Saturday, August 31, 2019

CEO Daily: Trump's Trade War with China is about to Hit Home

Our daily brief on must-read business news…and more.

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August 31, 2019

President Trump is calling Xi Jinping his friend again this week after briefly denouncing the Chinese leader as an “enemy.” But Trump isn’t backing away from his promise to keep piling tariffs on imports from Xi’s country until negotiators from the U.S. and China reach a trade deal.


The next round of duties kicks in tomorrow, when the Treasury will start collecting 15% tariffs on $112 billion of Chinese imports. Asked about the tariffs as his helicopter departed the White House for Camp David Friday, Trump answered with gusto: “They’re on!”


The new levies will test Trump’s claim that trade wars are “good and easy to win.” The president and his economic advisers, notably China hardliner Peter Navarro, have long insisted tariffs are paid by Chinese exporters and add billions in revenue to the U.S. Treasury. That assertion has been widely ridiculed by economists, who note that while China may bear some of the pain by lowering producer prices or devaluing the yuan, tariffs are collected from U.S. importers—who must then decide whether to eat the added expense themselves or pass it on to consumers.


Until now the “who pays?” debate has been mostly academic. As the Associated Press points out, U.S. consumers have been shielded from the impact of Trump’s trade war with China because the administration “left most everyday household items off its tariff list…and instead targeted industrial goods.”


No more. Tariffs that take effect tomorrow will include 70% of the consumer goods Americans buy from China, including smart watches, TVs, shoes, diapers, sporting goods, meat and dairy products. Trump has vowed to impose higher tariffs on an additional $160 billion worth of Chinese products on Dec. 15. By that point virtually all U.S. consumer goods imported from China will be taxed, according to calculations by the Peterson Institute for International Economics.


This week a chorus of U.S. executives condemned Trump’s tariffs, warning that higher China duties will hurt American firms and force them to hike prices. Columbia Sportswear CEO Tim Boyle told CNBC the new tariffs would oblige his company to raise prices and abandon some product categories. "I don't see the issues that the president talks about," Boyle said. "I think it's easy to point fingers at China.” Jay Forman, CEO of toy manufacturer Basic Fun, groused China tariffs were making it impossible for small businesses like his to plan.


Yale University management expert Jeffery Sonnenfeld told CNBC Trump’s China strategy is making corporate America "an increasingly unhappy group.” Over 160 industry groups signed a letter opposing Trump’s tariffs.


Trump, predictably, lashed back at business critics. "Badly run and weak companies are smartly blaming these small Tariffs instead of themselves for bad management," he tweeted Friday. "Excuses!"


The bigger worry for Trump is that his tariffs risk losing the support of farmers as well as business leaders. New York Times columnist Paul Krugman, in an epic rant, concludes farmers will stick with Trump even though his China policies are ruining them. But a series of recent polls and surveys of farmers suggests they aren’t as blindly loyal as Krugman assumes.


The wild card in all of this is Hong Kong. Trump has suggested the U.S. won’t sign a trade deal with China unless Xi deals “humanely” with pro-democracy demonstrators in this city. But as I write, tens of thousands of protestors here have taken to the streets again in defiance of warnings from the Hong Kong government and Beijing.


In Hong Kong, as in his dealings with Trump on trade, Xi shows no signs of backing down.


Clay Chandler
– Clay.Chandler@Fortune.com
– @claychandler


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Trade and Economy


Unfazed. Hong Kong's Hang Seng Index ended the month as the worst performer in worldwide markets as August marked the city's third consecutive month of economy-roiling protests. The index dropped 7.4% in August, but mainland Chinese traders were unperturbed, taking advantage of Hong Kong's cheap equities and buying stocks every day of the month through Friday. Mainland investors have spent $8.9 billion buying shares in Hong Kong over the last six weeks. South China Morning Post


Endurance test. Economists say China should beef up domestic consumption and production and diversify supply chains beyond the U.S. to fortify its economy against the trade war. They note that the domestic consumption and investment contribute more to growth than foreign exports, and a Deutsche Bank report said as much as 80% of China's exports went to countries other than the U.S. ANZ called the trade war's impact on China's growth "over-rated." CNBC  


Free trade perks. China announced new preferential policies to attract foreign firms to Lingan Special Area in Shanghai's free trade zone. Companies in the FTZ will enjoy lower income taxes, tax subsidies, and eased restrictions on property purchases, cross-border capital flows, and currency exchange. Lingan was in the works before the trade war, but U.S. tariffs are putting new pressure on China to increase foreign investment coming in from countries besides the U.S. Bloomberg


Innovation and Technology


Blued. China's largest gay-dating app, Blued, is planning to list in the U.S. next year. The initial public offering could raise $200 million and value the app at around $1 billion. Blued was founded in 2012 and has 40 million users. As of March it raised over $130 million in venture capital funding. The world's largest gay dating app, Grindr, owned by the Chinese firm Beijing Kunlun Tech Co., is also planning a U.S. IPO. Bloomberg  


Fierce competition. China's largest search engine Baidu Inc. has been shunted off the list of the country's top five most valuable internet companies once again, this time by e-commerce firm Pinduoduo Inc., whose market cap surpassed Baidu's at close on Thursday. Pinduoduo is backed by Tencent Holdings Ltd. and its share price has risen almost 90% since it debuted on Nasdaq in July 2018. Caixin Global  


Exempted. China said on Friday that it will exempt Tesla Inc. vehicles from a 10% purchase tax, which could reduce the cost of a Tesla car by almost $14,000 for Chinese consumers. The exemption comes in the midst of the U.S.–China trade war and Tesla's expansion into the Chinese market. The company is opening its first overseas factory in Shanghai, rolling out China-focused promotional campaigns, and Tesla CEO Elon Musk has met with senior Chinese officials. Reuters


Look ma, no hands. Chinese ride-hailing firm Didi Chuxing is testing a self-driving vehicle service in Shanghai. Customers in Jiading district who order a ride on the Didi app will be able to choose whether they want a normal car or a self-driving car to pick them up, though the autonomous vehicles will be staffed with human drivers, at least for the pilot program. Didi currently has 550 million users who take 10 billion passenger trips a year. Reuters 


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Content From Deloitte

Redefining Retail


Many traditional retail success metrics are becoming obsolete in today's digitally enabled economy. As the retail industry evolves, so should the measurements we use to assess overall business health and efficiency.  In this report, Deloitte examines how businesses can adapt to a new retail reality.


Read more


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In Case You Missed It


Young Chinese Spend Like Americans—And Take on Worrisome Debt Wall Street Journal


Why Hong Kong Protesters Target Smart Lamp Posts Abacus News 


Baidu's A.I. bet is more than it can afford Technode


'Now We Make Them Here': India Joins China as Smartphone Builder Bloomberg 


Netflix film on Fuyao's US plant reveals the harsh truth of globalization Week in China



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Politics and Policy


"Her hands are tied." The Chinese central government shot down a proposal from Hong Kong chief executive Carrie Lam that suggested acceding to some of the Hong Kong protesters' demands. Three unnamed sources, including senior officials in the Hong Kong and Chinese governments, told Reuters that Lam submitted a report analyzing the protesters' five key demands and recommended complying with two—withdrawing the controversial extradition bill, and conducting an independent inquiry into police conduct in the protests. Reuters 


Arrests in Hong Kong. Hong Kong police arrested at least six pro-democracy activists on charges of inciting or participating in unlawful assembly on Friday, including Agnes Chow and Joshua Wong, high-profile members of the political group Demosisto. Wong is a figurehead of the 2014 Umbrella Movement, but has not played a prominent role in this summer's anti-government protests, which are decentralized and lack recognizable leaders. The police also banned a rally scheduled for Saturday, setting the stage for escalated confrontation this weekend. Wall Street Journal


Kicked out. China "effectively expelled" Beijing-based Wall Street Journal reporter Chun Han Wong by declining to renew his press credentials. Wong covers Chinese politics for the newspaper, and last month co-wrote a story investigating allegations that one of Xi Jinping's cousins may be involved in gambling and money laundering operations in Australia. Chinese authorities have withheld or refused to issue visas to foreign journalists before, but Journal reporters have remained relatively unscathed until now. Washington Post


This edition of CEO Daily was edited by Naomi Xu Elegant. Find previous editions here, and sign up for other Fortune newsletters here.


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Friday, August 30, 2019

raceAhead: Five Breaking News Haikus

On culture and diversity in corporate America.

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August 30, 2019

Here's your week in review, in haiku.


It feels like the world
is tumbling toward the edge,
aflame and at war,


marching in the streets,
languishing at the border.
Cruelty is the point.


Here's to the work: the
commemorators, and to
leaders taking risks


Labor on the Day
for resilience! RGB
notoriously

comes back from cancer
faster than we recover
from her name trending.


Have a restful long weekend! RaceAhead returns Tuesday, September 3. Sending love to all in the path of Dorian. 


Ellen.McGirt@fortune.com
@ellmcgirt


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On Point


Trump administration to deport kids being treated for life-threatening illnesses Families who have been granted special permission to be in the U.S. to get specialized medical care for a loved one have now been told that they have 33 days to leave the country. It is expected the policy will be applied retroactively to anyone who has filed an application on or before Aug. 7, 2019. The stories are wrenching. "This is a new low even for Donald Trump," Sen. Ed Markey, (D-Mass.), said in a conference call with reporters Thursday. NBC News 


Women of color are dying to be beautiful Worse, they may not even realize it. In a global marketplace still informed by anti-black standards of beauty, women of color all over the world are using bleaching creams on their skin. The issue: Many are laced with mercury, even when manufacturers claim they are safe. Compounding the problem are the counterfeit creams, created by bootleggers trying to get a piece of the estimated $20 billion industry. Praise to the "mercury hunters of Manilla" profiled in this piece, they are a small part of a necessary group of stealth product testers and watchdogs trying to get the toxic products out of the hands of women. Bloomberg Businessweek


Coco Gauff and Naomi Osaka are poised to meet in a GOAT match-up for the ages If you don't know already, COCO GAUFF IS FIFTEEN, as every journalist is obligated to shout, and yes, she is absolutely killing it at the U.S. Open. She is the youngest player to reach the third round of the U.S. Open since 1996 and is now a full-grown American tennis darling. The crowd, who has developed a specialty chant just for her, loves her and she loves them back. "I mean it gets me super pumped and I'm like, wow I'm really so grateful I'm playing in front of all you guys and you actually believe in me and, like, this is just the beginning I promise and I promise to always fight for you guys and thank you so much for all your support." She takes on Naomi Osaka tomorrow. Enjoy the new normal. Deadspin


In search of shared sisterhood at work This is the poignant quest undertaken by Beth A. Livingston and Tina R. Opie, both researchers and management professors. (Opie's name may be familiar, she's the founder of hairasidentity.com and naturalhairatwork.com .) The idea of alliances or meaningful connections between women, "allows us to share struggles together, realize that we're not alone, that the pain we're going through is something bigger than us," says Opie. But when they created a survey to explore the theme of workplace sisterhood, they found a significant difference in how "inclusive" environments were experienced by white and black women. "You can't build meaningful connections between women of different races and ethnicities, let alone ask them to advocate for their collective advancement, if black and Hispanic women report being excluded from the relationships required to make an organization run." A must read and share. HBR


On Background


Thank hundreds of men named George for your day off  Labor Day is the result of many worker-rights efforts in the late 1800s, and the holiday was made official by President Grover Cleveland in 1894. But the most dramatic of these protests came from Pullman sleeping car company workers, all black men, who endured brutal and demeaning working conditions for very little pay. Owner George Pullman, who insisted all the porters be called "George," laid off hundreds of people while cutting the wages for others, during the recession of 1893. A strike followed, which halted rail traffic and commercial activity across much of the country. With one hand, Cleveland signed the Labor Day bill into law, with the other, he sent federal troops to Chicago to stop the walkout. It quickly turned bloody. Angry mobs set fires to rail cars and the National Guard opened fire on masses of people, killing 30, and wounding many more. History Channel


Why upstate New York knows only one kind of barbecue chicken  It's a funny story, perfectly timed for a world still recovering from chicken fever. In 1950, Robert C. Baker, a professor at Cornell University, had a big quest: To get meat-loving Americans (ie. white ones) to each more chicken. It was a tall order at the time, but the agricultural extension specialist was determined to grab some market share from the growing pork industry. To get the locals on board, he published a recipe for a vinegar-based brine in a Cornell newsletter that ended up igniting a type of chicken-fueled mania across upstate New York that rivaled The Sandwich of last week. The recipe was so popular that families wouldn't show up for community or sporting events unless it was served. Put some respect on his name, he also invented the chicken nugget. Click through for the story and the recipe. Atlas Obscura


Let's talk about system change  Sheila Cannon is a researcher and assistant professor of social entrepreneurship at Trinity College Dublin. In this fascinating piece, she explores what it actually takes to get entrenched systems and societal attitudes to change, using what she's learned, in part from her research on the LGBT movement in Ireland, and the decades-long quest to turn same-sex relationships from a crime to a human right. In this case, she's tackling climate change, building on the momentum created by Greta Thunberg, the teen Swedish climate activist. The idea is to not adopt "token gestures" that may hurt more than they help. "System change happens when we don't take our assumptions for granted, which allows more and more people to question the status quo," she says. Click through for her whole rationale and be prepared to do some soul—or bottom line—searching. "Capitalism may seem permanent, but research shows that systems inevitably change over time, and are ultimately created and reinforced by us. But in order to change anything, people must question their own role in the system first." Silicon Republic


Tamara El-Waylly helps write and produce raceAhead.


Did someone who cares about you share this newsletter with you? Pay it forward here. Sign up for your own daily RaceAhead here. Find previous columns here.


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Content From SAP

The Support of Her Company


How a company supports employees through the pivotal moments in their lives matters. ThriveXMIndex focuses on five key experiences (Career, Family, Health, Financial, and Time). Here, SAP SuccessFactors CMO Kirsten Allegri Williams shares how she reintegrated back to work after beating cancer. Watch the video


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Quote


"As the role of the Pullman porter began to be diminished in the forties and the fifties, the culture and the racism of the south had not changed. And, as an example, some people who traveled the south were often so angered by it that they avoided it as much as they could—the rejection in the same hotel where you may have been the star in the front room [but] where you couldn't get anything to eat or a place to sleep. Duke Ellington, as an example, rented or purchased two [Pullman] cars for his orchestra. And when they would finish with their assignment they would return to this to sleep and to eat and to practice. They never felt that insult."

- Timuel Black, historian


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