Good morning. Here’s your Early Warning for Friday, 11 January 2019.
InFocus: In previous years, I’ve explained the Obama administration’s reluctance to tackle the China problem — namely the $300-600 billion elephant in the room. That’s how much intellectual property China steals from U.S. companies every year, for at least a decade, through their aggressive industrial and economic espionage. China’s tech boom over the past two decades was almost entirely due to advances made from stolen American technology.
The Obama administration did very little to end Chinese practices because it was being lobbied by companies like Apple, Starbucks, and U.S. automobile manufacturers who wanted greater access to Chinese markets.
Today, Trump tariffs (and credible threats of new tariffs) are forcing the Chinese to negotiate; the results of which will hopefully modify China’s bad behavior. Their economic system is predicated on selling derivative goods and technology to U.S. consumers, and China will not easily be dissuaded from making major changes to an economic system that benefits them so greatly.
Meanwhile, U.S. firms are facing a much tougher time in China. Apple’s stock price slumped recently after they reported weakness in iPhone sales. Chinese customers are saying that iPhones aren’t worth the cost, and Apple is blaming a slowing Chinese economy, their pricing strategy, and Chinese competitors like Huawei for slower sales. That played a part because the iPhones were more expensive in China than in the U.S. (the new XS Max retails for $1600 in China but only $1249 in the States), but “the rest of the story” is that more Chinese consumers are turning away from American Apple, in favor of Chinese competitors like Huawei and ZTE. Chinese social media is filled with anti-American backlash, especially after Canadian authorities arrested Huawei’s chief financial officer at the behest of U.S. officials. Among other things, Apple is suffering from a nascent boycott.
In related news, Goldman Sachs this morning cut its investment outlook for Starbucks, which has 3,600 stores in China, and downgraded the stock to neutral. (Goldman also cut expectations for Yum Brands, which runs KFC, China’s largest restaurant chain.) Like Apple’s problems, rising nationalism and a preference for Chinese coffee companies could be partially to blame.
This is all a welcomed development because Apple and Starbucks, like other companies who preach “social good”, are desirous to expand business in a country that not only has contempt for America, but practices authoritarian governance, degrades their environment and ecological heath, and turns a blind eye to slave labor — everything inimical to the values of “social good”. Apple and Starbucks executives, Leftist elites who have contempt for conservatives (94 percent of employees’ 2016 campaign contributions went to Democrats), are unwilling to confront Chinese practices which are far worse than anything happening in the United States. Apple CEO Tim Cook last year rightly criticized Facebook over privacy concerns, saying that privacy is “a fundamental human right”, while Chinese citizens have zero privacy. It’s strange that these companies are willing to do business at any cost and overlook human rights abuses in a country which declared a cold war on the United States decades ago. Instead of being boycotted by companies committed to “social good”, China is rewarded because of the profits it can generate. (Maybe “social good” is a vehicle for political agendas, not principles.) If Chinese nationalism continues to punish Apple and Starbucks, how ironic is it that those companies are willing to ignore the “social good” of a country whose consumers may be turning against them?
The President is scheduled to hold a roundtable on border security with state, local, and community leaders.
Early Warning: South Korean President Moon Jae-in said that a second summit between President Trump and North Korean dictator Kim Jong-un was imminent. No word yet on the date.
Shutdown: 21 days. The Trump administration is still working on a solution to fund the border wall outside of an agreement with House Democrats. Meanwhile, Trump ally Sen. Lindsey Graham (R-SC) was on CNN yesterday and quite pessimistic. “I see no way forward… I was hopeful last night, not hopeful today.” In another statement, Graham said, “I have never been more depressed about moving forward than I am right now.” If that’s any indication, then the Trump administration is looking more likely to use emergency powers to get the wall built.
Secretary Pompeo announced the U.S. will host Middle Eastern leaders at a conference in Poland next month (13-14 FEB) to discuss regional security and the problem of Iran. “Countries will all come together to focus on Middle East stability and peace and freedom and security here in this region, and that includes an important element of making sure that Iran is not a destabilizing influence,” Pompeo said. (Analyst Comment: Last year, the Trump administration proposed the formation of the Middle East Strategic Alliance, anchored by Saudi Arabia, to be the Arab equivalent of NATO.)
Also: Secretary Pompeo acknowledged that Iran is currently holding a U.S. Navy veteran named Michael White, but provided no additional comments.
Acting Defense Secretary Patrick Shanahan has no publicly scheduled events.
These are the last publicly reported locations of these ships. Conflict requiring an aircraft carrier/carrier strike group does not appear imminent.
The Carl Vinson (CVN-70) was last reported on a three month deployment to the Western Pacific.
The Abraham Lincoln (CVN-72) was last reported as having returned to Norfolk.
The John Stennis (CVN-74) was last reported as in the Persian Gulf.
The Harry Truman (CVN-75) was last reported as having returned to Norfolk.
The Ronald Reagan (CVN-76) was last reported as having returned to home port in Yokosuka, Japan.
The George H. W. Bush (CVN-77) was last reported as having returned to Norfolk.
Bold indicates significant changes to last reported location or other amplifying information.
Significant House Activity:
- Nothing significant to report.
Significant Senate Activity:
- Nothing significant to report.
* Only events pertinent to national security are listed. Significant reporting will appear in this week’s Strategic and National Intelligence reports
In an interview yesterday, Federal Reserve chairman Jerome Powell said of the national debt, “I’m very worried about it… It’s a long-run issue that we definitely need to face, and ultimately, will have no choice but to face.” Powell also described “the long-run fiscal nonsustainability of the federal government,” and added that rising interest rates and costs to service new and existing debt would exacerbate the problem. Additionally CNBC is reporting that Fitch Ratings, a credit rating agency, considers the government shutdown and inability to pass a budget as reasons to downgrade the federal government’s triple-A credit score.
What I’m Looking at this Morning
“Now if we don’t make a deal with Congress most likely I will do that [pursue the national emergency option]. I would actually say I would, I can’t imagine any reason why not because I’m allowed to do it. The law is 100 percent on my side.” – President Trump on Hannity last night