Good Friday. On the agenda: Market futures are down this morning, indicating another bad day for stocks after President Trump’s latest trade threats. (Was this email forwarded to you? Sign up here.)
Peter Thiel says Google’s China work is bad for America
As the Trump administration moved to extend its trade war with Beijing, the tech billionaire doubled down on his claim that Google is arming one of America’s biggest rivals.
Artificial intelligence is a military technology, Mr. Thiel writes in an NYT Op-Ed, arguing that it can help a country “gain an intelligence advantage, for example, or to penetrate defenses in the relatively new theater of cyberwarfare.”
He questions Google’s priorities, pointing to the company’s decision to open an A.I. lab in China while ending its work for the Pentagon (a move prompted by employee protests, we should note). “Perhaps the most charitable word for these twin decisions would be to call them naïve,” Mr. Thiel writes.
“A little curiosity about China would have gone a long way,” he adds, “since the Communist Party is not shy about declaring its commitment to domination in general and exploitation of technology in particular.”
Mr. Thiel ties his argument to President Trump’s trade war, arguing that Silicon Valley and Wall Street are content to focus on their own profits and ignore the bigger picture. “Since upsetting this imbalance is a threat to profits, Wall Street would prefer to cave on trade and keep Google’s stock price high while they’re at it,” he contends.
A big question is why he’s now so anti-China. Commentators have raised a few possibilities, according to Lizette Chapman of Bloomberg:
• He’s trying to curry favor with the Trump administration for his portfolio companies.
• His investment portfolio doesn’t depend much on China, and his previous forays there haven’t panned out.
• Or he simply believes what he says. “He’s a very patriotic guy,” John Meyer, who won a fellowship from Mr. Thiel’s foundation to start a company, told Ms. Chapman.
Mr. Trump said he would impose levies of 10 percent on Chinese imports next month, on top of tariffs of 25 percent that have already been placed on $250 billion worth of goods. It means that virtually all goods from China now face some kind of duty, including cellphones, clothing and children’s toys.
It’s his response to slow progress in trade talks between the U.S. and China. “Until such time as there is a deal, we’ll be taxing them,” he told reporters yesterday. Beijing has hinted that it will reciprocate.
Stocks on Wall Street fell after the announcement, wiping out a good start to the day. The S&P 500 slumped nearly 1 percent, the Nasdaq about 0.8 percent and the domestic-focused Russell 2000 about 1.5 percent.
The move probably means “higher trade barriers are the new status quo,” Bill Adams, a senior economist at PNC, told CNBC.
Business is bracing for the worst. “We are disappointed the administration is doubling down on a flawed tariff strategy that is already slowing U.S. economic growth, creating uncertainty and discouraging investment,” David French, the senior vice president for the National Retail Federation, told the NYT.
More: Some traders think Mr. Trump is exacerbating trade tensions to force the Fed to cut interest rates again. Meanwhile, Japan put more restrictions on trade with South Korea.
How Democrats are criticizing the Trump economy
By many measures, the U.S. economy is performing well, and voters are giving President Trump solid marks on his stewardship of it. But there are weak spots in his record, and Jim Tankersley and Ben Casselman of the NYT outline where Democrats are likely to make their attacks.
Economic growth is slowing. America’s economy is downshifting, growing at a pace slower than Mr. Trump has promised. This slackening is one of the reasons the Fed cut its benchmark interest rate this week. The slowdown is particularly acute in manufacturing, a sore spot for the president.
Tax cuts haven’t benefited everyone equally. Democrats are focusing on how high-earners and big corporations were the main beneficiaries, as well as how companies slowed down on investment soon after receiving tax breaks.
The trade war is a tax on the middle class. Tariffs on a wide range of imported materials and goods have raised prices for consumers, Democrats are likely to argue.
More: The economist Austan Goolsbee explains why the Fed’s rate cut doesn’t pack the punch that previous ones did.
Facebook’s takeovers are under the microscope
A big part of the Federal Trade Commission’s antitrust investigation of the tech giant are the acquisitions it has struck over the years and whether they harmed competition, the WSJ reports, citing unnamed sources.
The inquiry is examining whether the deals improperly squelched competition for Facebook, according to the WSJ. The Silicon Valley titan spent billions on 90 companies, including Instagram and WhatsApp, some of which are now integral parts of its business.
The F.T.C. has begun reaching out to start-up founders, the WSJ adds. Some, like the creators of WhatsApp, have spoken out against Facebook for its user privacy practices.
A key focus appears to be Onavo, a company whose smartphone behavior-tracking technology was used to help scout out potential acquisition candidates.
It raises questions about how broadly the F.T.C. is looking, given that other tech behemoths like Google have also bought scores of companies. The commission’s competition chief, Bruce Hoffman, has formed a task force to explore the issue.
The Pentagon is delaying its $10 billion cloud-computing contract
The Defense Department said that its new secretary, Mark Esper, would review the bidding process for the big contract, after President Trump and Oracle raised concerns about whether the process favored Amazon.
Oracle has complained about the format, which gave one company the exclusive rights to host the Pentagon’s forthcoming cloud-computing platform, known as JEDI.
The race was down to Amazon or Microsoft, with Oracle and IBM ruled out months ago because the Defense Department concluded that they didn’t have the necessary infrastructure to run the program.
Mr. Trump took up the baton, echoing Oracle’s concerns about how the process unfolded. He has also feuded with Amazon’s Jeff Bezos, who also owns the WaPo.
Oracle’s lobbyists have made inroads with the White House over the matter. CNN reported last week that a graphic produced by the company alleging an Amazon “conspiracy” to create a monopoly over the Pentagon’s cloud systems had ended up on Mr. Trump’s desk.
“Experts on federal contracting say it is extremely rare for a president to intervene in a contract competition and improper to do it for political reasons,” according to the NYT.
The steep costs of staying in the middle class
American families are taking on enormous debt to maintain their middle-class status, a potential recipe for disaster if the economy takes a sharp downward turn, AnnaMaria Andriotis, Ken Brown and Shane Shifflett of the WSJ report.
• “Cars, college, houses and medical care have become steadily more costly, but incomes have been largely stagnant for two decades, despite a recent uptick,” they write.
• An illustration: The median U.S. household income was $61,372 in 2017, which in inflation-adjusted terms is barely above the 1999 level. The average house price has swelled 290 percent during that time.
• “Filling the gap between earning and spending is an explosion of finance into nearly every corner of the consumer economy,” including $4 trillion in nonmortgage consumer debt, $1.5 trillion in student loans and $1.3 trillion in auto debt.
• “The debt surge is partly by design, a byproduct of low borrowing costs the Federal Reserve engineered after the financial crisis to get the economy moving.”
• But “if job losses begin to rise, it would become unsustainable for some share of borrowers, raising chances of an increase in missed payments and lenders writing off unpaid balances.”
Revolving door
The hedge fund Coatue Management has hired Dan Rose, a former top Facebook executive, as co-chairman of its new $700 million fund aimed at investing in early-stage tech start-ups.
Jeff Blackburn, the head of Amazon’s entertainment and advertising business as well as M.&A., is taking a year’s leave.
The hedge fund Citadel has hired three veteran traders — Jonathan Bayliss, Vishnu Kurella and Eric Rains — as senior investment executives in London and New York.
The speed read
Deals
• Campbell Soup agreed to sell its Australian snack unit to KKR for $2.2 billion. (Reuters)
• DoorDash agreed to buy a rival restaurant-delivery service, Caviar, from Square for $410 million. It shows how the delivery wars are heating up. (NYT, FT)
• Companies that used mergers to move their corporate headquarters overseas for tax reasons are increasingly turning to deals to move their legal domiciles back to the U.S. (WSJ)
• The growth rate for corporate stock buybacks is expected to drop off sharply this year from 2017 and 2018, according to Goldman Sachs analysts. (FT)
• The venture capital firm Lux Capital has raised over $1 billion for two new investment funds. (Fortune)
Politics and policy
• The Senate passed a two-year deal on the federal budget that prevents a breach of the debt ceiling, sending the legislation to President Trump for approval. (NYT)
• Manhattan’s district attorney has subpoenaed the Trump Organization over hush-money payments to Stormy Daniels. (NYT)
• Representative Will Hurd of Texas, the only black Republican in the House, joined a wave of G.O.P. lawmakers who won’t seek re-election. (NYT)
• A majority of House Democrats now support opening impeachment proceedings against President Trump. (Politico)
Brexit
• The Bank of England cut growth forecasts for the British economy, citing the increased prospects for a no-deal Brexit. (NYT)
• An anti-Brexit political party won a special election in Wales, cutting the Conservative Party’s working majority in Parliament to one. (NYT)
Tech
• The Fed has been examining Amazon’s cloud-computing service because of its work with banks, an inquiry that has taken on new prominence in the wake of the Capital One data breach. (WSJ)
• The N.Y.P.D. has been uploading thousands of arrest photos of teenagers and young children into a facial-recognition database, despite evidence that the technology has a higher risk of false matches when examining young faces. (NYT)
• The German authorities have temporarily forced Google to stop manually reviewing recordings of user requests to its voice-activated assistant. Apple voluntarily suspended a similar program for its Siri assistant after a Guardian report. (Business Insider, TechCrunch)
• The video game streaming star Ninja has jumped from Twitch, the platform where he became famous, to Microsoft’s Mixer. (NYT)
• How Beijing is pouring money into China’s telecom companies to beat the U.S. in the race for 5G. (Bloomberg)
Best of the rest
• Jaywalking and other socially accepted violations pose a hindrance to self-driving cars. (NYT)
• Hedge funds have been able to wring profits from ailing local newspapers, but that may not last long. (NYT)
• A jury said that Katy Perry and her record label must pay $2.8 million after it found that the musician’s song “Dark Horse” too closely resembled a Christian rapper’s single. (NYT)
• It’s tough to ensure that none of the three stars of the “Fast and Furious” franchise ever really lose a fight. (WSJ)
• Vas Narasimhan, the Novartis C.E.O., says that “we are not at all prepared for a pandemic.” (Corner Office)
Thanks for reading! We’ll see you next week.
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