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Sales to Huawei continue, despite U.S. ban
U.S. chip makers are still selling products to Huawei, despite the Trump administration’s ban on the sale of American technology to the Chinese company, Paul Mozur and Cecilia Kang of the NYT report.
• “Industry leaders, including Intel and Micron, have found ways to avoid labeling goods as American-made,” according to unnamed sources.
• Some companies have been advised that hardware could “still be supplied to Huawei if it is manufactured outside the United States and doesn’t contain technology that can pose national security risks.”
• But services such as troubleshooting or instructions delivered from the U.S. would not be allowed.
• “Components began to flow to Huawei about three weeks ago.”
The precise nature of the sales is unclear. “American companies may sell technology supporting current Huawei products until mid-August. But a ban on components for future Huawei products is already in place. It’s not clear what percentage of the current sales were for future products.”
Some U.S. officials feel that the sales “violate the spirit of the law and undermine government efforts to pressure Huawei, while others are more supportive because it lightens the blow of the ban for American corporations.”
Either way, “the sales will help Huawei continue to sell products such as smartphones and servers, and underscore how difficult it is for the Trump administration to clamp down on companies that it considers a national security threat.”
More: Hank Paulson, the former Treasury secretary, argues that America could hurt itself by continuing to “Balkanize” the tech world. And Huawei says that two-thirds of 5G networks outside China now use its hardware.
Today’s DealBook Briefing was written by Andrew Ross Sorkin in New York, and Michael J. de la Merced and Jamie Condliffe in London.
Patents spurred Big Pharma’s latest megadeal
AbbVie agreed to buy Allergan, the maker of Botox, for $63 billion yesterday. It’s one of the biggest takeovers in the health care industry in recent years — and it was driven by a drug poised to lose its patent protection, Katie Thomas and Michael de la Merced of the NYT report.
AbbVie’s best-selling treatment, Humira, will face more competition soon. Generic versions of the rheumatoid arthritis drug are already available in Europe, and they’re expected to go on sale in the U.S. in 2023.
So it did what pharma companies usually do: shop. Buying Allergan is the latest example of a drug company choosing M.&A. over the slower, costlier process of developing new products. This year alone, Bristol-Myers Squibb paid $74 billion to acquire Celgene, and Pfizer spent $11 billion on Array BioPharma.
AbbVie promised big benefits from the deal. It expects to reap at least $2 billion in annual cost savings three years after the transaction closes, largely by cutting R.&D. and marketing expenses.
But it will come at a cost. AbbVie is paying a 45 percent premium for Allergan, whose portfolio is largely limited to aesthetic medications. And it will take on $38 billion in additional debt from the deal.
Shareholders appear worried. AbbVie’s stock plunged 16 percent yesterday, raising questions about whether the deal can cross the finish line. Still, Charley Grant of Heard on the Street says investors may be out of luck: “It isn’t clear that AbbVie has better options available.”
Jay Powell insists the Fed is independent
The Fed chairman said yesterday that the central bank is still weighing whether to reduce interest rates this year — but he made clear that the institution won’t be bowing to political pressure from President Trump if it does.
Global conditions might make a cut necessary, Mr. Powell said. Economic “crosscurrents have re-emerged, with apparent progress on trade turning to greater uncertainty,” he told the Upshot’s Neil Irwin.
But he stopped short of guaranteeing it, saying the Fed would be watching how economic events — like Mr. Trump’s planned meeting with President Xi Jinping of China at the Group of 20 summit meeting this week — unfold.
And any cuts may be modest, Fed officials suggested. The president of the St. Louis Fed, James Bullard, said that he would back a reduction of 0.25 percentage points, rather than the 0.5 percentage point cut anticipated by many investors.
Mr. Powell emphasized the Fed’s independence, saying that the central bank wouldn’t be swayed by “short-term political pressures.” That was a thinly veiled rejoinder to Mr. Trump, who tweeted on Monday that the central bank “blew it” by not lowering rates by now.
“The independence of the Fed from direct political control is an important institutional feature that has served the country well, served the economy well,” Mr. Powell said. “When you see central banks lacking those protections, you see bad things happening.”
More: Some analysts think the markets are bullying the Fed into cutting rates.
Even Facebook’s partners are uneasy about its cryptocurrency plan
Executives at some of the 27 companies that signed up to be a part of Facebook’s new cryptocurrency project, Libra, say that they’re approaching it with caution, Nathaniel Popper of the NYT writes.
• Some partners “signed nonbinding agreements to join the effort partly because they knew they weren’t obliged to use or promote the digital token and could easily back out if they didn’t like where it was going,” according to unnamed executives at seven of the companies.
• “Companies are hesitant to associate themselves too closely with the Libra project because of Facebook’s issues with regulators around the world, the company’s shaky track record on privacy and how it treats corporate partners, and the uncertain legality of cryptocurrencies.”
• And financial firms, including Goldman Sachs, JPMorgan Chase and Fidelity, declined to join, “in part because of regulatory questions about cryptocurrencies.”
They have more reasons to worry about Libra:
• The House Financial Services Committee has scheduled hearings to examine the cryptocurrency. Its chairwoman, Representative Maxine Waters, has reiterated her call for a moratorium on the project.
• Jay Powell, the Fed’s chairman, said yesterday that the central bank would be looking at Libra “very carefully.”
• And the Financial Stability Board and Britain’s Financial Conduct Authority both plan to closely scrutinize the project, the FT reports.
How the G-20 could jump-start trade talks
President Xi Jinping of China and President Trump are expected to hold an “extended” discussion this week during the Group of 20 meeting in Japan. The U.S. hopes to use it as a springboard for restarting trade negotiations, Reuters reports, citing an unnamed senior U.S. official.
• “The two sides could agree not to impose new tariffs as a good will gesture to get negotiations going, the official said, but he said it was unclear if that would happen.”
• “The United States was not willing to come to the Xi meeting with concessions, said the official.”
• “Washington wants Beijing to come back to the table with the promises it withdrew before talks broke down, he said.”
• Treasury Secretary Steven Mnuchin told CNBC that the government is “about 90 percent of the way there” to a deal, and that one could be struck by the end of the year.
China has said that both sides will need to compromise to reach a trade agreement. Chinese consumers are becoming cautious, the WSJ reports, which “could weaken President Xi’s hand” during talks with Mr. Trump, but he will also be anxious not to appear weak to his citizens.
So the G-20 meeting will have high stakes, with both leaders keen to make progress but neither willing to back down. If the talks go well, expect the stock markets to celebrate; if they go badly, expect the outlook for the global economy to darken in the second half of the year.
More: Big U.S. companies continue to be worried about how additional tariffs could hurt the American economy.
Is there collusion in the poultry aisle?
The Justice Department has intervened in a class-action lawsuit that accuses huge chicken producers, including Tyson Foods and Pilgrim’s Pride, of price-fixing, David Yaffe-Bellany of the NYT reports.
• The Justice Department asked the federal court overseeing the case to halt the discovery process for six months as it pursues a criminal investigation.
• “The lawsuit was filed by Maplevale Farms, which claims that big producers had colluded to ‘fix, raise, maintain, and stabilize’ the price of broiler chickens, which account for 98 percent of all the chicken meat sold” in the U.S., according to Mr. Yaffe-Bellany.
• The lawsuit alleges that the chicken companies shared unusually detailed information with the data service Agri Stats, on everything from the age of breeder flocks to monthly operating profits.
• From 2008 to 2016, the wholesale price of broiler chicken increased by 50 percent, even as the main costs of chicken breeding — corn and soybeans — fell significantly, the lawsuit alleges.
• Representatives for the chicken producers denied the allegations or declined to comment.
Ken Lerer has stepped down as the chairman of BuzzFeed.
John Sanders will resign as the acting head of Customs and Border Protection amid uproar over the treatment of detained immigrant children.
The White House named Stephanie Grisham, a top aide to Melania Trump, as its new press secretary and communications director.
Michael Echenberg is stepping down as the C.F.O. of Care.com.
KKR hired Jérôme Nommé, most recently a managing director of Sun Capital, as the head of its Paris office.
Peter Hochholdinger has reportedly stepped down as the head of production at Tesla’s car plant in Fremont, Calif.
The speed read
• Bondholders of PG&E have proposed a $30 billion turnaround plan for the bankrupt California utility. (WSJ)
• Apple said that it has acquired the autonomous car start-up Drive.ai. (Reuters)
• Miniso, a Chinese household goods retailer, is reportedly planning to stage an I.P.O. that could raise $1 billion. (Bloomberg)
• Condé Nast has sold W, the bimonthly fashion magazine, to Future Media. (NYT)
• StockX, an online sneaker marketplace, has raised $110 million at a valuation of over $1 billion. (NYT)
Politics and policy
• Jared Kushner, President Trump’s son-in-law and a White House adviser, is using a conference of business executives in Bahrain to push his Middle East peace plan. (NYT)
• Federal budget deficits could soar to “unprecedented levels” over the next 30 years, posing big risks for the economy, according to the Congressional Budget Office. (Axios)
• Joe Biden once bragged about being the poorest U.S. senator. Since leaving the vice presidency, he has made millions from book deals and $200,000-a-pop speaking gigs. (WaPo)
• Employees of Wayfair plan to walk out of the home furnishing giant’s headquarters today to protest its work with a contractor that operates shelters for migrant children near the border. (NYT)
• SpaceX’s Falcon Heavy rocket took flight again yesterday, putting a solar sail, an atomic clock and the ashes of 152 people into space. (NYT)
• Huawei has reportedly shut down its solar business in the U.S. (FT)
• Robots could displace 20 million manufacturing jobs by 2030, according to a new report. (Bloomberg)
• LinkedIn is turning its attention to niche professional conversations, rather than viral content. (Axios)
Best of the rest
• U.S. prosecutors have joined a global crackdown on insider trading. (Bloomberg)
• The Los Angeles billionaire Eli Broad has joined the ranks of the superrich calling for higher taxes on themselves. (NYT Op-Ed)
• Media companies may be facing a Trump slump. (Axios)
• Should people be able to copyright the law? (NYT Op-Ed)
• Why transparency on medical prices could actually make them go higher. (Upshot)
• What do today’s college students want? Collaborative study spaces, Uber pickup zones and 3D printers, apparently. (NYT)
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