Trump's Fed Criticism and Tesla's China Strategy: Economic Tensions Rise

Trump Restates His Desire for More Say Over the Fed

Trump wants a 'say' over the Fed Donald Trump has repeatedly questioned the principle of the Fed's political independence and criticized Jay Powell, the central bank's chair. (Remember when he called Powell a "bigger enemy" than President Xi Jinping of China?) That has made the future of the Fed in a second Trump presidency a hot topic -- speculation that is escalating on Friday after the former president made his most direct assertions yet that the Fed should not have full control in setting monetary policy. Such a view could jeopardize the very power structure that's governed the institution for decades and made it a North Star for investors. "I feel that the president should have at least say in there," Trump said at a news conference at Mar-a-Lago. "Yeah, I feel that strongly." He gave little detail about his full vision for how the Fed should operate -- though he generally favors low interest rates and a weak dollar -- but focused on a longstanding peeve: how the institution sets interest rates. He said its decisions are too often driven by "gut feeling," and that Fed policymakers get "it wrong a lot." "I think I have a better instinct than, in many cases, people that would be on the Federal Reserve, or the chairman," Trump said, adding that "I made a lot of money." As president, Trump often griped about Powell, including when the Fed kept borrowing costs higher than he would have preferred. And he's expressed concern that a rate cut before Election Day, as investors are anticipating, would benefit Kamala Harris and other Democrats. Thursday's comments came after Trump told Bloomberg Businessweek that Powell could keep his job "if I thought he was doing the right thing," and The Wall Street Journal reported in April that Trump's allies were seeking to water down Fed independence. As The Times's Jeanna Smialek wrote in DealBook last month, it is not clear that Trump could legally dismiss or demote a sitting Fed chair. It should be noted that Trump isn't alone in seeking more sway over the central bank; Richard Nixon and Ronald Reagan had both sought to push around their Fed chiefs. Investors shook off Trump's comments. The S&P 500 continued to rally while Trump spoke, closing 2.3 percent higher, and U.S. futures were on Friday. But a Treasury Department auction was met with weak demand for a second straight day. Wei Li, BlackRock's global chief investment manager, told Bloomberg TV on Friday that any questions about the Fed's independence could give investors pause about the Treasury market. Messing with the Fed could have big market ramifications. "Without some independence, we would have seen a cut in July, if not earlier," Kathryn Judge, a law professor at Columbia, wrote on X last night. Earlier this week, Jay Clayton, the S.E.C. chair during the Trump administration, said, "Thank goodness we have an independent Fed," noting it can have a calming effect on markets during periods of volatility. It's worth noting that the Fed does more than set rates: It also regulates the nation's banks, and is the lender of last resort for that system. The central bank is also a huge market participant during crises, buying securities and other financial assets to maintain liquidity. In other markets news: 30-year mortgage rates fell to their lowest level in 15 months, as speculation grows that the Fed will soon cut interest rates. But Jeffrey Schmid, the president of the Kansas City Fed, pushed back on the possibility of near-term cuts, saying he needs to see more evidence of declining inflation. HERE'S WHAT'S HAPPENING FTX Trading and an affiliated firm are ordered to pay $12.7 billion to fraud victims. The punishment arose out of a settlement between FTX and Alameda Research and the Commodity Futures Trading Commission, which also agreed to prioritize victims' restitution claims over its own. Paramount cuts 15 percent of its U.S. work force. The beleaguered media company said it plans to lay off about 2,000 workers, largely from back-end functions including communications and finance, as part of a $500 million cost-reduction plan ahead of its merger with Skydance Media. Paramount also announced that its streaming arm had turned a profit in the second quarter, surprising investors, though overall revenue missed expectations. Wall Street bonuses may rise sharply this year, a report predicts. A jump in financial transaction activity, and therefore fees for banks, could lead to payouts climbing as much as 35 percent over last year, according to the compensation research provider Johnson Associates. The biggest beneficiaries are likely to be bankers who arrange debt sales, followed by those who put together I.P.O.s. Three Columbia deans resign after sending insulting texts. The university officials had been suspended in June after administrators discovered that they had sent disparaging messages that "disturbingly touched on ancient antisemitic tropes." Columbia and other schools remain under scrutiny over how they handle claims of antisemitic and anti-Islamic behavior amid ongoing protests over the war in Gaza. Musk claims a victory over advertisers Elon Musk scored a win on Thursday when a nonprofit coalition of advertisers that he had accused of orchestrating a boycott against X said it was shutting down. It's an instance of an oft-employed strategy by Musk -- using lawsuits as a cudgel -- paying off. Whether it will have longer-term consequences for X, whose business is dependent on advertisers, remains to be seen. The context: X this week sued the Global Alliance for Responsible Media, a group led by the World Federation of Advertisers, alleging that it had violated antitrust laws by coordinating with brands including CVS Health, Mars and Unilever to arrange an ad boycott. "We tried peace for 2 years, now it is war," Musk wrote on X when the lawsuit was announced. "This decision was not made lightly, but GARM is a not-for-profit organization, and its resources are limited," Stephan Loerke, the World Federation of Advertisers' C.E.O., wrote to GARM's members, according to The Times. Loerke denied that the coalition's effort violated antitrust laws, but said that it didn't have the money to fight a sustained legal battle. X and its allies celebrated: "No small group should be able to monopolize what gets monetized," Linda Yaccarino, X's C.E.O., wrote in a post. And a spokesman for the Republican-led House Judiciary Committee, which had accused GARM of "starving disfavored content, or even entire platforms, of advertising dollars," said the move was "a big win for the First Amendment." Musk has gotten results by suing opponents before. After X sued Media Matters, which had published research showing that ads on X had run alongside antisemitic content, several employees of the advocacy group said the legal pressure led to layoffs, The Times reports. But X's victory won't necessarily endear the platform to advertisers, many of whom have continued to stay away over a rise in divisive content -- including from Musk himself. "They don't want to interact with Elon Musk, period," Claire Atkin, a co-founder of Check My Ads, a digital advertising watchdog, told The Times. That could end up further hurting X, which had sought to make nice with the ad industry this summer. While Musk has sought to bulk up other sources of revenue, including subscriptions, advertising still provides the bulk of the company's top line. And with X still laboring under billions of dollars in debt that it took on as part of Musk's purchase of the social network, as well as investments in technology including A.I., any sustained hit to revenues will hurt. "We will implement a national strategy for cultivating top talents." -- Huai Jinpeng, the Chinese minister of education. China has oustripped the U.S. and other countries in innovations for electric-vehicle technologies like batteries in part by stressing science classes and research in classrooms. The A.I. non-takeover deals Big Tech companies are racing to beef up their artificial intelligence capabilities, without adding to the intense antitrust scrutiny that they're already facing. So instead of buying startups outright, they're striking nontraditional deals that give them access to A.I. talent and technologies, but stop short of ownership, The Times's Erin Griffith and Cade Metz report. Some recent examples: Character.AI, a chatbot maker, struck a deal last week to license its technology to Google for $3 billion, about $2.5 billion of which will be used to buy out the start-up's shareholders. About 20 percent of Character.AI's employees will join Google's A.I. research arm. Amazon paid the A.I. start-up Adept at least $330 million in June to license its technology, with much of that going toward paying back the $414 million the start-up had raised from investors, The Times reports. Microsoft agreed in March to license the I.P. of the startup Inflection for more than $650 million and hired almost all of its employees. Among them was Inflection's co-founder, Mustafa Suleyman, who now leads Microsoft's consumer A.I. business. Regulators are watching. The F.T.C. said in January that it plans to study how A.I. investments by Microsoft, Amazon and Google affect the competitive landscape. And Britain's antitrust regulator said on Thursday that it is investigating a deal that Amazon made with the A.I. company Anthropic. "These deals do indeed start to look a lot like regular acquisitions," Justin Johnson, a business economist who focuses on antitrust at Cornell University, told The Times. Not everyone is thrilled by these deals. Employees who aren't picked up by the Big Tech buyers don't get to share in the financial rewards. "If you build a company and you take on money from investors, every person involved deserves to be rewarded," Sebastian Thrun, an A.I. researcher who co-founded Google's self-driving car project, said. THE SPEED READ Deals Hargreaves Lansdown, a big British retail investment platform, agreed to sell itself for $6.9 billion to a group led by Abu Dhabi's sovereign wealth fund. (CNBC) RedBird Capital and Fenway Sports Group are said to be weighing a bid for the Boston Celtics, potentially setting the stage for LeBron James, an investor in Fenway, to become an owner of the N.B.A. team -- if he retired from the Los Angeles Lakers by the time a deal closed. (NY Post) Authorities in Moscow rejected AB InBev's $1.3 billion deal to sell its stake in a Russian joint venture to a Turkish brewer. (FT) Elections, politics and policy Biden administration officials met with top crypto executives and investors over Zoom to mend fences. It got heated quickly. (Fox Business) Apple changed App Store policies in the E.U. about how developers can communicate with users and the fees that are charged on downloads made outside the store, in response to an investigation by regulators. (Reuters) "Foreign Accounts Push Political Lies on TikTok" (WSJ) Best of the rest "What Happens When Ozempic Takes Over Your Town" (Bloomberg) Colin Huang, the founder of the low-cost online marketplace Temu, has become China's wealthiest person, with an estimated net worth of $48.6 billion. (Bloomberg) MiMedx, a Georgia biomedical company, sued 10 former employees to prevent them from working for a rival. Now one of them has sued back, claiming the company pressured her to break the law. (AJC) We'd like your feedback! Please email thoughts and suggestions to dealbook@nytimes.com.

Elon Musk may not fully understand Tesla's 'catfish' role in the China tank

Visitors view Tesla's humanoid robot Optimus Prime II in Shanghai on July 7. Tesla has long been the driving force of the global electric vehicle revolution. In his newsletter this week, The Information's Steve Levine observes that "Tesla created the EV industry in 2008 with the release of the Roadster, and...has driven it forward with a succession of vehicles since then, pushing major automakers into a full-scale panic to catch up and inspiring China to build up its own EV industry." Steve contends Tesla abdicated that pioneering role in February when CEO Elon Musk pulled the plug on plans to produce a $25,000 electric vehicle for mass-market consumers. The project hasn't been officially canceled. But Musk says he now wants to prioritize the development of an autonomous Robotaxi as part of a broader strategic pivot in which Tesla transforms itself from a car company into a developer of artificial intelligence products. Steve worries Musk's strategic swerve has thrown "the nascent EV industry into reverse." He lists a half dozen instances since February in which global auto manufacturers and suppliers have backed off from multibillion-dollar investments. He quotes former Tesla executive Gene Berdichevsky as warning that Elon's decision will slow EV adoption in the West by five years "because there's a ripple effect of the pressure that Tesla creates on everybody else." But Chinese EV makers aren't slowing down. Hours after I read Steve's piece, a newsletter by former GM executive Michael Dunne landed in my inbox. It's headline: "China is Done with Global Carmakers." Michael has long argued that, though they once dominated China's car market, foreign automakers including GM, Ford, Volkswagen, BMW, and Toyota are now getting systemically muscled out by domestic rivals. Among the indicators of impending doom: plummeting sales, mounting losses, and, in the case of Stellantis's Jeep operations, bankruptcy and "ignominious retreat." The speed and scale of that reversal is astonishing. And the key to understanding it, according to Michael, is that China has made a "massive and abrupt shift to electric vehicles." As Michael notes, the EV share of total car sales in China will rise to almost 50% this year, up from 6% in 2020. "China has sprinted from 1 million to more than 10 million annual EV deliveries in just four short years," he writes. "Global automakers were caught flat-footed on EVs, lulled into complacency by years of winning at selling gasoline-powered vehicles. Chinese automakers, in contrast, seized on the shift to electrics." Tesla was instrumental in spurring the development of China's EV sector. In 2018, the company became the first-ever foreign carmaker to be invited to set up a factory in China without having to take on a Chinese partner -- an extraordinary concession followed by many more: tax breaks, preferential loans, and expedited administrative approvals. The Shanghai factory was a sweet deal for Elon, but also a canny move by China. Officials aimed to create a "catfish effect" -- by dropping a big fish, Tesla, into the tank they hoped to frighten the other fish, China's homegrown EV producers, into swimming faster. In China, Tesla can still play that role -- for now. When Musk turned up in Beijing in April he was granted an audience with the Communist Party's No. 2 leader, Li Qiang. Officials later signaled they'll remove restrictions banning Teslas from entering Chinese military complexes or other key government sites because of security concerns and will allow Tesla to make a version of its "Full Self-Driving" software available to Chinese customers. Both moves would force China's other fish to swim faster. In May, Chinese officials launched a pilot program in the Shanghai district where Tesla's factory is located that will allow companies registered there to transfer certain kinds of data overseas without having to clear cumbersome security reviews. That is sure to enhance the appeal of Teslas sold in China -- and could prove a giant boost to Musk's dream of transforming Tesla into a global AI powerhouse. But Tesla is no longer the only big fish in the China tank. Now the U.S. company must compete with a slew of heavily subsidized local rivals, led by Warren Buffett-backed BYD, which are eating into sales -- in China and overseas markets. BYD overtook Tesla in the last quarter of 2023 as the top global seller of electric vehicles. Counterpoint Research predicts the Chinese company will top Telsa in sales for the full year in 2024. Meanwhile, at least 10 other Chinese automakers or suppliers have unveiled FSD-like driver assistance systems. On Wednesday, a U.S. court imposed a $125 million penalty on crypto firm Ripple for violating securities law. Ripple celebrated the ruling, as the fine was much lower than the $2 billion the Securities and Exchange Commission asked for. Yet Fortune's Leo Schwartz argues the ruling doesn't yet give U.S. crypto firms regulatory clarity, given a near-certain SEC appeal and an injunction from Judge Analisa Torres ordering Ripple to stop breaking the law. Fortune Crowdstrike convention Crowdstrike, the cybersecurity company at the heart of last month's global IT outage, is the star at the annual Black Hat cybersecurity conference in Las Vegas. Attendees lined up to get swag from Crowdstrike, a conference sponsor, due to its newfound public notoriety, yet also suggested that companies hit by the outage are partly to blame for their own problems. Crowdstrike shares are down about 40% since the outage. Fortune Musk vs. advertisers The Global Alliance for Responsible Media, a non-profit collection of advertisers, is shutting down in the wake of a lawsuit from X, the Elon Musk-owned social media platform. The billionaire accused the organization, founded by the World Federation of Advertisers, of telling advertisers to pull their spending on the social media platform. Fortune Commentary: It's time to stand with Bangladesh -- and my friend Muhammad Yunus by Paul Polman Inside Alpha Kappa Alpha, the historic sorority Kamala Harris says changed her life by Sydney Lake JPMorgan is under fire for Zelle scams. The app says the solution is more money for law enforcement by Michael del Castillo Bumble's bad date with investors sees stock plummet, BoA downgrade by Sheryl Estrada The beloved Ford Capri is back -- or is it? Why every new electric car is an SUV, and why it shouldn't be by James Morris Amazon axes a major fee for sellers ahead of the crucial holiday shopping rush by Jason del Rey Tim Walz's net worth is less than the average American's by Christiaan Hetzner This edition of CEO Daily was curated by Nicholas Gordon.