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G-20 Finance Leaders’ Goal: Adapt to Turmoil in Trade, Tech

Financial leaders of the Group of 20 gathered Saturday to brainstorm ways to adapt global finance to an age of trade turmoil and digital disruptions.

The central bank governors and other financial regulators meeting in this southern Japanese port city also flagged risks from upsets to the global economy as Beijing and Washington clash over trade and technology.

Asked if other financial leaders attending the meetings in Fukuoka were raising concerns over the impact on global markets and trade from President Donald Trump’s crusade against huge, chronic U.S. trade deficits, especially with China, U.S. Treasury Secretary Steven Mnuchin said no.

Trump and members of his administration contend that the ripple effects of the billions of dollars in tariffs imposed by Washington on Chinese exports over the past year are creating new business opportunities for other businesses in the U.S. and other countries.

But Mnuchin acknowledged that growth has been slowing in Europe, China and other regions.

“I’m hearing concerns if we continue on this path there could be issues. There will be winners and losers,” he said.

The G-20 officials were expected to express their support for adjusting monetary policy, for example by making borrowing cheaper through interest rate cuts, in a communique to be issued as meetings wrap up on Sunday.

Their official agenda on Saturday was focused on longer-term, more technical issues such as improving standards for corporate governance, policing cyber-currencies and reforming tax systems to ensure they are fair for both traditional and new, online-based industries.

Ensuring that governments capture a fair share of profits from the massive growth of businesses like Google and Amazon has grown in importance over the many years the G-20 finance chiefs have been debating the reforms aimed at preventing tax evasion and modernizing policies to match a financial landscape transformed by technology.

One aim is to prevent a “race to the bottom” by countries trying to lure companies by offering unsustainably and unfairly low tax rates as an incentive.

Mnuchin said he disagreed with details of some of the proposals but not with the need for action.

“Everyone, we are now facing a turning point,” Japanese Finance Minister Taro Aso told the group. “This could be the biggest reform of the long established international framework in over 100 years.”

Some European members of the G-20, especially, want to see minimum corporate tax rates for big multinationals. France and Britain have already enacted stop-gap tax systems for digital businesses, but they are not adequate, said French Finance Minister Bruno Le Maire.

“For the time being there is no fair taxation of this new economic model,” Le Maire said, adding that the hope is to have an agreement by the year’s end.

The issue is not confined to the wealthiest nations. Indonesia, a developing country of 260 million with more than 100 million internet users, is also struggling to keep up.

“The growth has been exponential but we cannot capture this growth in our GDP as well as in our tax revenue,” said Indonesian Finance Minister Mulyani Indrawati.

Mobile banking, big data, artificial intelligence and cloud computing are among many technologies that are expanding access to financial services for many people who in the past might not have even used banks.

But such innovations raise questions about protecting privacy and cybersecurity, Aso said.

“We need to stay vigilant against risks or challenges,” Aso said.

Japan, the world’s third-largest economy, is hosting the G-20 for the first time since it was founded in 1999. The venue for the annual financial meeting, Fukuoka, is a thriving regional hub and base for start-ups.

The G-20 groups include Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Japan, South Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the United Kingdom, the United States and the European Union.

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With Mexico Deal Done, US Urges China to Resume Trade Talks

One down, still others to go. President Donald Trump claimed a victory after Washington and Mexico agreed on measures to stem the flow of Central American migrants into the United States.

Trump called off plans to impose a 5% tax on Mexican exports, and Treasury Secretary Steven Mnuchin, speaking to reporters Saturday in Fukuoka on the sidelines of a meeting of financial leaders of the Group of 20 major economies, urged China to follow suit and return to stalled negotiations.

Mnuchin said he planned to have a private conversation with the head of China’s central bank, Yi Gang. In a G-20 group meeting later in the day, the two were seen exchanging friendly remarks, but there were no fresh signs Beijing is ready to compromise in the dispute over trade and technology.

“From our perspective of where we are now, it is a result of them backtracking on significant commitments,” Mnuchin said. “I don’t think it’s a breakdown in trust or good or bad faith. … If they want to come back and complete the deal on the terms we were negotiating, that would be great.”

Mnuchin said he had no direct message to give to Yi, who has participated in the 11 rounds of talks so far on resolving the dispute between the world’s two largest economies over technology and trade.

He said there were no plans for trade talks in Washington or Beijing before Presidents Donald Trump and Xi Jinping are due to meet in Osaka for the G-20 summit on June 28-29.

“This will be a one-on-one with Gov. Yi to talk alone about the trade issues,” Mnuchin said. But he added, “I would expect the main progress will be at the G-20 meetings of the presidents.”

The Trump administration began slapping tariffs on imports of Chinese goods nearly a year ago, accusing Beijing of using predatory means to lend Chinese companies an edge in advanced technologies such as artificial intelligence, robotics and electric vehicles. Those tactics, the U.S. contends, include hacking into U.S. companies’ computers to steal trade secrets, forcing foreign companies to hand over sensitive technology in exchange for access to the Chinese market and unfairly subsidizing Chinese tech firms.

The deal with Mexico helps alleviate uncertainty over the deal Washington recently reached on revising the North American Free Trade Agreement. The new U.S.-Mexico-Canada deal has been heading toward a vote in Congress and might have been stymied by new tariffs. But the U.S. is still negotiating new trade deals with Japan after withdrawing from a Pacific Rim arrangement, the Obama-era proposed Trans-Pacific Partnership.

America’s huge trade deficit with China — a record $379 billion last year — is one factor driving Trump’s frustrations with Beijing.

The United States now is imposing 25% taxes on $250 billion in Chinese goods. Beijing has counterpunched by targeting $110 billion worth of American products, focusing on farm goods such as soybeans in a deliberate effort to inflict pain on Trump supporters in the U.S. heartland.

The U.S. side has been preparing to expand retaliatory tariff hikes of 25% on another $300 billion of Chinese products, and Mnuchin indicated it was prepared to take that step if negotiations with Beijing fail. But he said Trump had not yet made a decision on that, suggesting room for further delays depending on the outcome of his discussion with Xi later this month.

“As the president has said, if we can get the right agreement, that’s great. If we can’t, we will proceed with tariffs,” he said.

 

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US, China Talk Trade at G-20 Finance Meeting

U.S. Treasury Secretary Steven Mnuchin said Saturday that he plans to speak privately with China’s central bank governor about trade on the sidelines of annual Group of 20 finance talks in southern Japan, but has no direct message to give him.

Mnuchin and Yi Gang, chairman of the People’s Bank of China, are to hold routine talks on various issues and then break away for their discussion on trade. Yi, he noted, has participated in now-stalled talks between Washington and Beijing over the trade and technology dispute between the two largest economies.

“This will be a one-on-one with Gov. Yi to talk alone about the trade issues,” Mnuchin told reporters in the Japanese city of Fukuoka. But he added, “I would expect the main progress will be at the G-20 meetings of the presidents.”

He said there were no plans for trade talks in Washington or Beijing before Presidents Donald Trump and Xi Jinping are to meet in Osaka for the G-20 summit June 28-29.

​Trump tariffs

The Trump administration began slapping tariffs on imports of Chinese goods nearly a year ago, accusing Beijing of using predatory means to lend Chinese companies an edge in advanced technologies such as artificial intelligence, robotics and electric vehicles. Those tactics, the U.S. contends, include hacking into U.S. companies’ computers to steal trade secrets, forcing foreign companies to hand over sensitive technology in exchange for access to the Chinese market and unfairly subsidizing Chinese tech firms.

Trump has also complained repeatedly about America’s huge trade deficit with China, a record $379 billion last year.

The United States now is imposing 25% taxes on $250 billion in Chinese goods. Beijing has counterpunched by targeting $110 billion worth of American products, focusing on farm goods such as soybeans in a deliberate effort to inflict pain on Trump supporters in the U.S. heartland.

The U.S. side has been preparing to expand retaliatory tariff hikes of 25% on another $300 billion of Chinese products, and Mnuchin indicated it was prepared to take that step if negotiations with Beijing fail. But he said Trump had not yet made a decision on that, suggesting room for further delays depending on the outcome of his discussion with Xi later this month.

​‘Hearing concerns’

Asked if other financial leaders attending the meetings in Fukuoka were raising the issue, Mnuchin said no. But he acknowledged the slowdown in Europe, China and other regions.

“I’m hearing concerns if we continue on this path there could be issues. There will be winners and losers,” he said.

Mnuchin and other officials in the Trump administration assert that the winners from the tariffs standoff, including the United States, will benefit from investments by companies moving their operations out of China to avoid the tariffs.

Countries were welcoming news that after a flurry of negotiations, Trump said he would refrain from imposing 5% tariffs on products from Mexico after it “agreed to take strong measures” to stem the flow of Central American migrants into the United States.

The tariffs that had been scheduled for Monday were “indefinitely suspended” after the two sides signed an agreement, he said in a tweet.

“It’s a good thing,” Japan’s central bank governor, Haruhiko Kuroda, told reporters.

On the agenda: taxes and crime

The agenda for the G-20 talks in Fukuoka on Saturday were mainly concerned with reforms of tax policies, combatting money laundering and cybercrimes, and innovations in financial technologies.

Japan is hosting the G-20 for the first time since it was founded in 1999.

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Federally Insured Banks Largely Off-Limits to Cannabis Business

In May, Arkansas became the latest state to cash in on the sale of medical marijuana. Lines of people wrapped around a newly opened dispensary, drawing in customers from all four corners of the Southern U.S. state.

“I see them standing outside the window with a big smile on their face,” said Bud Watkins, manager of Doctor’s Orders RX in Hot Springs. “They love it.”

In the first week of business, Arkansan dispensaries sold more than 22.6 kg (50 pounds) of cannabis in nearly 5,000 transactions.

According to Marijuana Business Daily, that revenue will contribute to a growing national market of retail medical and recreational cannabis that is expected to eclipse $12 billion in sales by the end of 2019.

​Business good, money managing isn’t

Passed in the 2016 general election by popular vote, the Arkansas Medical Marijuana Amendment made the state one of only a few in the South to allow legal purchase of the drug. It joined, however, a majority of U.S. states that had passed similar legislation.

While business is doing well, managing the money is difficult. Despite more states coming on board, plant-touching businesses are still operating as mostly cash-only enterprises.

Plant-touching businesses handle the cannabis plant itself, either cultivating, distributing or processing it. These tend to be the businesses most people think of when they imagine the cannabis industry. Plant-touching businesses are generally subject to the strictest regulations and licensing processes in the industry, as well.

“The vast majority of the businesses that touch the plant have a very difficult time finding banking partners,” said Sal Barnes, a director at Marijuana Policy Group. “The majority of those that do (bank) are going to be through credit unions and state banks, especially in California and Colorado, where we have what we like to call an adult-use market, and that is essentially just a glorified checking account.”

​Federally outlawed since 1970

Since 1970, cannabis has been officially outlawed at a federal level for any use, including medical. This means that federally insured banks operate under prohibitive restrictions about doing any business with any plant-touching businesses, which affects everyone along the supply chain, from the growth of the plant to the production or sale of a cannabis gummy.

In spite of this, states have increasingly passed legislation to allow for the legal purchase, putting them at odds with the federal government.

“The industry is hindered. Right now, the current as-is method is not safe. You literally have companies hiring ex-Marines to guard their cash, and that just doesn’t fly,” Barnes said.

Not having access to banking services means that cannabis businesses must pay for everything in cash, from salaries to taxes. And, because the cash is usually stored on-site, robberies are very common.

“We have one of the most secure buildings in the state,” said Watkins, who didn’t want to go into too many details.

Marijuana in the mainstream

Legalizing marijuana is no longer considered a fringe issue. According to a 2018 Gallop poll, two-thirds of Americans support legalizing marijuana.

There is also bipartisan traction in Congress. In March, a U.S. House of Representatives committee passed the Secure and Fair Enforcement Banking Act of 2019, more commonly known as the SAFE Banking Act. It would provide legal protection from persecution for banks and federally regulated creditors that do business with state-legal cannabis businesses.

State attorneys, including Arkansas’ Leslie Rutledge, are now also applying pressure to see changes in federal law.

“After careful consideration and speaking with members of the banking industry, as well as our state regulatory authority, the attorney general felt that it was important for the office to support the SAFE Banking Act to help minimize fraud, tax evasion and money laundering that arises from cash only businesses,” said Rutledge’s office in an emailed statement.

Earlier this month, 38 Republican and Democratic state attorneys general sent a letter in support of the SAFE Banking Act.

“This is not just an issue facing Arkansans, but affects a majority of states,” Rutledge’s office stated. “If passed, this legislation will help Arkansas minimize the dangerous problems seen by other states, such as burglaries and robberies of dispensaries who can maintain a large quantity of cash, while at the same time, allowing legitimate businesses and service providers to also conduct business within the regulated banking system.”

As for whether the SAFE Banking Act eventually makes it to a vote, or future federal bills attempt to change banking regulations, Barnes said it’s only a matter of time.

“Next year, no. Next two to three years, possibly. Within the next four to five, definitely,” he said.

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FedEx Ends Amazon’s FedEx Express Plane Service

FedEx Corp. Friday decided not to renew its contract with Amazon.com Inc. for U.S. cargo delivery through FedEx Express, the unit that delivers packages on planes, a move that reflects the broader trend of the e-commerce company moving services in-house.

Amazon has been building out its own delivery network of planes, trucks and vans, a development that is seen posing a potential long-term challenge to FedEx and delivery rival United Parcel Service Inc., both of which count Amazon as a customer.

FedEx described the decision as a strategic move that would allow it to focus on the broader e-commerce market, a group that would include rivals of Amazon scaling up one- and two-day delivery. FedEx forecast that the market would double to 100 million packages per day in the United States by 2026.

“Amazon had a better rate with UPS, so it made no sense for them to use FedEx,” said Dean Maciuba, director of consulting services at Logistics Trends and Insights.

Other FedEx contracts unaffected

The decision does not impact any existing contracts between Amazon and other FedEx business units or relating to international services, the package delivery company said.

Amazon accounted for less than 1.3% of FedEx’s revenue last year, the company said in its statement.

Analysts said that the ending of FedEx Express’ contract with Amazon is likely to benefit UPS, which gets a relatively larger share of revenue from the online retailer.

“We would expect UPS to report much stronger volume growth in next-day air products over the next several quarters,” Bernstein analyst David Vernon wrote in a client note.

UPS volumes have been boosted by Amazon’s move to one-day shipping for its paid Prime service, and “this news means more growth in lower priced, lower weight, lower service level … domestic express products at UPS,” Vernon said.

Amazon building its fleet

In recent years, Amazon has steadily expanded its fleet of delivery aircraft, which Air Transport Services Group Inc. and Atlas Air Worldwide Holdings have operated.

The company is investing $1.5 billion to build an air cargo hub in northern Kentucky, setting it up to rely less on others for air shipping.

Amazon has 40 leased cargo planes and has signed an agreement to bring 10 more planes into the fleet in the next two years.

“We respect FedEx’s decision and thank them for their role serving Amazon customers over the years,” Amazon said in an emailed statement.

Shares of FedEx, which rose as much as 1.65% earlier in the session, pared gains and closed up 0.75% at $158.02. Amazon shares ended the day 2.8% higher at $1,804.03.

UPS shares closed up 0.2% at $98.23 after rising as much as 1% earlier in the session.

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Trump Announces Deal With Mexico Averting Tariffs

Cindy Saine at the State Department contributed to this report. 

 

U.S. President Donald Trump said late Friday that the United States and Mexico had reached a deal on migration to avert tariffs.

“I am pleased to inform you that The United States of America has reached a signed agreement with Mexico. The Tariffs scheduled to be implemented by the U.S. on Monday, against Mexico, are hereby indefinitely suspended,” he tweeted.

“Mexico, in turn, has agreed to take strong measures to stem the tide of Migration through Mexico, and to our Southern Border. This is being done to greatly reduce, or eliminate, Illegal Immigration coming from Mexico and into the United States,” Trump said.

Earlier Friday, Trump had tweeted that there was a “good chance” the two sides would reach a deal to avert tariffs over the surge of migrants across the U.S. border. However, he added, “If we are unable to make the deal, Mexico will begin paying Tariffs at the 5% level on Monday!”  

U.S. and Mexican officials returned to the negotiating table Friday for a third day of talks to find a way to stem the migrant flow.

Effect on hiring?

Trump’s trade wars with Mexico and other countries appeared to have spooked American companies into putting the brakes on hiring. They added just 75,000 jobs in May, far fewer than the 180,000 economists expected, the Labor Department reported Friday.  

 

Although the jobless rate held steady at a 50-year low of 3.6%, Friday’s figures were the latest signal that the U.S. economy, while healthy, is weakening. Manufacturers, which are particularly sensitive to trade disputes, added only 3,000 jobs, extending an anemic streak of hiring in the sector.

U.S. and Mexican officials discussed a deal calling for Mexico to sharply increase patrols of its border with Guatemala to curb migration, The Washington Post reported, with the deployment of 6,000 National Guard troops. The newspaper said Mexico and the U.S. could overhaul asylum rules throughout the region, requiring Central Americans to first seek refuge in Mexico rather than traveling through it to reach the U.S. 

 

With such a plan in place, the United States could send Guatemala asylum seekers to Mexico, and those from Honduras and El Salvador to Guatemala.  

Earlier Friday in Mexico City, President Andres Manuel Lopez Obrador reiterated his own optimistic position. 

Causes of ‘chaos’

 

“There is dialogue and an agreement can be reached,” Lopez Obrador said. “I’m optimistic we can achieve that.” He added it was a mistake, though, for the U.S. to link migration with trade, saying again that migration must be addressed by solving social and economic problems in Central America.

“The causes of the migratory chaos aren’t being analyzed, only the effects,” he said.  

U.S. authorities have said more than 100,000 undocumented migrants, mostly from the three Central American countries, have crossed into the United States in recent months. The U.S. government announced Wednesday that in May, 144,000 migrants were detained at the border, up 32% from April. It was the highest monthly figure in 13 years. 

 

Some Republican lawmakers, normally close political allies of Trump, had said they would try to block any potential tariffs with legislation, which would have drawn wide support from opposition Democrats. Numerous lawmakers feared rising consumer costs for Americans if the tariffs were imposed on Mexican goods, including cars and numerous food products exported to the U.S.

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US Legislators Seek Answers on Boeing 737 Max Defect 

Two key U.S. legislators want answers from Boeing and federal regulators about why the company waited more than a year to disclose that a safety alert in its 737 Max plane wasn’t working properly. 

 

U.S. Reps. Peter DeFazio of Oregon and Rick Larsen of Washington sent letters to Boeing and the Federal Aviation Administration seeking details on what they knew when, and when airlines were told. 

 

The feature is designed to warn pilots when a sensor provides incorrect information about the pitch of the plane’s nose. 

 

Boeing admitted in May that within months of the plane’s 2017 debut, engineers realized that the sensor warning light worked only when paired with a separate, optional feature. 

 

The sensors malfunctioned during flights in Indonesia and Ethiopia. Both planes crashed, killing 346 people in all.