This post is by Jeffrey Sparshott from Real Time Economics
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The South’s low-tax, low-wage economic strategy is faltering, a top Trump official wants a reprieve for Huawei, and some states are starting to remove one big obstacle to a more mobile labor force. Good morning. Jeff Sparshott here to take you through key developments in the global economy. Send us your questions, comments and suggestions by replying to this email.
The South Isn’t Rising Anymore
The American South spent much of the past century trying to overcome its position as the country’s poorest and least-developed region, with considerable success: By the 2009 recession it had nearly caught up economically with its northern and western neighbors, Sharon Nunn reports.
- That trend has now reversed. Since 2009, the region recorded the country’s slowest growth in output and wages, the lowest labor-force rate and the highest unemployment rate.
- Behind the reversal: The policies that drove the region’s catch-up—relatively low taxes and low wages that attracted factories and blue-collar jobs—have proven inadequate in an economy that favors cities with concentrations of capital and educated workers.
WHAT TO WATCH TODAY
The U.S. job openings and labor turnover survey for April is out at 10 a.m. ET.
Ready, Fire, Aim
The White House’s top budget official wants a reprieve for Huawei. Russell Vought, the acting director of the Office of Management and Budget, is pushing for a delay in implementing provisions of a law that restricts the U.S. government’s business with the Chinese telecoms giant, Dan Strumpf reports.
- The pushback by a senior administration official shows the difficulty in disentangling from Huawei. Mr. Vought said a ban could lead to a “dramatic reduction” in the number of companies that would be able to supply the government, and would disproportionately affect U.S. companies in rural areas—where Huawei gear is popular—that rely on federal grants.
China’s Economy May Need a Boost
China’s imports dropped sharply last month, a fresh sign of anemic domestic demand. With trade tensions worsening over the past month, Chinese leaders are likely to consider more forceful stimulus measures to boost growth, on top of the tax cuts and infrastructure spending already in place, Liyan Qi and Grace Zhu report.
- Deal time? China and the U.S. held their first high-level meeting on trade since negotiations fell apart a month ago. Treasury Secretary Steven Mnuchin said he had a “candid discussion” with China central bank governor Yi Gang on the sidelines of a Group of 20 gathering. Mr. Mnuchin said President Trump and Chinese President Xi Jinping will meet at the G-20 summit at the end of this month.
Won’t You Be My Neighbor
President Trump didn’t impose tariffs on Mexico after all. But the threat and lingering tensions scramble anew the already-delicate relationship between two neighbors struggling to resolve the trade and border issues, Vivian Salama, José de Córdoba and Robbie Whelan report.
- Mexico largely reaffirmed existing commitments to curb migration and the agreement reaffirmed an earlier deal to support economic-development in Central America.
- The U.S. reserved the right to review implementation of the agreement every 90 days.
- “Unless we really solve the immigration issue in a way that’s intelligent and that respects human rights, the threat of tariffs will always be present, as long as President Trump is in office,” said Gerónimo Gutiérrez, Mexico’s former ambassador to the U.S.
He Don’t Even Have His License, Lisa
Some U.S. states, grappling with a tight labor market, have passed laws that enable licensed workers to cross their borders to find work. The policies, if they spread, could boost the size of the national workforce and potential U.S. economic growth, Eric Morath reports.
- A relatively low share of American adults are in the labor force and their willingness to move has declined. One reason: the rising number of occupations that require a license, which can be costly and time-consuming to obtain.
- Arizona became the first state to broadly recognize out-of-state occupational licenses in April. North Dakota’s governor has signed a law to issue occupational licenses to military spouses who have them from other states. Others are considering similar moves.
The U.K. economy shrank in April as Brexit hit auto makers. Car production plunged 24% on the month because major manufacturers shifted regular maintenance shutdowns to the period surrounding March 29, the original date for the U.K.’s planned withdrawal from the European Union, Jason Douglas reports. The figures suggest the economy slowed in the second quarter after a strong start to the year, as uncertainty over Brexit intensified. Britain’s withdrawal from the EU has twice been delayed and is currently scheduled for Oct. 31.
U.S. factories have shifted into low gear. American consumers and companies are buying fewer cars, trucks and tractors and building fewer houses. That, in turn, is weighing on demand for wheels and steel parts, washing machines and paint, Austen Hufford and Patrick McGroarty report.
- Manufacturers in the U.S. in 2018 had their best year since the recession. Industrial production was higher than ever, and manufacturers rapidly boosted employment to nearly 13 million across the sector.
- The diminished vigor of U.S. manufacturers is posing a new threat to the U.S. expansion. Hiring is lackluster, factory output declined in the first four months of 2019 and IHS Markit ’s index of sentiment among purchasing managers fell in May to the lowest level since September 2009.
TWEET OF THE DAY
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WHAT ELSE WE’RE READING
Chinese exporters are dodging U.S. tariffs with fake labels. “Vietnam said on Sunday that it found dozens of fake product-origin certificates and illegal transfers by companies trying to sidestep U.S. tariffs on everything from agriculture to textiles and steel. The statement…adds to concerns that some Chinese exporters are illegally rerouting orders after Trump imposed tariffs,” Mai Ngoc Chau and John Boudreau report at Bloomberg.
The Trump administration’s Huawei ban could backfire badly. “The Trump administration hasn’t just stepped up the trade war; it may have changed the future face of mobile technology. Without an external shock, Huawei could have profitably stuck with Google’s ecosystem. But now the gauntlet is down: Huawei and others have been pushed to challenge Google’s dominance to ensure their own survival,” London Business School’s Michael Jacobides writes in the Finanical Times.
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