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Good morning! Today we look at how tariffs are rippling through the global economy, trouble for Theresa May’s Brexit plans, jockeying for position at the head of the European Central Bank, and research suggesting that robots helped swing the 2016 election for President Donald Trump.
WINNERS AND LOSERS
Who’s the biggest loser when tariffs are imposed on imports? The surprising answer: exporters. Though completely counterintuitive, theory and evidence show that taxes on imports act just like a tax on exports. While it’s early, the Trump administration’s recent round of tariffs is already rippling out to exporters: Soybean farmers face plunging prices, Harley-Davidson will move some production out of the U.S., and exports from BMW South Carolina plant may take a hit.
It’s more than tariff retaliation, though. A country that shuts out imports deprives its trading partners of money to buy exports. If the U.S., for any reason, cuts its imports from a trading partner, that country’s economy and currency both weaken, so it buys less from U.S. companies. The end result of President Trump’s efforts to make Americans spend more on American-made products is that foreigners will spend less, Greg Ip writes.
Should the U.S. broaden its trade policy to include tariffs on autos? Write to Jeffrey Sparshott at firstname.lastname@example.org, tweet to @WSJecon and visit wsj.com/economy for the latest news. (Responses may be quoted in this newsletter.)
WHAT TO WATCH TODAY
The European Central Bank’s Mario Draghi speaks at European Parliament in Brussels at 9 a.m. ET.
U.S. consumer credit for May, out at 3 p.m. ET, is expected to advance by $12.0 billion.
China’s consumer price index for June is out at 9:30 p.m. ET.
CONSERVATIVE CRACKUP OVER BREXIT
David Davis, the minister in charge of negotiating Britain’s exit from the European Union, resigned unexpectedly Sunday night. The departure makes it more likely that Prime Minister Theresa May will face a leadership challenge–possibly from Mr. Davis. The resignation followed a cabinet meeting on Friday in which a plan for Britain’s future relationship with the EU was finally hammered out, 25 months after a referendum vote to leave. The proposal, under which Britain would commit to following EU regulations for food and manufactured goods, has generated disquiet among some Brexit supporters who want a more fundamental break from the bloc, Stephen Fidler reports.
NOW HIRING: EUROPEAN CENTRAL BANK
The decision on who will succeed Mario Draghi as European Central Bank president is still a year away, but the jockeying for position is already under way, Tom Fairless writes. The 19 countries that use the euro are preparing for a delicate political dance that will decide who will steer the eurozone economy away from years of easy-money policies. The favorite, Jens Weidmann, the conservative president of Germany’s central bank, risks becoming a lightning rod for criticism of the nation’s dominance of the $14 trillion currency bloc. The ECB recently received legal advice that a French member of its executive board, Benoît Coeuré, could be elevated to president, adding another potential candidate to the pool. Governments pick the ECB’s president, and the decision will likely involve an elaborate compromise over other top European Union jobs, including the head of the bloc’s executive.
Tesla buyers in China will be among the first consumers to feel the pinch from the U.S.-China trade dispute. Price listings on Tesla’s Chinese website increased by nearly 20% this weekend, Trefor Moss reports. The tit-for-tat tariffs imposed Friday affected U.S.-built cars exported to China, including Teslas. A basic Model S sedan now costs roughly $128,400, up from $107,300 last week, while a Model X sport-utility vehicle costs $140,100, compared with $117,100. Tesla plans to build a plant in Shanghai to serve the local market, but for now it only produces vehicles in the U.S. Last year, it sold about 17,000 cars in China—its second-biggest market globally—generating more than $2 billion in revenue.
Additional reading: WSJ reporters from around the U.S. look at sectors ranging from auto parts and entertainment to railroads and razor blades in a roundup of the early impact from tariffs. Click here for more.
CHARTS OF THE DAY: TRADING PLACES
Since the beginning of 2018, the U.S. and its trading partners have put tariffs—or will shortly—on a total of $165 billion worth of imports. That’s sorting different markets, commodities, companies, products and workers into winners and losers. So far, investors are betting the U.S. will fare better than other countries in a trade conflict.
Small cap domestic-oriented stocks have held up better than large multinational companies with more exposure to trade risks.
Commodity prices are clearly benefiting certain sectors over others.
The steel industry is one of the biggest beneficiaries of Trump administration policy. The auto industry has issued dire warnings about potential tariffs.
Though it’s probably too early to notice, steel industry employment appears unaffected by the tariffs.
Last week, we asked: Should the U.S. take steps to support soybean farmers, ranchers, auto manufacturers and other sectors hurt by retaliatory tariffs? Here are some reader responses, sometimes lightly edited and condensed.
The Trump administration should and will, if it intends to seek re-election in 2020. Since the tariffs were a political play in the first place, it is hard to imagine that the Trump administration would not seek to mitigate the effect of tariffs on U.S. exports of industries and geographies that are essential to its political ambitions. – Alex Kettell
The U.S. is already subsidizing farmers. The entire “free trade” concept is an illusion. No such thing. Government and businesses collude and exchange favors. This creates unfair advantages in every country. – Dennis Carver
I thought we already gave everyone support with that recent tax cut and stimulus. – Larry Schreck
TWEET OF THE DAY
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WHAT ELSE WE’RE READING
Did robots swing the 2016 presidential election? Of course they didn’t vote. But they may have displaced workers. “Pitching technology against a host of alternative explanations, including offshoring and trade exposure, we document that the support for Donald Trump was significantly higher in local labour markets more exposed to the adoption of robots. A counterfactual analysis based on our estimates shows that Michigan, Pennsylvania, and Wisconsin would have swung in favour of Hillary Clinton if the exposure to robots had not increased in the immediate years leading up to the election, leaving the Democrats with a majority in the Electoral College,” Carl Benedikt Frey, Thor Berger and Chinchih Chen write in the Oxford Review of Economic Policy.
What’s it like to live with debt? A lot of debt? “Now thirty years old, I have been incapacitated by debt for a decade. The delicate balancing act my family and I perform in order to make a payment each month has become the organizing principle of our lives,” M.H. Miller writes for The Baffler. The arts editor for The New York Times Style Magazine chronicles the bad luck and difficult decisions that landed him in debt—which he hopes to pay off by 2032.
UP NEXT: TUESDAY
U.K. gross domestic product for May is out at 4:30 a.m. ET. The numbers will be important in gauging the probability of an August Bank of England rate hike, Wells Fargoid.
Germany’s ZEW survey is out at 5 a.m. ET.
The NFIB small business survey for June is out at 6 a.m. ET.
The U.S. job openings and labor turnover survey for May is out at 10 a.m. ET.
Read more: blogs.wsj.com