US-China Trade Tensions Flare; US Shutdown Enters Day 14

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1:09Bloomberg Audio Studios. Podcasts. Radio. News. Good morning. I'm Nathan Hager. And I'm Karen Moscow. Here are the stories we're following today. Karen, we begin with geopolitics. Tensions are heating up again as China threatens further retaliatory measures against U.S. curbs on its shipping sector. Beijing announced the move after the U.S. trade representative began an investigation into China's maritime industry. We get the very latest from Bloomberg's Jill Deesis in Hong Kong. This is an escalation in what really has been a longstanding dispute between both the U.S. and China over maritime dominance.

1:52We've really seen several months ago the U.S. announced U.S. port fees for Chinese ships that were coming into those ports, amounting to the tune of millions of dollars of potential fees that are set to go into effect this week. We've also seen these two countries really kind of trade tit-for-tat, sort of retaliatory measures against each other over the last several days even, involving some trade, particularly when it comes on the China side, to some new export curbs they were placing on materials related to rare earth issues. And then now, obviously, you're seeing a lot of this kind of snowball into what's happening on the shipping front.

2:32Bloomberg's Jill Deases in Hong Kong says the dispute has consequences for the global economy. vessels are involved in 80 percent of world trade. Well, adding to the tensions between the U.S. and China, Nathan, words from Scott Besant. The Financial Times is reporting the Treasury Secretary has accused China of trying to hurt the world's economy. This comes after Beijing imposed sweeping export controls on rare earths and critical minerals. The paper says Besant is expecting to meet Chinese Vice Premier Hali Fong one more time before Trump and Xi meet in South Korea later this month. Well, now let's get to the latest from the Middle East.

3:07Karen, President Trump is back in Washington after a whirlwind trip to the region where he celebrated the ceasefire between Israel and Hamas and laid out a vision for a broader Middle East peace. I'm not talking about single state or double state or two state. We're talking about the rebuilding of Gaza. President Trump spoke to world leaders at a signing ceremony in Sharm el-Sheikh, Egypt, but challenges remain for maintaining the peace. Stuart Livingston-Wallace leads Bloomberg's Middle East coverage. You have that international pressure, but also you potentially have boots on the ground. And while the U.S.

3:41is deploying, I think, something like 200 personnel within Israel to monitor the ceasefire, they have no intention of actually going into Gaza itself. So that probably has to be an international force. Number two, money. It is going to cost an enormous amount of money to rebuild Gaza, let alone clearing the rubble. Then you have to start again. And that money has to come from somewhere. And I think the hope is that a lot of that will come in particular from the Gulf region. Bloomberg Stewart Livingston-Wallace reports other points of President Trump's 20-point peace plan remain unclear, like disarming Hamas.

4:10But the president predicts they will happen. Well, elsewhere in Washington, Nathan, it is now day 14 of the government shutdown. House Minority Leader Hakeem Jeffries is calling Democrats back to Capitol Hill today in a show of solidarity, even though they won't have anything to work on. Speaker Mike Johnson has canceled votes for a third week in a row and is keeping his members in their districts. Our members are doing very productive work. We're in constant communication with them, and we are ready to come back and continue the work in our committees and everything on the House floor. We will return to legislative session as soon as the Democrats come to their senses and open the government.

4:45And that was House Speaker Mike Johnson on Capitol Hill. And as the shutdown continues, members of the military are set to miss their first paychecks tomorrow. Treasury Secretary Scott Besson told Fox Business his agency is prioritizing payments to ensure service members get paid. Past Treasury secretaries have questioned whether it's possible to set aside some payments over others outside a fight over raising the debt ceiling. Let's get to news outside Earth, Karen. SpaceX's Starship rocket has managed to launch satellites and make it back to this planet intact. The milestone is critical to CEO Elon Musk's aim of preparing the rocket for regular space missions.

5:23Here is the moment of launch from Starbase in South Texas. Three, two, one.

5:36We have liftoff. Go Super Heavy. Go Starship. Thanks for all the historic flights, Padwan. And minutes after that, Starship's super-heavy booster split from the spacecraft as planned before splashing down in the Gulf of Mexico. The success marks a step forward in Musk's ambitions to carry NASA astronauts to the moon in under two years and eventually to establish civilization on Mars. Well, we turn to the markets now, Nathan, where bank earnings are front and center. JPMorgan Chase, Goldman Sachs, Citigroup, and Wells Fargo all report this morning. and we get the very latest with Bloomberg's John Tucker.

6:14John, good morning. Good morning, Karen. Yeah, Wall Street's biggest bank sent for another strong quarter, lifted by resilient trading deaths and also a rebound in deal activity that's helped send their stocks to fresh highs. Seema Shad Principal Global expects the financials to help lift all boats. We can see continued performance from financials. So along with those tech stocks which continue to drive the market, we would think that financials can join in with that rally and help push the equity market a little bit further. And then you have those two recent corporate blow-ups, Tricolor Holdings and First Brands.

6:48They're igniting concerns about potential cracks in credit. Bank executives likely get questioned about that during the earnings calls this morning. Questions on the outlook for more bank mergers will also probably come up after last week's announced$11 billion acquisition of Comerica by fifth third. The biggest U.S. bank stocks, by the way, have outpaced the S &P 500's gains over the past 12 months. In New York, I'm John Tucker, Bloomberg Radio. Meantime, Nathan, Philadelphia Fed President Anna Paulson is signaling she favors two more quarter-point rate cuts this year. Paulson says monetary policy should look through the impact of tariffs and consumer price increases.

7:27I anticipate that 2026 will see growth near potential and inflation rising and then subsiding as tariffs together with current and past monetary policy restrictiveness work their way through. And Philadelphia Fed President Anna Paulson made those comments at the National Association for Business Economics Annual Conference in Philadelphia.

7:49Time now for a look at some of the other stories making news in New York and around the world. And for that, we're joined by Bloomberg's Michael Barr. Michael, good morning. Good morning, Karen. New York Attorney General Letitia James attended a rally for New York City mayoral candidate Zoran Mamdani to offer her support for the Democratic frontrunner. It's her first public appearance since she was indicted on federal charges of bank fraud and making a false statement following President Trump's call for her prosecution. James defied the president Monday night, referring to her successful prosecution of the Trump business.

8:23I will not bow. I will not break. I will not bend. I will not capitulate. I will not give in. I will not give up. Audio courtesy of ABC7, James took the stage to thunderous and sustained applause and chants of We Love Tish during the boisterous rally. The nor 'easter that pummeled the east coast is finally moving out to sea. Wind gusts reached 40 to 60 miles per hour across the northeast. A woman in New York was killed after heavy winds blew a solar panel off a carport and hit her in the head. Streets were swamped from Ocean City, Maryland to the New Jersey shore. Many coastal areas experienced flooding and beach erosion.

9:09This homeowner is in Bowers, Delaware. With the heavy wind and the heavy surf and the high tide, we just had an extraordinary loss of sand here on the beachfront. Off Cape Cod, Massachusetts crews pulled a man to safety after he was spotted in the water near a ferry. In Arizona, a microburst ripped off roofs, knocked down semi-trucks in flooded neighborhoods in Tempe Monday afternoon. Wind gusts were up to 71 miles per hour hit the city. Madagascar President Andre Rogelina says he has fled the country to an undisclosed location in fear for his life following a military rebellion. Rogelina has faced weeks of anti-government protests, which reached a pivotal point on Saturday when an elite military unit joined the protest and called for the president to step down.

10:00Global News 24 hours a day and whatever you want it with the Bloomberg News Now. I'm Michael Barr and this is Bloomberg. Karen. Thanks, Michael. Time now for our Bloomberg Sports Update. And for that, we bring in John Stashauer. Thanks, Karen. The Seattle Mariners with two more wins are going to the World Series for the first time ever. They won 10-3 in Toronto. They hit two three-run homers and a two-run shot, and now they go home with a two-games-de-null lead in the ALCS. Game one of the NLCS are the Dodgers behind the pitching of Blake Snell, a 2-1 win in Milwaukee. A pair of Monday Night Football games, the Falcons beat the Bills 24-14, and the Bears on a last-second field goal won in Washington 25-24.

10:40That's your Bloomberg Sports Update. Stay with us. More from Bloomberg Daybreak coming up after this. Hello, I'm Stephen Carroll. I'm in Brussels, where many of Europe's biggest decisions get made. And I'm Caroline Hepker in London. We're the hosts of the Bloomberg Daybreak Europe podcast. We're up early every weekday, keeping an eye on what's happening across Europe and around the world. We do it early so the news is fresh, not recycled, and so you know what actually matters as the day gets going. From Brussels, I'm following the politics, policy and the people shaping the European Union right now.

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11:51Coast to coast on Bloomberg Radio, nationwide on Sirius XM and around the world on Bloomberg.com and the Bloomberg Business app. This is Bloomberg Daybreak. Good morning, I'm Nathan Hager. Here's another morning of trade tensions between the U.S. and China. The latest move, sanctions on the U.S. units of a South Korean shipping giant, Hanwha Ocean. That's after President Trump threatened 100 percent tariffs over China's rare earth export restrictions last week. Treasury Secretary Scott Besson says there's still room to negotiate. I believe that China is open to discussion on this. And if they're not, we have substantial levers on our own.

12:32That was Treasury Secretary Scott Bessent in an interview on Fox Business. We're joined now by Bloomberg Markets reporter Valerie Teitel. And Valerie, in just the last few days, it seems like the back and forth has really ramped up here. How significant is this move by China on sanctioning Hanwha? Good morning. Well, it's definitely taken the risk rally of yesterday on a back foot with those Nasdaq futures down nearly a percent, S &P 500 down seven tenths. So treasuries are rallying as well on the back of this. So it is a broad risk off on this announcement from China that they have launched a probe into U.S.

13:07impacts on its shipping sector. They specifically call out the U.S. trade representative's Section 301 investigation. Now, they have sanctioned five companies, and this becomes a part of a longstanding dispute. over maritime dominance. Now, back in April, Washington announced plans to curb China's shipbuilding prowess, and it seeks to build up its own American capabilities, which has forced China to lose some market share in the space. Now, Chinese shipping has faced severe penalties even for calling at U.S. ports, so it does seem like there is some sort of tit-for-tat now happening over maritime dominance.

13:44We also heard from Scott Besant, writing in the FT in the early hours of this morning, accusing China of trying to damage the global economy with its sweeping export controls on rare earth. So it doesn't seem like things are calming down at the moment. There was some pretty strong language in this FT op-ed from Scott Besant saying that China is trying to export their way out of a deflationary depression that will harm their standing in the world, Nathan. The report also said that the U.S. will be prioritizing this issue as world leaders convene in D.C. for the IMF meetings. They did report that Besson is still expecting to meet his Chinese counterpart, Ho Liefeng, one more time before Trump and Xi are set to meet in South Korea at the end of the month.

14:29And to that point, Valerie, we also heard from Secretary Besson that he still thinks China is willing to talk, that negotiations can happen. But given all this back and forth, is there a sign that there is that willingness on the Chinese side? Well, look, I think what markets are really watching for, Nathan, is whether this Trump-Xi meeting still happens at the end of October. If that is called off, I think there would be growing speculation that the relationship between U.S. and China will be damaged and damaged in almost an irreversible way as the U.S. tries to, in some way, delink its economy from China.

15:05Now, that's a hard thing to do, given the reliance that the U.S. has on Chinese exports, especially when it comes to these rare earths that are critical for the defense space. So all these topics are coming front and center again. I think it was really the move last week on rare earths that caught Trump's eye. Because if you think back to the beginning of this year, the first detente between the U.S. and China was around agreeing about rare earths continuing their export from China into the U.S. And it seems like they've ripped up that script that was really a key part of their first agreement in order to back off the tariffs that Trump announced back in April.

15:41And in just 30 seconds, I guess this all puts into question whether there can be yet another pause in the China-U.S. trade pause. Yeah, that's right. The latest three-month pause does lapse after the supposed Trump's meeting with Xi in November. So that is just another risk event now on markets' minds for perhaps higher tariffs. Remember, Trump did threaten 100 percent additional tariffs on November 1st that would take the all in tariff rate to 155 percent between the U.S. and China. This is Bloomberg Daybreak, your morning podcast on the stories making news from Wall Street to Washington and beyond.

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16:58I'm Karen Moscow. And I'm Nathan Hager. Join us again tomorrow morning for all the news you need to start your day right here on Bloomberg Daybreak.

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