If anyone doubts that globalization – the defining trend of post-World War II history – has hit a serious roadblock, this morning’s news should convince them otherwise.
First, there is the extraordinary theater of Donald Trump’s trip to Mexico, followed by his doubling down on hardline immigration policies in Arizona. One wonders what President Peña Nieto was thinking when he agreed to meet Trump.
Then there is Tim Cook’s blistering response to the EU’s $14.5 billion tax ruling against Apple, telling the Irish Independent that the ruling was “total political crap” with “no basis in law or fact.” Cook called on the Irish people to stand with him, saying “Ireland is being picked on.”
Protectionist finger-pointing is also on the rise in advance of the G-20 summit in Hangzhou, China, this weekend. The European Union Chamber of Commerce in China has released a report charging that the Chinese are tightening restrictions on investment, even as they move to snap up European companies such as biotech giant Syngenta. China has responded by saying it is the victim of protectionism, not the perpetrator. China and Australia are also exchanging trade allegations.
Writing this morning on Bloomberg View, Mohammed El Erian says the trend will continue. While G-20 meetings in the past have been an opportunity for nations to reaffirm their commitment to globalization, this time is different. “We should expect a further shift, especially in the short term, away from cross-border integration across regions or within them.”
• Trump Returns to Being Trump
Donald Trump signaled he would end his campaign as he began it, promising to build a wall paid for by Mexico, deport millions of people in the U.S. illegally and stoking fears about those in the country without legal status. In a speech in Phoenix, Trump made clear that there would be none of the “softening” he promised just weeks ago. He outlined a 10-point plan that was a greatest hits compilation of his most polarizing statements, including the creation of a deportation task force and an ideological test for potential immigrants, as well as the suspension of immigration from certain countries. Suggestions of an amnesty-by-another-name were also quashed, with Trump saying there would be no legal status for any of the 11 million undocumented people in the U.S. unless they first “return home” and re-apply for entry. Earlier, Trump had discussed his plans for a wall with Mexican Predident Enrique Peńa Nieto, but said they didn’t talk about who would pay for it. Fortune
• This is What ‘Brexit Means Brexit’ Means
The U.K. government signaled that it would prioritize border control and curbing migration over fully free trade as it negotiates its separation agreement from the EU. That rules out full membership of the Single Market through the so-called ‘European Economic Area’, which would have been the least disruptive option for business. Prime Minister Theresa May said the country would aim for a tailor-made deal, rather than copy the kind of deals currently enjoyed by Switzerland or Norway. That raises the risk of the negotiations over-running the two-year timeframe foreseen in the EU treaty. May has already said she won’t trigger the start of that period until next year. She told cabinet colleagues at their first serious meeting since the summer recess that there would be no attempts to keep Britain in the EU ‘by the back door’, disappointing those who had hoped that a second referendum or a parliamentary vote could overturn the result of the June 23rd vote. The economy continues to churn out better-than-expected news, meanwhile. The country’s manufacturing sector grew at the fastest rate in 10 months in August, according to Markit’s PMI. BBC
• Samsung’s Revival Goes up in Smoke
Samsung shares fell to a two-week low on alarm at spreading reports of problems with the batteries in its new flagship smartphone, the Galaxy Note 7. The company has halted shipments to the top three carriers in Korea after users posted videos on social media that appeared to show the phones catching fire. The batteries are made by a sister company in the Samsung empire. Korean media said the company is planning a recall of those phones that have already shipped, but the company hasn’t confirmed this yet. It’s an abrupt end to the buzz that had returned to the company after strong performances in the last two quarters. The news comes at a particularly bad time, with arch-rival Apple about to launch the new generation of the iPhone next week. Fortune
• Dilma Departs
Dilma Rousseff was formally thrown out of office by Brazil’s senate, which voted 61-20 in favor of her impeachment on corruption charges. The vote draws a line under 13 years of rule by the left-wing Workers Party, which began with huge optimism and improvements in living standards, but blew up spectacularly as the commodities boom ended, exposing how thoroughly the ruling circles had been corrupted. Her center-right successor Michel Temer begins the process of renewal from an awkward starting point, to say the least. The economy has contracted for six straight quarters, and many of the senators that impeached Rousseff last night are themselves implicated in the same ‘Lava Jato’ (‘car wash’) scandal that finally brought her down. Despite that, Brazil’s stock market is the world’s best performing so far this year, while the real has strengthened 20% against the dollar from its record low in February. Time
Around the Water Cooler
• Elon Musk’s Cash Squeeze
Tesla Motors said it will raise new equity again by the end of the year to support its proposed merger with SolarCity. Tesla also said it has to repay $422 million to bondholders by the end of September, a drain on its balance sheet that comes at an inconvenient moment, given the controversial merger plan. According to The Wall Street Journal, the number of people outside the Musk family willing to support SolarCity is vanishing small: 15 institutional investors passed on either buying it or injecting equity into it, it said. The news comes only a week after Musk and his cousings said they would buy more than 80% of a $124 million bond issue by SolarCity, which has burned through two-thirds of the $421 million it had in halfway through last year. Without that support, it would be much harder for Musk to convince Tesla shareholders that SolarCity’s equity is worth what he says it’s worth. WSJ, subscription required
• Salesforce Slowdown Spooks Investors
Salesforce shares tumbled some 7% in after-hours trading as the company said its growth outlook had weakened after a soft quarter in the U.S. market. Underlying earnings met Wall Street forecasts. CEO Mark Benioff shied away from saying when the company would meet its oft-stated goal of $10 billion in annual revenue. Recent acquisitions such as e-commerce company Demandware will contribute to that growth, but the company only revised its revenue guidance for the current fiscal year to $8.33 billion. Benioff gave no specific reason for the slowdown, leaving others to guess how much could be down to the revival in the fortunes of rivals such as Microsoft and SAP. Benioff talked up the company’s artificial intelligence project (‘Einstein’), promising to reveal more details at its annual Dreamforce conference in a few weeks. Fortune
• Orange Tiptoes Into Iran
Orange SA, the company formerly known as France Telecom, has started talks with Iran’s largest mobile carrier, in what would mark the first acquisition of a stake in a major Iranian company since the lifting of sanctions on the Islamic Republic, The Wall Street Journal reports. The deal is made more complicated by the fact that Mobile Telecommunication of Iran’s parent company is owned by companies that appear to be controlled by members of Iran’s Revolutionary Guard, and thus highly exposed to any renewal of sanctions if relations with the West turn sour again. Moreover, Orange (itself 23% state-owned) needs financing for the acquisition, and the appetite for fresh Iran exposure at places like BNP Paribas-still smarting from a multi-billion DoJ fine for money-laundering—can only be imagined. WSJ, subscription required
• The President is not Dead, He’s Just Resting
Nothing gladdens the heart quite like the congratulations of a neighbor on your independence day celebration. So Uzbekistan’s Islam Karimov, must have particularly enjoyed Vladimir Putin’s congrats on 25 years of independence from the Soviet Union this week. Or at least he would have done if he weren’t dead. OK, it’s only the opposition websites that are claiming that at the moment, official media are still saying that he is stable after being taken ill at the weekend. His daughter Lola (the non-exiled one) said he had suffered a brain hemorrhage. But anyway, the congrats will give useful cover until an orderly succession can be arranged. Karimov’s brutal, secular dictatorship has kept a lid on Islamist-led opposition in Central Asia’s most populous country (to the relief of both Russia and China), while never addressing its grievances—widespread poverty and elite corruption. If nothing else, Putin’s timing has improved: his congratulations to Viktor Yanukovych before Ukraine’s official election result in 2004 had played a big role in stoking the ‘Orange Revolution’ that thwarted Yanukovych’s efforts to steal the presidency. RFERL