Could Biden’s Climate Agenda Trigger a New Trade War?

A trade war over a green agenda?

Europe is growing hot over the Biden administration’s Inflation Reduction Act, with opposition to the sweeping climate and economic bill dominating the U.S.-EU Trade and Technology Council talks this week. Some analysts fear the disagreement could thrust two of the world’s biggest trading partners into a new economic war.

At issue is a portion of the law that offers $369 billion in subsidies and tax breaks to companies that develop green technologies — from electric vehicles and their components to solar panels and renewable energy equipment — in North America.

Brussels fears the I.R.A. gives American companies an unfair advantage. Last week, President Emmanuel Macron of France warned President Biden that any trade imbalance caused by the climate law, along with the CHIPS Act that is meant to bolster American semiconductor manufacturing, could drive a wedge between the allies. On Sunday, Ursula von der Leyen, the president of the E.U.’s executive arm, said that Europe could retaliate with subsidies of its own to avoid losing manufacturing business to the United States. (The Swedish electric vehicle battery maker Northvolt, for example, said it would use an I.R.A. subsidy to relocate some production to the U.S.)

The subsidies have become a central talking point at the Trade and Technology Council. On Monday, the E.U.’s trade commissioner, Valdis Dombrovskis, and the U.S. Secretary of State Antony Blinken said the two sides had discussed the future of U.S. industrial policy around climate, but announced no compromises. Last week, at the DealBook Summit, Treasury Secretary Janet Yellen told Andrew that she’d like to see the I.R.A. bring America’s trading allies closer together by, for example, building“adequate supply chains” around the rare raw materials needed by green technologies. “That is a form of ‘friendshoring,’” Ms. Yellen said.

Europe doesn’t have many options. If a negotiated solution fails, some European lawmakers have called for a formal complaint to the World Trade Organization. But because of inaction by the U.S., the trade organization’s appellate body, its main dispute-resolution function, has been in limbo for years.

“There’s potential for this to escalate into a larger conflict,” Niclas Poitiers, a research fellow specializing in international trade at Bruegel, a Brussels-based think tank, told DealBook. “How do you avoid that?”

Poitiers said that competing climate subsidies from the E.U. were unlikely, and the chances of establishing a carve-out in the U.S. law to create a kind of “green” free-trade agreement were remote. That could mean new tariff threats — and a return to the strained relations of the Trump presidency, when each side imposed billions in levies on products ranging from industrial metals to European spirits to Harley-Davidson motorcycles.

“If things really sour, you might see some kind of retaliatory tariffs,” Mr. Poitiers said. “But I don’t think this is anyone’s preferred objective.”

HERE’S WHAT’S HAPPENING

Restaurant groups escalate their fight against a California law on fast-food workers. An industry coalition said it has collected enough voter signatures to move forward with a ballot initiative seeking to block a state law setting minimum hourly wages. The measure could go up for a vote in 2024.

Meta threatens to remove news from its U.S. platform. The parent company of Facebook floated the possibility as lawmakers consider a bill that would make tech giants pay to carry news content on their platforms. It had a similar battle in Australia, against a plan championed by News Corp., and there it ultimately agreed to pay.

The jury is out in the Trump Organization’s criminal tax fraud trial. Jurors are debating charges by the Manhattan district attorney that the Trump family business evaded taxes on lavish executive perks. Meanwhile, the D.A.’s office has hired Matthew Colangelo, a former Justice Department prosecutor, to help lead another investigation into Donald Trump.

PepsiCo plans to lay off hundreds. The beverage and snack giant will cut jobs at its North American headquarters, the latest sign that a wave of belt-tightening in the face of a worsening economy is expanding beyond tech and media companies.

Nike cuts ties with Kyrie Irving. The sneaker giant formally ended its relationship with the pro basketball player, having suspended it a month after ago after he posted a social media link to an antisemitic film. Nike’s move also echoes one by Adidas, which dropped Ye, the rapper and designer formerly known as Kanye West, after he made antisemitic remarks.

A big crypto SPAC deal is dead

Circle, the cryptocurrency company behind one of the market’s biggest stablecoins, said on Monday that it had called off its effort to go public via a merger with a blank-check fund, or SPAC. The about-face represents the intersection of two once-popular investing trends that have hit hard times.

Circle was up against a Dec. 10 deadline to get its deal done, but it hadn’t received approval from the S.E.C. more than a year after announcing the merger. Circle and its SPAC partner, Concord Acquisition Corp., revised their initial July 2021 agreement in February, doubling its valuation of the crypto company to $9 billion from $4.5 billion.

SPACs have had a rough time of late, with nearly 60 liquidating so far this year after being unable to complete a deal, according to SPAC Research. And crypto, of course, has been reeling since the collapse of the exchange FTX. (Circle, which runs the USD Coin, said it has minimal exposure to FTX.)

Circle still wants to go public, at some point. The company said its finances are healthy — it earned $43 million in the third quarter — and its C.E.O., Jeremy Allaire, tweeted that the crypto industry was “going to decisively leave the speculative value phase” toward a more stable and enduring one.

More crypto news:

• Ordinary investors are wondering how to recover financially from the crypto plunge.

• Nexo, a crypto lender, said it would leave the U.S. market after failing to reach agreements with state and national regulators.

• Britain is finalizing sweeping regulations of the crypto industry, including how to handle the collapse of service providers and restrictions on advertising.

• Swyftx is the latest crypto exchange to lay off staff, warning that trading volumes could sink again next year.

A $40 billion hedge against China

Taiwan Semiconductor Manufacturing Company, the world’s biggest maker of leading-edge computer chips, will announce on Tuesday that it plans to drastically expand and revamp its factory in Arizona.

The $40 billion initiative — significant enough that President Biden and Tim Cook, Apple’s C.E.O., will attend a celebration of the announcement — is the latest sign that the business world is trying to reduce the risks that China poses to global supply chains.

The news is a win for Mr. Biden, who has made sophisticated semiconductor manufacturing in America a key part of his industrial and national security policy. His administration pushed for measures like the CHIPS Act to motivate companies to build U.S. facilities. “This announcement by TSMC is historic in every way,” Ronnie Chatterji, an acting deputy director of the National Economic Council, told The Times.

Left unmentioned publicly was another consideration: China’s increasing aggression against Taiwan, which analysts worry could add another choke point in an already fragile supply chain.

TSMC could eventually produce chips for iPhones in the U.S., after the company upgrades the two-year-old factory in Phoenix and builds a second facility in the state. The two American plants may ultimately produce only a fraction of what TSMC can make in Taiwan, but experts say they could provide an essential backstop for American tech customers in case of manufacturing emergencies.

“There was no part of the car we researched that was untainted by Uyghur forced labor. It’s an industrywide problem.”

— Laura Murphy, a professor of human rights and contemporary slavery at Britain’s Sheffield Hallam University, on a new report that shows the global auto sector is highly reliant upon Chinese suppliers that researchers found to have participated in coercive labor programs in Xinjiang Province.

Executive departures sink Salesforce’s stock price

In late September, Marc Benioff was asked if his business software company, Salesforce, would continue its aggressive acquisition strategy even as corporate I.T. spending slumped. The C.E.O. confidently replied, “It seems to be working.” Less than three months later, Wall Street is worrying he may have missed the signs of a downturn.

Salesforce’s shares slumped 7 percent on Monday on news that one of its recent acquisitions, the workplace communication platform Slack, is losing a key asset: its C.E.O., Stewart Butterfield. He launched the business in 2013; Salesforce bought it last year for $27.7 billion.

Mr. Butterfield’s departure was expected, and had been in the works for months, the company said. But investors still seemed disturbed by the news. The company’s stock now has dropped nearly in half this year.

Even by the standards of Big Tech, Salesforces has been hit by a large exodus of key executives:

• Dec. 2: Mark Carter, a top cybersecurity executive.

• Dec. 1: Mark Nelson, head of Tableau, which Salesforce acquired in 2019.

• Nov. 30: Bret Taylor, Salesforce’s co-C.E.O. (He plans to leave in January, and he’d only been in the role just over a year.)

• Nov. 10: Gavin Patterson, chief strategy officer.

Salesforce has spent $50 billion on acquisitions since 2018. Those deals have kept sales rising quickly, but recent integration costs have sapped the firm’s bottom-line growth. It’s also attracted the activist hedge fund Starboard, which thinks Salesforce could improve its profit margins.

Slack was Salesforce’s largest-ever purchase. When the deal was struck, other pandemic investment plays, like Peloton and Zoom, were soaring. Now Salesforce looks like it might have overpaid.

And now Mr. Benioff and his team will have to run Slack themselves. Along with Butterfield, a number of other top Slack executives are leaving as well. Mr. Benioff on Monday named a Salesforce executive to run the brand. “Salesforce’s history of acquisitions could present a high degree of execution risk,” Bank of America analyst Brad Sills warned investors in a recent note to clients.

THE SPEED READ

Deals

• Microsoft proposed making the “Call of Duty” video-game franchise available to Sony’s PlayStation for at least 10 years, as part of efforts to win regulatory approval for its $69 billion takeover of Activision Blizzard. (CNBC)

• An array of SPACs have disclosed accounting weaknesses, giving critics more ammo for warnings about the risks of these blank-check funds. (FT)

• Inside Blackstone’s decision to block withdrawals from its $125 billion real estate investment fund. (FT)

Policy

• The U.S. and E.U. are reportedly considering tariffs on Chinese steel and aluminum imports to cool off global emissions. (Bloomberg)

• Hertz will pay $168 million to settle disputes with customers wrongfully accused of stealing rental cars. (NYT)

• Rupert Murdoch will be deposed next week as part of Dominion Voting Systems’s $1.6 billion defamation lawsuit against Fox News. (WaPo)

Best of the rest

• Elon Musk’s Neuralink is said to be under federal investigation over potential abuse of test animals. (Reuters)

• Michael Avenatti, the former lawyer for the pornographic film actress Stormy Daniels, was sentenced to 14 years in prison for stealing millions from his clients. (NYT)

• A group of Taylor Swift fans are suing Ticketmaster’s parent company accusing it of anticompetitive conduct and fraud after they were shut out of tickets to her upcoming tour. (NYT)

• Why so many people are excited about the A.I. chatbot ChatGPT. (NYT)

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