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    On the Economy, Biden Struggles to Convince Voters of His Success

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    Wages are up, inflation has slowed and the White House has a new slogan. Still, President Biden’s poor marks on the economy are making Democrats worried.When a chant slamming President Biden spread from a NASCAR race to T-shirts and bumper stickers across red America two years ago, the White House pulled off perhaps its savviest messaging feat to date. Biden aides and allies repackaged the “Let’s Go Brandon” insult and morphed it into “Dark Brandon,” a celebratory meme casting Mr. Biden as some sort of omnipotent mastermind.Now, the White House and the Biden campaign is several weeks into another appropriation play — but it isn’t going nearly as well. Aides in July announced that the president would run for re-election on the virtues of “Bidenomics,” proudly reclaiming the right’s derisive term for Mr. Biden’s economic policies.The gambit does not appear to be working yet. Even as Mr. Biden presides over what is by all indicators a strong economy — one on track to dodge the recession many had feared — he is still struggling to convince most of the country of the strength of his economic stewardship. Wages are up, inflation has slowed, but credit to the president remains in short supply.Polling last month from the Democratic organization Navigator found that 25 percent of Americans support Mr. Biden’s major actions, such as the Inflation Reduction Act, but still think the president is doing a poor job handling the economy. It’s a group that tends to be disproportionately younger than 40 and is more likely to be Black or Latino — voters critical to Democratic victories.“This is the thing that’s vexing all Democrats,” said Patrick Gaspard, the president of the Center for American Progress.Democratic economists, pollsters and officials have a variety of explanations for why voters don’t credit Mr. Biden for the economy. Inflation remains elevated, and interest rates have made home buying difficult. There is also evidence that voters’ views on the economy are shaped as much by their political views as by personal experiences.And then there is the regular refrain that people don’t know about Mr. Biden’s successes. Even Mr. Biden’s supporters say that he and his administration have been too reluctant to promote their record and ineffective when they do.“I’ve never seen this big of a disconnect between how the economy is actually doing and key polling results about what people think is going on,” said Heidi Shierholz, president of the Economic Policy Institute, a left-leaning think tank in Washington.Mr. Biden on Friday attempted another victory lap in a White House speech celebrating the latest jobs report, which found no sign of an imminent recession and a slight increase in the unemployment rate as more people sought work. He credited the heart of his economic plan, including investment in infrastructure, semiconductor manufacturing and climate-related industries along with caps on the price of insulin medication.Bidenomics, Mr. Biden said, “is about investing in America and investing in Americans.”Mr. Biden said his economic plan was to credit for the latest jobs report, which found no sign of an imminent recession and a slight increase in the unemployment rate as more people sought work.Kent Nishimura for The New York TimesThe term Bidenomics emerged as a pejorative in conservative media and has been widely adopted by Mr. Biden’s rivals. “One of the most important issues of the campaign will be who can rescue our country from the burning wreckage of Bidenomics,” former President Donald J. Trump said in a recent video, “which shall henceforth be defined as inflation, taxation submission and failure.”Gov. Ron DeSantis of Florida offered his definition at a recent campaign stop in Rock Rapids, Iowa. “Bidenomics is basically: You have a lower standard of living so he can pursue the left’s ideological agenda,” he said.Behind the rhetoric, there is some debate over whether the economy will be the driving force it has been in past presidential elections. Some Democrats argue that their party’s resilience in last year’s midterm elections showed that the fight over abortion rights and Mr. Trump’s influence over Republicans can trounce more kitchen-table concerns.The White House argues that Democrats’ strong showing last year is a sign the Mr. Biden’s electoral performance isn’t strictly tied to the economy.“By all metrics, his economic record has improved since then,” said Andrew Bates, a White House spokesman.Still, nearly all of Mr. Biden’s campaign advertising this year sells his economic record. The ads — which don’t use the term Bidenomics — cast the president’s policies as a work in progress. “All of the things that Biden fought to get passed helped the middle class,” a cement mason from Milwaukee says in an ad the campaign released last week.“It’s no secret that a lot of Americans are struggling with the cost of living, and that’s a reality that shapes their views about the economy more broadly,” said Geoff Garin, a pollster who conducts surveys for the Democratic National Committee.Explaining why Mr. Biden’s policies will help, Mr. Garin said, “is what campaigns are for.”This summer Mr. Biden has promoted “Bidenomics” at events around the country, often speaking in factories or with labor groups. Even some in friendly audiences of local Democratic leaders and supporters questioned whether his emphasis would resonate with the coalition that elected him in 2020.“Is Bidenomics the right thing to sell?” Mayor Katie Rosenberg of Wausau, Wis., said after seeing Mr. Biden speak in Milwaukee last month. “I just keep thinking, why aren’t they just doing Build Back Better still? That was a really good slogan. Bidenomics is just an effort to capitalize on the negativity around him.”Build Back Better, the mix of economic, climate and social policy that Mr. Biden ran on in 2020, was a bumper-sticker-length encapsulation of Mr. Biden’s ambitions as president. Significant elements became law, but the branding exercise failed, doomed in part by rising inflation.Mr. Biden’s “Build Back Better” slogan was a bumper-sticker-length encapsulation of his ambitions as president.Hannah Yoon for The New York TimesDemocrats rebranded their climate legislation as the Inflation Reduction Act, even though the bill had little to do with inflation. Even Mr. Biden recently said that he regretted the name, suggesting that it promised something the bill was not devised to deliver.Though the rate of inflation has slowed, it remains the chief drag on Mr. Biden’s economic approval ratings, said Joanne Hsu, the director of Surveys of Consumers at the University of Michigan.“We track people who have heard negative news about inflation,” Dr. Hsu said. “Over the past year, that number has been much higher than in the 1970s and ’80s, when inflation was so much worse.”One theme of Mr. Biden’s aides, advisers and allies is to plead for time. The economy will get better, more people will hear and understand what Bidenomics means and credit will accrue to the president, they say.“The public more and more is going to be seeing low unemployment and will continue to get more bullish on the economy,” said Representative Robert Garcia of California, a member of the Biden campaign’s national advisory board. “But I also understand it’s very hard for people now. We just can’t expect overnight for people to feel better about the economy.”For most Americans, their views on the economy are directly tied to their partisan leanings — a phenomenon that is particularly acute for Republicans. In 2016, before Mr. Trump took office, just 18 percent of Republicans rated the economy excellent or good, according to a Pew Research survey. By February 2020, just before the pandemic shut down public life in America, 81 percent of Republicans said the economy was excellent or good.An Associated Press/NORC Center for Public Affairs Research poll last month found just 8 percent of Republicans, along with 65 percent of Democrats, approved of Mr. Biden’s handling of the economy.Mr. Biden’s sympathizers say part of his problem on the economy is an unwillingness to promote its bright spots out of fear of seeming insensitive to Americans struggling with higher prices. Mr. Trump had no such restraint, describing the economy as the best in history and the envy of the world. Using “Bidenomics” as a framework lets the president take ownership of the economy, but it doesn’t exactly tell voters that the economy is great.“Trump chose people who were probably less experienced in terms of making policy, but some of them are quite good about talking up the president,” said Ben Harris, a former top Treasury official in the Biden administration who played a leading role in outlining the Build Back Better agenda during the 2020 campaign. “Biden’s taken a more modest and humble approach, and there’s a chance that’s come back to haunt him.”Jason Furman, who served as chairman of the Council of Economic Advisers in the Obama administration, said there was a regular debate in that White House about how much to sell the public on the idea that the economy was improving even if people didn’t feel in their own lives.Now he said it was difficult for the Biden administration to take victory laps over slowing inflation because wages haven’t kept pace, leaving a typical worker about $2,000 behind compared with before the pandemic.“The way to think about that is people were in an incredibly deep hole because of inflation and we’re still not all the way out of that hole,” Mr. Furman said. “The fact that you protected people in the bad times means the good times don’t feel as good.”Nicholas Nehamas More

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    The U.S. and China Are Talking Again. Where It Will Lead Is Unclear.

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    Gina Raimondo, the U.S. commerce secretary, and her Chinese counterparts agreed to continue economic talks, but such dialogues have a disheartening record.Gina Raimondo, the commerce secretary, expressed hopes that American and Chinese officials would work on improving the countries’ business relationship.Pool photo by Andy WongWhen Gina Raimondo, the commerce secretary, visited China this week, she joined a long line of U.S. politicians who have come to the country to try to sway Chinese officials to open their market to foreign businesses and buy more American exports, in addition to other goals.Ms. Raimondo left Shanghai on Wednesday night with no concrete commitments from China to treat foreign businesses more equitably or step up purchases of Boeing jets, Iowa corn or other products. In a farewell news conference, she said that hoping for such an outcome would have been unrealistic.Instead, Ms. Raimondo said her biggest accomplishment was restoring lines of communication with China that would reduce the chance of miscalculation between the world’s two largest economies. She and Chinese officials agreed during the trip to create new dialogues between the countries, including a working group for commercial issues that American businesses had urged her to set up.“The greatest thing accomplished on both sides is a commitment to communicate more,” Ms. Raimondo said on Wednesday.She had also delivered what she described as a tough message. The Biden administration was willing to work to promote trade with China for many categories of goods. But the administration was not going to heed China’s biggest request: that the United States reduce stringent controls on exports of the most advanced semiconductors and the equipment to make them.“We don’t negotiate on matters of national security,” Ms. Raimondo told reporters during her visit.While she called the trip “an excellent start,” the big question is where it will lead. There is a long history of frustrating and unproductive economic dialogues between the United States and China, and there are not many reasons to believe this time will prove different.Forums for discussion may have helped resolve some individual business complaints, but they did not reverse a broad, yearslong slide toward more conflict in the bilateral relationship. Now, the U.S.-China relationship faces a variety of significant security and economic issues, including China’s more aggressive posture abroad, its use of U.S. technology to advance its military and its recent raids on foreign-owned businesses.Ms. Raimondo says she has the backing of the president and U.S. officials. And Biden administration officials argue that even the shift to begin talking has been significant, after a particularly tense period. Relations between the United States and China became frosty last August when Representative Nancy Pelosi, the House speaker at the time, visited Taiwan, and they froze entirely after a Chinese surveillance balloon flew across the United States in February.Ms. Raimondo’s trip capped a summer of outreach by four senior Biden officials. R. Nicholas Burns, the U.S. ambassador to China, who took office in January 2022 and accompanied Ms. Raimondo on the trip, said on Tuesday that American officials “literally were not talking to the Chinese leadership at a senior level, my first 15 months here.”“In a very, very challenging relationship, intensive diplomacy is critical,” he added.Not everyone views re-engagement as a good thing. Republican lawmakers, in particular, increasingly see the conflict between the United States and China as a fundamental clash of national interests. Critics view the outreach as an invitation for China to drag out reforms, or a signal to Beijing that the United States is willing to make concessions.“Of the more than two dozen great-power rivalries over the past 200 years, none ended with the sides talking their way out of trouble,” Michael Beckley, an associate professor of political science at Tufts University, wrote in Foreign Affairs this month. He added, “The bottom line is that great-power rivalries cannot be papered over with memorandums of understanding.”The space for compromise also seems narrow. Both governments have little desire to be seen by domestic audiences as making concessions. And in both countries, the share of trade that is considered off limits or a matter of national security concerns is growing.Ms. Raimondo at Shanghai Disneyland on Wednesday. She said her biggest accomplishment in her trip to China was restoring communication to reduce the chance of miscalculation.Pool photo by Andy WongMs. Raimondo expressed wariness at being drawn into unproductive talks with China — a persistent issue over the last several decades. But she also described herself as a pragmatist, who would push to accomplish what she could and not waste time on the rest.“I don’t want to return to the days of dialogue for dialogue’s sake,” she said. “That being said, nothing good comes from shutting down communication. What comes from lack of communication is mis-assessment, miscalculation and increased risk.”“We have to make it different,” Ms. Raimondo said of her new dialogue, adding that the U.S.-China relationship was too consequential. “We have to commit ourselves to take some action. And we can’t allow ourselves to devolve into a cynical place.”Kurt Tong, a former U.S. consul general in Hong Kong who is now a managing partner at the Asia Group, a Washington consulting firm, said Ms. Raimondo had offered China half of what it wanted. She sent a clear message that many American companies should feel free to do business in China, after years of receiving criticism for doing so during the Trump administration and still from many Republicans in Congress. But she did not agree to relax American export controls.“China is essentially forced by circumstances to accept that half a loaf,” Mr. Tong said, adding, “I do sense there is a real desire in Beijing to stabilize the relationship, both because of the geopolitical relationship but also, perhaps more important, the doldrums on the economic side.”The recent weakness in the Chinese economy may create some opening for compromise. The Chinese economy has only limped back from its pandemic lockdowns. China’s youth unemployment rate has risen, its debt is piling up, and foreign investment in the country has fallen, as multinational companies look for other places to set up their factories.In a meeting with Ms. Raimondo on Wednesday, the Shanghai party secretary, Chen Jining, admitted that the sluggish economy made business ties more crucial.“The business and trade ties serve the role as stabilizing ballast for the bilateral ties,” Mr. Chen said. “However, the world today is quite complicated. The economic rebound is a bit lackluster. So stable bilateral ties in terms of trade and business is in the interest of two countries and is also called for by the world community.”Ms. Raimondo met with Chen Jining, the Shanghai party secretary, on Wednesday.Pool photo by Andy WongMs. Raimondo responded that she was looking forward to discussing “concrete” ways they might be able to work together to accomplish business goals and “to bring about a more predictable business environment, a predictable regulatory environment and a level playing field for American businesses here in Shanghai.”Some of the issues that Ms. Raimondo raised during her visit — including intellectual property theft, patent protection and the inability of Visa and Mastercard to receive final approval for access to the Chinese market — are the very same ones that were discussed in economic dialogues with China more than a decade ago, including under Presidents George W. Bush and Barack Obama.For instance, China promised in 2001 as part of its entry into the World Trade Organization that it would quickly allow American credit card companies into its market, and it lost a W.T.O. case on the issue in 2012. But 22 years later, Visa and Mastercard still do not have equal access to the Chinese market.For more than three decades, commerce secretary visits to China followed a familiar script. The visiting American official would call on China to open its markets to more American investment, and to allow more equal competition among foreign and local companies. Then the commerce secretary would attend the signing of contracts for exports to China.That included Barbara H. Franklin, who in 1992, at the end of the George H.W. Bush administration, oversaw the signing of $1 billion in contracts and the re-establishment of commercial relations with China after the deadly Tiananmen Square crackdown in 1989.Gary Locke of the Obama administration oversaw the signing of a broad contract in 2009 for the provision of American construction services. And Wilbur Ross, who went to China on behalf of President Donald J. Trump in 2017, came back with $250 billion in deals for everything from smartphone components to helicopters to Boeing jets.These deals did little to erase China’s enormous trade imbalance with the United States. China has fairly consistently sold $3 to $4 a year worth of goods to the United States for each dollar of goods that it purchased.In a sign of how much the focus of the relationship has shifted, Ms. Raimondo’s trip contained more discussion of national security than of new contracts. She gave her final news conference in a hangar at Shanghai Pudong Airport near two Boeing 737-800s, but did not mention the contract for several Boeings that China has yet to accept, much less any new sales.China, the world’s largest single market for new jetliners in recent years, essentially stopped buying Boeing jets during the Biden administration and switched to Airbus planes from Europe to show its unhappiness with American policies. Ms. Raimondo said on Tuesday that she had raised the lapse of Boeing purchases with Chinese leaders during her two days in Beijing.“I brought up all those companies,” Ms. Raimondo said. “I didn’t receive any commitments. I was very firm in our expectations. I think I was heard. And as I said, we’ll have to see if they take any action.” More

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

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    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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    Percentage points
    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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    Commerce Secretary Gina Raimondo to Visit China Next Week

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    The trip by Gina Raimondo, the secretary of commerce, comes at a tense moment for the U.S.-China relationship and the Chinese economy.Gina Raimondo, the secretary of commerce, will travel to Beijing and Shanghai for a series of meetings next week, becoming the latest Biden official to visit China as the United States seeks to stabilize the relationship between the countries.Ms. Raimondo will meet with senior Chinese officials and American business leaders between Aug. 27 and Aug. 30, the Department of Commerce said in an announcement Tuesday. The department said that Ms. Raimondo was looking forward to “constructive discussions on issues relating to the U.S.-China commercial relationship, challenges faced by U.S. businesses, and areas for potential cooperation.”The visit comes during a period of tensions between Washington and Beijing, and amid extreme volatility in the Chinese economy, which is struggling with stalling growth, a real estate crisis and lackluster consumer confidence.The Biden administration has dispatched a series of officials to China in recent months in an attempt to restore some stability to the bilateral relationship, after the flight of a Chinese surveillance balloon across the United States early this year left ties badly frayed.Since June, Secretary of State Antony J. Blinken, Treasury Secretary Janet L. Yellen and the presidential climate envoy, John Kerry, have made trips to meet with counterparts in China. The meetings could potentially pave the way for a visit by China’s leader, Xi Jinping, to the United States this fall.As the cabinet official most responsible for promoting the interests of American businesses abroad, Ms. Raimondo is likely to try to expand some commercial relations, and express concerns about a recent crackdown on firms with foreign ties in China. A Chinese statistics agency announced that it has imposed fines of nearly $1.5 million on the Mintz Group, an American corporate investigations firm that had been raided in March, after finding that the company had engaged in “foreign-related” surveys without official permission.The meetings are also expected to touch on the technology restrictions that Ms. Raimondo’s department oversees, which have prohibited companies in fields like artificial intelligence and quantum computing from sharing their most advanced technology with China. China has strongly objected to those restrictions.Last month, U.S. officials said Chinese hackers, likely affiliated with the country’s military or spy services, had obtained Ms. Raimondo’s emails, in a hack that was discovered in June by State Department cybersecurity experts. The hackers had penetrated email accounts belonging to State and Commerce Department officials, the U.S. officials said.Li You More

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    U.S. Credit Rating Is Downgraded by Fitch

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    The ratings agency, which lowered the U.S. long-term rating from its top mark, said debt-limit standoffs had eroded confidence in the nation’s fiscal management.The long-term credit rating of the United States was downgraded on Tuesday by the Fitch Ratings agency, which said the nation’s high and growing debt burden and penchant for brinkmanship over America’s authority to borrow money had eroded confidence in its fiscal management.Fitch lowered the U.S. long-term rating to AA+ from its top mark of AAA. The downgrade — the second in America’s history — came two months after the United States narrowly avoided defaulting on its debt. Lawmakers spent weeks negotiating over whether the United States, which ran up against a cap on its ability to borrow money on Jan. 19, should be allowed to take on more debt to pay its bills. The standoff threatened to tip the United States into default until Congress reached a last-minute agreement in May to suspend the nation’s debt ceiling, which allowed the United States to keep borrowing money.Despite that agreement, the federal government now faces the prospect of a shutdown this fall, as lawmakers spar over how, where and what level of federal funds should be spent. The nonstop dueling over federal spending was a major factor in Fitch’s decision to downgrade America’s debt.“The repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management,” Fitch said in a statement. “In addition, the government lacks a medium-term fiscal framework, unlike most peers, and has a complex budgeting process.”Fitch pointed to the growing levels of U.S. debt in recent years as lawmakers passed new tax cuts and spending initiatives. The firm noted that the U.S. had made only “limited progress” in tackling challenges related to the rising costs of programs such as Social Security and Medicare, whose costs are expected to soar as the U.S. population ages.Fitch is one of the three major credit ratings firms, along with Moody’s and S&P Global Ratings. In 2011, S&P downgraded the U.S. credit rating amid a debt-limit standoff — the first time the United States was removed from a list of risk-free borrowers.By one common measure, Fitch’s move downgrades America’s credit rating not only under the rating agency’s own assessment, but also for the blended rating of the three largest agencies.At the margin, the move by Fitch could limit the number of investors able to buy U.S. government debt, analysts have warned. Some investors are bound by constraints on the quality of the debt they can buy, and those that require a pristine credit rating across the three major agencies will now need to look elsewhere to fulfill investment mandates.That could nudge up the cost of the government’s borrowing at a time when interest rates are already at a 22-year high. Most analysts, however, doubt that the impact will be severe given the sheer size of the Treasury market and the ongoing demand from investors for U.S. Treasury securities.Still, the downgrade is a blemish on the nation’s record of fiscal management. The Biden administration on Tuesday offered a forceful rebuttal of the Fitch decision — criticizing its methodology and arguing that the downgrade did not reflect the health of the U.S. economy.“Fitch’s decision does not change what Americans, investors, and people all around the world already know: that Treasury securities remain the world’s pre-eminent safe and liquid asset, and that the American economy is fundamentally strong,” Treasury Secretary Janet L. Yellen said in a statement.Ms. Yellen described the change as “arbitrary” and noted that Fitch’s ratings model showed U.S. governance deteriorating from 2018 to 2020 but that it did not make changes to the U.S. rating until now.Biden administration officials, speaking on the condition of anonymity, said that they had been briefed by Fitch ahead of the downgrade and made their disagreements known. They noted that Fitch representatives repeatedly brought up the Jan. 6, 2021, insurrection as an area of concern about U.S. governance.The downgrade came on the same day that former President Donald J. Trump was indicted in connection with his widespread efforts to overturn the 2020 election, which fueled the Jan. 6 riot.Senator Chuck Schumer of New York, the majority leader, said the Fitch downgrade was the fault of Republicans, who refused to raise America’s borrowing cap without steep concessions. He urged them to stop using the debt limit for political leverage.“The downgrade by Fitch shows that House Republicans’ reckless brinkmanship and flirtation with default has negative consequences for the country,” Mr. Schumer said.The debt limit agreement reached in June cuts federal spending by $1.5 trillion over a decade, in part by freezing some funding that was projected to increase next year and capping spending to 1 percent growth in 2025.Lawmakers and the White House avoided making big cuts to politically sensitive — and expensive — initiatives, including retirement programs. Even with the spending curbs the national debt — which is over $32 trillion — is poised to top $50 trillion by the end of the decade.It is unlikely that the downgrade by Fitch will convince lawmakers to drastically change the fiscal trajectory of the United States.“Instead of effectuating change, or fiscal discipline, our base case expectation is that Fitch will be pilloried by most members of Congress,” said Henrietta Treyz, director of macroeconomic policy research at Veda Partners. “It will not yield either deficit reduction, tax increases, reductions in military spending, entitlement reform or a change to the 12 appropriations bills that have already moved with substantial bipartisan support in the U.S. Senate.” More

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    For Many Small-Business Owners, a Necessary Shift to Digital Payments

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    The pandemic accelerated a transition to cashless payments, forcing a reckoning among small-business owners. But there are benefits: One owner said the switch saved her $3,000 a month.“Making It Work” is a series about small-business owners striving to endure hard times.When Egypt Otis opened her business, Comma Bookstore and Social Hub, three years ago in Flint, Mich., the pandemic was full blown. But her neighbors welcomed the literature and art she sold in her store that celebrated people of color, as well as the community programs she hosted.Despite the warm reception, Ms. Otis quickly found that she had a sales problem: Her customers wanted to pay with their cellphones.“I realized that people were hardly keeping a wallet or a physical card, which limited my ability to sell and make money,” Ms. Otis said. So she upgraded her transactions platform to include tap-and-go purchases on mobile devices. “People are not carrying cash,” she said. “It’s becoming obsolete.”The number of Americans who say they are “cashless” has jumped in the last five years. Forty-one percent of Americans said they did not use cash for their purchases in a typical week in 2022, up from 29 percent in 2018, according to a Pew Research Center survey released last October.Small-business owners increasingly are making the switch to cashless payments for several reasons, including rising consumer demand, faster checkout, lower labor costs and increased security. Those who wait risk losing revenue, experts say.But there are drawbacks to going cash-free, including a learning curve for entrepreneurs who may not understand how to set up digital payments, a lack of accessibility to credit cards for low-income consumers, and privacy concerns.Signs at a pizza joint in New York indicating it takes multiple forms of cashless payments, a switch that accelerated in the pandemic.Karsten Moran for The New York TimesJuanny Romero was an early adopter of digital payments for her small business. Fifteen years ago, when she founded Mothership Coffee Roasters, a chain of coffee shops in Las Vegas, she began using Square, a low-cost digital payments system for small businesses.“​​I was a young businesswoman and not astute,” she said. But Square saved her $3,000 a month in merchant fees for credit card processing.As Ms. Romero expanded her businesses (to four locations in Las Vegas, with two more on the way), she added more payment options, including Apple Pay and Google Pay.But she noticed a shift during the pandemic: Her customers no longer wanted to use cash, and her employees did not want to handle it. “We didn’t know where Covid was coming from,” she said. “There were still people bringing in cash, but it was scary and dangerous.”When the coin shortage hit in 2020, she ran out of cash altogether, but Ms. Romero found it saved on labor costs. “My managers were standing in line for two hours to deposit the cash,” she said. “I can’t get an armored car service to pick up $100 in cash.”Even so, customer demand prompted her to return to cash sales, which Ms. Romero said are holding steady at about 11 percent of her overall revenue. She said she would go cashless if the share dipped below 10 percent.A digital transaction at Mothership Coffee Roasters in Las Vegas.Bridget Bennett for The New York TimesThe pressure to adapt is growing. More that 2.8 billion mobile wallets were in use at the end of 2020, and that is projected to increase nearly 74 percent to 4.8 billion — nearly 60 percent of the world’s population — by the end of 2025, according to a study released in 2021 by Boku, a fintech companyThe United States lags other countries in adopting cashless payments. Among the most cashless countries in the world is Britain, where the pound makes up only 1 percent of all transactions, according to a report from Merchant Machine, a payment research firm based in London. But in the United States, some small-business owners do not understand the complexities of digital payments.“Smaller merchants, they don’t always have the knowledge and resources to know what to do,” said Ginger Siegel, who leads the North America small-business segment at Mastercard, which offers training to business owners like Ms. Otis of Comma Bookstore.Ms. Otis said she noticed an increase in sales when she began offering mobile payments, which made the checkout process faster. “As a retailer, you want to make the experience as efficient as possible,” she said. “It is a matter of survival.”A veteran using a tap-and-go device to collect donations for the Royal British Legion in London in 2020.Guy Bell/AlamyBenefits include immediate payment, increased sales and the ability to sell to customers who might use other currencies. “You have to set it up, but it’s worth it,” said Kimberley A. Eddleston, a professor of entrepreneurship at Northeastern University.But some business owners say they are hesitant to move too quickly, worried that today’s technology could become obsolete tomorrow. And there are compatibility and cost issues to consider, said Wayne Read, the chief executive of Forged & Formed, an online jeweler with a physical store, Studio D Jewelers, in Woodstock, Ill. In his jewelry sales, where items can be pricey, he said a speedy transaction might not be suitable. “We don’t want people to feel they have rushed their decision,” he said.Despite advances in technology, many Americans still have little or no access to financial services like credit cards and mobile wallets, although that is slowly improving. An estimated 5.9 million households did not have a bank account in 2021, down from 7.1 million households in 2019, according to a survey by the Federal Reserve.Rewards points displayed on a checkout screen at Mothership. Mobile apps allow for cashless payments and can increase customer loyalty.Bridget Bennett for The New York TimesAnother obstacle to adoption is privacy concerns: Some people prefer the anonymity that cash provides. And cash is perceived as a way for consumers to remain aware of expenditures. Complicating the transition to the digital economy, the recent banking turmoil in the United States has made many depositors question the security of financial institutions.But experts agree that cash is unlikely to go away. Consumers in lower income households continue to rely on cash for payments, according to the Fed survey.And small-business owners say that despite the speed and efficiency that cashless payments offer, cash is still a viable option for their customers.“At the end of the day, I know the people I serve,” Ms. Romero said. “I would feel conflicted if I didn’t do the right thing.” More

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    The Fed’s Vice Chair for Supervision Suggests Big-Bank Regulation Changes

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    In a series of changes that has bank lobbyists on the defensive, Michael Barr is calling for higher bank capital and tougher annual stress tests.Michael S. Barr, the Federal Reserve’s vice chair for supervision, announced on Monday that he would be pushing for significant changes to how America’s largest banks were overseen in a bid to make them more resilient in times of trouble — partly by ratcheting up how much capital they have to get them through a rough patch.The overhaul would require the largest banks to increase their holdings of capital — cash and other readily available assets that could be used to absorb losses in times of trouble. Mr. Barr predicted that his tweaks, if put into effect, would be “equivalent to requiring the largest banks hold an additional two percentage points of capital.”“The beauty of capital is that it doesn’t care about the source of the loss,” Mr. Barr said in his speech previewing the proposed changes. “Whatever the vulnerability or the shock, capital is able to help absorb the resulting loss.”Mr. Barr’s proposals are not a done deal: They would need to make it through a notice-and-comment period — giving banks, lawmakers and other interested parties a chance to voice their views. If the Fed Board votes to institute them, the transition will take time. But the sweeping set of changes that he set out meaningfully tweak how banks both police their own risks and are overseen by government regulators.“It’s definitely meaty,” said Ian Katz, an analyst at Capital Alpha who covers banking regulation.The Fed’s vice chair for supervision, who was nominated by President Biden, has spent months reviewing capital rules for America’s largest banks, and his results have been hotly anticipated: Bank lobbyists have for months been warning about the changes he might propose. Midsize banks in particular have been outspoken, saying that any increase in regulatory requirements would be costly for them, reining in their ability to lend.Monday’s speech made clear why banks have been worried. Mr. Barr wants to update capital requirements based on bank risk “to better reflect credit, trading and operational risk,” he said in his remarks, delivered at the Bipartisan Policy Center in Washington.For instance, banks would no longer be able to rely on internal models to estimate some types of credit risk — the chance of losses on loans — or for particularly tough-to-predict market risks. Beyond that, banks would be required to model risks for individual trading desks for particular asset classes, instead of at the firm level.“These changes would raise market risk capital requirements by correcting for gaps in the current rules,” Mr. Barr said.Perhaps anticipating more bank pushback, Mr. Barr also listed existing rules that he did not plan to tighten, among them special capital requirements that apply only to the very largest banks.The new proposal would also try to address vulnerabilities laid bare early this year when a series of major banks collapsed.One factor that led to the demise of Silicon Valley Bank — and sent a shock wave across the midsize banking sector — was that the bank was sitting on a pile of unrealized losses on securities classified as “available for sale.”The lender had not been required to count those paper losses when it was calculating how much capital it needed to weather a tough period. And when it had to sell the securities to raise cash, the losses came back to bite.Mr. Barr’s proposed adjustments would require banks with assets of $100 billion or more to account for unrealized losses and gains on such securities when calculating their regulatory capital, he said.The changes would also toughen oversight for a wider group of large banks. Mr. Barr said his more stringent rules would apply to firms with $100 billion or more in assets — lowering the threshold for tight oversight, which now applies the most enhanced rules to banks that are internationally active or have $700 billion or more in assets. Of the estimated 4,100 banks in the nation, roughly 30 hold $100 billion or more in assets.Mr. Katz said the expansion of tough rules to a wider set of banks was the most notable part of the proposal: Such a tweak was expected based on remarks from other Fed officials recently, he said, but “it’s quite a change.”The bank blowups this year illustrated that even much smaller banks have the potential to unleash chaos if they collapse.Still, “we’re not going to know how significant these changes are until the lengthy rule-making process plays out over the next couple of years,” said Dennis Kelleher, the chief executive of the nonprofit Better Markets.Mr. Kelleher said that in general Mr. Barr’s ideas seemed good, but added that he was troubled by what he saw as a lack of urgency among regulators.“When it comes to bailing out the banks, they act with urgency and decisiveness,” he said, “but when it comes to regulating the banks enough to prevent crashes, they’re slow and they take years.”Bank lobbyists criticized Mr. Barr’s announcement.“Fed Vice Chair for Supervision Barr appears to believe that the largest U.S. banks need even more capital, without providing any evidence as to why,” Kevin Fromer, the chief executive of the lobby group the Financial Services Forum, said in a statement to the news media on Monday.“Further capital requirements on the largest U.S. banks will lead to higher borrowing costs and fewer loans for consumers and businesses — slowing our economy and impacting those on the margin hardest,” Mr. Fromer said. Susan Wachter, a finance professor at the University of Pennsylvania’s Wharton School, said the proposed changes were “long overdue.” She said it was a relief to know that a plan to make them was underway.The Fed vice chair hinted that additional bank oversight tweaks inspired by the March turmoil were coming.“I will be pursuing further changes to regulation and supervision in response to the recent banking stress,” Mr. Barr said in his speech. “I expect to have more to say on these topics in the coming months.” More