Home / Business / The Global Economy Has a ‘Trilemma.’ There’s a Way to Fix That: DealBook Briefing

The Global Economy Has a ‘Trilemma.’ There’s a Way to Fix That: DealBook Briefing

The problem: If a democratically elected government wants to assert more national influence over its economic relationships, it may have to pull out of arrangements designed to deepen global integration. That is what Mr. Trump appears to be attempting with his trade policies. The two parties that attempted to form a coalition government in Italy favored policies that would have brought it into sharp conflict with the European Union.

The United States is probably big enough that it can pull back from international trade agreements without causing itself severe near-term pain. But Italy is in a much weaker position, as the recent sell-off in Italian government bonds shows. Pressure from investors and leaders within the E.U. may well persuade Italy to back away from policies that diverge from the bloc’s orthodoxy. But abiding by the E.U.’s rules may not stimulate Italy’s economy. That could, in turn, increase support for the populists.

A solution? The trilemma points to a way to defuse the tensions gripping the global economy. Countries might for a time dial back their ambitions for international integration and consider some policies that allow greater national sovereignty. Mr. Rodrik said this sort of compromise was a feature of the Bretton Woods regime, the international system of monetary cooperation that effectively ended in 1971.

As Mr. Rodrik wrote:

Finally, we can downgrade our ambitions with respect to how much international economic integration we can (or should) achieve. So we go for a limited version of globalization, which is what the postwar Bretton Woods regime was about (with its capital controls and limited trade liberalization). It has unfortunately become a victim of its own success. We have forgotten the compromise embedded in that system, and which was the source of its success.

— Peter Eavis

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President Xi Jinping

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Thomas Peter/Associated Press

How China plans to continue its rise as a tech powerhouse

Highly targeted research efforts and global collaboration are toward the top of the nation’s checklist for dominating the world of technology.

At a joint meeting of the Chinese Academy of Sciences and the Chinese Academy of Engineering on Monday, President Xi Jinping of China outlined what he considered to be some of the world’s most important technological priorities. In particular, he cited A.I., quantum information, mobile communication, the internet of things, and blockchain as breakthrough technologies with big potential.

Nothing particularly new there, really. But he also explained some of his plans for making sure that China dominates the R.&D. underpinning those technologies.

Part of that includes a focus on basic scientific research into carefully chosen areas with clear, real-world applications — a “problem-oriented” approach, as he put it. Much of that might be done at a series of new national laboratories, which will focus on those themes.

Also interesting was his insistence that seeking talent and collaborating with other nations would be a vital part of China’s success. He said that solving some of the world’s biggest problems,from climate change to food security, would require a global effort. And he called out human talent as a precious resource, and an area in which, he feels China, still lags.

The flip side: Politico argues that China’s assent as tech powerhouse isn’t a done deal.

— Jamie Condliffe

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Charles Platiau/Reuters

Sanofi enters the ‘Roseanne’ debate on business and social activism

For the past 24 hours, the controversy over “Roseanne” has centered on Walt Disney’s ABC, which canceled the TV show after its eponymous star posted a racist insult on Twitter. But on Wednesday, the drug maker Sanofi waded into the discussion — throwing a little shade toward Roseanne Barr, who blamed her inapprortate tweeting on the company’s Ambien sleep aid.

Beyond scoring points on Twitter, Sanofi inserted itself into the broader issue of how companies should respond to social justice issues.

Disney ended what had been its highest-rated show last season because of outrage over Ms. Barr’s offensive posts. Starbucks embraced a national discussion over race yesterday by shutting 8,000 of its stores so that employees could take bias training. At the other end of the spectrum, the N.F.L. essentially banned discussion of race issues from its workplace with its prohibition on national anthem protests on the field.

Sanofi’s tweet isn’t nearly the same broad gesture as those. But it shows that the company is engaging in the debate on social issues all the same.

In related news: President Trump has finally weighed in on Disney’s decision to cancel “Roseanne,” a show whose success he had cheered.

— Michael de la Merced

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Lucas Jackson/Reuters

The showdown over Fox has a date

Shareholders are scheduled to vote on Walt Disney’s $52.4 billion bid for most of 21st Century Fox on July 10, Fox disclosed on Wednesday.

The significance: That is just a few weeks after a federal judge is expected to rule in the Justice Department’s lawsuit over AT&T’s $85 billion bid for Time Warner. The trial is being closely watched throughout the media industry — and especially by Comcast, which is weighing a challenge to Disney’s bid for Fox. Though Comcast is likely to bid for Fox no matter what, it would be emboldened by an AT&T victory.

The state of play: Comcast said publicly last week that it was working on a potential offer, precisely because it wanted Fox shareholders to at least hesitate before throwing their support to Disney’s offer. Disney is reportedly looking at ways to shore up its proposal, including by raising money to add cash to its all-stock bid.

— Michael de la Merced

When a C.E.O.’s pay isn’t their pay at all

One day you’re earning $1.5 million per year, the next the figure has $10.9 million. According to the WSJ, that’s what happened to David King, the C.E.O. of the health care diagnostics company Laboratory Corporation of America.

But it wasn’t a pay rise — it was a mistake. More from Theo Francis of the WSJ:

At least 16 companies in the S&P 500 have changed 2016 pay figures by more than 10 percent for one or more executives, while 17 did so for 2015 pay, a Wall Street Journal analysis of data from MyLogIQ LLC shows.

Many changes, like LabCorp’s, are errors caught after companies send proxies to shareholders and the Securities and Exchange Commission. Others can reflect changes in how the company decides to present the perks it has provided. In at least one case, the revised figure was the result of a retroactive pay cut.

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Satya Nadella, Microsoft’s C.E.O.

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Kyle Johnson for The New York Times

The big money to be made in the A.I. cloud

Microsoft’s leapfrogging Alphabet in market value and new hardware from Nvidia are the latest signs that democratizing artificial intelligence tools is a lucrative business.

The world is rapt by A.I. and the way it could be used to transform all kinds of industries. The problem: The technology requires stacks of computing power and significant expertise. So some companies have been creating A.I. software that’s easier to use, then hosting it on their own cloud servers so people can pay for just the processing that they need to do, rather than shelling out for their own exotic hardware.

According to CNBC, Microsoft’s market value on Tuesday, at $749 billion, nudged past that of Alphabet, at $739 billion. It’s the first time that has happened in three years, and it’s in part because of a recent Microsoft reorganization that placed the company’s cloud computing and A.I. operations — and their intersection — front and center of its business plan.

Amazon and Google are both pushing their own A.I. cloud systems, too, and hard. Late last year, Amazon’s incredibly successful cloud division, Amazon Web Services, rolled out software to help regular developers use A.I. software on its servers. Google also designed its own free-to-use A.I. software, TensorFlow, to work most easily on the company’s own servers. (Though the company’s cloud business is still smaller than those of Amazon and Microsoft.)

As the MIT Technology Review argued earlier this year, this race to offer customers easy-to-use A.I. services on the cloud could create some of the richest companies ever.

Other firms are beginning to muscle in on the action, too. The chip maker Nvidia — whose stock is on the up and up as a result of its chips being bought up for artificial intelligence applications — yesterday announced new cloud computing hardware designed specifically to crunch through A.I tasks.

That will allow other organizations to build more capable cloud A.I. systems and benefit from the wind filling Microsoft’s sails.

— Jamie Condliffe

Italy’s political chaos is shaking the world

Stock markets in the U.S., Europe and Asia are down, as is the euro. The backdrop: the trade fight between China and the U.S. (more on that below), plus political uncertainty in Italy that could lead to fresh elections, another populist alliance, and an uncertain future in the eurozone. (Here’s a primer on Italian politics.)

More on where money is moving, from Matt Phillips and Prashant Rao of the NYT:

Investors have suddenly shifted away from riskier investments like stocks and commodities and taken refuge in the relative safety of German and American government bonds, the United States dollar and the Japanese yen.

What now? Spiking bond prices and falling stocks suggest a rising chance of a widespread financial crisis. More from Neil Irwin of The Upshot:

Italy is the third-largest economy in the eurozone and has one of the largest piles of public debt in the world. A crisis there could endanger banks and investment portfolios everywhere.

Critics’ corner: Italy may look like the new Greece, but swift action could stop its problems turning into a crisis, writes Mark Gongloff for Bloomberg Opinion. Politico explains why Europe can’t catch a break. And George Soros offers a three-point plan to change that.

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President Trump and President Xi Jinping of China in more cordial times last year.

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Andrew Harnik/Associated Press

Trump is imposing tariffs on China. Again.

Stop us if you’ve heard this before: President Trump plans $50 billion of tariffs on Chinese products. Yes, the same ones that the administration appeared to suspend a little over a week ago.

As Peter Eavis explains, the new tariffs will be formally announced on June 15 and are scheduled to go into effect “shortly thereafter” — the first time the administration has set such a timetable. The move caught Beijing off guard, and could be a way to extract trade concessions.

Elsewhere in trade

• Chinese courts are clamping down on intellectual property theft from the U.S.

• Canadian Prime Minister Justin Trudeau says no Nafta is better than a bad Nafta.

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Marco Bello/Reuters

What deal makers can learn from Bayer’s antitrust agreement

The bottom line from the Justice Department’s approval of Bayer’s $66 billion deal for Monsanto: The department wants asset sales, not behavioral changes, in exchange for approving mergers.

In this case, Bayer agreed to sell $9 billion worth of seed and herbicide businesses that compete with Monsanto’s operations. At least publicly, Bayer appears O.K. with the demand: It already had a deal to sell many of the units to BASF.

Why it matters: Under the Obama administration, the D.O.J. allowed so-called behavioral remedies as a cure for antitrust problems. Under President Trump, companies may need to sell divisions — or risk having their deals rejected.

The deals flyaround

• Shari Redstone sued CBS to overturn a board decision stripping her family of its control. She also said that she wasn’t interested in a CBS-Viacom merger for now. (NYT)

• Disney is said to be raising cash in case it needs to sweeten its bid for most of 21st Century Fox. (CNBC)

• KKR agreed to buy the enterprise software company BMC from its private equity owners. (KKR)

• Didit, a digital marketing company, is said to be close to buying Gawker.com. The aim: make it a hub for positive news. (WSJ)

• Daimler led a $175 million fund-raising round for Taxify, a European rival to Uber. (FT)

• Bird, an electric scooter sharing start-up, is reportedly raising money at a $1 billion valuation. (Bloomberg)

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Roseanne Barr

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Mario Anzuoni/Reuters

‘Roseanne’ and the tightrope that businesses walk in the Trump era

ABC’s decision to cancel its hit sitcom, after the eponymous star posted a racist tweet, showed how carefully businesses must tread in the current political climate. The network’s parent company, Disney, had rebooted “Roseanne” to cater to conservative audiences; the result was its highest-rated show last season.

But keeping it after Roseanne Barr’s tweet could have endangered Disney’s efforts to present more inclusive programming — and potentially cut off millions in advertising dollars. So top Disney executives (including Channing Dungey, the African-American president of ABC Entertainment) moved quickly to cancel.

The question now: Will the cancellation lead to a big conservative backlash — perhaps led by President Trump, a supporter of Ms. Barr?

Elsewhere in business and social policy: A look inside Starbucks’s bias training day. Howard Schultz said some investors had questioned the cost, but he defended the initiative.

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Bill Browder, center.

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Robin Van Lonkhuijsen/Agence France-Presse — Getty Images

The political flyaround

• The financier Bill Browder, a critic of Moscow, was arrested in Spain on a Russian warrant but quickly released. (@billbrowder)

• The AOL founder Steve Case says that eliminating the International Entrepreneur Rule will hurt American business, particularly in the Midwest. (Inc.)

• Prime Minister Justin Trudeau of Canada said U.S. government borrowing was “not sustainable.” (Bloomberg)

• Kim Kardashian is reportedly expected at the White House today to discuss prison policy with President Trump and Jared Kushner. (Vanity Fair)

• The billionaire Democratic donor Tom Steyer explains why he isn’t listening to party leaders like Nancy Pelosi. (Politico)

The tech flyaround

• How a Pentagon contract turned into an identity crisis for Google. (NYT)

• Sheryl Sandberg said Facebook had failed to predict how its platform could be abused. Its new political ad policy is already experiencing hiccups. And Papua New Guinea could become a laboratory for Facebook regulation.

• The F.B.I. and the Department of Homeland Security said that North Korea was behind malware that stole information from U.S. companies. (AP)

• The Yahoo hacker who stole the personal data of 500 million users has been sentenced to five years in prison. (Ars Technica)

• Some new silicon: a powerful A.I. cloud server from Nvidia, and the first dedicated V.R. chips from Qualcomm.

• Age discrimination in Silicon Valley stretches beyond Intel. (Axios)

• China could crack the autonomous car challenge before America does. But its rise as a digital powerhouse more broadly is far from guaranteed.

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Martin Sorrell

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Mark Runnacles/Getty Images Europe

Revolving door

• Martin Sorrell is back: He will lead Derriston Capital, a publicly traded investment company that will acquire marketing companies. (Sky News)

• Cathie Lesjak, the C.F.O. of HP, plans to retire early next year. (MarketWatch)

• Paul Varga, the C.E.O. of the spirits maker Brown-Forman, plans to retire at year end. (Louisville Courier-Journal)

• UBS has hired Jonathan Hill, the British former member of the European Commission, as a senior adviser. (FT)

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Evan Spiegel

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Mark Lennihan/Associated Press

Quote of the day

“We would really appreciate it if they copied our data protection practices also.”

Evan Spiegel of Snap, on Facebook’s swiping of his company’s key product features.

The speed read

• U.S. food companies are churning through C.E.O.s as they struggle to innovate. (WSJ)

• Deutsche Bank employees will reportedly find out next month if they’re being fired. (Bloomberg)

• Blackstone’s offer to the superrich: invest in hedge funds and never pay taxes. (Bloomberg)

• The world’s longest commercial flight is back: 18 hours and 45 minutes, from Singapore to Newark. (NYT)

• In India, a million bank workers are striking over poor pay. (Quartz)

• Love pastrami? Katz’s Deli in Manhattan now does subscriptions. (Bloomberg)

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