Posted on

The Secretive Company That Might End Privacy as We Know It

Until recently, Hoan Ton-That’s greatest hits included an obscure iPhone game and an app that let people put Donald Trump’s distinctive yellow hair on their own photos.

Then Mr. Ton-That — an Australian techie and onetime model — did something momentous: He invented a tool that could end your ability to walk down the street anonymously, and provided it to hundreds of law enforcement agencies, ranging from local cops in Florida to the F.B.I. and the Department of Homeland Security.

His tiny company, Clearview AI, devised a groundbreaking facial recognition app. You take a picture of a person, upload it and get to see public photos of that person, along with links to where those photos appeared. The system — whose backbone is a database of more than three billion images that Clearview claims to have scraped from Facebook, YouTube, Venmo and millions of other websites — goes far beyond anything ever constructed by the United States government or Silicon Valley giants.

Federal and state law enforcement officers said that while they had only limited knowledge of how Clearview works and who is behind it, they had used its app to help solve shoplifting, identity theft, credit card fraud, murder and child sexual exploitation cases.

Until now, technology that readily identifies everyone based on his or her face has been taboo because of its radical erosion of privacy. Tech companies capable of releasing such a tool have refrained from doing so; in 2011, Google’s chairman at the time said it was the one technology the company had held back because it could be used “in a very bad way.” Some large cities, including San Francisco, have barred police from using facial recognition technology.

But without public scrutiny, more than 600 law enforcement agencies have started using Clearview in the past year, according to the company, which declined to provide a list. The computer code underlying its app, analyzed by The New York Times, includes programming language to pair it with augmented-reality glasses; users would potentially be able to identify every person they saw. The tool could identify activists at a protest or an attractive stranger on the subway, revealing not just their names but where they lived, what they did and whom they knew.

And it’s not just law enforcement: Clearview has also licensed the app to at least a handful of companies for security purposes.

“The weaponization possibilities of this are endless,” said Eric Goldman, co-director of the High Tech Law Institute at Santa Clara University. “Imagine a rogue law enforcement officer who wants to stalk potential romantic partners, or a foreign government using this to dig up secrets about people to blackmail them or throw them in jail.”

Clearview has shrouded itself in secrecy, avoiding debate about its boundary-pushing technology. When I began looking into the company in November, its website was a bare page showing a nonexistent Manhattan address as its place of business. The company’s one employee listed on LinkedIn, a sales manager named “John Good,” turned out to be Mr. Ton-That, using a fake name. For a month, people affiliated with the company would not return my emails or phone calls.

While the company was dodging me, it was also monitoring me. At my request, a number of police officers had run my photo through the Clearview app. They soon received phone calls from company representatives asking if they were talking to the media — a sign that Clearview has the ability and, in this case, the appetite to monitor whom law enforcement is searching for.

Facial recognition technology has always been controversial. It makes people nervous about Big Brother. It has a tendency to deliver false matches for certain groups, like people of color. And some facial recognition products used by the police — including Clearview’s — haven’t been vetted by independent experts.

Clearview’s app carries extra risks because law enforcement agencies are uploading sensitive photos to the servers of a company whose ability to protect its data is untested.

The company eventually started answering my questions, saying that its earlier silence was typical of an early-stage start-up in stealth mode. Mr. Ton-That acknowledged designing a prototype for use with augmented-reality glasses but said the company had no plans to release it. And he said my photo had rung alarm bells because the app “flags possible anomalous search behavior” in order to prevent users from conducting what it deemed “inappropriate searches.”

In addition to Mr. Ton-That, Clearview was founded by Richard Schwartz — who was an aide to Rudolph W. Giuliani when he was mayor of New York — and backed financially by Peter Thiel, a venture capitalist behind Facebook and Palantir.

Another early investor is a small firm called Kirenaga Partners. Its founder, David Scalzo, dismissed concerns about Clearview making the internet searchable by face, saying it’s a valuable crime-solving tool.

“I’ve come to the conclusion that because information constantly increases, there’s never going to be privacy,” Mr. Scalzo said. “Laws have to determine what’s legal, but you can’t ban technology. Sure, that might lead to a dystopian future or something, but you can’t ban it.”

Image
Credit…Amr Alfiky for The New York Times

Mr. Ton-That, 31, grew up a long way from Silicon Valley. In his native Australia, he was raised on tales of his royal ancestors in Vietnam. In 2007, he dropped out of college and moved to San Francisco. The iPhone had just arrived, and his goal was to get in early on what he expected would be a vibrant market for social media apps. But his early ventures never gained real traction.

In 2009, Mr. Ton-That created a site that let people share links to videos with all the contacts in their instant messengers. Mr. Ton-That shut it down after it was branded a “phishing scam.” In 2015, he spun up Trump Hair, which added Mr. Trump’s distinctive coif to people in a photo, and a photo-sharing program. Both fizzled.

Dispirited, Mr. Ton-That moved to New York in 2016. Tall and slender, with long black hair, he considered a modeling career, he said, but after one shoot he returned to trying to figure out the next big thing in tech. He started reading academic papers on artificial intelligence, image recognition and machine learning.

Mr. Schwartz and Mr. Ton-That met in 2016 at a book event at the Manhattan Institute, a conservative think tank. Mr. Schwartz, now 61, had amassed an impressive Rolodex working for Mr. Giuliani in the 1990s and serving as the editorial page editor of The New York Daily News in the early 2000s. The two soon decided to go into the facial recognition business together: Mr. Ton-That would build the app, and Mr. Schwartz would use his contacts to drum up commercial interest.

Police departments have had access to facial recognition tools for almost 20 years, but they have historically been limited to searching government-provided images, such as mug shots and driver’s license photos. In recent years, facial recognition algorithms have improved in accuracy, and companies like Amazon offer products that can create a facial recognition program for any database of images.

Mr. Ton-That wanted to go way beyond that. He began in 2016 by recruiting a couple of engineers. One helped design a program that can automatically collect images of people’s faces from across the internet, such as employment sites, news sites, educational sites, and social networks including Facebook, YouTube, Twitter, Instagram and even Venmo. Representatives of those companies said their policies prohibit such scraping, and Twitter said it explicitly banned use of its data for facial recognition.

Another engineer was hired to perfect a facial recognition algorithm that was derived from academic papers. The result: a system that uses what Mr. Ton-That described as a “state-of-the-art neural net” to convert all the images into mathematical formulas, or vectors, based on facial geometry — like how far apart a person’s eyes are. Clearview created a vast directory that clustered all the photos with similar vectors into “neighborhoods.” When a user uploads a photo of a face into Clearview’s system, it converts the face into a vector and then shows all the scraped photos stored in that vector’s neighborhood — along with the links to the sites from which those images came.

Mr. Schwartz paid for server costs and basic expenses, but the operation was bare bones; everyone worked from home. “I was living on credit card debt,” Mr. Ton-That said. “Plus, I was a Bitcoin believer, so I had some of those.”

Image

Credit…Amr Alfiky for The New York Times
Image

By the end of 2017, the company had a formidable facial recognition tool, which it called Smartcheckr. But Mr. Schwartz and Mr. Ton-That weren’t sure whom they were going to sell it to.

Maybe it could be used to vet babysitters or as an add-on feature for surveillance cameras. What about a tool for security guards in the lobbies of buildings or to help hotels greet guests by name? “We thought of every idea,” Mr. Ton-That said.

One of the odder pitches, in late 2017, was to Paul Nehlen — an anti-Semite and self-described “pro-white” Republican running for Congress in Wisconsin — to use “unconventional databases” for “extreme opposition research,” according to a document provided to Mr. Nehlen and later posted online. Mr. Ton-That said the company never actually offered such services.

The company soon changed its name to Clearview AI and began marketing to law enforcement. That was when the company got its first round of funding from outside investors: Mr. Thiel and Kirenaga Partners. Among other things, Mr. Thiel was famous for secretly financing Hulk Hogan’s lawsuit that bankrupted the popular website Gawker. Both Mr. Thiel and Mr. Ton-That had been the subject of negative articles by Gawker.

“In 2017, Peter gave a talented young founder $200,000, which two years later converted to equity in Clearview AI,” said Jeremiah Hall, Mr. Thiel’s spokesman. “That was Peter’s only contribution; he is not involved in the company.”

Even after a second funding round in 2019, Clearview remains tiny, having raised $7 million from investors, according to Pitchbook, a website that tracks investments in start-ups. The company declined to confirm the amount.

In February, the Indiana State Police started experimenting with Clearview. They solved a case within 20 minutes of using the app. Two men had gotten into a fight in a park, and it ended when one shot the other in the stomach. A bystander recorded the crime on a phone, so the police had a still of the gunman’s face to run through Clearview’s app.

They immediately got a match: The man appeared in a video that someone had posted on social media, and his name was included in a caption on the video. “He did not have a driver’s license and hadn’t been arrested as an adult, so he wasn’t in government databases,” said Chuck Cohen, an Indiana State Police captain at the time.

The man was arrested and charged; Mr. Cohen said he probably wouldn’t have been identified without the ability to search social media for his face. The Indiana State Police became Clearview’s first paying customer, according to the company. (The police declined to comment beyond saying that they tested Clearview’s app.)

Clearview deployed current and former Republican officials to approach police forces, offering free trials and annual licenses for as little as $2,000. Mr. Schwartz tapped his political connections to help make government officials aware of the tool, according to Mr. Ton-That. (“I’m thrilled to have the opportunity to help Hoan build Clearview into a mission-driven organization that’s helping law enforcement protect children and enhance the safety of communities across the country,” Mr. Schwartz said through a spokeswoman.)

The company’s main contact for customers was Jessica Medeiros Garrison, who managed Luther Strange’s Republican campaign for Alabama attorney general. Brandon Fricke, an N.F.L. agent engaged to the Fox Nation host Tomi Lahren, said in a financial disclosure report during a congressional campaign in California that he was a “growth consultant” for the company. (Clearview said that it was a brief, unpaid role, and that the company had enlisted Democrats to help market its product as well.)

The company’s most effective sales technique was offering 30-day free trials to officers, who then encouraged their acquisition departments to sign up and praised the tool to officers from other police departments at conferences and online, according to the company and documents provided by police departments in response to public-record requests. Mr. Ton-That finally had his viral hit.

In July, a detective in Clifton, N.J., urged his captain in an email to buy the software because it was “able to identify a suspect in a matter of seconds.” During the department’s free trial, Clearview had identified shoplifters, an Apple Store thief and a good Samaritan who had punched out a man threatening people with a knife.

Photos “could be covertly taken with telephoto lens and input into the software, without ‘burning’ the surveillance operation,” the detective wrote in the email, provided to The Times by two researchers, Beryl Lipton of MuckRock and Freddy Martinez of Open the Government. They discovered Clearview late last year while looking into how local police departments are using facial recognition.

According to a Clearview sales presentation reviewed by The Times, the app helped identify a range of individuals: a person who was accused of sexually abusing a child whose face appeared in the mirror of someone’s else gym photo; the person behind a string of mailbox thefts in Atlanta; a John Doe found dead on an Alabama sidewalk; and suspects in multiple identity-fraud cases at banks.

In Gainesville, Fla., Detective Sgt. Nick Ferrara heard about Clearview last summer when it advertised on CrimeDex, a list-serv for investigators who specialize in financial crimes. He said he had previously relied solely on a state-provided facial recognition tool, FACES, which draws from more than 30 million Florida mug shots and Department of Motor Vehicle photos.

Sergeant Ferrara found Clearview’s app superior, he said. Its nationwide database of images is much larger, and unlike FACES, Clearview’s algorithm doesn’t require photos of people looking straight at the camera.

“With Clearview, you can use photos that aren’t perfect,” Sergeant Ferrara said. “A person can be wearing a hat or glasses, or it can be a profile shot or partial view of their face.”

He uploaded his own photo to the system, and it brought up his Venmo page. He ran photos from old, dead-end cases and identified more than 30 suspects. In September, the Gainesville Police Department paid $10,000 for an annual Clearview license.

Federal law enforcement, including the F.B.I. and the Department of Homeland Security, are trying it, as are Canadian law enforcement authorities, according to the company and government officials.

Despite its growing popularity, Clearview avoided public mention until the end of 2019, when Florida prosecutors charged a woman with grand theft after two grills and a vacuum were stolen from an Ace Hardware store in Clermont. She was identified when the police ran a still from a surveillance video through Clearview, which led them to her Facebook page. A tattoo visible in the surveillance video and Facebook photos confirmed her identity, according to an affidavit in the case.

Mr. Ton-That said the tool does not always work. Most of the photos in Clearview’s database are taken at eye level. Much of the material that the police upload is from surveillance cameras mounted on ceilings or high on walls.

“They put surveillance cameras too high,” Mr. Ton-That lamented. “The angle is wrong for good face recognition.”

Despite that, the company said, its tool finds matches up to 75 percent of the time. But it is unclear how often the tool delivers false matches, because it has not been tested by an independent party such as the National Institute of Standards and Technology, a federal agency that rates the performance of facial recognition algorithms.

“We have no data to suggest this tool is accurate,” said Clare Garvie, a researcher at Georgetown University’s Center on Privacy and Technology, who has studied the government’s use of facial recognition. “The larger the database, the larger the risk of misidentification because of the doppelgänger effect. They’re talking about a massive database of random people they’ve found on the internet.”

But current and former law enforcement officials say the app is effective. “For us, the testing was whether it worked or not,” said Mr. Cohen, the former Indiana State Police captain.

One reason that Clearview is catching on is that its service is unique. That’s because Facebook and other social media sites prohibit people from scraping users’ images — Clearview is violating the sites’ terms of service.

“A lot of people are doing it,” Mr. Ton-That shrugged. “Facebook knows.”

Jay Nancarrow, a Facebook spokesman, said the company was reviewing the situation with Clearview and “will take appropriate action if we find they are violating our rules.”

Mr. Thiel, the Clearview investor, sits on Facebook’s board. Mr. Nancarrow declined to comment on Mr. Thiel’s personal investments.

Some law enforcement officials said they didn’t realize the photos they uploaded were being sent to and stored on Clearview’s servers. Clearview tries to pre-empt concerns with an F.A.Q. document given to would-be clients that says its customer-support employees won’t look at the photos that the police upload.

Clearview also hired Paul D. Clement, a United States solicitor general under President George W. Bush, to assuage concerns about the app’s legality.

In an August memo that Clearview provided to potential customers, including the Atlanta Police Department and the Pinellas County Sheriff’s Office in Florida, Mr. Clement said law enforcement agencies “do not violate the federal Constitution or relevant existing state biometric and privacy laws when using Clearview for its intended purpose.”

Mr. Clement, now a partner at Kirkland & Ellis, wrote that the authorities don’t have to tell defendants that they were identified via Clearview, as long as it isn’t the sole basis for getting a warrant to arrest them. Mr. Clement did not respond to multiple requests for comment.

The memo appeared to be effective; the Atlanta police and Pinellas County Sheriff’s Office soon started using Clearview.

Because the police upload photos of people they’re trying to identify, Clearview possesses a growing database of individuals who have attracted attention from law enforcement. The company also has the ability to manipulate the results that the police see. After the company realized I was asking officers to run my photo through the app, my face was flagged by Clearview’s systems and for a while showed no matches. When asked about this, Mr. Ton-That laughed and called it a “software bug.”

“It’s creepy what they’re doing, but there will be many more of these companies. There is no monopoly on math,” said Al Gidari, a privacy professor at Stanford Law School. “Absent a very strong federal privacy law, we’re all screwed.”

Mr. Ton-That said his company used only publicly available images. If you change a privacy setting in Facebook so that search engines can’t link to your profile, your Facebook photos won’t be included in the database, he said.

But if your profile has already been scraped, it is too late. The company keeps all the images it has scraped even if they are later deleted or taken down, though Mr. Ton-That said the company was working on a tool that would let people request that images be removed if they had been taken down from the website of origin.

Woodrow Hartzog, a professor of law and computer science at Northeastern University in Boston, sees Clearview as the latest proof that facial recognition should be banned in the United States.

“We’ve relied on industry efforts to self-police and not embrace such a risky technology, but now those dams are breaking because there is so much money on the table,” Mr. Hartzog said. “I don’t see a future where we harness the benefits of face recognition technology without the crippling abuse of the surveillance that comes with it. The only way to stop it is to ban it.”

During a recent interview at Clearview’s offices in a WeWork location in Manhattan’s Chelsea neighborhood, Mr. Ton-That demonstrated the app on himself. He took a selfie and uploaded it. The app pulled up 23 photos of him. In one, he is shirtless and lighting a cigarette while covered in what looks like blood.

Mr. Ton-That then took my photo with the app. The “software bug” had been fixed, and now my photo returned numerous results, dating back a decade, including photos of myself that I had never seen before. When I used my hand to cover my nose and the bottom of my face, the app still returned seven correct matches for me.

Police officers and Clearview’s investors predict that its app will eventually be available to the public.

Mr. Ton-That said he was reluctant. “There’s always going to be a community of bad people who will misuse it,” he said.

Even if Clearview doesn’t make its app publicly available, a copycat company might, now that the taboo is broken. Searching someone by face could become as easy as Googling a name. Strangers would be able to listen in on sensitive conversations, take photos of the participants and know personal secrets. Someone walking down the street would be immediately identifiable — and his or her home address would be only a few clicks away. It would herald the end of public anonymity.

Asked about the implications of bringing such a power into the world, Mr. Ton-That seemed taken aback.

“I have to think about that,” he said. “Our belief is that this is the best use of the technology.”

Jennifer Valentino-DeVries, Gabriel J.X. Dance and Aaron Krolik contributed reporting. Kitty Bennett contributed research.

Source:

NYT > Business


Continue reading The Secretive Company That Might End Privacy as We Know It

Posted on

Panicking About Your Kids’ Phones? New Research Says Don’t

SAN FRANCISCO — It has become common wisdom that too much time spent on smartphones and social media is responsible for a recent spike in anxiety, depression and other mental health problems, especially among teenagers.

But a growing number of academic researchers have produced studies that suggest the common wisdom is wrong.

The latest research, published on Friday by two psychology professors, combs through about 40 studies that have examined the link between social media use and both depression and anxiety among adolescents. That link, according to the professors, is small and inconsistent.

“There doesn’t seem to be an evidence base that would explain the level of panic and consternation around these issues,” said Candice L. Odgers, a professor at the University of California, Irvine, and the lead author of the paper, which was published in the Journal of Child Psychology and Psychiatry.

The debate over the harm we — and especially our children — are doing to ourselves by staring into phones is generally predicated on the assumption that the machines we carry in our pockets pose a significant risk to our mental health.

Worries about smartphones have led Congress to pass legislation to examine the impact of heavy smartphone use and pushed investors to pressure big tech companies to change the way they approach young customers.

The World Health Organization said last year that infants under a year old should not be exposed to electronic screens and that children between the ages of 2 and 4 should not have more than an hour of “sedentary screen time” each day.

Even in Silicon Valley, technology executives have made a point of keeping the devices and the software they develop away from their own children.

But some researchers question whether those fears are justified. They are not arguing that intensive use of phones does not matter. Children who are on their phones too much can miss out on other valuable activities, like exercise. And research has shown that excessive phone use can exacerbate the problems of certain vulnerable groups, like children with mental health issues.

They are, however, challenging the widespread belief that screens are responsible for broad societal problems like the rising rates of anxiety and sleep deprivation among teenagers. In most cases, they say, the phone is just a mirror that reveals the problems a child would have even without the phone.

The researchers worry that the focus on keeping children away from screens is making it hard to have more productive conversations about topics like how to make phones more useful for low-income people, who tend to use them more, or how to protect the privacy of teenagers who share their lives online.

“Many of the people who are terrifying kids about screens, they have hit a vein of attention from society and they are going to ride that. But that is super bad for society,” said Andrew Przybylski, the director of research at the Oxford Internet Institute, who has published several studies on the topic.

The new article by Ms. Odgers and Michaeline R. Jensen of the University of North Carolina at Greensboro comes just a few weeks after the publication of an analysis by Amy Orben, a researcher at the University of Cambridge, and shortly before the planned publication of similar work from Jeff Hancock, the founder of the Stanford Social Media Lab. Both reached similar conclusions.

“The current dominant discourse around phones and well-being is a lot of hype and a lot of fear,” Mr. Hancock said. “But if you compare the effects of your phone to eating properly or sleeping or smoking, it’s not even close.”

Mr. Hancock’s analysis of about 226 studies on the well-being of phone users concluded that “when you look at all these different kinds of well-being, the net effect size is essentially zero.”

The debate about screen time and mental health goes back to the early days of the iPhone. In 2011, the American Academy of Pediatrics published a widely cited paper that warned doctors about “Facebook depression.”

But by 2016, as more research came out, the academy revised that statement, deleting any mention of Facebook depression and emphasizing the conflicting evidence and the potential positive benefits of using social media.

Megan Moreno, one of the lead authors of the revised statement, said the original statement had been a problem “because it created panic without a strong basis of evidence.”

Dr. Moreno, a professor of pediatrics at the University of Wisconsin, said that in her own medical practice, she tends to be struck by the number of children with mental health problems who are helped by social media because of the resources and connections it provides.

Concern about the connection between smartphones and mental health has also been fed by high-profile works like a 2017 article in The Atlantic — and a related book — by the psychologist Jean Twenge, who argued that a recent rise in suicide and depression among teenagers was linked to the arrival of smartphones.

In her article, “Have Smartphones Ruined a Generation?,” Ms. Twenge attributed the sudden rise in reports of anxiety, depression and suicide from teens after 2012 to the spread of smartphones and social media.

Ms. Twenge’s critics argue that her work found a correlation between the appearance of smartphones and a real rise in reports of mental health issues, but that it did not establish that phones were the cause.

It could, researchers argue, just as easily be that the rise in depression led teenagers to excessive phone use at a time when there were many other potential explanations for depression and anxiety. What’s more, anxiety and suicide rates appear not to have risen in large parts of Europe, where phones have also become more prevalent.

“Why else might American kids be anxious other than telephones?” Mr. Hancock said. “How about climate change? How about income inequality? How about more student debt? There are so many big giant structural issues that have a huge impact on us but are invisible and that we aren’t looking at.”

Ms. Twenge remains committed to her position, and she points to several more recent studies by other academics who have found a specific link between social media use and poor mental health. One paper found that when a group of college students gave up social media for three weeks, their sense of loneliness and depression declined.

Ms. Odgers, Mr. Hancock and Mr. Przybylski said they had not taken any funding from the tech industry, and all have been outspoken critics of the industry on issues other than mental health, such as privacy and the companies’ lack of transparency.

Ms. Odgers added that she was not surprised that people had a hard time accepting her findings. Her own mother questioned her research after one of her grandsons stopped talking to her during the long drives she used to enjoy. But children tuning out their elders when they become teenagers is hardly a new trend, she said.

She also reminded her mother that their conversation was taking place during a video chat with Ms. Odgers’s son — the kind of intergenerational connection that was impossible before smartphones.

Ms. Odgers acknowledged that she was reluctant to give her two children more time on their iPads. But she recently tried playing the video game Fortnite with her son and found it an unexpectedly positive experience.

“It’s hard work because it’s not the environment we were raised in,” she said. “It can be a little scary at times. I have those moments, too.”

Source:

NYT > Business


Continue reading Panicking About Your Kids’ Phones? New Research Says Don’t

Posted on

Please Stop Big Tech, Small Rivals Tell Lawmakers

For all the criticisms directed at the largest tech companies in the last couple of years, few smaller rivals have been willing to speak up publicly.

That changed for a couple of hours on Friday, as executives at four businesses pleaded with federal lawmakers to rein in Google, Facebook, Apple and Amazon.

At a congressional hearing in Boulder, Colo., top executives of Sonos, PopSockets, Basecamp and Tile testified that the biggest technology companies hindered their businesses. Their stories varied, but they shared a theme: The tech giants have used their powerful positions in search, e-commerce, online ads and smartphones to squeeze out them and other rivals.

Tile, which makes small tracking devices, said Apple had put up hurdles for Tile’s smartphone app that didn’t apply to Apple’s competing product. Sonos, the high-end audio company, said Google had copied its patented speaker technology and used its dominance in search to enter new markets. PopSockets, which makes smartphone grips, said Amazon “bullied” it into sales agreements and ignored complaints about counterfeits on the retail platform.

“It’s like playing a soccer game,” said Kirsten Daru, the vice president and general counsel of Tile. “You might be the best team in the league, but you’re playing against a team that owns the field, the ball, the stadium and the entire league, and they can change the rules of the game in their own favor and anytime.”

The executives’ criticism provided lawmakers on the House antitrust subcommittee, which conducted the hearing, with personal stories about the power and influence of Silicon Valley’s biggest companies. Last year, the House opened a broad investigation into whether those large companies violated antitrust laws. At the same time, the Justice Department and the Federal Trade Commission opened separate competition investigations into Amazon, Facebook Apple and Google. In addition, nearly all 50 states are investigating whether Facebook and Google engage in anticompetitive practices.

Despite all of those investigations, few companies have come forward to complain in public. The House antitrust subcommittee has interviewed dozens of companies that accuse the big tech companies of unlawfully stifling competition. Most have insisted on confidentiality. This month, Sonos sued Google on allegations of antitrust violations and patent infringement, in its first pointed action against the company.

Lawmakers at Friday’s hearing, which was held in Boulder in part to draw more national attention to the House investigation, noted how rarely start-ups spoke out about their complaints, and encouraged them to keep making their case.

“Thank you for your testimony, and quite frankly your courage to be here today,” said Representative Ed Perlmutter, a Democrat from Colorado. “Because when you take on dominant players, whether it’s Amazon, Google, Apple or Facebook, you’ve got to have a little trepidation.”

Representative David Cicilline, the Rhode Island Democrat who leads the antitrust subcommittee, thanked the executives for “describing economic retaliation.”

The tech companies vehemently deny that they illegally harm competition. Google, for instance, has disputed all the claims made by Sonos and said it would fight the lawsuit.

The hearing capped a difficult week for big tech, which was the target of fierce criticism by top politicians. Much of that anger was directed at Facebook, which has refused to police lies shared by politicians on its social network.

Speaker Nancy Pelosi said on Thursday that Facebook “just cares about money” and that the company intended “to be accomplices in misleading the American people.” Former Vice President Joseph R. Biden Jr., who has been the focus of false ads by President Trump’s re-election campaign, told the New York Times editorial board that Facebook and other internet companies that allow the spread of misinformation on their sites should lose a critical liability shield for internet platforms. He also personally criticized Mark Zuckerberg, Facebook’s chief executive.

“I’ve never been a big Zuckerberg fan,” Mr. Biden said. “He knows better.”

The hearing on Friday focused entirely on whether the big companies dominate markets. The executives, who argued at length that companies like Google and Amazon unfairly hurt their businesses, received little pushback from lawmakers.

David Barnett, the founder of PopSockets, said Amazon had pressured it to lower listing prices or else allow unauthorized resellers to sell the product. He also alleged that Amazon allowed a flood of counterfeits to compete with PopSockets on the site to pressure the company into spending more on marketing.

It is “bullying with a smile,” Mr. Barnett said.

David Heinemeier Hansson, the chief technology officer and a co-founder of Basecamp, a provider of online productivity tools, said Google’s domination of the search industry forced his company to go online with the advertising titan’s demands and decisions.

“The internet has been colonized by a handful of big tech companies that wield their monopoly powers without restraint,” Mr. Hansson said.

Both Republicans and Democrats appeared to sympathize with him and the other executives.

“I think it’s clear there’s abuse in the marketplace and a need for action,” said Representative Ken Buck, a Republican from Colorado.

Mr. Cicilline said he didn’t expect the executives or their companies to suffer any economic retaliation from the giants for testifying. “But if you do in any way, it would be of tremendous interest to this committee,” he said.

Source:

NYT > Business


Continue reading Please Stop Big Tech, Small Rivals Tell Lawmakers

Posted on

A Trade Deal Meant to Heal Rifts Could Actually Make Them Worse

BEIJING — President Trump and China say their new trade pact is just the beginning of a fresh relationship between the world’s two biggest economies. Future deals will make China a better trading partner, the White House says. Beijing claims to foresee an end to American tariffs and the punishing trade war.

They are probably both wrong.

Wednesday’s partial trade pact, portrayed by both sides as a temporary truce, may be the lasting legacy of more than two years of economic conflict. It could ensure that American purchases of Chinese goods, already tumbling, will fall even more. And rather than heal the relationship, it could drive the two economic titans further apart, transforming how global business is done.

The deal signed on Wednesday by Mr. Trump and Vice Premier Liu He, China’s top trade negotiator, cuts a few of the American tariffs imposed over the past two years on Chinese-made goods and forestalls even more. It commits China to buying $200 billion more in American grain, pork, jetliners, industrial equipment and other goods over two years. It requires China to open further its financial markets and protect American technology and brands, while setting up a forum for the two sides to argue about their differences.

What it does not do is tackle the root causes of the trade war. The deal leaves untouched Beijing’s subsidies for homegrown industries and its firm control over crucial levers of its hard-charging economy. The deal also keeps in place most of Mr. Trump’s tariffs on $360 billion worth of Chinese goods, a much heavier tax than Americans pay for products from practically anywhere else.

Solving those issues could take years. Already, the prospects of a quick second deal seem limited. Mr. Trump has said he might wait until after November’s election to finish what the two sides call a “phase two” deal.

Until then, American consumers and companies will continue to buy fewer goods from China. The Chinese government, for its part, will continue to seek customers elsewhere. The American-Chinese relationship, a major driver of global economic growth for decades, will weaken even more.

“The trade war has unleashed a set of structural forces that are likely to have a dampening effect on imports from China for some time to come,” said Eswar Prasad, a Cornell University economist who specializes in China.

Unforeseen circumstances could change all that. An economic slump could drive one or both of them back to the bargaining table. Mr. Trump has torn up trade deals before. Americans could elect a less trade-hawkish leader in November.

But so far, both countries have shown they are willing to take the economic hit. The American economy, job market and stock market have only improved since the trade war began nearly two years ago, though many question how long that can last. On the political front, many Democrats have pushed Mr. Trump to be harder, not softer, on trade with China.

In China, the trade war has been only one factor behind the slowing economy. Beijing seems comfortable with its ability to handle the problem.

In recent weeks, advisers to the Chinese government have emphasized discussion of steps Beijing can take — like helping the job market or finding new trading partners elsewhere — instead of the steps that it can’t. Even as China’s exports to the United States have plunged, its sales elsewhere, particularly to poor countries, have stayed strong. Beijing has looked hard in recent months to open even more markets.

Also, complaining about the deal could make China look weak, an unpalatable position in a country where the Communist Party portrays itself as the savior from a century of humiliation by foreign powers.

Chinese state media and economists on Thursday welcomed the agreement as a respite for what has been two years of almost unrelenting focus on the trade issue by the government and many in the general public. Wednesday’s pact “will provide at least a truce in the trade war,” said He Weiwen, a prominent Chinese trade economist and former Commerce Ministry official.

Even within Wednesday’s deal, China has negotiated itself an out when it comes to its commitment to purchase $200 billion more in American goods. The agreement says that actual purchases must be “based on commercial considerations,” meaning China could still object to price and terms.

The pact showed that China could not be bullied and that the United States “is learning to live with China and accept China on its own terms,” said Andy Mok, a geopolitics and trade specialist at the Center for China and Globalization, a Beijing research institute.

Chinese officials have not been intransigent. In recent months, even before they signed the trade pact, they loosened government limits on foreign companies in the auto and financial industries and pledged to outlaw efforts by Chinese companies to force foreign partners to give up their most sensitive trade secrets.

On the major issue of government support and control of the economy, however, Beijing has hung tough.

The Trump administration and American companies have complained that China unfairly uses the government’s vast coffers to build up industries that will directly compete with established players in the West. China downplayed those efforts in recent years as trade tensions rose.

Now China appears to be less shy about its efforts. Early in the trade war, Xi Jinping, China’s top leader, publicly visited a Chinese semiconductor business, an industry that Beijing has showered with subsidies, to show his support. New data shows that China has ramped up its Belt and Road Initiative, a Beijing-driven plan to finance and build highways, telecom networks and other infrastructure throughout the developing world, clearing the way for more Chinese exports.

The price of China’s tough stance is the reordering of the global supply chains that its factories have long fed. Companies had kept them in China even as wages and other costs surged over the past decade.

The trade war has broken that inertia, and many businesses have started moving their supply chains elsewhere to avoid new tariffs or the prospect of still more. In November, Chinese exports to the United States fell by more than one-fifth compared with a year earlier. Exports to the United States now account for just 4 percent of the Chinese economy.

“This was the shock, the impetus to get people in motion,” said Ker Gibbs, the president of the American Chamber of Commerce in Shanghai.

That should please Mr. Trump, who has long complained about the more than $320 billion annual gap between what the United States buys from China and what it sells to China.

It does not mean jobs that left for China over the past two decades will return to the United States, however. High costs for labor and regulatory compliance in the United States, together with persistent shortages of skilled labor, have made most multinationals leery of shifting manufacturing back to the United States. The big winners instead appear to be American allies like Vietnam, Taiwan, Indonesia and possibly India, all of which are welcoming floods of multinational executives on the hunt for alternatives to China.

Even if the two sides came to the table with new concessions, trade deals are difficult to complete. Wednesday’s pact followed more than two years of stop-and-start negotiations. Major pacts like the North American Free Trade Agreement among the United States, Mexico and Canada took even longer.

The longer that goes, the further apart the countries will drift economically.

Without the trade war, the United States probably would have been on track to buy $550 billion or more of Chinese goods this year, said Brad Setser, an economist who has specialized in Chinese data first as a Treasury official in the Obama administration and now at the Council on Foreign Relations in New York. Even with Wednesday’s trade agreement, American imports from China this year are more likely to be around $400 billion, he said.

“Tariffs,” he said, “have clearly had a big impact.”

Source:

NYT > Business


Continue reading A Trade Deal Meant to Heal Rifts Could Actually Make Them Worse

Posted on

Is a 400% Rent Increase the Future of Coney Island?

Dianna Carlin should be finishing the book she is writing about the joys of owning the Lola Star boutique, a “really tiny, magical little shop” on the Coney Island boardwalk, for the past 19 years.

Instead, Ms. Carlin has been anxious and fearful since her landlord weeks ago offered her a new lease — with a 400 percent rent increase. “I’m wondering if I should start ordering ‘going out of business’ signs,” she said.

In the summer, Brooklyn’s Coney Island swells with sunbathers and amusement seekers, but it tends to be much quieter in the winter.

Over a decade ago, New York City promised a year-round destination with a water park, an arena, an ice-skating rink, and millions of dollars in residential and commercial investment.

At the same time, then-Mayor Michael Bloomberg said, the cheap eats and mom-and-pop shops would be protected. The then-Brooklyn borough president, Marty Markowitz, said in 2005 that the plan would preserve “Coney’s famed freakishness and fun-loving spirit.”

But like many grand plans for New York, the full vision has not materialized. Coney Island stood ceremoniously desolate on a recent January afternoon, a far cry from the year-round bustling attraction it was promised to be. Roaring winds gusted by famed roller coasters like the Cyclone and Luna Park’s Steeplechase, but not by an ice-skating rink or a water park. Those wonders were never built.

And now, facing the steamroller of gentrification, even Coney Island’s quirky circus sideshow could be forced to confront an uncertain future.

“They’re trying to turn the People’s Playground into the playground for the wealthy,” Ms. Carlin said.

Ms. Carlin and the owners of five other small businesses in Coney Island — Nathan’s Famous, Ruby’s Bar & Grill, Paul’s Daughter, Tom’s Restaurant and the Coney Island Beach Shop — have been negotiating new 10-year lease agreements with Zamperla, the Italian amusement park manufacturer that was contracted by the city a decade ago to build and manage Coney Island’s Luna Park amusement zone, of which the businesses are a part.

Zamperla’s new terms: a 50 to 400 percent increase in rent for each of the businesses.

“I love Coney Island,” Ms. Carlin said. “Having this store on the boardwalk is one of the most beloved things in my life. But there is no way I could afford that.”

In a statement to The New York Times, Alessandro Zamperla, the president of Zamperla, said: “We care about Coney Island and its future, and we are dedicated to making it as strong a community as possible. This is why we’ve been working with our tenants to ensure their success and preserve the character of Coney Island.”

Mr. Zamperla, who was on a trip in Italy, declined to answer specific questions from The Times, but added that at least three of the six businesses had agreed and signed their new leases, and others were making “significant progress.”

The proposed rent increases on the six small businesses have reignited a yearslong tug of war for the soul of Coney Island.

In 2009, after a four-year standoff over the best plan for a revival, the Bloomberg administration bought seven acres in the downtrodden amusement district from the developer Joseph J. Sitt for $95.6 million.

Mr. Bloomberg wanted to restore the district, which began to decline in the 1960s, to its heyday by promoting the development of stores and apartments along Surf Avenue. Businesses that were open only in the summer would move to a year-round schedule, helping to bolster what Mr. Bloomberg envisioned as the nation’s largest urban amusement park.

The city leased the land to Zamperla, allowing it to open Luna Park in 2010, dictate its own lease agreements with small businesses owners, and even require those businesses to hand over some of their profits.

Beloved boardwalk businesses that did not fit Zamperla’s vision were shuttered. Others, like Ms. Carlin’s boutique, which had been evicted under Mr. Sitt, returned.

By 2012, the revival was underway, and crowds and revenue were growing. Ms. Carlin said her profits rose nearly 50 percent after Zamperla assumed control.

“Most people believe that it has been developed in a manner consistent with Coney Island’s history,” Seth W. Pinsky, the former president of the Economic Development Corporation, said about the area.

Still, the amusement district is not operational year-round. Mark Treyger, the city councilman who represents the part of Brooklyn that includes Coney Island, said he believed this stemmed from a dearth of investment by the city and Mayor Bill de Blasio in the 2009 goals.

“Businesses just don’t know where the de Blasio administration is taking Coney Island,” Mr. Treyger said. “There’s a lack of vision or holistic plan to improve the area.”

The unfulfilled promises, he said, gave Zamperla leverage to place the burden on tenants to help recoup squandered profits. These tenants were “invested with the thought this would be a yearlong destination, with foot traffic year-round, as opposed to three or four months out of the year,” Mr. Treyger added. “You cannot allow public land to be weaponized in the name of greed to hurt small businesses.”

Ms. Carlin and dozens of other Coney Island workers protested the rent increases on the steps of City Hall in early December.

In an interview with The Times, a civil rights lawyer, Norman Siegel, called Zamperla’s rent decision “unconscionable.” He said Mr. de Blasio should intervene.

The de Blasio administration, Mr. Siegel said, should ask Zamperla to come up with more reasonable terms. “If that doesn’t happen,” he said, the city “should give serious thought to pulling the lease.”

Mr. Zamperla said that in an attempt at good faith, he had extended the deadline for Ms. Carlin to sign her lease to Wednesday.

“Alessandro is vacationing in Italy while I’m working desperately to save my store and my livelihood,” Ms. Carlin said.

Neither Mr. Zamperla nor the owners of the other five businesses would comment on their lease agreements, though multiple people with knowledge of the terms confirmed that the increases ranged from 50 percent for the larger shops to 400 percent for Ms. Carlin’s smaller store.

Ms. Carlin said she believed the other businesses were not speaking out for fear of retribution. “They’re afraid of getting kicked out,” she said.

To handle the increases, Ms. Carlin said, owners have mentioned raising the prices of goods. One eatery, she said, was making changes to transition from a sit-down restaurant to a fast-food counter, to curb costs.

Ms. Carlin said that she has tried to beseech City Hall multiple times — with calls, emails and last month’s protest — but that it appeared that little has changed.

“The city keeps telling me they’re not able to help and there’s not much they can do, but I don’t agree with that,” she said. “They’re Zamperla’s landlord.”

Mr. Siegel, the lawyer, said the increases were so egregious that they might be grounds for litigation. “There is some case law where if the court decides that what they’re doing is unconscionable, that can be a claim in and of itself,” he said.

At City Hall, there have been no public indications of plans to pull back the lease from Zamperla, or to intervene; the rent increases do not violate the agreement between the city and Zamperla.

Jane Meyer, a spokeswoman for Mr. de Blasio, denied the claims that the administration had no vision or plan for Coney Island. She said the city spent $180 million upgrading Coney Island’s infrastructure in the last decade and planned to expand New York City’s ferry system to Coney Island by 2021.

“This administration is committed to maintaining Coney Island’s character while ensuring it’s equitable and prepared for the future,” Ms. Meyer said.

Mr. Siegel said he wondered just whom that future is for.

A Brooklyn native who grew up spending summers on the boardwalk, he fondly recalls spending a dollar to ride the Cyclone and coming home with no appetite for dinner after gorging on Nathan’s Famous hot dogs and fries.

“We’ve got to fight to save Coney Island,” he said.

Source:

NYT > Business > Entrepreneurship


Continue reading Is a 400% Rent Increase the Future of Coney Island?

Posted on

Senate passes new North American trade deal, sending it to Trump

1BusinessWorld - One World, One Business World

The Senate passed a new North American trade deal Thursday, sending one of President Donald Trump’s top priorities to his desk for ratification.

The GOP-held chamber approved the United States-Mexico-Canada Agreement in an overwhelming 89-10 vote. After Trump signs the three-nation pact, it needs only Canada’s approval to take effect.

The Senate rushed to pass the agreement before the expected start of the president’s impeachment trial next week. The House delivered articles of impeachment to the upper chamber on Wednesday, and the Senate could take weeks to decide whether to convict Trump and remove him from office.

USMCA will head to the president more than 14 months after the North American nations agreed to the deal. The Trump administration worked with Democrats to resolve concerns about enforcement of labor and environmental standards — changes that led most but not all of the party’s lawmakers to support the agreement.

The Senate’s passage of USMCA came a day after Trump signed a partial trade deal with China. The agreement with Beijing does not require congressional approval.

USMCA makes several tweaks to the North American Free Trade Agreement, which took effect in 1994. Trump and Democrats alike argued that the earlier deal, which opened more free trade across the three countries, damaged American workers by encouraging companies to move jobs out of the U.S.

Senate Majority Leader Mitch McConnell (R-KY) walks to his office at the U.S. Capitol on January 16, 2020 in Washington, DC.

Drew Angerer | Getty Images

USMCA gives American producers better access to Canadian dairy markets. It creates stricter rules for auto part rules of origin, and requires at least 40% of the parts for a car to be produced in plants where workers make at least $16 an hour.

Other changes include updating digital trade and copyright rules.

The tweaks to labor enforcement mechanisms got House Speaker Nancy Pelosi and the massive union federation AFL-CIO on board. Trade skeptics in the Senate such as Sherrod Brown, D-Ohio, backed USMCA. Brown voted against NAFTA as a House member.

However, several major unions and environmental groups still oppose the agreement. Sen. Bernie Sanders, a Vermont independent and one of the leading 2020 Democratic presidential candidates, voted against the agreement because he said it did not do enough to address climate change and protect jobs.

“In my view, we need to re-write this trade agreement to stop the outsourcing of American jobs, to combat climate change, to protect the environment, and stop the destructive race to the bottom,” he said in a statement Wednesday.

Senate Minority Leader Chuck Schumer, D-N.Y., also opposed USMCA on climate grounds. In a statement Thursday, he said that “on the greatest issue facing our planet, addressing the climate crisis, the USMCA falls far too short.”

Sanders’ stance separates him from the rest of the senators running for the Democratic presidential nomination. Sens. Elizabeth Warren, D-Mass., Amy Klobuchar, D-Minn., and Michael Bennet, D-Colo., all voted to pass USMCA on Thursday.

In Tuesday’s Democratic presidential debate, Warren said the deal will “give some relief” to farmers in Iowa and around the country hurt by Trump’s trade war with China.

Sen. Pat Toomey, R-Pa., was the only GOP senator to vote against the agreement. He previously said the changes made to appease Democrats could stifle free trade.

USMCA is expected to boost economic growth and job creation, though only modestly. The U.S. International Trade Commission estimates it will increase GDP by 0.35% and create 176,000 jobs.

Subscribe to CNBC on YouTube.

Source: Top News and Analysis (pro)
Continue reading Senate passes new North American trade deal, sending it to Trump

Posted on

Iran’s Grim Economy Limits Its Willingness to Confront the U.S.

LONDON — Iran is caught in a wretched economic crisis. Jobs are scarce. Prices for food and other necessities are skyrocketing. The economy is rapidly shrinking. Iranians are increasingly disgusted.

Crippling sanctions imposed by the Trump administration have severed Iran’s access to international markets, decimating the economy, which is now contracting at an alarming 9.5 percent annual rate, the International Monetary Fund estimated. Oil exports were effectively zero in December, according to Oxford Economics, as the sanctions have prevented sales, even though smugglers have transported unknown volumes.

The bleak economy appears to be tempering the willingness of Iran to escalate hostilities with the United States, its leaders cognizant that war could profoundly worsen national fortunes. In recent months, public anger over joblessness, economic anxiety and corruption has emerged as a potentially existential threat to Iran’s hard-line regime.

Only a week ago, such sentiments had been redirected by outrage over the Trump administration’s Jan. 3 killing of Iran’s top military commander, Maj. Gen. Qassim Suleimani. But protests flared anew over the weekend in Tehran, and then continued on Monday, after the government’s astonishing admission that it was — despite three days of denial — responsible for shooting down a Ukrainian jetliner.

The demonstrations were most pointedly an expression of contempt for the regime’s cover-up following its downing of the Ukrainian jet, which killed all 176 people on board. But the fury in the streets resonated as a rebuke for broader grievances — diminishing livelihoods, financial anxiety and the sense that the regime is at best impotent in the face of formidable troubles.

Inflation is running near 40 percent, assailing consumers with sharply rising prices for food and other basic necessities. More than one in four young Iranians is jobless, with college graduates especially short of work, according to the World Bank.

The missile strikes that Iran unleashed on American bases in Iraq last week in response to Gen. Suleimani’s killing appeared calibrated to enable its leaders to declare that vengeance had been secured without provoking an extreme response from President Trump, such as aerial bombing.

Hostilities with the most powerful military on earth would make life even more punishing for ordinary Iranians. It would likely weaken the currency and exacerbate inflation, while menacing what remains of national industry, eliminating jobs and reinvigorating public pressure on the leadership.

Conflict could threaten a run on domestic banks by sending more companies into distress. Iranian companies have been spared from collapse by surges of credit from banks. The government controls about 70 percent of banking assets, according to a paper by Adnan Mazarei, a former I.M.F. deputy director and now a senior fellow at the Peterson Institute for International Economics in Washington. Roughly half of all bank loans are in arrears, Iran’s Parliament has estimated.

Many Iranian companies depend on imported goods to make and sell products, from machinery to steel to grain. If Iran’s currency declines further, those companies would have to pay more for such goods. Banks would either have to extend more loans, or businesses would collapse, adding to the ranks of the jobless.

The central bank has been financing government spending, filling holes in a tattered budget to limit public ire over cuts. That entails printing Iranian money, adding to the strains on the currency. A war could prompt wealthier Iranians to yank assets out of the country, threatening a further decline in the currency and producing runaway inflation.

In sum, this is the unpalatable choice confronting the Iranian leadership: It can keep the economy going by continuing to steer credit to banks and industry, adding to the risks of an eventual banking disaster and hyperinflation. Or it can opt for austerity that would cause immediate public suffering, threatening more street demonstrations.

“That is the specter hanging over the Iranian economy,” Mr. Mazarei said. “The current economic situation is not sustainable.”

Though such realities appear to be limiting Iran’s appetite for escalation, some experts suggest that the regime’s hard-liners may eventually come to embrace hostilities with the United States as a means of stimulating the anemic economy.

Cut off from international investors and markets, Iran has in recent years focused on forging a so-called resistance economy in which the state has invested aggressively, subsidizing strategic industries, while seeking to substitute domestic production for imported goods.

That strategy has been inefficient, say economists, adding to the strains on Iran’s budget and the banking system, but it appears to have raised employment. Hard-liners might come see a fight with Iran’s archenemy, the United States, as an opportunity to expand the resistance economy while stoking politically useful nationalist anger.

“There will be those who will argue that we can’t sustain the current situation if we don’t have a war,” said Yassamine Mather, a political economist at the University of Oxford. “For the Iranian government, living in crisis is good. It’s always been good, because you can blame all the economic problems on sanctions, or on the foreign threat of war. In the last couple of years, Iran has looked for adventures as a way of diverting attention from economic problems.”

How ever Iran’s leaders proceed, experts assume that economic concerns will not be paramount: Iran’s leaders prioritize one goal above all others — their own survival. If confrontation with outside powers appears promising as a means of reinforcing their hold on power, the leadership may accept economic pain as a necessary cost.

“The hard-liners are willing to impoverish people to stay in power,” said Sanam Vakil, deputy director of the Middle East and North Africa program at Chatham House, a research institution in London. “The Islamic Republic does not make decisions based on purely economic outcomes.”

But Iran’s leaders need only survey their own region to recognize the dangers that economic distress can pose to established powers. In recent months, Iraq and Lebanon have seen furious demonstrations fueled in part by declining living standards amid corruption and abuse of power.

As recently as November, Iran’s perilous economic state appeared to pose a foundational threat to the regime. As the government scrambled to secure cash to finance aid for the poor and the jobless, it scrapped subsidies on gasoline, sending the price of fuel soaring by as much as 200 percent. That spurred angry protests in the streets of Iranian cities, with demonstrators openly calling for the expulsion of President Hassan Rouhani.

“That’s a sign of how much pressure they are under,” said Maya Senussi, a Middle East expert at Oxford Economics in London.

In unleashing the drone strike that killed General Suleimani, Mr. Trump effectively relieved the leadership of that pressure, undercutting the force of his own sanctions, say experts.

Within Iran, the killing resounded as a breach of national sovereignty and evidence that the United States bore malevolent intent. It muted the complaints that propelled November’s demonstrations — laments over rising prices, accusations of corruption and economic malpractice amid the leadership — replacing them with mourning for a man celebrated as a national hero.

A country fraught with grievances aimed directly at its senior leaders had seemingly been united in anger at the United States.

“The killing of Suleimani represents a watershed, not only in terms of directing attention away from domestic problems, but also rallying Iranians around their flag,” said Fawaz A. Gerges, a professor of international relations at the London School of Economics.

Mr. Trump had supplied the Iranian leadership “time and space to change the conversation,” he added. Iranians were no longer consumed with the “misguided and failed economic policies of the Iranian regime,” but rather “the arrogant aggression of the United States against the Iranian nation.”

But then came the government’s admission that it was responsible for bringing down the Ukrainian passenger jet. Now, Iran’s leaders again find themselves on the wrong end of angry street demonstrations.

For now, the regime is seeking to quash the demonstrations with riot police and admonitions to the protesters to go home. But if public rage continues, hard-liners may resort to challenging American interests in the hopes that confrontation will force Mr. Trump to negotiate a deal toward eliminating the sanctions.

Iran may threaten the passage of ships carrying oil through the Strait of Hormuz, the passageway for more than one-fifth of the world’s consumption of liquid petroleum. Disruption there would restrict the global supply oil, raising the price of the vital commodity. That could sow alarm in world markets while limiting global economic growth, potentially jeopardizing Mr. Trump’s re-election bid, as the logic goes.

Iran previously had a different pathway toward gaining relief from the sanctions: Under a 2015 deal forged by President Barack Obama, the sanctions were removed in exchange for Iran’s verified promise to dismantle large sections of its nuclear program.

But when Mr. Trump took office, he renounced that deal and resumed sanctions.

The Iranian leadership has courted European support for a resumption of the nuclear deal, seeking to exploit divergence between Europe and the United States. The Europeans have been unhappy about Mr. Trump’s renewed sanctions, which have dashed the hopes of German, French and Italian companies that had looked to Iran for expanded business opportunities.

Whatever comes next, Iran’s leadership is painfully aware that getting out from under the American sanctions is the only route to lifting its economy, say experts.

The nuclear deal was intended to give Iran’s leaders an incentive to diminish hostility as a means of seeking liberation from the sanctions. Mr. Trump’s abandonment of the deal effectively left them with only one means of pursuing that goal — confrontation.

“They see escalation as the only way to the negotiating table,” said Ms. Vakil. “They can’t capitulate and come to the negotiating table. They can’t compromise, because that would show weakness. By demonstrating that they can escalate, that they are fearless, they are trying to build leverage.”

Source:

NYT > Business


Continue reading Iran’s Grim Economy Limits Its Willingness to Confront the U.S.

Posted on

New E.U. Trade Chief on a Quest to Fix Relations With U.S.

1BusinessWorld - One World, One Business World

Europe’s new trade commissioner arrived in Washington on Monday on a mission to prevent the Trump administration from ruining the European economy.

But with trans-Atlantic relations already at a low point, Phil Hogan, a blunt-talking, physically imposing Irishman, will probably do well if he can simply prevent things from going any further downhill.

As Mr. Hogan begins a four-day visit, his first as trade commissioner, the list of reasons for the United States and Europe to be angry at each other is long and getting longer.

The United States, upset at France’s plans to tax technology companies, is threatening tariffs that would double the price of imported French wine. The European Union accuses the administration of paralyzing the system for resolving trade disputes, ushering in an era of conflict and disorder.

Punishing tariffs on European steel and aluminum remain in place. The administration continues to dangle the threat of duties on European cars, which would be economically devastating for the Continent. Europeans are deeply alarmed by what they regard as the president’s recklessness in the Middle East.

“The current state of E.U.-U.S. relations isn’t good and I don’t think it’s likely to get better anytime soon,” said Peter Chase, senior fellow at the German Marshall Fund of the United States in Brussels.

Mr. Hogan brings a different set of skills than Cecilia Malmstrom, whom he succeeded as the European Union’s top trade official at the beginning of December. Some in Brussels think his rawer style will make him a better match for the current occupant of the White House.

Mr. Hogan recently said, for example, that by leaving the European Union, the British people were trading in a Rolls-Royce for a used sedan. The statement was seen as particularly cheeky coming from an Irishman who will also be responsible for negotiating a trade deal with Britain as part of its withdrawal from the European Union, a herculean task.

“He is more direct,” said Luisa Santos, the director for international relations at BusinessEurope, an industry group. Gender may also play a role, Ms. Santos said. There is a widespread perception in Washington and Brussels that Trump officials were not comfortable with Ms. Malmstrom, an assertive Swede.

“The fact that he is a man” works in Mr. Hogan’s favor, Ms. Santos said. “He is probably the right person for this moment.”

But it’s unclear whether Mr. Hogan, who declined requests for an interview, will have any more success than Ms. Malmstrom at repairing the largest trade partnership in the world, worth $1 trillion a year.

His agenda includes meetings with Robert Lighthizer, the United States trade representative; Steven Mnuchin, the Treasury secretary; and Wilbur Ross, the secretary of commerce. To varying degrees, all support the president’s hard line on trade relations.

A 6-foot-5 former farmer from Kilkenny in southern Ireland, Mr. Hogan spent much of his political career in the trenches of Irish domestic politics, helping to build the centrist Fine Gael party into Ireland’s strongest bloc. He was Fine Gael’s director of organization in the early 2000s, and later head of the party’s national election campaign.

Image
Credit…John Thys/Agence France-Presse — Getty Images

“Phil knew every candidate, he knew every constituency,” said Ciaran Conlon, a former Fine Gael spokesman who is now director of public policy for Microsoft in Ireland.

Mr. Hogan’s feel for retail politics served him well, Mr. Conlon said, when he later became the European commissioner responsible for agriculture, the job he held until December.

Mr. Hogan organized town meetings with farmers around Europe, and attended funerals of prominent farm leaders. His approach helped to combat the European Commission’s reputation for aloofness.

“Politics is about personal relationships and Phil understands that,” Mr. Conlon said.

As agriculture commissioner, Mr. Hogan was often involved in trade talks, and gained a reputation for being canny and well prepared. Farm products are typically the most politically sensitive component of trade deals. A plan to reach a more comprehensive trans-Atlantic trade deal early on in Mr. Trump’s tenure fell apart over disagreements about how to address agriculture.

“He’s a very, very good negotiator,” said Sorin Moisa, a former member of the European Parliament from Romania and former European trade official.

Ms. Malmstrom managed to prevent the president from carrying through on a threat to penalize European car imports, which would be devastating for the Continent’s economy.

But little remains of the optimism that followed a meeting in July 2018 between Mr. Trump and Jean-Claude Juncker, then the president of the European Commission.

The two men said they would work to reduce tariffs to zero and eliminate regulations that hinder trans-Atlantic trade. The European Union and the United States are each other’s largest trading partners, and there is general agreement that both sides would benefit from lower trade barriers.

Progress has been modest at best. In July, they agreed to recognize each other’s inspections of factories that produce pharmaceuticals. The agreement eliminates the need for duplicate inspections and should cut the cost of drug production.

But in most other ways, the relationship has only turned more sour.

The Europeans accuse the United States of crippling the World Trade Organization by blocking appointments of new members to a crucial panel that hears appeals in trade disputes. The panel effectively ceased to function in December when several members’ terms expired.

Without a system to enforce trade rules, Mr. Hogan told members of the European Parliament last year, “Well, then, there isn’t any point in having agreements.”

“We have asked the U.S. to engage with us and they have refused to do so,” he said.

As the norms that have governed world trade crumble, countries are responding to disputes with tit-for-tat retaliation and displays of power.

After France said it would impose a so-called digital tax on technology companies — a measure clearly aimed at Silicon Valley — the United States threatened 100 percent tariffs on French wine, handbags, cookware and other products.

“When sides take unilateral actions that harm the other side, that are inconsistent with international norms, the other side has a right to be angry,” said Clete Willems, a partner at the law firm Akin Gump who was an economic adviser in the White House until last year. “That’s where we are with the E.U. now.”

There is plenty of ire to go around. The Europeans are angry at the United States for imposing sanctions on companies helping to build the Nord Stream 2 gas pipeline between Russia and Germany.

Both sides are mad about what they say are illegal subsidies to their flagship aircraft manufacturers. The United States is putting $7.5 billion in tariffs on European products in retaliation for illegal aid to Airbus, and the Europeans are expected to retaliate in kind for what they say are illegal subsidies to Boeing.

Mr. Hogan will try to convince his American counterparts that Europe and the United States should work together to rein in China, in part by fixing the W. T.O. He also plans meetings on Capitol Hill, where his Irish-ness is likely to play well.

Nobody is expecting a major breakthrough, but there is some hope that the trip could signal the start of a gradual improvement in the trade relationship.

“I don’t think either side wants this to go back into a deep hole again and spiral into negativity,” said Susan Danger, chief executive of the American Chamber of Commerce to the European Union. “Both sides want to kick off in a positive way.”

Ana Swanson contributed reporting.

Source:

NYT > Business


Continue reading New E.U. Trade Chief on a Quest to Fix Relations With U.S.

Posted on

Oyo Scales Back as SoftBank-Funded Companies Retreat

MUMBAI, India — Oyo, once one of India’s fastest-growing tech start-ups, is now rapidly scaling back.

In recent weeks, Oyo, a budget hospitality company, has pulled out of dozens of cities, cut thousands of hotel rooms, started laying off employees and slashed other costs as it faced pressure from its biggest investor, the Japanese conglomerate SoftBank, to curb vast operating losses.

The retreat has been swift and sweeping. In India alone, Oyo has lost more than 65,000 rooms — or about a quarter of what it had offered to travelers — since October, according to internal data from current and former employees that was reviewed by The New York Times. This month, Oyo also stopped selling rooms in more than 200 small Indian cities, according to company documents and one current employee and one former employee.

The moves come on top of more than 2,000 layoffs around the world, which Oyo began rolling out last week, according to six current and former employees. Before the cutbacks, Oyo had about 20,000 employees in 80 countries.

Oyo said some of the data obtained by The Times was inaccurate but declined to be specific. In an email to employees on Monday, Ritesh Agarwal, the company’s chief executive, said Oyo was focused on sustainable growth and profitability — which meant layoffs.

“Unfortunately, some roles at Oyo will become redundant as we further drive tech-enabled synergy, enhanced efficiency, and remove duplication of effort across businesses or geographies,” he wrote in the email.

The Economic Times, an Indian publication, first reported in December that job cuts at Oyo were coming.

Oyo’s actions are part of a broader pullback by start-ups funded by SoftBank. Armed with a $100 billion fund known as the Vision Fund, SoftBank has shoveled money into start-ups across the globe in recent years. That has given many young companies fuel to expand, often with little thought for profit.

Last year, some SoftBank-funded start-ups began running into trouble — most notably WeWork, the office space company, which failed to go public when investors began questioning its losses. WeWork ultimately ousted its chief executive and slashed its valuation to less than $8 billion from $47 billion.

WeWork’s fall led to questions about other start-ups that SoftBank had financed and whether those young firms could make money. Last month, the dog-walking service Wag underwent several rounds of layoffs before SoftBank sold its shares at a loss. The construction start-up Katerra, another SoftBank-funded company, also cut its staff.

This month, layoffs have gathered momentum at start-ups that SoftBank had invested in. The South American delivery service Rappi and the San Francisco car-sharing start-up Getaround said they were laying off employees. Zume, a company that used robots to make pizzas and had been valued at $2 billion, cut more than half of its work force. It also stopped making pizzas.

Some investors and start-ups said they were now approaching SoftBank’s Vision Fund cautiously — or, in some cases, avoiding it altogether.

“We have advised almost all of our companies to steer clear,” said Josh Wolfe, an investor at the venture capital firm Lux Capital who has been critical of SoftBank’s strategy. “Everyone else was fearful to say the emperor had no clothes.”

SoftBank declined to comment on Oyo and other start-ups in which it has invested.

Mr. Agarwal founded Oyo in 2013 to organize India’s small independent hotels into a chain. The company markets rooms online and takes a cut of each stay. Mr. Agarwal, who has become a business star in India, has said he aspired to make Oyo the world’s largest hotel chain by 2023, displacing Marriott.

But as Oyo tried to expand globally, in part pushed by SoftBank, it spent heavily on incentives to attract hotel owners and customers to its site. That resulted in losses in India, where Oyo has said it will lose money through at least 2021.

Masayoshi Son, SoftBank’s chief executive, began investing in Oyo in 2015. SoftBank and its Vision Fund now own half its stock. While Mr. Son has called Oyo a jewel of his fund and urged it to grow quickly, he has since changed his stance.

As Oyo’s losses have mounted, senior leaders at the company have told employees that SoftBank had demanded that it become profitable on a basis known as EBITDA — earnings before interest, taxes, depreciation and amortization — by mid-2020, according to current and former employees.

In another sign of SoftBank’s shifting position, Yahoo Japan, which is half-owned by SoftBank, pulled the plug in November on a Japanese apartment-rental venture with Oyo. Most of the Oyo employees involved in the Japan venture have been laid off or relocated, current and former employees said.

Oyo faces other troubles in India. On Friday, the Indian income-tax authorities visited the company’s headquarters just outside New Delhi, requesting reams of documents. The tax department and Oyo said the government was examining whether the company was properly withholding and remitting income taxes on payments to vendors.

The Times reported this month that Oyo had offered thousands of unlicensed hotel rooms and sometimes offered free rooms to government officials to deter enforcement. The Times also described how some Oyo employees worked together to commit fraud against the company.

In his email on Monday, Mr. Agarwal said the behavior described by The Times would violate the company’s code of conduct.

“We take all the allegations very seriously and are looking into each and every one,” he wrote.

To stem losses, Oyo has also cut back on staff and supplies such as mineral water and cleaning fluids in the hotels it runs itself, according to the current and former employees. Oyo staff members managing some of the hotels have been instructed to save more money on electricity bills by switching off lights, elevators and even boilers for hot water, they said.

Morale has plummeted among thousands of Oyo workers globally, current and former employees have said.

Prabhjeet Singh, an Oyo business development manager who left the company in September, said employees who criticized the company ran a greater risk of losing their jobs.

“It’s a culture of silence,” he said.

Oyo’s reputation has deteriorated so much in India that other employers are reluctant to hire its former workers, said Mr. Singh, who has been unable to land another job.

“They look at me as if I’ve done a crime working at Oyo,” he said.

Vindu Goel reported from Mumbai, Karan Deep Singh from New Delhi and Erin Griffith from San Francisco.

Source:

NYT > Business > Entrepreneurship


Continue reading Oyo Scales Back as SoftBank-Funded Companies Retreat

Posted on

Here’s what’s in the phase one China trade deal Trump is signing this week

1BusinessWorld - One World, One Business World

U.S. President Donald Trump (R) and Chinese Vice Premier Liu He talk to reporters in the Oval Office at the White House April 04, 2019 in Washington, DC.

Chip Somodevilla | Getty Images

U.S. and China trade representatives will end years of intense bilateral negotiations with a “phase one” deal on Wednesday that promises billions of dollars’ worth of agricultural purchases and the beginning of reforms to China’s longstanding practice of forced technology transfer.

For all the pomp and circumstance expected at the signing ceremony — and repeated assurances from American negotiators — many are still unsure of exactly what the two nations are agreeing to.

On paper, the deal includes a “dramatic expansion of U.S. food, agriculture and seafood product exports” as well as an agreement by China to end its long-standing practice of forcing or pressuring foreign companies to transfer their technologies to Chinese companies, according to a U.S. Trade Representative document.

The USTR has also said the deal reiterates U.S. opposition to currency manipulation and a commitment by China to buy at least $200 billion in U.S. exports over the next two years.

“We have been going through a translation process that I think we said was really a technical issue,” Treasury Secretary Steven Mnuchin told Fox News on Sunday. “And people can see. This is a very, very extensive agreement.”

Top negotiators, including Mnuchin, U.S. Trade Representative Robert Lighthizer, and others are expected to attend the signing on Wednesday in Washington.

P.J. Quaid, a corn options broker at the CME Group in Chicago, said he’s eager to learn how the White House plans to enforce the tenets of the phase one deal if Beijing skirts its obligations.

“This thing’s been a crazy roller coaster since it started. A lot of people have become pessimistic because a lot of the purchases they said they’re going to make seem hard to attain,” Quaid said.

“If this thing comes in under expectations, you could see sell-off,” he added. “It’s been a rough time for people trading Ags.” The Office of the United States Trade Representative did not return CNBC’s request for comment.

Others were cautious after a Chinese media report suggested that Beijing isn’t as upbeat on the prospect for future trade talks. Taoran Notes, a blog run by a state-owned newspaper called Economic Daily, published its first blog post in two months on Sunday.

“We need to bear in mind that the trade war is not over yet. The U.S. hasn’t removed all the tariffs on Chinese imports and China is still imposing its retaliatory duties,” the blog wrote according to a CNBC translation. “There are still so many uncertainties ahead.”

For Don Roose, president of Des Moines, Iowa-based brokerage U.S. Commodities, China’s commitments to farm purchases are key.

“We’re anticipating $35 billion [of farm purchases] the first year and $40 billion in the second,” he said. “It doesn’t look like we’re creating any new world demand.” But unresolved, Roose said, is whether the Chinese will — after years of haggling — actually end up buying more U.S. farm goods than before President Donald Trump opened the trade spat nearly two years ago.

Still, Roose said he was slightly more optimistic with a phase one deal nearly signed.

“There’s always a question mark, but if they want to get to ‘phase two,’ they’re going to have to show some solid follow-through,” he said.

Still, others cautioned against reading too much into the specifics of U.S. purchases instead of the broader, structural changes agreed to by China.

The fact that Beijing is willing to crack down on policies concerning forced technology transfer and lower some obstacles for U.S. companies in China is key, according to attorney Clete Willems, who previously worked at USTR and the White House.

“There’s a lot of talk about specific agricultural sales. But China’s going through and addressing longtime, systemic barriers to U.S. products,” including biotechnology, Willems said.

That’s likely an underappreciated part to any hopes of boosting U.S. grain exports to China, which has long bristled at American genetically modified crops, he added. Beijing approved genetically modified soybeans and papaya from the U.S. last month after the announcement of the phase one deal.

“The structural elements of this deal are going to be more important in the longer term than the specific purchases,” Willems said. “Remember: We started this whole thing because of Section 301 including the forced tech transfers.”

“Of No. 1 importance is the fact that USTR did in fact get commitments from China on the major elements of the Section 301 report,” he added.

Trump based his use of U.S. tariffs against China on Section 301 of the U.S. Trade Act of 1974, which allows the president to levy sanctions against countries that break trade agreements or respond to unfair, unreasonable or discriminatory trade practices.

The USTR cited longstanding U.S. executive complaints that they are routinely pressured, or forced, to share critical technologies in exchange for access to China’s sizable markets in approving Trump’s use of Section 301. Other areas of concern include the theft of trade secrets, misuse of pharmaceutical-related intellectual property and access for U.S. financial companies to Chinese markets.

And, as Willems pointed out, there’s always the option of reintroducing levies if China fails to meet its obligations.

“On enforcement, I don’t think anyone should question the rigor of this enforcement mechanism. If there is a problem, if China doesn’t address a problem, the U.S. can put tariffs back in place.”

Source:
Continue reading Here’s what’s in the phase one China trade deal Trump is signing this week