Google should face court sanctions over “intentional and repeated destruction” of company chat logs that the US government expected to use in its antitrust case targeting Google’s search business, the Justice Department said Thursday.
Despite Google’s promises to preserve internal communications relevant to the suit, for years the company maintained a policy of deleting certain employee chats automatically after 24 hours, DOJ said in a filing in District of Columbia federal court.
The practice has harmed the US government’s case against the tech giant, DOJ alleged.
“Google’s daily destruction of written records prejudiced the United States by depriving it of a rich source of candid discussions between Google’s executives, including likely trial witnesses,” the filing said.
“We strongly refute the DOJ’s claims,” Google
(GOOGL) said in a statement. “Our teams have conscientiously worked for years to respond to inquiries and litigation. In fact, we have produced over 4 million documents in this case alone, and millions more to regulators around the world.”
The federal government’s call for sanctions adds to the pressure Google faces as it battles antitrust suits on multiple fronts, and highlights a rare move by prosecutors.
Through a setting in its chat software, Google employees can save chat history for up to 18 months — but only if the setting is manually enabled, the US government said in its filing, adding that Google routinely trained and encouraged employees to discuss sensitive topics over chat messages they knew would be auto-deleted the next day.
The filing cites several attached exhibits in which Google employees, sensing that a conversation was about to stray into sensitive territory, suggested that the discussion continue on the chat platform, with history turned off.
The government’s filing follows a similar sanctions motion against Google by Epic Games, maker of the hit video game “Fortnite,” in a separate antitrust case related to Google’s app store. The two sides faced off in an evidentiary hearing last month; on Feb. 15, the judge in the case ordered Google to produce more chat messages.
Thursday’s DOJ filing also cites the Epic evidentiary hearing, saying that it proved Google destroyed records of at least nine individuals who were each considered potential trial witnesses, and that the federal judge overseeing that case agreed the chats could have contained relevant evidence but that Google “did not systematically preserve those chats.”
“Google admitted that — for litigations spanning the past five years — it has never preserved all chats for relevant individuals by turning chat history on,” the DOJ filing said.
It was not until earlier this month that Google agreed to preserve the chats, the filing alleged, after failing to disclose to prosecutors its practice of deleting history-off chats after 24 hours.
It is not the first time DOJ has tussled with Google over evidence. Last year, in the same case, the agency asked the court to sanction Google for a program known as “Communicate with Care,” in which the company allegedly trained employees to copy lawyers on emails as a way to claim attorney-client privilege on communications that were business sensitive but did not seek legal advice and did not merit confidentiality.
While Judge Amit Mehta declined to issue sanctions at the time, he ordered that all of the emails in question be re-reviewed.
President Joe Biden has announced that he’s nominating Ajay Banga, a former MasterCard executive, to serve as president of the World Bank.
In a statement, Biden said that Banga is “uniquely equipped to lead the World Bank at this critical moment in history” and that he has a “proven track record managing people and systems, and partnering with global leaders around the world to deliver results.”
Banga has been the vice chairman at General Atlantic, a New York-based investment firm, since 2022. Prior to that, the 63-year-old was the CEO of MasterCard from 2010 to 2021.
“Raised in India, Ajay has a unique perspective on the opportunities and challenges facing developing countries and how the World Bank can deliver on its ambitious agenda to reduce poverty and expand prosperity,’ Biden said in the statement. Notably, the White House highlighted Banga’s “extensive experience” in creating partnerships to address climate change and financial inclusion,” something Biden pledged would be an important qualification for the next World Bank President.
Banga would replace previous president David Malpass, who announced last week that he’s stepping down a year early — serving four years of a five-year term.
Although Malpass had been praised by the World Bank and administration officials for his handling of the global challenges posed by Russia’s invasion of Ukraine and the Covid-19 pandemic, his tenure faced controversy following comments he made last September about climate change. During a panel, herefused to confirm during a climate panel whether he accepted the scientific consensus that burning fossil fuels were dangerously warming the planet.
After an outpouring of criticism, many opponents called for his resignation. However, he recently told CNN’s Julia Chatterley that he has “no regrets” over his four-year tenure.
“We’ve achieved many of the things I wanted to…I think it’s really important that institutions have energy, new energy, and this is a good time for the World Bank to do that,” he said.
US Treasury Secretary Janet Yellen praised the decision to name Banga in a statement.
“He has the right leadership and management skills, experience living and working in emerging markets, and financial expertise to lead the World Bank at a critical moment in its history, deliver on its core development goals, and evolve the Bank to meet global challenges like climate change,” she said.
US climate envoy John Kerry said Banga is the “right choice” because of his climate change credentials.
Banga “has proven his ability as a manager of large institutions and understands investment and the mobilization of capital to power the green transition,” Kerry said in a statement.
The World Bank, a group of 187 nations, lends money to developing countries to help reduce poverty. Former US President Donald Trump appointed Malpass as World Bank chief in 2019 for a five-year period. As the largest shareholder, the United States traditionally appoints its president.
When Russia launched its full-scale invasion of Ukraine one year ago, Western countries hit back with unprecedented sanctions to punish Moscow and pile pressure on President Vladimir Putin. The aim: to deal an economic blow so severe that Putin would reconsider his brutal war.
Russia’s economy did weaken as a result. But it also showed surprising resilience. As demand for Russian oil fell in Europe, Moscow redirected its barrelsto Asia. The country’s central bank staved off a currency crisis with aggressive capital controls and interest rate hikes. Military expenditure supported the industrial sector, while the scramble to replace Western equipment and technology lifted investment.
“The Russian economy and system of government have turned out to be much stronger than the West believed,”Putin said in a speech to Russia’s parliamentTuesday.
Yet cracks are starting to show and they will widen over the next 12 months. The European Union — which spent more than $100 billion on Russian fossil fuels in 2021 — has made huge strides in phasing out purchases. The bloc, which dramatically reduced its dependence on Russian natural gas last year, officially banned most imports of Russian crude oil by sea in December. It enacted a similar block on refined oil products this month.
Those measures arealready straining Russia’s finances as it struggles to find replacement customers. The government reported a budget deficit of about 1,761 billion rubles ($23.5 billion) for January. Expenditure jumped 59% year-over-year, while revenue plunged 35%. Deputy Prime Minister Alexander Novak announced that Russia would cut oil production by about 5% starting in March.
“The era of windfall profits from the oil and gas market for Russia is over,” Janis Kluge, an expert on Russia’s economy at the German Institute for International and Security Affairs, told CNN.
Meanwhile, the ruble has slumped to its weakest level against the US dollar since last April. The currency’s weakness has contributed to high inflation. And most businesses say they can’t conceive of growing right now given high levels of economic uncertainty, according to a recent survey by a Russian think tank.
These dynamics place the country’s economy on a trajectory of decline. Andthey will force Putin to choose between ramping up military spending and investing in social goods like housing and education — a decision that could have consequences both for the war and the Russian public’s support of it.
“This year could really be the key test,” said Timothy Ash, an associate fellow in the Russia and Eurasia program at Chatham House, a think tank.
In a bid to bring Russia to heel for its aggression, Western countries have used their sway over the global financial system, unveiling more than 11,300 sanctions since the invasion and freezing some $300 billion of the country’s foreign reserves. At the same time, more than 1,000 companies, ranging from BP
(BP) to McDonald’s
(MCD) and Starbucks
(SBUX), have exited or curtailed operations in the country, citing opposition to the war and new logistical challenges.
Russia’s economic output duly contracted by 2.1% last year, according to a preliminary estimate from the government. But the hit was more limited than forecasters initially expected. When sanctions were first imposed, some economists predicted a contraction of 10% or 15%.
One reason for Russia’s unexpected pluck was itspush toward self-sufficiency following Putin’s annexation of Crimea from Ukraine in 2014. Through a policy known as “Fortress Russia,” the government boosted domestic food production and policymakers forced banks to build up their reserves. That created a degree of “durability,” said Ash at Chatham House.
The swift intervention of Russia’s central bank, which jacked up interest rates to 20% after the invasion and implemented currency controls to buttress the ruble, was also a stabilizing force. So was the need for factories to increase production of military goods and replace items that had been imported from the West.
But the greatest support came from high energy prices and the world’s continued thirst for oil and other commodities.
Russia, the world’s second-largest exporter of crude, was able to send barrels that would have gone to Europe to countries like China and India. The European Union, which imported an average of 3.3 million barrels of Russian crude and oil products per day in 2021, was also still buying 2.3 million barrels per day as of November, according to the International Energy Agency (IEA).
“It’s a question of natural resources,” Sergey Aleksashenko, Russia’s former deputy minister of finance, said at an event last month hosted by the Center for Strategic and International Studies, a think tank. That meant the economy experienced a decline, but “not a collapse,” he added.
In fact, Russia’s average monthly oil export revenues rose by 24% last year to $18.1 billion, according to the IEA. Yet a repeat performance is unlikely, presaging increasingly tough decisions for Putin.
The price of a barrel of Urals crude, Russia’s main blend, fell to an average of $49.50 in January after Europe’s oil embargo — as well as a Group of Seven price cap — took effect. By comparison, the global benchmark stood around $82. That suggests that customers like India and China, seeinga smaller pool of interested buyers, are negotiating greater discounts. Russia’s 2023 budget is based on a Urals price of more than $70 per barrel.
Finding new buyers for processed oil products, which are also subject to new embargoes and price caps, won’t be easy either. China and India have their own network of refineries and prefer to buy crude, noted Ben McWilliams, an energy consultant at Bruegel.
Meanwhile, gas exports to Europe have plunged since Russia shut its Nord Stream 1 pipeline.
Russia’s government relied on the oil and gas sector for 45% of its budget in 2021. As it plans to maximize defense spending, lower revenues inevitably mean trade-offs. Spending plans for 2023 finalized in December involved a decrease in expenditureon housing and health care, as well as a category that includes public infrastructure.
“Whatever energy resources are obtained, they’ll be spent on military needs,” said Gulnaz Sharafutdinova, acting director of the Russia Institute at King’s College London.
The International Monetary Fund still expects Russia’s economy to expand by 0.3% this year and 2.1% thenext. Yet any outlook is contingent on what happens in Ukraine.
“Whether the economy shrinks or expands in 2023 will be determined by developments in the war,” Tatiana Orlova, an economist at Oxford Economics, wrote in a note to clients on Tuesday. Shortages of workers tied to military conscription and emigration pose a key risk, she noted.
The impact of Western sanctions is poised to develop into a crisis over time. Bloomberg Economics estimates that Putin’s war in Ukraine will slash $190 billion off Russia’sgross domestic product by 2026 compared with the country’s prewar path.
Sectors that rely on imports have been particularly vulnerable. Domestic car makers such as Avtovaz, which manufactures the iconic Ladas, have struggled with shortages of key components and materials.
Russia’s auto industry was already weakened after companies such as Volkswagen
(VLKAF), Renault
(RNLSY), Ford
(F) and Nissan
(NSANF) halted production and began to sell their local assets last year. Chinese firms have stepped up their presence, part of a broader trend. Even so, sales of new cars dropped 63% year-over-year in January, according to the Association of European Businesses.
Across sectors, firms are struggling to plan for the future. A survey of more than 1,000 Russian businesses by the Stolypin Institute of Economic Growth in November found that almost half plan to maintain production over the next one to two years and aren’t thinking about growth. The group said this contributed to a high risk of “long-term stagnation of the Russian economy.”
Given Putin’s ideological commitment to subsuming Ukraine, he’s unlikely to back down, according to Sharafutdinova at King’s College London. But his war chest “is likely, inevitably, to diminish,” she added.
Prioritizing military spending will also come at a social cost, with a “slow and creeping” erosion of living standards, she added.
“In normal times, we might have said that the population would protest against that,” Sharafutdinova said. “But of course, these are not normal times.”
— Clare Sebastian and Olesya Dmitracova contributed reporting.
Russia will cut crude oil production by half a million barrels per day starting in March, a little over two months after the world’s major economies imposed a price cap on the country’s seaborne exports.
“We will not sell oil to those who directly or indirectly adhere to the principles of the price ceiling,” Russian Deputy Prime Minister Alexander Novak said in a statement. “In relation to this, Russia will voluntarily reduce production by 500,000 barrels per day in March. This will contribute to the restoration of market relations.”
The cut is equivalent to about 5% of Russian oil output.
Futures prices for Brent crude, the global benchmark, jumped 2.7% Friday to $86 a barrel as traders anticipated a tightening in global supply. US oil gained 1% to trade at $79 a barrel.
In June last year, the European Union agreed to phase out all seaborne imports of Russian crude oil within the following six months as part of unprecedented Western sanctions aimed at reducing Moscow’s ability to fund its war in Ukraine.
In a move aimed at further tightening the screws, G7 countries and the European Union agreed in December to cap the price at which Western brokers, insurers and shippers can trade Russia’s seaborne oilfor markets elsewhere at $60 a barrel. Earlier this month, EU countries also banned imports of Russia’s diesel and refined oil imports.
Novak warned that the crude oil price cap could lead to “a decrease in investment in the oil sector and, accordingly, an oil shortage.”
Neil Crosby, a senior analyst at oil data firm OilX, told CNN that a 500,000 barrel-a-day cut is not the “worst-case scenario” and is still a smaller hit to Russian production than most analysts were expecting last year.
“But it sets a precedent for further cuts ahead if necessary or desired by Russian authorities,” Crosby said, adding that Moscow could be anticipating difficulty in finding enough demand for its crude.
Russian Urals crude traded at a discount to Brent crude of $28 a barrel on Friday. Over the past few months, India and China have snapped up cheap oil from Moscow, just as the EU — once Russia’s biggest customer for crude — has ended all imports.
“Russia currently has a limited pool of buyers for its crudes and has likely found a ceiling to its export sales in the near term, primarily to China and India,” said Alan Gelder, vice president of refining, chemicals and oil markets at Wood Mackenzie.
According to Reuters, Russia took the decision to reduce its output without consulting the OPEC+ group of producers, which includes Saudi Arabia. OPEC+ decided in October to cut output by 2 million barrels per day and has not adjusted that stance since.
A potential drop in global oilsupply could come at a tricky time. China’s swift reopening of its economy in December after almost three years of strict coronavirus restrictions has pushed up estimates for global oil demand.
Last month, the International Energy Agency said it expected global demand to surge by 1.9 million barrels per day to reach an all-time high of 101.7 million barrels per day, with China accounting for nearly half of the increase.
Western sanctions — added to the grinding cost of war — areweighing on Russia’s economy. The country’s budget deficit ballooned to $45 billion last year, or 2.3% of its gross domestic product.
But Russia’s central bank held its main interest rate at 7.5% Friday, saying that economic activity was better than expected and that inflation was likely to come down this year.
Although the EU cut off its biggest supplier, diesel futures prices in the bloc fell 1.6% on Monday, amounting to a 20% loss over the past two weeks as demand in the region has waned, and efforts by countries to stockpile ahead of the ban have started to pay off.
The price drop will be met withrelief by millions of the continent’s truckers, drivers and businesses that rely on diesel. About 96% of trucks, 91% of vans and 42% of passenger cars in the European Union run on the fuel, according to the European Automobile Manufacturers’Association.
“The expectation was that, when the ban came in, diesel supply into Europe would tighten but, actually, that’s currently not materializing,” Mark Williams, a research director at consultancyWood Mackenzie, told CNN.
The diesel ban comes two months after the bloc placed an embargo onseaborne crude oil imports from Russia, as part of a package of sanctions against Moscow for its invasion of Ukraine. Russia accounted for 29% of the region’s total diesel imports last year, data from Rystad Energy shows.
Countries have prepared for the latest banby ramping up imports of Moscow’s diesel in recent months. Europe’s imports were up nearly 19% in the fourth quarter of 2022 compared with the same period the previous year, according to energy data provider Vortexa.
“Those stocks should act as a buffer against the immediate loss of Russian diesel imports,” Williams said.
Demand across the bloc is also weak.
Data from OilX, an oil analytics firm that,shows that diesel demand in Europe was down between the start of November and the end of January compared with the same period a year before.
Analysts attribute the slump partly to warmer-than-usual weather in the region, where diesel is also used as a heating fuel, and high prices. Despite recent drops, wholesale prices are still 10% above their level the same time last year.
At the pump, the average cost of a liter of diesel in the EU hit €1.80 ($1.93) on January 30, up from €1.60 ($1.72) the same time last year, data from the European Commission shows.
Neil Crosby, a senior analyst at OilX, told CNN that “persistently weak demand data” in Europe had helped it “substantially boost its gasoil stocks over the last few months.”
Still, it may take a few months for the full impact of the ban to be felt as Europe starts to import morediesel from suppliers further afield, incurring higher shipping costs.
The blocis already importing significantly higher volumes of diesel from the United States, the Middle East and parts of Asia, according to Williams at Wood Mackenzie.
Even so, those imports will not be enough to “offset the loss of Russian barrels into Europe,” once Europe whittles down its stockpile, he said, adding that prices relative to other importing regions could start to rise from the third quarter this year.
The impact of the ban on Russia may also be underwhelming.
Moscow has managed to reroute more of its diesel to other markets since July of last year. Exports to Turkey and North Africa have soared 154% between November and January compared with the same period a year before, according to Rystad Energy.
Jorge León, a senior vice president at the firm, sees this trend continuing, he told CNN, also predicting that Russian exports to South America are likely to stay at “marginal” levels.
However, he added that the United States could redirect some of its current diesel exports to South America to Europe, with Russian diesel then “find[ing] a home” in South America.
OilX’s Crosby noted that there are “many more” potential buyers of Moscow’s diesel compared with its crude exports.
“Most Russian diesel barrels will manage to make it to global markets,” he said. “The notion that Russian diesel will have a very hard time finding new homes is beginning to lose credibility.”
— Julia Horowitz contributed reporting.
Correction: An earlier version of this article incorrectly reported the measurement of diesel that has fallen in Europe. Diesel demand has fallen.
Muhammad Radaqat, a 27-year-old greengrocer, is worried. He doesn’t know how much an onion will cost next week, let alone how he’ll be able to afford the fuel he needs to heat his home and keep his family warm.
“All we’re being told by the government is that things are going to get worse,” Radaqat told CNN.
His anxiety reflects the mood of a nation racing to ward off an economic meltdown. Faced with a shortage of USdollars, Pakistan only has enough foreign currency in its reserves to pay for three weeks of imports.
Thousands of shipping containers are piling up at ports, and the cost of essentials like food and energy is skyrocketing. Long lines are forming at gas stations as prices swing wildly in the country of 220 million.
A nationwide power outage last month made people even more alarmed. It brought Pakistan to a standstill, plunging residents into darkness, shutting down transit networks and forcing hospitals to rely on backup generators. Officials have not identified the cause of the blackout.
Pressure is growing on Prime Minister Shehbaz Sharif’s government to unlock billions of dollars in emergency financing from the International Monetary Fund, which sent a delegation to the country this week for talks.
Pakistan’s currency, the rupee, recently droppedto new lows against the US dollar after authorities eased currency controls to meet one of the IMF’s lending conditions. The government had been resisting the changes the IMF requested, such as easing fuel subsidies, since they would cause fresh price spikes in the short term.
“We need the IMF agreement to go through as soon as possible for us to save the ship,” said Maha Rehman, an economist and the former head of analytics at the Centre for Economic Research in Pakistan.
Pakistan is experiencing what economists call a balance-of-payments crisis. The country has been spending more on trade than it has brought in, running down its stock of foreign currency and weighing on the rupee’s value. These dynamics make interest payments on debt from foreign lenderseven more expensive and push the cost of importing goods higher still, requiring even bigger drawdowns in reserves that compound the distress.
The country is also grappling with rampant price increases. The country’s central bank has hiked its key interest rate to 17% in a bid to clamp down on annual consumer inflation of almost 28%.
Someissues the country faces are specific to Pakistan. Political instability and efforts to prop up its currency, for example, have weighed on investment and exports, according to Tahir Abbas, head of investment research at Arif Habib, the country’s largest securities brokerage.
Historic floods last summer have also led to huge bills for reconstruction and aid, adding to strains on the government budget. The World Bank has estimated that at least $16 billion is needed to cope with damage and losses.
Yet global factors are making the situation worse. The economic slowdown has weighed on demand for Pakistan’s exports, while a sharp rally in the value of the US dollar last year piled pressure on countries that import significant volumes of food and fuel. Prices for these commodities had already spiked due to the pandemic and Russia’s war in Ukraine, requiring larger outlays.
The IMF has warned repeatedly that this could stress vulnerable economies. While it forecasts that emerging market and developing economies will see a modest uptick in growth this year as the dollar comes offits highs, global inflation falls and China’s reopening spurs demand, the ability to manage debt loads remains a concern.
It estimated this week that 15% of low-income countries are already in debt distress, while another 45% are at high risk of struggling to meet their obligations. An additional 25% of emerging market economies are also at high risk. Tunisia, Egypt and Ghana have all sought IMF bailouts worth billions of dollars in recent months.
“The combination of high debt levels from the pandemic, lower growth and higher borrowing costs exacerbates the vulnerability of these economies, especially those with significant near-term dollar financing needs,” the IMF wrote in its world economic outlook this week.
For Pakistan to avoid default, talks with the IMF to restart its stalled assistance program must succeed, according to investors and economists. The IMF’s delegation arrived on Tuesday and is set to stay through Feb. 9.
“Availability of the IMF loan is critical,” said Ammar Habib Khan, a senior non-resident fellow at the Atlantic Council.
But Farooq Tirmizi, the CEO of Elphinstone, a startup geared at Pakistani investors, said that even if the IMF program resumes, it won’t fix all the problems, since the main issues plaguing Pakistan are “not economic, but political, with a government in place that is not willing to make structural changes.”
Pakistan’s economic crisis was at the center of a political showdown between Sharif and his predecessor, Imran Khan, last year. Khan was ousted by a no-confidence vote in April after Sharif accused him of economic mismanagement.
The situation has remained turbulent since then. Pakistan has gone through three finance ministers in less than a year. The last two were part of the current government, raising questions about whether Sharif can hold onto power. The country is expected to hold a general election this summer.
The tumult comes as Pakistan faces a fresh wave of attacks by militants. Earlier this week, a suicide bomb ripped through a mosque in the city of Peshawar, killing at least 100 people. It was one of the deadliest attacks in the country in years.
People are suffering in the meantime. Farmers who lost cotton, date, sugar and rice crops to flooding still need help. The World Bank predicted in October that as many as nine millionPakistanis could be pushed into poverty without “decisive relief and recovery efforts to help the poor.”
High inflation is only boosting pain for households struggling to make ends meet. Food prices in January rose 43% year over year, according to data released this week.
Attention focused recently on a man in the southern province of Sindh who lost his life in a scramble to obtain a bag of subsidized flour handed out by local authorities. He was crushed to death by the crowd alongside him.
ASML, a Dutch maker of semiconductor equipment, says “rules are being finalized” on export controls, amid reports that the Netherlands and Japan have joined the United States in restricting sales of some computer chip machinery to China.
“It is our understanding that steps have been made towards an agreement between governments which, to our understanding, will be focused on advanced chip manufacturing technology, including but not limited to advanced lithography tools,” the company told CNN late Friday in response to questions about export controls to China.
“Before it will come into effect it has to be detailed out and implemented into legislation which will take time.”
ASML is known for its prowess in making lithography machines, which uses light to print patterns on silicon. The firm says that step is crucial in the mass production of microchips.
The company’s response came as Bloomberg, the Wall Street Journal and the Financial Times reported over the weekend that the United States had persuaded the Netherlands and Japan to agree to curb exports of certain chipmaking equipment to China, citing anonymous sources.
A deal was reached at the White House on Friday, though it was not officially announced, partly due to “concerns by Japan and Netherlands about potential retaliation by China,” according to the Journal, which cited a person familiar with the matter.
Bloomberg reported that the deal “would extend some export controls the US adopted in October” to Dutch and Japanese companies, including ASML
(ASML), Nikon
(NINOY) and Tokyo Electron.
The Biden administration had banned Chinese companies from buying advanced chips and chipmaking equipment without a license. It also restricted the ability of American citizens to provide support for the development or production of chips at certain manufacturing facilities in China.
The White House did not immediately respond to a request for comment outside US business hours. Nikon and Tokyo Electron declined to comment.
On Saturday, Japan’s Economy and Trade Minister Yasutoshi Nishimura told reporters that he would “refrain from commenting on diplomatic negotiations.”
Asked about the three-way talks in Washington, Nishimura said “we would like to respond appropriately while taking into consideration the regulatory trends in each country.”
Because of its dominance in the market, ASML has been cited by experts as a bellwether of the growing rift between China and the West over access to advanced technology.
In recent months, the Dutch government has faced pressure from the United States to limit chip-related exports to China, particularly from ASML, according to Xiaomeng Lu, director of geo-technology at the Eurasia Group.
In its Friday statement, the company said that based on what has been said by government officials and current market conditions, it did not expect any material impact on its financial projections for 2023.
But ASML said its knowledge of the new rules was still limited, making it difficult to map out “the medium and long-term financial, organizational and global industry-wide impact of new export control rules.”
“While these rules are being finalized, ASML will continue to engage with the authorities to inform them about the potential impact of any proposed rule in order to assess the impact on the global semiconductor supply chain,” it said.
It noted that it mainly sold “mature” products to China, and its most advanced lithography technology had already been restricted since 2019.
Those machines had been prohibited from being sent to China because the Dutch government had “refused to grant it a license under US pressure,” Lu previously told CNN.
The Justice Department and eight states sued Google on Tuesday, accusing the company of harming competition with its dominance in the online advertising market and calling for it to be broken up.
The move marks the Biden administration’s first blockbuster antitrust case against a Big Tech company. The eight states joining the suit include California, Colorado, Connecticut, New Jersey, New York, Rhode Island, Tennessee and Virginia.
The fresh complaint significantly escalates the risks to Google emanating from Washington, where lawmakers and regulators have frequently raised concerns about the tech giant’s power but have so far failed to pass new legislation or regulations that might rein in the company or its peers.
For years, Google’s critics have claimed that the company’s extensive role in the ecosystem that enables advertisers to place ads, and for publishers to offer up digital ad space, represents a conflict of interest that Google has exploited anticompetitively.
In Tuesday’s complaint, a copy of which was viewed by CNN, the Justice Department alleged that Google actively and illegally maintained that dominance by engaging in a campaign to thwart competition. Google gobbled up rivals through anticompetitive mergers, the US government said, and bullied publishers and advertisers into using the company’s proprietary ad technology products.
As part of the lawsuit, the US government called for Google to be broken up and for the court to order the company to spin off at least its online advertising exchange and its ad server for publishers, if not more.
Google, the US government alleged, “has corrupted legitimate competition in the ad tech industry by engaging in a systematic campaign to seize control of the wide swath of high-tech tools used by publishers, advertisers, and brokers, to facilitate digital advertising. Having inserted itself into all aspects of the digital advertising marketplace, Google has used anticompetitive, exclusionary, and unlawful means to eliminate or severely diminish any threat to its dominance over digital advertising technologies.”
The suit was filed in the US District Court for the Eastern District of Virginia.
Tuesday’s suit marks the federal government’s second antitrust complaint against Google since 2020, when the Trump administration sued over Google’s alleged anticompetitive harms in search and search advertising. That case is still ongoing. Google has also been the target of antitrust litigation by state and private actors.
In a statement, Google said the DOJ suit “attempts to pick winners and losers in the highly competitive advertising technology sector.”
“DOJ is doubling down on a flawed argument that would slow innovation, raise advertising fees, and make it harder for thousands of small businesses and publishers to grow,” a Google spokesperson said, adding that a federal judge last year knocked down a claim that Google colluded with Facebook in a separate antitrust suit led by the state of Texas. That judge also ruled, however, that a number of monopolization claims in the Texas case could move forward.
The lawsuit is a frontal assault against Google’s massive, primary business of advertising. Google generated $209 billion in advertising revenue in 2021, according to its annual report, a figure representing more than 80% of its total revenue. By comparison, the next largest giant in online advertising, Facebook-parent Meta, generated $115 billion in 2021.
Third-party estimates suggest that Google and Facebook accounted for the majority of US digital ad revenues, hitting a peak around 2017, with Google taking about a third of the market. Since then, however, others including Amazon have begun encroaching on that business.
The US complaint echoes concerns that have prompted similar antitrust investigations in the United Kingdom and in the European Union.
Google not only controls the platform publishers use to sell online ad inventory, the Justice Department alleged Tuesday, but also the advertising tools marketers use to claim that inventory and the exchange that facilitates those transactions.
“Google’s pervasive power over the entire ad tech industry has been questioned by its own digital advertising executives,” the complaint said, “at least one of whom aptly begged the question: ‘[I]s there a deeper issue with us owning the platform, the exchange, and a huge network? The analogy would be if Goldman or Citibank owned the NYSE.’”
Tuesday’s complaint marks an opening salvo against Big Tech by DOJ’s antitrust chief, Jonathan Kanter. Kanter has spent months laying the groundwork for a broader offensive against the tech industry’s most dominant companies, reflecting commitments by President Joe Biden and others in the US government to hold powerful firms accountable. Under Kanter, Justice Department antitrust officials have pushed to bring more cases to trial as well as to prosecute cases involving unconventional legal theories.
In 2020, House lawmakers released a 450-page report finding that Google, along with Amazon, Apple and Facebook, hold “monopoly power” in key business segments. The report was the result of a 16-month investigation in which congressional staff reviewed corporate documents and interviewed the tech industry’s many customers and rivals. It concluded, among other things, that Google was uniquely positioned to benefit from its powerful role in the online ad industry.
“With a sizable share in the ad exchange market and the ad intermediary market, and as a leading supplier of ad space, Google simultaneously acts on behalf of publishers and advertisers, while also trading for itself,” the report said.
In the fervor-filled days leading up to the November 16 launch of the long-awaited Artemis I mission, an uncrewed trip around the moon, some industry insiders admitted to having conflicting emotions about the event.
On one hand, there was the thrill of watching NASA take its first steps toward eventually getting humans back to the lunar surface; on the other, a shadow cast by the long and costly process it took to get there.
“I have mixed feelings, though I hope that we have a successful mission,” former NASA astronaut Leroy Chiao said in an opinion roundtable interview with The New York Times. “It is always exciting to see a new vehicle fly. For perspective, we went from creating NASA to landing humans on the moon in just under 11 years. This program has, in one version or another, been ongoing since 2004.”
There have been numerous delays with the development of the rocket at the center of the Artemis I mission: NASA’s Space Launch System (SLS), the most powerful rocket ever flown — and one of the most controversial. The towering launch vehicle was originally expected to take flight in 2016. And the decade-plus that the rocket was in development sparked years of blistering criticism targeted toward the space agency and Boeing, which holds the primary contract for the SLS rocket’s core.
NASA’s Office of Inspector General (OIG) repeatedly called out what it referred to as Boeing’s “poor performance,” as a contributing factor in the billions of dollars in cost overruns and schedule delays that plagued SLS.
“Cost increases and schedule delays of Core Stage development can be traced largely to management, technical, and infrastructure issues driven by Boeing’s poor performance,” one 2018 report from NASA’s OIG, the first in a series of audits the OIG completed surrounding NASA’s management of the SLS program, read. And a report in 2020 laid out similar grievances.
For its part, Boeing has pushed back on the criticism, pointing to rigorous testing requirements and the overall success of the program. The OIG report also included correspondence from NASA, which noted in 2018 that it “had already recognized the opportunity to improve contract performance management” and agreed with the report’s recommendations.
Despite all the heated debate that has followed SLS, by all accounts, the rocket is here to stay. And officials at NASA and Boeing said its first launch two months ago was practically flawless.
“I worked over 50 Space Shuttle launches,” Boeing SLS program manager John Shannon told CNN by phone. “And I don’t ever remember a launch that was as clean as that one was, which for a first-time rocket — especially one that had been through as much as this one through all the testing — really put an exclamation point on how reliable and robust this vehicle really is.”
The Artemis program manager at NASA, Mike Sarafin, also said during a post-launch news conference that the rocket “performed spot-on.”
But with its complicated history and its hefty price tag, SLS could still face detractors in the years to come.
Many have questioned why SLS needs to exist at all. With the estimated cost per launch standing at more than $4 billion for the first four Artemis missions, it’s possible commercial rockets, like the massive Mars rocket SpaceX is building, could get the job done more efficiently, as the chief of space policy at the nonprofit exploration advocacy group Planetary Society, Casey Dreier, recently observed in an article laying out both sides of the SLS argument.
(NASA Administrator Bill Nelson noted that the $4 billion per-launch cost estimate includes development costs that the space agency hopes will be amortized over the course of 10 or more missions.)
Boeing was selected in 2012 to build SLS’s “core stage,” which is the hulking orange fuselage that houses most of the massive engines that give the rocket its first burst of power at liftoff.
Though more than 1,000 companies were involved with designing and building SLS, Boeing’s work involved the largest and most expensive portion of the rocket.
That process began over a decade ago, and when the Artemis program was established in 2019, it gave the rocket its purpose: return humans to the moon, establish a permanent lunar outpost, and, eventually, pave the path toward getting humans to Mars.
But the SLS is no longer the only rocket involved in the program. NASA gave SpaceX a significant role in 2021, giving the company a fixed-price contract for use of its Mars rocket as the vehicle that will ferry astronauts to the lunar surface after they leave Earth and travel to the moon’s orbit on SLS. SpaceX’s forthcoming rocket, called Starship, is also intended to be capable of completing a crewed mission to the moon or Mars on its own. (Starship, it should be noted, is still in the development phases and has not yet been tested in orbit.)
Boeing has repeatedly argued that SLS is essential and capable of performing tasks that other rockets cannot.
“The bottom line is there’s nothing else like the SLS because it was built from the ground up to be human rated,” Shannon said. “It is the only vehicle that can take the Orion spacecraft and the service module to the moon. And that’s the purpose-built design — to take large hardware and humans to cislunar space, and nothing else exists that can do that.”
Starship, meanwhile, is not tailored solely to NASA’s specific lunar goals. SpaceX CEO Elon Musk has talked for more than a decade about his desire to get humans to Mars. More recently, he has said Starship could also be used to house giant space telescopes.
Yet, another reason critics remain skeptical of SLS is because of its origins. The rocket’s conception can be traced back to NASA’s Constellation program, which was a plan to return to the moon mapped out under former President George W. Bush that was later canceled.
But the SLS has survived. Many observers have suggested a big reason was the desire to maintain space industry jobs in certain Congressional districts and to beef up aerospace supply chains.
Much of the criticism levied against SLS, however, has focused on the actual process of getting the rocket built.
At one point in 2019, former NASA administrator Jim Bridenstine considered sidelining the SLS rocket entirely, citing frustrations with the delays.
“At the end of the day, the contractors had an obligation to deliver what NASA had contracted for them to deliver,” Bridenstine told CNN by phone last month. “And I was frustrated like most of America.”
Still, Bridenstine said, when his office reviewed the matter, it found “there were no options that were going to cost less money or take less time than just finishing the SLS” — and the rocket was never ultimately sidelined. (Bridenstine noted he was also publicly critical of delayed projects led by SpaceX and others.)
The SLS rocket ended up flying its first launch more than six years later than originally intended. NASA had allocated $6.2 billion to the SLS program as of 2018, but that price tag more than tripled to $23 billion as of 2022, according to an analysis by the Planetary Society.
Those escalating costs can be traced back to the type of contracts that NASA signed with Boeing and its other major suppliers for SLS. It’s called cost-plus, which puts the financial burden on NASA when projects face cost overruns while still offering contractors extra payments, or award fees.
In testimony before the Senate Appropriations Subcommittee on Science last year, current NASA Administrator Bill Nelson criticized the cost-plus contracting method, calling it a “plague.”
More in vogue are “fixed-price” contracts, which have a firm price cap, like the kind NASA gave to Boeing and SpaceX for its Commercial Crew Program.
In an interview with CNN in December, however, Nelson stood by cost-plus contracting for SLS and Orion, the vehicle that is designed to carry astronauts and rides atop the rocket to space. He said that without that type of contract, in his view, NASA’s private-sector contractors simply wouldn’t be willing to take on a rocket designed for such a specific purpose and exploring deep space. Building a rocket as specific and technically complex as SLS isn’t a risk many private-sector companies are anxious to take on, he noted.
“You really have difficulty in the development of a new and very exquisite spacecraft … on a fixed-price contract,” he said.
“That industry is just not willing to accept that kind of thing, with the exception of the landers,” he added, referring to two other branches of the Artemis program: robotic landers that will deliver cargo to the moon’s surface and SpaceX’s $2.9 billion lunar lander contract. Both of those will use fixed-price — often referred to as “commercial” — contracts.
“And even there, they’re getting a considerable investment by the federal government,” Nelson said.
Still, government watchdogs have not pulled punches when assessing these cost-plus contracts and Boeing’s role.
“We did notice very poor contractor performance on Boeing’s part. There’s poor planning and poor execution,” NASA Inspector General Paul Martin said during testimony before the House’s Subcommittee on Space and Aeronautics last year. “We saw that the cost-plus contracts that NASA had been using…worked to the contractor’s — rather than NASA’s — advantage.”
Shannon, the Boeing executive, acknowledged in an interview that Boeing and SLS have faced loud detractors, but he said that the value of the drawn out development and testing program would become evident as SLS flies.
“I am extremely proud that NASA — even though there were significant schedule pressures — they could set up a test program that was incredibly comprehensive,” he said. “The Boeing team worked through that test process and hit every mark on it. And you see the results. You see a vehicle that is not just visually spectacular, but its performance was spectacular. And it really put us on the road to be able to do lunar exploration again, which is something that’s very important in this country.”
But the rocket is still facing criticism. During a Congressional hearing with the House’s Science, Space, and Technology Committee in March 2022, NASA’s Inspector General said that current cost estimates for SLS were “unsustainable,” gauging that the space agency will have spent $93 billion on the Artemis program from 2012 through September 2025.
Martin, the NASA inspector general, specifically pointed to Boeing as one of the contractors that would need to find “efficiencies” to bring down those costs as the Artemis program moves forward.
In a December 7 statement to CNN, Boeing once again defended SLS and its price point.
“Boeing is and has been committed to improving our processes — both while the program was in its developmental stage and now as it transitions to an operational phase,” the statement read, noting the company already implemented “lessons learned” from building the first rocket to “drive efficiencies from a cost and schedule perspective” for future SLS rockets.
“When adjusted for inflation, NASA has developed SLS for a quarter of the cost of the Saturn V and half the cost of the Space Shuttle,” the statement noted. “These programs have also been essential to investing in the NASA centers, workforce and test facilities that are used by a broad range of civil and commercial partners across NASA and industry.”
The successful launch of SLS was a welcome winning moment for Boeing. Over the past few years, the company has been mired in controversy, including ongoing delays and myriad issues with Starliner, a spacecraft built for NASA’s Commercial Crew Program, and scandal after scandal plaguing its airplane division.
Now that the Artemis I mission has returned safely home, NASA and Boeing can turn to preparing more of the gargantuan SLS rockets to launch even loftier missions.
SLS is slated to launch the Artemis II mission, which will take four astronauts on a journey around the moon, in 2024. From there, SLS will be the backbone of the Artemis III mission that will return humans to the lunar surface for the first time in five decades and a series of increasingly complex missions as NASA works to create its permanent lunar outpost.
Shannon, the Boeing SLS program manager, told CNN that construction of the next two SLS rocket cores is well underway, with the booster for Artemis II on track to be finished in April — more than a year before the mission is scheduled to take off. All of the “major components” for a third SLS rocket are also completed, Shannon added.
For the third SLS core and beyond, Boeing is also moving final assembly to new facilities Florida, freeing up space at its manufacturing facilities to increase production, which may help drive down costs.
Shannon declined to share a specific price point for the new rockets or share any internal pricing goals, though NASA is expected to sign new contracts for the rockets that will launch the Artemis V mission and beyond, which could significantly change the price per launch.
Nelson also told CNN in December that NASA “will be making improvements, and we will find cost savings where we can,” such as with the decision to use commercial contracts for other vehicles under the Artemis program umbrella.
How and whether those contracts bear out remain to be seen: SpaceX needs to get its Starship rocket flying, a massive space station called Gateway needs to come to fruition, and at least some of the robotic lunar landers designed to carry cargo to the moon will need to prove their effectiveness. It’s also not yet clear whether those contracts will result in enough cost savings for the critics of SLS, including NASA’s OIG, to consider the Artemis program sustainable.
As for SLS, Nelson also told reporters December 11, just after the conclusion of the Artemis I mission, that he had every reason to expect that lawmakers would continue to fund the rocket and NASA’s broader moon program.
“I’m not worried about the support from the Congress,” Nelson said.
And Bridenstine, Nelson’s predecessor who has been publicly critical SLS, said that he ultimately stands by SLS and points out that, controversies aside, it does have rare bipartisan support from its bankrollers.
“We are in a spot now where this is going to be successful,” Bridenstine said last month, recalling when he first realized the Artemis program had support from the right and left. “All of America is going to be proud of this program. And yes, there are going to be differences. People are gonna say well, you should go all commercial and drop SLS…but at the end of the day, what we have to do is we have to bring together all of the things that are the best programs that we can get for America and use them to go to the moon.”
“The San Diego Field Office has recently noticed an increase in the number of eggs intercepted at our ports of entry,” wrote De La O in the Tuesday tweet. “As a reminder, uncooked eggs are prohibited entry from Mexico into the U.S. Failure to declare agriculture items can result in penalties of up to $10,000.”
Bringing uncooked eggs from Mexico into the US is illegal because of the risk of bird flu and Newcastle disease, a contagious virus that affects birds, according to Customs and Border Protection.
In a statement emailed to CNN, Customs and Border Protection public affairs specialist Gerrelaine Alcordo attributed the rise in attempted egg smuggling to the spiking cost of eggs in the US. A massive outbreak of deadly avian flu among American chicken flocks has caused egg prices to skyrocket, climbing 11.1% from November to December and 59.9% annually, according to the Bureau of Labor Statistics.
The increase has been reported at the Tijuana-San Diego crossing as well as “other southwest border locations,” Alcordo said.
For the most part, travelers bringing eggs have declared the eggs while crossing the border. “When that happens the person can abandon the product without consequence,” said Alcordo. “CBP agriculture specialists will collect and then then destroy the eggs (and other prohibited food/ag products) as is the routine course of action.”
In a few incidents, travelers did not declare their eggs and the products were discovered during inspection. In those cases, the eggs were seized and the travelers received a $300 penalties, Alcordo explained.
“Penalties can be higher for repeat offenders or commercial size imports,” he added.
Alcordo emphasized the importance of declaring all food and agricultural products when traveling.
“While many items may be permissible, it’s best to declare them to avoid possible fines and penalties if they are deemed prohibited,” he said. “If they are declared and deemed prohibited, they can be abandoned without consequence. If they are undeclared and then discovered during an exam the traveler will be subject to penalties.”
Europeisscrambling to buy diesel fuel from Russia before a ban on imports comes into force in early February, but the frantic stockpiling is unlikely to prevent a new price shock for truckers, drivers and businesses.
In the first two weeks of January, European countries snapped up almost 8 million barrels of Russian diesel, according to energy data provider Vortexa, roughly on par with imports this time last year before Russia invaded Ukraine. Imports in the fourth quarter of 2022 were up nearly 19% on the same period the previous year.
Since Russia’s invasion in February last year, the European Union has made a huge effort to wean itself off Moscow’s oil and natural gas supplies. That has included a ban on all Russian seaborne crude oil imports, which came into force in December.
EU countries drastically reduced their imports of crude from Russia ahead of the ban, but that isn’t happening with diesel because it’s much harder to find alternative sources of the fuel.
Russia is the bloc’s biggest supplier, making up 29% of its total dieselimports last year, data from Rystad Energy shows. The fuel is the continent’s “economic workhorse,” Mark Williams, a research director at Wood Mackenzie, told CNN.
It is used to power the “vast majority” of transportation for goods and commodities around Europe, he said, as well as fueling the bloc’s fleet of diesel cars. About 91% of vans and 96% of all trucks run on diesel, as well as roughly 42% of passenger cars, according to the European Automobile Manufacturer’s Association.
“The main difference we see is that Europe was, for months, reducing Russian crude imports before the December deadline began,” Jay Maroo, a senior analyst at Vortexa, told CNN.
“On diesel we see the opposite, where imports have picked up — almost a final dash before the finish line,” he added.
In the last three months of 2022, the bloc imported an average of 604,000 barrels per day of Russian diesel via seaborne tankers, compared to the 508,000 barrels per day imported during the same period the year before, Vortexa data shows.
The EU ban will tighten the global market for diesel, Williams said, unless Russia can successfully divert its cargoes to Latin America and Africa, regions which typically import from the United States. That would free up US barrels to be sent to Europe, plugging the gap left by Moscow, he said.
But importing diesel from suppliers further afield, including the United States and Saudi Arabia, will push up freight costs, feeding into higher consumer prices, he said.
“We are expecting diesel prices to rise in Europe. We’re expecting a spike sort of February, March time,” Williams said.
According to Wood Mackenzie’s estimates, the price of a barrel of diesel will average $40 for the first three months of this year. That’s up a whopping 470% from the average price for the whole of 2021, before Russia’s invasion sent prices soaring.
The average EU cost of a liter of diesel at the pumphit €1.77 ($1.92) on January 9, up from €1.50 ($1.63) the same time last year, data from the European Commission shows.
France could be hit especially hard. Europe’s second largest economy is also its biggest buyer of diesel, responsible for 22% of all seaborne imports over the past three years, according to Vortexa data.
But Jorge León, a senior vice president at Rystad Energy, told CNN that the impact of the ban won’t be felt immediately in Europe because of the large amount of diesel in its stocks.
The European Union has also “done its work to find alternative suppliers,” he said, including Kuwait, which opened a massive oil refinery in November capable of producing 600,000 barrels per day of diesel. That could help cushion the impact of losing Russian supplies.
But if Europe sees a strong rebound in demand as the economy picks up, consumers can expect price rises, he added.
“Deliveries are going to be a bit more expensive… filling up [a] car is going to be a bit more expensive,” León said.
India will overtake China this year to become the world’s most populous country.
The likelihood of India passing that major milestone within a few months shot up Tuesday, when China reported that its population shrank in 2022 for the first time in more than 60 years.
This shift will have significant economic implications for both Asian giants, which have more than 1.4 billion residents each.
Along with the population data, China also reported one of its worst economic growth numbers in nearly half a century, underscoring the steep challenges the country faces as its labor force shrinks and the ranks of the retired swell.
For India, what economists and analysts call the “demographic dividend” could continue to support rapid growth as the number of healthy workers increases.
There are fears the country might miss out, however. That’s because India is simply not creating employment opportunities for the millions of young job seekers already entering the workforce every year.
The South Asian nation’s working-age population stands at over 900 million, according to 2021 data from the Organization for Economic Cooperation and Development (OECD). This number is expected to hit more than 1 billionover the next decade, according to the Indian government.
But these numbers could become a liability if policymakers do not create enough jobs, experts warned. Already, data show a growing number of Indians are not even looking for work, given the lack of opportunities and low wages.
India’s labor force participation rate, an estimation of the active workforce and people looking for work, stood at 46%, which is among the lowest in Asia, according to 2021 data from the World Bank. By comparison, the rates for China and the United States stood at 68% and 61% respectively in the same year.
For women, the numbers are even more alarming. India’s female work participation rate was just 19% in 2021, down from about 26% in 2005, the World Bank data shows.
“India is sitting on a time bomb,” Chandrasekhar Sripada, professor of organizational behavior at the Indian School of Business, told CNN. “There will be social unrest if it cannot create enough employment in a relatively short period of time.”
India’s unemployment rate in December stood at 8.3%, according to the Centre for Monitoring Indian Economy (CMIE), an independent think tank headquartered in Mumbai, which publishes job data more regularly than the Indian government. In contrast, the US rate was about 3.5% at the end of last year.
“India has the world’s largest youth population … There is no dearth of capital in the world today,” Mahesh Vyas, the CEO of CMIE, wrote in a blog post last year. “Ideally, India should be grabbing this rare opportunity of easy availability of labor and capital to fuel rapid growth. However, it seems to be missing this bus.”
Lack of high quality education is one of the biggest reasons behind India’s unemployment crisis. There has been a “massive failure at the education level” by policymakers, said Sripada, adding that Indian institutions emphasize “rote-learning” over “creative thinking.”
As a result of this toxic combination of poor education and lack of jobs, thousands of college graduates, including those withdoctorates, end up applying for lowly government jobs, such as those of “peons” or office boys, which pay less than $300 a month.
The good news is that policymakers have recognized this problem and started putting “reasonable emphasis on skill creation now,” Sripada said. But it will be years before the impact of new policies can be seen, he added.
Asia’s third largest economy also needs to create more non-farm jobs to realize its full economic potential. According to recent government data, more than 45% of the Indian workforce is employed in the agriculture sector.
The country needs to create at least 90 million new non-farm jobs by 2030 to absorb new workers, according to a 2020 report by McKinsey Global Institute. Many of these jobs can be created in the manufacturing and constructions sectors, experts said.
As tensions between China and the West rise, India has made some progress in boosting manufacturing by attracting international giants such as Apple to produce more in the country. But, factories still constitute only 14% of India’s GDP, according to the World Bank.
With a 6.8% expansion in GDPforecast for this fiscal year ending March, the South Asian nation is expected to be the world’s fastest growing major economy. But, according to a former central banker, even this growth is “insufficient.”
“A lot of this growth is jobless growth. Jobs are essentially task one for the economy. We don’t need everybody to be a software programmer or consultant but we need decent jobs,” Raghuram Rajan, the former governor of the Reserve Bank of India, told media company NDTV, last year.
According to the Mckinsey report, for “gainful and productive employment growth of this magnitude, India’s GDP will need to grow by 8.0% to 8.5% annually over the next decade.”
For decades, business leaders, billionaires and politicians have gathered in Davos, Switzerland under the banner of forging ties that can help solve global problems.
It’s a glitzy exercise often criticized as out of touch. It also looks increasingly out of date as the biggest war in Europe since 1945 turbocharges splits in the world economy.
This year’s World Economic Forum, hosted in the Alpine ski town since the early 1970s, kicks off Monday. It’s expected to draw a record 2,700 attendees, including German Chancellor Olaf Scholz, European Commission President Ursula von der Leyen, Chinese Vice Premier Liu He, South Korean President Yoon Suk-yeol and US climate envoy John Kerry.
Yet the WEF’s first winter meeting in Davos since 2020comes as economic heavyweights are playing by different rules, with companies moving supply chains closer to home, strategic stockpiling picking up pace and corporate executives who once extolled free trade appearing increasingly wary of rising geopoliticalrisks.
“I think Davos is totally irrelevant,” said Rana Foroohar, a Financial Times columnist, whose book “Homecoming” argues that a new shift toward localization is displacing the forces of globalization that have been dominant over the past half century.
WEF makes the case that its conference allows decision makers to zoom out and collaborate, a challenge as they battle concurrent, compounding crises such as the pandemic, the soaring cost of living, climate change, food insecurity and war.
“Only personal interaction creates the necessary level of trust, which we need so much in our fractured world,” WEF Chair Klaus Schwab, the founder of the event, said at a press conference last week. This year’s theme is “Cooperation in a Fragmented World.”
Schwab’s vision for a progressively interconnected global economy that also spreads democracy around the world has been under threat at least since the 2008 financial crisis. Data from the World Bank shows that global trade of goods and services as a percentage of total economic output peaked that year. Outflows of cross-border investment hit a high in 2007.
But damage to the Davos mission has accelerated over the past 12 months.
Russia’s invasion of Ukraine squashed what columnist Thomas Friedman once termed the “Golden Arches Theory of Conflict Prevention,” which argued that no two countries with McDonald’s restaurants would go to warwith each other. Since the invasion, more than 1,000 Western companies have curtailed operations in Russia, and Europe swiftly cut ties with what was once its top energy supplier despite the high costs.WEF itself had to freeze relations with Russia after hosting its politicians and oligarchs for years.
Tensions between the world’s two biggest economies, the United States and China, now loom even larger, especially as Beijing ramps up military exercises aimed at menacing Taiwan. China’s strong-arm approach to containing Covid-19 also spooked companies and investors. Many remain wary even as restrictions are rolled back rapidly.
That’s pushing businesses and governments to rethink supply chains for key products, as reducing vulnerabilities and protecting national interests takes precedence over maximizing cost savings.
Where former US President Donald Trump used to champion “America First” trade policies, US Treasury Secretary Janet Yellen has been emphasizing “friendshoring,” or strengthening trade ties with countries like India, a fellow democracy. Apple
(AAPL) is looking to move more of its production outside China, whose labor market once served as an engine of its success. The European Union is reportedly drawing up plans to hoard scarce drugs so it can avoid future shortages.
At the same time, the United States is pushing ahead with a robust industrial strategy aimed at boosting its prowess in manufacturing everything from computer chips to electric vehicle parts. That’s triggered a dispute with Europe, which worries new subsidies will put its companies at a disadvantage.
“This really is a paradigmatic shift in this moment,” said Jeffrey Sonnenfeld, a Yale management professor who speaks regularly with many well-known executives. He said they’ve increasingly been talking about cutting deals and making investments using this new playbook.
Meanwhile, nationalism and populism — which can encourage leaders to criticize tenets of a globalized economy such as porous borders and lower barriers to trade — remain muscular forces. Just look to Italy’s new prime minister, Giorgia Meloni, who was installed in October. Her party’s agenda is rooted in skepticism of the European Union and anti-immigration policies.
The consequences of this transition are still playing out. While the trend towards deglobalization is expected to have some negative consequences, such as adding to inflation, Foroohar sees an opportunity to reinvigorate communities that lost out on jobs during the free-trade bonanza, reduce the carbon footprints of supply chains and ease crippling global inequality.
“Economic pendulums shift throughout history,” said Foroohar, who is also a CNN analyst. “Every time the pendulum shifts too far, which it clearly has, it starts to shift back a bit.”
Some core elements of globalization remain intact. The digital transformation of economies makes it easier for money and ideas to move across borders. The same, unfortunately, goes for viruses and other diseases. International cooperation is essential to solve food shortages and keep high-stakes climate goals within reach.
“It’s basically too simple to say it’s an era of globalization or an era of deglobalization,” said Markus Kornprobst, a professor of international relations at the Vienna School of International Studies. “It’s an in-between era.”
But even Davos organizers seem aware of the changing tides. Panels on the agenda include sessions titled “De-Globalization or Re-Globalization?” and “Keeping the Lights on amid Geopolitical Fracture.”
The forum will still draw big names. Top CEOs such as JPMorgan Chase’s
(JPM) Jamie Dimon, Microsoft’s
(MSFT) Satya Nadella, Uber’s
(UBER) Dara Khosrowshahi and BP’s
(BP) Bernard Looney are on the list of attendees; Scholz, von der Leyen and Spanish Prime Minister Pedro Sánchez will give speeches from the main stage.
Yet there will also be notable absences. Those skipping the gathering this year include US President Joe Biden, China’s Xi Jinping, Indian Prime Minister Narendra Modi, French President Emmanuel Macron and UK Prime Minister Rishi Sunak. That raises questions about whether Davos can hang on to its reputation an essential event for the rich and powerful.
A Greek court dropped espionage charges against a group of aid workers who rescued migrants from the sea, in a move hailed by rights groups and lawmakers.
Irish-German citizen Sean Binder and 23 other humanitarian workers had their misdemeanor charges set aside by a court on the island of Lesbos Friday, however felony charges against the group remain pending.
The court in the island’s capital Mytilene called a halt to the prosecution of the some of the misdemeanor charges due to “procedural irregularities” in the investigation, Binder’s lawyer, Zacharias Kessas, said outside the court.
“They recognized that there are certain procedural irregularities that made it impossible for the court to proceed on the core of the accusation, so concerning the misdemeanors, somebody can say that the accusations are dropped,” Kessas said.
“But we cannot feel happy about this because really they just realized what we were shouting for the last four years, so there are still many things to be done in order to reach the final step which is the felonies that are still ongoing, and the investigation is still in process.”
A statement from Amnesty International Friday said the Lesbos court “sent the indictment back to the prosecutor due to procedural shortcomings, including a failure to translate the indictment.”
Binder and Syrian refugee Sarah Mardini were arrested in 2018 after participating in several search and rescue operations with non-profit organization Emergency Response Center International near Lesbos, an island in the Aegean Sea.
The group had faced four charges classified by Greek judicial authorities as “misdemeanors”: espionage, disclosure of state secrets, unlawful use of radio frequencies and forgery, according to a UN Human Rights Office statement.
The court’s move was welcome by rights group and politicians.
Lawmakers from the European Union said it was “a step toward justice.”
The spokesperson for the UN High Commissioner for Human Rights, Liz Throssell, welcomed the court’s recommendation to drop some of the charges but reiterated the UN’s call “for all charges against all defendants to be dropped.”
Binder’s elected representative, MEP Grace O’Sullivan, said the prosecution “essentially was full of holes” in a video posted to Twitter.
“Good news from Greece. We’ve just heard that Sean Binder and the other search and rescue humanitarian workers have had their charges dropped,” she said.
While the misdemeanor charges were dropped on Friday, an investigation into felony charges against the humanitarian workers remains pending, Amnesty International said in a statement.
The aid workers stand accused of assisting smuggling networks, being members of a criminal organization, and money laundering – charges that could result in up to 25 years in prison if they are found guilty, according to a European Parliament report published in June 2021.
Referring to the felony charges that remain pending, O’Sullivan said while they didn’t know how long that would take, “today is actually a step in the right direction. A step towards justice.”
“All we want is justice. We want this to go to trial and it doesn’t seem like this will happen anytime soon given what happened today,” Binder said outside the courthouse.
“At the same time, we have been so lucky to have so much support internationally, everywhere, and I think that has forced the prosecution of this court to at least recognize the mistakes made and at least to some extent there has been less injustice.”
In the years before Covid, China was the world’s most important source of international travelers. Its 155 million tourists spent more than a quarter of a trillion dollars beyond its borders in 2019.
That largesse fell precipitously over the past three years as the country essentially closed its borders. But, as China prepares to reopen on Sunday, millions of tourists are poised to return to the world stage, raising hopes of a rebound for the global hospitality industry.
Although international travel may not return immediately to pre-pandemic levels, companies, industries and countries that rely on Chinese tourists will get a boost in 2023, according to analysts.
China averaged about 12 million outbound air passengers per month in 2019, but those numbers fell 95% during the Covid years, according to Steve Saxon, a partner in McKinsey’s Shenzhen office. He predicts that figure will recover to about 6 million per month by the summer, driven by the pent-up wanderlust of young, wealthy Chinese like Emmy Lu, who works for an advertising company in Beijing.
“I’m so happy [about the reopening]! ” Lu told CNN. “Because of the pandemic, I could only wander around the country for the past years. It was difficult.”
“It’s just that I’ve been stuck inside the country for a little too long. I’m really looking forward to the lifting of the restrictions, so that I can go somewhere for fun! ” the 30-year-old said, adding that she wanted to visit Japan and Europe the most.
As China announced last month it would no longer subject inbound travelers to quarantine starting January 8, including residents returning from trips abroad,searches for international flights and accommodations immediately hit a three-year high on Trip.com
(TCOM).
Bookings for overseas travel during the upcoming Lunar New Year holiday, which falls between January 21 and January 27 this year, have soared by 540% from a year ago, according to data from theChinese travel site. Average spending per booking jumped 32%.
The top destinations are in the Asia Pacific region, including Australia, Thailand, Japan and Hong Kong. The United States and the United Kingdom also ranked among the top 10.
“The rapid buildup in … [bank] deposits over the past year suggests that households in China have accumulated significant cash holdings,” said Alex Loo, a macro strategist for TD Securities, adding that frequent lockdowns have likely led to restraints on household spending.
There could be “revenge spending” by Chinese consumers, mirroring what happened in many developed markets when they reopened early last year, he said.
That’s good news for many economies battered by the pandemic.
“We estimate that Hong Kong, Thailand, Vietnam and Singapore would benefit the most if China’s travel service imports were to return to 2019 levels,” said Goldman Sachs analysts。
Hong Kong — the world’s most visited city with just under 56 million arrivals in 2019, most of them from mainland China — could see an estimated 7.6% boost to its GDP as exports and tourism income increase, they said. Thailand’s GDP may be boosted by 2.9%, while Singapore would get a lift of 1.2%.
Elsewhere in the world, Cambodia, Mauritius, Malaysia, Taiwan, Myanmar, Sri Lanka, South Korea and Philippines are also likely to benefit from the return of Chinese tourists, according to research by Capital Economics.
Hong Kong has suffered particularly acutely from the closure of its border with mainland China. The city’s pillar industries of tourism and real estate have been hit hard. The financial hub expects GDP to have contracted by 3.2% in 2022.
The city government announced Thursday that up to 60,000 people would be allowed to cross the border dailyeach way, starting Sunday.
Several otherSoutheast Asian countries reliant on tourism have kept entry rules relatively relaxed for Chinese tourists, despite the record Covid-19 outbreak that has swept through China in recent weeks. They include Thailand, Indonesia, Singapore and the Philippines.
“This is one of the opportunities that we can accelerate economic recovery,” Thailand’s health minister said this week.
New Zealand has also waived testing requirements for Chinese visitors, who were the second largest source of tourist revenue for the country before the pandemic.
But other governments are more cautious. So far, nearly a dozen countries, including the United States, Germany, France, Canada, Japan, Australia and South Korea, have mandated testing.
The European Union on Wednesday “strongly encouraged” its members states to require a negative Covid test for visitors from China before arrival.
There is clearly “conflict” between the tourism authorities and the political and health officials in some countries, said Saxon, who leads McKinsey’s travel practice in Asia.
Airlines and airports have already blasted the EU’s recommendations for testing requirements.
The International Air Transport Association, the airline industry’s global lobby group, together with airports represented by ACI Europe as well as Airlines for Europe, issued a joint statement on Thursday, calling the EU move “regrettable” and “a knee-jerk reaction.”
But they welcomed the additional recommendation to test wastewater as a way of identifying new variants of the disease, saying it should be an alternative to testing passengers.
Besides restrictions, it will take time for international travel to fully rebound because many Chinese must renew their passports and apply for visas again, according to analysts.
Lu from Beijing said she was still considering her travel plans, taking into consideration the various testing requirements and the high price of flying.
“The restrictions are normal, because everyone wants to protect people in their own country,” she said. “I’ll wait and see if some policies will be eased.”
Liu Chaonan, a 24-year-old in Shenzhen, said she had initially wanted to go to the Philippines to celebrate the Chinese New Year, but didn’t have time to apply for the visa. So she switched to Thailand, which offers quick and easy electronic permits.
“Time is short and I need to leave in about 10 days. People may choose some visa-friendly places and countries to travel to,” she said, adding that she plans to learn scuba diving and wants to buy cosmetics. Her total budget for the trip could exceed 10,000 yuan ($1,460).
Saxon said he expected China’s outbound international travel to fully recover by the year end.
“Generally, individuals are pragmatic and countries will welcome Chinese tourists due to their spending power,” he said, adding that countries may remove restrictions quickly when the Covid situation improves in China.
“It will take time for international tourism to get going, but it will come rushing back, when it happens.”
European and Asian stocks pushed higher on the first major trading day of 2023 as investors try to look beyond a gloomy outlook for the world economy, China’s worst Covid outbreak and stubbornly high inflation in Europe.
But after a positive start, Wall Street succumbed to fear again. The S&P 500 gained 0.4% in early trading Tuesday, while the Nasdaq Composite was up 0.8%. By midday, however, both indexes were trading weaker, down 0.3% and 1.2% respectively.
Shares of Tesla
(TSLA) plunged more than 13% after the electric car giant reported weaker than expected global sales for the fourth quarter. Apple sank 3.8%, bringing its market cap to $2 trillion. An impressive number, for sure, but about $1 trillion less than its valuation at this time last year.
Europe’s Stoxx 600 index rose1.2% by 12.10 p.m. ET, off earlier highs but extending strong gains posted Monday when Chinese and US markets were closed. Germany’s DAX rose 0.8%, while France’s CAC gained 0.4%.
US markets are waiting for the first major economic news of the year, due later this week. A key report on manufacturing, new data on labor market openings and the minutes from the latest Federal Reserve meeting are due out Wednesday. The jobs report for December will be released Friday.
Investors in Europewere buoyed by survey data, released Monday, showing that supply chain and inflation pressures were easing slightly for manufacturers in the economies that use the euro currency.
Shortages of parts in Germany, the biggest economy in Europe, have also abated, according to data released by the Institute for Economic Research (Ifo) on Tuesday. Inflation in the country continues to trend downwards. Data published Tuesday by the German Federal Statistics Office showed that consumer prices rose 8.6% in December, compared with 10% the previous month, and 10.4% in October.
London’s FTSE 100 index clocked up gains of 2.3%in morning trading,before easing slightly to stand 1.4% higher.
Holger Schmieding, chief economist at Berenberg bank, struck a cautiously optimistic note about the year ahead.
“Unless a major new geopolitical shock intervenes, the new year could be far less unsettled than 2022. Especially for Europe, the outlook continues to become substantially less negative,” he wrote in note Tuesday.
In Asia, markets ended the day firmly in positive territory, recovering from early losses.
Hong Kong’s Hang Seng Index dropped by as much as 2% after a closely watched private survey showed China’s economy ended last year with a slump in factory activity. But the index soon reversed course to gain 1.8% by the close, as hopes for the reopening of the city’s border with mainland China on January 8boosted stocks.
Stocks in mainland China also had a choppy first-day trading. The Shanghai Composite opened lower, but then clawed back losses to close 0.9% higher.
Tuesday’s market gains provide cheery news for investors after a rollercoaster 2022 that saw $33 trillion wiped off global equity markets.
Many suffered deep losses in 2022 as central banks hiked interest rates at an unprecedented clip in a bid to control surging inflation.
The S&P 500 lost 19.4% over the past 12 months — its worst year since 2008 — despite hitting an all-time high last January. Europe’s Stoxx 600 index fell 12.9%, its steepest annual loss since 2018. Hong Kong’s Hang Seng dropped 15.5%, its weakest performance since 2011.
Predicting the state of markets is notoriously tricky — and often downright wrong — but it looks likely that many of last year’s economicheadwinds will stick around, and some could get even worse.
Kristalina Georgieva, head of the International Monetary Fund, warned in an interview with CBS that aired on Sunday that 2023 will be tougher on the global economy than 2022 was.
Georgieva said that the world’s three biggest economies, the United States, the European Union and China, are all “slowing down simultaneously,” and the IMFexpected “one third of the world economy to be in recession” this year.
“Almost everyone is going into 2023 with a healthy dose of trepidation,” Craig Erlam, senior market analyst at Oanda, said in a Tuesday note.
“The outlook is understandably gloomy and will remain so unless something significant changes, either on the war in Ukraine or inflation,” he added.
Investors can expect the world’s central banks to continue hiking interest rates to tame historic levels of inflation, despite signs that price rises globally have started to cool, in part due to a drop in energy prices.
Both the European Central Bank and US Federal Reserve have said they plan to continue to raise the cost of borrowing in the near term, a move that typically hurts companies’ profits — and their investors.
China is also unpredictable. While investors are broadly happy that the country ditched its strict zero-Covid policy last month — promising to lift demand across the world’s second-biggest economy — rocketing numbers of cases and a potential contraction in the early part of 2023could limit gains.
— Paul LaMonica, Julia Horowitz and Laura He contributed reporting.
It’s been two years since former Prime Minister Boris Johnson signed his Brexit trade deal and triumphantly declared that Britain would be “prosperous, dynamic and contented” after completing its exit from the European Union.
The Brexit deal would enable UK companies to “do even more business” with the European Union, according to Johnson, and would leave Britain free to strike trade deals around the world while continuing to export seamlessly to the EU market of 450 million consumers.
In reality, Brexit has hobbled the UK economy, which remains the only member of the G7 — the group of advanced economies that also includes Canada, France, Germany, Italy, Japan and the United States — with an economy smaller than it was before the pandemic.
Years of uncertainty over the future trading relationship with the European Union, Britain’s largest trading partner, have damaged business investment, which in the third quarter was 8% below pre-pandemic levels despite a UK-EU trade deal being in place for nearly two years.
And the pound has taken a beating, making imports more expensive and stoking inflation while failing to boost exports, even as other parts of the world have enjoyed a post-pandemic trade boom.
Brexit has erected trade barriers for UK businesses and foreign companies that used Britain as a European base. It’s weighing on imports and exports, sapping investment and contributing to labor shortages. All this has exacerbated Britain’s inflation problem, hurting workers and the business community.
“The most plausible reason as to why Britain is doing comparatively worse than comparable countries is Brexit,” according to L. Alan Winters, co-director of the Centre for Inclusive Trade Policy at the University of Sussex.
The sense of gloom hanging over the UK economy is captured by striking workers, who are walking out in ever larger numbers over pay and conditions as the worst inflation in decades eats into their wages. At the same time, the government is cutting spending and hiking taxes to fill the hole in its budget.
While Brexit isn’t the cause of Britain’s cost-of-living crisis, it has made the problem more difficult to solve.
“The UK chose Brexit in a referendum, but the government then chose a particularly hard form of Brexit, which maximized the economic cost,” said Michael Saunders, a senior adviser at Oxford Economics and former Bank of England official. “Any hope for economic upside from Brexit is pretty much gone.”
Although Britain voted to leave the European Union in June 2016, its exit from the single market and customs union was finalized only on December 24, 2020, when the two sides finally agreed a free trade deal.
The Brexit deal, known as the Trade and Cooperation Agreement, came into effect on January 1, 2021.
It eliminated tariffs on most goods but introduced a raft of non-tariff barriers, such as border controls, customs checks, import duties and health inspections on plant and animal products.
Before Brexit, a farmer in Kent could ship a truckload of potatoes to Paris just as easily as they might send it to London. Those days are no more.
“We hear stories every single day from small businesses about the nightmare of forms, transportation, couriers, things getting stuck for weeks at a time… the epic length of the problems is just gobsmacking,” said Michelle Ovens, the founder of Small Business Britain, a campaign group.
“The way things have panned out in the last two years has been really bad for small businesses,” Ovens told CNN.
Researchers at the London School of Economics estimate that the variety of UK products exported to the European Union declined by 30% during the first year of Brexit. They said that this was likely because small exporters had exited small EU markets.
Take the example of Little Star, a UK company that makes jewelry for children. Its business took off in the Netherlands and it had plans to expand to France and Germany next. But since Brexit, only two of more than 30 of its Dutch customers are prepared to handle the costs and paperwork to obtain stock from the company.
Products that took two days to ship are now taking three weeks, while import duties and sales taxes have made it much harder to compete with European jewelers, according to Rob Walker, who co-founded the business with his wife, Vicky, in 2017. The company is now looking to the United States for growth opportunities.
“Isn’t it mad that we have to look to the other side of the Atlantic to do business, because it’s so difficult to do business with people 30 miles away?” Walker said.
A British Chambers of Commerce survey of more than 1,168 businesses published this month reported that 77% said Brexit has not helped them increase sales or grow their businesses. More than half said they were finding it difficult to adapt to the new rules for trading goods.
Siteright Construction Supplies, a manufacturer in Dorset, told the Chamber that importing parts from the European Union to fix broken machines has become a costly and “time-consuming nightmare.”
“Brexit has been the biggest-ever imposition of bureaucracy on business,” according to Siteright.
Nova Dog Chews, a producer of snacks for canines, said it would have lost all its EU trade had it not set up a base in the bloc. “This has cost our business a huge amount of money, which could have been invested in the UK had it not been for Brexit,” it added.
A UK government spokesperson told CNN that the government’s export support service has provided exporters with “practical support” on the implementation of the Brexit deal. The deal is “the world’s largest zero tariff, zero quota free trade deal,” the spokesperson added. “It secures the UK market access across key service sectors and opens new opportunities for UK businesses across the globe.”
Britain won’t easily replace what it has lost by forfeiting unfettered access to the world’s largest trading bloc.
The only substantive new trade deals it has struck since exiting the European Union, which did not simply roll over the deals it had as an EU member, have been with Australia and New Zealand. By the government’s own estimate, these will have a negligible impact on the UK economy, increasing GDP in the long run by just 0.1% and 0.03% respectively.
By contrast, the UK Office for Budget Responsibility, which produces economic forecasts for the government, expects Brexit to reduce Britain’s output by 4% over 15 years compared to remaining in the bloc. Exports and imports are projected to be around 15% lower in the long run.
Initial data has borne this out. According to the OBR, in the fourth quarter of 2021, UK goods export volumes to the European Union were 9% below 2019 levels, with imports from the European Union 18% lower. Goods exports to non-EU countries were 18% weaker than in 2019.
The United Kingdom “appears to have become a less trade-intensive economy, with trade as a share of GDP falling 12% since 2019, two and a half times more than in any other G7 country,” the OBR said in the March report.
The decline in exports to non-EU countries could be a sign that UK businesses have become less competitive as they battle higher supply chain costs following Brexit, according to Jun Du, an economics professor at Aston University in Birmingham.
“The UK’s trading ability has been damaged permanently [by Brexit],” Du told CNN. “It doesn’t mean it can’t recover, but it’s been set back for a number of years.”
Research by the Centre for European Reform, a think tank, estimates that over the 18 months to June 2022, UK goods trade is 7% lower than it would have been had Britain remained in the European Union.
Investment is 11% weaker and GDP is 5.5% smaller than it would have been, costing the economy £40 billion ($48.4 billion) in tax revenues annually. That’s enough to pay for three quarters of the spending cuts and tax rises that UK finance minister Jeremy Hunt announced in November.
The United Kingdom is projected to have one of the worst performing economies next year among developed nations.
The Organization for Economic Cooperation and Development expects the UK economy to shrink by 0.4%, ahead only of sanctioned Russia. GDP in Germany is forecast to be 0.3% smaller.
The International Monetary Fund forecasts growth of just 0.3% for UK GDP next year, ahead of only Germany, Italy and Russia, which are expected to contract.
Both institutions say high inflation and rising interest rates will weigh on spending by consumers and businesses in Britain.
According to the Confederation of British Industry, a leading business group, the fall in private sector activity picked up pace in December and has now declined for five consecutive quarters.
The downward trend “looks set to deepen” in 2023, principal economist at the CBI Martin Sartorius said in a statement.
“Businesses continue to face a number of headwinds, with rising costs, labor shortages, and weakening demand contributing to a gloomy outlook for next year. ”
The Biden administration has launched an expansive task force to investigate how US and western components, including American-made microelectronics, are ending up in Iranian-made drones Russia is launching by the hundreds into Ukraine, multiple officials familiar with the effort tell CNN.
The US has imposed tough export control restrictions and sanctions to prevent Iran from obtaining high-end materials, but evidence has emerged that suggests Iran is finding an abundance of commercially-available technology.
Last month, the UK-based investigative organization Conflict Armament Research examined several drones that had been downed in Ukraine and found that 82% of their components were manufactured by companies based in the US.
Among the components found in some of the drones are processors built by the Dallas-based technology company Texas Instruments, according to an investigation by the Ukrainian Armed Forces and a source familiar with the US inquiry, as well as an engine made by an Austrian firm owned by Canada’s Bombardier Recreational Products. Both companies have condemned any use of their technology for illicit purposes.
Their apparently unintentional ensnarement in Iran’s drone manufacturing industry underscores how inexpensive products intended for civilian use can be easily retrofitted for military purposes, and often fall just outside the bounds of sanctions and export control regimes.
Texas Instruments said in a statement to CNN that “TI is not selling any products into Russia, Belarus or Iran. TI complies with applicable laws and regulations in the countries where we operate, and partners with law enforcement organizations as necessary and appropriate. Additionally, we do not support or condone the use of our products in applications they weren’t designed for. ”
Bombardier Recreational Products said in a statement that it was launching an investigation into how the engines ended up in the drones.
The investigation has intensified in recent weeks amid intelligence obtained by the US that the Kremlin is preparing to open its own factory for drone production inside Russia as part of a deal with Iran, the officials said.
Iran has already begun transferring blueprints and components for the drones to Russia to help with production there, CNN has reported, in a dramatic expansion of the countries’ military partnership.
Agencies across Washington are involved in the task force, including the departments of Defense, State, Justice, Commerce and Treasury, with one official describing the inquiry as an “all hands on deck” initiative. The effort is being overseen by the White House National Security Council as part of an even bigger, “holistic approach” to dealing with Iran, a senior administration official said, from its crackdown on protesters and its nuclear program to its deepening role in the war in Ukraine.
But the drone issue is particularly urgent given the sheer volume of US-made components, many of them manufactured in the last couple years, that have been found in the Iranian drones Russia has been deploying across Ukraine against civilians and critical infrastructure.
Conflict Armament Research found that the Iranian drones they examined in Ukraine in November had “higher-end technological capabilities,” including tactical-grade sensors and semiconductors sourced outside of Iran, demonstrating that Tehran “has been able to circumvent current sanction regimes and has added more capabilities and resiliency to its weapons.”
National Security Council official John Kirby told reporters earlier this month that the US would be sanctioning three Russian companies involved in acquiring and using the Iranian drones, and is “assessing further steps we can take in terms of export controls to restrict Iran’s access to sensitive technologies.”
Much of that work has fallen to the task force, officials said, and among its first tasks has been to notify all of the American companies whose components have been found in the drones. Congressional staffers briefed on the effort told CNN that they hope the task force provides lawmakers with a list of US companies whose equipment is being found in the drones in an effort to force greater accountability by urging the companies to monitor their supply chains more closely.
The task force is also having to coordinate with foreign allies, since the components being used in the drones are not limited to those produced by American companies. Conflict Armament Research also found that “more than 70 manufacturers based in 13 different countries and territories” produced the components in the Iranian drones they examined.
In October, CNN obtained access to a drone that was downed in the Black Sea near Odesa and captured by Ukrainian forces. It was found to contain Japanese batteries, an Austrian engine and American processors.
Iran may also be acquiring near-exact replicas of western components from China, according to a study published last month by the Washington-based Institute for Science and International Security. “China plays a larger role than previously assessed in enabling Iran to manufacture and supply drones to Russian forces,” the report found. “It appears that Chinese companies are supplying Iran with copies of Western commodities to produce UAV combat drones.”
The White House believes it is successfully driving home the scale of the issue with allies. The senior administration official told CNN that there was “growing broad and deep international consensus on Iran, from the EU to Canada to Australia and New Zealand, which is being led by US diplomacy.”
There is no evidence that any of the western companies are knowingly exporting their technology to be used in the drones, and that is partly why the task force’s job has been so difficult, officials said.
The task force has its work cut out for it in tracing supply chains for the microelectronics industry, which relies heavily on third party distributors and resellers. The microchips and other small devices ending up in so many of the Iranian and Russian drones are not only inexpensive and widely available, they are also easily hidden.
Iran also uses front companies to buy equipment from the US and EU that may have a dual use, like the Austrian engines, that Tehran can then use to build drones, according to the Treasury Department, which sanctioned several of those companies in September.
That makes supply chain monitoring a challenge, though experts say US and European companies could be doing a lot more to track where their products are going.
“American companies should be doing a lot more to track their supply chains,” said Dmitri Alperovitch, the former chief technology officer at the cybersecurity firm CrowdStrike.
Keeping better track of resellers is a first step, he said, but the task is admittedly difficult because so many of these companies’ products are so commoditized and available off-the-shelf and online for civil purposes. Ultimately, neutering some Iranian front companies with sanctions and cutting off their supply from some western companies will be akin to “a game of whack a mole,” Alperovitch said, noting that they “can easily find another supplier.”
He added that the real “weak underbelly” of US policy when it comes to export controls is enforcement—and prosecuting the specific individuals involved in the illicit transactions.
“We have to beef up the resources for enforcement of our sanctions to achieve the desired effect,” Alperovitch said.
“You can put companies on the [sanctioned] entities list,” he added, “but if you don’t actually go after the people involved, it doesn’t mean a whole lot.”
Taiwan has noticed a hole in its defense plans that is steadily getting bigger. And it’s not one easily plugged by boosting the budget or buying more weapons.
The island democracy of 23.5 million is facing an increasing challenge in recruiting enough young men to meet its military targets and its Interior Ministry has suggested the problem is – at least in part – due to its stubbornly low birth rate.
Taiwan’s population fell for the first time in 2020, according to the ministry, which warned earlier this year that the 2022 military intake would be the lowest in a decade and that a continued drop in the youth population would pose a “huge challenge” for the future.
That’s bad news at a time when Taiwan is trying to bolster its forces to deter any potential invasion by China, whose ruling Communist Party has been making increasingly belligerent noises about its determination to “reunify” with the self-governed island – which it has never controlled – by force if necessary.
And the outlook has darkened further with the release of a new report by Taiwan’s National Development Council projecting that by 2035 the island can expect roughly 20,000 fewer births per year than the 153,820 it recorded in 2021. By 2035, Taiwan will also overtake South Korea as the jurisdiction with the world’s lowest birth rate, the report added.
Such projections are feeding into a debate over whether the government should increase the period of mandatory military service that eligible young men must serve. Currently, the island has a professional military force made up of 162,000 (as of June this year) – 7,000 fewer than the target, according to a report by the Legislative Yuan. In addition to that number, all eligible men must serve four months of training as reservists.
Changing the mandatory service requirement would be a major U-turn for Taiwan, which had previously been trying to cut down on conscription and shortened the mandatory service from 12 months as recently as 2018. But on Wednesday, Taiwan’s Minister of National Defence Chiu Kuo-cheng said such plans would be made public before the end of the year.
That news has met with opposition among some young students in Taiwan, who have voiced their frustrations on PTT, Taiwan’s version of Reddit, even if there is support for the move among the wider public.
A poll by the Taiwanese Public Opinion Foundation in March this year found that most Taiwanese agreed with a proposal to lengthen the service period. It found that 75.9% of respondents thought it reasonable to extend it to a year; only 17.8% were opposed.
Many experts argue there is simply no other option.
Su Tzu-yun, a director of Taiwan’s Institute for National Defense and Security Research, said that before 2016, the pool of men eligible to join the military – either as career soldiers or as reservists – was about 110,000. Since then, he said, the number had declined every year and the pool would likely be as low as 74,000 by 2025.
And within the next decade, Su said, the number of young adults available for recruitment by the Taiwanese military could drop by as much as a third.
“This is a national security issue for us,” he said. “The population pool is decreasing, so we are actively considering whether to resume conscription to meet our military needs.
“We are now facing an increasing threat (from China), and we need to have more firepower and manpower.”
Taiwan’s low birth rate – 0.98 – is far below the 2.1 needed to maintain a stable population, but it is no outlier in East Asia.
In November, South Korea broke its own world record when its birth rate dropped to 0.79, while Japan’s fell to 1.3 and mainland China hit 1.15.
Even so, experts say the trend poses a unique problem for Taiwan’s military, given the relative size of the island and the threats it faces.
China has been making increasingly aggressive noises toward the island since August, when then-US House Speaker Nancy Pelosi controversially visited Taipei. Not long after she landed in Taiwan, Beijing also launched a series of unprecedented military exercises around the island.
Since then, the temperature has remained high – particularly as Chinese leader Xi Jinping told a key Communist Party meeting in October that “reunification” was inevitable and that he reserves the option of taking “all measures necessary.”
Chang Yan-ting, a former deputy commander of Taiwan’s air force, said that while low birth rates were common across East Asia, “the situation in Taiwan is very different” as the island was facing “more and more pressure (from China) and the situation will become more acute.”
“The United States has military bases in Japan and South Korea, while Singapore does not face an acute military threat from its neighbors. Taiwan faces the greatest threat and declining birth rate will make the situation even more serious,” he added.
Roy Lee, a deputy executive director at Taiwan’s Chung-hua Institution for Economic Research, agreed that the security threats facing Taiwan were greater than those in the rest of the region.
“The situation is more challenging for Taiwan, because our population base is smaller than other countries facing similar problems,” he added.
Taiwan’s population is 23.5 million, compared to South Korea’s 52 million, Japan’s 126 million and China’s 1.4 billion.
Besides the shrinking recruitment pool, the decline in the youth population could also threaten the long-term performance of Taiwan’s economy – which is itself a pillar of the island’s defense.
Taiwan is the world’s 21st largest economy, according to the London-based Centre for Economics and Business Research, and had a GDP of $668.51 billion last year.
Much of its economic heft comes from its leading role in the supply of semiconductor chips, which play an indispensable role in everything from smartphones to computers.
Taiwan’s homegrown semiconductor giant TSMC is perceived as being so valuable to the global economy – as well as to China – that it is sometimes referred to as forming part of a “silicon shield” against a potential military invasion by Beijing, as its presence would give a strong incentive to the West to intervene.
Lee noted that population levels are closely intertwined with gross domestic product, a broad measure of economic activity. A population decline of 200,000 people could result in a 0.4% decline in GDP, all else being equal, he said.
“It is very difficult to increase GDP by 0.4%, and would require a lot of effort. So the fact that a declining population can take away that much growth is big,” he said.
Taiwan’s government has brought in a series of measures aimed at encouraging people to have babies, but with limited success.
It pays parents a monthly stipend of 5,000 Taiwan dollars (US$161) for their first baby, and a higher amount for each additional one.
Since last year, pregnant women have been eligible for seven days of leave for obstetrics checks prior to giving birth.
Outside the military, in the wider economy, the island has been encouraging migrant workers to fill job vacancies.
Statistics from the National Development Council showed that about 670,000 migrant workers were in Taiwan at the end of last year – comprising about 3% of the population.
Most of the migrant workers are employed in the manufacturing sector, the council said, the vast majority of them from Vietnam, Indonesia, Thailand and the Philippines.
Lee said in the long term the Taiwanese government would likely have to reform its immigration policies to bring in more migrant workers.
Still, there are those who say Taiwan’s low birth rate is no reason to panic, just yet.
Alice Cheng, an associate professor in sociology at Taiwan’s Academia Sinica, cautioned against reading too much into population trends as they were affected by so many factors.
She pointed out that just a few decades ago, many demographers were warning of food shortages caused by a population explosion.
And even if the low birth rate endured, that might be no bad thing if it were a reflection of an improvement in women’s rights, she said.
“The educational expansion that took place in the 70s and 80s in East Asia dramatically changed women’s status. It really pushed women out of their homes because they had knowledge, education and career prospects,” she said.
“The next thing you see globally is that once women’s education level improved, fertility rates started declining.”
“All these East Asian countries are really scratching their head and trying to think about policies and interventions to boost fertility rates,” she added.
“But if that’s something that really, (women) don’t want, can you push them to do that?”
China has challenged a move by the United States to block sales of advanced computer chips and chip-making equipment to Chinese companies by launching a trade dispute at the World Trade Organization, calling the measures “trade protectionism.”
The country’s commerce ministry filed a formal complaint against the United States with the WTO on Monday, according to a statement. The two countries are both members of the trade body, which has a mechanism for resolving disputes.
“China’s filing of a lawsuit at the WTO is to resolve China’s concerns through legal means and is a necessary way to defend its legitimate rights and interests,” the ministry said.
On October 7, the Biden administration unveiled a sweeping set of export controls that ban Chinese companies from buying advanced chips and chip-making equipment without a license. The rules also restrict the ability of US citizens or green card holders to support the “development or production” of chips at certain manufacturing facilities in China.
The commerce ministry blasted the US move as threatening global supply chain stability and called it “a typical practice of trade protectionism.” The complaint is the first action China has taken at the global trade body against the US chip sanctions.
US officials say the export controls were intended to protect national security interests.
Analysts widely consider the measures to bea major threat to China’s tech ambitions, as the global semiconductor industry is heavily dependent on the United States and countries aligned with it for chip design, the tools that make them, and fabrication. It also comes as the United States is looking to bolster its domestic chip manufacturing abilities, after chip shortages earlier in the pandemic highlighted the country’s dependence on imports from abroad.
Washington has also pressured its security partners to comply with chip-related curbs on China. Jake Sullivan, the White House national security adviser, said on Monday that Washington had spoken with its partners including Japan and the Netherlands to tighten chip-related exports to China, according to Reuters.
Beijing has tried to push back against the sanctions. Last month, Chinese President Xi Jinping met with leaders from South Korea and the Netherlands, both key to the global chip-making supply chain, at the G20 summit in Bali, Indonesia. He called for both countries to boost cooperation in high-tech manufacturing and avoid “the politicization of economic and trade issues.”
Chips are a growing source of tension between the United States and China. In recent years, Washington has turned up the pressure on China’s tech sector by limiting access to cutting-edge chip components and machinery.
To secure its own chip supplies, Beijing has stepped up efforts to boost domestic semiconductor production in recent years.
In November 2018, just months after Washington hit Chinese telecoms giant ZTE Corp with an export ban, the Chinese government set up an industry alliance of companies and research institutes as part of efforts to design advanced chips. The group’s focus is on developing Risc-V, an open-source chip design architecture that has increasingly become a rival to Softbank
(SFTBF)’s Arm, the current global leader. Members of the consortium include the Chinese Academy of Sciences, Alibaba
(BABA), Tencent
(TCEHY), and Baidu
(BIDU).
