This post is by Jeffrey Sparshott from Real Time Economics
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U.S. inflation numbers are out today, Chinese money is suddenly toxic in Silicon Valley, and students in Jersey City are getting a chance to earn free college and a $70,000 a year job. 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.
U.S.-China Tensions Hitting Silicon Valley
The Chinese cash that powered Silicon Valley is suddenly toxic. Since late last year, venture firms with China ties have been dialing back their U.S. investments, structuring deals to avoid regulators or shutting their U.S. offices. Some American venture firms are dumping their Chinese limited partners and some U.S. startups are trying to push their Chinese investors out to scrutiny, Rolfe Winkler reports.
- Chinese funding for U.S. startups slowed beginning in May 2018 and state-backed Chinese investors all but disappeared by year-end, according to research firm Rhodium Group. Foreign direct investment from China, which includes acquisitions of U.S. companies, plunged 90% to $5 billion in 2018 from $46 billion in 2016.
- Behind the shift in sentiment is an effort by the U.S. government to stem a talent and technology outflow it fears could threaten American economic and military superiority.
Failure to launch. Separately, China’s Huawei Technologies canceled the launch of a new laptop and paused production at its personal-computer business due to restrictions on buying U.S. components. The moves marks Huawei’s first tangible setback caused by new U.S. Commerce Department rules.
WHAT TO WATCH TODAY
U.S. consumer prices for May are expected to rise 0.1% from a month earlier and 1.9% from a year earlier. Excluding food and energy, prices are expected to climb 0.2% and 2.1%. (8:30 a.m. ET)
The U.S. budget deficit for May is expected to widen to $203.5 billion from $146.8 billion a year earlier. (2 p.m. ET)
President Trump meets with Polish President Andrzej Duda; joint press conference at 2:15 p.m. ET.
May’s U.S. consumer prices are expected to rise 1.9% from a year earlier, another weak showing for inflation. Investors don’t think it’s heading any higher—expectations have declined to their lowest levels since the start of the year, Daniel Kruger reports. The 10-year break-even rate, a market-based measure of investors’ expectations for the average annual rate of inflation over the next 10 years, has fallen to about 1.7% from nearly 2% in late April. The forecast is a sign of growing concerns about a slowdown in the global economy.
Free Tuition and a $70K Job
A new apprenticeship program in Jersey City is offering a solution to help students avoid crushing student-loan debt: Free tuition and the promise of a $70,000 job when they graduate college, Tyler Blint-Welsh reports.
- The Jersey City government, an advanced-manufacturing firm in the city and two colleges have developed a partnership to give jobs to a group of high-school graduates while they attend college part-time.
- Modeled after Germany’s system of apprenticeships, the five-year program will have students work on-site at Eastern Millwork three days a week, where they will train to become engineers. They will attend classes twice a week.
- Each year their salary will increase, and when they earn a bachelor’s degree their pay will hit $70,000.
Never Tell Me the Odds
The U.S.-Mexico-Canada trade agreement has “a better than two-thirds chance” of passing through Congress this year, President Trump’s acting chief of staff said. Speaking at The Wall Street Journal CFO Network meeting, Mick Mulvaney said the successor deal to the North American Free Trade Agreement has many supporters in the House, and a likely majority in the full chamber, but Speaker Nancy Pelosi (D., Calif.) is unlikely to bring it to the floor without a clear majority of Democrats.
What Else We’re Following
China’s auto industry fortunes may be heading from bad to worse. Sales declined for an 11th straight month in May and now face a fresh challenge: new vehicle emission standards. Dealers are scrambling to sell their older vehicles before doing so becomes illegal at the end of June, often by offering steep discounts. While that could deliver a temporary boost in unit sales, it is likely to worsen financial losses for manufacturers and dealer groups already struggling in China.
India’s economy isn’t as hot as government numbers suggest. GDP likely grew at an average annual rate between 3.5% and 5.5% from 2011 to 2016, a period when government calculations put growth at 6.9%, according to a study by Arvind Subramanian, who left his post as Prime Minister Narendra Modi’s chief economic adviser in 2018 to become a professor at Harvard University.
U.S. oil and gas hit record production levels in 2018. Surging global energy demand is fueling the boom, said BP’s annual statistical review published Tuesday.
In Memoriam: Martin Feldstein
Martin Feldstein, a top adviser to presidents and one of the most influential academic economists of his generation, died Tuesday at the age of 79. Mr. Feldstein served as chairman of the White House Council of Economic Advisers from 1982 to 1984 under Republican President Reagan and later served in advisory positions to GOP President George W. Bush and Democratic President Obama. The Harvard macroeconomist’s work largely focused on inflation, public expenditures, taxes and unemployment. Mr. Feldstein was an advocate for small government, low taxes and control of the federal government’s budget deficit, Harriet Torry reports.
TWEET OF THE DAY
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WHAT ELSE WE’RE READING
Is the U.S. ready for a recession? “Although a recession is not forthcoming in the near term, it’s out there somewhere, meaning we need to ask whether we’re ready for it. The answer is no, but with an interesting wrinkle. A group of economists and think-tankers, of which I’m a member, have developed some promising ideas to help blunt the next downturn. But Congress doesn’t seem to be interested in debating them, raising the specter that when the next downturn hits, we’ll be stuck in Cassandra space, with awesome graphs and white papers on one side and an inadequate policy response on the other,” the Center on Budget and Policy Priorities’ Jared Bernstein writes in the Washington Post.
Apple has a backup plan if the U.S.-China trade war gets out of hand. “The Cupertino, Calif.-based company’s primary manufacturing partner has enough capacity to make all iPhones bound for the U.S. outside of China if necessary, according to a senior executive at Hon Hai Precision Industry Co. The Taiwanese contract manufacturer now makes most of the smartphones in the Chinese mainland,” Debbie Wu reports at Bloomberg.
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