The Washington Post - 30.08.2019

A16 EZ RE THE WASHINGTON POST.FRIDAY, AUGUST 30 , 2019

Economy & Business

REGULATION

France, U.S. to lead

global digital tax effort

France and the United States
agreed to take leading roles i n
talks aimed at r eaching a deal o n
a global d igital t ax by mid-2020.
French F inance Minister
Bruno L e Maire said Thursday
that both c ountries will be
working in a task force w ith the
Paris-based Organization for
Economic Cooperation and
Development.
Le Maire w ill meet with U.S.
Treasury Secretary Steven
Mnuchin next w eek in
Washington.
Angel Gurria, t he OECD’s
secretary general, said about 130
countries a re i nvolved in the
process.
France and the U.S. announced
an agreement this week over a
French t ax on online giants like
Google, Amazon and Facebook.
France would reimburse

companies a ny e xcess taxes once an international deal i s in place. The 3 percent French tax, which primarily targets firms using c onsumer d ata to sell online advertising, has just taken effect. It h ad prompted threats from President Trump a bout h eavy tariffs on French wine. — Associated Press

TECHNOLOGY

Apple to sell iPhone parts to repair shops

Apple said o n Thursday it will begin s elling parts, tools and repair guides to independent shops to fix broken iPhones, a major change after years of lobbying against laws in some U.S. states that would have compelled it to do j ust that. Apple said the program, which should help ease heavy demand on Apple and its authorized partners to fix millions of cracked screens and fried charging ports, will

launch in the United States before being rolled out to other countries. The backflip m eans independent repair shops will be offered official parts for out-of- warranty repairs a t the same p rice offered to authorized service providers, such a s Best B uy, that perform w arranty w ork. Apple’s i Phone sales h ave declined in the p ast two fiscal quarters, b ut sales of accessories such as its AirPods wireless headphones and the Apple Watch, along w ith paid services like Apple Music, have helped offset the lost revenue. Independent shops have long complained that the high purchase volumes r equired by Apple to become an authorized service p rovider price them out of the r epair market. — R euters

ALSO IN BUSINESS President Trump s aid o n Thursday his administration i s

planning a “giant package” related to ethanol t hat would please U.S. farmers a ngry over the g overnment’s e xpanded approval o f waivers freeing oil refiners from obligations to use the c orn-based fuel. The announcement r eflects Trump’s challenges i n pleasing both t he corn and o il industries, two key political c onstituencies ahead of next y ear’s p residential election that h ave repeatedly clashed over U.S. biofuel policies.

Dollar General and Dollar Tree, the top two U.S. discount store chains, raised their full-year profit forecasts Thursday as a push on adding a range of new products — from fresh food to self-owned brands — starts to pay off, cushioning a blow from increased tariffs on Chinese imports. The two dollar stores, which source a large share of their merchandise from China, are already looking at other sources.

The U.S. government on Thursday charged t he founder o f reverse mortgage provider L ive Well Financial w ith engineering a $140 million fraud by inflating the v alue of the firm’s b onds, in what he called a “self-generating money m achine.” Michael Hild, 44, w ho was also Live Well’s chief e xecutive, generated m ore than $24 million o f compensation tied t o the scheme, which ran from September 2015 to May 2019, according to federal prosecutors. Founded in 2005, Live Well s aid it would close o n May 3 and terminate its employees, after authorities s aid t he Richmond- based c ompany failed to repay lenders s itting on tens of millions of dollars o f losses.

COMING TODAY 8:30 a.m.: Commerce Department releases personal income and spending for July.

— F rom news services

DIGEST

ILYA NAYMUSHIN/REUTERS Bees return from a meadow to a beehive at a private apiary outside the remote Siberian village of Volny. In recent weeks, pesticides have been linked to mass deaths of bees across the world, from Washington state to Brazil.

BY JEFF STEIN

The White House is examin-
ing a proposal by Sen. Rick Scott
to cut taxes by the amount raised
from the tariffs imposed on
China, according to a senior
official, as the Trump adminis-
tration faces pressure to contain
the economic damage from the
global trade conflict.
President Trump has dis-
cussed the plan with aides, but
details of how it would work
remain unclear, said the official,
who spoke on the condition of
anonymity to discuss internal
deliberations. The plan would
require approval from Congress,
and its fate there is uncertain.
Scott (R-Fla.) first floated the
idea in an interview on CNBC

earlier this month. The United States has raised about $ billion in import duties from the tariffs that have gone into effect on China since Trump became president, said Nicole Kaeding, vice president of policy promo- tion at the National Ta xpayers Union Foundation. The administration is set to impose additional tariffs on scores of consumer goods on Sept. 1 and Dec. 15. The review of the plan comes as the Trump administration faces growing calls from Repub- lican lawmakers and conserva- tives to mitigate the impact of the trade war with China amid concerns about an economic slowdown headed into the 2020 election. “When we get back from re-

cess, we should immediately start working on a plan to reduce taxes for m iddle-class fami- lies & workers by the amount the Treasury is collecting in tariffs,” Scott said on Twitter this month, adding he had a “great conversa- tion” about the idea with Larry Kudlow, the president’s top economic adviser. It’s not clear how such a cut would be structured. Scott is considering a few options, according to an aide to the senator who spoke on the condition of anonymity to discuss internal deliberations. Scott hopes to have a policy proposal ready within the next several weeks, the aide said, although the senator is focused on Hurricane Dorian, which is threatening his

home state. The administration has con- sidered proposals to cut payroll taxes or index capital gains to inflation, a move that would reduce taxes paid by investors, although the president appeared to shoot down both of those ideas last week. Trump, in a reversal from the day before, said he was no longer considering a payroll tax cut because “we don’t need it” to help the economy. He also said indexing capital gains to inflation would be “elitist.” The president has played down the impact of the trade war and his tariffs but acknowl- edged for the first time earlier this month that they could be passed on to consumers and

hurt the Christmas shopping season. Scott’s proposal similar- ly recognizes that the import duties are often passed on to the consumer in the form of higher prices, but he has also defended the administration’s efforts to force China to change its economic practices. “We have got to do everything we can to take care of ourselves and get them to change,” Scott said on CNBC. “A nything we raise in tariffs, we should give back to t he rank and public i n tax reductions.” But criticisms of Scott’s idea have emerged. Some budget experts argued that the simplest way for Trump to reduce taxes would be for him to seek a quick resolution to the trade war. Con-

sumer spending has held up during the trade tensions, although business leaders are con- cerned about the next round of tariffs, expected to go into effect this fall. Households face up to an estimated $1,000 in additional costs annually from the tariffs, a research report from JPMorgan Chase found this month. “A middle-class tax cut would be: Don’t impose the tariffs on China,” Marc Goldwein, senior vice president at the Committee for a Responsible Federal Budg- et, which advocates lower defi- cits, said last week. “That’d be an easy middle-class tax cut Trump doesn’t even need Con- gress for.” [email protected]

White House mulls Sen. Scott’s idea to cut taxes by amount raised in tariffs

BY HEATHER LONG

The U.S. economy is in a confus-
ing place. The fundamentals look
strong: Jobs are plentiful, infla-
tion is tame, wages are rising and
the economy continues to grow a
tad above 2 percent, which most
experts think is the Goldilocks
pace.
Ye t a lot of credible voices are
warning that a recession could
come by 2021, if not sooner.
They point out that the bond
market is showing a big red flag
(the inverted yield curve) and job
openings are starting to fall, fac-
tors that normally signal down-
turns are coming. And they note
that by just about every measure,
the economy is slowing from a
year ago, making it more vulner-
able to a big shock like President
Trump’s escalating trade war.
Where things go from here
largely hinges on a single factor:
the almighty consumer.
Broadly speaking, economic
growth in the United States is
driven by three factors — spend-
ing by consumers, the govern-
ment and businesses. At the mo-
ment, businesses have pulled
back because of the t rade war, and
government spending is not ex-
pected t o change m uch, especially
with a two-year budget deal in
place. That l eaves the c onsumer as
the most significant variable that
can change t he country’s fortunes.
In other words, the spending
levels by ordinary Americans will
decide whether a recession will
come sooner rather than later.
And therein lies the strength and
weakness of the economy: It de-
pends on people. Their spending
makes up about 70 percent of
economic activity, and they rely
on their gut feeling about the
economy when they decide
whether to make big purchases
such as cars, refrigerators or fancy
birthday dinners.
The latest data on consumer
confidence that came out this
week caused a sigh of relief on
Wall Street and in the White
House. Americans think this is the
best economy since 2000, the
Conference Board reported, al-
though expectations about the fu-
ture fell a tad and more people
think stock prices will decline in
the next year.
“Consumer confidence for the

time being remains strong. It’s being supported by job growth and income growth and a lot of the fundamentals,” said Lynn Franco, director of economic indi- cators at the Conference Board. But Franco added a warning: “If the trade war begins to translate into higher prices, t hat could have implications for c onsumer spending.” Trump’s d ecision to raise tariffs on imports hasn’t discouraged people from visiting stores (or shopping online) yet, but his next round of tariffs is set to hit popu- lar items such as shoes, phones and laptops, and business leaders are already on edge. U.S. companies have cut back spending sharply because they don’t like investing in new factories or ini- tiatives when the business envi- ronment is unstable.

Right now, many executives ca n’t tell whether the trade war between the United States and China will get better or worse. On Aug. 23, Trump called Chinese President Xi Jinping an “enemy” and announced higher tariffs, but by Sunday he was praising China and expressing optimism about the trade talks. The concern is that after businesses stop spending, they typi- cally pare down hiring — or even start layoffs. That would be a dev- astating blow to those who lose their jobs, and it has wider psy- chological effects. Even for those who are still employed, negative headlines about market drops, mass layoffs and gloomy expectations can spook Americans into tightening their belts. Without optimistic consumers, this economy h as a lot less chance

of staving off a recession. “The consumer has held up so far, but the consumer is always the last to go when there is a down- turn,” said Michelle Meyer, chief U.S. economist at B ank o f America Merrill Lynch. Consider what happened when the markets plummeted in De- cember, for instance. There isn’t a perfect correlation between market drops and consumer senti- ment, but consumer confidence sank in January after the stock market was down nearly 20 percent around Christmas. That h ap- pened e ven though the labor market and economic growth were still strong. By comparison, Trump’s latest announcements of more tariffs on Chinese imports sent stocks down in the past month, but only about 5 percent, a much milder dip that

has yet to significantly change consumer confidence. “For the Main Street consumer, the economy right now is better than it has been since before the financial crisis. They have jobs, and that single factor is what is sustaining the consumer,” s aid Pe- ter Atwater, founder of Financial Insyghts. “They look at all of this other stuff — the trade war and discussions of a recession — and I think they are saying, ‘Until it impacts me, it’s noise.’ ” Trump and his aides have lav- ished praise on the economy re- cently, an effort that is partly about touting Trump ahead of the election but also about trying to prevent a sense of doom that can sink the consumer mind-set. The problem for some economists is that it can make the administration appear as if it is ignorant of

the gathering s torm. “We are in a system in which things are getting worse day by day,” said Stanley Fischer, former vice chair of the Fed, w ho blamed Trump for the problems. “It’s not a service to anybody, at least pri- vately, not to focus on what the key problems are. And that w ould be the behavior of the United States.” For now, consumers continue to spend on back-to-school gear, yoga classes and vacations. They have been buoyed by gains of about 6 million jobs in the past three years, wages that are rising well above the cost of living and tax cuts for most households. Economists say what would re- ally tip consumer confidence is if businesses pull back on hiring. And there are early signs that might be starting to happen. While the economy continues to add jobs at a healthy rate, the pace has slowed from job gains of 223,000 a month last year to 165,000 this year. Job openings have also declined in the past several months as some executives say they are in wait-and-see mode because of the U.S.-China trade war. “There are major political shocks occurring across the world, and those political shocks are turning into economic shocks,” s aid Philip Lowe, head of the Australian central bank. “Businesses that are not investing are hiring people, but it wouldn’t take too much for businesses to decide not to invest or to hire people.” Industries most directly affect- ed so far by the trade war are already in trouble. Manufactur- ing, while a small part of the U.S. economy, is in a recession, defined as two quarters of shrinking out- put. In the agricultural sector, farm bankruptcies have jumped 13 percent nationwide and 50 percent in the Northwest over the past year, according to the American Farm Bureau. States that are more dependent on these struggling industries also are showing early i ndications of pain. While unemployment claims are down nationwide, they have jumped noticeably in Iowa and surrounding farm states. [email protected]

U.S. economic fortunes may turn on consumers’ dime

Amid warning signs of an impending recession, experts say spending by ordinary Americans is the most significant variable affecting continued growth

SALWAN GEORGES/THE WASHINGTON POST People make their way to the Iowa State Fair despite the rain Aug. 12 in Des Moines. Data on consumer confidence released this week came as a relief on Wall Street, as the Conference Board reported Americans think this is the best economy since 2 000.



DOW 26,362. UP 326.15, 1.3% 

NASDAQ 7,973. UP 116.51, 1.5% 

S&P 500 2,924. UP 36.64, 1.3% 

GOLD $1,536. DOWN $12.20, 0.8% 

CRUDE OIL $56. UP $0.93, 1.7% 

10-YEAR TREASURY DOWN $1.20 PER $1,000, 1.49% YIELD

CURRENCIES $1=106.51 YEN; EURO=$1.

The Washington Post - 30.08.2019

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