China May Be Winning the Trade War: DealBook Briefing

Good Monday. Here’s what we’re watching:

• G.E. announced a big deal for a transportation unit.

• Our take on the new Theranos book.

• Banks are using military tricks to fight cybercrime.

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The trade war might not be on hold after all

Becky Quick of CNBC’s “Squawk Box,” reports that Treasury Secretary Steven Mnuchin is adjusting his comments, made over the weekend, about a pause in the U.S.-China trade war.

She tweeted:

Sounds like Treasury Secretary Mnuchin is walking back his language some. He just told us he wouldn't have used the phrase "the trade war is on hold" if Chris Wallace hadn't asked him that. "This has been a trade dispute all along."
— Becky Quick (@BeckyQuick) May 21, 2018

Has China gotten the upper hand in trade negotiations?

Steven Mnuchin said this weekend, “We’re putting the trade war on hold.” S.&P. 500 futures were up on the news. But the pressure is on the Trump administration to back up its tough talk on China — a task that may be more difficult without the leverage of potential tariffs.

The fight inside the White House is still real. Free-trade supporters like Mr. Mnuchin and President Trump’s top economic adviser, Larry Kudlow, are still slinging arrows at hard-liners like the U.S. trade representative, Robert Lighthizer, and the trade adviser Peter Navarro. (While Mr. Mnuchin said the tariffs were “on hold,” Mr. Lighthizer said they were still possible.)

The state of play, from Ana Swanson and Alan Rappeport of the NYT:

The two sides have agreed on a “framework” under which China would increase its purchases of American goods, while putting in place “structural” changes to protect American technology and to make it easier for American companies to compete in China.

But China didn’t guarantee increasing purchases of American products by a specific amount, let alone the $200 billion reported last week. And there has been little detail about fixing the tech issues underlying the trade fight: no firm plans to solve IP theft, and little hope of curbing China’s ambitious plans to become a technology powerhouse.

Critics’ corner: Even a $200 billion Chinese buying spree wouldn’t help U.S. trade, Michael Pettis writes in Bloomberg View.

Elsewhere in trade: Mr. Trump is reportedly happy to wait for as long as it takes to get a good Nafta deal. The British foreign secretary, Boris Johnson, is touring Latin America this week to gin up interest in trade after Brexit. Improving trade relations with Russia is reportedly a top priority for Germany.

The unwinding of G.E. is moving ahead

The next deal to shrink the embattled industrial conglomerate, according to Reuters: a sale of its transportation business for more than $20 billion to Wabtec, a rail equipment maker. (The transaction would reportedly be performed using one of Michael’s favorite deal structures, a reverse Morris Trust — a similar tactic to that used by G.E. to merge its oil and gas business with Baker Hughes.)

The chief executive of G.E., John Flannery, has pledged to reduce the company’s byzantine structure and focus on its fastest-growing core businesses. Making train engines isn’t part of that equation.

Elsewhere in deals: Comcast is apparently considering very seriously a bid for parts of 21st Century Fox. Dell is reportedly continuing talks with investors about a deal for VMware. Ant Financial is said to be worth $150 billion (but investors must pledge not to back any Alibaba rivals). A breakup of Britain’s big accounting firms might be a good thing. Blackstone sold its Hilton holdings.

The new book on Theranos dives into the start-up’s scandals

“Bad Blood,” John Carreyrou’s heavily anticipated tome about the blood-testing start-up and its founder, Elizabeth Holmes, is out today. (How anticipated? Jennifer Lawrence is signed to a movie based on the book, and “60 Minutes” did a segment on the failed start-up last night.)

From Roger Lowenstein’s review in the NYT:

Even for a private company like Theranos, disclosure is the bedrock of American capitalism — the “disinfectant” that allows investors to gauge a company’s prospects. Based on Carreyrou’s dogged reporting, not even Enron lied so freely.

Andrew’s bottom line: I read the book in just two sittings — it’s a page-turner. If you love narratives like “Barbarians at the Gate,” Mr. Carreyrou’s tale gets awfully close to that feeling of being inside the room, and watching a spectacular fraud unfold.

The political flyaround

• Rudy Giuliani said that Robert Mueller planned to finish his obstruction investigation by September — but only if President Trump sits down for an interview. The Justice Department’s inspector general has been instructed to look into the president’s allegations of an improper government inquiry into Mr. Trump’s 2016 campaign.

• Donald Trump Jr.’s meeting with an emissary of two Persian Gulf states in 2016 suggests that countries other than Russia wanted to get involved in the election. (NYT)

• The British law firm Linklaters is under scrutiny for its work on behalf of Russian oligarchs. And here’s a closer look at one of them, the billionaire Viktor Vekselberg, who has been linked to Michael Cohen.

• Scott Pruitt has run into some problems in his deregulation campaign at the E.P.A. (WaPo)

• The new U.S. secretary of health and human services, Alex Azar, is the rare Trump regulator who isn’t focused on deregulating. (NYT)

• Don Blankenship may have lost the Republican Senate primary in West Virginia, but the former Massey Energy C.E.O. is still causing headaches for the party. (Politico)

Banks look to the military in their cybersecurity defenses

Cybercrime is one of the greatest risks to the American financial sector, according to the Treasury Department.

How banks are taking that threat seriously, according to Stacy Cowley in the NYT:

Former government cyberspies, soldiers and counterintelligence officials now dominate the top ranks of banks’ security teams. They’ve brought to their new jobs the tools and techniques used for national defense: combat exercises, intelligence hubs modeled on those used in counterterrorism work and threat analysts who monitor the internet’s shadowy corners.

Elsewhere in finance: David Solomon’s era atop Goldman Sachs may start at year end — and here’s an argument why Lloyd Blankfein shouldn’t stay on as chairman. Deutsche Bank’s troubles have cast a spotlight on the firm’s chairman, Paul Achleitner. A top Citigroup banker sees investment banking revenues recovering this year.

The tech flyaround

• Antonio Tajani, the president of the European Parliament, says that Mark Zuckerberg’s hearing with the legislature will be live-streamed. Separately, Germany’s online hate speech law makes the country a lab for testing how to regulate the social network.

• A close look at why Google is under the regulatory microscope. (60 Minutes)

• Europe’s new data privacy laws are proving lucrative for technology consultants. And a new study discovered more than 200 apps and services that can aid would-be stalkers.

• Why America needs an A.I. policy. Microsoft bought an A.I. start-up to make its voice control software sound more natural.

• Tesla’s entry-level car, the Model 3, could cost much more than $35,000, making it look distinctly less mass-market. The company has made public some of the software underpinning its Autopilot system.

• Why investors in tech start-ups in the Midwest shouldn’t look for companies to emulate Silicon Valley. (The Information)

• Sony’s new C.E.O., Kenichiro Yoshida, plans to move the company away from making gadgets. (Bloomberg)

Revolving door

• Baidu’s chief operating officer, Qi Lu, is stepping down, raising questions about the Chinese tech company’s A.I. ambitions. (Bloomberg)

Quote of the Day

“Should we own 50 percent of every company in America? That’s ridiculous, and we are a long way from that.”

— Jack Bogle, on the need for limiting the power of the three big money managers (including his own firm, Vanguard) in Barron’s cover story

The speed read

• How the “Math Men” — engineers and data scientists — became the kings of advertising. (New Yorker)

• Google has reportedly removed “don’t be evil” from its code of conduct. (Gizmodo)

• Fewer companies are registering in Britain as Brexit nears. (Guardian)

• To understand inflation, think of the U.S. as two economies: one for goods, another for services. (WSJ)

• China is mining for gold in the Himalayas, which could aggravate tensions with India. (SCMP)

• Roman Abramovich’s soccer team, Chelsea, may have won the F.A. Cup, but Britain hasn’t renewed the Russian oligarch’s visa yet. (FT)

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