Tuesday, 16 Jul 2019

DealBook Briefing: The Forever Trade War?

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Tariffs might be the new normal

Tariffs may be here to stay, as what first seemed to be a temporary bargaining tool is starting to look like the way of the future, Ana Swanson of the NYT writes.

• The U.S. now has the highest tariff rate among developed countries, outranking Canada, Germany and France, as well as China, Russia and Turkey, according to a Deutsche Bank economist.

• Mr. Trump has said that he is looking “very strongly” at imposing additional levies on nearly every Chinese import, following up on new 25 percent tariffs on $250 billion worth of goods.

• He also faces a Friday deadline to determine whether he will proceed with a threat to impose global auto levies.

Mr. Trump is in no rush to back down. “When the time is right, we will make a deal with China,” Mr. Trump tweeted yesterday. He later told reporters, “Our economy is fantastic; theirs is not so good. We’ve gone up trillions and trillions of dollars since the election; they’ve gone way down since my election.” (His close allies reportedly say backing down is not an option, as he sees the clash as helping his 2020 election prospects.)

But reaching a deal may be hard even if Mr. Trump wanted to. The U.S. and China “seem to be digging into their positions in ways that will be hard to resolve with the mutual face-saving that typically turns high-stakes negotiations into deals,” Neil Irwin of the NYT writes. “It is not clear what the offramps might be that would allow a de-escalation.”

“For now, the American economy remains strong, with rising wages and the lowest unemployment rate in 50 years,” Ms. Swanson writes. “But with less trade, American jobs up and down the value chain that are seemingly unrelated to importing and exporting goods could suffer, including research and development, retail and marketing products.”

U.S. stocks recovered from their trade shock yesterday, with their largest gain in a month. “Investors are trying to adjust to the ratcheting up of trade tension,” Matt Phillips of the NYT writes.

More: Mr. Trump argued that interest rate cuts by the Fed would make it “game over” for China in the trade war. And some in China say that the two nations benefit from their relationship more than they admit.

San Francisco rejects facial recognition

San Francisco yesterday banned the use of facial recognition software by the police and other agencies.

It is the first major American city to block the tool, which many police forces and government agencies are increasingly employing to identify criminals. The decision was made by an 8-to-1 vote by the city’s Board of Supervisors. (There’s an obligatory second vote next week, but it’s seen as a formality.)

There are big tensions here, beyond the fact that the ban comes from a city that has been pivotal in building the A.I. software that underpins the technology.

• Supporters of the ban say that facial recognition gives the government the power to track people going about their daily lives, and is an invasion of privacy that is incompatible with a healthy democracy. And because the software’s use is largely unregulated, it is difficult to know how widespread it is.

• Critics argue that there is a clear public safety value to the technology for keeping public spaces secure. (The new rules, however, don’t affect its use at federally controlled facilities at San Francisco International Airport and the Port of San Francisco, and there are exemptions for some important investigations.)

The move may spur other cities to follow suit. Similar bans are currently under consideration across the bay in Oakland and in Somerville, Mass., outside of Boston.

Boeing resisted calls to fix the 737 Max

American Airlines pilots pressed Boeing last fall to make changes to the 737 Max after a deadly crash in October. But the company insisted that pilots would be able to handle the problems, David Gelles and Natalie Kitroeff of the NYT report, citing a recording of an hourlong meeting.

• “Michael Michaelis, an American pilot, argued that Boeing should push the F.A.A. to issue what is known as an emergency airworthiness directive.”

• “Such a procedure would have required Boeing and airlines in the United States to take immediate action to ensure the safety of the Max, and would have likely taken the jet out of service temporarily.”

• “Mike Sinnett, a vice president at Boeing, acknowledged that the manufacturer was assessing potential design flaws with the plane, including new anti-stall software.”

• “But he balked at taking a more aggressive approach, saying it was not yet clear that the new system was to blame for the Lion Air crash, which killed 189 people.”

• “Less than four months later, an Ethiopian Airlines flight crashed, killing all 157 people on board. The flawed anti-stall system played a role in both disasters.”

Senior F.A.A. officials reportedly didn’t pay enough attention to crucial safety checks of the implicated flight-control system, according to the WSJ, which cited unnamed sources. A preliminary internal report by the regulator found that it overly relied on Boeing’s own assessments of the plane’s software.

Expect all these topics to be addressed at a House hearing today. Daniel Elwell, the F.A.A.’s acting administrator, and Robert Sumwalt, the chairman of the National Transportation Safety Board, testify at 10 a.m. Eastern.

Uber’s glimmers of hope

Here’s some good news for Uber in an otherwise gloomy week: The National Labor Relations Board has concluded that its drivers are contractors, not employees, Noam Scheiber of the NYT writes.

• Uber wants to keep workers classified as contractors, because treating them as employees would probably increase its labor costs by 20 to 30 percent, according to industry estimates.

• Contractors also “lack the protection given to employees under federal law — and enforced by the labor board — for unionizing and other collective activity, such as protesting the policies of employers.”

• The conclusion from the board “makes it extremely difficult for Uber drivers to form a union.”

• That will make it harder from them to band together to demand higher pay and better working conditions.

The ride-hailing service also had its first positive day of trading, with shares rising 7.7 percent to finish at $39.96 — though that is still 11 percent below Uber’s I.P.O. price.

But short sellers think Uber is set to fail, and $768 million of its stock — or about 11.5 percent of available shares — is now held by investors betting against it, according to Bloomberg. Its rival Lyft is faring worse: about 62 percent of its shares are already shorted. (Interestingly, so-called “naked shorting” by underwriters on Uber’s first day of trading couldn’t prop up the company’s share price.)

Disney will own all of Hulu. Eventually.

Walt Disney struck a deal yesterday to buy Comcast’s 33 percent stake in Hulu, giving it full control of the streaming service — but not for five years or more, Ed Lee of the NYT reports.

Disney will pay at least $5.8 billion, though the ultimate purchase price will be determined by an independent assessment of Hulu’s fair market value.

Comcast agreed to continue licensing NBC shows to Hulu through 2024, though it has the option to pull its content after three years. That’s seen as crucial to the future of the service, which began as a joint venture between Disney’s ABC, Comcast’s NBC and Fox.

It’s the latest twist in the streaming wars. Disney has promoted its coming online video services, including Disney Plus, as it seeks to battle Netflix. Gaining full control of Hulu, which is growing faster than Netflix in the U.S. and gets its revenue from subscriptions and advertising, would be another weapon in its arsenal.

The deal gives both Disney and Comcast what they want, Tara Lachapelle of Bloomberg Opinion argues: Disney gets another streaming service, while Comcast earns “a handsome payout for a business with which it never seemed that enamored.”

Trump may ban Huawei from U.S. networks

President Trump could issue an executive order this week that would effectively prohibit U.S. companies from using the Chinese telecom company’s equipment, David Shepardson of Reuters reports, citing unnamed sources.

The order would target hardware makers deemed a national security risk, Mr. Shepardson reports. It would bar U.S. telecom companies from using products made by such companies, and direct the Commerce Department to work with other agencies to devise a plan for enforcement.

The order wouldn’t mention specific companies or countries. But it’s clearly aimed at Huawei.

It would be an about-face for Mr. Trump. The FT points out that in February the president said that he wanted the U.S. to win the 5G race by competition and not by blocking “currently more advanced technology,” which was then interpreted to mean Huawei.

Huawei argues that the U.S. isn’t a big market for the company. One of its executives, David Wang, told the FT, “We are a company with global operations. So even with fluctuations in any country, we will still be able to have stable operations.”

A wave of C.E.O. ousters for ethical lapses

A new report by the consultancy Strategy& found that a majority of C.E.O. ousters last year weren’t related to financial performance — the first time in nearly 20 years that has happened, Jena McGregor of the WaPo reports.

More from the study by Strategy&, which is part of PwC:

• “Thirty-nine percent of the 89 forced C.E.O. departures in 2018 were due to ethical misconduct, which the study defines as the removal of a C.E.O. following a scandal or improper conduct.”

• “Examples include fraud, bribery, insider trading, environmental disasters, inflated resumes or sexual indiscretions.”

• “Meanwhile, 35 percent of ousters in 2018 were a result of poor financial performance and just 13 percent were because of conflicts at the board level or with activist investors that weren’t about financial performance but led to the C.E.O.’s ouster.”

Is it Winterfell, or is it the Robin Hood gala?

The highlight of this week’s Robin Hood annual benefit, which raised $23 million for charity, was undoubtedly Paul Tudor Jones dressing up as Jon Snow from the HBO show “Game of Thrones.”

Revolving door

Investec named Ruth Leas as the C.E.O. of its British banking arm, succeeding David van der Walt.

The speed read

Deals

• Nelson Peltz’s investment firm Trian is reportedly considering an activist campaign at the asset manager Legg Mason. (WSJ)

• Walmart is considering an I.P.O. of its British supermarket arm, Asda, after regulators blocked its sale to a rival, J Sainsbury, last month. (Reuters)

• Crowdstrike, a cybersecurity company backed by Warburg Pincus and Alphabet, has filed for an I.P.O. (CNBC)

• Nextdoor, the neighborhood-focused social network, has raised new capital at a $2 billion valuation. (WSJ)

• Away, a maker of trendy luggage, has raised $100 million in new funds at a $1.4 billion valuation. (WSJ)

Politics and policy

• President Trump reportedly signaled that he would support bipartisan efforts to raise budget caps that would otherwise severely cut federal spending in the fall. (Politico)

• The Justice Department will appeal a court ruling that lets congressional Democrats proceed with a lawsuit accusing the president of violating the Constitution by profiting from his businesses while in office. (NYT)

• A federal judge appeared skeptical of efforts by Mr. Trump to block a congressional subpoena of his financial records. (NYT)

• Prime Minister Theresa May of Britain plans to bring her Brexit deal back to Parliament in early June for a final vote. (Bloomberg)

Tech

• Amazon wants to sell ads. Google wants to woo shoppers. Their ambitions are putting the tech giants on a collision course. (NYT)

• Google will put more advertising into its search and map products. (Reuters)

• Facebook announced that it would place more restrictions on the use of its live video service in the wake of the Christchurch terrorist attacks. (NYT)

• Intel admitted that a vulnerability in its chips could let them leak data to attackers. (FT)

• There’s no $35,000 Tesla Model 3 anymore: The car now starts at $35,400. (Business Insider)

Best of the rest

• Alice Rivlin, the former Fed vice chairwoman, has died. (FT)

• Disney’s TV upfront presentation was notable for one thing: It was very, very long. (NYT)

• Nissan expects a nearly 28 percent drop in operating profit. It blames diminished vehicle sales in the United States and Europe. (NYT)

• A third of female lawyers have been sexually harassed, according to a new report. (Bloomberg)

• The N.R.A. relied on its own charity for funding. Tax experts now have questions. (NYT)

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