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CEO Daily: Monday, 14th August

August 14, 2017, 11:20 AM UTC

Good morning.

President Trump is expected to return to Washington today from his working vacation in Bedminster, N.J., to sign an executive memo asking the United States Trade Representative to determine whether to investigate state-backed theft by China of intellectual property from American companies.

This is a welcome turn from the blunt anti-globalization rhetoric of the campaign, which was aimed equally at China and U.S. companies doing business there. By focusing on intellectual property theft, Trump is aligning himself with global business leaders who have long complained about the Chinese practice of requiring companies to partner with local firms, which then appropriate their technology.

FedEx CEO Fred Smith is one of the most passionate speakers on this topic. He led the effort to grant China entry into the World Trade Organization, and his company has invested heavily in the Asian giant. But at a Fortune dinner in New York in March, Smith didn’t pull his punches:

“The reality is that China, over the last 10 or 15 years, has been very mercantilist, very protectionist, has engaged in forced technology transfer, and has at least acquiesced, if not actively promoted cyber espionage. Those things need to change.

Could tough trade action by the U.S. force such change? It helps that the policy is headed by Bob Lighthizer, one of the few senior Trump aides with deep government experience. He’s well-versed in the use of Section 301 of the trade act, which allows for retaliation against unfair trade practices without authorization from the WTO. It also helps that China is developing more cutting edge technology of its own, giving it a greater interest in protecting intellectual property worldwide. Most China watchers are looking to the aftermath of the twice-a-decade party Congress this fall for clearer indications of Xi Jinping’s direction on economic reforms. (Promotion alert: that’s why the timing of the Fortune Global Forum in Guangzhou—Dec. 6-8—is so propitious. Details here.)

In the meantime, trade negotiations inevitably have become tied up with the showdown over North Korea. The Trump administration insists there is no connection between the two. But it’s not a coincidence that the administration’s trade briefing for reporters Saturday followed the president’s phone conversation with Xi Friday night.

More news below, including Elon Musk saying AI is a “vastly” greater risk than North Korea. Really, Elon?

Alan Murray


Top News

GOP Grandees Round on Trump Over Extremism

Senior Republicans urged President Trump to condemn without equivocation the violence of far-right groups after the killing of a protester in Charlottesville, Va. this weekend. The White House on Sunday issued a somewhat sharpened version of Trump’s initial condemnation, albeit one that still put far-right actions in the context of violence by “all extremist groups.” Vice President Mike Pence went where Trump chose not to go, telling a news conference: “We have no tolerance for hate and violence from white supremacists, neo-Nazis or the KKK. These dangerous fringe groups have no place in American public life and in the American debate, and we condemn them in the strongest possible terms.” Time

Instacart Embraces Aldi

German-based discount supermarket Aldi said it will launch a pilot project for grocery delivery in Los Angeles, Dallas, and Atlanta in partnership with Instacart. Aldi recently announced plans to raise its U.S. store count by over 50% to 2,500 by 2022, earmarking $3.4 billion for the project. The move arguably raises some questions over Instacart’s traditional ties to Wal-Mart, which has invested in it and which has an ongoing contract with it. Fortune

Merkel Steers to Avoid Car Crash

A six-week election campaign got underway in Germany this weekend. Chancellor Angela Merkel’s first campaign speech featured an unusual target: the country’s car industry, which she said had ”gambled away unbelievable amounts of trust” with its manipulation of emissions data. Merkel has made a career out of borrowing her opponents’ ideas to neutralize their threat, a talent she recently showed in allowing a vote that legalized gay marriage against her own (essentially conservative) party’s wishes. Her speech suggests she’s aware that her party’s closeness to the auto sector is one of the few things that stands between her and a resounding vote for a fourth four-year mandate. Fortune

The Sun Rises on Abe

Japan, the land of endless quantitative easing, chronic deflation, and population shrinking, is now the fastest-growing economy in the G7. The country said GDP rose at an annualized 4.0% in the second quarter, its best performance in two years, due largely to domestic demand. It’s a much-needed boost to PM Shinzo Abe, who has drawn increasing criticism as his signature reflation policies have failed to deliver. The numbers were all the more impressive for owing little to the country’s export sector, its usual engine of growth.  Reuters

Around the Water Cooler

No More Than 20 Million Dead–Tops!
Tesla and SpaceX founder Elon Musk warned that artificial intelligence poses “vastly more risk than North Korea” to humanity, a view that—to put it mildly—depends to a large degree on one’s perspective. The logic appears to be that a nuclear strike and counter-strike on the Korean peninsula would, as Doctor Strangelove’s General Jack T. Ripper put it, result in “no more than 20 million dead, tops!” whereas AI will lead all 7.5 billion of us to a future somewhere between The Matrix and Terminator. Either that or Musk has already dismissed the North Korean threat due to the lack of long-term strategic advantage to be had from playing the nuclear card, a leap of logic easier to take in California than Seoul or Tokyo right now. Fortune

Bitcoin Gets Back Into Overdrive

Bitcoin’s rally approached frenzied levels again over the weekend, hitting over $4,000 to the dollar. Most reports trace the rally’s latest leg back to the “SegWit2x” software upgrade that promises to make Bitcoin more capable of handling increased transaction volumes. A report last week by Goldman Sachs warning investors not to “ignore” Bitcoin any longer has also been taken by many as an invitation to close the eyes and open the mouth as wide as possible. Goldman, for the record, had said that Bitcoin could reach $3,915 —but only after some time. Fortune

Shonda Rhimes With Netflix, Contractually Speaking

Netflix has poached Shonda Rhimes. The creator of ‘Grey’s Anatomy’ and ‘Scandal' will move her production company from Disney’s ABC to the streaming service on terms that weren’t disclosed. Rhimes said the deal offered her “larger creative freedom,” which some took as a reference to mainstream media policies on language and nudity (and their dependence on advertisers). The news shows why Disney announced last week that it would move to a more openly adversarial relationship with Netflix, by withholding new movie releases from it. Fortune

Fakes Throw Shade at Amazon Ahead of Eclipse

A week of intense hype about the solar eclipse begun with Amazon having to offer refunds to customers who bought knock-off sunglasses that don’t offer wearers the protection they promised. Demand for such glasses has spiked in recent days. Anyone still looking for reliable viewers may want to consult the American Astronomical Society’s approved list first. Fortune

Summaries by Geoffrey Smith