DealBook Briefing: A U.S.-Europe Trade War Looms

https://www.nytimes.com/2019/05/30/business/dealbook/us-europe-trade.html

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President Trump’s attention on trade has largely been focused on China in recent weeks. But there’s a growing sense that he could soon turn his fight to Europe.

• The European trade commissioner, Cecilia Malmstrom, reportedly warned E.U. trade ministers that they “should brace” for U.S. tariffs on billions of euros worth of European goods over a dispute about Airbus subsidies, Politico reports.

• A 180-day deadline that Mr. Trump had set for negotiations with the E.U. and Japan over car exports “holds to the president’s pattern of steadily increasing pressure on trading partners to cut a deal more to his liking,” Bloomberg argues.

Mr. Trump may have spotted an opportunity to take advantage of Europe while it’s in disarray.

• The results of the recent European Parliament elections show that the Continent is increasingly polarized and fragmented, and that Brexit continues to be a distraction.

• France and Germany — the bloc’s dominant powers — disagree on how to approach issues like agriculture and cars in trade talks, Bloomberg notes.

What happens next is unclear:

• The sides made little progress in talks in Washington and Paris this month, Bloomberg reports.

• That leaves more muddling through or a sharp escalation as the most likely paths.

• Escalating tariffs could damage both sides — but, as we’ve seen with China, that doesn’t mean they’re off the table.

More: China has reportedly paused purchases of U.S. soybeans. Speaker Nancy Pelosi is dragging out consideration of Mr. Trump’s updated North American trade deal. (Canada is moving to ratify it.) The rest of the world is worried about tariffs, but African nations are creating a free-trade zone. What happened when anchors from Fox and a Chinese state TV channel held a live debate on trade. And how other countries are trying to work around the power of the dollar.

Markets fell slightly yesterday as the trade war between the U.S. and China dragged on. Not a lot new, or particularly worrying, there, right? But one continued market phenomenon is beginning to cause concern, according to Neil Irwin of the Upshot: an inverted yield curve in the bond market.

• An inverted yield curve is when longer-term bond yields fall below those of shorter-term ones. For instance, the 10-year Treasury’s yield was 2.26 percent yesterday, while the 30-day Treasury’s was 2.35 percent.

• “Historically it has been viewed as a sign of a recession in the offing,” Mr. Irwin writes. “At a minimum, it indicates that bond investors believe the Federal Reserve will soon need to cut interest rates — in effect, that it overshot with those four rate increases last year.”

• So far, the stock markets have held up, given the specter of long-term tariffs. But, Mr. Irwin writes, “Economists may have been analyzing the trade war too narrowly, merely by calculating the cost of tariffs and where those costs may show up.”

• “The potential long-lasting consequences are harder to model,” he adds, which explains why bond investors are more pessimistic than recent economics and earnings data might suggest.

The two carmakers have promised that combining would create a company that is better equipped to survive the industry’s transition to electrification and autonomy. A merger might fix some problems, but it probably won’t solve all of them.

It would help with electric cars and global distribution. Fiat would provide profitable S.U.V. and high-end car models, and a beachhead in America. Renault would bring electric-vehicle technology and a stronger European presence.

And Nissan could help them become a global powerhouse. The Japanese carmaker is already in an alliance with Renault, and is warily studying the merger. Though worried about its independence, Nissan may have little choice but to link with Renault and Fiat in order to shore up its own declining operations. Such a move would give the new group a powerful reach.

But the cost savings appear dicey. Renault and Fiat say they can save $5.6 billion by combining supply chains and sharing R.&D. costs. But that would happen over six years, during which the companies have pledged not to lay off employees. So the benefits may be harder to extract in practice.

And auto mergers have a spotty record. Take Renault and Nissan: Despite teaming up in 1999, they use shared parts in only 35 percent of Nissan cars, far below an original target of 70 percent. Other alliances — Daimler and Chrysler, BMW and Rover — failed. That’s often partly because of clashes between management teams and cultures.

There’s still reason to be hopeful. Fiat bought Chrysler years ago, and it has proved to be one of the few auto mergers that has succeeded.

Facial recognition technology increasingly faces pushback around the world, most recently in San Francisco. But some companies are doubling down on sales across the United Arab Emirates, BuzzFeed News reports.

• IBM is marketing biometric surveillance systems in the region, as are the Chinese giants Hikvision and Huawei.

• At a recent government-organized conference in Dubai, representatives from those companies said they saw countries in the Persian Gulf “as an exciting market to sell their video analysis platforms, which they say can do everything from analyzing the behavior of groups to automatically blacklisting individuals based on their faces.”

• “Police in Dubai have begun rolling out an ambitious program, dubbed Oyoon, the Arabic word for ‘eyes,’ that will implement facial recognition and analysis driven by artificial intelligence across the city,” though it isn’t clear what technology powers the tool.

Critics of facial recognition are dismayed. “In a place like Dubai, where there is not much freedom of expression and people are being jailed for what they say, when you introduce artificial intelligence, it’s used by systems of power to reinforce their control over the population,” Sarah Aoun, a digital rights technologist who works with rights activists, told BuzzFeed.

A new study by the Congressional Research Service throws cold water on the idea that the Trump administration’s 2017 tax cuts were a boon to U.S. economic growth.

The cuts had little effect on wages or investment in 2018. Economists calculated that they contributed perhaps 0.3 percent to overall economic gains, according to Jeff Cox of CNBC.

They didn’t pay for themselves, as President Trump claimed they would. To have done so, the economists write, the cuts would have had to cause a 6.7 percent increase in gross domestic product.

The biggest winners are corporations. The cuts contributed to a surge in stock buybacks, Michael Hiltzik of the LAT writes. Meanwhile, companies’ tax bills fell to 12 percent from 23 percent. That led to a $40 billion drop in revenue for the U.S. government.

“The growth effects tend to show a relatively small (if any) first-year effect on the economy,” the study’s authors wrote. “Although growth rates cannot indicate the tax cut’s effects on G.D.P., they tend to rule out very large effects particularly in the short run.”

Most news coverage about the Trump administration’s block on sales of components and software to Huawei has focused on the Chinese company. But what does it mean for the suppliers?

As many as 1,200 U.S. companies will be affected by the blacklisting, the FT reports, citing Huawei executives. Many are in two sectors: cybersecurity and semiconductors. (It’s worth noting that third-country suppliers will also be affected by the ban if U.S. components contribute more than 25 percent to the value of the goods they sell.)

The total impact is unknown. But Huawei spent about $11 billion last year buying components and services from U.S. companies.

Suppliers aren’t necessarily worried. “Even if we lose Huawei’s orders for base stations or smartphones, somebody else will have to make them and we’ll get that business,” Shoichi Tosaka, the C.E.O. of the Japanese electronics manufacturer Taiyo Yuden, told Bloomberg.

More: Prime Minister Mahathir Mohamad of Malaysia said that his country tried to use Huawei technology “as much as possible.” The company opened a 5G lab in South Korea today, to little fanfare.

Silver Lake has hired Laura Anderson, who was most recently Intel’s head of global communications, for the same role.

Bed Bath & Beyond named four independent directors to settle a fight with activist investors: John Fleming, formerly of Uniqlo; Sue Gove, the president of a retail consultancy; Jeffrey Kirwan, previously the C.E.O. of Gap’s namesake retail division; and Joshua Schechter, a financier.

Two senior female partners at KPMG, Maggie Brereton and Ina Kjaer, resigned from the professional services company in February, reportedly over the firm’s handling of bullying accusations against a male colleague.

Deals

• The C.E.O. of the German media company Axel Springer is teaming up with KKR and the publisher’s founding family to take it private. (FT)

• SoftBank’s Vision Fund reportedly plans to borrow $4 billion against its stakes in Uber and other investments. (FT)

• The British transport company First Group is seeking a buyer for its Greyhound buses division in the U.S. (BBC)

• Goya, the family-owned Latin food company, has reportedly hired Goldman Sachs to advise it on a potential sale. (CNBC)

• Chevron agreed to sell its North Sea oil assets to the Delek Group for about $2 billion. (Energy Voice)

Politics and policy

• Robert Mueller, making his first comments on his investigation, declined to clear President Trump of wrongdoing. (NYT)

• Walt Disney’s C.E.O., Bob Iger, said it would be “very difficult” for the company to film in Georgia if the state’s new abortion law goes into effect. (NYT)

• Women who had been F.B.I. recruits sued the bureau, accusing it of discrimination at the training academy. (NYT)

• The ad agency Ackerman McQueen Inc. cut ties with the N.R.A. after 38 years. (Bloomberg)

• Mervyn King, the former Bank of England governor, called for a general election in Britain to break a political impasse over Brexit. (Bloomberg Opinion)

Boeing

• The company’s C.E.O., Dennis Muilenburg, said that he had made mistakes in the handling of the 737 Max crisis — but that he didn’t plan to step down. (FT)

• The 737 Max isn’t likely to return to the air until August, according to the head of the International Air Transport Association, a global trade group. (FT)

Tech

• Speaker Nancy Pelosi accused Facebook of “lying to the public” by not taking down a distorted video that made her appear drunk. (NYT)

• Some Google contractors said that they were pressured to work unpaid overtime. (Guardian)

• Google has banned apps that help people buy marijuana. (FT)

• Apple quietly introduced a new website saying its App Store welcomes competition. (CNBC)

• Debt collectors and credit unions are fighting the F.C.C.’s push to block robocalls. (WSJ)

• Elon Musk reportedly told Tesla employees in an email: “We have a lot of vehicle deliveries to catch up to in order to have a successful quarter.” (Reuters)

Best of the rest

• New York’s Department of Financial Services is investigating a mistake by a title insurer that revealed a trove of sensitive mortgage data. (NYT)

• Meet Stephen Pereira, the man who wants to ease executives’ anxiety. (FT)

• The simple smiley face symbol is a big, complicated business. (WSJ)

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