QUOTE OF THE DAY “We could see $100 oil this year…$150-plus in 2020-2021.” – Pierre Andurand, founder and chief investment officer of Andurand CapitalTWEET OF THE DAY [wsj-responsive-sandbox id = "0" ] WHAT ELSE WE’RE READING What’s the strongest predictor of how much you earn? Where you live. The Economist looks at a case study on the wages of Haitians after a devastating earthquake in 2010. Farmworkers who managed to get a visa to work in the U.S. saw incomes rise 1,400%. “Simply moving to a country with the rule of law, good infrastructure, sophisticated companies and so forth—ie, a rich country—made the Haitians dramatically more productive.” A little drink never hurt anyone, right? Well… “[W]e show that a 10% increase in drinking establishments is associated with a 3-5% increase in violent crime. The estimated relationship between drinking establishments and property crime is also positive, although smaller in magnitude,” D. Mark Anderson, Benjamin Crost and Daniel Rees write in the Royal Economic Society’s Economic Journal. The findings are based on Kansas counties that voted to allow bars to serve alcohol to the general public. UP NEXT: FRIDAY Group of Seven leaders (Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States) assemble in La Malbaie, Quebec. Trade is certain to dominate the two-day meeting.
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 President Trump’s trade talks with America’s closest allies, a potential crimp in U.S. oil production, the high cost of coal mining, a new deal for China’s ZTE, and why the U.S. is lagging its peers in labor-force participation. UNITED WE STAND The U.S. is forging a united international front on trade. Unfortunately, it’s against the U.S., not its top economic rival, China. U.S. allies Canada, Japan and the European Union are banding together to increase pressure on Washington following the Trump administration’s steel and aluminum tariffs. Leaders and officials say U.S. protectionism has dashed hopes of a renewed focus on a another longstanding trade issue: the global steel glut driven by Chinese production, Emre Peker, Paul Vieira and Bojan report. Big caveat: There could be dissension in the ranks, with Germany especially anxious to avoid escalation. I WON’T BACK DOWN Discontent with U.S. trade policy is going to be a common theme running through a Group of Seven summit this weekend. The U.S., of course, labeled its allies national security threats in a trade dispute, leading to steel and aluminum tariffs. President Donald Trump will square off with those friends at a G-7 meeting in Quebec. Mr. Trump shows no signs of backing down, Joshua Zumbrun and Vivian Salama report. The “world trade system is a mess,” Mr. Trump’s top economic adviser, Lawrence Kudlow said. “Trump is trying to fix this broken system.” Do you think steel imports from Canada, Japan and the European Union are a national security threat? Write to Jeffrey Sparshott at firstname.lastname@example.org, tweet to @WSJecon and visit wsj.com/economy for the latest. WHAT TO WATCH TODAY U.S. jobless claims, out at 8:30 a.m. ET, are expected to remain at historically low levels. Economists expect 220,000 for the week ending June 2. The Labor Department releases a much-anticipated report on “contingent and alternative employment arrangements,” also known as the gig economy, at 10 a.m. ET. President Trump meets with Japan Prime Minister Shinzo Abe. There’s an Oval Office meeting at 12:05 p.m. ET, followed by a working lunch and a joint press conference at 2 p.m. It’s a bit of a prelude to this weekend’s Group of Seven summit, where trade is expected to take center stage, though North Korea will certainly be high on Thursday’s agenda. U.S. consumer credit for April, out at 3 p.m. ET, is expected to expand by $15 billion. TOP STORIES UNINTENDED CONSEQUENCES: OIL U.S. crude output hit nearly 10.5 million barrels a day in May—a record—and America could become the world’s largest producer as soon as late 2018. Could, that is, if American oil producers can get their product to market. President Trump’s 25% tariff on imported steel may make that significantly harder, driving up the cost of drilling for shale producers. Tariffs could also make it more expensive to solve pipeline bottlenecks in the nation’s shale heartland—prolonging an oil glut that has pushed the price of crude stored at Midland, Texas, to about $20 below the global Brent benchmark in recent weeks. Steel typically contributes up to 10% to 20% of the cost of drilling and completing an oil well, Nathaniel Taplin writes. U.S. steel prices, already among the highest of major economies, have risen by 20% since late February, when news of the planned tariffs first broke. UNINTENDED CONSEQUENCES: COAL President Trump’s efforts to revive coal mining have been criticized as picking winners. Actually, it’s more like picking losers: coal has become a sunset industry as cleaner energy sources rapidly get cheaper, Greg Ip writes. If Mr. Trump succeeds at reversing the tide, it will come at a steep price, in both dollars and lives—most tragically for the coal miners he seeks to help. First, propping up uneconomical coal and nuclear plants would cost ratepayers a fortune. Coal also carries huge nonfinancial costs, including release of greenhouse gases. The miners themselves pay the highest price. Overexposure to coal mine dust leads to black lung disease—inflammation and scarring of the lungs, which eventually leads to organ damage and failure, and premature death. ZTE NEARS A DEAL WITH U.S. Just as U.S. relations with its closest allies are souring, China’s ZTE Corp. is nearing a deal to save its business. ZTE executives in Shenzhen have signed a preliminary agreement that would allow the company to resume buying parts from American suppliers and restart idle smartphone and telecom-equipment factories, Dan Strumpf reports. That follows an April ban imposed by the U.S. Commerce Department. It isn’t clear when a formal deal will be ready. And even if U.S. companies resume shipments to ZTE, the Chinese company must win back customers and shake off damage to its reputation from the episode. PAINKILLERS BEHIND LABOR-FORCE DROPOUTS? The share of U.S. prime-age workers holding or seeking jobs has picked up in recent years but remains well below the rates of other developed economies, a phenomenon suspected to be linked to the opioid crisis. The labor-force participation rate of workers age 25 to 54 fell sharply after the financial crisis to a recent low in 2015, Sarah Chaney reports. The figure has increased since but remains well below the average for the Organization for Economic Cooperation and Development’s 35 member countries. The use of opioid drugs “appears to be connected” to labor market conditions, a new OECD report said. Opioid prescription rates are generally higher where overall labor-force participation rates are lower. CHART OF THE DAY: AIRFARE Jet-fuel prices have surged over the past year. Those higher fuel costs have finally forced carriers to decide how much can be passed on directly to domestic fliers through higher fares or via surcharges on international flights, without deterring too many travelers. Fuel is now the single-largest expense for most airlines, accounting for about a quarter of operating costs, Doug Cameron and Alison Sider report. Airfares had been falling. Look for a reversal to eventually feed through to broader inflation numbers, though any creep will likely be slow.