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    Wall St. Is Counting on a Debt Limit Trick That Could Entail Trouble

    If the debt limit is breached, investors expect Treasury to put bond payments first. It’d be politically and practically fraught.Washington’s debt limit drama has Wall Street betting that the United States will employ a fallback option to ensure it can make good on payments to its lenders even if Congress doesn’t raise the nation’s borrowing limit before America runs out of cash.But that untested idea has significant flaws and has been ruled out by the Biden administration, which could make it less of a bulwark against disaster than many investors and politicians are counting on.Many on Wall Street believe that the Treasury Department, in order to avoid defaulting on U.S. debt, would “prioritize” payments on its bonds if it could no longer borrow funds to cover all its expenses. They expect that America’s lenders — the bondholders who own U.S. Treasury debt — would be first in line to receive interest and other payments, even if it meant delaying other obligations like government salaries or retirement benefits.Those assumptions are rooted in history. Records from 2011 and 2013 — the last time the U.S. tipped dangerously close to a debt limit crisis — suggested that officials at the Treasury had laid at least some groundwork to pay investors first, and that policymakers at the Federal Reserve assumed that such an approach was likely. Some Republicans in the House and Senate have painted prioritization as a fallback option that could make failure to raise the borrowing cap less of a disaster, arguing that as long as bondholders get paid, the U.S. will not experience a true default.But the Biden administration is not doing prioritization planning this time around because officials don’t think it would prevent an economic crisis and are unsure whether such a plan is even feasible. The White House has not asked Treasury to prepare for a scenario in which it pays back investors first, according to multiple officials. Janet L. Yellen, the Treasury secretary, has said such an approach would not avoid a debt “default” in the eyes of markets.“Treasury systems have all been built to pay all of our bills when they’re due and on time, and not to prioritize one form of spending over another,” Ms. Yellen told reporters this month.Perhaps more worrisome is that, even if the White House ultimately succumbed to pressure to prioritize payments, experts from both political parties who have studied the temporary fix say it might not be enough to avert a financial catastrophe.Senator Ted Cruz, center, and other Republicans during a news conference on debt ceiling on Capitol Hill last week.Haiyun Jiang/The New York Times“Prioritization is really default by another name,” said Brian Riedl, formerly chief economist to former Republican Senator Rob Portman and now an economist at the Manhattan Institute. “It’s not defaulting on the government’s debt, but it’s defaulting on its obligations.”Congress must periodically raise the nation’s debt ceiling to authorize the Treasury to borrow to cover America’s commitments. Raising the limit does not entail any new spending — it is more like paying a credit-card bill for spending the nation has already incurred — and it is often completed without incident. But Republicans have occasionally attempted to attach future spending cuts or other legislative goals to debt limit increases, plunging the United States into partisan brinkmanship.Understand the U.S. Debt CeilingCard 1 of 5What is the debt ceiling? More

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    How ‘Extraordinary Measures’ Can Postpone a Debt Limit Disaster

    Treasury Secretary Janet L. Yellen will soon need to use accounting maneuvers to keep the United States from defaulting on its debt.WASHINGTON — The United States is expected to hit a cap on how much money it can borrow this week, a development that will result in the Treasury Department employing what are known as “extraordinary measures” to ensure that the federal government has enough money to pay its bills.The United States runs a budget deficit, which means it does not take in enough money through taxes and other revenue to fund its operations. As a result, the country sells Treasury debt to finance its operations — using borrowed money to fund military salaries, retiree benefits and interest payments to bondholders who own U.S. debt.But Congress limits the amount of money the federal government can borrow — what’s known as the “debt limit” — and the United States is expected to hit the current cap of $31.4 trillion on Thursday.As a result, Treasury Secretary Janet L. Yellen told Congress last week that the administration would try to keep the country under that debt cap and able to finance its operations as long as possible by using “extraordinary measures.”While the term suggests that such tools are intended to be used on rare occasions, Treasury secretaries from both parties have recently had to rely such accounting maneuvers to allow the government to continue its operations for limited periods.What are extraordinary measures?When the country comes close to — or hits — the statutory debt limit, the Treasury secretary can find ways to shift money around government accounts to remain under the borrowing cap, essentially buying time for Congress to raise the cap.That includes seeking out ways to reduce what counts against the debt limit, such as suspending certain types of investments in savings plans for government workers and health plans for retired postal workers. The Treasury can also temporarily move money between government agencies and departments to make payments as they come due. And it can suspend the daily reinvestment of securities held by the Treasury’s Exchange Stabilization Fund, a bucket of money that can buy and sell currencies and provide financing to foreign governments.After the debt limit impasse ends, programs whose investments were suspended are supposed to be “made whole.”In the event that the statutory debt limit is breached, the Treasury Department broadly looks for ways to reduce different types of debt that the government incurs so that it can continue to pay its obligations on time. This allows the Treasury Department to reinforce its cash reserves without having to issue new debt.Ms. Yellen said last week that she first plans to take two steps to buy lawmakers more time to reach a debt limit deal. She will redeem existing investments and suspend new investments in the Civil Service Retirement and Disability Fund and the Postal Service Retiree Health Benefits Fund. And she will suspend reinvestment of the Government Securities Investment Fund of the Federal Employees Retirement System Thrift Savings Plan.Treasury Secretary Janet L. Yellen says she expects to have to start deploying some of the tools as soon as Thursday, when the $31.4 trillion borrowing cap is expected to be technically breached.Adam Perez for The New York TimesWhat happens if a standoff persists?If the initial steps that Ms. Yellen has outlined are not enough, there are other tools at her disposal.A 2012 Government Accountability Office report said that to manage debt when the borrowing cap is in limbo, the Treasury secretary could suspend investments in the Exchange Stabilization Fund. Typically, funds that are not being used for those purposes are invested in Treasury securities that are subject to the debt limit, so halting these investments creates some additional wiggle room.The Treasury Department also oversees the Federal Financing Bank, which can issue up to $15 billion of its own debt that is not subject to the debt limit. In a debt ceiling emergency, Ms. Yellen could exchange that debt for other debt that does count against the limit.Another option would be for the Treasury Department to suspend new issuance of State and Local Government Series securities. The Government Accountability Office said such a move would reduce “uncertainty over future increases in debt subject to the limit.”Are there risks to using extraordinary measures?Delaying the debt limit does not come without costs.Suspending certain investments can cost the federal government money in the longer term, and running the country on fumes can lead to market volatility.“Debt limit impasses have also repeatedly disrupted implementation of Treasury’s cash management policy — with knock-on effects for money markets,” Joshua Frost, assistant Treasury secretary for financial markets, explained in a speech in December.Mr. Frost added that the Treasury Department usually has a daily cash balance of $600 billion to $700 billion, but that during the 2021 debt limit standoff, there were days when it grew painfully close to zero. Such situations can force the Treasury Department to undertake risky moves such as issuing same-day cash management bills or conducting buybacks.“There were several instances when we didn’t have sufficient cash on hand to meet even our next-day obligations,” Mr. Frost, who spoke at the Federal Reserve Bank of New York’s Annual Primary Dealers Meeting, said. “During the course of that impasse, Secretary Yellen wrote eight separate letters to Congress regarding the importance of acting to address the debt limit.”How long do extraordinary measures last?The timeline for using these measures is uncertain.Christopher Campbell, who served as assistant Treasury secretary for financial institutions from 2017 to 2018, said that because there so many variables in play, it is often difficult to give a precise estimate of the grace period between when the debt limit is breached and when the United States potentially defaults on its obligations.“It depends on receipts, it depends on how the economy is doing, it depends on how companies are doing,” Mr. Campbell said. “There are some shell games and accounting games that go into it.”The Bipartisan Policy Center said in a 2021 report that the timing of when the debt limit hits plays a role in how long extraordinary measures might last. Big government expenses in February could mean that X-date, when the government runs out of cash, comes sooner than anticipated, while robust April tax receipts could buy more time for extraordinary measures to keep the lights on.In her letter to Congress, Ms. Yellen said ominously that “Treasury is not currently able to provide an estimate of how long extraordinary measures will enable us to continue to pay the government’s obligations.” She then surmised that it is unlikely that cash and extraordinary measures will be exhausted before early June. More

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    U.K. Rail Strike May Scuttle Post-Holiday Plans to Return to Work

    Public sympathy for striking nurses and other health workers is particularly strong, posing a challenge for Prime Minister Rishi Sunak, who has promised to confront trade unions.The winter holiday season across most of Britain ends on Tuesday, but the return to work for millions of Britons comes on the same day as yet another train strike, promising a commute as unpredictable as the country’s increasingly erratic rail network.Britain begins the new year just as it ended the old one, in the middle of a wave of labor unrest that has involved as many as 1.5 million workers so far, concentrated in the public sector and formerly state-owned businesses. Nurses in England, Northern Ireland and Wales walked out twice last month; ambulance crews have staged their largest work stoppage in decades; and border agents, postal staff and garbage collectors have taken similar action in a “winter of discontent.”With wages lagging galloping inflation, many, including nurses, plan to stop work again this month, leading some British news outlets to raise fears of a de facto general strike that could bring the country to a grinding halt.Yet while months of disruption have eroded some sympathy for rail workers, with the public roughly split over train strikes, support for health workers, whose tireless efforts during the coronavirus pandemic were widely lauded as heroic, remains buoyant.“January will be the test: Will the British public shift?” said Steven Fielding, an emeritus professor of political history at the University of Nottingham. He added that while further rail strikes might prompt a long-predicted backlash against the unions, “It’s remarkable how much it hasn’t happened.”Sympathy for strikes by nurses and ambulance workers has been stoked by a sense than Britain’s National Health Service is overwhelmed.Andrew Testa for The New York TimesThat is not for want of effort by Britain’s conservative tabloids. One newspaper nicknamed Mick Lynch, the combative leader of a rail union, “The Grinch,” accusing him of wrecking Christmas, spoiling office parties and hampering family reunions. In the city of Bristol, one pub canceled a rail workers’ Christmas party in retaliation for strikes thought to have hurt the hospitality trade.But in general, support for the strikers has stayed strong, according to a YouGov opinion poll last month, which showed 66 percent of respondents supported striking nurses and 28 percent opposed them, 58 favoring firefighters with 33 against, and 43 percent in favor of rail workers with 49 opposed. Another poll, by Savanta ComRes, found the same percentage in support of further rail strikes, but only 36 percent opposed.Even many Britons who support the governing Conservative Party say they believe that health workers have a case, a reflection both of the popularity of the country’s National Health Service and concerns about its ability to cope with huge pressures. And, underscoring a growing sense of malaise, another poll recorded a majority agreeing with the statement that “nothing in Britain works anymore.”That may pose a challenge for Britain’s prime minister, Rishi Sunak, who insists that agreeing to raises could embed inflation, which he sees as the real enemy of working people. Instead, he promises new, and as yet unspecified, laws to restrict labor unrest, while critics of trade unions argue rail workers are risking their futures as commuters stay away from a network already suffering from the growth of working from home.“It’s difficult for everybody because inflation is where it is, and the best way to help them and everyone else in the country is for us to get a grip and reduce inflation as quickly as possible,” Mr. Sunak told a parliamentary committee in December, when asked about the plight of striking workers.Nurses striking in London last month. A poll last month found 66 percent of respondents in favor of the strike, with 28 percent opposed.Maja Smiejkowska/ReutersNews reports suggest that an agreement to end the rolling series of rail strikes could be close, but despite holding the purse strings over the employers of rail staff, the government has resisted direct involvement in negotiations.The wave of strikes comes amid Britain’s cost-of-living crisis and follows years of constrained public spending, and unions say they are responding to a decade of neglect of vital services.“I think the fact that this comes after 10 to 12 years of austerity has affected the public mood and is maybe what’s helping the unions and their members not to lose public support,” said Peter Kellner, a polling expert. “The evidence so far is that public opinion hasn’t materially shifted. I don’t see any particular reason why it should, especially with the health service,” he added.At King’s Cross Station in London last week, there were certainly signs of annoyance among commuters at the disrupted services.“Most of the time my train is canceled or delayed,” said Daisy Smith, an airline worker from London who was waiting to travel to York, about two hours north of the capital. “It is ridiculous that they are on strike.”King’s Cross Station in London last week. Britons have long found their train service unreliable.Hollie Adams/Getty ImagesBut Ms. Smith said she sympathized with the strikers, believed they deserved a pay rise and was frustrated by the standoff. “The government needs to do something about it,” she said, adding that the dispute had been allowed to fester for months.Andrew Allonby, a public-sector worker who was traveling home to Newcastle, in northeast England, said he, too, supported the strikers.“I know there is no money around, but there has got to be a line,” he said, referring to reports that some health workers were relying on donated groceries. “Nurses having to go to food banks is ridiculous.”Public sympathy is being driven by a widespread feeling that the health system is understaffed and overwhelmed. One senior doctor made headlines by warning that as many as 500 patients a week could be dying because of long delays in emergency rooms across the country. And on Monday the vice president of the Royal College of Emergency Medicine said many emergency departments were in a state of crisis.Pay levels for nurses are recommended by an independent body whose suggestion of a 4.3 percent increase, issued before much of last year’s inflation was evident, had been accepted by the government.That is well short of the 19 percent demanded by nurses, but ministers have refused to budge, pointing to a 3 percent annual raise for nurses in 2021, when the pay of many others was frozen for the year.Britain’s health secretary, Steve Barclay, raised hackles last month by saying that striking ambulance unions had made a “conscious choice to inflict harm on patients” — a statement described by Sharon Graham, general secretary of the union Unite, as a “blatant lie.”Prime Minister Rishi Sunak has promised new laws to restrict labor unrest.Kin Cheung/Associated PressMark Serwotka, general secretary of the Public and Commercial Services Union, told the broadcaster Sky News, “We have had 10 years where our pay has not kept pace with inflation.” He added that 40,000 government staff members used food banks and that 45,000 of them were so poor they had to claim welfare payments.Dawn Poole, a striking border force officer at London’s Heathrow International Airport and representative of the union, said that rising food and energy costs, combined with a hike in mortgage interest rates, had been the final straw for already-struggling staff.“We have had people selling houses to downsize or struggling to pay the rent,” she said. Mr. Sunak’s tough stance is a gamble. If the strikes collapse, that could build his reputation as a leader able to stand firm and administer tough measures to stabilize the economy. It could also bolster his leadership within a fractious Conservative Party, where standing up to trade unions is associated with former Prime Minister Margaret Thatcher, who came to power in 1979 after labor unrest also known as the winter of discontent and faced down striking miners.Mrs. Thatcher, however, prepared for her standoff with the miners, ensuring that coal stocks were high and confronting them at a time when unions were widely seen as too powerful.Inflation in Britain has been running at an annual rate of over 10 percent.Andy Rain/EPA, via ShutterstockBy contrast, today’s unions appear to be more in sync with the popular mood, analysts say, because Britons know that well before the strikes, their railways were unreliable and their health service was creaking under acute pressure.“The argument that ‘We’re on strike to save the National Health Service,’ which is what the nurses have been saying, resonates with what people know from their own experience,” said Professor Fielding.Mr. Kellner, the polling expert, said he believed that the government should separate the nurses and ambulance crews from other strikers.“As long as the health workers are on strike, the other unions have some degree of cover,” he said. “If in a month’s time we are where we are now, with nothing settled, I think the government will be in a really bad position.”In the meantime, rail travelers must decide whether to even try to head to the office this week. As one rail operator warned: “Until Jan. 8, only travel by train if absolutely necessary.” More

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    Finance Minister Jeremy Hunt Drops Most of U.K. Tax-Cut Plan

    Jeremy Hunt also put a time limit on energy subsidies, seeking to reassure markets and reduce pressure on Prime Minister Liz Truss.LONDON — Britain’s new chancellor of the Exchequer, Jeremy Hunt, said on Monday that he would reverse virtually all the government’s planned tax cuts, sweeping away Prime Minister Liz Truss’s free-market economic plan in a desperate bid to steady the financial markets and stabilize her government.Mr. Hunt also announced that the government would end its massive state intervention to cap energy prices next April, replacing it with a still-undefined program that he said would promote energy efficiency, but that could increase uncertainty for households facing rising gas and electricity bills.Ms. Truss’s Conservative government had planned to announce the tax and spending details of its fiscal plan on Oct. 31, but with the markets still gyrating, Mr. Hunt rushed forward the schedule. His announcement constituted one of the most dramatic reversals in modern British political history.“A central duty for any government is to do what’s necessary for economic stability,” Mr. Hunt said in a televised statement. “No government can control markets but every government can give certainty about the sustainability of public finances.”Among the new details, Mr. Hunt said the government would shelve a reduction in the basic income tax rate, the centerpiece of a tax-cutting plan that Ms. Truss had promised would reignite Britain’s economic growth. She had earlier scrapped a tax cut for high-income people and announced she would go ahead with a planned increase in corporate taxes.The pound and British government bonds rallied in the run-up to the announcement, suggesting that the news could buy Ms. Truss a few days of breathing space, though her political survival, after only six weeks in office, remained in deep doubt.Mr. Hunt’s hastily scheduled announcement came three days after Ms. Truss ousted his predecessor, Kwasi Kwarteng, and reversed another major tax cut, shredding her agenda and staining her credibility. As Mr. Hunt moved to take control of the economic levers of government, Conservative Party lawmakers were meeting to plot ways to force Ms. Truss out of power.The mechanics of removing Ms. Truss remained murky, with the lawmakers grasping for ways to find a consensus replacement for her that would avoid another full-scale and divisive leadership contest. But many political analysts said her position seemed untenable, given the turmoil of the last three weeks.Mr. Hunt’s statement laid bare a government forced into a humiliating 180-degree turn in its economic policy by an unforgiving market, rebellious Conservative lawmakers, and a wholesale loss of public support.Where Ms. Truss had last summer ruled out any new taxes, her government is now planning to rescind tax cuts for ordinary and high-income people and to impose a tax increase on corporations. Where just last week the prime minister had ruled out reductions in public spending, Mr. Hunt made it clear the government would consider painful spending cuts in an array of public services.The government’s goal is to restore Britain’s credibility in the markets by explaining how it plans to fill an estimated budget hole of 72 billion pounds ($81.2 billion). And Mr. Hunt’s measures go part of the way toward doing that. More

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    Lessons From Liz Truss’s Handling of U.K. Inflation

    The sharp policy U-turn by Liz Truss, Britain’s prime minister, reveals the perils of taking the wrong path in the fight against scalding inflation.Government leaders in the West are struggling with rising inflation, slowing growth, and anxious electorates worried about winter and high energy bills. But Liz Truss, Britain’s prime minister, is the only one who devised an economic plan that unnerved financial markets, drew the ire of global leaders and the public and undermined her political standing.On Friday, battered by savage criticism, she retreated. Ms. Truss fired her top finance official, Kwasi Kwarteng, for creating precisely the package of unfunded tax cuts, billion-dollar spending programs and deregulation that she had asked for.She reinstated a scheduled increase in corporate taxes to 25 percent from 19 percent, a rise she had previously opposed. That announcement came on top of backtracking last week on her proposal to eliminate the top 45 percent income tax on the highest earners. The prime minister, in office a little over five weeks, also promised that spending would grow less rapidly than proposed, although no specifics were offered.The drama is still playing out, and it’s unclear if the Truss government will survive.In the United States, President Biden, while waging his own political battles over gas prices and inflation, has not proposed anything like the kind of policies that Ms. Truss’s government attempted, nor have any other leaders in Europe.Still, for European governments whose economies are suffering greatly from shocks and energy price surges caused by Russia’s war in Ukraine, there are timely lessons from the debacle playing out in London.One of the strongest was delivered early on by the International Monetary Fund: Don’t undermine your own central bankers. The I.M.F., which usually reserves such scoldings for developing nations, on Thursday doubled down on its message. “Don’t prolong the pain,” Kristalina Georgieva, the managing director, admonished.How to blunt the impact of inflation on the most vulnerable without further stoking inflation is the dilemma that every government is confronting.The Bank of England in London has aggressively tried to slow the sharp rise in prices by slowing the British economy.Alberto Pezzali/Associated Press“That is the question of the hour,” said Eswar Prasad, an economist at Cornell University who was attending the annual meetings of the World Bank and I.M.F. in Washington this week.Tension between the fiscal spending policies proposed by a government and the monetary policies controlled by central banks is not unusual. At the moment, though, central bankers are engaged in delicate policy maneuvers in the fight against a level of inflation not seen in decades. With the rate in Britain nearing 10 percent, the Bank of England has moved aggressively to slow down climbing prices through a series of interest rate increases aimed at crimping consumer and business spending.Any expansion of government spending is going to interfere with that aim to some degree, but Ms. Truss’s plan was far too big and too ill defined, Mr. Prasad said.“Measures to help households hit hard by energy increases, by themselves, would not have created that much of a stir,” he said. Many other countries have proposed exactly that. And the European Union has proposed a windfall tax on energy profits to help finance those subsidies.Ms. Truss, instead of coming up with a way to pay for energy assistance, pushed to eliminate a corporate tax increase and cut income taxes for the wealthiest segment of the population. The result was a reduction in government revenue and a ballooning of Britain’s debt.“Overall, the package did not have much clarity in terms of how it would support the economy in the short run without raising inflation,” Mr. Prasad said.By contrast, Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, cited the way governments and central banks worked in tandem when the pandemic struck in 2020 to keep economies from collapsing, issuing vast amounts of public debt.“Central banks printed every single dollar, euro and pound that governments spent” to support households and businesses because of the Covid crisis, Mr. Vistesen said. But now the circumstances have changed, and inflation is setting economies aflame.The actions of the Federal Reserve in the United States illustrate the switch central banks have made: In the harrowing early weeks of the global outbreak of the coronavirus, the Fed embarked on an extraordinary program to stimulate the economy and stabilize markets. This year, the Fed has been swiftly raising interest rates in a bid to slow growth.Both the United States and eurozone countries have somewhat more wiggle room than Britain, because the dollar and the euro are much more widely used around the world as currencies held in reserve than the British pound.Kwasi Kwarteng, Britain’s former chancellor of the Exchequer, left 11 Downing Street after Ms. Truss fired him on Friday.Kirsty Wigglesworth/Associated PressEven so, European governments can help households and businesses get through an energy crisis, Mr. Vistesen said, but they can’t embark on an open-ended spending spree.They also need to take account of what is happening in other economies. The richest countries that make up the Group of 7 are essentially part of the same “monetary and fiscal convoy,” said Will Hutton, president of the Academy of Social Sciences. By championing a Thatcher-era blend of steep tax cuts and deregulation, he said, the Truss government strayed too far from the rest of the flotilla and the economic mainstream.The adherence to 1980s-era trickle-down verities also revealed the risks of sticking with outdated policies in the face of changing circumstances, said Diane Coyle, a ​​public policy professor at the University of Cambridge.“The situation in 1979 was very different,” Ms. Coyle said. “There were sclerotic high taxes and an overregulated economy, but not anymore.” Today, taxes in Britain are lower, and the economy is less regulated than the average member of the Organization for Economic Cooperation and Development, a club of 38 major economies.“The character of the economy has changed,” she said. “Public investment in research and skills are more important.”In that sense, what was missing from Ms. Truss’s economic plan was as important as what was included. And what Britain is lacking, said Mariana Mazzucato, an economist at University College London, is a visionary public investment program like the trillion-dollar climate and digitalization plans adopted by the European Union or the climate and infrastructure program in the United States.A rate of Inflation nearing 10 percent in Britain has affected the price of groceries and how people spend their money.Alex Ingram for The New York Times“If you don’t have a growth plan, an industrial strategy innovation policy,” Ms. Mazzucato said, “then your economy won’t expand.”Both Ms. Mazzucato and Ms. Coyle emphasized that Britain had some specific economic handicaps that predated the Truss administration, including the 2016 vote to exit the European Union, a stubborn lack of productivity, anemic business investment, and lagging research and development.Still, Ms. Coyle offered some advice that referred pointedly to Ms. Truss. “I think the main lesson is: Don’t shoot yourself in the foot.” More

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    With New Crackdown, Biden Wages Global Campaign on Chinese Technology

    U.S. officials pushed to choke off China’s access to critical semiconductor technology after internal debates and tough negotiations with allies.WASHINGTON — In conversations with American executives this spring, top officials in the Biden administration revealed an aggressive plan to counter the Chinese military’s rapid technological advances.China was using supercomputing and artificial intelligence to develop stealth and hypersonic weapons systems, and to try to crack the U.S. government’s most encrypted messaging, according to intelligence reports. For months, administration officials debated what they could do to hobble the country’s progress.They saw a path: The Biden administration would use U.S. influence over global technology and supply chains to try to choke off China’s access to advanced chips and chip production tools needed to power those abilities. The goal was to keep Chinese entities that contributed to potential threats far behind their competitors in the United States and in allied nations.The effort, no less than what the Americans carried out against Soviet industries during the Cold War, gained momentum this year as the United States tested powerful economic tools against Russia as punishment for its invasion of Ukraine, and as China broke barriers in technological development. The Russian offensive and Beijing’s military actions also made the possibility of a Chinese invasion of Taiwan seem more real to U.S. officials.The administration’s concerns about China’s tech ambitions culminated last week in the unveiling of the most stringent controls by the U.S. government on technology exports to the country in decades — an opening salvo that would ripple through global commerce and could frustrate other governments and companies outside China.In a speech on Wednesday on the administration’s national security strategy, Jake Sullivan, the national security adviser, talked about a “small yard, high fence” for critical technologies.“Choke points for foundational technologies have to be inside that yard, and the fence has to be high because these competitors should not be able to exploit American and allied technologies to undermine American and allied security,” he said.This account of how President Biden and his aides decided to wage a new global campaign against China, which contains previously unreported details, is based on interviews with two dozen current and former officials and industry executives. Most spoke on the condition of anonymity to discuss deliberations.The measures were particularly notable given the Biden administration’s preference for announcing policies in tandem with allies to counter rival powers, as it did with sanctions against Russia.With China, the administration spent months in discussions with allies, including the Dutch, Japanese, South Korean, Israeli and British governments, and tried to persuade some of them to issue restrictions alongside the United States.But some of those governments have been hesitant to cut off important commerce with China, one of the world’s largest technology markets. So the Biden administration decided to act alone, without public measures from allies.More on the Relations Between Asia and the U.S.Taiwan: American officials are intensifying efforts to build a giant stockpile of weapons in Taiwan in case China blockades the island as a prelude to an attempted invasion, according to current and former officials.North Korea: Pyongyang fired an intermediate range ballistic missile over Japan for the first time since 2017, when Kim Jong-un seemed intent on escalating conflict with Washington. But the international landscape has changed considerably since then.A Broad Partnership: The United States and 14 Pacific Island nations signed an agreement at a summit in Washington, putting climate change, economic growth and stronger security ties at the center of an American push to counter Chinese influence.South Korea: President Yoon Suk Yeol has aligned his country more closely with the United States, but there are limits to how far he can go without angering China or provoking North Korea.Gregory C. Allen, a former Defense Department official who is now at the Center for Strategic and International Studies, said the move came after consultation with allies but was “fundamentally unilateral.”“In weaponizing its dominant choke-point positions in the global semiconductor value chain, the United States is exercising technological and geopolitical power on an incredible scale,” he wrote in an analysis.The package of restrictions allows the administration to cut off China from certain advanced chips made by American and foreign companies that use U.S. technology.President Biden visited an IBM factory in Poughkeepsie, N.Y., last week.Erin Schaff/The New York TimesU.S. officials described the decision to push ahead with export controls as a show of leadership. They said some allies wanted to impose similar measures but feared retaliation from China, so the rules from Washington that encompass foreign companies did the hard work for them.Other rules bar American companies from selling Chinese firms equipment or components needed to manufacture advanced chips, and prohibit Americans and U.S. companies from giving software updates and other services to China’s cutting-edge chip factories.The measures do not directly restrict foreign makers of semiconductor equipment from selling products to China. But experts said the absence of the American equipment would most likely impede China’s nascent industry for making advanced chips. Eventually, though, that leverage could fade as China develops its own key production technologies.Some companies have chafed at the idea of losing sales in a lucrative market. In a call with investors in August, an executive at Tokyo Electron in Japan said the company was “very concerned” that restrictions could prevent its Chinese customers from producing chips. ASML, the Dutch equipment maker, has expressed criticisms.Chinese officials called the U.S. restrictions a significant step aimed at sabotaging their country’s development. The move could have broad implications — for example, limiting advances in artificial intelligence that propel autonomous driving, video recommendation algorithms and gene sequencing, as well as quashing China’s chip-making industry. China could respond by punishing foreign companies with operations there. And the way Washington is imposing the rules could strain U.S. alliances, some experts say.Top officials in the Biden administration have an aggressive plan to counter the Chinese military’s rapid technological advances.Kevin Frayer/Getty Images“Sanctions that put the United States at odds with its allies and partners today will both undercut their effectiveness and make it harder to enroll a broad coalition of states in U.S. deterrence efforts,” said Jessica Chen Weiss, a professor of government at Cornell University and a recent State Department official.Others have argued that the moves did not come soon enough. For years, U.S. intelligence reports warned that American technology was feeding China’s efforts to develop advanced weapons and surveillance networks that police its citizens.Last October, the intelligence community began highlighting the risks posed by Chinese advances in artificial intelligence, quantum computing and semiconductors in meetings with industry and government officials..css-1v2n82w{max-width:600px;width:calc(100% – 40px);margin-top:20px;margin-bottom:25px;height:auto;margin-left:auto;margin-right:auto;font-family:nyt-franklin;color:var(–color-content-secondary,#363636);}@media only screen and (max-width:480px){.css-1v2n82w{margin-left:20px;margin-right:20px;}}@media only screen and (min-width:1024px){.css-1v2n82w{width:600px;}}.css-161d8zr{width:40px;margin-bottom:18px;text-align:left;margin-left:0;color:var(–color-content-primary,#121212);border:1px solid var(–color-content-primary,#121212);}@media only screen and (max-width:480px){.css-161d8zr{width:30px;margin-bottom:15px;}}.css-tjtq43{line-height:25px;}@media only screen and (max-width:480px){.css-tjtq43{line-height:24px;}}.css-x1k33h{font-family:nyt-cheltenham;font-size:19px;font-weight:700;line-height:25px;}.css-ok2gjs{font-size:17px;font-weight:300;line-height:25px;}.css-ok2gjs a{font-weight:500;color:var(–color-content-secondary,#363636);}.css-1c013uz{margin-top:18px;margin-bottom:22px;}@media only screen and (max-width:480px){.css-1c013uz{font-size:14px;margin-top:15px;margin-bottom:20px;}}.css-1c013uz a{color:var(–color-signal-editorial,#326891);-webkit-text-decoration:underline;text-decoration:underline;font-weight:500;font-size:16px;}@media only screen and (max-width:480px){.css-1c013uz a{font-size:13px;}}.css-1c013uz a:hover{-webkit-text-decoration:none;text-decoration:none;}What we consider before using anonymous sources. Do the sources know the information? What’s their motivation for telling us? Have they proved reliable in the past? Can we corroborate the information? Even with these questions satisfied, The Times uses anonymous sources as a last resort. The reporter and at least one editor know the identity of the source.Learn more about our process.Mr. Sullivan and other officials began pushing to curb sales of semiconductor technology, according to current and former officials and others familiar with the discussions.But some officials, including Commerce Secretary Gina Raimondo and her deputies, wanted to first secure the cooperation of allies. Starting late last year, they said in meetings that by acting alone, the United States risked harming its companies without doing much to stop Chinese firms from buying important technology from foreign competitors.The Trump administration announced restrictions on the Chinese tech giant Huawei and singled out the company as a threat to national security.Qilai Shen for The New York TimesA Diplomatic PushEven as the Trump administration took some aggressive actions against Chinese technology, like barring international shipments to Huawei, it began quiet diplomacy on semiconductor production equipment. U.S. officials talked with their counterparts in Japan and then the Netherlands — countries where companies make critical tools — on limiting exports to China, said Matthew Pottinger, a deputy national security adviser in the Trump administration.Biden administration officials have continued those talks, but some negotiations have been difficult. U.S. officials spent months trying to persuade the Netherlands to prevent ASML from selling older lithography machines to Chinese semiconductor companies, but they were rebuffed.U.S. officials carried out separate negotiations with South Korea, Taiwan, Israel and Britain on restricting the sale and design of chips.Outside of the diplomacy, there was increasing evidence that a tool the United States had used to restrict China’s access to technology had serious flaws. Under President Donald J. Trump, the United States added hundreds of companies to a so-called entity list that prohibited American companies from selling them sensitive products without a license.But each listing was tied to a specific company name and address, making it relatively easy to evade the restrictions, said Ivan Kanapathy, a former China director for the National Security Council.Current and former U.S. officials suspect the Chinese military and previously sanctioned Chinese companies, including Huawei, have tried to gain access to restricted technology through front companies. Huawei declined to comment.Huawei could soon face additional restrictions: The Federal Communications Commission is expected to vote in the coming weeks on rules that would block the authorization of new Huawei equipment in the United States over national security concerns.Biden officials also believed the restrictions issued by the Trump administration against Semiconductor Manufacturing International Corporation, a major Chinese chip maker known as SMIC, had been watered down by industry and were allowing too many sales to continue, people familiar with the matter said.In a call with heads of American semiconductor equipment makers in March, Mr. Sullivan said that the United States was no longer satisfied with the status quo with China, and that it was seeking to freeze Chinese technology, said one executive familiar with the discussion.Mr. Sullivan, who had dialed into the call alongside Ms. Raimondo and Brian Deese, the director of the National Economic Council, told executives from KLA, Applied Materials and Lam Research that rules restricting equipment shipments to China would be done with allies, the executive said.In a statement, the National Security Council said the measures were “consistent with the message we delivered to U.S. executives because the administration has controlled only tools made by U.S. companies where there is no foreign competitor.”A semiconductor plant in Suining, China. The Biden administration took action in August to clamp down on the country’s semiconductor industry.Zhong Min/Feature China/Future Publishing, via Getty ImagesBreakthrough in ChinaAs negotiations with allied governments continued, experts at the Commerce, Defense, Energy and State Departments spent months poring over spreadsheets listing dozens of semiconductor tools made by U.S. companies to determine which could be used for advanced chip production and whether companies in Japan and the Netherlands produced comparable equipment.Then in July came alarming news. A report emerged that SMIC had cleared a major technological hurdle, producing a semiconductor that rivaled some complex chips made in Taiwan.The achievement prompted an explosion of dissatisfaction in the White House and on Capitol Hill with U.S. efforts to restrain China’s technological advancement.The Biden administration took action in August to clamp down on China’s semiconductor industry, sending letters to equipment manufacturers and chip makers barring them from selling certain products to China.Last week, the administration issued the ‌rules with global reach.Companies immediately began halting shipments to China. But U.S. officials said they would issue licenses on a case-by-case basis so some non-Chinese companies could continue supplying their Chinese facilities with support and components. Intel, TSMC, Samsung and SK Hynix said they had received temporary exemptions to the rules.The controls could be the beginning of a broad assault by the U.S. government, Mr. Pottinger said.“The Biden administration understands now that it isn’t enough for America to run faster — we also need to actively hamper the P.R.C.’s ambitions for tech dominance,” he said, referring to the People’s Republic of China. “This marks a serious evolution in the administration’s thinking.”Julian Barnes More

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    2023 COLA Could Strain Social Security Program

    The Social Security Old-Age and Survivors Insurance Trust Fund could be depleted a year or two earlier than expected as a result of larger payouts.The 8.7 percent Social Security cost-of-living increase that was announced on Thursday is welcome news for retirees who are struggling to cope with surging inflation. But it could bring the social safety net program a step closer to insolvency.Annual government reports in June showed that the Social Security Old-Age and Survivors Insurance Trust Fund, which pays out retiree benefits, would be depleted in 2034. At that time, the fund’s reserves will run out, leaving the system reliant on incoming tax revenue. Those funds will provide enough money to cover only 77 percent of scheduled benefits unless Congress intervenes.Social Security is largely funded through payroll taxes, taxes levied on Social Security benefits and interest on money that the trust funds invest.Now that the program will be paying out more to help retirees keep up with rising prices, the program will be under even more pressure to sustain itself. Budget experts warn that the reserves could run out before 2034 as a result of the larger benefits.“This very large COLA increase is likely to bring the year of insolvency forward by a full year,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget, referring to the cost-of-living adjustment. “It is just another reminder that procrastinating on addressing these imbalances leaves the people who depend on Social Security particularly vulnerable to a further deterioration in its finances.”The increased outlays for retirees will be partly offset by higher taxes on Americans. Along with the bigger benefits, the maximum amount of earnings subject to the Social Security payroll tax will increase to $160,200 from $147,000. Employers and employees each contribute 6.2 percent of wages up to that salary threshold, which is adjusted every year based on average wage growth.Because wages are rising, the amount of earnings subject to the tax is rising as well.Ms. MacGuineas estimated that the Social Security Trust Fund could have been depleted as much as two years earlier without the offsetting effect of the higher tax threshold.Kathleen Romig, director of Social Security and disability policy at the Center on Budget and Policy Priorities, said the depletion date could be accelerated by as much as two years. But she added that a couple of years of high inflation probably would not fundamentally change Social Security’s long-term financing outlook.“It’s normal for Social Security’s trustees to update the expected reserve depletion date as circumstances change,” Ms. Romig said.Ms. Romig noted that more than 65 million retirees count on Social Security for most of their income and that the cost-of-living increase would ensure that older Americans did not fall into poverty as they aged.The June projections actually showed the depletion date of the fund being delayed by a year, from an earlier projection of 2033, the result of a stronger-than-expected economic recovery in 2021.Anqi Chen, assistant director of savings research at the Center for Retirement Research at Boston College, said the impact of the cost-of-living adjustment on the Social Security Trust Fund would depend on a combination of wage growth and labor force participation in the U.S. economy.“Higher wage growth would mean higher revenue for Social Security and a higher labor force participation would mean more workers contributing to the program, which also means higher revenue,” said Ms. Chen, who is also a senior research economist at the center.The future of Social Security has emerged as a major issue in the midterm elections this year. Republicans have argued that their proposals are intended to protect the long-term viability of Social Security, but Democrats and President Biden have warned that if Republicans take control of Congress they will scale back the program and curb benefits for retirees.“MAGA Republicans in Congress continue to threaten Social Security and Medicare — proposing to put them on the chopping block every five years, threatening benefits, and to change eligibility,” Karine Jean-Pierre, White House press secretary, said in a statement on Wednesday. “If Republicans in Congress have their way, seniors will pay more for prescription drugs and their Social Security benefits will never be secure.” More