Evelyn Reynolds

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    Inflation Has Been Easing Fast, but Wild Cards Lie Ahead

    Will inflation continue to slow at a solid pace? Economists are warily watching a few key areas, like housing and cars.President Biden has openly celebrated recent inflation reports, and Federal Reserve officials have also breathed a sigh of relief as rapid price gains show signs of losing steam.But the pressing question now is whether that pace of progress toward slower price increases — one that was long-awaited and very welcome — can persist.The Fed’s preferred inflation measure, the Personal Consumption Expenditures index, is expected to tick up to 4.2 or 4.3 percent in a report on Thursday, after volatile food and fuel costs are stripped out. That would be an increase from 4.1 percent for the core measure in June. And while it would still be down considerably from a peak of 5.4 percent last summer, such a reading would underscore that inflation remains stubbornly above the Fed’s 2 percent goal and that its path back to normal is proving bumpy.Most economists are not hugely concerned. They still expect inflation to ease later this year and into 2024 as pandemic disruptions fade and as consumers become less willing to accept ever-higher prices for goods and services. American shoppers are feeling the squeeze of both shrinking savings and higher Fed interest rates.But as price increases slow in fits and starts, they are keeping economic officials wary. Big uncertainties loom, including a few that could help inflation to fade faster and several that could keep it elevated.The Base Case: Inflation is Expected to Cool.Price increases have slowed across a range of measures this summer. The overall Consumer Price Index — which feeds into the P.C.E. numbers and is released earlier each month, making it a focal point for both analysts and the media — has slowed to 3.2 percent from a 9.1 percent peak in June 2022.And as consumers have experienced less dramatic price jumps, their expectations for future inflation have come down. That’s good news for the Fed. Inflation expectations can be a self-fulfilling prophecy: If consumers expect prices to climb, they may both accept cost increases more easily and demand higher pay, making inflation harder to stamp out.Still, the moderation has not been enough for policymakers to declare victory. Fed officials have been trying to slow the economy and contain inflation since early 2022. Jerome H. Powell, the Fed chair, vowed during a speech last week at the Jackson Hole symposium that they will “keep at it” until they are positive inflation is coming under control.“Inflation is going the right way,” said Gennadiy Goldberg, a rates strategist at T.D. Securities. But it is like a fire, he said: “You want to kill its very last ember, because if you don’t, it can flare back up in an instant.”The Good News: Rents and China.There are reasons to believe that inflation is in the process of being sustainably doused.Slower rent increases should help to weigh down overall inflation for at least the next year, several economists said. Rents for newly leased apartments spiked in the pandemic as people moved cities and ditched their roommates. Market-based rents began to cool last year, a shift that is only now feeding its way into official inflation data as people renew their leases or move.The slowdown in inflation is also getting a helping hand from an unexpected source: China. The world’s second-largest economy is growing much more slowly than expected after reopening from pandemic lockdowns. That means that fewer people are competing globally for the same commodities, weighing on prices. And if Chinese officials respond to the slump by trying to ramp up exports, it could make for cheaper goods in the global marketplace.And more generally, Fed policy should help to pull down inflation in the months to come. The central bank has raised interest rates to a range of 5.25 to 5.5 percent over the past year and a half. Those higher borrowing costs are still trickling through the economy, reducing demand for big purchases made on credit and making it harder for companies to charge more.The Bad News: Gas, Travel Prices, Healthcare.Travelers at La Guardia Airport in New York. Rising fuel costs can feed into other prices, like airfares.Desiree Rios/The New York TimesBut a few key products could spell trouble for the inflation outlook. Gas is one.AAA data show gas prices have popped to more than $3.80 per gallon, up from about $3.70 a month ago, amid refinery shutdowns and global production cuts.Fed officials mostly ignore gas when they are thinking about inflation, because it jumps around thanks to factors that policymakers can’t do much about. But gas prices matter a lot to consumers, and their inflation expectations tend to increase when they pop — so central bankers can’t look past them entirely. Beyond that, gas prices can feed other prices, like airfares. Nor is it just gas and travel costs that could stop pulling inflation down so quickly. Economists at Goldman Sachs expect health care prices to pick up as hospitals try to make up for a recent pop in their labor costs, propping up services inflation.The Uncertain News: Cars and Growth.Used cars have also been helping to subtract from inflation, but it is increasingly uncertain how much they will help to pull it down going forward.Many economists think the trend toward cheaper used automobiles has more room to run. Dealers have been paying a lot less for used cars at auction this year, and that trend may have yet to fully reach consumers. Plus, some new car producers have rebuilt inventories after years of shortages, which could relieve pressure in the auto market as a whole (electric vehicles in particular are piling up on dealer lots).But, surprisingly, wholesale used car costs ticked up very slightly in the latest data.“The used car market is turning, and the reason for that is pretty simple: Demand has been way higher than dealers had expected,” said Omair Sharif, founder of Inflation Insights. Add to that the possibility of a United Auto Workers strike — the union’s contract expires in mid-September — and risks lay ahead for car inventories and prices, he said.In fact, sustained demand in the used car market is symptomatic of a broader trend. The economy seems to be holding up even in the face of much-higher interest rates. Home prices have climbed since the start of the year in spite of hefty mortgage rates, and data released Thursday is expected to show that consumer spending remains strong.That more general risk — the possibility of an economic acceleration — is perhaps the biggest wild card facing policymakers. If Americans remain willing to open their wallets in spite of swollen price tags and higher borrowing costs, it could make it difficult to tamp down inflation completely.“We are attentive to signs that the economy may not be cooling as expected,” Mr. Powell said last week. More

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    A California Land Mystery Is Solved. Now the Political Fight Begins.

    Tech industry investors spent roughly $900 million buying land to build a dream city in a rural part of the Bay Area. It could be years, though, before they can do anything with it.Jan Sramek was 15 years old the first time he tried to get a government to do something he wanted. Back then, he was an internet- and science fiction-obsessed teenager growing up in Drevohostice, in the Czech Republic.The problem was his town of 1,400 people had only dial-up internet service. He persuaded the local government to pay an internet service provider to bring the town a broadband connection. He was even paid a commission for it, Mr. Sramek wrote in “Racing Towards Excellence,” a sort of self-help book for ambitious young adults he co-wrote in 2009.The next campaign for Mr. Sramek could be more profitable. It could also be longer, harder and, in all likelihood, nastier.The revelation last week that Mr. Sramek is leading a group of Silicon Valley moguls in an audacious plan to build a new city on a rolling patch of farms and windmills in Northern California was the unofficial beginning of what promises to become a protracted and expensive political campaign. More

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    U.S. Does Not Want to ‘Decouple’ From China, Raimondo Says

    Gina Raimondo, the commerce secretary, emphasized U.S. concerns over harsh treatment of foreign companies and national security issues in a meeting with top officials in Beijing.Gina Raimondo, the U.S. secretary of commerce, told Chinese officials on Tuesday that the United States was not seeking to sever economic ties with China, but she expressed a litany of concerns that were prompting the business community to describe China as “uninvestable.”Ms. Raimondo, who oversees both trade promotion and U.S. limits on China’s access to advanced technology, spoke with several of China’s top officials on Tuesday. That included meeting with Premier Li Qiang, China’s second-highest official, and Vice Premier He Lifeng, who oversees many economic issues, at the Great Hall of the People, next to Tiananmen Square in the heart of Beijing.Ms. Raimondo said she had pressed Chinese officials on a variety of challenges facing American businesses operating in China. Companies have expressed concerns about long-running issues like intellectual property theft as well as a raft of newer developments, like raids on businesses, a new counterespionage law and exorbitant fines that come without explanations, she said during an extended interview with reporters on a high-speed train from Beijing to Shanghai on Tuesday evening.“Increasingly, I hear from businesses China is uninvestable because it has become too risky,” she said.Ms. Raimondo said after the meetings that she had raised the various concerns of U.S. companies like Intel, Micron and Boeing, but that she “didn’t receive any commitments.” Beijing scuttled Intel’s acquisition of another semiconductor company this month by not giving the deal antitrust approval. It has also severely restricted some of Micron’s semiconductor sales in China since May and has halted almost all purchases of Boeing jets over the last several years, mainly choosing Airbus aircraft from Europe instead.“I was very firm in our expectations. I think I was heard,” she added. “We’ll have to see if they take any action.”Ms. Raimondo also asked for China’s cooperation on broader threats like climate change, fentanyl and artificial intelligence. The Chinese in turn asked for the United States to reduce export controls on advanced technology and retract a recent executive order that bans new investments in certain advanced technologies, Ms. Raimondo said.The commerce secretary said she had refused those requests. “We don’t negotiate on matters of national security,” she said.Still, Ms. Raimondo tried to assure the Chinese that export controls applied only to a small proportion of U.S.-China trade, and that other economic opportunities between the countries should be embraced.“This isn’t about decoupling,” she said. “This is about maintaining our very consequential trade relationship, which is good for America, good for China and good for the world. An unstable economic relationship between China and the United States is bad for the world.”The official Xinhua news agency said late Tuesday that Premier Li had told Ms. Raimondo that economic relations between China and the United States were “mutually beneficial.” But he also warned that “politicizing economic and trade issues and overstretching the concept of security will not only seriously affect bilateral relations and mutual trust, but also undermine the interests of enterprises and people of the two countries, and will have a disastrous impact on the global economy.”Ms. Raimondo’s visit is part of an effort by the Biden administration to stop a long deterioration in the U.S. relationship with China and restore communications. She is the fourth senior Biden administration official to travel to China in three months. Her conversations with Chinese officials — which ranged from issues of national security to commercial opportunities for tourism — attested to both the economic potential of the trading relationship and its immense challenges.Chinese officials have welcomed her visit as an opportunity to reduce tensions and air their concerns. Seated in a red-carpeted reception room on the second floor of the Great Hall, Mr. He said at the start of their meeting that he was ready to work with Ms. Raimondo, and hoped the United States would adopt rational and practical policies. She responded by laying out what the Biden administration sees as its priorities.“The U.S.-China commercial relationship is one of the most globally consequential, and managing that relationship responsibly is critical to both our nations and indeed to the whole world,” Ms. Raimondo said. “And while we will never of course compromise in protecting our national security, I want to be clear that we do not seek to decouple or to hold China’s economy back.”On Monday, Ms. Raimondo and China’s commerce minister, Wang Wentao, met and agreed to hold regular discussions between the two countries on commercial issues. Those talks are set to include business leaders as well as government officials. The two governments also agreed to exchange information, starting with a meeting by their senior aides on Tuesday morning in Beijing, about how the United States enforces its export controls.Earlier on Tuesday, Ms. Raimondo met with China’s minister of culture and tourism, Hu Heping. That meeting came less than three weeks after Beijing lifted a ban on group tours to the United States that it had imposed during the pandemic, when China closed its borders almost completely for nearly three years.The two ministers agreed at the meeting that the United States and China would host a gathering in China early next year to promote the travel industry, the latest in a series of business promotion activities that Ms. Raimondo has been organizing.Travel from China to the United States remains at less than a third of prepandemic levels, the United States Travel Association, an industry group, said on Saturday.The number of nonstop flights between the two countries is still less than a tenth of its level before the pandemic. Chinese airlines carried most of the passengers between the two countries before the pandemic. But after Beijing frequently blocked American carriers’ flights to China during the pandemic because of Covid cases aboard — while allowing Chinese carriers’ flights to continue — the Biden administration began insisting on strict reciprocity.After the retirement of many pilots and flight attendants during the pandemic, American carriers have struggled to meet travel demand within the United States. They have been slow to restore long-haul services to China, which require many crews to operate, although United Airlines announced recently that this autumn it would increase the frequency of flights from San Francisco to Shanghai, and would resume flights from San Francisco to Beijing.Senior American officials previously tended to fly between Beijing and Shanghai during visits to China, but the Commerce Department decided to move its sizable delegation by train on this trip. Huge Chevrolet Suburban sport utility vehicles carrying Ms. Raimondo and her aides pulled straight up onto the train platform to unload them into one of China’s high-speed electric trains, which travel for long stretches at 217 miles per hour, or 350 kilometers an hour.The trains travel from Beijing to Shanghai, a distance comparable to the journey from New York to Atlanta or Chicago, in as little as four and a half hours, depending on how many stops they make. The trains, usually with 16 or more passenger cars, depart several times an hour in each direction. More

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    Job Openings Dropped in July as Labor Market Cooled

    The NewsThe number of job openings continued to drop in July, the Labor Department reported Tuesday, another sign that the U.S. labor market is losing its momentum.There were 8.8 million job openings last month, down from about 9.2 million in June and the lowest level since March 2021, according to the Job Openings and Labor Turnover Survey. The amount of people quitting their jobs, a measure of workers’ confidence in the job market, continued to nudge down in July as well.A job fair in Minneapolis last month.Tim Gruber for The New York TimesWhy It Matters: Implications for interest-rate policy.Labor market data is closely watched by policymakers at the Federal Reserve as they combat stubborn inflation.“For workers, this looks like fewer opportunities — if you leave your job now, you’re less likely to land a better one than you were last year at this time,” Elizabeth Renter, a data analyst at the personal finance site NerdWallet, said in an email statement. “For the Fed, this likely looks according to plan.”Fed policymakers lifted interest rates to a range of 5.25 to 5.5 percent in their last meeting in July, the highest since 2001. Only one Fed meeting has passed since March 2022 where the central bank has not raised rates. Some investors hope that signs the labor market is continuing to cool will push the Fed to end its campaign of rate increases sooner.Jerome H. Powell, the chair of the Federal Reserve, signaled on Friday that the central bank was not ruling out more rate increases.“We are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective,” Mr. Powell said at the Federal Reserve Bank of Kansas City’s annual Jackson Hole conference in Wyoming.The new data is likely to be welcomed by the Fed, said Layla O’Kane, a senior economist at Lightcast, a labor market analytics firm. It shows that what the Fed has been doing is working, but policymakers are not likely to declare their mission accomplished just yet, she said.“This is a really good sign for a cooling labor market, but it’s not a cool labor market yet,” Ms. O’Kane said. “There’s some way to go before we think we solved some of the labor market tightness.”Background: A surprisingly robust labor market.The U.S. labor market has defied expectations by remaining strong despite the Fed’s mission to slow down the economy by raising interest rates.Consistently strong labor data initially fueled predictions that the Fed would continue rate increases until the economy fell into a recession. Many have taken a more optimistic view recently as inflation has begun to moderate alongside a strong labor market.Employers are starting to feel the effects of high interest rates, said Julia Pollak, chief economist at ZipRecruiter. Companies are being more judicious in their hiring even if they need more people, in part because of the high cost of labor, she said.“With interest rates this high, some investments don’t pencil out,” Ms. Pollak said. “Businesses that would have opened another location or invested in another truck or another warehouse are taking it slow.”What’s Next: The August jobs report on Friday.The August employment report will be released by the Labor Department on Friday.The unemployment rate dropped to 3.5 percent in July, a sign that although the labor market is cooling, workers are generally still able to find opportunities. The unemployment data for August will be one of the last labor market pulses that Fed policymakers will get before their next meeting on Sept. 19-20. More

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    Factories May Be Leaving China, but Trade Ties Are Stronger Than They Seem

    The United States is trying to lessen its dependence on Chinese goods, but research is showing how tough it is to truly alter global supply chains.The United States has spent the past five years pushing to reduce its reliance on China for computer chips, solar panels and various consumer imports amid growing concern over Beijing’s security threats, human rights record and dominance of critical industries.But even as policymakers and corporate executives look for ways to cut ties with China, a growing body of evidence suggests that the world’s largest economies remain deeply intertwined as Chinese products make their way to America through other countries. New and forthcoming economic papers call into question whether the United States has actually lessened its reliance on China — and what a recent reshuffling of trade relationships means for the global economy and American consumers.Changes to global manufacturing and supply chains are still unfolding, as both punishing tariffs imposed by the administration of former President Donald J. Trump and tougher restrictions on the sale of technology to China imposed by the Biden administration play out.The key architect of the latest restrictions — Gina Raimondo, the commerce secretary — is meeting with top Chinese officials in Beijing and Shanghai this week, a visit that underscores the challenge facing the United States as it seeks to reduce how much it depends on China when the countries’ economies share so many ties.These reworked trade rules, along with other economic changes, have caused China’s share of imports into the United States to fall as the share of imports from other low-cost countries like Vietnam and Mexico have climbed. The Biden administration has also pumped up incentives for producing semiconductors, electric cars and solar panels domestically, and manufacturing construction in the United States has been rising quickly.Commerce Secretary Gina Raimondo met with Chinese officials in Beijing on Monday.Pool photo by Andy Wong, Getty ImagesBut new research discussed at the Federal Reserve Bank of Kansas City’s annual conference at Jackson Hole in Wyoming on Saturday found that while global trade patterns have reshuffled, American supply chains have remained very reliant on Chinese production — just not as directly.In their paper, the economists Laura Alfaro at Harvard Business School and Davin Chor at the Tuck School of Business at Dartmouth wrote that China’s share of U.S. imports fell to about 17 percent in 2022 after peaking at about 22 percent in 2017, as the country accounted for a smaller share of America’s imports in categories like machinery, footwear and telephone sets. As that happened, places like Vietnam gained ground — supplying the United States with more apparel and textiles — while neighbors like Mexico began sending more car parts, glass, iron and steel.American Imports Shift Away From ChinaChange in the share of U.S. imports coming from each area between 2017 and 2022

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    Source: Analysis of Comtrade data by Laura Alfaro and Davin ChorBy The New York TimesThat would seem to be a sign that the United States is lessening its reliance on China. But there’s a hitch: Both Mexico and Vietnam have themselves been importing more products from China, and Chinese direct investment into those countries has surged, indicating that Chinese firms are setting up more factories there.The trends suggest that firms may simply be moving the last steps in their lengthy supply chains out of China, and that some companies are using countries like Vietnam or Mexico as staging areas to send goods that are still partly or largely made in China into the United States.While proponents of decoupling argue that any move away from China may be a good thing, the reshuffling appears to have other consequences. The paper finds that shifting supply chains are also associated with higher prices for goods.A drop of five percentage points in the share of imports coming from China may have pushed prices on Vietnamese imports up 9.8 percent and Mexican imports up 3.2 percent, based on the authors’ calculations. While more research is needed, the effect could be slightly contributing to consumer inflation, they say.“That is our first caution — this is likely to have cost effects — and the second caution is that it is unlikely to diminish dependence” on China, Ms. Alfaro said in an interview.The research echoes findings from a forthcoming paper by Caroline Freund of the University of California, San Diego, and economists at the World Bank and International Monetary Fund, which examined how trade in specific imports from China had changed since Mr. Trump began imposing tariffs on them.That paper found that tariffs had a substantial impact on trade, reducing U.S. imports of the goods that were subject to the levies, even as the absolute value of U.S. trade with China continued to rise.The countries that were able to capture the market share lost by China were those that already specialized in making the products that were subject to tariffs, like electronics or chemicals, as well as countries that were deeply integrated into China’s supply chains and had a lot of trade back and forth with China, Ms. Freund said. They included Vietnam, Mexico and Taiwan.“They’re also increasing imports from China, precisely in those products that they’re exporting to the U.S.,” she said.Higher import tariffs have not deterred the influx of cars from China.Agence France-Presse — Getty ImagesPresident Biden added tougher restrictions to electric car manufacturers in China.Agence France-Presse — Getty ImagesWhat this all means for efforts to bring manufacturing back to the United States is unclear. The researchers come to different conclusions about how much that trend is occurring.Still, both sets of researchers — as well as other economists at Jackson Hole, the Fed’s most closely watched annual conference — pushed back on the idea that these supply-chain shifts meant that global trade overall was retrenching, or that the world was becoming less interconnected.The pandemic, Russia’s invasion of Ukraine, and tensions between the United States and China have prompted some analysts to speculate that the world may turning away from globalization, but economists say that trend is not really borne out in the data.“We don’t see de-globalization at a macro level,” Ngozi Okonjo-Iweala, the director general of the World Trade Organization, said during a panel at the Jackson Hole symposium. But she pointed to what she characterized as a worrying change in expectations.“Rhetoric on de-globalization is taking hold, and that feeds into the political tensions and then into the policymaking,” she said. “My fear is that rhetoric might turn into reality and we might see this shift in investment patterns.”Others at Jackson Hole warned of other consequences, such as product shortages.A move toward production domestically or in only closely allied countries could “imply new supply constraints, especially if trade fragmentation accelerates before the domestic supply base has been rebuilt,” Christine Lagarde, the head of the European Central Bank, said in a speech on Friday.Global supply chains tend to change slowly, because it takes time for companies to plan, invest in and construct new factories. Economists are continuing to track current changes to global sourcing.Given growing geopolitical tensions with China as well as more recent troubles in the country’s economy, further shifts in global supply chains may be unavoidable.One question for economists now, Ms. Alfaro said, is whether the economic benefits from moving factories back to the United States or other friendly countries — like innovation in the U.S. manufacturing sector — will ultimately outweigh the costs of the strategy, for example, the higher prices paid by consumers.And separately, Ms. Freund said she believed the costs of reshoring had been “really under considered” by the government and others.The typical narrative was that “we’re going to bring it all back and we’re going to have all these jobs and it’s all going to be hunky-dory, but, in fact, it’s going to be extremely costly to do that,” she said. “Part of the reason we had such low inflation in the past was because we were bringing in lower-cost goods and improving productivity through globalization.” More

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    U.S. and China Agree to Broaden Talks in Bid to Ease Tensions

    During a visit to Beijing, Gina Raimondo, the commerce secretary, said the two sides would meet to discuss export restrictions and intellectual property, among other issues.The United States and China agreed on Monday to hold regular conversations about commercial issues and restrictions on access to advanced technology, the latest step this summer toward reducing tensions between the world’s two largest economies.The announcement came during a visit to Beijing by Gina Raimondo, the U.S. commerce secretary, who is meeting with senior Chinese officials in Beijing and Shanghai this week.The agreement to hold regular discussions is the latest move toward rebuilding frayed links between the two countries, a process that had already begun during three trips in the past 10 weeks by senior American officials: Secretary of State Antony J. Blinken, Treasury Secretary Janet L. Yellen and John Kerry, the president’s climate envoy.“I think it’s a very good sign that we agreed to concrete dialogue, and I would say, more than just kind of nebulous commitments to continue to talk, this is an official channel,” Ms. Raimondo said in an interview after four hours of negotiations with China’s commerce minister, Wang Wentao.Ms. Raimondo said on Monday night in Beijing that she’d had an “open” and “pragmatic” discussion with Mr. Wang and had raised the American business community’s concerns about China’s recent actions against Intel and Micron Technology, two semiconductor companies in the United States. The Chinese government has scuttled a large acquisition planned by Intel and has blocked some sales in China by Micron this year.She said two separate dialogues would be established. One would be a working group that included business representatives and would focus on commercial issues. The other would be a governmental information exchange on export control issues.Bilateral talks about trade, technology and other economic issues were once the norm between the United States and China, but those discussions have atrophied in recent years. China halted eight bilateral discussion groups a year ago in retaliation for a visit to Taiwan by Representative Nancy Pelosi, the California Democrat who was House speaker at the time.The flight of a Chinese spy balloon that traveled across the United States last winter and was then shot down over the Atlantic Ocean only deepened divisions between China and the United States, and resulted in Mr. Blinken’s initially canceling a trip to Beijing.But relations have begun to thaw as both nations, whose economies are tied to each other, have opened the door to resuming diplomatic ties.In a readout after the meeting, the Chinese ministry of commerce said Mr. Wang had expressed serious concerns about U.S. tariffs on Chinese imports, as well as the Biden administration’s efforts to bolster the U.S. semiconductor industry by providing government subsidies. Mr. Wang criticized those new subsidy programs, which are designed to lure manufacturing to the United States, as “discriminatory,” and he expressed concerns about U.S. sanctions on Chinese companies.China is willing to work with the United States to create a sound policy environment for business cooperation between the countries, he told the U.S. side, according to the readout.Even before Ms. Raimondo traveled to China, Republican lawmakers criticized her for planning a “working group” of U.S. and Chinese officials to discuss American export controls. Four senior Republicans contended in a letter last week that it was “deeply inappropriate for our foremost adversary to have any influence over controls on sensitive U.S. national security technologies that the American people charged her to protect.”Ms. Raimondo announced the new dialogue not as a working group but as an “information exchange.” She said that it had been set up to share more information about U.S. export restrictions on advanced technology, but that the group’s creation did not mean the United States would be compromising on issues of national security. The first meeting of the export control group was scheduled to take place in Beijing on Tuesday.Ms. Raimondo also said she and the Chinese commerce minister had agreed to meet with each other at least annually.He Weiwen, a former Chinese commerce ministry official who is now a trade specialist at the Center for China and Globalization, a Beijing research group, said the bilateral agreement to have more discussions showed a mutual commitment to pragmatism.“It means that both sides share the approach to solve practical issues,” he said.But in a sign of how politically fraught relations with China remain, plans for a formal dialogue structure between the two countries drew criticism from some China hawks in the United States.Matt Turpin, visiting fellow at the Hoover Institution and former China director of the National Security Council, described the move as a “real head scratcher.” He pointed to China’s unwillingness to take action to stop the flow of fentanyl into the United States, its alliance with Russia and its hacking of Ms. Raimondo’s email account before the trip as reasons China did not deserve such outreach.“It seems that Raimondo gave a significant concession to Beijing and got nothing in return,” Mr. Turpin said.A senior Commerce Department official said the Chinese had raised concerns during the meetings Monday about a trend toward declining trade and investment between the two countries, as well as issues around government subsidies.U.S. officials conveyed the concerns of American businesses and investors, including unfair requirements faced by foreign businesses and a declining transparency in China’s economic statistics. China suspended the release of youth unemployment data this month after the figure reached a record high this summer.Ms. Raimondo said that she had spoken to nearly 150 business leaders in preparation for her trip and that they had given her a common message: We need more channels of communication.“A growing Chinese economy that plays by the rules is in all of our interests,” she said.As the Chinese economy has faltered this summer, Chinese officials have begun softening their stance on some issues. In the latest measure, the foreign ministry announced on Monday that starting on Wednesday, travelers to China would no longer need to test themselves first for Covid.Michael Hart, the president of the American Chamber of Commerce in China, said there had been a change in direction from Chinese officials this summer, with an increased willingness to hold discussions.“It used to be at every meeting I went to, the first five minutes were ‘Everything is America’s fault,’” Mr. Hart said. “It’s definitely toned down now. Government officials understand the importance of U.S.-China trade.” More

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    What China’s Economic Woes May Mean for the U.S.

    The fallout is probably limited — and there may be some upside for American interests.The news about China’s economy over the past few weeks has been daunting, to put it mildly.The country’s growth has fallen from its usual brisk 8 percent annual pace to more like 3 percent. Real estate companies are imploding after a decade of overbuilding. And China’s citizens, frustrated by lengthy coronavirus lockdowns and losing confidence in the government, haven’t been able to consume their way out of the country’s pandemic-era malaise.If the world’s second-largest economy is stumbling so badly, what does that mean for the biggest?Short answer: At the moment, the implications for the United States are probably minor, given China’s limited role as a customer for American goods and the minor connections between the countries’ financial systems.In a note published Thursday, Wells Fargo simulated a “hard landing” scenario for China in which output over the next three years would be 12.5 percent smaller than previous growth rates would achieve — similar to the impact of a slump from 1989 to 1991. Even under those conditions, the U.S. economy would shave only 0.1 percent off its inflation-adjusted growth in 2024, and 0.2 percent in 2025.That could change, however, if China’s current shakiness deepens into a collapse that drags down an already slowing global economy.“It doesn’t necessarily help things, but I don’t think it’s a major factor in determining the outlook in the next six months,” Neil Shearing, the chief economist at Capital Economics Group, an analysis and consulting firm, said in a recent webinar. “Unless the outlook for China becomes substantially worse.”A potential balm for inflation, but a threat to factories.When considering the economic relationship between the two countries, it’s important to recognize that the United States has played some role in China’s troubles.The United States is well past a boom in consumption during the pandemic that pulled in $536.8 billion worth of imports from China in 2022. This year, with home offices and patios stuffed full of furniture and electronics, Americans are spending their money on cruises and Taylor Swift tickets instead. That lowers demand for goods from Chinese factories — which had already been weakened by a swath of tariffs that former President Donald J. Trump started and the Biden administration has largely kept in place.How Much America Buys From (and Sells to) ChinaMonthly goods imports have fallen since a pandemic-era boom.

    Source: Census BureauBy The New York TimesFor years, China’s leaders have said they want to rely more on the country’s households to drive economic growth. But they have taken few steps to support domestic consumption, such as shoring up safety net programs, which would persuade residents to spend more of the money they now save in case of emergencies.That’s why some are concerned that China could again fall back on encouraging exports to foster growth. Such a strategy might succeed since the Chinese currency, the renminbi, is very weak against the dollar, and it’s possible to evade tariffs on most items by assembling Chinese parts in other countries — like Vietnam and Mexico.An export surge would have countervailing effects. It could lower prices for consumer goods, which — along with falling Chinese demand for commodities like gasoline and iron ore — would help lower inflation in the United States. At the same time, it could counteract efforts to resuscitate American manufacturing, raising the political temperature as the presidential election approaches.“My fear is that an export-based Chinese recovery will run up against a world that is reluctant to become ever more dependent on China for manufactures, and that becomes a source of tension,” said Brad Setser, a senior fellow at the Council on Foreign Relations.And what about goods flowing the other way, from the United States to China? It’s not a huge volume — China accounted for only 7.5 percent of U.S. exports in 2022. American businesses have long sought to further develop the Chinese market, especially for agricultural products such as pork and rice, but success has been underwhelming. In 2018, the Trump administration negotiated a compact under which China would buy billions more dollars in products from U.S. farmers.Those targets were never met. With appetite fading in China, they may never be. That could mean lower food prices globally, but farmers would be hurt.“If their demand for corn and soybeans is rising, that’s good for everybody who produces corn and soybeans around the world,” said Roger Cryan, the chief economist with the American Farm Bureau Federation. “It is something to be concerned about down the road.”Insulation for American institutions and investors.So much for general trade dynamics. But the U.S. economy is composed of millions of companies with particular concerns, and some may have more to worry about as China’s economy flounders.Tesla, for example, had made inroads in the Chinese market, but its sales there have tumbled in recent months in the face of tough competition from local brands with lower-cost models. Apple generates about 20 percent of its revenue in China, which could also take a hit as residents choose cheaper products.American banks that do business globally have noted slowing growth; Citigroup’s chief executive, Jane Fraser, said on the company’s second-quarter earnings call that China had been its “biggest disappointment.”Chinese tourists also pour money into U.S. cities when they visit, which they might do less of going forward. Glenn Fogel, the chief executive of Booking Holdings — which includes travel websites such as Booking.com and Priceline — said in his earnings call that their outbound business from China had been anemic.“I don’t expect a recovery in China for us for some time, significant time probably,” Mr. Fogel said.Those effects, however, are likely to be muted. Even if the economic picture darkens, the American and Chinese banking systems are separate enough to insulate U.S. institutions and investors, aside from the few who might have invested in property developers like Evergrande or Country Garden.“There aren’t realistic channels for financial contagion from China to the U.S.,” Dr. Setser said. While China’s central bank may hold off on buying U.S. Treasury bonds, he noted, any impact on the overall market could be contained. “There’s no real scenario where China disrupts the bond market in a way that the Fed cannot offset.”On the contrary, there may be some upside for American companies if Chinese investors, lacking domestic opportunities, move more of their money into the United States. China’s direct investment in U.S. assets is relatively low and could face new obstacles as states seek to erect barriers to Chinese purchases of U.S. real estate and commercial enterprises. But places that welcome it could benefit.“Given that the U.S. seems to be doing relatively well, you could have money coming to the U.S., both in search of higher yield and in search of safety,” said Eswar Prasad, a professor of trade policy at Cornell University.The wild card of geopolitics.Aside from any direct financial and economic spillovers, it’s worthwhile to consider whether a faltering China meaningfully alters geopolitical dynamics and American interests.Washington has long fretted that a China-dominated trading bloc could limit market access for American companies by setting rules that, for example, contain weak protections for intellectual property. Such a trade agreement came into force in early 2022 after the United States abandoned its push to form the Trans-Pacific Partnership.But if China appears less mighty, it may lose its attractiveness in a fracturing world. Countries that eagerly took loans from China for large infrastructure projects may turn back toward international lending institutions like the World Bank, despite their more stringent requirements.“The fact that the Chinese economy is seen as being in a rough spot, in addition to more aggressive outreach in Asia and elsewhere by the Biden administration, that has shifted the balance a little bit,” Dr. Prasad said.Could China’s economic condition affect its willingness to undertake any military adventures, such as an invasion of Taiwan? While the Communist Party leadership might seek to stir up patriotic spirits through such an attack, Dr. Prasad thinks a shaky economy would in fact make the use of military force less likely, given the resources required to sustain that kind of engagement.One thing to keep in mind: While China appears to be going through a rough patch, the outlook is uncertain. There’s a debate in think-tank circles about whether the country’s economic structure will be durable over the longer term or fundamentally unsound.Heiwai Tang, an economics professor at HKU Business School in Hong Kong, said it would be unwise to consider China the next Japan, on the brink of prolonged stagnation.“I remain optimistic that the government is still very agile and should be responsive to a potential crisis,” Dr. Tang said. “They know what to do. It’s just a matter of time before they come to some kind of consensus to do something.”Ana Swanson More

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    Raimondo Heads to China to Both Promote Trade, and Restrict It

    The commerce secretary’s trip may be the clearest demonstration yet of the balancing act the Biden administration is trying to pull off in its relations with China.Gina Raimondo, the secretary of commerce, is heading to China on Saturday with two seemingly contradictory responsibilities: a mandate to strengthen U.S. business relations with Beijing while also imposing some of the toughest Chinese trade restrictions in years.The head of the Commerce Department is traditionally the government’s biggest champion for the business community both at home and abroad, promoting the kind of extensive ties U.S. firms have with China, the world’s second-largest economy.But U.S.-China relations have turned chillier as China has become more aggressive in flexing its economic and military might. While China remains an important economic partner, American officials have increasingly viewed the country as a security threat and have imposed a raft of new restrictions aimed at crippling Beijing’s access to technology that could be used to strengthen the Chinese military or security services.The bulk of those restrictions — which have stoked anger and irritation from the Chinese government — have been imposed by Ms. Raimondo’s agency.The Commerce Department has issued extensive trade restrictions on sales of chips, software and machinery to China’s semiconductor industry and is mulling an expansion of those rules that could be issued soon after Ms. Raimondo returns to Washington.Her visit could be the biggest test yet of whether the Biden administration can pull off the balancing act of promoting economic ties with China while clamping down on some trade in the interest of national security.Ms. Raimondo will be the fourth administration official to travel to China in recent months, following John Kerry, the president’s special envoy for climate change; Treasury Secretary Janet L. Yellen; and Secretary of State Antony J. Blinken.Ms. Raimondo is expected to reiterate what her counterparts have told Chinese officials: that there is no contradiction between the administration’s goals for encouraging commercial engagement with China and protecting U.S. national security. They argue that the United States can maintain economic ties with China that benefit both countries and encourage peace, while also setting narrow but tough restrictions on China’s access to advanced technology in the interest of national defense.But the approach faces skepticism in both countries. In the United States, some Republicans argue that even more innocuous business ties with China could undercut U.S. industries and leave the nation vulnerable to influence from Beijing. And in China, many view what the U.S. government describes as narrow, national-security-related actions as a poorly disguised effort to hold back the Chinese economy.“I think the Commerce Department has tried to be very targeted,” said Samm Sacks, a senior fellow at Yale Law School’s Paul Tsai China Center. “Now, the Chinese side won’t see it that way.”For Chinese officials, Ms. Raimondo simultaneously represents some of their best opportunities for engagement with the United States and their biggest source of frustration.Experts say her visit presents a chance for Chinese leaders to strengthen trade relations and signal that their country is still open to international business at a moment when the Chinese economy has stumbled, foreign investment has declined and a series of raids on companies with foreign ties have set executives on edge.But Chinese officials have also harshly criticized the technology curbs issued by her department, a condemnation they are likely to repeat in the week ahead. Officials in Beijing have also been highly critical of the new restrictions on American investment in certain high-tech Chinese industries, which the Biden administration proposed earlier this month.At a summit in South Africa this week, a Chinese official delivered a prepared statement from Chinese leader Xi Jinping that called for the world to avoid “the abyss of a new Cold War” and blamed “some country, obsessed with maintaining its hegemony” for working to cripple emerging markets and developing countries.In addition to export controls, Ms. Raimondo is overseeing the distribution of $50 billion to chip companies that build facilities in the United States. Any company that accepts that funding must agree not to build new factories for making advanced chips in China for at least a decade.“The Biden administration is probing for a way to engage the Chinese in a very difficult environment,” said Myron Brilliant, a senior counselor at Dentons Global Advisors-ASG who was formerly the executive vice president of the U.S. Chamber of Commerce. “It’s a balancing act for sure, between the national security agenda they are enforcing, while also recognizing that a lot of trade between the countries doesn’t touch on national security considerations and should therefore not be restricted.”Ms. Raimondo is set to meet with high-level Chinese officials and representatives of American businesses in Beijing and Shanghai between Monday and Wednesday. People familiar with the government’s planning say those talks may result in the creation of working groups to discuss export controls and commercial issues that arise between China and the United States.American businesses are also hoping that the Biden administration will push for additional intellectual property protections for pharmaceutical companies, more access to the Chinese market for Visa and Mastercard and the completion of a longstanding Chinese order of Boeing airplanes, among other goals, people familiar with the talks said.But those gains, while important for American firms, would still seem trivial compared with the mounting pressures U.S. companies can now face in China.China’s sputtering economy and harsh lockdowns during the pandemic are giving pause to businesses considering their presence in the country. The Chinese government has also restricted companies sending data from China abroad, making it more difficult for multinationals to do business.Chinese authorities have responded to increasing technology restrictions from the United States by barring the U.S. chip-maker Micron from sales to companies that handle critical Chinese information and by scuttling a proposed merger between Intel and an Israeli chip-maker with operations in China. And companies exporting from China still face nearly the full suite of tariffs imposed by the Trump administration, in addition to the new export controls.The port in Yingkou, China. Experts say Ms. Raimondo’s visit presents an opportunity for Chinese leaders to strengthen trade relations and signal that their country is still open to foreign business.Agence France-Presse — Getty ImagesThe Biden administration has acknowledged the tensions in the U.S.-China relationship, saying that China poses a threat to U.S. national security but that it is still one of the country’s most integral economic partners.“This isn’t about, you know, holding China back or denying them commodity technology,” Ms. Raimondo said of the export controls at an event at the American Enterprise Institute in July. “Certainly not about denying U.S. companies revenue. It’s about being honest about the fact that China has a military civil fusion strategy, which includes getting our most sophisticated technology and using it to advance their military. And we’re not going to allow that.”The United States has for decades imposed export controls on the types of technology that can be sent to China, including restricting sales of satellites and other technology following Beijing’s crackdown in Tiananmen Square in 1989.But limits on technology trade with China have increased substantially in recent years, since the Trump administration imposed restrictions on the Chinese telecom firm Huawei. In October, the Biden administration expanded the limits to all firms using advanced chips in China. Chip firms, which earn a third or more of their global revenue through sales to China, have also pushed back, saying that the new restrictions are resulting in less money to invest in new research and innovation.In July, the chief executives of Nvidia, Qualcomm and Intel met with Ms. Raimondo in Washington to make that case.It’s not clear how much influence, if any, their lobbying will have on the rules. Ms. Raimondo, a former venture capitalist and governor of Rhode Island, has a long reputation as a business-friendly and pragmatic political actor. But as commerce secretary, she has repeatedly argued that the United States could not compromise on issues of national security.“We are not seeking the decoupling of our economy from that of China’s,” Ms. Raimondo said in a speech at the Massachusetts Institute of Technology in November. “We want to continue to promote trade and investment in those areas that do not undermine our interests or values.” More