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Huawei issue highlights a U.S. policy problem
Over the weekend in Japan, President Trump appeared to choose trade over national security when he suspended a ban on U.S. companies’ selling products to Huawei, in a bid to hasten a trade deal with China. (More on that below.)
That could be a huge relief for Huawei. The Chinese tech company had faced a future where supplies of chips and software for its products — from smartphones for consumers to networking gear for telcos — ran dry. (Until recently, the company had spent $11 billion with American companies.)
But the truce also underlines concerns about Washington’s tech strategyAndrew writes in his latest column:
• If the ban were lifted entirely, it would galvanize Huawei’s role as perhaps the biggest long-term competitive threat to a significant American role in the next-generation wireless technology known as 5G.
• That serves as a reminder that the U.S. lacks a meaningful strategy to lead the world in 5G.
• “No American company makes the devices that transmit high-speed wireless signals. Huawei is the clear leader in the field; the Swedish company Ericsson is a distant second; and the Finnish company Nokia is third.”
It’s unclear how big a pass Huawei got. Larry Kudlow, the chairman of the National Economic Council, told Fox News yesterday that this was “not a general amnesty.” The administration’s national security concerns “will remain paramount,” he added, explaining that “all that is going to happen is Commerce will grant some additional licenses where there is a general availability.”
• “If the reprieve for Huawei is only limited to components supplying its consumer business, then ‘it doesn’t help the company that much,’ said Paul Triolo, head of geotechnology at research firm Eurasia Group,” the WSJ reports.
Either way, Washington needs to carefully consider what it wants in the future, Andrew writes:
“If the U.S. is going to lead the world, Washington needs to think hard about the incentives it provides companies — not only for research and development, where we are still leading, but also for manufacturing the technology that is in our national interest to control, as well as what mergers it allows.”
Today’s DealBook Briefing was written by Andrew Ross Sorkin in New York, and Michael J. de la Merced and Jamie Condliffe in London.
Trump and Xi struck a trade truce. Now what?
The truce was brokered in Japan during talks between President Trump and President Xi Jinping of China on the sidelines of the Group of 20 summit meeting this weekend. Mr. Trump agreed to delay 25 percent tariffs on $300 billion of Chinese goods, in return for Mr. Xi promising to buy more American products.
But at least talks have reopened. “We discussed a lot of things, and we’re right back on track,” Mr. Trump said.
Still, there’s plenty for both sides to worry aboutthe WSJ notes:
• Mr. Trump has to convince lawmakers from both parties that he won’t make too many concessions, while reassuring voters in crucial farm-belt states that relief from the trade war will come quickly.
• And Mr. Xi must persuade Communist Party officials that Washington won’t derail China’s rise as an economic power.
More: The E.U. struck big trade deals with the countries known as Mercosur (Brazil, Argentina, Uruguay and Paraguay) and Vietnam.
The U.S. is an oil exporter now. Investors don’t care.
For years, politicians and C.E.O.s dreamed of making the U.S. energy-independent by exploiting America’s wealth of oil deposits. Now it’s happened — but stock market investors are ambivalent, according to Cliff Krauss of the NYT.
Domestic oil production has risen by more than 60 percent since 2013, to 12 million barrels a day. Oil executives say that production could grow by an additional five million barrels a day in the next few years.
But oil and gas stocks have suffered over that timedropping as a proportion of the S&P 500, to about 4.6 percent, from 8.7 percent. The stock price of Exxon Mobil, the biggest producer, has barely budged over the past decade, while 175 oil and gas companies have filed for bankruptcy protection over the last four years. (The latest: Weatherford International.)
Blame slowing demand for oil. Energy experts say annual global oil demand is growing about 1.2 percent, which is too slow for American oil companies to make a profit on any increases in production, Mr. Krauss points out.
And maybe climate change as well. “When you talk to investors, they are concerned about oil companies spending money on something that will be in decline,” David Katz, the president of an investment firm, told Mr. Krauss.
More: Officials from OPEC and Russia are expected to maintain oil production cuts after a series of meetings this week.
Facebook’s cryptocurrency poses a tax headache
The setup of the social network’s proposed cryptocurrency, Libra, could cause complications for many users, the FT reports:
• “The tax problem stems from Facebook’s idea to peg the value of Libra to a basket of currencies globally rather than fix it in value against its users’ domestic currency.”
• “As global exchange rates change, the domestic value of a user’s Libra holdings will change accordingly, creating capital gains and losses, which would be realized each time someone used Libra to make a purchase.”
• “In most countries, gains will be taxable, meaning consumers will have to file a detailed tax return showing all their transactions and the exchange rate at the time, and pay any tax due,” Dan Neidle, a partner at the law firm Clifford Chance, told the FT. “This seems to us to be a significant barrier to wide adoption.”
Facebook acknowledged the issueand said that it hoped to work with policymakers “as they clarify the application of existing tax laws to cryptocurrencies, or in some cases to update those laws.”
This adds to a list of worries about Libraon top of privacy concerns about Facebook’s involvement and the way it could further concentrate the tech company’s power.
Bad blood over the sale of Taylor Swift’s old label
An investment company run by Scooter Braun, the music impresario, and the Carlyle Group agreed to buy the Big Machine Label Group for what the WSJ reports was more than $300 million. Its biggest alumna, Taylor Swift, now with Universal Music Group, is furious.
Big Machine was founded in 2005 and is run out of Nashville. The label represents acts including Reba McEntire, Sheryl Crow, Florida Georgia Line and Lady Antebellum.
The bulk of its value lies in Ms. Swift’s catalogwhich it gained control of when it signed the singer as its first artist in 2005. That collection includes hits like “We Are Never Getting Back Together” and “Blank Space.” Big Machine owns the rights to all those songs in perpetuity.
Ms. Swift blasted the dealcalling it her “worst-case scenario.” She accused Mr. Braun of bullying her, and she said she never had the chance to buy back her catalog. “Essentially, my musical legacy is about to lie in the hands of someone who tried to dismantle it,” she wrote on Tumblr.
Why the I.P.O. market isn’t dot-com bubble 2.0
Companies like the secondhand-clothing site the RealReal and the cybersecurity provider CrowdStrike have soared after their stock market debuts this year. But there’s no reason to fear another market crash, Eric Savitz of Barron’s writes.
• “It is hard to miss the parallels to the dot-com boom,” he writes. “Initial offerings could raise a record level of capital in 2019, potentially breaking the nearly $97 billion record set in 2000.”
• But executives, like Julie Wainwright, the RealReal C.E.O. (and the former chief of Pets.com, a notorious dot-com disaster), and investors have become wiser and more disciplined.
• “In a sense, the I.P.O. market has simply grown up. For one thing, the median age of tech companies going public in 1999 was four; last year, it was 12.”
• “Investors have tightened their standards. They now want established businesses with substantial revenue and high growth.”
Foreign powers are gently testing the dollar’s power
As the Trump administration imposes tariffs and sanctions on countries around the world — including China, Iran, North Korea, Russia and Venezuela — some of them have begun to experiment with ways to reduce their reliance on the U.S. currency, the FT reports.
• Using the dollar means exposure to the U.S. government and its regulators, so many countries would like to avoid the link and in that way make any sanctions hurt less.
• “Russia has been at the forefront of attempts to de-dollarize, spurred on by the punishing impact of U.S. sanctions on its economy.”
• And “China has experimented with denominating oil futures in its currency as well as working on its own international payments system,” while Europe has been trying to develop a mechanism to sustain trade with Iran.
• But such efforts remain nascent. Moves by China and Russia to sidestep the dollar for gas pipeline deals, for instance, haven’t been used much. And Europe’s attempts to steady trade with Iran have been slow.
Deutsche Bank could cut as many as 20,000 jobs as part of its latest turnaround plan, which is expected to be unveiled this week.
John Rakow has resigned as interim C.E.O. of uBiome, the lab-testing start-up under investigation by the F.B.I. over billing practices. The company’s co-founders, Jessica Richman and Zac Aptehave resigned from the board.
The speed read
• ICYMI: DealBook recaps how the first half of 2019 was unexpectedly hot for deal-making. (DealBook)
• Investors have raised objections to $500 billion of deals announced this year. The latest: Dan Loeb’s Third Point opposed the proposed merger of United Technologies and Raytheon. (Bloomberg Opinion, WSJ)
• Anheuser-Busch InBev has been weighing an I.P.O. in Hong Kong of its Asian business. (FT)
• The private equity firm Permira is reportedly working with Goldman Sachs and Robert W. Baird on a sale of the British boot maker Dr. Martens. (Bloomberg)
Politics and policy
• President Trump shook hands with the North Korean leader, Kim Jong-un, and agreed to restart nuclear talks. (NYT)
• Prince Mohammed bin Salman of Saudi Arabia re-emerged as a mainstream global leader at the Group of 20. Also: The Middle Eastern kingdom ramped up its purchases of U.S. Treasury bonds after Donald Trump’s election as president. (NYT, Bloomberg)
• How Mario Draghi is becoming bolder as his tenure as president of the European Central Bank nears its end. (WSJ)
• Rudolph Giuliani’s work for a wealthy Ukrainian developer has drawn renewed scrutiny. (NYT)
• Senator Kamala Harris raised $2 million in 24 hours after her strong performance in last week’s Democratic presidential debates. (NYT)
• The argument over whether Lyft and Uber drivers should be treated as workers rather than contractors is dividing opinion among some California labor unions. (NYT)
• Apple plans to shift the manufacturing of its new Mac Pro computer back to China from the U.S. (NYT)
• Bitcoin has slumped again, to below $11,000, undoing most of the gains from its recent rally. (Bloomberg)
• Elizabeth Holmes, the founder of the blood testing company Theranos, will stand trial in August 2020 on fraud charges. (WSJ)
Best of the rest
• The Justice Department is said to have widened its investigation into Boeing to include troubles at the South Carolina plant that produces the company’s Dreamliner jets. (NYT)
• As Subway grew, its franchisees paid a price. (NYT)
• Purdue Pharma, the maker of OxyContin, is reportedly struggling with slumping sales and a shrinking work force as it faces lawsuits related to the opioid crisis. (WSJ)
• Chubb is set to become the first of the big U.S. insurers to stop covering coal companies. (FT)
• This is what it takes to be a long-term investor. (Institutional Investor)
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