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Escalation, retaliation, deterioration
Tensions between China and the U.S. are higher than ever after Beijing ordered the closing of a U.S. consulate in Chengdu today, in retaliation for the Trump administration’s demand that China shut down its consulate in Houston. The move also came shortly after Secretary of State Mike Pompeo called for an end to “blind engagement” with Beijing, outlining a rationale for the U.S. opposing China on almost everything.
Where do we go from here? As it happens, David Sanger, The Times’s national security correspondent, joined us yesterday for a DealBook Debrief call with readers to discuss the battle between Washington and Beijing over tech companies like Huawei and TikTok. (Here’s the recording, if you missed it.) Some of the highlights:
• “Would you let the Chinese or Russians build your F-35 fighter?”
The fundamental concern of the Trump administration is America’s national infrastructure. David compared the installation of 5G wireless technology to the F-35 jet fighter, a more obviously crucial component to national defense. He said that the White House’s effort to ban Huawei products from the 5G network came down to this question: “If you turn your network infrastructure over to a foreign power and they’re controlling it, what would happen if the order came down in a time of conflict to turn it off?”
• “TikTok you don’t depend on for keeping your economy running in time of conflict.”
There’s a difference between Huawei and TikTok, the Chinese video app that the Trump administration has threatened to ban over concerns about the security of users’ data. If 5G technology was comparable to the F-35 in terms of importance, David said, social media is akin to military uniforms.
• “Huawei will control 40 percent of the world’s telecommunications.”
The Trump administration may have persuaded Britain to bar Huawei from its 5G networks, and Europe may also take a harder line on the Chinese telecom equipment maker. But Huawei still has plenty of customers around the globe, potentially dividing the world into American and Chinese internet tech. And even then, simply excluding Huawei from the U.S.-centric internet won’t be easy, David cautioned. “What we’re doing right now over Zoom or over social media, chances are a good deal of it’s going to run through a Chinese switch somewhere in the world,” he noted.
Our next DealBook Debrief call, on July 30, will be with The Times’s opinion columnist Thomas Friedman, who will discuss how America’s struggles to contain the pandemic affect its relationships with both allies and adversaries. R.S.V.P. for the call here.
Here’s what is happening
New Yorkers can once again use Global Entry. The Trump administration abruptly reversed a prohibition on residents of New York State from using government programs that let travelers speed through airport lines. (Not that many people are, you know, traveling.) The Department of Homeland Security disclosed in a court filing that it had made false statements to justify the ban.
Senator Mitt Romney will oppose Judy Shelton’s nomination to the Fed. The Republican from Utah did not elaborate on why he plans to vote against the White House nominee, who has a history of embracing unorthodox policy positions. She is still expected to be approved by the full Senate.
The U.S. Chamber of Commerce sued the Trump administration over immigration. The influential business trade group is fighting White House restrictions on visas for highly skilled workers and efforts to end protections for the young immigrants known as Dreamers. “This is a fundamental mistake at a time when our nation’s economy is already suffering,” Thomas Donohue, the chamber’s C.E.O., writes in a Times Op-Ed.
The president of Hearst’s magazine division resigned over allegations of lewd workplace behavior. Troy Young stepped down after The Times reported on accusations that he had fostered a toxic office culture, in which he made inappropriate remarks and allowed bullying to fester.
Disney delayed a slew of highly awaited blockbusters. The studio indefinitely postponed the release of its live-action remake of “Mulan,” which had been scheduled for next month. And it moved the expected debuts of the next “Star Wars” and “Avatar” movies back a year.
Recovery in retreat
Weekly unemployment claims in the U.S. rose for the first time in months, the sign of a worrying reversal in the labor market as coronavirus cases rise and extra unemployment benefits are set to expire.
One in five American workers are collecting unemployment benefits, or around 30 million people. Since mid-March, the new claims added to state rolls have stayed above one million per week; that figure never exceeded 700,000 a week during the last recession. Just under a million workers also filed for benefits under an emergency federal program introduced during the pandemic.
• “At this stage, you’re seeing all the wrong elements for recovery,” Gregory Daco, the chief U.S. economist at Oxford Economics, told The Times’s Patricia Cohen.
Disagreements about what to do next are stalling new stimulus measures, Emily Cochrane, Jim Tankersley and Alan Rappeport report. How to extend the supplemental unemployment benefits, which effectively expire this weekend, is a major point of debate among Republicans — even before they begin negotiating with Democrats. The Republican caucus plans to propose $1 trillion in spending, while Democrats are demanding $3 trillion.
• Economists have been downgrading their expectations for the strength of the economic recovery, according to a Reuters poll. Real-time gauges of activity, like the ones produced by the Atlanta and New York Feds, have also stopped improving.
A sharp drop in income for people collecting unemployment is looking possible. Republican officials suggest that unemployment benefits may be limited to 70 percent of the wages workers received before they lost their jobs. That implies a drop from $600 per week in enhanced support today to around $200 for the typical worker.
• The argument is that more generous benefits may discourage people from returning to work, especially if they earn more via special assistance than regular employment. But a recent survey of economists from across the ideological spectrum by the University of Chicago found that most believed that a lack of jobs, not an unwillingness to work, was the main problem.
Small businesses are in line for more money. Senator Marco Rubio, Republican of Florida, said that he expected at least $200 billion to bolster small businesses in the coming bill. The forgivable small-business rescue loans included in the last stimulus package represent another cliff that could come at a bad time for the economy, further denting the labor market.
• One thing that seems like a nonstarter in the next stimulus bill is a payroll tax cut, favored by Mr. Trump but by few in Congress.
Seen and heard
🎃 “We feel good about many retailers wanting to kind of lean in” to Halloween. “We also think that consumers will find creative and safe ways to trick or treat. It is an outdoor event and it’s an event where a lot of masks are already worn.” — Michele Buck, the C.E.O. of Hershey, on the company’s earnings call
👖 “You have to wear pants. Why can’t we mandate that you have to wear a mask in a pandemic?” — Gary Kelly, the C.E.O. of Southwest Airlines, on CNBC
🌯 “As I’ve gone into the restaurants and talked to folks that are in the restaurant, a lot of them are like, ‘Oh, thank heavens, you guys are open for me to sit down because I’m just tired of eating in my car.’ ” — Brian Niccol, the C.E.O. of Chipotle, on the company’s earnings call
Amazon’s new antitrust headache
The e-commerce giant is facing criticism about potentially anticompetitive behavior after The Wall Street Journal reported that the company had been exploring investments in start-ups — then copying them.
If true, it would represent a serious breach of deal-making norms and violations of nondisclosure agreements.
• In one instance, Amazon reportedly invested in Nucleus, the maker of a home-video communications gadget that connected to the Alexa smart assistant. Eight months later, Amazon unveiled a competing product that forced the start-up to change its business strategy.
• In another, in 2012, Amazon signed a nondisclosure agreement with Ubi, which was working on a voice-activated device. After holding five discussions about its product, Amazon said it decided to unilaterally end the NDA — and later developed the Echo.
Amazon denied any impropriety, telling the Journal, “There will always be self-interested parties who complain rather than build.” But the latest allegations come as Washington scrutinizes tech companies over whether they abuse their dominant market positions.
Congress will have to wait to quiz Jeff Bezos about it. A House hearing scheduled for Monday, which would have featured testimony from the Amazon chief — his first time taking the congressional witness stand — and his counterparts at Alphabet, Apple and Facebook, is likely to be postponed.
The speed read
• Brooks Brothers accepted a $305 million takeover bid by Authentic Brands and Simon Property, setting a floor for bids on the bankrupt clothing company. (WSJ)
• Elon Musk’s SpaceX is reportedly in talks to raise $1 billion in new funding, at a $44 billion valuation. (Bloomberg)
• The hedge fund manager Jim Chanos is said to have made nearly $100 million by betting against shares of Wirecard, the insolvent payments processor accused of fraud. (FT)
Politics and policy
• Airbus offered to pay higher interest rates on loans from the French and Spanish governments to help the E.U. head off a trade war with the U.S. (Reuters)
• The gun control group founded by Mike Bloomberg spent $15 million on digital ads supporting Democratic candidates in eight states. (NYT)
• Jack Dorsey apologized for the hacking of prominent Twitter users’ accounts last week, and the company acknowledged that some users’ private messages had been breached. (WaPo)
• AT&T said that its new HBO Max streaming service signed up four million customers in its first month, falling short of what rivals like Disney+ have accomplished. (NYT)
Best of the rest
• “Is E.S.G a factor?” (Research Affiliates)
• Dr. Fauci has many strengths. Pitching is not one of them. (@ESPN)
• Worth your time: Here’s an in-depth examination of how the Fed bailed out hedge funds caught on the wrong side of risky bets. (NYT)
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