Wary of China, Europe and Others Push Back on Foreign Takeovers

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The committee, which can essentially block foreign acquisitions of American firms on national security grounds, has already quashed a number of deals by Chinese-linked buyers. Lawmakers are now calling to broaden the types of transactions the panel can vet.

Europe got off to a later start. A protectionist debate ramped up last year when Germany, France and Italy called for a Europe-wide mechanism for more rigorous vetting of foreign takeovers. The move came amid rising worries about the loss of the region’s edge in technology, and the transfer of so-called dual-use technologies to China.

Concerns mounted after the 2016 purchase of Kuka, Germany’s biggest and most advanced maker of robotics, by a Chinese company. And they have intensified as China has invested in railways, ports and other strategic infrastructure across southern and Central Europe.

Some of the reaction reflects domestic political concerns. Bruno Le Maire, France’s finance minister, said on a visit to Beijing in January, for example, that Paris would welcome investment from China, but only after screening deals to ensure French assets are not “looted.”

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Robotic arms made by Kuka welding together parts of a Volkswagen Passat in Emden, Germany, last week. Kuka, Germany’s biggest and most advanced maker of robotics, was purchased by a Chinese company in 2016. Credit Krisztian Bocsi/Bloomberg

Still, numerous governments are pressing to harden reviews of foreign investment as China embarks on a major push to transform its economy to a cutting-edge superpower, an ambitious policy known as Made in China 2025.

European Commission President Jean-Claude Juncker proposed in September creating a Europe-wide framework to screen investment deals by foreign companies. And last year, the German Parliament passed a law allowing deals to be scrutinized on national security grounds if an investor’s stake reaches 25 percent.

But the political push to tighten up on Beijing faces considerable hurdles.

For one thing, the risks of angering China are real. Despite the optics, European companies remain eager for Chinese investments. And European governments are also wary of offending Beijing at a time when they are pressing to get better access to Chinese customers.

Even within Germany there is no unity among political leaders. Angela Merkel, recently sworn in for a fourth term as chancellor, has actively cultivated ties with Beijing, and China has become a crucial market for companies like Volkswagen, a German behemoth and Europe’s biggest automaker.

Europe is also divided over how to cope with China’s rise. Greece, Hungary and other poorer southern and central European countries that benefited from China’s largess during the financial crisis have generally opposed tightening scrutiny for fear of discouraging further Chinese investment.

As a result, Mr. Juncker has sought to walk a fine line in his proposal to screen investment deals, which is seen as the first step toward an E.U.-wide mechanism similar to Cfius.

It’s a reason critics say the plan lacks real teeth. It would mainly require European Union member states to inform Brussels of foreign investment deals, especially ones that might affect the security of another country. Currently, only 12 of the E.U.’s 28 member states have any screening mechanism in place.

“It will be difficult for the E.U. to have a strong institutionalized mechanism for foreign direct investment any time soon,” said Jue Wang, an associate fellow in the Asia Pacific Program at Chatham House, a research organization in London. “European companies will still want to welcome Chinese money.”

The proposal also appears to be weaker than what other major economic powers have in place. Japan recently strengthened restrictions on foreign investments related to security. And Britain this week strengthened government powers to scrutinize foreign investment in specific areas of the economy through the lens of national security, with China in mind.

Nor would the European Union’s plan necessarily catch innovative new strategies by Chinese investors to take stakes in strategic assets.

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The Canadian prime minister, Justin Trudeau, meets with Chinese Vice Premier Wang Yang late last year. While Mr. Trudeau has courted Chinese investors, public sentiment in Canada has not always aligned with that effort. Credit Sean Kilpatrick/The Canadian Press, via Associated Press

Germany was caught off guard after one of China’s wealthiest men last month amassed a $9 billion stake in Daimler, a crown jewel of Germany’s auto industry. Li Shufu, the chairman of the Chinese car giant Geely, made the grab through a financial maneuver before anyone even realized what was happening. Last year, the German company rejected a proposal by the Chinese businessman to take stakes in the company.

The stealth purchase over months made Mr. Li the largest shareholder in Daimler. German authorities are examining whether the purchase adhered to German investment laws. But it is unlikely that either Daimler or the German government can do anything about the acquisition.

The experience of other countries shows the complexity of the situation.

In Australia, where Chinese foreign investment reached more than $30 billion in 2014 alone, the government has sought to toughen screening.

Wariness of Beijing’s growing economic influence has increased as Chinese investors buy up vast swaths of the Australian economy and over concerns about Chinese businessmen giving millions of dollars to Australian politicians. Chinese takeovers of Australian businesses have jumped in recent years, along with an acceleration in purchases of agricultural land.

In 2015, the government strengthened foreign acquisitions and takeover rules to require the approval of a national oversight board if, for instance, a foreign purchaser’s portfolio of farmland was worth $15 million or more. It has also blocked bids by a Chinese firms for Australian electricity companies, citing such deals as contrary to the national interest.

More changes could be afoot. The government recently said it would consider updating its foreign investment guidelines so Australians could be sure that proposed investments were “good for the country.”

Elsewhere, while the government of Prime Minster Justin Trudeau has been actively courting Chinese investors, public sentiment in Canada has not always aligned with that effort. Some attempted takeovers of Canadian companies by Chinese investors were abandoned because of concerns over national security and Chinese business practices. Lenovo, the Chinese computer maker, dropped ambitions to acquire BlackBerry, a smartphone used widely in government agencies, after Ottawa signaled a deal could compromise national security.

Those concerns prompted Canada’s previous Conservative government to strengthen foreign investment laws to require stakes taken by non-Canadian entities to pass a national security test.

The government is now reviewing a proposed takeover of Aecon, a major Canadian contractor, by Chinese state-backed CCCC International Holding. Officials are assessing whether national security would be undermined by the takeover of Aecon, which handles major infrastructure projects and has also done work for Canada’s military and nuclear industry.

“We welcome international investments that will benefit the Canadian economy,” said Karl W. Sasseville, a spokesman for Navdeep Bains, the minister for economic development whose department handles investment reviews “but not at the expense of national security.”

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IHeartMedia, U.S.’s Largest Radio Broadcaster, Files for Bankruptcy

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The bankruptcy is the culmination of iHeartMedia’s yearslong dance with its creditors; a final phase, long expected by analysts, began last month when the company skipped a $106 million interest payment.

It is also the latest and most high-profile shift in the tumultuous radio business, which has struggled to retain advertising dollars and compete with streaming services like Spotify and Pandora.

Cumulus Media, iHeart’s closest competitor, with 445 stations, declared bankruptcy four months ago. Last year, CBS Radio, after announcing its intention to exit the business, merged its stations with the much smaller Entercom Communications.

IHeart’s bankruptcy filing was announced on the same day that Spotify held an investor presentation in advance of its public listing on the New York Stock Exchange.

Annual advertising, radio’s chief revenue source, has hovered around $16 billion for years, according to a report last year by the accounting firm PwC. By 2021, the report projected, that figure, for terrestrial broadcast stations, would reach only $16.6 billion, with a 10-year compounded annual growth rate of just 0.425 percent.

IHeartMedia has maintained that its radio stations remain popular and vital even as it has introduced apps and negotiated new licensing deals intended to control its royalty payments online.

The company’s terrestrial stations, it says, reach 271 million people each month, and in many markets it operates multiple outlets. There are eight iHeart stations in Los Angeles, for example, and six in New York, including Z100, a pop powerhouse.

Still, iHeartMedia has moved aggressively into the online market, renaming itself four years ago after a music app that its disc jockeys promote relentlessly on the air.

“We have transformed a traditional broadcast radio company into a true 21st-century multiplatform, data-driven, digitally focused media and entertainment powerhouse with unparalleled reach, products and services now available on more than 200 platforms,” Robert W. Pittman, the company’s chief executive, said in a statement announcing the bankruptcy filing.

Lance Vitanza, an analyst at Cowen, said that iHeartMedia had done better than most radio companies in expanding its audience and adapting to new technologies, but that debt had weighed it down — a burden that could find relief through the bankruptcy process.

“Ultimately, when they come out of bankruptcy, they will be in a much better position,” Mr. Vitanza said. “We expect them to be able to focus their resources on growing their business rather than on debt service, which is what they’ve had to do for the last 10 years.”

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Ford, Once a Leader in the S.U.V. Race, Aims to Catch Up

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Earlier this decade, as the economy and auto sales rebounded, Ford executives were quick to note consumers’ waning preference for midsize cars and growing attraction to S.U.V.s and lighter, more fuel-efficient versions called crossovers. But Ford was slow to introduce new variations and redesign existing models, while General Motors and Fiat Chrysler’s Jeep brand zoomed ahead.

The push toward S.U.V.s signals a shift in emphasis for Ford. Before Mr. Hackett’s arrival last May, the company had focused much of its long-term strategy on self-driving cars, and had vowed to have a car with no steering wheel in mass-production by 2021.

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Ford’s Explorer ST, a high-performance version showcased by the automaker on Thursday. Credit Ford Motor Company

Ford is pressing on with self-driving vehicles, but executives barely mentioned them as part of the new vehicle strategy they presented on Thursday.

Along with its S.U.V. plan, Mr. Hackett said, Ford is also working to slash costs by streamlining how it develops vehicles and reducing the number of sets of basic components — known as architectures — that it uses to create different models. “This is not change for change’s sake,” he said. “This is to redesign the business.”

In the future, the company expects to use just five architectures to make almost all of the vehicles it produces around the world. Other automakers, including Volkswagen and Toyota Motor, have already made similar moves.

Ford has said it expected its measures to reduce costs by $4 billion over the next five years.

Brian Johnson, a financial analyst at Barclays Capital, said it might take Ford two years to feel a significant impact from these efforts. “We continue to believe that arguably there won’t be much to get excited about with the Ford story until 2019 or perhaps 2020,” Mr. Johnson said.

The new S.U.V.s planned by Ford include a version of the Bronco, the compact S.U.V. the company phased out 20 years ago; an all-electric, four-door model designed to compete with Tesla’s Model X; and redesigned versions of existing models, the Escape and Explorer. The company’s Lincoln brand plans to introduce two new S.U.V.s at the New York International Auto Show later this month.

There are also several all-new S.U.V.s in the pipeline, including a variety of off-road models and hybrids, Mr. Farley said.

“Every time we launch a utility in North America, our intention is to have a hybrid,” Mr. Farley said. “We are going to make hybrids mainstream.”

Hybrids like the Toyota Prius have appealed primarily to car buyers seeking better gas mileage. Mr. Farley said Ford planned to use electric power to boost the torque and towing power of the S.U.V.s it is developing.

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Wheels: When Self-Driving Cars Can’t Help Themselves, Who Takes the Wheel?

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A car in need of help would automatically contact a Phantom Auto center, where a remote operator could use the car’s cameras and sensors to see what was happening, then maneuver the vehicle out of trouble. The technology prefigures a time when most passengers wouldn’t be able to take control for the simple reason that they won’t know how to drive a car — or because the steering wheel and pedals have been removed.

It is a thorny problem other companies are also trying to solve.

Nissan, one of the first automakers to publicly address situations in which a self-driving car may be flummoxed by its surroundings, has proposed using a system called Seamless Autonomous Mobility, or S.A.M. It’s partly based on the remote control technology that NASA uses to operate rovers on Mars.

“The current idea is to draw the new route command onto a screen to direct the car,” said Maarten Sierhuis, the director of Nissan’s research center in Silicon Valley.

Such an approach avoids any possible communications glitches, and Mr. Sierhuis said the company was working on a more advanced solution, S.A.M. 2.0, but wasn’t ready to discuss it yet.

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“We want to be the OnStar for the autonomous industry,” said Shai Magzimof, the chief executive of Phantom Auto. Credit Christie Hemm Klok for The New York Times

Waymo, the self-driving vehicle unit of Google’s parent company Alphabet, is testing autonomous taxis — but with an observer in the back seat. It is focused on having the car make all the driving decisions, but there is a system for handling edge cases. If a Waymo vehicle becomes confused — by, say, a new set of cones or a police barricade in the road — it can request confirmation from a remote human specialist. Once it receives confirmation of what it is sensing, the car — not the remote operator — then decides how to proceed.

The Waymo approach ensures that latency — a delay in the communications traffic — doesn’t compromise the car’s driving behavior by leaving a remote operator unable to react in real time.

Phantom Auto’s technology, on the other hand, uses a standard 4G cellular data connection and GPS information to link the car and its backup driver. The company has even been able to make it work in areas that may have less than perfect service.

To accomplish this, Phantom Auto mounted a computer the size of a hardcover book, spiked with antennas and four wireless modems, in the trunk. The car was outfitted with three video cameras, but no lidar or far infrared sensors. It’s an arrangement that has already attracted several automotive customers, according to the company, although because of contractual obligations it could not yet disclose specific clients.

Where a typical autonomous vehicle may drive like a timid student driver, the Phantom car behaved naturally — after all, there was a human there. He just happened to be sitting in another state.

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The control room at Phantom Auto. The company has already attracted several automotive customers, although because of contractual obligations it could not yet disclose specific clients. Credit Christie Hemm Klok for The New York Times

Phantom hopes its approach will also reassure passengers by letting them talk to and see the remote operator — within limits. As our distant driver steered the car through heavy traffic in the rain, Mr. Magzimof advised against distracting the operator with too many questions: “He’s focused on driving.”

Gill Pratt, chief executive of the Toyota Research Institute, said that while he believed autonomous vehicles would need some sort of additional support and assistance systems in rare instances, he saw them as “not something people would look forward to using.”

Mr. Pratt also pointed out that teleoperation faced several hurdles, ranging from the limited availability of wireless networks to the time it takes for remote operators to become “situationally aware” — informed not just of the immediate problem, but important context including the location or weather or any other variable that someone in the driver’s seat would already know.

Kathy Winter, the general manager of Intel’s autonomous driving group, said that because of these limitations, her team was making every effort to “make sure the vehicle never gets into a situation where this would be necessary.” She noted that redundant systems — including multiple sensors, high-resolution maps, crowdsourced data and vehicle-to-vehicle communications — would ensure that the self-driving cars of the future would have multiple cues about their surroundings.

When pressed, developers like Zoox admit that autonomous vehicles may never be truly autonomous. Zoox’s chief executive, Tim Kentley-Klay, acknowledged at a Senate hearing on self-driving cars in January that command centers with humans would be necessary “both to deal with vehicles if they have an issue, but also to deal with customers if they need help.”

In other words, if your autonomous sedan gets a flat tire, someone is still going to have to come out and fix it.

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5 of Larry Kudlow’s Not-So-on-the-Money Predictions

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President Trump has a new chief economic adviser. Larry Kudlow, the CNBC commentator who served in President Ronald Reagan’s Office of Management and Budget, will become the director of the National Economic Council, a position left vacant after Gary D. Cohn resigned in protest to the president’s tariffs on foreign metals.

Mr. Kudlow, often on-air and with a flair for provocative punditry, has prognosticated on many economic and political issues in a way that mirrors his future boss.

His predictions, which will soon carry new weight as the president’s top economic adviser, have not always been on the mark. The following is a look back at some of his economic predictions that did not bear out.

Housing bubble

“Homebuilders led the stock parade this week with a fantastic 11 percent gain. This is a group that hedge funds and bubbleheads love to hate. All the bond bears have been dead wrong in predicting sky-high mortgage rates. So have all the bubbleheads who expect housing-price crashes in Las Vegas or Naples, Fla., to bring down the consumer, the rest of the economy and the entire stock market.” – June, 2005

Analysis: Well, we all know what happened. By 2008, the housing bubble popped, home prices were in a free-fall and the mortgage-backed securities that banks had loaded up on were threatening to plunge those firms — and the economy — into the abyss.

Home prices in 20 metropolitan areas across the country dropped at a record rate of 18 percent in October 2008 from a year earlier as the fallout from the financial collapse reverberated through the housing market. The housing market has still not recovered completely or evenly and prices in many cities are still below their pre-recession peak.

Housing bubble aftermath

“What’s even more incredible is Team Obama’s stubborn refusal to have any faith in the free market. In some of the hardest hit areas of the country, markets are already solving the housing problem.

If the government really wants to help, instead of bailing out irresponsible mortgage holders, it should support new and younger families who want to buy starter homes and begin to climb the ladder of prosperity.

All this is free-market economics 101. And I say, let free-markets work.” – February, 2009

Analysis: The Obama administration’s plan to help homeowners included a litany of programs, including reducing the debt that distressed borrowers owed. The success of these programs was mixed but recent studies show that they did, in fact, help millions of people stay in their homes.

Mr. Kudlow’s claim that the markets were already “solving” the housing problem was not accurate, given that the housing market still has not recovered in many areas, including those hardest hit.

In 2009, banks were — and in many cases remain — incredibly reluctant to make loans to all but the highest-quality borrowers. That does not generally include new and younger families, who have little credit history and are considered riskier than those with a track record of on-time payments. Without the government assisting borrowers who were in danger of foreclosure, the economic fallout from the crisis would have been even deeper, more severe and longer-lasting.

Recession

“Recessions are therapeutic. They cleanse excess from the economy. Think about excessive risk speculation, leverage, and housing. Recessions are curative: They restore balance and create the foundation for the next recovery. Despite the housing and credit problem and the sub-prime virus, banks are still lending to businesses. So we don’t have a genuine credit crunch across the board. That is very good.” – April, 2008

Analysis: Recessions do help reduce leverage — or debt — that households and businesses have since loans are no longer easy to come by and creditors demand repayment of past debts. But Mr. Kudlow’s “credit crunch” assessment was flawed. Households and businesses did face a real “credit crunch” as banks retrenched and restricted lending to all but the most sterling borrowers.

Bull market

“There’s no question that President Clinton’s across-the-board tax increases on labor, capital and energy will throw a wet blanket over the recovery and depress the economy’s long-run potential to grow.” – March, 1993

Analysis: The period between 1990 and 1999 was the longest bull market in history. The S&P 500 more than tripled during that time and there was not a single bear market or dip. The so-called dot com bubble helped fuel that rise until it all came crashing down in the spring of 2000, a situation created by speculation rather than Washington’s economic policies.

Stock market

“And let’s not forget: The stock market, which is a leading indicator of the future economy, is in a wee bit of a correction. Given the recent rise of presidential candidate Donald Trump, we should all be thankful that stocks haven’t plunged. Trump’s agenda of trade protectionism, dollar devaluation, and immigrant deportation is completely anti-growth. It’s like Fortress America in an economy that is completely globalized and where the U.S. must compete in the worldwide race for capital and labor. Trump’s policies don’t fit.” – August, 2015

Analysis: President Trump was elected and the stock market has only climbed. While there have been moments of volatility and days that ended in the red, the United States is still experiencing a bull market — stocks were up more than 300 percent at their peak in late January. It’s a financial metric that his new boss is quite fond of citing and taking credit for.

Emily Baumgaertner contributed research.

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Pentagon Wants Silicon Valley’s Help on A.I.

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But those relations have soured in recent years — at least with the rank and file of some better-known companies. In 2013, documents leaked by the former defense contractor Edward J. Snowden revealed the breadth of spying on Americans by intelligence services, including monitoring the users of several large internet companies.

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Robert O. Work, right, at a 2014 news conference led by Chuck Hagel, the defense secretary at the time. Mr. Work, who was the deputy secretary of defense, said of the global race for A.I. technology: “This is a Sputnik moment.” Credit Chip Somodevilla/Getty Images

Two years ago, that antagonism grew worse after the F.B.I. demanded that Apple create special software to help it gain access to a locked iPhone that had belonged to a gunman involved in a mass shooting in San Bernardino, Calif.

“In the wake of Edward Snowden, there has been a lot of concern over what it would mean for Silicon Valley companies to work with the national security community,” said Gregory Allen, an adjunct fellow with the Center for a New American Security. “These companies are — understandably — very cautious about these relationships.”

The Pentagon needs help on A.I. from Silicon Valley because that’s where the talent is. The tech industry’s biggest companies have been hoarding A.I. expertise, sometimes offering multimillion-dollar pay packages that the government could never hope to match.

Mr. Work was the driving force behind the creation of Project Maven, the Defense Department’s sweeping effort to embrace artificial intelligence. His new task force will include Terah Lyons, the executive director of the Partnership on AI, an industry group that includes many of Silicon Valley’s biggest companies.

Mr. Work will lead the 18-member task force with Andrew Moore, the dean of computer science at Carnegie Mellon University. Mr. Moore has warned that too much of the country’s computer science talent is going to work at America’s largest internet companies.

With tech companies gobbling up all that talent, who will train the next generation of A.I. experts? Who will lead government efforts?

“Even if the U.S. does have the best A.I. companies, it is not clear they are going to be involved in national security in a substantive way,” Mr. Allen said.

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An Air Force team transporting missiles to be loaded onto drones at the Persian Gulf base in 2016. Credit John Moore/Getty Images

Google illustrates the challenges that big internet companies face in working more closely with the Pentagon. Google’s former executive chairman, Eric Schmidt, who is still a member of the board of directors of its parent company, Alphabet, also leads the Defense Innovation Board, a federal advisory committee that recommends closer collaboration with industry on A.I. technologies.

Last week, two news outlets revealed that the Defense Department had been working with Google in developing A.I. technology that can analyze aerial footage captured by flying drones. The effort was part of Project Maven, led by Mr. Work. Some employees were angered that the company was contributing to military work.

Google runs two of the best A.I. research labs in the world — Google Brain in California and DeepMind in London.

Top researchers inside both Google A.I. labs have expressed concern over the use of A.I. by the military. When Google acquired DeepMind, the company agreed to set up an internal board that would help ensure that the lab’s technology was used in an ethical way. And one of the lab’s founders, Demis Hassabis, has explicitly said its A.I. would not be used for military purposes.

Google acknowledged in a statement that the military use of A.I. “raises valid concerns” and said it was working on policies around the use of its so-called machine learning technologies.

Among A.I. researchers and other technologists, there is widespread fear that today’s machine learning techniques could put too much power in dangerous hands. A recent report from prominent labs and think tanks in both the United States and Britain detailed the risks, including issues with weapons and surveillance equipment.

Google said it was working with the Defense Department to build technology for “non-offensive uses only.” And Mr. Work said the government explored many technologies that did not involve “lethal force.” But it is unclear where Google and other top internet companies will draw the line.

“This is a conversation we have to have,” Mr. Work said.

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DealBook Briefing: The Fall of Theranos Is Nearly Complete

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Representative Jeb Hensarling of Texas is among those who will decide whether to push for a more aggressive rollback of Dodd-Frank. Credit Al Drago for The New York Times

The Dodd-Frank rollback takes an onward step

The Senate, in a rare show of bipartisanship, voted 67-31 to relax regulations on small to medium-sized banks. What the bill includes:

• Raising the threshold for “systemically important” banks to $250 billion in assets, up from $50 billion

• Exempting firms with less than $10 billion in assets from the Volcker rule

But the House may want a more aggressive version that would curtail the power of the Consumer Financial Protection Bureau. That could endanger the proposed overhaul, with the analyst Brian Gardner telling the NYT, “If the House overreaches in its effort to amend the Crapo bill, it could slow down the bill’s progress.”

Elsewhere in banking: Why another Bear Stearns-like collapse isn’t likely, but another crisis is. And Wells Fargo paid its C.E.O., Timothy Sloan, $17.4 million last year.

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Credit Brendan McDermid/Reuters

What will be on Larry Kudlow’s agenda?

It’s official: The CNBC commentator will become President Trump’s chief economic adviser, replacing Gary Cohn. But what will Mr. Kudlow — who on TV is an ardent supporter of free trade — push for?

He supports a strong dollar and tariffs that make exceptions for allies like Canada and Mexico. And he’s in favor of permanently extending the Republican tax cuts for individuals.

As for his stance on China, here’s what he told CNBC:

“A thought that I have is the United States could lead a coalition of large trading partners and allies against China, or to let China know that they’re breaking the rules left and right.”

One thing to watch for: whether his past admission of substance abuse would affect his work. “We’ll see how that plays out,” Mr. Kudlow said.

Critics’ corner: Mark Hamrick, Bankrate.com’s senior economic analyst, writes, “It remains to be seen whether Kudlow can step into the role of a virtual moderating influence in this administration.” And Noah Smith of Bloomberg View asserts, “It also seems like there are just so few credible economic thinkers willing to stand up and sign their name to the Trump economic agenda.”

Elsewhere in economic policy: U.S. companies have few ways around the proposed metals tariffs. And U.S. allies might emphasize their toughness against China to win tariff exemptions.

The politics flyaround

• How Steve Schwarzman of Blackstone became a close adviser to President Trump on China — but lost the tariff battle. (WaPo)

• After Rex Tillerson’s firing, Washington is wondering if H.R. McMaster, John Kelly or Jeff Sessions might go next. And allies are hoping that the cabinet reshuffle will clarify American foreign policy.

• Moving from the C suite to Washington is tougher than it looks. (WSJ)

• The Democrat Conor Lamb narrowly won a special House election in southwestern Pennsylvania, an area that Mr. Trump carried handily in 2016. (NYT)

• The administration is considering Randy Quarles, the Fed’s vice chairman for supervision, as the next head of the Financial Stability Board, unnamed sources say. (FT)

• Mr. Trump has discussed including protections for Dreamers in a spending bill. (WSJ)

• A Trump Organization lawyer was involved in an arbitration proceeding involving Stormy Daniels, according to documents. (WSJ)

• Jeff Sessions is considering whether to fire the former F.B.I. deputy director Andrew G. McCabe days before he would retire, unnamed sources say. (NYT)

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Credit Eduardo Munoz/Reuters

Toys “R” Us is one of Amazon’s biggest casualties

The 70-year-old company’s plans to close or sell its stores in the U.S. and Britain show how hard life has become for bricks-and-mortar retailers. The collapse could put over 30,000 U.S. jobs at risk.

More on what happened from Michael Corkery of the NYT:

Weighed down by the debt that its owners heaped on the company when they bought it, Toys “R” Us has not adequately invested in its fading stores and e-commerce operations. Unable to compete with other retailers, it has lost market share to better capitalized toy sellers.

Speaking of Amazon: The company has become shorthand for “disruption” across industries.

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Credit Glenn Harvey

Tech companies are growing up (slowly)

The current generation of Silicon Valley giants started out with an ethos of revolution first, fixes afterward. (Remember Facebook’s “move fast and break things” motto?) But Facebook, Google and others are becoming more bureaucratic, according to our columnist Kevin Roose — and that’s a good thing.

Among the latest signs of change in their attitudes:

• Facebook’s taking down accounts related to Britain First, a far-right group accused of inciting anti-Muslim hatred, and talking about the limits on its commitment to being an open platform.

• YouTube plans to put info from Wikipedia alongside conspiracy videos (even if it didn’t tell the Wikimedia Foundation).

The tech flyaround

• Siri made its debut before it was ready, former Apple executives assert, and internal struggles at the iPhone maker have left its voice assistant behind Amazon’s Alexa and the Google Assistant. (The Information)

• As President Trump toughens his trade stance, the European Union is increasing scrutiny of U.S. tech companies. (WSJ)

• Dropbox expects its gross margins to eventually exceed 76 percent, it told potential investors at its I.P.O. roadshow. (CNBC)

• Lyft will work with the auto supplier Magna International on self-driving car systems. (NYT)

• Bitcoin is losing its buzz. (Bloomberg)

• Spotify has struggled to turn a profit: Revenue is up, but so are royalties and other costs. (FT)

• Antitrust regulators in Japan raided Amazon’s offices. (FT)

• The Air Force has split $640 million in satellite-launch contracts between SpaceX and a joint venture of Boeing and Lockheed Martin. (WSJ)

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Credit Deidre Schoo for The New York Times

Warby Parker takes yet more steps toward an I.P.O.

The signs that the hip eyewear emporium is heading toward a public market listing (timing T.B.D.):

• It raised $75 million at a valuation of about $1.75 billion in a new round led by T. Rowe Price, which has invested before but is known for putting money in at the pre-I.P.O. stage.

• It has added Prof. Youngme Moon of Harvard Business School as an outside director.

• It expects 2018 to be its first year of profitability.

What Neil Blumenthal, a Warby Parker co-founder, told Michael:

“Our objective is to build a brand that will have large-scale impact on the world, and we think being independent is important to that. But we don’t have a timeline in place.”

The deals flyaround

• Parachute Health, which makes software for ordering medical equipment, has raised $5.5 million from a group of investors, including Greater New York Hospital Association Ventures and Loeb Holding.

• iHeartMedia finally filed for bankruptcy protection after reaching a deal with creditors to reorganize its $20 billion debt. (WSJ)

• Disney is restructuring to accommodate the assets it expects to acquire from 21st Century Fox. (NYT)

• Airbus said it would be nearly impossible to work with Melrose Industries if it succeeded in a hostile bid for British engineering firm GKN. (FT)

• Atlantia and ACS are buying Abertis of Spain together. (FT)

• SJW Group is reportedly in talks to buy Connecticut Water Service, creating America’s third largest publicly traded water provider. (WSJ)

• First Cobalt of Canada has agreed to combine with U.S. Cobalt; electric car batteries are raising demand for the metal. (FT)

• Nordic Capital is buying the Scandinavian payment firm Trustly, valuing it at about $867 million. (FT)

• Credit Karma is buying Penny, an instant-message bot. (Recode)

Revolving Door

• Société Générale’s deputy C.E.O., Didier Valet, has stepped down as the U.S. investigates what role the bank had in Libor manipulation. (FT)

• The investor Josh Elman is joining the stock-trading app Robinhood as chief product officer. He will remain a partner at Greylock. (TechCrunch)

The speed read

• More stock trades are taking place in the last minutes of trading each day than ever before. (WSJ)

• Unilever will make Rotterdam in the Netherlands its sole headquarters; the other one was in London. (NYT)

• How C.E.O.s manage under pressure. (FT)

• Och-Ziff Capital Management Group is closing its European hedge fund. (Bloomberg)

• CNN is moving Chris Cuomo to evening from morning to shore up its prime-time programming. (NYT)

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A Cyberattack in Saudi Arabia Had a Deadly Goal. Experts Fear Another Try.

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The assault was the most alarming in a string of cyberattacks on petrochemical plants in Saudi Arabia. In January 2017, computers went dark at the National Industrialization Company, Tasnee for short, which is one of the few privately owned Saudi petrochemical companies. Computers also crashed 15 miles away at Sadara Chemical Company, a joint venture between the oil and chemical giants Saudi Aramco and Dow Chemical.

Within minutes of the attack at Tasnee, the hard drives inside the company’s computers were destroyed and their data wiped clean, replaced with an image of Alan Kurdi, the small Syrian child who drowned off the coast of Turkey during his family’s attempt to flee that country’s civil war.

The intent of the January attacks, Tasnee officials and researchers at the security company Symantec believe, was to inflict lasting damage on the petrochemical companies and send a political message. Recovery took months.

Energy experts said the August attack could have been an attempt to complicate Crown Prince Mohammed bin Salman’s plans to encourage foreign and domestic private investment to diversify the Saudi economy and produce jobs for the country’s growing youth population.

“Not only is it an attack on the private sector, which is being touted to help promote growth in the Saudi economy, but it is also focused on the petrochemical sector, which is a core part of the Saudi economy,” said Amy Myers Jaffe, an expert on Middle East energy at the Council on Foreign Relations.

Saudi Arabia has cut oil exports in recent years to support global oil prices, a strategy central to its efforts to make a potential public offering of shares of government-controlled Saudi Aramco more attractive to international investors. The kingdom has tried to compensate for its lost revenue by expanding its petrochemical and refining industry.

Some technical details of the attack in August have been previously reported, but this is the first time the earlier attacks on Tasnee and other Saudi petrochemical companies have been reported.

Security analysts at Mandiant, a division of the security firm FireEye, are still investigating what happened in August, with the help of several companies in the United States that investigate cyberattacks on industrial control systems.

A team at Schneider Electric, which made the industrial systems that were targeted, called Triconex safety controllers, is also looking into the attack, the people who spoke to The Times said. So are the National Security Agency, the F.B.I., the Department of Homeland Security and the Pentagon’s Defense Advanced Research Projects Agency, which has been supporting research into forensic tools designed to assist hacking investigations.

All of the investigators believe the attack was most likely intended to cause an explosion that would have killed people. In the last few years, explosions at petrochemical plants in China and Mexico — though not triggered by hackers — have killed several employees, injured hundreds and forced evacuations of surrounding communities.

What worries investigators and intelligence analysts the most is that the attackers compromised Schneider’s Triconex controllers, which keep equipment operating safely by performing tasks like regulating voltage, pressure and temperatures. Those controllers are used in about 18,000 plants around the world, including nuclear and water treatment facilities, oil and gas refineries, and chemical plants.

“If attackers developed a technique against Schneider equipment in Saudi Arabia, they could very well deploy the same technique here in the United States,” said James A. Lewis, a cybersecurity expert at the Center for Strategic and International Studies, a Washington think tank.

The Triconex system was believed to be a “lock and key operation.” In other words, the safety controllers could be tweaked or dismantled only with physical contact.

So how did the hackers get in? Investigators found an odd digital file in a computer at an engineering workstation that looked like a legitimate part of the Schneider controllers but was designed to sabotage the system. Investigators will not say how it got there, but they do not believe it was an inside job. This was the first time these systems were sabotaged remotely.

The only thing that prevented significant damage was a bug in the attackers’ computer code that inadvertently shut down the plant’s production systems.

Investigators believe that the hackers have probably fixed their mistake by now, and that it is only a matter of time before they deploy the same technique against another industrial control system. A different group could also use those tools for its own attack.

The August attack was also a significant step up from earlier attacks in Saudi Arabia. Starting on Nov. 17, 2016, computer screens at a number of Saudi government computers went dark and their hard drives were erased, according to researchers at Symantec, which investigated the attacks.

Two weeks later, the same attackers hit other Saudi targets with the same computer virus. On Jan. 23, 2017, they struck again, at Tasnee and other petrochemical firms, deploying a computer virus known as Shamoon, after a word embedded in its code.

The Shamoon virus first surfaced five years earlier at Saudi Aramco, wiping out tens of thousands of computers and replacing the data with a partial image of a burning American flag. Leon E. Panetta, the United States defense secretary at the time, said the attack could be a harbinger.

“An aggressor nation or extremist group could use these kinds of cyber tools to gain control of critical switches,” he said.

Government officials and cybersecurity experts in Saudi Arabia and the United States attributed the 2012 Shamoon attack to Iranian hackers.

“Another attacker could have adopted that code” for the January 2017 attacks, said Vikram Thakur, a senior researcher at Symantec, “but our analysis showed the likelihood it was the same perpetrator was pretty high.”

The attack in August was not a Shamoon attack. It was much more dangerous.

Investigators believe a nation-state was responsible because there was no obvious profit motive, even though the attack would have required significant financial resources. And the computer code had not been seen in any earlier assaults. Every hacking tool had been custom built.

The attackers not only had to figure out how to get into that system, they had to understand its design well enough to know the layout of the facility — what pipes went where and which valves to turn in order to trigger an explosion.

Investigators believe someone would have had to buy the same version of the Triconex safety system to figure out how it worked. The components, investigators said, could be purchased for $40,000 on eBay.

The attack has also shown the challenge of attributing with unquestionable evidence an attack to one country.

Cybersecurity experts said Iran, China, Russia the United States and Israel had the technical sophistication to launch such attacks. But most of those countries had no motivation to do so. China and Russia are increasingly making energy deals with Saudi Arabia, and Israel and the United States have moved to cooperate with the kingdom against Iran.

That leaves Iran, which experts said had a growing cyberspace military program, although the Iranian government has denied any involvement in cyberattacks.

Tensions between Iran and Saudi Arabia have steadily escalated in recent years, and the conflict has drifted into cyberspace.

United States officials and security analysts blamed Iranian hackers for a spate of attacks on American banks in 2012 and more recent espionage attacks on the airline industry. Iranian hackers were blamed for the 2012 Aramco attack and are also the leading suspects in the more recent Shamoon attacks.

The August attack was far more sophisticated than any previous attack originating from Iran, Mr. Thakur of Symantec said, but there is a chance Iran could have improved its cyberwarfare abilities or worked with another country, like Russia or North Korea.

Tasnee said in an email that it had hired experts from Symantec and IBM to study the attack against it. The company said it had also “completely overhauled our security standards” and started using new tools to prevent cyberattacks.

“Being a global business,” the company said, “we believe that cybersecurity is a concern wherever you are in the world.”

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Will Employment Keep Growing? Disabled Workers Offer a Clue

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The rise in the number of Americans not working because of disability was so persistent for two decades that some economists began to hypothesize that the trend would never reverse.

But perhaps it has. Since a peak almost four years ago, that number has steadily fallen, showing its largest decline — both in terms of head count and percentage — in at least the last 25 years. It’s good news, but it also raises important questions about how much further the labor market has to heal.

Disability and a shrinking work force

The employed share of the population 25 to 54 years old — the age range economists generally consider a person’s prime working years — is still almost a full percentage point below where it was on the eve of the Great Recession, and more than two percentage points below where it was before the 2001 recession.

One factor was a steady increase in the number of people not participating in the labor force because of health problems or a disability. In 1994, the Bureau of Labor Statistics determined that 4 percent of Americans 25 to 54 were not seeking work because of those reasons. By mid-2014, the number had risen to almost 6 percent of that age group.

Economists were especially alarmed because the increase appeared tenacious. It was rising before the 2001 recession, rose faster in response to the 2001 and 2008 recessions, then kept rising during the subsequent recoveries.

But then it began to fall: slowly at first and then, beginning in 2016, faster. Over all, the number of prime-age people who cite disability as their reason for not working has shrunk by 7 percent since mid-2014.

Who has found jobs?

The data shows that the decline has come almost entirely from the older half of the prime-age population (that is, people between 40 and 54). The drop has also been steeper among the less educated. The number of disabled nonparticipants without a high school diploma fell by 18 percent, versus 4 percent for those with at least a high school diploma. It has been somewhat larger among women (minus 9 percent) than men (minus 6 percent).

Around 10 percent of prime-age workers who described themselves as disabled in 2016 had found a job by 2017. This pace of job finding matches the rate in 1999 and 2000, when the labor market was generally tight and healthy.

Even as some people are leaving the category of the disabled nonworking, others are joining it, of course. The rate of people newly describing themselves this way has slowed; it is now similar to the pace just before the Great Recession.

One question is whether these people are finding high-quality jobs.

There is some evidence they are. Analysis of Current Population Survey data shows that around two-thirds of the new jobs taken by people who formerly described themselves as disabled have been full time. This group also appears to have been more likely than other job finders to find work in manufacturing and construction, and no more likely to be self-employed. On the other hand, over the last three and half years, their wages have been 16 percent lower on average than those of other new job finders.

Note, too, that not all of the people no longer describing themselves as disabled joined the work force. Some continued not to work but gave a different reason — mostly citing home or family care. Additionally, a small number simply aged out of our 25-to-54 category.

Employment may have more room to grow

There is no guarantee work force participation will return to its previous levels. And while the risks of an American recession currently appear low, another downturn could arrest or even reverse the current trend.

But at the very least, what has happened since 2014 suggests that the declines in prime-age employment since 2001 are not all permanent, and that employment may still have further room to grow if the tight labor market continues.

This would take time, though. At its recent pace of decline, it would take six to eight more years without another recession for the percentage of prime-age people not working because of disability to return to 2000 levels. Added to the nine years of recovery we have already had, that would imply an economic expansion longer than any in American history.

Moreover, the weakness in prime-age employment is not explained solely by disability. Other reasons for prime-age nonemployment, such as school enrollment, have declined even more slowly than disability. Some, such as early retirement, still appear to be rising.

This also does nothing to explain why disability rates rose so much in the first place. Demographics certainly played a role. Some have pointed to the benefits in disability programs, particularly the rise in benefit awards for musculoskeletal conditions, though others argue the effect of these programs on nonemployment has been small. Exposure to growing exports from China may have been a factor as well.

Moreover, the rise in prime-age disability was unique to the United States. So rather than betting on never-ending economic expansions, better policies — to manage the health of workers and help them find and keep work — may be a more effective long-term strategy.

Still, in a labor market still off its 2000 highs, the trend is a surprising but welcome development.


The analysis is based on the definition of “disability” in the Current Population Survey, which is determined based on respondents’ answers to questions regarding labor market activity and specific health ailments.

Being “disabled” in the C.P.S. does not necessarily indicate that the person is also participating in a public disability benefit program such as Social Security Disability Insurance (S.S.D.I.) or Supplemental Security Income (S.S.I.). We therefore cannot be sure based solely on this data that the rise in job finding among the C.P.S. disabled reflects a rise in job finding among S.S.D.I. and S.S.I. recipients (note that both programs are structured so as to allow recipients some amount of work before benefits disappear). Note that administrative head counts of S.S.D.I. and S.S.I. beneficiaries have been falling over roughly the same time frame as the C.P.S. disabled; since these head counts include beneficiaries 55 and older, some of the S.S.D.I. and S.S.I. declines may represent people retiring out of the program and into traditional Social Security. This is a minor factor in my analysis of the prime-age C.P.S. disabled.


Ernie Tedeschi is an economist and head of fiscal analysis at Evercore ISI. He worked previously at the U.S. Treasury Department. The analysis here is solely his own.

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