The Wall Street Journal - 19.08.2019

THEWALL STREET JOURNAL

(USPS 664-880)

(Eastern Edition ISSN 0099-9660)

(Central Edition ISSN 1092-0935) (Western

Edition ISSN 0193-2241)

Editorial and publication headquarters: 1211

Avenue of the Americas,

New York, N.Y. 10036

Published daily except Sundays and general

legal holidays. Periodicals postage paid at

New York, N.Y., and other mailing offices.

Postmaster : Send address changes to

The Wall Street Journal, 200 Burnett Rd.,

Chicopee, MA 01020.

All Advertising published in The Wall Street

Journal is subject to the applicable rate card,

copies of which are available from the

Advertising Services Department, Dow Jones

& Co. Inc., 1211 Avenue of the Americas, New

York, N.Y. 10036. The Journal reserves the

right not to accept an advertiser’s order. Only

publication of an advertisement shall

constitute final acceptance of the advertiser’s

order.

Letters to the Editor:

Fax: 212-416-2891; email: [email protected]

Need assistance with your subscription?

By web: customercenter.wsj.com;

By email: [email protected]

By phone: 1-800-JOURNAL

(1-800-568-7625)

Reprints & licensing:

By email: [email protected];

By phone: 1-800-843-

WSJ back issues and framed pages :

wsjshop.com

Our newspapers are 100% sourced from

sustainably certified mills.

GOT A TIP FOR US?

SUBMIT IT AT WSJ.COM/TIPS

Mr. Trump declined to say

whether he had spoken with Mr.

Xi over the weekend and didn’t

lay out a timeline for when they

might speak again. “I can speak

to him any time,” he said.

Mr. Trump dismissed fears

of a recession, pointing to the

strong labor market and ro-

bust consumer spending.

“We are doing better than

any country or even area in

the world,” he said.

Despite the president’s op-

timism, concerns are mount-

binding and are being com-

pleted during a tumultuous

stretch for startups, including

some of the Vision Fund’s

largest investments.

Shares of Uber have fallen

30% since the company went

public in May. The stock now

trades below the roughly $

level that SoftBank paid to ac-

quire its stake, people familiar

with the matter said.

WeWork, another big Vi-

sion Fund investment, filed

last week to go public, dis-

closing losses that are enor-

mous and growing fast, even

by Silicon Valley standards.

The company will likely

need large sums of cash for

years as it builds out offices.

This could affect WeWork’s

most recent $47 billion valu-

ation, which one analyst

called “very hard to swallow”

in light of the company’s

huge losses.

Most investment funds sim-

ply give their employees a

share of the profit as part of

their compensation. Investors

like to see such skin in the

game.

But SoftBank is instead

lending to staff—it has about

400 employees—to buy those

stakes, charging around 5% in-

terest and in most cases re-

quiring little money down,

said people familiar with the

arrangement, which is likely to

be completed in the coming

weeks.

It did the same thing for

the first fund, which now in-

cludes about $8 billion of em-

ployee money, those people

said. The lending adds lever-

age to the Vision Fund’s al-

ready risky investments and, if

the fund struggles, would put

SoftBank in an awkward posi-

tion trying to collect from

some of its most senior execu-

tives and could ultimately lose

money.

Much of Mr. Son’s wealth

is tied up in his shares of

SoftBank itself, which he

CORRECTIONS

AMPLIFICATIONS

Readerscan alert The Wall Street

Journal to any errors in news

articles by emailing

[email protected] or by calling

888-410-2667.

couldbe forced to sell to re-

pay the loans.

For that reason, loans to

top executives must typically

be explained to shareholders.

The stakes also could be con-

sidered compensation, which

companies must disclose an-

nually for executives at the

level of Mr. Son and Vision

Fund CEO Rajeev Misra.

SoftBank executives believe

the loans will better align its

managers’ interests with those

of Vision Fund investors be-

cause the fund investments

can be canceled if someone

departs or is found to have

done a reckless deal, people

familiar with their thinking

said.

Other investors in the fund

include the government fund

of Kazakhstan, which is likely

to contribute about $3 billion,

people familiar with the mat-

ter said.

Banks including Goldman

Sachs Group Inc., Standard

Chartered PLC and Japan’s

Mitsubishi UFJ Financial

Group Inc. have signaled they

are willing to invest several

hundred million dollars apiece,

which bankers view as a way

to get hired on deals and IPOs

for Vision Fund’s roughly 75

portfolio companies.

SoftBank is negotiating

with several pensions and in-

surers, including in Taiwan,

for combined investments it

hopes will exceed $30 billion,

some of the people said. Tai-

wan’s insurers are searching

for higher-yielding invest-

ments to help them close the

gap between promised payouts

for older policies and returns

they are getting on invest-

ments now.

But large-scale investments

could be a stretch for them be-

cause Taiwanese regulations

only allow them to put a frac-

tion of their assets into riskier

investments like venture capi-

tal.

—Phred Dvorak

contributed to this article.

in backing from government

investment funds from Saudi

Arabia and Abu Dhabi and

quickly roiled the tech market

by making huge investments

in Uber Technologies Inc., We-

Work, Chinese ride-hailing

company Didi Chuxing Tech-

nology Co. and other compa-

nies, helping to drive up their

valuations. The funds are sup-

posed to tap the vision of Mr.

Son, who has made huge profit

on tech investments, and the

new effort is expected to be

focused on artificial intelli-

gence.

SoftBank said it has $

billion from investors includ-

ing Apple Inc., Microsoft

Corp., the government of Ka-

zakhstan and half a dozen

banks.

Those commitments aren’t

ContinuedfromPageOne

SoftBank

Taps Loans

For Fund

Mr. Trump’s threatened

tariff extensions, if imple-

mented, would push the rate

higher still. His latest threat

to slap a 10% levy on a swath

of Chinese consumer goods

by Dec. 15 would nudge the

average tariff to more than

5%, Deutsche Bank estimates,

or 7% if those tariffs ratchet

to 25%. Throw in additional

tariffs he has threatened on

Mexican imports and Euro-

pean cars, and UBS calcu-

lates the average tariff on

goods imports to the U.S.

would reach just under

9%—a level unmatched since

1947 and before the long,

postwar effort to break

down overt trade barriers

and boost global trade.

Raising average tariffs to

such a level would put the

U.S. on a par with countries

including Sri Lanka, Brazil

and other less developed

economies where govern-

ments often seek to shield

domestic industries from

foreign competition.

“What we have is a change

of direction for the U.S.” in

terms of free trade, said Rob

THEOUTLOOK|By Jason Douglas

Tariff Spat Masks Deeper Trade Woes

Inwaging a

trade war on

several fronts,

President

Trump ap-

pears to be

turning the clock back to a

bygone era, when high barri-

ers to trade were a daily fact

of economic life.

In fact, the tit-for-tat tar-

iff fight between the U.S. and

China is the public face of a

global slide toward protec-

tionism that has been going

on for a decade and shows

few signs of slowing.

Some Trump administra-

tion officials have portrayed

tariffs as a short-term tool

to pressure countries into

negotiating better trade

agreements. But many econ-

omists say the recent prolif-

eration of such measures is

holding back U.S. and global

economic growth.

Mr. Trump’s levies on

products ranging from steel

and solar panels to textiles

have raised the average tariff

applied on imports pur-

chased by the U.S. to just

over 4%, according to analy-

ses by Deutsche Bank AG and

UBS Group AG.

T

hatis considerably

higher than the same

figure for some of the

countries in the president’s

sight. The average tariff on

imports to the European

Union is around 1.8%, accord-

ing to the World Bank. Can-

ada’s is 1.5%. However,

China—the president’s chief

antagonist in his trade dis-

putes—levies an average tar-

iff on imports of 4.6%,

Deutsche Bank estimates.

The last time the average

U.S. tariff levied on imports

was anywhere near its current

level was in the 1970s, figures

from the World Bank show.

Martin, an economist at UBS.

Mr. Trump is just using

every available tool to level

the playing field on trade,

combating a strategy of un-

fair competition pursued by

many countries, a White

House spokesman said.

M

osteconomists say

restricting trade im-

poses costs on busi-

nesses, consumers and the

wider economy. UBS calcu-

lates the blossoming trade

conflict has kept the U.S.

economy around 0.75%

smaller than it would have

been had tariffs stayed

where they were.

Global output has also

taken a hit: UBS says the

world economy is around

0.4% smaller than it other-

wise would have been. The

damage will rise to 0.7% if

Mr. Trump pulls the trigger

on all threatened tariffs.

The International Mone-

tary Fund recently cited

trade tensions as the prime

reason it lowered its global

2019 growth forecast to 3.2%

from its April projection of

3.3%. The world economy ex-

panded 3.6% last year.

Some economists, though,

say tariffs don’t tell the

whole story and may be a

misleading signal for gaug-

ing the true state of global

openness to trade.

For one thing, applied av-

erage tariffs measure levies

imposed on goods actually

bought in any given year,

meaning they can swiftly

change if importers, faced

with higher prices, decide to

buy from somewhere else.

For example, recent data

shows Chinese imports from

the U.S. fell 30% on the year

through June as importers

shunned U.S. soybeans and

natural gas in favor of

cheaper alternatives.

Nor do tariffs necessarily

explain patterns of global

trade. Consider American au-

tomobiles, whose relative un-

popularity in Europe owes

more to narrow streets than

EU import duties, said Sam

Lowe, a trade-policy expert at

the Centre for European Re-

form, a London-based think

tank focused on EU affairs.

“When Trump moans about

American cars and the EU,

what he really wants is for Eu-

ropean consumers to change

their preferences,” he said.

Simon Evenett, professor of

international trade and eco-

nomic development at the

University of St. Gallen in

Switzerland, said policies such

as regulations, tax breaks and

export subsidies have been

distorting trade for years.

This year alone, for exam-

ple, Canada said it would

make up to $755 million of

taxpayer cash available to

the oil and gas sector to

boost exports. France, Ger-

many, Italy and the U.K. said

they are bankrolling an EU

microelectronics project with

loans and grants valued at

around $2 billion.

Mr. Evenett, who oversees

the Global Trade Alert proj-

ect that tracks developments

in trade policy, estimates

that in 2019 around 73% of

global trade will be affected

by some trade-distorting

measure. That compares

with 35% a decade ago.

Efforts to revive econo-

mies weakened by the finan-

cial crisis have driven the

shift, he said, and while the

U.S. isn’t innocent of such

practices itself, it is often on

their receiving end. Nearly

59% of U.S. imports this year

are subject to some trade-

distorting measure. But in

China, it is 75%.

Existingtariffs Newtariffssince

Retaliatorymeasuressince2017 U.S.tariffthreats

Brazil

China

Japan

EU

U.S.

Canada

Mexico

0% 2. 5 5 7.5 10

80

0

20

40

60

%

MeasureforMeasure

TheaveragetariffleviedbytheU.S.onimportsnowsurpasses

thoseofsomeothermajoreconomies...

...butothercountriesareengagedinalternativeformsof

protectionismthatalsoaffectimports.

Importssubjecttotradedistortions

Sources: Deutsche Bank (tariffs); Global Trade Alert (distortions)

China

U.S.

Brazil

Canada

EU

Mexico

Japan

2009 ’10 ’19’18’17’16’15’14’13’12’

ECONOMIC

CALENDAR

Monday : The Eurozone re-

leases its consumer-price index

for July, providing the latest in-

sight into inflation on the Conti-

nent as policy makers worry the

global economy is slowing.

Wednesday : The U.S. Na-

tional Association of Realtors

releases July existing home

sales. Economists surveyed by

The Wall Street Journal expect

sales to have risen 2.3% from

June to 5.39 million units, as low

mortgage rates help stimulate

demand despite high housing

costs that have weighed on the

sector.

Also on Wednesday ,the

Federal Reserve publishes min-

utes from its July 30-31 policy

meeting, when officials voted

to lower interest rates for the

first time since 2008. Investors

will look for signs of disagree-

ment on the Federal Open Mar-

ket Committee, and clues to

what the central bank may do

next.

Thursday : IHS Markit re-

leases its monthly purchasing

managers indexes for major

economies around the world.

Economists will pay close at-

tention to the U.S. figure on

manufacturing, looking for

signs of further weakening in

the U.S. factory sector amid

an intensifying trade dispute

with China and sluggish global

economy. Economists expect

Markit’s manufacturing PMI

for August to fall to 50.0, the

threshold between expansion

and contraction, from 50.4 in

July. The services PMI is seen

falling to 52.7 in August from

53.0 in July.

Friday : The Fed’s Jerome

Powell will deliver a closely

watched speech, his first since

the July rate cut, at 10 a.m. ET

at the central bank’s annual get-

together in Wyoming. Investors

will be eager to hear how the

Fed may respond to what they

see as growing risks to the eco-

nomic outlook presented by the

trade war, Brexit and other fac-

tors.

withlast Tuesday’s delay in

tariffs on $156 billion of Chi-

nese goods, suggest an effort

by the White House to dial

back trade hostilities following

a week of market swings. A

10% tariff on another $111 bil-

lion of imported goods will go

into effect Sept. 1 as planned.

But Mr. Trump’s comments

indicate he is in no hurry to

make a deal that might calm

volatile markets and allay fears

of a brewing recession. Mr.

Trump appeared to back off

from reports that the adminis-

tration would grant a 90-day

extension to the license that

has allowed Huawei to do some

business with the U.S. despite

national-security concerns that

landed the Chinese telecom

company on an export blacklist

in May.

“I’m making a decision to-

morrow,” he said. “Ultimately

we don’t want to do business

with Huawei, for national se-

curity reasons.”

Earlier Sunday, White House

economic adviser Lawrence

Kudlow said granting the com-

pany an extension would give

American companies doing

business with the Chinese tele-

communications firm more

time to make adjustments.

ing that a prolonged trade war

and slowing global growth

could inflict damage on the

U.S. economy.

Although retail spending

remained strong in July, U.S.

consumer sentiment is slip-

ping, falling to a seven-year

low in August, according to an

index published by the Univer-

sity of Michigan.

The outlook for businesses

is more concerning. Corporate

profits were down 2.2% in the

first quarter versus the previ-

ous year and investment fell at

a 0.6% annual rate in the sec-

ond quarter, according to the

Commerce Department. Else-

where in the world, Germany’s

economy contracted for the

second straight quarter and

China reported lower than ex-

pected figures for factory pro-

duction, consumption and

property investment.

Mr. Trump suggested China

was bearing the brunt of the

pain from the tariffs, which

would compel the country’s

leaders to strike a deal.

“China is doing very, very

poorly,” he said. “We’re going

to end up doing a very good

deal and I think China, by the

way, needs a deal much more

than we do.”

WASHINGTON—President

Trump warned Chinese Presi-

dent Xi Jinping against reacting

violently to protests in Hong

Kong, saying that could threaten

a trade deal, speaking hours af-

ter administration officials con-

firmed a new round of talks.

“It would be much harder

for me to sign a deal if he did

something violent in Hong

Kong,” the president told re-

porters Sunday evening in

New Jersey before boarding a

flight back to Washington. “I’d

like to see that worked out in

a humanitarian fashion.”

The president’s comments

came as top advisers sought to

put to rest fears that the two

countries are on the brink of a

prolonged trade war.

Over the weekend, adminis-

tration officials said they

would give Huawei Technolo-

gies Co. more time to work

with U.S. customers and said

the White House was laying the

groundwork for a new round of

trade talks with Chinese offi-

cials in Washington.

Those moves, combined

By DavidHarrison ,

Katy Stech Ferek

and Andrew Restuccia

Trump Cautions China on Hong Kong Reaction

Thepresident, speaking to reporters in New Jersey on Sunday, dismissed fears of a recession.

SA

UL LOEB/AGENCE FRANCE-PRESSE/GETTY IMAGES

The firm plans to

lend up to $20 billion

to its employees to

buy stakes in its fund.

A2|Monday,August 19 , 2019 THEWALLSTREETJOURNAL.**

U.S. NEWS