Good morning.
My colleague Adam Lashinsky took issue with my declarative statement Monday that President Trump has "convinced U.S. businesses to shift their focus to creating jobs at home, rather than outsourcing them overseas." Trump's statements on this score, he points out, are clearly exaggerated, and the CEOs involved have no incentive to challenge his exaggerations. Moreover, the anecdotal information remains mixed.
My statement was based on multiple conversations with top executives, who say any added cost from "insourcing" is easily offset by potential gains from proposed tax cuts and regulatory relief. And their desire to avoid the President's Twitter attacks is very real. As a result, it seems clear to me there is some fire beneath the smoke.
But having said that, my visit to Guangzhou this week was a stark reminder of how difficult it will be for the U.S. to compete for global manufacturing facilities. Foxconn chairman Terry Gou was in Guangzhou at the same time, throwing the first shovels of dirt at a massive site east of this city where he is building an $8.8 billion new flat panel display screen factory. City officials proudly boasted that it took less than 100 days to clear residents from the site and get permission to begin construction. They expect the giant plant to be operating in just 18 months.
Meanwhile, Gou has been in talks to build a $7 billion plant in the U.S. for years. He mentioned Wednesday that he had recently been in Washington, but didn't elaborate.
"We are seeing Guangdong's efficiency. We are seeing Guangdong's charisma and drive," Gou said. "We feel that if any state governments in the U.S. want to attract Foxconn, they should come here to learn and study...to see how in such a short span of time...we can get so many things done." (Guangzhou is the capital of Guangdong province, the biggest of China's provinces in terms of population and GDP.)
The new industrial policy of the Trump administration may, at the margins, tip the balance of some decisions toward the U.S. But democracy, even under Trump, will remain messy. China's one-party rule will always have the edge in speed (if not always in efficiency). And that, in the end, may provide fuel to the arguments of U.S. protectionists.
More news below. Enjoy the weekend.
• Sessions Recuses Himself
Attorney-General Jeff Sessions recused himself from any investigation into alleged links between Donald Trump’s election campaign staff and Russian intelligence, in the storm over his failure to disclose his own contact with the Russian ambassador in 2016. Sessions's decision indicated that pressure from within his own party as well as from Democrats counted for more than the support of the President himself. Elsewhere, Ben Carson and Rick Perry were confirmed in their respective cabinet posts, while reports surfaced that vice-president Mike Pence had committed the Clintonian Sin of using a private e-mail server for official business while Governor of Indiana. Fortune
• Snap Pops on Market Debut
Shares in Snapchat soared over 44% on their market debut, triggering inevitable outbursts of ecstasy across Wall Street, followed by the equally inevitable allegations that the underwriters had pitched the sale too low. The pop in the shares re-pegged the net worth of founders Evan Spiegel and Bobby Murphy at over $5.2 billion each. It ought to go without saying that one day’s trading says more about acutely ephemeral market psychology (balanced very precariously right now between economic optimism and political fear) than about the long-term value of a company, and valuing assets at the turn of a monetary policy cycle is in any case a hazardous business. Fortune
• Mexico Lobbies Detroit
Mexico’s Economy Minister is in Detroit today to rally U.S. automakers against the Trump administration’s efforts to punish Mexican exports. The visit is a sign that Mexico is loath to rely just on inter-governmental ties to settle the brewing dispute over trade, but rather compete with Washington for the affections of the sector that is at the heart of U.S.-Mexican trade and cross-border investment. In addition to Ford and GM, Ildefonso Guajardo will also meet representatives of the auto parts industry, which is facing similar disruption from the potential unraveling of NAFTA. Fortune
• To Err Is Human, To Forgive – a Case Study in Customer Retention
The five-hour outage on Amazon’s web servers was caused not by malware, viruses or the infinite cunning of the People’s Liberation Army, but by a fat finger. An Amazon employee made a typo while debugging part of the company’s S3 (Simple Storage Service), taking down more servers than intended, including some that supported two other S3 subsystems. As a result, a full restart was needed for a system that promises “99.999999999% durability.” Amazon said it has added new safeguards to prevent a repeat. We’ll have to wait three months to see whether Microsoft and other rivals have capitalized on AWS’s slip. Fortune
• Feds Raid Caterpillar in Tax Dispute
Federal law enforcement raided three Caterpillar premises in an escalation of a long-running dispute with the IRS, a case that has highlighted the pitfalls of the existing tax code. The IRS is claiming $2 billion in taxes and penalties over profits assigned to Caterpillar’s Swiss parts distribution unit between 2000 and 2012. The phenomenon of profit-shifting to low-tax jurisdictions is at the heart of international efforts to clamp down on tax evasion. Caterpillar insists its actions complied with “all applicable tax laws and judicial doctrines.” Its shares closed down 4.3%, having initially traded down by much more. Fortune
• Woe, Woe and Thrice Woe (Or, Earnings Season in Retail)
Costco raised its Gold Star membership fee by $5 to $60 a year, the first increase since November 2011. The move should add some $240 million more or less directly to its operating income. It comes after Costco switched its membership credit card scheme to Visa from American Express in an effort to broaden its customer base. Judging by its fourth-quarter numbers, it may need to do a bit more. Its shares fell 4% in after-hours trading after missing Wall Street forecasts for earnings per share by over 10%. Elsewhere in retail yesterday, Abercrombie & Fitch said it would shut another 60 stores, trimming its U.S. network by 8%, while bookseller Barnes & Noble reported its worst holiday quarter since 2005. Fortune
• Companies Line up Behind Transgender Student in Test Case
A coalition of 53 companies, including Apple, Amazon, Intel, Microsoft and IBM signed on to a legal brief in a case before the Supreme Court on transgender rights. The court has scheduled oral arguments for March 28 on whether the Gloucester County School Board in Virginia violated a federal anti-discrimination law when it blocked Gavin Grimm, a female-born transgender high school student who identifies as male, from using the boys' bathroom. The companies' brief says they are "concerned about the stigmatizing and degrading effects" of the policy adopted by the school board. A ruling is due by the end of June. Fortune
• SEC Hopes Are Worth Their Weight in Bitcoin
For the first time ever yesterday, a bitcoin was worth more than an ounce of gold. The world’s most famous crypto-currency traded as high as $1,252 (in itself a new record high). It’s now up over 50% in dollar terms in the last two months and up over 100% since the end of October. The Wall Street Journal reports that the latest leg of the rally is driven by anticipation that the SEC could approve at least one of three current proposals for a Bitcoin ETF, opening it up to a much wider pool of investors. That could also help to mitigate one of the biggest factors behind its recent volatility—a concentration of Bitcoin holdings and trading in China, where Bitcoin exchanges have recently come under increased pressure from regulators. WSJ, subscription required
Summaries by Geoffrey Smith Geoffrey.smith@fortune.com;
@geoffreytsmith
