team was set to arrive in Beijing Wednesday, and Commerce Secretary Wilbur Ross on Saturday. But the latest U.S. tactic isn’t being received well in the Chinese capital: The official Xinhua News Agency said the Trump administration’s “flip-flopping” is hurting U.S. “national credibility,” Lingling Wei and Yoko Kubota report. The upshot: The latest move will either give the Trump administration leverage in negotiations, or complicate the U.S. advance team’s work. If the advance team can’t agree with its Chinese counterparts on an agenda for higher level talks, Mr. Ross’s trip could be canceled.
What do you think of the Trump administration’s strategy on trade? Write to Jeffrey Sparshott at, tweet to @WSJecon and visit for the latest. WHAT TO WATCH TODAY Germany’s consumer price index for May is out at 8 a.m. ET. The ADP employment report for May, out at 8:15 a.m. ET, is expected to show a net gain of 187,000 U.S. private-sector jobs from the prior month. Revised U.S. gross domestic product for the first quarter is out at 8:30 a.m. ET. Economists expect no change from the earlier reading of 2.3%. U.S. trade in goods for April goes live at 8:30 a.m. ET. While it’s a second-tier economic indicator, the trade balance has become a top political focus. The Bank of Canada releases a policy statement at 10 a.m. ET. The Organization for Economic Cooperation and Development holds its annual ministerial council in Paris on Wednesday. U.S. Commerce Secretary Wilbur Ross is expected to meet with EU trade chief Cecilia Malmstrom on the sidelines of the event to discuss steel and aluminum tariffs. China’s official manufacturing index for May is out at 9 p.m. ET. Production likely remained robust, but new orders may have been disrupted by ongoing trade tensions. TOP STORIES ITALY SPOOKS INVESTORS Tuesday’s Italian bond selloff was truly astonishing. Short-dated bonds that can usually be treated as a close proxy for cash turned toxic, and bondholders showed serious panic. Outside of Italy, though, this wasn’t much more than a run-of-the-mill bad day. There are three possible interpretations, James Mackintosh writes. The first is fundamental: Europe’s weak economies have been transformed since they were threatened by contagion from Greece in the last euro crisis. The second is technical: Investors elsewhere regard the Italian move as overdone. The third is the most troubling: Perhaps investors are complacent about the dangers Italy poses, relying on the European elite to once again come up with a way to keep truculent crowd-pleasing politicians under control.
SO HOW BAD WAS IT? The Dow Jones Industrial Average dropped nearly 400 points and U.S. Treasury yields posted their largest daily decline in nearly two years on Tuesday. The euro dropped to its lowest level against the dollar since July 2017. The dollar and the yen, safe havens, rallied. The market turbulence follows Italian President Sergio Mattarella’s decision to block the formation of a euroskeptic government, reviving worries about the broader stability of the eurozone. News that the proposed government might seek to break eurozone rules—and had even drafted plans to exit from the euro—brought back echoes of the 2011-2012 sovereign-debt crisis, Jon Sindreu and Mike Bird report. Asian markets closed down on Wednesday, though European shares appeared steadier early in the day.
RURAL HOUSING SHORTAGE Rural communities in the U.S. are facing an acute shortage of affordable housing, making it more difficult to attract workers in already tight labor markets. In some areas, companies aren’t expanding because there aren’t enough workers, and workers are passing on jobs because there aren’t enough places to live, Shayndi Raice reports. State governments are stepping into the void: Nebraska recently granted $7 million to rural communities to build market-rate homes to help attract more workers. CHART OF THE DAY: HOME PRICES Home-price gains showed no signs of slowing in March. The S&P CoreLogic Case-Shiller 20-city index gained 6.8%, unchanged from the previous month. Average home prices in the 20-city index are now 1% above their previous peak. Of course, not all cities are back to bubble-era highs and the composite doesn’t account for inflation. But, alongside rising mortgage rates, home buyers in many parts of the U.S. are surely feeling an affordability squeeze.
TWEET OF THE DAY [wsj-responsive-sandbox id = "0" ] WHAT ELSE WE’RE READING Yes, it’s expensive to live in Switzerland. In Zurich, a basic woman’s haircut costs $94.32 compared to $12.17 in Mexico City and $7.50 in Cairo. But, according to a new UBS report, a woman in Zurich only has to work three hours on average to pay for it, whereas it takes around six hours of work to afford a haircut in Mexico City and Cairo, Zurich-based correspondent Brian Blackstone writes. Switzerland’s largest city is the world’s most expensive, followed by Geneva. Rounding out the top five in the UBS report were Oslo, Copenhagen and New York. The fight for a higher minimum wage may have an unintended consequence: less health coverage. “[W]e find robust evidence that state-level minimum wage changes decreased the likelihood that individuals report having employer-sponsored health insurance,” Jeffrey Clemens, Lisa Kahn and Jonathan Meer write in a National Bureau of Economic Research working paper. For workers in low-paying jobs, coverage declines offset some of the wage gains associated with minimum wage hikes. UP NEXT: THURSDAY Eurozone inflation is due out at 5 a.m. ET. U.S. jobless claims, out at 8:30 a.m. ET, are expected to fall to 225,000. The Fed’s preferred inflation gauge is out at 8:30 a.m. ET. The personal consumption expenditures price index for April is expected to advance 0.1% from the prior month. From a year earlier, that could push the measure down to 1.8% from 1.9% in March, suggesting little immediate inflation pressure. U.S. consumer spending and personal income accompany the inflation numbers. Spending is expected to rise 0.4% from the prior month. U.S. pending home sales for April, out at 10 a.m. ET, are expected to rise 0.4% from the prior month. Finance ministers and central bankers from the Group of Seven nations meet in Whistler, Canada, from Thursday through Saturday. The theme is “Investing in Growth that Works for Everyone.” The G7 are Canada, France, Germany, Italy, Japan, the U.K. and the U.S.

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