| | | | |  | | By Adam Behsudi and Zachary Warmbrodt | Presented by the Financial Services Forum | Editor’s note: Morning Money is a free version of POLITICO Pro Financial Services morning newsletter, which is delivered to our subscribers each morning at 5:15 a.m. The POLITICO Pro platform combines the news you need with tools you can use to take action on the day’s biggest stories. Act on the news with POLITICO Pro.
| | Economists are quick to point out the fallacy of the trade deficit as a definitive indicator of economic health. In politics, though, the evils of a trade imbalance make an easy sound bite. The current U.S. trade deficit, meaning imports are outpacing exports, paints a diametric picture. Most countries outside the U.S. are facing weaker economic conditions. Combine that with a robust dollar and it makes it more expensive to sell American goods and services abroad. Meanwhile, U.S. consumers, buoyed by a solid economy at home, are still in a strong position to buy. The latest monthly trade numbers released Thursday don’t show any slowdown to that trend. The combined trade deficit for the first three months of the year was $206.4 billion, up from about $200 billion in the same period last year. The stagnation in U.S. exports was one of the main culprits behind weaker-than-expected GDP growth in the first quarter of the year. And the poor performance of exports, largely driven by an appreciating currency, will likely continue to be a drag on growth until at least the end of the year. The prevailing view among economists remains sanguine — the export number is a volatile indicator that doesn’t reflect the health of the so-called real economy. “It’s not going to derail the underlying fundamental condition of the American economy, which remains very strong,” said RSM principal and chief economist Joe Brusuelas. But in an election year, don’t expect sound economic theory to prevail. Despite a situation arguably spurred by domestic economic conditions and a weaker global economy, a persistently large trade deficit driven by foreign competition is a better talking point — especially when it’s relevant for a key cross-section of Midwest industrial voters. While China has been enemy No. 1 in the trade deficit debate, a new player is emerging: Mexico. Reflecting supply shifts sparked by geopolitical tensions, imports from the North American neighbor and free trade partner are rising while those from China are declining. Mexico is now the largest exporter to the U.S. and the U.S. trade deficit with Mexico set a monthly record high, according to the latest Commerce Department data. The negative connections between China, Mexico and U.S. manufacturing, real or perceived, are becoming easier to make with each data release. “China now is building plants in Mexico to make cars to sell into the United States. And these are the biggest plants anywhere in the world. And that's not going to happen when I'm president, because I will tariff them at 100 percent,” former President Donald Trump said in a recent interview with Time. And while President Joe Biden has steered clear of blaming the trade deficit for U.S. workers’ woes, as Trump has, he has also cast his eye toward the influx of goods from south of the border. In a speech to steelworkers in Pennsylvania last month he vowed to stop Chinese steel and aluminum from avoiding steep tariffs by coming through Mexico. “Mexico and the United States are going to work together to solve it, I promise you. I promise you,” Biden said. Don’t expect the issue to go away after the election. The U.S.-Mexico-Canada Agreement, the successor of NAFTA, is up for a mandatory review in July 2026. Expect whoever occupies the White House to use it to their political advantage. Happy Friday — Send tips to zwarmbrodt@politico.com. Keep up with Adam at abehsudi@politco.com and @abehsudi.
| | | | A message from the Financial Services Forum: National Small Business Week is our chance to show support for the small businesses that make up a crucial part of the U.S. economy. That means ensuring small businesses don't become collateral damage of federal regulations. Learn more. | | | | | DOL releases April employment data at 8:30 a.m. … Treasury Secretary Janet Yellen speaks at the McCain Institute Sedona Forum at 6 p.m. Yellen’s democracy speech — Treasury Secretary Janet Yellen will deliver a defense of democracy today that reads at times like a rebuke of Trumpism, with references to the Jan. 6, 2021, Capitol riot and the risks of politicizing the Federal Reserve. "The argument that eroding democracy would be a fair, or necessary, trade for economic gains is wrong," she'll say in remarks to the McCain Insitute’s Sedona Forum. But Yellen will acknowledge that “it is easy to lose faith” for some, with communities across the country “hollowed out” from deindustrialization and struggling with the costs of health care and education. “I admit that this doesn’t seem like typical terrain for a Treasury Secretary,” she will say. “But democracy isn’t just important in and of itself. I believe that democracy is critical to building and sustaining a strong economy. … Undercutting democracy undercuts a foundation of sustainable and inclusive growth.” Buckle up — Per Bloomberg, the options market is betting that stocks will “swing wildly” after today’s jobs report, with traders on edge about what it means for the timing of Fed rate cuts. The Labor Department is expected to say that employers added around 241,000 workers last month after adding 303,000 in March. A Biden pivot? — Eli Stokols, Jonathan Lemire and Alex Ward report that Biden's team is “poised to make America’s ongoing commitment to the Ukraine war less of a public focus, as it addresses an electorate preoccupied with economic concerns.” “Biden will enter a stretch of the political calendar in which, allies argue, he would be better off discussing his work tackling junk fees and job creation. Ukraine plays a role, but it is mainly as a vehicle for attacking Trump.” Collusion concerns — The FTC is accusing the former head of Texas oil company Pioneer Natural Resources of colluding with OPEC competitors to sync U.S. oil production and jack up energy prices, Ben Lefebvre reports. The agency revealed the allegations as it approved ExxonMobil’s takeover of Pioneer and barred the one-time executive from serving on the combined company's board. First in MM: Democrats press Biden on housing — The chairs of the Congressional Asian Pacific American Caucus, Black Caucus and Hispanic Caucus are urging the president to finalize a long-awaited fair housing rule. At issue is the Affirmatively Furthering Fair Housing plan that was first introduced under President Barack Obama, abolished under Trump and resurrected under Biden last year. In a letter to Biden, the caucus chairs — Reps. Judy Chu, Steven Horsford and Nanette Diaz Barragán — say “urgent action” is needed to implement the administration’s revamped version of the rule. They cite the need to address systemic injustices and access to housing and also warn that failure to finish the rule could complicate efforts to fairly spread infrastructure funding across communities. “Creating an equitable society not only aligns with moral imperatives but also makes sound economic and business sense,” they write.
| | | | A message from the Financial Services Forum:   | | | | | Tether, under fire, dons white hat — The giant stablecoin issuer Tether, which has long drawn scrutiny for its role in illicit finance, is now offering a helping hand when it comes to rooting out crime. Tether announced that it’s partnering with blockchain data platform Chainalysis to better identify risky and illicit trading in the secondary market for its stablecoin USDT. The effort includes sanctions monitoring, categorization of Tether stablecoin holders by type (including darknet markets), analysis of “significant” USDT holders and an “illicit transfers detector” to target terrorist financing. Crypto’s tax attack — Brian Faler reports that opponents of a pending crypto tax compliance rule have developed AI tools that let people generate custom objection letters to the IRS. The lobbying effort is a new spin on form letters that have previously been used to barrage agencies, and it’s creating new challenges for officials who have to sift through the responses. Critics of the tax rule say the effort allows ordinary people to make themselves heard but, as Brian reports, it also raises questions about whether the idea is to just "throw sand in the department's gears."
| | | | THE GOLD STANDARD OF FINANCIAL SERVICES POLICY REPORTING & INTELLIGENCE: POLITICO has more than 500 journalists delivering unrivaled reporting and illuminating the policy and regulatory landscape for those who need to know what’s next. Throughout the election and the legislative and regulatory pushes that will follow, POLITICO Pro is indispensable to those who need to make informed decisions fast. The Pro platform dives deeper into critical and quickly evolving sectors and industries, like financial services, equipping policymakers and those who shape legislation and regulation with essential news and intelligence from the world’s best politics and policy journalists.
Our newsroom is deeper, more experienced, and better sourced than any other. Our financial services reporting team—including Zach Warmbrodt, Victoria Guida and Declan Harty—is embedded with the market-moving legislative committees and agencies in Washington and across states, delivering unparalleled coverage of financial policy and the financial services industry. We bring subscribers inside the conversations that determine policy outcomes and the future of industries, providing insight that cannot be found anywhere else. Get the premier news and policy intelligence service, SUBSCRIBE TO POLITICO PRO TODAY. | | | | | | | | First big payout after Key collapse — The WSJ reports that Chubb, the insurer of the Francis Scott Key Bridge, is preparing to pay $350 million to Maryland in the coming weeks rather than wait for rebuilding.
| | TD tied to fentanyl probe — The WSJ reports that the DOJ is investigating how Chinese crime groups and drug traffickers used TD Bank to launder money from U.S. fentanyl sales. The bank says it’s the subject of three other anti-money-laundering investigations in the U.S. In other AML news, financial watchdog groups including the Anti-Corruption Data Collective say in a new report that at least $2.6 billion of “highly suspicious funds” have been invested in U.S. commercial real estate in the past 20 years. The CFTC’s AI blueprint — A group of advisers to the CFTC will release findings outlining how the agency should proceed on artificial intelligence issues, Declan Harty reports. The CFTC’s Technology Advisory Committee, sponsored by Commissioner Christy Goldsmith Romero, is calling for the agency to host a public roundtable about how AI is used in the market, consider adopting an AI risk management framework for the industry and work to understand whether there are gaps in its rules that may not cover AI. Waters backs CFTC official for Treasury — House Financial Services ranking member Maxine Waters is urging Biden to nominate CFTC Commissioner Kristin Johnson to serve as Treasury’s assistant secretary for financial institutions. Civil rights and Black business groups have also called for Johnson’s nomination, including the Joint Center for Political and Economic Studies, the NAACP and the National Urban League.
| | | | A message from the Financial Services Forum: Karen Kerrigan, President and CEO of the Small Business & Entrepreneurship Council, warns: "The small businesses that drive the U.S. economy and local economies throughout our nation are being hung out to dry as regulators ignore the underlying causes of recent bank failures. Lawmakers cannot stand by and allow these harmful policies to get rammed through to completion."
Basel III Endgame would make it harder for small businesses to secure loans. Without reliable access to credit, small business owners may struggle to pay their employees, buy goods, or run their businesses successfully. Washington needs to scrap Basel III Endgame and start over. | | | | | Credit card fight lands in FAA debate — Sen. Roger Marshall is pushing for a vote on his credit card swipe fee legislation as an amendment to the FAA reauthorization bill that Congress is debating, Eleanor Mueller reports. Marshall introduced the credit card plan with Sen. Dick Durbin. "This may be the last train leaving town, so give us our votes," Marshall told reporters after filing the credit card proposal as an amendment to the FAA bill. "We'll see; we're negotiating." He added that conversations so far have been "ambiguous, noncommittal, cloudy." Marshall said the post-election lame duck session is also an option but that he isn’t optimistic. "If a bank bill was to come to the floor, then we could make it germane and drop the vote count from 60 to 50 – then I'd love to do that," Marshall said. "But I don't see that happening."
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