The big news this morning is that President Trump and Chinese President Xi Jinping will meet together at Mar a Lago in April. This is no small thing. During the election, candidate Trump expressed as much disdain for the Asian nation as he did for Hillary Clinton and Marco Rubio. A YouTube video of Trump just saying the word “China” garnered more than 10 million views. Now he’s bringing the enemy to home turf, to practice the art of the deal.
What would a deal look like? Last night, I asked FedEx CEO Fred Smith, at a dinner in New York that is part of the run up to the Fortune Global Forum in Guangzhou this December. Smith is in a unique position to speak on this issue. He chaired the U.S.-China Business Council back in 2001, and was an outspoken advocate of China’s entry into the World Trade Organization. These days, he’s become critical of policies on both sides of the Pacific. President Trump’s repudiation of trade agreements is a bad move for the U.S. economy, he believes. And President Xi’s new embrace of globalization belies a history of protectionism—including, Smith says, “an overt attempt to retard” FedEx’s growth in order “to promote local champions.”
Smith was optimistic that a deal between Trump and Xi could be productive. He said President Trump has already begun the negotiation by backing off his suggestion that the U.S. might abandon its support for the “one China” policy. Now it’s China’s turn to move. It needs to liberalize its economy and abandon its support for “indigenous innovation” at the expense of foreign competition. “That’s the basis of the deal,” Smith says.
Smith noted that those moves would be good for the Chinese economy as well as foreign competitors. Deregulation in the U.S. between 1970 and 1990 enabled companies like FedEx to drive logistics costs down from 16 cents of every dollar spent on a product to 9 cents, he says. In China, the cost is still 18 cents on the dollar, because of “too much regulation at the local level, provincial level, and national level.”
You can watch Smith’s comments here. More news below.
• Intel Buys Mobileye
Intel plunged into the world of autonomous vehicles, agreeing to buy Mobileye for $15 billion. It’s Intel’s second-biggest acquisition ever and the biggest-ever exit for an Israeli company, something that will inspire the local startup community. Mobileye has secured a number of partnerships recently with global automakers (although not Tesla) to put its chips and sensors into their next-generation vehicles, giving them what many analysts see as a dominant position in one of the world’s hottest markets. The stock market took 2% off Intel’s valuation, fearful that it had overpaid, and mindful of its spotty record with acquisitions in the past.
• CBO Delivers an Awkward Verdict on GOP Health Plan
The new Republican health care bill would cut the federal budget deficit by $337 billion over the next 10 years, but would leave an extra 24 million people without health insurance, according to the Congressional Budget Office. Average premiums would rise sharply in the near term (by 15%-20% by 2019) but would be 10% lower than currently by 2026. Most of the rise in uninsured numbers (14 million) would happen as early as next year. Health Secretary Tom Price said he “strenuously” disagreed with the report, which he said failed to take into account other regulatory steps he intends to take.
• Brexit Meets Braveheart
Scotland’s First Minister Nicola Sturgeon said she would prepare a new referendum on independence from the U.K., arguing that Scots had voted to stay in the EU, in contrast to the ‘hard’ Brexit now being pursued by Theresa May’s government. The vote will probably take place just as May and the EU are finalizing the separation agreement in early 2019, and can be interpreted as an attempt to keep up the pressure on May for a conciliatory deal in the final few months of the process. May got parliament’s backing to trigger the separation process last night and sterling is reacting with a fresh sell-off this morning. May won’t pull the trigger until the last week of March, to avoid offending European sensitivities at a summit celebrating the EU’s 60th anniversary.
• Ackman Draws a (Red) Line Under Valeant
Bill Ackman’s Pershing Square fund exited its position in Valeant, ending one of the most ill-judged episodes in the fund’s history. The fund said that the tax loss recorded on the sale would be more valuable than any likely rebound in a stock which has continued to slide this year even under new management. Ackman’s fund has lost over 90% of an initial $3.2 billion investment. Other hedge funds such as John Paulson’s Paulson & Co and Jeff Ubben’s ValueAct (now the company’s two largest shareholders) have also taken big hits since the drugmaker’s acquisition-led strategy unraveled after the exposure of an accounting scandal.
Around the Water Cooler
• The Mysteries of Compensation at Yahoo
Marissa Mayer will get a $23 million severance package to after Yahoo sells its legacy Internet businesses to Verizon. If that seems a lot for what has been a relatively undistinguished tenure, don’t forget another $166 million in stock awards she has picked up along the way (even after giving up $20 million due to the cyber attacks that impaired the Verizon deal). No less remarkable is the fact that her successor, Thomas McInerney, will be getting a base salary of $2 million (twice Mayer’s) to act as a glorified trustee for investments in Alibaba, Yahoo Japan, and other smaller holdings.
• “Wayne” is to “Rex” as “Batman” is to “Bruce”
Secretary of State Rex Tillerson used an alias in internal e-mail traffic for at least seven years to send and receive information related to Climate Change and other matters while he was CEO of Exxon Mobil, New York Attorney General Eric Schneiderman said. The news, disclosed as part of Schneiderman’s probe into whether Exxon misled shareholders and the public over Climate Change risks, creates an impression of trying to avoid being snared in embarrassing e-mail trails. An Exxon spokesman said the account, email@example.com, “was put in place for secure and expedited communications between select senior company officials and the former chairman for a broad range of business-related topics.”
• Toshiba Hints at Chapter 11 for Westinghouse
Toshiba missed a second deadline for filing audited third-quarter earnings after expanding a probe into accounting irregularities at its U.S. nuclear business, Westinghouse. The company has been given another one-month extension by the Tokyo Stock Exchange. In a statement, it said it would “aggressively consider strategic options” for Westinghouse, a phrase interpreted by analysts as a strong hint at putting it into Chapter 11 bankruptcy, which would partly insulate the rest of the Japanese group from its liabilities.
• Trump Restores CIA Powers on Drone Strikes
President Donald Trump overturned a signature act of Barack Obama’s presidency by giving the CIA renewed authority to launch drone strikes against suspected terrorists. Obama had instructed the military, which operates under stricter rules of transparency and disclosure, to execute drone strikes recommended by the CIA, in an effort to cut the risk of mistakes that would generate anti-U.S. publicity and recruit more jihadists. Officials cast it as part of Trump’s plan to step up the campaign against ISIS in Syria. However, the CIA’s authority does not appear to be limited to that theater.
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Summaries by Geoffrey Smith Geoffrey.firstname.lastname@example.org;