DealBook Briefing: G.M.’s Cuts Spell Trouble for the Economy

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G.M.’s plant closures are a warning sign

The carmaker said yesterday that it plans to idle five factories in North America and cut about 14,000 jobs.

G.M. said the cost cuts were necessary because new-car sales had slowed and consumers have shunned smaller vehicles in favor of pickups and S.U.V.s. (The factories are producing compact cars.) And the move frees up money to invest in technologies like electric and autonomous vehicles.

But the cuts underscore that the current economic boom is nearly a decade old, manufacturing growth may have peaked, and President Trump’s recent economic stimulus may prove short-lived. They also highlight how carmakers are suffering from Mr. Trump’s trade fight, which raised the costs of steel and aluminum. (They’re selling fewer vehicles in China, too.)

Investors liked the news, pushing G.M. shares up as much as 7 percent yesterday. But workers felt betrayed, and Mr. Trump, who has promised to create more jobs in the Rust Belt, was not pleased. He told the WSJ that it was “a big mistake,” and argued that the company “ought to stop making cars in China and make them here.”

Trump’s Saudi play could backfire

If President Trump sought to end debate over America’s ties to Saudi Arabia with his pledge of support, he fell short, Andrew writes in his latest column. Instead, the move could inspire Congress to introduce new sanctions:

Mr. Trump may think he has gained the loyalty of the crown prince by standing by him, but if Congress moves to enact sanctions, the economic fallout could be serious for the kingdom, which the president has been encouraging to hold down oil prices.

Between the economic pressures that Saudi Arabia is increasingly facing — the price of oil is hovering around $50 a barrel when the kingdom needs it to sell for $70 to maintain its budget — and the executives who are rightly skittish about investing there, Mr. Trump may have pushed Congress toward taking actions that create more problems.

More Saudi news: Here’s a breakdown of Mr. Trump’s exaggerations on the economic benefits of the Saudi relationship. Sanctions on arms sales to the country might hurt defense contractors only slightly. And rich Saudis started pulling money from the kingdom long before the Jamal Khashoggi killing.

A trade truce with China? Don’t bet on it

In an interview with the WSJ, President Trump said that it was “highly unlikely” that he would delay or suspend his plan to boost his tariffs on $200 billion worth of Chinese goods, currently 10 percent, to 25 percent next year.

His timing is inflammatory. Mr. Trump is scheduled to sit down with President Xi Jinping of China at the Group of 20 meeting later this week, with trade top of the agenda. Officials from both sides have been speaking for weeks, with China also making a public push to look open for international business.

Mr. Trump also said that if he couldn’t reach a trade deal, he would impose tariffs of either 10 percent or 25 percent on the rest of the goods America imports from China, another $267 billion worth. (American consumers could stand a 10 percent price hike on products like iPhones “very easily,” he declared.)

In the past, Mr. Trump has used threats as a negotiating tool. We will have to wait until the G-20 meeting to find out whether he was doing it again, or simply preparing the markets for bad news.

More trade war news: Beijing’s ambassador to the U.S., Cui Tiankai, says hostilities could fragment global markets. Tariffs could cost American households $2,400 next year.

Coming up

Facebook faces an “international grand committee” of parliaments in London. Eight countries, including Britain and Canada, tried to summon Mark Zuckerberg for questioning. (He refused the invitation when just those two countries proposed the meeting; it’s unclear if his position has changed.) Meanwhile, British lawmakers will decide if they should publish documents they seized that they say give information about Facebook’s Cambridge Analytica scandal.

Brexit might sour trade with the U.S.

The British prime minister’s proposal on how Britain leaves the E.U. could harm efforts to secure a trade agreement with the U.S., President Trump said yesterday. It was another headache for Theresa May, whose deeply unpopular deal goes to a vote in Parliament on Dec. 11.

Mrs. May has argued that her Brexit plan would free Britain to strike new and better trade deals, including with the U.S. But Mr. Trump had this to say: “Right now as the deal stands, they may not be able to trade with the U.S., and I don’t think they want that at all. That would be a very big negative for the deal.”

The prime minister’s office said that officials had already begun work on a potential agreement with the U.S. But the prospect of more economic uncertainty could hinder her Brexit deal, even as she tries to enlist British businesses to help sell it.

More Brexit news: Why Mrs. May shouldn’t count on a TARP moment for her proposal. And researchers calculated that this version of Brexit would cost British citizens as much as £2,000 a year between now and 2030.

United Technologies will split into three

The industrial giant said yesterday that it will break itself up, the latest sign that investors want smaller, more focused businesses, not conglomerates.

The new companies will be: United Technologies, a maker of jet engines and airplane parts; Otis, the elevator company; and Carrier, which will specialize in heating and cooling equipment.

Investors had expected some kind of breakup since United Technologies bought Rockwell Collins last year. Shareholders have made clear over the past decade that conglomerates like United Technologies or G.E. are worth more apart than together. Expect the trend to continue.

Who will bail out Bitcoin this time?

The cryptocurrency plummeted in value between December and February, to $7,000 from $19,000, then hovered between $6,000 and $7,000 for months. Now it’s below $4,000. Lionel Laurent of Bloomberg Opinion argues that those movements are “reminiscent of how central banks in the past have defended their currencies in the face of heavy selling pressure.”

But if that’s the case, who would buy up the currency as it falls through the floor? More from Mr. Laurent:

The defenders of the faith with the resources to influence the price are more likely to be large, centralized actors like big mining operations, exchanges or the 500-odd addresses with more than $10 million of Bitcoin to their name, not a committed community of tech geeks.

Tether, which provides crypto tokens that it says are backed one-to-one with real currencies like dollars, is a prime candidate, Mr. Laurent says. But there are accusations that such tokens have been used to prop up Bitcoin illegally, and the Justice Department is investigating. That may further dim the hopes of a recovery.

Revolving door

Airbnb hired Dave Stephenson, a veteran executive at Amazon, as its C.F.O.

The investment bank Perella Weinberg Partners is said to have hired Marcus Schenk, who was Deutsche Bank’s deputy C.E.O., as a partner.

Neeraj Arora, WhatsApp’s chief business officer, says he’s leaving Facebook.

Randy Quarles, the Fed’s vice chairman for supervision, was confirmed as chairman of the Financial Stability Board.

The speed read


• Campbell Soup and Third Point have a truce. (WSJ)

• Tencent Music will test investors’ appetite for a big I.P.O. at a traditionally slow time of year. (Breakingviews)

• Companies selling themselves before going public are increasingly reshaping the American financial markets. (NYT)

• HCR ManorCare was left disastrously strapped for cash after its buyout by the Carlyle Group. (WaPo)

• G.E. fixing its debt problem matters to the credit markets as a whole. (CNBC)

Politics and policy

• President Trump said he didn’t believe his administration’s new climate report. (Axios)

• Representative Seth Moulton of Massachusetts, a leader of a Democratic rebellion against Nancy Pelosi, softened his tone. (NYT)

• Mr. Trump held a rally in Mississippi ahead of today’s Senate runoff election. (NYT)

• Robert Mueller’s team said Paul Manafort lied to them, breaking his plea agreement. (NYT)

• The Trump administration threatened to withdraw Medicare coverage guarantees for pharmaceutical companies if they raised certain drug prices. (Bloomberg)


• Mexico’s president-elect is scaring off international investors. (WSJ)

• Papua New Guinea, ignoring security warnings from Australia, Japan and the U.S., will rely on Huawei to complete its new internet infrastructure. (WSJ)


• Microsoft briefly stole Apple’s title as the world’s most valuable company yesterday. (Bloomberg)

• Amazon is quietly killing it in online advertising. (WSJ)

• Jack Ma, co-founder of Alibaba, has been confirmed as a member of the Communist Party of China. (Bloomberg)

• Several hugely popular Android apps have reportedly been committing ad fraud. (BuzzFeed)

• Google paid $1 billion for a 51.8-acre business park next to its Mountain View campus. (Bloomberg)

• Chinese officials are investigating the scientist who claims to have created gene-edited babies. (MIT Technology Review)

Best of the rest

• Mario Draghi, the president of the European Central Bank, still plans to halt its stimulus initiative at the end of this year. (FT)

• The markets haven’t been particularly volatile this year. It’s just that 2017 was very placid. (DealBook)

• The U.S. housing boom may end soon. (WSJ)

• A slowdown in capital expenditures could be a warning sign about U.S. economic growth. (Bloomberg)

• Blue-chip companies may face a big debt hangover. (NYT Op-Ed)

• How Estonia became the center of the Danske Bank money-laundering scandal. (FT)

Thanks for reading! We’ll see you tomorrow.

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