China and the U.S. Race to De-Escalate Tensions

SPEAKER_1 (0:00)

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Caitlin McCabe (0:19)

President Trump works to publicly de-escalate trade tensions with China following Friday's market freakout. Plus, what a slew of results from America's biggest banks could tell us about the US economy. And we take a look at which federal agencies are being hit the hardest by shutdown layoffs.

Ken Thomas (0:39)

We are still trying to get a sense of where some of these cuts are taking place. And Americans might not really notice the difference until the government is back at full force.

Caitlin McCabe (0:52)

It's Tuesday, October 14th. I'm Caitlin McCabe for The Wall Street Journal. And here is the AM Edition of What's News, the top headlines and business stories moving your world today.

After roiling markets late last week with threats to impose new sanctions on China, the Trump administration is working to deescalate the latest flare up in trade tensions. Trump's 100% tariff threat on Friday came after Beijing moved to impose restrictions on the export of rare earth minerals. But our Asia Economics Editor, Peter Landers, says that President Trump is trying to publicly turn down the heat on China to soothe markets, while speaking to senior officials privately about trying to keep the pressure on.

Peter Landers (1:37)

So Treasury Secretary Scott Besson has been at the center of these discussions with the White House about how the US could hit back further against China. For example, they could target stocks of Chinese companies that are listed on the US stock exchange, they could sanction Chinese firms that are involved in buying Russian oil, which has been a big issue for President Trump. So lots of tools the US has, lots of tools that China has to hit the US economy, and we saw that with the rare earth export controls that China stepped up last week. So each side has a whole bunch of tools in its arsenal to hit back against the other guy in this trade war. It's just a question of how many of them will be brought forth in the negotiations coming up and ultimately what kind of settlement might be reached.

Caitlin McCabe (2:25)

Media coverage has been muted in China over the latest escalation, with Beijing appearing eager to save a summit between Trump and Xi Jinping slated for the end of this month. But Peter says because China has not fully walked away from its disruptive rare earth export controls, it leaves the door open to a new cycle of retaliation.

Peter Landers (2:46)

So, on the one hand, China is saying these export controls are not a big deal, and companies should find that everything is going to be fine. On the other hand, the Commerce Ministry said today that if the US wants a fight, China will fight to the end. So they're putting up a strong front there. And also a foreign ministry spokesman suggested that if the US carries through with its 100 percent tariff threat, China would retaliate in kind. And that brought to mind the circumstances earlier this year when the US would raise these tariffs and China would match those tariffs, percentage point for percentage point, tit for tat. So China is offering both carrot and stick in its public statements.

Caitlin McCabe (3:23)

China's export controls on rare earth minerals are also considered a critical issue for the European Union, with EU Trade Chief Maro Sefkovic saying the measures are already causing a lot of problems and complications for European companies.

Ford Motor is temporarily hitting the brakes on producing at least five of its models after a devastating fire at a plant belonging to a key aluminum supplier. The Novellus plant in upstate New York supplies about 40 percent of the aluminum sheet used by the auto industry in the US, with Ford being its biggest customer. The United Auto Workers recently told members at Ford's Kentucky truck plant that starting this week, the company will pause production of its lucrative three-row SUVs, the Expedition and Lincoln Navigator, because of difficulties with aluminum supply. A memo viewed by the Wall Street Journal shows that the pause is set to last a week. Google is ramping up its artificial intelligence spending in the latest sign of how big tech companies are racing to pour money into the space. Google plans to invest $9 billion through 2027 in South Carolina to scale up its Berkeley County data center campus and help build two new sites. And that booming AI demand is also benefiting Samsung Electronics, which said today that it expects third-quarter earnings to reach a three-year high. The South Korean technology giant estimates an operating profit of about $8.5 billion. The 32% increase from a year earlier is being driven by stronger than expected prices and sales of memory chips in particular. And third-quarter earnings season kicks off in earnest this week, with Johnson & Johnson and Domino's Pizza reporting today alongside a slew of big financial players, including JP Morgan Chase, Wells Fargo, Goldman Sachs, BlackRock and Citigroup. And if you ask Telus Demos from the WSJ's Take on the Week podcast, the bank earnings will be an important indicator at a time when the government shutdown is preventing investors from accessing important economic data.