Regulation and Deregulation of Industry

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    Huawei Phone Is Latest Shot Fired in the U.S.-China Tech War

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    The release of a homegrown Chinese smartphone during a visit by the Biden official in charge of regulating such technology shows the U.S.-China tech conflict is alive and well.In the midst of the U.S. commerce secretary’s good will tour to China last week, Huawei, the telecom giant that faces stiff U.S. trade restrictions, unveiled a smartphone that illustrated just how hard it has been for the United States to clamp down on China’s tech prowess.The new phone is powered by a chip that appears to be the most advanced version of China’s homegrown technology to date — a kind of achievement that the United States has been trying to prevent China from reaching.The timing of its release may not have been a coincidence. The Commerce Department has been leading U.S. efforts to curb Beijing’s ability to gain access to advanced chips, and the commerce secretary, Gina M. Raimondo, spent much of her trip defending the U.S. crackdown to Chinese officials, who pressed her to water down some of the rules.Ms. Raimondo’s powerful role — as well as China’s antipathy toward the U.S. curbs — was reflected online, where more than a dozen vendors cropped up on Chinese e-commerce sites to sell phone cases for the new model with Ms. Raimondo’s face imprinted on the back. Doctored images showed Ms. Raimondo holding the new phone, next to phrases like “I am Raimondo, this time I endorse Huawei” and “Huawei mobile phone ambassador Raimondo.”Chinese media have referred to the phone as a sign of the country’s technological independence, but U.S. analysts said the achievement still most likely hinged on the use of American technology and machinery, which would have been in violation of U.S. trade restrictions.Beginning in the Trump administration and continuing under President Biden, the United States has steadily ramped up its restrictions on selling advanced chips and the machinery needed to make them to China, and to Huawei in particular, in an attempt to shut down China’s mastery of technologies that could aid its military.For the past several years, those restrictions have curtailed Huawei’s ability to produce 5G phones. But Huawei appears to have found a way around those restrictions to make an advanced phone, at least in limited quantities. Though detailed information about the phone is limited, Huawei’s jade-green Mate 60 Pro appears to have many of the same basic capabilities as other smartphones on the market.An examination of the phone by TechInsights, a Canadian firm that analyzes the semiconductor industry, concluded that the advanced chip inside was manufactured by Semiconductor Manufacturing International Corporation of China and was operating beyond the technology limits that the United States has been trying to enforce. Douglas Fuller, an associate professor at Copenhagen Business School, said SMIC appeared to have used equipment stockpiled before restrictions went into effect, equipment licensed to it for the purpose of producing chips for companies other than Huawei, and spare parts acquired through third-party vendors to cobble together its production.“The official line in China of a heroic breaking of the technology blockade of the American imperialists is incorrect,” Mr. Fuller said. “Instead, the U.S. has allowed SMIC continued significant access to American technology.”Huawei and SMIC did not respond to a request for comment. The Commerce Department also did not respond to a request for comment.Chinese social media commentators and news sites celebrated the smartphone’s release as evidence that U.S. restrictions could not hold China back from developing its own technology.“Regardless of Huawei’s intentions, the launch of the Mate 60 Pro has been imbued by many Chinese netizens with a deeper meaning of ‘rising up under US pressure,’” the state-run Global Times said in an editorial.The phone was released during a week when both American and Chinese officials had issued numerous statements about renewed cooperation and communication. Chinese officials had asked for the United States to roll back its restrictions on chip exports. But Ms. Raimondo — whose email, along with other U.S. officials, was targeted this year by Chinese hackers — told reporters that she had taken a hard line on the technology controls in her meetings, saying the United States was not willing to remove restrictions or compromise on issues of national security.During the trip, Ms. Raimondo and her advisers set up a dialogue to share information about how the United States was enforcing its technology controls. She said the step would lead to better Chinese compliance but was not an invitation to the Chinese to try to water down export controls.Ms. Raimondo also met directly with the Chinese premier, Li Qiang, during her visit. The week before, Mr. Li had visited Huawei during a visit to southern China, according to the official Xinhua News Agency, and met with the company founder Ren Zhengfei.Phone cases in China displaying doctored photos of the U.S. commerce secretary, Gina Raimondo.MengyanThe release of the Huawei phone raises questions about whether Ms. Raimondo’s department will continue trying to build good will with Chinese officials — or potentially take a more aggressive stance toward cracking down on China’s access to American technology.The Biden administration is preparing to issue a final version of the technology restrictions it first put out last October, and the revised rules could come within weeks.Huawei’s development of the phone does not necessarily demonstrate a huge leap forward for Chinese technological prowess — or the total failure of U.S. export controls, analysts said.Because Chinese firms no longer have access to the most cutting-edge machines for making semiconductors, they have developed novel workarounds that use older machinery to create more powerful chips. But these methods are both relatively time-consuming for manufacturers, and produce a higher proportion of faulty chips, limiting the scale of production.“This does not mean China can manufacture advanced semiconductors at scale,” said Paul Triolo, an associate partner for China and technology policy at Albright Stonebridge Group, a consultancy. “But it shows what incentives U.S. controls have created for Chinese firms to collaborate and attempt new ways to innovate with their existing capabilities.”“It is the first major salvo in what will be a decade or more struggle for China’s semiconductor industry to essentially reinvent parts of the global semiconductor supply chain without U.S. technology included,” he added.Nazak Nikakhtar, a partner at Wiley Rein and a former Commerce Department official, said Huawei’s progress was “a result of longstanding U.S. policy” — specifically U.S. licenses that allow companies to continue selling advanced technologies to firms that the Commerce Department placed on a so-called entity list, like Huawei and SMIC.From Jan. 3 to March 31, 2022, the Commerce Department approved licenses for the sale of $23 billion of tech products to companies on the entity list, according to information released in February by the House Foreign Affairs Committee.“Where gaps exist in licensing policies, exports will get funneled through the gaps,” Ms. Nikakhtar said. “The U.S. government needs to close the gaps if its intention is to limit exports of critical technologies to China.”In a statement on Wednesday, Representative Mike Gallagher, a Wisconsin Republican who heads a congressional committee on China, called for ending all U.S. technology exports to both Huawei and SMIC. U.S. chip makers such as Qualcomm and Intel have received exporting licenses.Claire Fu More

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    Pork Industry Grapples With Whiplash of Shifting Regulations

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    Retailers in California, and pig farmers and processors thousands of miles away, are bracing for the impact of a state ban on some sources of the meat.These were supposed to be boom times for Pederson’s Natural Farms.In the days this spring after the Supreme Court upheld a California law banning the sale of certain pork products made from pigs raised in small gestation pens, the phones were ringing off the hook at Pederson’s headquarters in Hamilton, Texas.California grocery stores and restaurants were desperate to line up supplies of bacon and pork chops that met the new state standards by a July 1 deadline. Pederson’s products filled the bill, and the company was happy to help send them to California, which consumes about 15 percent of the nation’s pork.“We were going to have a good year,” said Neil Dudley, the vice president at Pederson’s. “We were putting it in the budget. We were going to put pressure on us to grow, but the extra income would help fund that growth.”But a couple of weeks later, some of those new orders were canceled as California regulators pushed back the full force of the law, known as Proposition 12, to early next year, allowing grocery stores and restaurants to use up pork they had already boughtBrined pork bellies ready for removal from a vacuum tumbler and then hanging in a smoker at Pederson’s.Tamir Kalifa for The New York Times“We were going to have a good year,” said Neil Dudley, a Pederson’s executive. Then California pushed back its timeline, and some orders were canceled.Tamir Kalifa for The New York TimesThe normally orderly pork industry has been thrown into upheaval as pig farmers in the Midwest, major pork processors and California businesses have reacted to the changing legal and regulatory landscape in recent months. Further confusion could come if Congress passes pending legislation that would effectively nullify the California act.“There is so much murky water here,” said Todd Davis, the meat and seafood coordinator for Oliver’s Markets, which operates four grocery stores in Sonoma County, Calif., and has lined up pork products that meet the new state requirements.“You are supposed to be compliant as of July 1, but I don’t think the state has any teeth on the enforcement side of things,” Mr. Davis continued. “Companies aren’t taking it as seriously as they should, and at some point the state will make an example out of one of them,” which he said could include costly fines.Already, farmers are facing hog prices that have been depressed since fall while feed costs have remained high, leading to average losses of $30 to $50 a hog for much of this year in Iowa, according to estimated livestock returns from Iowa State University. A pound of bacon costs an average of $6.20 at grocery stores across the country, down from $7.60 last fall, according to data from the Federal Reserve Bank at St. Louis.Nationally, pork prices are influenced by everything from feed cost to demand from China to the shifting mood in commodities markets, but some retailers are already raising prices in California, to pass on the higher cost to hog farmers of meeting the state’s more stringent standards. With other farmers opting not sell in the state, short supply could also push the prices of bacon and pork chops higher.Piglets are kept with their sows at A-Frame Acres in Elliott, Iowa, which is part of the Niman Ranch network.Rachel Mummey for The New York TimesFeeding time at A-Frame Acres, which is run by Ron Mardesen, above.Rachel Mummey for The New York TimesPig farmers say making changes for California is costly. Along with his partners, Dwight Mogler, a fourth-generation farmer in Iowa who sells about 200,000 hogs each year, spent $8.7 million in 2022 building a new facility and modifying an existing one to meet the new standards. A packing company pays him a small premium over market price for his pigs — he declined to provide details of the deal — but Mr. Mogler estimates that it will take 10 years to recoup his outlay.Other farmers say they’re simply not going to modify how they raise pigs.“We’re losing money in the pig industry,” said Trish Cook, the president of the Iowa Pork Producers Association, who, along with her family, raises pigs near Winthrop in eastern Iowa. “The idea of having a large capital expenditure with no clear payback on it doesn’t make business sense to us. We don’t know what sort of premium those pigs will get.”For California, questions about whether consumers will have enough bacon and pork chops and how much they will cost also remain unclear.Ronald Fong, the chief executive of the California Grocers Association, which pushed for an extension of the deadline, said stores were able to make it through Labor Day with the product that they had already bought. However, Mr. Fong said that soon “we’ll be faced with some shortages and price hikes.”Mr. Davis of Oliver’s Markets said he already bought pork from Niman Ranch, a producer that exceeds the California criteria, but had also always offered customers less-expensive pork options. Now, the cheaper pork that meets the new state criteria, from Open Prairie Natural Meats, a brand owned by Tyson, costs Oliver’s $1 to $1.50 a pound more, which Mr. Davis is passing along to customers, he said.“Chicken and pork are still very affordable options, especially when compared to beef prices,” Mr. Davis said. “So we’ve seen very little pushback from consumers.”Loading brined pork bellies into the smokehouse at Pederson’s.Tamir Kalifa for The New York TimesWhen voters passed Proposition 12 five years ago, it was a blow to the industrial meat producers, requiring that any veal calves, breeding pigs and egg-laying hens sold in California be housed in systems that allow freedom of movement. Under the rule, pigs must be born to sows housed in spaces that provide at least 24 square feet per sow. California produces very few of its own pigs, but the new rule also applies to pigs raised in other states.The law was supposed to go into effect in 2022, but the new pork standards were put on pause after the National Pork Producers Council and American Farm Bureau Federation filed a lawsuit challenging California’s ability to dictate pig operations in other states. They argued that if other states adopted different restrictions, the result would be a patchwork of rules and regulations. Massachusetts, for instance, passed its own gestation pen rule, called Question 3, in 2016, but it has been on hold, awaiting various court proceedings.In May, the Supreme Court ruled 5 to 4 that Proposition 12 was legal. It said the pork industry had not proved that the law imposed a substantial burden on interstate commerce. California officials began working through how to regulate and enforce the rule, but a state court delayed enforcement until the end of the year.And the pork industry isn’t done fighting. In June, senators from largely agricultural Midwestern states introduced the Ending Agricultural Trade Suppression Act, which would limit the ability of states to regulate agriculture in other states.In early August, attorneys general from several states, including Texas, New Hampshire and Utah, signed a letter urging Congress to pass the EATS Act.“The industry lost in the court of public opinion in terms of California voters adopting this law, they lost in the courts, and now they’re trying to get something through with this legislative act,” said Chris Oliviero, the general manager of Niman Ranch, which pays its network of 600 farmers in 20 states premium prices to raise the beef, pork and lamb used in its products in conditions that exceed the California standards.“The ultimate goal is to prevent Prop. 12 from going into effect,” Mr. Oliviero added.Bacon slabs cooling after being smoked at Pederson’s.Tamir Kalifa for The New York TimesAs for Pederson’s, much of the pork it produces is already committed to a handful of longtime customers, including Whole Foods. The company did, however, have excess bacon that met the new standards.That is, until one of the farmers who supplied half of the pigs used by Pederson’s received a better offer from a larger company. Suddenly, Pederson’s pig supply was at risk.“Farmers, who are struggling to make money, are getting calls from the big guys, saying they want to contract with them,” Mr. Dudley said. “The big players can’t lose market share, not in a market as big as California. Instead of a boom year, we’re now looking at diminishing sales.” More

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    Labor Dept. Proposes Vast Expansion of Overtime Eligibility

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    The Biden administration seeks a threshold of about $55,000 in annual pay under which salaried workers must receive overtime, up from $35,500.In a move that could affect millions of workers, the Biden administration announced Wednesday that it was proposing to substantially increase the cutoff below which most salaried workers automatically receive time-and-a-half overtime pay.Under the proposed rule, issued by the Labor Department, the cutoff for receiving overtime pay after 40 hours a week would rise to about $55,000 a year from about $35,500, a level that was set during the Trump administration.About 3.6 million salaried workers, most of whom fall between the current cutoff and the new one, would effectively gain overtime pay eligibility under the proposed rule, the department said.Julie Su, the department’s acting secretary, said in a statement that the rule “would help restore workers’ economic security by giving millions more salaried workers the right to overtime protections.”The department estimated that the rule would result in a transfer of $1.2 billion from employers to employees in its first year.Some industry groups, particularly in retail, dining and hospitality businesses, have argued that expanded overtime eligibility could lead many employers to convert some salaried workers to hourly workers and set their base wage so that their overall pay, with the usual overtime hours, would be unchanged.These groups argue that vastly expanding overtime eligibility could also discourage employers from promoting workers to junior management positions that provide a path to well-paying careers, because more employers would be compelled to pay junior managers overtime when they worked long hours.“To prevent these employees from triggering new overtime costs, many small businesses will be forced to demote them back to hourly wage earners, reversing their hard-earned career progression,” Alfredo Ortiz, the president and chief executive of Job Creators Network, a group that promotes the interests of small businesses, said in a statement.The proposal follows a similarly ambitious move by the Obama administration in 2016, which sought to raise the overtime cutoff for most salaried employees to about $47,500 from about $23,500. But just before Donald J. Trump took office as president, a federal judge in Texas suspended the Obama rule, concluding that the Labor Department lacked the legal authority to raise the overtime cutoff so substantially.The Trump administration later installed the $35,500 limit.Under the Biden administration’s proposal, the overtime limit would automatically adjust every three years to keep pace with rising earnings. The Labor Department will accept public comments for 60 days before issuing a final version of the rule.Advocates of a higher cutoff argue that one key benefit would be to prevent employers from misclassifying workers as managers to avoid paying them overtime.Under the law, employers do not need to pay overtime to workers who make above the salary cutoff if they are bona fide executives or managers, meaning that their primary job is management and that they have real authority.But research has shown that many companies illegally deny workers overtime by raising their salaries just above the overtime cutoff and simply labeling them managers, even if they do little managerial work.Because the legal definition of an overtime-exempt manager can be somewhat subjective, and because many salaried workers aren’t aware that they are eligible for overtime pay if they make more than the cutoff, they typically do not challenge employers who game the system in this way. The result is that many assistant managers at fast food restaurants or retail outlets have been denied overtime pay even though the law typically required that they receive it.Raising the salary threshold would make this practice less common by eliminating the subjectivity in determining which workers should receive overtime pay. Instead, many workers — like assistant managers in restaurants — would become eligible for overtime automatically, no matter their job responsibilities.The proposal is the latest effort by the Biden administration to increase pay and protections for workers. President Biden has been outspoken in his support of labor unions, and issued an executive order requiring contractors on federal construction projects worth more than $35 million to reach agreements with unions that determine wages and work rules.The major climate bill that Mr. Biden signed last year included incentives for clean energy projects to pay wages that are similar to union scale.But the proposed overtime rule could face legal challenges like the ones that derailed the Obama-era rule, suggesting that the president’s rationale for the proposal may be as much about communicating his support for workers during the 2024 presidential campaign as it is about significantly expanding eligibility for overtime.In an interview this year, Seth Harris, a former deputy labor secretary who recently served as a senior labor adviser to Mr. Biden, said some administration officials worried that a judge would set aside the rule, but added, “There are others whose offices are physically closer to the president who say, ‘No, no, no, this District Court judge doesn’t tell us how we do our business.’” More

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    Amazon to Meet Regulators as U.S. Considers Possible Antitrust Suit

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    Amazon’s meetings with the Federal Trade Commission, known as “last rites” meetings, are typically a final step before the agency votes on filing a lawsuit.Amazon is scheduled to meet with members of the Federal Trade Commission next week to discuss an antitrust lawsuit that the agency may be preparing to file to challenge the power of the retailer’s sprawling business, according to a person with knowledge of the plans.The meetings are set to be held with Lina Khan, the F.T.C. chair, and Rebecca Kelly Slaughter and Alvaro Bedoya, who are F.T.C. commissioners, said the person, who spoke on the condition of anonymity because the discussions are confidential.The meetings signal that the F.T.C. is nearing a decision on whether to move forward with a lawsuit alleging that Amazon has violated antimonopoly laws. Such discussions are sometimes known as “last rites” meetings, named after the prayers some Christians receive on their deathbed. The conversations, which are usually one of the final steps before the agency’s commissioners vote on a lawsuit, give the company a chance to make its case.If the F.T.C. files suit, it would be one of the most significant challenges to Amazon’s business in the company’s nearly 30-year history. Amazon, a $1.4 trillion behemoth, has become a major force in the economy. It now owns not just its trademark online store, but the movie studio Metro-Goldwyn-Mayer, the primary care practice One Medical and the high-end grocery chain Whole Foods. It is also one of the world’s largest provider of cloud computing services.The F.T.C. has investigated Amazon’s business for years. The company’s critics and competitors have argued that the once-upstart online bookstore has used its retailing clout to squeeze the merchants that use its platform to sell their wares. U.S. officials have grown increasingly concerned about the influence and reach of giant tech companies like Amazon, Google and Meta, which owns Facebook and Instagram. The Justice Department has filed several antitrust lawsuits against Google, with two scheduled to go to trial next month. The F.T.C. has also sued Meta over accusations that it snuffed out young competitors by buying Instagram and WhatsApp.Some of those efforts have stumbled in the courts. Federal judges declined this year to stop Meta from acquiring a virtual reality start-up and Microsoft from buying the video game powerhouse Activision Blizzard, dooming F.T.C. challenges to both deals. In 2022, the Justice Department also lost its bid to challenge UnitedHealth Group’s plan to buy a health tech company.Stacy Mitchell, a co-executive director of the advocacy organization Institute for Local Self-Reliance and an Amazon critic, said she hoped the F.T.C. would pursue a sweeping case against the tech giant. She said the agency should focus on how Amazon’s control of the retail business — from its store to its logistics network that delivers packages — let it hurt competitors and merchants.“It’s a watershed moment,” she said. “What we need to see from the F.T.C. is a case that targets the core of Amazon’s monopolization strategy.”Amazon has said that it competes aggressively with other retailers and that efforts to regulate its business would only hurt consumers and the businesses that sell products through its site.Under the leadership of Andy Jassy, Amazon’s chief executive, the retailer has recently been in retrenchment mode. The company has cut costs, laying off thousands of workers as growth slumped after a soaring period fueled by the pandemic. Last week, Amazon announced that its revenue in the second quarter of the year had increased 11 percent, to $134.4 billion, beating analysts’ expectations.In June, the F.T.C. sued Amazon in a separate case that accused the company of tricking users into subscribing to its Prime fast-shipping membership program and then making it difficult for them to cancel.Amazon has also faced scrutiny from states and regulators in other countries. The District of Columbia’s attorney general filed a lawsuit against the company in 2021, arguing that it had used unfair pricing policies against merchants on its site. The lawsuit was thrown out by a judge, though the attorney general has tried to revive the case. California filed a similar lawsuit last year that is moving forward. In December, Amazon also reached a deal to end a European Union antitrust investigation by agreeing to change some of its practices.If the F.T.C. sues, it would formally pit Ms. Khan — who has been one of Amazon’s most prominent detractors — against the company.While a law student at Yale, Ms. Khan had argued that Amazon’s growth represented a failure of American antitrust laws, which she said had become myopically focused on consumer prices as a measure of whether businesses were violating the law. Amazon’s prices were often low, she wrote in a widely read 2017 paper, but that failed to account for other ways it could bully players across the economy.The paper’s success supercharged a debate in Washington about the power of the tech giants. In 2019, federal antitrust regulators decided to investigate some of the companies. In keeping with a longstanding practice of dividing responsibilities, the Justice Department agreed to look at Google and Apple while the F.T.C. examined Facebook and Amazon.President Biden named Ms. Khan chair to oversee the F.T.C. — giving her control of the Amazon investigation — roughly two years later. More

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    Biden Administration Unveils Tougher Guidelines on Mergers

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    The proposed road map for regulatory reviews, last updated in 2020, includes a focus on tech platforms for the first time.The Biden administration’s top antitrust officials unveiled tougher guidelines against tech mergers on Wednesday, signaling their deepening scrutiny of the industry despite recent court losses in their attempts to block tech deal-making.Lina Khan, the chair of the Federal Trade Commission, and Jonathan Kanter, the top antitrust official at the Department of Justice, released draft guidelines for merger reviews that for the first time include a focus on digital platforms and how dominant companies can use their scale to harm future rivals.The guidelines — which generally provide a road map for whether regulators block or approve deals — show the Biden administration’s commitment to an aggressive antitrust agenda aimed at curtailing the power of companies like Google, Meta, Apple and Amazon.The guidelines, which aren’t enforced by law, follow a losing streak in the courts. A ruling last week prevented the F.T.C. from delaying the closing of Microsoft’s $69 billion acquisition of the video game maker Activision Blizzard. In January, a court sided against the F.T.C. in its lawsuit to stop Meta’s purchase of Within, a virtual reality app maker.The forceful antitrust posture is a pillar of President Biden’s agenda to stamp out economic inequality and encourage greater competition. “Promoting competition to lower costs and support small businesses and entrepreneurs is a central part of Bidenomics,” a senior administration official said in a call with reporters.The new guidelines would apply to all deals across the economy. But they highlight obstacles to competition among digital platforms, including how an acquisition of a nascent rival may be intended to kill off future competition. Such deals, known as killer acquisitions, are prevalent in the tech industry and at the heart of an F.T.C. antitrust lawsuit against Meta, which owns Facebook, Instagram and WhatsApp. The agency has accused Meta of buying Instagram in 2012 and WhatsApp in 2014 to prevent future competition.The F.T.C. and Justice Department also said they would look at how companies used their scale, including their large number of users, to ward off competition. These so-called network effects have helped companies like Meta and Google maintain their dominance in social media and internet search.The agencies also laid out ways in which mergers involving “platform” businesses, the model used by Amazon’s online store and Apple’s App Store, could harm competition. An acquisition could hurt competition by giving a platform control over a significant stream of data, the draft guidelines said, echoing concerns that tech giants use their vast troves of information to squash rivals.“As markets and commercial realities change, it is vital that we adapt our law enforcement tools to keep pace so that we can protect competition in a manner that reflects the intricacies of our modern economy,” Mr. Kanter said in a statement. “Simply put, competition today looks different than it did 50 — or even 15 — years ago.”While they lack the force of law, the guidelines can influence how judges look at challenges to mergers and acquisitions. The effort to update the guidelines has been closely watched by businesses and corporate lawyers that navigate regulatory scrutiny of megadeals.The guidelines were last updated in 2020. In 2021, Mr. Biden ordered the Justice Department and the F.T.C. to update them again as part of a broader effort to improve competition across the economy. The agencies will take public comment on the proposals and could make amendments before final guidelines are adopted.“These guidelines contain critical updates while ensuring fidelity to the mandate Congress has given us and the legal precedent on the books,” Ms. Khan said in a statement.While the F.T.C. experienced the recent court losses, it has forced some companies, including the chip-maker Nvidia and the aerospace giant Lockheed Martin, to abandon some large deals. The Justice Department blocked the publisher Penguin Random House from buying Simon & Schuster, using an unusual argument that the merger would harm authors who sold the publication rights to their books. More

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    The Fed’s Vice Chair for Supervision Suggests Big-Bank Regulation Changes

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    In a series of changes that has bank lobbyists on the defensive, Michael Barr is calling for higher bank capital and tougher annual stress tests.Michael S. Barr, the Federal Reserve’s vice chair for supervision, announced on Monday that he would be pushing for significant changes to how America’s largest banks were overseen in a bid to make them more resilient in times of trouble — partly by ratcheting up how much capital they have to get them through a rough patch.The overhaul would require the largest banks to increase their holdings of capital — cash and other readily available assets that could be used to absorb losses in times of trouble. Mr. Barr predicted that his tweaks, if put into effect, would be “equivalent to requiring the largest banks hold an additional two percentage points of capital.”“The beauty of capital is that it doesn’t care about the source of the loss,” Mr. Barr said in his speech previewing the proposed changes. “Whatever the vulnerability or the shock, capital is able to help absorb the resulting loss.”Mr. Barr’s proposals are not a done deal: They would need to make it through a notice-and-comment period — giving banks, lawmakers and other interested parties a chance to voice their views. If the Fed Board votes to institute them, the transition will take time. But the sweeping set of changes that he set out meaningfully tweak how banks both police their own risks and are overseen by government regulators.“It’s definitely meaty,” said Ian Katz, an analyst at Capital Alpha who covers banking regulation.The Fed’s vice chair for supervision, who was nominated by President Biden, has spent months reviewing capital rules for America’s largest banks, and his results have been hotly anticipated: Bank lobbyists have for months been warning about the changes he might propose. Midsize banks in particular have been outspoken, saying that any increase in regulatory requirements would be costly for them, reining in their ability to lend.Monday’s speech made clear why banks have been worried. Mr. Barr wants to update capital requirements based on bank risk “to better reflect credit, trading and operational risk,” he said in his remarks, delivered at the Bipartisan Policy Center in Washington.For instance, banks would no longer be able to rely on internal models to estimate some types of credit risk — the chance of losses on loans — or for particularly tough-to-predict market risks. Beyond that, banks would be required to model risks for individual trading desks for particular asset classes, instead of at the firm level.“These changes would raise market risk capital requirements by correcting for gaps in the current rules,” Mr. Barr said.Perhaps anticipating more bank pushback, Mr. Barr also listed existing rules that he did not plan to tighten, among them special capital requirements that apply only to the very largest banks.The new proposal would also try to address vulnerabilities laid bare early this year when a series of major banks collapsed.One factor that led to the demise of Silicon Valley Bank — and sent a shock wave across the midsize banking sector — was that the bank was sitting on a pile of unrealized losses on securities classified as “available for sale.”The lender had not been required to count those paper losses when it was calculating how much capital it needed to weather a tough period. And when it had to sell the securities to raise cash, the losses came back to bite.Mr. Barr’s proposed adjustments would require banks with assets of $100 billion or more to account for unrealized losses and gains on such securities when calculating their regulatory capital, he said.The changes would also toughen oversight for a wider group of large banks. Mr. Barr said his more stringent rules would apply to firms with $100 billion or more in assets — lowering the threshold for tight oversight, which now applies the most enhanced rules to banks that are internationally active or have $700 billion or more in assets. Of the estimated 4,100 banks in the nation, roughly 30 hold $100 billion or more in assets.Mr. Katz said the expansion of tough rules to a wider set of banks was the most notable part of the proposal: Such a tweak was expected based on remarks from other Fed officials recently, he said, but “it’s quite a change.”The bank blowups this year illustrated that even much smaller banks have the potential to unleash chaos if they collapse.Still, “we’re not going to know how significant these changes are until the lengthy rule-making process plays out over the next couple of years,” said Dennis Kelleher, the chief executive of the nonprofit Better Markets.Mr. Kelleher said that in general Mr. Barr’s ideas seemed good, but added that he was troubled by what he saw as a lack of urgency among regulators.“When it comes to bailing out the banks, they act with urgency and decisiveness,” he said, “but when it comes to regulating the banks enough to prevent crashes, they’re slow and they take years.”Bank lobbyists criticized Mr. Barr’s announcement.“Fed Vice Chair for Supervision Barr appears to believe that the largest U.S. banks need even more capital, without providing any evidence as to why,” Kevin Fromer, the chief executive of the lobby group the Financial Services Forum, said in a statement to the news media on Monday.“Further capital requirements on the largest U.S. banks will lead to higher borrowing costs and fewer loans for consumers and businesses — slowing our economy and impacting those on the margin hardest,” Mr. Fromer said. Susan Wachter, a finance professor at the University of Pennsylvania’s Wharton School, said the proposed changes were “long overdue.” She said it was a relief to know that a plan to make them was underway.The Fed vice chair hinted that additional bank oversight tweaks inspired by the March turmoil were coming.“I will be pursuing further changes to regulation and supervision in response to the recent banking stress,” Mr. Barr said in his speech. “I expect to have more to say on these topics in the coming months.” More

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    TikTok, Shein and Other Companies Distance Themselves From China

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    Companies are moving headquarters and factories outside the country and cleaving off their Chinese businesses. It’s not clear the strategy will work.As it expanded internationally, Shein, the rapidly growing fast fashion app, progressively cut ties to its home country, China. It moved its headquarters to Singapore and de-registered its original company in Nanjing. It set up operations in Ireland and Indiana, and hired Washington lobbyists to highlight its U.S. expansion plans as it prepares for a potential initial public offering this year.Yet the clothing retailer can’t shake the focus on its ties with China. Along with other brands like the viral social app TikTok and shopping app Temu, Shein has become a target of American lawmakers in both parties. Politicians are accusing the company of making its clothes with fabric made with forced labor and calling it a tool of the Chinese Communist Party — claims that Shein denies.“No one should be fooled by Shein’s efforts to cover its tracks,” Senator Marco Rubio, Republican of Florida, wrote in a letter to other lawmakers this month.As relations between the United States and China turn increasingly rocky, some of China’s most entrepreneurial brands have taken steps to distance themselves from their home country. They have set up new factories and headquarters outside China to serve the United States and other foreign markets, emphasized their foreign ties and scrubbed any mention of “China” from their corporate websites.TikTok has set up headquarters in Los Angeles and Singapore, and invested in new U.S. operations that it says will wall off its American user data from its parent company, ByteDance. Temu has established a headquarters in Boston, and its parent company, PDD Holdings, has moved its headquarters from China to Ireland.Chinese solar companies have set up factories outside China to avoid U.S. tariffs on solar panels from China and limit their exposure to Xinjiang, a region that the United States now bars imports from because of its use of forced labor.JinkoSolar, a behemoth that produces one in 10 solar modules installed globally, has set up a supply chain entirely outside China to make goods for the United States.Other companies, including those that are foreign-owned, are building walls between their Chinese operations and their global businesses, judging that this is the best way to avoid running afoul of new restrictions or risks to their reputation.Sequoia Capital, the venture capital firm, said last week that it would split its global business into three independent partnerships, spinning off unique entities for China and India.Shein said in a statement that it was “a multinational company with diversified operations around the world and customers in 150 markets, and we make all business decisions with that in mind.” The company said it had zero tolerance for forced labor, did not source cotton from Xinjiang and fully complied with all U.S. tax and trade laws.A spokesperson for TikTok said that the Chinese Communist Party had neither direct nor indirect control of ByteDance or TikTok, and that ByteDance was a private, global company with offices around the world.“Roughly 60 percent of ByteDance is owned by global institutional investors such as BlackRock and General Atlantic, and its C.E.O. resides in Singapore,” said Brooke Oberwetter, a spokesperson.Temu did not respond to requests for comment.Analysts said companies were being driven out of China by a variety of motivations, including better access to foreign customers and an escape from the risk of a crackdown by the Chinese authorities.Some companies have more practical concerns, like reducing their costs for labor and shipping, lowering their tax bills or shedding the shoddy reputation that American buyers continue to associate with goods made in China, said Shay Luo, a principal at the consulting firm Kearney who studies supply chains.But a wave of tougher restrictions in the United States on doing business with China appears to be having an effect, too.Research by Altana, a supply chain technology company, shows that since 2016, new regulations, customs enforcement actions and trade policies that hurt Chinese exports to the United States were followed by “adaptive behavior,” like setting up new subsidiaries outside China, said Evan Smith, the company’s chief executive.For Chinese companies, going global is not a new phenomenon. The Chinese government initiated a “go out” policy at the turn of the century to encourage state-owned enterprises to invest abroad to gain overseas markets, natural resources and technology.Private companies like the electronics firm Lenovo, the appliance maker Haier and the e-commerce giant Alibaba soon followed, seeking investment targets and new customers.As tensions between the United States and China have risen in recent years, investment flows between the countries have slowed. U.S. tariffs on Chinese goods put in place by President Donald J. Trump and maintained by President Biden encouraged companies to move manufacturing from China to countries like Vietnam, Cambodia and Mexico. The pandemic, which halted factories in China and raised costs for moving goods across the ocean, accelerated the trend.International companies are now increasingly adopting a “China plus one” model of securing an additional source of goods in another country in case of supply interruptions in China. Chinese companies, too, are following this practice, Ms. Luo said.In the 12 months that ended in April, the share of imports to the United States from China reached its lowest level since 2006.“It is definitely a rational strategy for these companies to offshore, to move manufacturing or their headquarters to a third country,” said Roselyn Hsueh, an associate professor of political science at Temple University.In addition to tariffs and the ban on products from the Xinjiang region, the United States has imposed new restrictions on trade in technology and tougher security reviews for Chinese investments.The Chinese government, too, is clamping down on the transfer of data and currency outside the country, and it has squashed some Chinese companies’ efforts to list their stocks on American exchanges because of such concerns.Beijing has detained and harassed top tech executives, and foreign consulting firms. And its draconian lockdowns during the pandemic made clear to businesses that they operate in China at the mercy of the government.“Companies like Shein and TikTok move overseas both to reduce their U.S. regulatory and reputational risk, but also to reduce the likelihood that their founders and staff get intimidated or arrested by Chinese officials,” said Isaac Stone Fish, the chief executive of Strategy Risks, a consultant on corporate exposure to China.But companies like Shein and Temu still source nearly all of their products from China, and it’s not clear that the changes the Chinese companies are making to their businesses have done much to lower the heat.The opposition to these companies in Washington is being fueled by an incendiary combination of legitimate concerns over national security and forced labor, and the political appeal of appearing tough on China. It also appears to be driven by the opposition of certain competitors to these services, which are now some of the most downloaded apps in the United States.Shou Chew, the chief executive of TikTok, was questioned at a House hearing in March over whether the social app would make U.S. user data available to the Chinese government.Haiyun Jiang/The New York TimesIn March, a group called Shut Down Shein sprang up to pressure Congress to crack down on the retailer. The group, which has hired five lobbyists with the firm Actum, declined to disclose who is funding its campaign.In a five-hour hearing in March, lawmakers grilled TikTok’s chief executive over whether it would make U.S. user data available to the Chinese government, or censor the information broadcast to young Americans. Legislation is being considered that could permanently ban the app.Some lawmakers are arguing that JinkoSolar’s U.S.-made panels should not be eligible for government tax credits, and, for reasons that have not yet been disclosed, the company’s Florida factory was raided by customs officials last month.State governments, which have often been more welcoming to Chinese investment, are also growing more hostile. In January, Glenn Youngkin, the Republican governor of Virginia, blocked a deal for Ford Motor to set up a factory using technology from a Chinese battery maker, Contemporary Amperex Technology, calling it a “Trojan-horse relationship.”A House committee set up to examine economic and security competition with China is investigating the ties that Temu and Shein have with forced labor in China, and lawmakers are calling for Shein to be audited before its I.P.O.“The message of our investigation of Shein, Temu, Adidas and Nike is clear: Either ensure your supply chains are clean — no matter how difficult it is — or get out of countries like China implicated in forced labor,” Representative Mike Gallagher, the Republican chair of the committee, said in a statement.An investigation by Bloomberg in November found that some of Shein’s clothes were made with cotton grown in Xinjiang. In a statement, Shein said it had “built a four-step approach to ensure compliance” with the law, including a “code of conduct, independent audits, robust tracing technology and third-party testing.Jordyn Holman More

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    Labor Board, Reversing Trump-Era Ruling, Widens Definition of Employee

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    The National Labor Relations Board, with a Democratic majority, restored a standard that counts more workers as employees rather than contractors.Labor regulators issued a ruling on Tuesday that makes it more likely for workers to be considered employees rather than contractors under federal law.Overturning a ruling issued when the board was under Republican control, the decision effectively increases the number of workers — like drivers, construction workers or janitors — who have a federally protected right to unionize or take other collective action, such as protesting unsafe working conditions.The ruling ensures that “workers who seek to organize or exercise their rights under the National Labor Relations Act are not improperly excluded from its protections,” said a statement by Lauren McFerran, the Democratic chairman of the labor board, which voted 3 to 1 along party lines to broaden the standard.Determining whether a worker is an employee or a contractor has long depended on several variables, including the potential employer’s control over the work and provision of tools and equipment.In 2019, when the board was controlled by appointees of President Donald J. Trump, it elevated one consideration — workers’ chances to make more money based on their business savvy, often described as “entrepreneurial opportunity” — above the others. It concluded that such opportunities should be a key tiebreaker when some factors pointed to contractor status and others indicated employment.In its decision in 2019, the board said that a ruling during the Obama administration had improperly subordinated the question of moneymaking opportunities.That 2019 ruling appeared to be a victory for gig companies like Uber and Lyft, whose supporters have argued that ride-share drivers should be considered contractors in part because of the opportunities they have for potential profit — say, by determining which neighborhoods to work in.The latest decision returned the board to the standard laid out in the Obama era, explicitly rejecting the elevation of entrepreneurial opportunity above other factors.The turnabout was criticized on Tuesday by businesses that rely heavily on contractors. In a statement, Evan Armstrong, chair of the Coalition for Workforce Innovation, which represents companies like Uber and Lyft as well as industry trade groups, said that the ruling “decreases clarity and threatens the flexible independent model that benefits workers, consumers, entrepreneurs, businesses and the overall economy.”Some labor experts, however, say it is not clear that gig companies like Uber and Lyft, which set the prices that passengers pay, provide drivers with enough bona fide entrepreneurial opportunity to qualify them as contractors even under the old standard.In his dissent, Marvin E. Kaplan, the board’s lone Republican member, made a version of this argument, concluding that the workers in the case before the board — wig, hair and makeup stylists who work with the Atlanta Opera — “have little opportunity for economic gain or, conversely, risk of loss.”As a result, he agreed with the board’s majority that the stylists should be considered employees who have the right to unionize.But Mr. Kaplan wrote that the lack of entrepreneurial opportunities meant that the stylists should have been considered employees even under the Trump-era standard, and that there was no need to alter it. More