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    ‘Morning in America’ Eludes Biden, Despite Economic Gains

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    Seeking re-election in 1984, Ronald Reagan presided over an economy similar in many ways to today’s. But he sold a message of progress and promise.President Ronald Reagan rode a “Morning in America” message to a blowout re-election victory in 1984, based partly on warm feelings about his economic performance. Today’s economy is similar in many ways to Mr. Reagan’s as he entered that campaign, with one big difference: There is widespread voter angst over the incumbent’s economic stewardship.A New York Times/Siena College poll shows President Biden trailing his likely Republican opponent, former President Donald J. Trump, in key battleground states. Poll respondents rate the economy poorly and say they trust Mr. Trump more to fix it. That’s true even though the economy grew faster and added more jobs over the last year than forecasters expected, while inflation fell sharply from what had been a four-decade high.In public and private conversations, and in consultation with outside economists and other experts, Mr. Biden’s economic team has been consumed with that disconnect: Why do Americans remain so down on the economy when economic data are trending up?The answer is almost certainly some combination of how Americans process the economic moment and how Mr. Biden communicates about it.In both cases, the contrast with Mr. Reagan — and with the economic environment of the early 1980s — is instructive.In the fall of 1983, Mr. Reagan’s re-election was not assured. The nation was still emerging from a recession that had marred his first two years in office. Consumer prices had risen more than 15 percent since he took office — nearly as much as they have risen on Mr. Biden’s watch. Translated into today’s dollars, the price of a gallon of gasoline was about $3.80, about 40 cents higher than it is now. The typical American’s wages had not increased at all during Mr. Reagan’s tenure, after adjustment for higher prices, similar to Mr. Biden’s experience.But public faith in the economy, and in Mr. Reagan’s handling of it, was significantly stronger than it is for Mr. Biden.President Ronald Reagan rode a “Morning in America” message to re-election in 1984, partly on the strength of warm feelings about his economic performance.Bettmann/Getty ImagesThe University of Michigan’s Index of Consumer Sentiment was roughly 50 percent higher under Mr. Reagan in the fall of 1983 than it is now. Polls showed his approval rating climbing, including sentiment on the economy, in a reversal from the start of the year.A year later, Mr. Reagan would air “Prouder, Stronger, Better,” a television ad that began with the words “It’s morning again in America.” It highlighted falling inflation and lower interest rates allowing more Americans to buy a home.Mr. Reagan’s appeals worked in part because Americans had just endured more than a decade of persistently high prices and high interest rates. Economists and historians generally agree that voters came to see the progress under Mr. Reagan as relief from a long, difficult period.Voter psychology is very different under Mr. Biden. The 9 percent annual inflation rate that the country experienced last year was more than triple the average rate from the end of Mr. Reagan’s time in the White House to the start of Mr. Biden’s. Those mortgage rates Mr. Reagan trumpeted? They were around 14 percent in 1984. Right now, rates are just below 8 percent. The difference is that under Mr. Reagan, rates fell, and under Mr. Biden, they’ve gone up.For Mr. Biden and his economic team, “the problem is really in the way people think about and process economic information, rather than the economic fundamentals,” said Francesco D’Acunto, an economist at Georgetown University’s McDonough School of Business who recently briefed the White House Council of Economic Advisers.Mr. D’Acunto presented slides at the White House highlighting work he and colleagues have done, drilling down into how consumers process price increases. They find that consumers’ attitudes are shaped most by the products they buy most often — like milk, gasoline, bread and beer — and not by the things they spend the most money on.They also find that unexpected price surges stick in shoppers’ minds, negatively. They linger in a way that slower-building price increases, or even prolonged periods of high prices, do not.That research helps explain why voters did not punish Mr. Reagan for inflation even though the price growth he oversaw never reversed itself: They were accustomed to rapid price growth and grateful for improvement.One overly simplistic explanation for Mr. Biden’s woes is that voters are waiting for prices to fall back to their prepandemic levels. If that were true, Mr. Biden would almost certainly be doomed electorally. On the whole, the path of prices across American history is an upward march.But Mr. D’Acunto says his research suggests that Mr. Biden might be able to brighten voters’ moods by mounting a public persuasion campaign, focusing on prices that have begun to come down from recent highs. That includes consumer electronics like smartphones and computers, which are less expensive today than they were a year ago, on average, and which are often large-dollar purchases.For Mr. Biden and his economic team, “the problem is really in the way people think about and process economic information,” said Francesco D’Acunto, a Georgetown University economist.Desiree Rios for The New York TimesMr. Biden’s campaign recently spent $25 million on television ads to promote “Bidenomics” — a mix of the president’s blue-collar background and policy blueprint that is meant to resonate with the working class. It includes an ad focusing on a provision in the Inflation Reduction Act, which Mr. Biden signed last year, that seeks to reduce the cost of prescription drugs through Medicare. Campaign aides say it is scoring well in surveys with viewers.There is little evidence in polls that those efforts have broken through. Biden aides say they did not expect immediate results. They are testing messages, they say, including how best to talk about Mr. Biden’s economic record, as the president prepares to spend $1 billion or more in advertising before the election.Aides also insist that continued economic improvement will eventually punch through to the public. They contend that continued wage growth will restore some of the buying power Americans lost to recent inflation, and that consumers will gradually acclimate to prices that are higher than what they were used to before the pandemic.“What the president brings to the table is a deep and effective pro-worker agenda that’s maintaining a great job market, putting downward pressure on prices,” Jared Bernstein, the chair of the Council of Economic Advisers, said in an interview. “I understand that hasn’t reached the sentiment indexes yet. But I’m confident it will.”Some Democrats worry that Mr. Biden himself is a barrier to getting that message through, particularly to younger voters who express concerns over his age. Campaign officials say his direct appeals resonate well in tests. The Reagan comparison offers evidence for both sides.Economic surveys have become more politicized in recent years, with Republicans in particular resistant to praising the economy’s performance with a Democrat in office. Still, components of the Michigan survey suggest that Mr. Reagan had far more success than Mr. Biden as an economic cheerleader.Mr. Reagan made a habit of both championing the economy’s performance and critiquing press coverage of its flaws. At this point in his presidency, Americans were far more likely to report hearing positive news about the economy and prices than they do under Mr. Biden. They even reported hearing better news on unemployment, at a time when the rate was near 9 percent. It is under 4 percent today.Mr. Biden has often tried to strike more of a balance between celebrating strong job growth and acknowledging the pain of high prices. He has leaned more into boosterism in recent months — as the share of Americans reporting in the Michigan index that they hear good economic news has grown. More

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    Biden to Travel to Minnesota to Highlight Rural Investments

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    The president’s push to focus attention on the domestic economy comes as his administration has been dealing with events overseas after the terrorist attacks in Israel.The White House on Wednesday will announce more than $5 billion in funding for agriculture, broadband and clean energy needs in sparsely populated parts of the country as President Biden travels to Minnesota to kick off an administration-wide tour of rural communities.The president’s efforts to focus attention on the domestic economy ahead of next year’s campaign come after three weeks in which his administration has been seized by events overseas following the terrorist attacks in Israel and the state’s subsequent military action in Gaza.The trip will take place as Mr. Biden is urging Congress to quickly pass a $105 billion funding package that includes emergency aid to Israel and Ukraine, two conflicts he has described as threats to democracy around the globe.But the president and his aides are well aware that his hopes for a second term are likely to be determined closer to home. Rural voters like the ones he will address at a corn, soybean and hog farm south of Minneapolis are increasingly voting Republican. A recent poll showed that most voters had heard little or nothing about a health care and clean energy law that is the cornerstone of Mr. Biden’s economic agenda. And the president even faces a challenge within his own party, from Representative Dean Phillips of Minnesota, who announced his long-shot presidential bid last week.Karine Jean-Pierre, the White House press secretary, declined on Tuesday to speak about campaign issues, citing the Hatch Act, which limits political activity by federal officials, but said that Mr. Biden “loves Minnesota.” Administration officials have said Mr. Biden’s trip was planned before Mr. Phillips announced his candidacy.The White House has called the next two weeks of events the “Investing in Rural America Event Series.” It includes more than a dozen trips by Mr. Biden as well as cabinet secretaries and other senior administration officials. The White House said in a statement that the tour would highlight federal investments that “are bringing new revenue to farms, increased economic development in rural towns and communities, and more opportunity throughout the country.”Mr. Biden will be joined on Wednesday by Tom Vilsack, the agriculture secretary. Against the backdrop of a family farm that uses techniques to make crops more resilient to climate change, they will announce $1.7 billion for farmers nationwide to adopt so-called climate-smart agriculture practices.Agriculture Secretary Tom Vilsack will join President Biden in Minnesota and later travel to Indiana, Wyoming and Colorado.Haiyun Jiang for The New York TimesOther funding announcements include $1.1 billion in loans and grants to upgrade infrastructure in rural communities; $2 billion in investments as part of a program that helps rural governments work more closely with federal agencies on economic development projects; $274 million to expand high-speed internet infrastructure; and $145 million to expand access to wind, solar and other renewable energy, according to a White House fact sheet.“Young people in rural communities shouldn’t have to leave home to find opportunity,” Neera Tanden, director of the White House Domestic Policy Council, said Tuesday on a call with reporters.She said federal investments were creating “a pathway for the next generation to keep their roots in rural America.”Gov. Tim Walz of Minnesota, a Democrat, said he expected Mr. Biden to face serious headwinds in rural communities, in large part because of inflation levels.“It is a little challenging, there’s no denying, when prices go up,” Mr. Walz said. “The politics have gotten a little angrier. I think folks are feeling a little behind.”But Mr. Walz also praised Mr. Biden for spending time in rural communities. “Democrats need to show up,” he said.Kenan Fikri, the director of research at the Economic Innovation Group, a Washington think tank, said the Biden administration had made sizable investments over the past two and a half years in agriculture, broadband and other rural priorities.“The administration has a lot to show for its economic development efforts in rural communities,” he said, but “whether voters will credit Biden for a strong economic performance is another question.”Later in the week Mr. Vilsack will travel to Indiana, Wyoming and Colorado to speak with agricultural leaders and discuss land conservation. Deb Haaland, the interior secretary, will go to her home state of New Mexico to highlight water infrastructure investments.Energy Secretary Jennifer M. Granholm will be in Arizona to talk about the electricity grid and renewable energy investment in the rural Southwest.The veterans affairs secretary, Denis McDonough, plans to visit Iowa to discuss improving access to medical care for veterans in rural areas. Isabel Guzman, who leads the Small Business Administration, will travel to Georgia to talk about loans for rural small businesses.Miguel A. Cardona, the education secretary, will go to New Hampshire to promote how community colleges help students from rural areas. Xavier Becerra, the secretary of health and human services, will be in North Carolina to talk about health care access in rural areas. More

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    Biden Seeks to Tame Oil Prices if Mideast Conflict Sends Them Soaring

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    The president has previously drawn down the Strategic Petroleum Reserve to ease price pressures, but that could be more difficult nowBiden administration officials, worried that a growing conflict in the Middle East could send global oil prices soaring, are looking for ways to hold down American gasoline prices if such a jump occurs.Those efforts include discussions with large oil-producing nations like Saudi Arabia that are holding back supply and with American oil producers that have the ability to pump more than they already are producing, administration officials say.A senior administration official said in an interview that it was also possible that President Biden could authorize a new round of releases from the nation’s Strategic Petroleum Reserve, an emergency stockpile of crude oil that is stored in underground salt caverns near the Gulf of Mexico. Mr. Biden tapped the reserve aggressively last year after Russia’s invasion of Ukraine sent oil prices skyrocketing, leaving the amount of oil in those reserves at historically low levels.The conflict in the Middle East has not yet sent oil prices surging. A barrel of Brent crude oil was trading for about $88 on global markets on Wednesday. That was up from about $84 earlier this month, shortly before Hamas attacked Israel and rattled markets. But analysts and administration officials fear prices could rise significantly more if the conflict in Israel spreads, restricting the flow of oil out of Iran or other major producers in the region.So far, American drivers have not felt a pinch. The average price of gasoline nationally was $3.54 a gallon on Wednesday, according to AAA. That was down about 30 cents from a month ago and 25 cents from the same day last year.Administration officials are wary of the possibility that prices could again jump above $5 a gallon, a level they briefly touched in the spring of 2022. Mr. Biden took extraordinary efforts then to help bring prices down — but those steps are likely to be far less effective in the event of a new oil shock.“They succeeded last year in the second half, but this year I think they’ve kind of run out of bullets,” said Amrita Sen, director of research at Energy Aspects.In part that’s because the administration did not refill the strategic reserve more aggressively when prices were lower, Ms. Sen said. That could undercut its ability to counteract rising prices now.“They got a little overconfident that prices would stay low,” she said. “In some ways, they’ve missed the boat.”

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    Crude oil in the strategic petroleum reserve
    Note: Levels are as of end of each week.Source: Energy Information AdministrationBy The New York TimesMr. Biden released a record 180 million barrels of oil from the strategic reserve, flooding the market with additional supply. His administration replenished just six million barrels when prices dipped this year, leaving the reserve at its lowest level since the 1980s. The Energy Department announced plans last week to continue refilling in the months ahead, but only if prices drop below $79 a barrel.Administration officials insist that tapping the reserve again remains an option. It still holds more than 350 million barrels of oil. That’s more than enough to counteract a disruption in oil markets if one occurs, energy analysts say.The U.S. economy is also less vulnerable to a price spike than in previous decades because the country has become less dependent on foreign oil. The United States produced more than 400 million barrels of oil in July, a record.

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    Monthly U.S. crude oil production
    Source: Energy Information AdministrationBy The New York Times“There’s still a lot of oil in the U.S. strategic reserve, and the U.S. is not in this alone,” said Richard Newell, president and chief executive of Resources for the Future, an energy-focused think tank. He noted that other countries had their own strategic reserves.Still, with Mr. Biden already taking criticism from Republicans for depleting the stockpile, he may be reluctant to tap it again now. “There’s another arrow in the quiver, but there’s only so many arrows right now,” said Jim Burkhard, head of energy markets research for S&P Global Commodity Insights. “Could they repeat it? Yes, but then you’re left with much, much less oil.”The stakes for Mr. Biden are high. Voters often punish presidents for high gasoline prices, and the challenge is amplified for Mr. Biden because, unlike most presidents, he has leaned into his role — intervening aggressively when prices soared early last year, and then claiming credit when prices fell.Independent experts say Mr. Biden is justified in claiming some credit for the moderation in prices last year, though they say other factors — including weaker-than-expected Chinese oil demand — also played a major role.The initial jump in oil prices was driven not by an actual shortage of oil but by a fear of one: Investors worried that millions of barrels of Russian oil would be blocked from the international market, either as a result of Western sanctions or Russian retaliation.Worried that the growing conflict in the Middle East could send oil prices soaring, Biden officials are looking for ways to hold down gasoline prices.Mark Abramson for The New York TimesMr. Biden’s decision to release oil from the strategic reserve provided additional supply at a crucial moment, helping to calm markets and push prices down.Analysts worried that additional sanctions from Europe, which were set to take effect near the end of 2022, would cause a second surge in prices by knocking more Russian supply offline. The Biden administration worked to prevent that by leading an international effort to impose a price cap on Russia that allowed the country to keep exporting oil — but only at reduced prices.That effort has worked to keep Russian oil flowing to markets and avoid a supply shock. In the first half of this year, it also appeared to be denting Moscow’s oil revenues. Increasingly, Russia has found ways around the price cap, forcing administration officials to take steps this month to crack down on enforcement of the cap in hopes of reducing the price at which Russian oil is sold.There is some risk that those enforcement efforts could at least temporarily knock Russian supply off the market at a tenuous time for global oil supply. But more important for the administration, there is little chance that a similar sort of price cap could help keep supply flowing from a large oil producer that could be involved in a widening war in the Middle East — most notably, Iran.Last October, the White House announced that it would enter into contracts to buy oil for the strategic reserve when prices fell below $72 a barrel. Doing so, the administration argued, would not just replenish the reserve but encourage domestic production by guaranteeing demand for oil at a reasonable price. But the effort has gotten off to a fitful start.Rory Johnston, an oil market analyst, said that the administration had been admirably creative in its energy policy, but that its execution had been flawed. Investors, he said, have been left skeptical about the administration’s ability to execute its strategy on refiling the reserve. They are also wondering if Mr. Biden will ever be willing to risk the political hit from driving up oil prices, by buying supply and pulling it off the market to refill the reserve.“If you want to be cynical, they’re very keen to do the price downside stuff and understandably not as keen to do the things that could seen as lifting prices,” Mr. Johnston said. More

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    U.S. Tightens China’s Access to A.I. Chips

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    The further limits on shipments could cripple Beijing’s A.I. ambitions and dampen revenues for U.S. chip makers, analysts said.The Biden administration on Tuesday announced additional limits on the kinds of advanced semiconductors that American firms can sell to China, shoring up restrictions issued last October to limit China’s progress on artificial intelligence.The rules appear likely to bring to a halt most shipments of advanced semiconductors from the United States to Chinese data centers, which use them to produce models capable of artificial intelligence. More U.S. companies seeking to sell China advanced chips, or the machinery used to make them, will be required to notify the government of their plans, or obtain a special license.To prevent the risk that advanced U.S. chips travel to China through third countries, the United States will also require chip makers to obtain licenses to ship to dozens of other countries that are subject to U.S. arms embargoes.The Biden administration argues that China’s access to such advanced technology is dangerous because it could aid the country’s military in tasks like guiding hypersonic missiles, setting up advanced surveillance systems or cracking top-secret U.S. codes.But artificial intelligence also has commercial applications, and the tougher restrictions may affect Chinese companies that have been trying to develop A.I. chatbots like ByteDance, the parent company of TikTok, or the internet giant Baidu, industry analysts said. In the longer run, the limits could also weaken China’s economy, given that A.I. is transforming industries ranging from retail to health care.The limits also appear likely to cut into the money that U.S. chip makers such as Nvidia, AMD and Intel earn from selling advanced chips to China. Some chip makers earn as much as a third of their revenue from Chinese buyers and spent recent months lobbying against tighter restrictions.U.S. officials said the rules would exempt chips that were purely for use in commercial applications, like smartphones, electric vehicles and gaming systems. Most of the rules will take effect in 30 days, though some will become effective sooner.In a statement, the Semiconductor Industry Association, which represents major chip makers, said it was evaluating the impact of the updated rules.“We recognize the need to protect national security and believe maintaining a healthy U.S. semiconductor industry is an essential component to achieving that goal,” the group said. “Overly broad, unilateral controls risk harming the U.S. semiconductor ecosystem without advancing national security as they encourage overseas customers to look elsewhere.” In a call with reporters on Monday, a senior administration official said that the United States had seen people try to work around the earlier rules, and that recent breakthroughs in generative A.I. had given regulators more insight into how the so-called large language models behind it were being developed and used.Gina M. Raimondo, the secretary of commerce, said the changes had been made “to ensure that these rules are as effective as possible.”Referring to the People’s Republic of China, she said, “The goal is the same goal that it’s always been, which is to limit P.R.C. access to advanced semiconductors that could fuel breakthroughs in artificial intelligence and sophisticated computers that are critical to P.R.C. military applications.”She added, “Controlling technology is more important than ever as it relates to national security.”The tougher rules could anger Chinese officials when the Biden administration is trying to improve relations and prepare for a potential meeting between President Biden and China’s top leader, Xi Jinping, in California next month.The Biden administration has been trying to counter China’s growing mastery of many cutting-edge technologies by pumping money into new chip factories in the United States. It has simultaneously been trying to set tough but narrow restrictions on exports of technology to China that could have military uses, while allowing other trade to flow freely. U.S. officials describe the strategy as protecting American technology with “a small yard and high fence.”But determining which technologies really pose a threat to national security has been a contentious task. Major semiconductor companies like Intel, Qualcomm and Nvidia have argued that overly restrictive trade bans can sap them of the revenue they need to invest in new plants and research facilities in the United States.Some critics say the limits could also fuel China’s efforts to develop alternative technologies, ultimately weakening U.S. influence globally.The changes announced Tuesday appear to have particularly significant implications for Nvidia, the biggest beneficiary of the artificial intelligence boom.In response to the Biden administration’s first major restrictions on artificial intelligence chips a year ago, Nvidia designed new chips, the A800 and H800, for the Chinese market that worked at slower speeds but could still be used by Chinese firms to train A.I. models. A senior administration official said the new rules would restrict those sales.In addition to those expanded restrictions, the United States will create a “gray list” that requires makers of certain less advanced chips to notify the government if they are selling them to China, Iran or other countries subject to a U.S. arms embargo.In a note to clients last week, Julian Evans-Pritchard, the head of China economics at the research firm Capital Economics, said the effects of the controls would become more apparent as non-Chinese companies rolled out more advanced versions of their current products and the amount of computing power needed to train A.I. models rose as their data sets grew larger.“The upshot is that China’s ability to reach the technological frontier in the development of large-scale A.I. models will be hampered by U.S. export controls,” Mr. Evans-Pritchard wrote. That could have broader implications for the Chinese economy, he added, since “we think A.I. has the potential to be a game changer for productivity growth over the next couple decades.” More

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    The Upshot of Microsoft’s Activision Deal: Big Tech Can Get Even Bigger

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    President Biden’s top antitrust officials have used novel arguments over the past few years to stop tech giants and other large companies from making deals, a strategy that has had mixed success.But on Friday, when Microsoft closed its blockbuster $69 billion acquisition of the video game publisher Activision Blizzard after beating back a federal government challenge, the message sent by the merger’s completion was incontrovertible: Big Tech can still get bigger.“Big Tech companies will certainly be reading the tea leaves,” said Daniel Crane, a law professor at the University of Michigan. “Smart money says merge now while the merging is good.”Microsoft’s purchase of Activision was the latest deal to move forward after a string of failed challenges to mergers by the Federal Trade Commission and the Justice Department, which are also confronting the big tech companies through lawsuits arguing they broke antimonopoly laws. Leaders at the two agencies had tried to block at least 10 other deals over the past two years, promising to dislodge longstanding ideas from antitrust law that they said had protected behemoths like Microsoft, Google and Amazon.But their efforts ran headlong into skeptical courts, largely leaving those core assumptions untouched. In the case of Microsoft’s Activision deal, the idea that the F.T.C. questioned was a “vertical” transaction, which refers to mergers between firms that are not primarily direct competitors. Regulators have rarely sued to block such deals, figuring that they generally do not create monopolies.Yet “vertical” deals have been especially common in the tech industry, where companies like Meta, Apple and Amazon have sought to grow and protect their empires by spreading into new business lines.In 2017, for instance, Amazon bought the high-end grocery chain Whole Foods for $13.4 billion. In 2012, Meta acquired the photo-sharing app Instagram for $1 billion and then shelled out nearly $19 billion for the messaging service WhatsApp in 2014. Of the 24 deals worth more than $1 billion completed by the tech giants from 2013 to mid-August of this year, 20 were vertical transactions, according to data provided by Dealogic.The sealing of the Microsoft-Activision deal has buttressed the notion that vertical deals generally are not anticompetitive and can still go through relatively unscathed.“There continues to be the presumption that vertical integration can be a healthy phenomena,” said William Kovacic, a former chair of the F.T.C. The F.T.C. is proceeding with its challenge to the Microsoft-Activision deal even as it has closed, said Victoria Graham, a spokeswoman for the agency, who added that the acquisition was a “threat to competition.” The Justice Department declined to comment. The White House did not immediately have a comment.The idea that vertical transactions were less likely to harm competition than combinations of direct rivals has been ingrained since the late 1970s. In the ensuing decades, the Justice Department and F.T.C. took no challenges to vertical deals to court, instead reaching settlements that allowed companies to proceed with their deals if they changed practices or divested parts of their business.Then, in 2017, the Justice Department sued to block the $85.4 billion merger between the phone giant AT&T and the media company Time Warner, in the agency’s first attempt to stop a vertical deal in decades. A judge ruled against the challenge in 2018, saying he did not see enough evidence of anticompetitive harms from the union of companies in different industries.Mr. Biden’s top antitrust officials — Lina Khan, the F.T.C. chair, and Jonathan Kanter, the top antitrust official at the Justice Department — have been even more aggressive in challenging vertical mergers since they were appointed in 2021.That year, the F.T.C. sued to stop the chip maker Nvidia from buying Arm, which licenses chip technology, and the companies abandoned the deal. In January 2022, the F.T.C. announced it would block Lockheed Martin’s $4.4 billion acquisition of Aerojet Rocketdyne Holdings, a missile propulsion systems maker. The companies dropped their merger.But judges rejected many of their efforts for lack of evidence and denied Ms. Khan and Mr. Kanter a courtroom win that would have set new precedent. In 2022, after the D.O.J. sued to block UnitedHealth Group’s acquisition of Change Healthcare, a judge ruled against the agency.Lina Khan, the chair of the Federal Trade Commission, challenged Microsoft’s deal for Activision last year. Tom Brenner for The New York TimesThe F.T.C.’s move to block Microsoft’s purchase of Activision last year was a bold effort by Ms. Khan, given that the two companies do not primarily compete with one another. The agency argued that Microsoft, which makes the Xbox gaming console, could harm consumers and competition by withholding Activision’s games from rival consoles and would also use the deal to dominate the young market for game streaming.To show that would not be the case, Microsoft offered to make one of Activision’s major game franchises, Call of Duty, available to other consoles for 10 years. The company also reached a settlement with the European Union, promising to make Activision titles available to competitors in the nascent market for game streaming, which allowed the deal to go through.In July, a federal judge ultimately ruled that the F.T.C. didn’t provide enough evidence that Microsoft intended to forestall competition through the deal and that the software giant’s concession eliminated competition concerns.The agencies are “facing judges who have said 40 years of economics show that vertical mergers are good,” said Nancy Rose, a professor of applied economics at M.I.T. with an expertise in antitrust, who is among a group of scholars who say vertical deals can be harmful to competition. She said the agencies should not back down from challenging vertical mergers, but that regulators would need to be careful to choose cases they can prove with an abundance of evidence.Ms. Khan and Mr. Kanter have said they are willing to take risks and lose lawsuits to expand the boundaries of the law and spark action in Congress to change antitrust rules. Ms. Khan has noted that the F.T.C. has successfully stopped more than a dozen mergers.Mr. Kanter has said that challenges to mergers from the Justice Department and the F.T.C. have deterred problematic deals.“There are fewer problematic mergers that are coming to us in the first place,” he said in a speech at the American Economic Liberties Project, a left-leaning think tank, in August.Still, bigger companies that have the resources to fight back will probably feel more confident challenging regulators after the Microsoft-Activision deal, antitrust lawyers said. The aggressive posture by regulators has simply become the cost of doing business, said Ryan Shores, who led tech antitrust investigations at the D.O.J. during the Trump administration and is now a partner at the law firm Cleary Gottlieb.“A lot of companies have come to the realization that if they have a deal they want to get through, they have to be prepared to litigate,” he said. More

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    Yellen May Face Questions in Morocco Over U.S. Dysfunction

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    Treasury Secretary Janet Yellen calls on Congress to authorize more economic support for Ukraine.As Treasury Secretary Janet L. Yellen arrives in Morocco this week to meet with her international counterparts, she will be representing a nation that has led the world’s post-pandemic economic recovery but is now struggling with potentially destabilizing political dysfunction.America came perilously close to defaulting on its debt over the summer and tiptoed toward a government shutdown last month as Republicans fought over the proper levels of federal spending and whether to bankroll more aid to Ukraine. Those events culminated in last week’s ouster of Representative Kevin McCarthy as House speaker, a development that is raising questions about whether the United States can actually govern itself, let alone lead the world.The political dynamic is expected to strain the credibility of the United States at the annual meetings of the International Monetary Fund and the World Bank, which begin on Monday in Marrakesh. Ms. Yellen is expected to press European governments to provide more funding for Ukraine and push creditors like China to relieve the debts of poor countries, including many African nations.The meetings are taking place amid heightened global uncertainty because of the weekend attacks that Hamas waged upon Israel, which threaten to spiral into a regional conflict. The possibility of a wider war could pose new economic challenges for policymakers by pushing oil prices higher, disrupting trade flows and inflaming tensions between other nations. As she traveled to Morocco, Ms. Yellen affirmed America’s support for Israel.“The United States stands with the people of Israel and condemns yesterday’s horrific attack against Israel by Hamas terrorists from Gaza,” Ms. Yellen said in a post on X, formerly Twitter, on Sunday. “Terrorism can never be justified and we support Israel’s right to defend itself and protect its citizens.”In an interview on Sunday during her flight to Marrakesh, Ms. Yellen acknowledged that other nations feel concerned and anxious about the political gridlock that has gripped the United States. However, she pointed out that other democracies face similar obstacles and that she believed America’s allies would continue to be supportive of the Biden administration’s efforts on issues such as protecting Ukraine and addressing climate change.“I think they have been delighted over the last two years to see the United States resume a very strong global leadership role and they want to work with us and they want us to be successful,” Ms. Yellen said.Yet America’s role as an economic bulwark against Russia’s war in Ukraine has been undercut by its own domestic politics, including Republican opposition to providing more economic support to Ukraine. The United States’s huge debt load and its inability to find a more sustainable fiscal path has also hurt its economic credibility.“The rest of the world can only look aghast with trepidation at our dysfunction — lurching from threats of default, to shutdowns, the adjournment of the House because there is no speaker,” said Mark Sobel, a former longtime Treasury Department official who is now the U.S. chairman of the Official Monetary and Financial Institutions Forum, a think tank. “While foreign governments have always expected a degree of hurly-burly U.S. behavior, the current level of dysfunction will surely erode trust in U.S. leadership, stability and reliance on the dollar’s global role.”Eswar Prasad, the former head of the I.M.F.’s China division, added that instability in the U.S. economy could be problematic for some of the world’s most vulnerable economies that rely on America to be a source of stability.“For countries that are already struggling to prop up their economies and financial markets, the added uncertainty from the political drama in Washington is most unwelcome,” Mr. Prasad said.The gathering comes at a delicate moment for the global economy. While the world appears poised to avoid a recession and achieve a so-called soft landing, the fight against inflation remains a challenge and output remains tepid. Economic weakness in China and Russia’s ongoing war in Ukraine continue to be headwinds.The higher borrowing costs that central banks have deployed to tame inflation have also made it more difficult for countries to manage their debt loads.That is a problem across the globe, including in the United States, where the gross national debt stands just above $33 trillion. Foreign appetite for government bonds has been weak in recent months and concerns about the sustainability of America’s debt have become more prevalent. That is making it somewhat more challenging for the United States to counsel other nations on how they should manage their finances.The most challenging task for Ms. Yellen will be persuading other nations to continue to provide robust economic aid to Ukraine as its war with Russia drags on. European nations are coping with economic stagnation, and with Congress in disarray, it is unclear how the U.S. will continue to help Ukraine prop up its economy.Ms. Yellen said she would tell her counterparts that supporting Ukraine remains a top priority. Explaining that the Biden administration lacks good options for providing assistance on its own, she called on Congress to authorize additional funding.“Fundamentally we have to get Congress to approve this,” Ms. Yellen said. “There’s no gigantic set of resources that we don’t need Congress for.”Dismissing concerns that the U.S. cannot afford to support Ukraine, Ms. Yellen argued that the cost of letting the country fall to Russia would ultimately be higher.“If you think about what the national security implications are for us if we allow a democratic country in Europe to be overrun by Russia and what that’s going to mean in the future for our own national defense needs and those of our neighbors, we can’t not afford it,” Ms. Yellen said. More

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    Higher Rates Stoke a Growing Chorus of Deficit Concerns

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    A long period of higher interest rates would make the government’s large debt pile costly, a possibility that is fueling a conversation about debt sustainability.The U.S. government’s persistent budget deficit and growing debts were low on Wall Street’s list of worries when interest rates were at rock bottom for years. But borrowing costs have risen so sharply that it is causing many investors and economists to fret that the United States’ big debt pile could prove less sustainable.Federal Reserve officials have raised interest rates to about 5.3 percent since early 2022 in a bid to control inflation. Officials predicted at their meeting last month that interest rates could remain high for years to come, shaking expectations among investors who had bet on rates falling notably as soon as next year.The realization that the Fed could keep borrowing costs high for a long time has combined with a cocktail of other factors to send long-term interest rates soaring in financial markets. The rate on 10-year Treasury bonds has been climbing since July, and reached a nearly two-decade high this week. That matters because the 10-year Treasury is like the market’s backbone: It helps drive many other borrowing costs, from mortgages to corporate debt.The exact cause of the latest run-up in Treasury rates is hard to pinpoint. Many economists say a combination of drivers is probably helping to drive the pop — including strong growth, fewer foreign buyers of America’s debt, and concerns about debt sustainability in and of itself.What’s clear is that if rates remain elevated, the federal government will need to pay investors more interest in order to fund its borrowing. America’s gross national debt stands just above $33 trillion, more than the total annual output of the American economy. The debt is projected to keep growing both in dollar figures and as a share of the economy.While the climbing cost of holding so much debt is stoking conversations among economists and investors about the appropriate size of the government’s annual borrowing, there is no consensus in Washington for deficit reduction in the form of either higher taxes or big spending cuts.Still, the renewed concern is a stark reversal after years in which mainstream economists increasingly thought that the United States might have been too timid when it came to its debt: Years of low interest rates had convinced many that the government could borrow cheap money to pay for relief in times of economic trouble and investments in the future.The deficit as a share of the economy rose this year under President Biden even though the economy was growing.Pete Marovich for The New York Times“How big of a problem deficits are depends — and it depends very critically on interest rates,” said Jason Furman, an economist at Harvard and former economic official under the Obama administration. “That’s changed a lot,” so “your view on the deficit should change as well.”Mr. Furman had previously estimated that the growing cost of interest on federal debt would remain sustainable for some time, after factoring in inflation and economic growth. But now that rates have climbed so much, the calculus has shifted, he said.Since 2000, the United States has run an annual budget deficit, meaning it spends more than it receives in taxes and other revenue. It has made up the gap by borrowing money.Tax cuts, spending increases and emergency economic assistance approved by both Democratic and Republican presidents has helped fuel the rising deficits in recent years. So has the aging of America’s population, which has driven up the costs of Social Security and Medicare without corresponding increases in federal tax rates. The deficit as a share of the economy rose this year under President Biden even though the economy was growing, just as it did in the prepandemic years under President Donald J. Trump.Now, borrowing costs are poised to add to the gap.Higher interest rates are a leading cause, along with surprisingly weak tax collections, of what the Congressional Budget Office projects will be a doubling of the federal budget deficit over the last year. The deficit, when properly measured, grew from $1 trillion in the 2022 fiscal year to an estimated $2 trillion in the 2023 fiscal year, which ended last month.If borrowing costs climb further — or simply remain where they are for an extended period — the government will accumulate debt at a much faster rate than officials expected even a few months ago. A budget update released by Biden administration economists in July predicted annual average interest rates on 10-year Treasury bonds would not exceed 3.7 percent at any time over the next decade. Those rates are now hovering around 4.7 percent.That recent surge in longer-term bond yields ties back to a number of factors.While the Federal Reserve has been raising short-term interest rates for roughly 18 months, rates on longer-term bonds had remained fairly stable over the first half of this year. But investors have been slowly coming around to the possibility that the Fed will leave interest rates higher for longer — partly because growth has remained solid even in the face of elevated borrowing costs.At the same time, there have been fewer buyers for government bonds. The Fed has been shrinking its balance sheet of bonds as it reverses a pandemic-era stimulus policy, which means that it is no longer buying Treasuries — taking away a source of demand. And key foreign governments have also pulled back from bond purchases.“We’ve whittled down to a smaller universe of buyers,” said Krishna Guha, head of global policy and central bank strategy at Evercore ISI.Some analysts have suggested that the pickup in bond yields could also tie back to concerns about debt sustainability. To pay higher interest costs, the government may need to issue even more debt, compounding the problem — and focusing attention on America’s mammoth debt pile, said Ajay Rajadhyaksha, global chairman of research at Barclays.“The problem is not just that number,” he said, referencing the increasing deficit. “The problem is that this economy is as good as it gets.”The economy has remained strong even though the Federal Reserve has raised borrowing costs. That has many expecting the Fed to leave rates higher for longer.Jim Wilson/The New York TimesThat, several economists have said, is the core of the issue: America is borrowing a lot even at a time when the unemployment rate is very low and growth is strong, so the economy does not need a lot of government help.“Right now we have an incredible amount of issuance at the same time as the Fed is messaging higher for longer,” said Robert Tipp, chief investment strategist at PGIM Fixed Income, noting that typically higher issuance comes in periods of turmoil when central bank policy is more accommodative. “This is like a wartime budget deficit but without any help from the central bank. That is why this is so different.”White House officials say it is too early to know whether rising bond yields should spur Mr. Biden to add new deficit-reduction proposals to the $2.5 trillion in plans he included in this year’s budget. Those proposals consist largely of tax increases on corporations and high earners.“We might be having a different discussion about this a month from now,” said Jared Bernstein, the chair of the White House Council of Economic Advisers. “And when you’re writing budgets, you don’t go back and change your path lightly.”The Treasury Department has sold close to $16 trillion of debt for the year through September, up roughly 25 percent from the same period last year, according to data from the Securities Industry and Financial Markets Association. Much of that issuance replaced existing debt that was coming due, leaving a net debt issuance of around $1.7 trillion, more than at any other point over the past decade except for the pandemic-induced bond binge in 2020. The Treasury’s own advisory committee forecasts the size of government debt sales to rise another 23 percent in 2024.Maya MacGuineas, the president of the bipartisan Committee for a Responsible Federal Budget and a longtime proponent of reducing deficits, said it was hard to tell what had caused rates to climb recently. Still, she said, the move serves as a “reminder.”“From a fiscal perspective, the story is very simple: If you borrow too much, you become increasingly vulnerable to higher interest rates,” she said.Santul Nerkar More

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    A Rural Michigan Town Is the Latest Battleground in the U.S.-China Fight

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    Firestorms over Chinese investments, like a battery factory in Green Charter Township, are erupting as officials weigh the risks of taking money from an adversary.Yard signs along the quiet country roads of Green Charter Township, Mich., home to horse farms and a 19th-century fish hatchery, blare a message that an angered community hopes is heard by local leaders, the Biden administration and China: “No Gotion.”The opposition is to a plan by Gotion, a subsidiary of a Chinese company, to build a $2.4 billion electric vehicle battery factory on roughly 270 acres of largely uninhabited scrub land. An investment of that magnitude can transform a local economy, but in this case it is unwelcome by many. Residents fear that the company’s presence is a dangerous infiltration by the Chinese Communist Party and it has led to backlash, death threats and an attempt to unseat the elected officials who backed the project.The debate over the factory has turned a township of about 3,000 people located 60 miles north of Grand Rapids against each other and into an unlikely battleground in the economic contest between the United States and China. The resistance is part of a broader movement by states to erect new barriers to Chinese investment amid concerns about national security and growing anti-China sentiment.“It’s the Communist influences that I’m bothered by, because they have shown repeatedly that they don’t care about our rules, our laws or anything,” said Lori Brock, who lives on a 150-acre horse farm near where the battery factory is being built. “They shouldn’t be able to buy here.”Gotion purchased 270 acres of land in Green Charter Township with plans to build an electric vehicle battery plant.Cydni Elledge for The New York TimesThat sentiment has been reverberating in the United States and on the Republican presidential campaign trail this year. In August, the campaign of Nikki Haley called Michigan’s Democratic governor, Gretchen Whitmer, a “comrade” for backing the Gotion factory. On Wednesday, Vivek Ramaswamy, a Republican candidate who has called for banning Chinese investments, will hold a rally at Ms. Brock’s farm.Gotion has insisted that it has no ideological ties to China. John Whetstone, a company spokesman, said Gotion was “in no way affiliated with any political party,” explaining that it had pledged to the township not to partake in any activity that supports or encourages any political philosophy.Animosity toward China has been deterring Chinese investment in the United States in recent years. Annual investment by Chinese companies has fallen to $5 billion in 2022 from $46 billion in 2016, according to a recent report by Rhodium Group, as relations between the world’s two largest economies soured. Employment at Chinese firms in the United States has declined by nearly 40 percent since 2017, to 140,000 workers.But investment is starting to turn around as a result of new federal incentives — included in the 2022 Inflation Reduction Act — that were meant to spur American production of electric vehicles. Foreign companies, including those from China, are trying to capitalize on tax credits for businesses that manufacture renewable energy products inside the United States.The Coalition for a Prosperous America, which represents American manufacturers, estimates that Chinese companies could gain access to $125 billion in U.S. tax credits related to “green energy manufacturing” investments.“There are really strong commercial logics driving this, and those commercial logics aren’t going away anytime soon,” said Kyle Jaros, a professor at the University of Notre Dame, who studies Chinese investment in the United States.The possibility that American taxpayers could subsidize Chinese firms has stoked anger in local communities and in Congress, where lawmakers are scrutinizing transactions involving companies with ties to China and urging the Biden administration to block them.Experts predict that Chinese companies will continue to pursue investments in the United States but concerns at the local level and in Washington are mounting.Cydni Elledge for The New York TimesSenator Marco Rubio of Florida, a Republican, has introduced legislation that would block subsidies to Chinese battery companies. A House committee has demanded answers about a licensing agreement between Ford and the Chinese battery company Contemporary Amperex Technology Co. Limited. Ford has defended the project and described it as an effort to strengthen domestic battery production.House Republicans have also urged Treasury Secretary Janet L. Yellen to withhold any federal subsidies for the Gotion facility and questioned why the Committee on Foreign Investment in the United States did not block its investment.Gotion has said that it voluntarily submitted documents to the interagency panel, known as CFIUS, and the committee declined to block the transaction.The Inflation Reduction Act does restrict American consumers from getting tax credits if they buy electric cars that have parts that come from “foreign entities of concern,” such as China. However, the law does not allow the Treasury to block Chinese companies from securing tax credits if they build factories in the United States.“We know that the vast majority of investments made through the Inflation Reduction Act are being made by American companies,” said Wally Adeyemo, the deputy Treasury Secretary.The Treasury estimates that only 2 percent of the electric vehicle and battery investments that have been made during the Biden administration involve Chinese companies.Gotion already has operations in California and Ohio and plans to open a $2 billion lithium battery manufacturing plant in Illinois. The company chose Michigan last year after securing nearly $800 million in grants and tax exemptions from the state’s strategic fund, whose officials said the investment would bring jobs, customers and economic vitality to the region. At the time, Ms. Whitmer hailed the factory as a win for the state.Since then, a growing and vocal contingent has been working to halt the project.Much of that effort has been directed at Green Charter Township’s board of trustees, a group of local Republican officials who voted to allow Gotion to secure the state tax breaks. When residents realized that the company that was coming to town had ties to China, township meetings that usually drew a handful of people attracted hundreds of angry critics.Green Charter Township’s supervisor, Jim Chapman, sees the advantages of having a Gotion electric vehicle battery plant in the region.Cydni Elledge for The New York TimesJim Chapman, the township supervisor, has heard residents suggest that they would call in the Michigan militia or exercise their Second Amendment rights to stop Gotion from building the factory. Mr. Chapman, a lifelong Republican and former police officer, has found himself in the position of trying to convince his neighbors that allowing Gotion to bring more than 2,000 new jobs to the area will create a housing boom and bring other new businesses to the area.Yet residents have confronted Mr. Chapman with a host of conspiracy theories including that the plant is a “Trojan Horse” and that it will be used to spy on Americans. Some in town believe that the plant will employ cheap Chinese labor, instead of local workers, and erect cooling towers to conceal ballistic missiles.“No Gotion” groups active on Facebook and other social media platforms have seized on the company’s bylaws, which say the company operates in accordance with the Constitution of the Communist Party of China.Kelly Cushway, an organizer in the Gotion resistance movement, opposes the facility and is running for trustee of Green Charter Township.Cydni Elledge for The New York Times“I will go to my grave and people will curse me for this project,” Mr. Chapman said during an interview in his office inside the Green Charter Township building.After researching the company and the actions of other Chinese businesses that operate in the United States, Mr. Chapman concluded that Gotion was not a threat and that the opportunity to invigorate a relatively poor part of the state was worthwhile.“What are they going to spy on us for in Big Rapids? Are they going to steal Carlleen Rose’s fudge recipe?” Mr. Chapman asked, referring to the owner of a popular confectionery in Big Rapids.Opponents hope that a November recall election can replace the board and stop Gotion in its tracks. Residents are raising money to file lawsuits and petition against every permit that Gotion will need to construct a factory that is expected to span more than a million square feet.“I’m worried about environmental catastrophes — there’s going to be 200 to 300 truckloads of chemicals coming in every day,” said Kelly Cushway, who opposes Gotion and is running for a seat on the Green Charter Township board. “We know China has not worried too much about their environment.”Some community activists such as Ms. Brock are coordinating with counterparts in other states including North Dakota, where Fufeng USA tried and failed to construct a corn mill, to learn how to terminate a Chinese investment.Ms. Brock said she remained hopeful that the Gotion factory in her town could be halted.“We haven’t even started,” Ms. Brock said. “We haven’t even hit them with one lawsuit yet, and it’s coming.” More