The International Economic Policy Game
All human interaction is characterized by a mixture of competition and cooperation, and that extends to international trade and monetary policy. Which approach is preferable depends on the context, including what the other players are doing.
Koichi Hamada
TOKYO – Until relatively recently, specialists in international relations had little interest in game theory; some were even “frightened” to hear the term, as the chair of one of my presentations put it to me several years ago. Today, many are better informed about the strategic analysis of political actors’ behavior and decision-making. The relevance of such analysis for economic policymaking is no less obvious: each player on the world stage is not acting independently, but rather considers other players’ possible reactions to his or her action.
All human interaction is characterized by a mixture of competition and cooperation. Competition among individuals, businesses, and countries advances human welfare by creating incentives to work hard, innovate, and excel. Cooperation does so by harnessing the strengths of different actors to drive progress toward shared objectives. Which approach is preferable depends on the context, including what the other players are doing.
The mathematical foundations for analyzing both cooperative and non-cooperative interactions among rational agents were developed by the late Nobel laureate John Nash. When there are a large number of participants, and none has a monopoly on power, non-cooperative behavior by many actors can lead to optimal performance. In trade, for example, free competition among economic agents can produce “Pareto efficiency”: resources are allocated in such a way that any reallocation to benefit one actor would hurt at least one other actor.
Competition starts to become a problem when national governments intervene in the game, in order to give their country’s firms an advantage. That is exactly what US President Donald Trump’s administration did when it imposed tariffs on imports from China, which retaliated with its own tariffs on imports from the United States. Far from advancing human welfare, this competition threatens to cause serious damage to both economies – and to the rest of the world.
It’s happened before. The US Smoot-Hawley Tariff Act, enacted in 1930 to protect American farmers and other industries, not only created imbalances by hampering competition among economic agents; it also spurred retaliatory measures, ultimately exacerbating the Great Depression.
So when it comes to trade, we need competition among economic agents, but cooperation among governments. The World Trade Organization was created precisely to facilitate such cooperation, with the WTO Charter dictating that tariffs must be regulated, in order to keep trade broadly beneficial. Within this framework, the Trump administration’s actions are justifiable only if they correct distortions created by China’s trade policy – in particular, its failure adequately to protect intellectual property.
In a world of flexible exchange rates, non-cooperation also serves a useful purpose in monetary policy. Within such a regime – which has prevailed globally since the demise of the Bretton Woods system in 1973 – one country’s monetary expansion, by causing its currency to depreciate, tends to increase employment at home, while undermining employment in countries with which it trades.
As with trade tariffs, this can spur more countries to pursue monetary expansion, in order to weaken their currencies and boost their declining trade competitiveness. The Estonian economist Ragnar Nurkse pointed out, in the 1930s – after the gold standard was abandoned and before the Bretton Woods system was established – such competitive devaluations were “beggar thy neighbor,” leaving both the initiators and the world as a whole worse off.
Barry Eichengreen and Jeffrey D. Sachs demonstrated, however, that countries recovered from the Great Depression only after “jettisoning the gold standard, abandoning deflationary monetary policies, and allowing [their] currency to depreciate.” They showed that non-cooperative monetary policy – set by each country with the objective of achieving domestic macroeconomic stability – produces desirable outcomes for the world. After all, within a flexible exchange-rate regime, a country’s trading partners can always readjust their own monetary policies to counteract or even fully offset any negative effects from its expansionary stance.
Though I once argued that coordination of monetary policy was necessary for better performance under the fixed exchange rate, I now completely agree with them. The rules of the international monetary game changed under flexible exchange rates.
Given this, a laissez-faire approach should prevail in the monetary-policy game. That is why the Trump administration’s criticism of Japan’s monetary expansion – clearly aimed not at impoverishing trading partners, but rather at promoting domestic macroeconomic stability amid very low inflation – is unwarranted.
The balance between competition and cooperation can be difficult to strike. One can only hope for a future in which more political leaders recognize how game theory provides a useful framework for assessing the possibilities and choosing the most promising.
Koichi Hamada is Professor Emeritus at Yale University and a special adviser to Japanese Prime Minister Shinzo Abe.
THE INTERNATIONAL ECONOMIC POLICY GAME / PROJECT SYNDICATE
ZILLOW COULD GET SCORCHED BY COOLING MARKET / THE WALL STREET JOURNAL
Zillow Could Get Scorched by Cooling Market
Zillow says it could make more money in home flipping as prices decline, but analysts fear inventory risk would grow
By Laura Forman
Year-over-year data suggests the housing market has been cooling for months. Photo: Keith Srakocic/Associated Press
Zillow Group ZG 0.63%▲ says it can profit from a cooling housing market, while skeptics fear a downturn could dent the company’s new business. Which side is right? The answer could be coming soon.
Last week, Zillow reported U.S. home values fell from March to April—the first month-over-month decline in housing prices in more than seven years.
And while the company cautions against making too much of a single month’s change, annual data suggests the housing market has been cooling for months. Year-over-year gains in home prices slowed to 6.1% in April, down from 7.5% in April of last year, according to Zillow.
In February, the property-listings company announced a major business shift into home flipping, which involves holding costly inventory. Zillow says it expects to be buying roughly 60,000 homes annually within three to five years. Analysts are now expecting the “Homes” business to make up 58% of Zillow’s overall revenue in 2020 compared with just 4% in 2018.
But that could leave the company vulnerable. Jefferies analyst Brent Thill said he worries a macro downturn could leave Zillow caught holding excess inventory—“a risky situation that is difficult to protect against.”
The economics of the business are still unproven. Zillow says it plans to make money not off a change in home values, but on its service fee, which averaged 7% in the first quarter. But in a downturn, price declines could overwhelm that service fee. The company is currently registering anywhere from a loss of 2% to a gain of 2% before interest expense on each home.
Zillow Chief Executive Rich Barton says he is building a business that works in hot and cold markets, and that Zillow could charge a higher service fee when home prices are falling.
Furthermore, he said the certainty Zillow’s service provides to sellers in knowing when they will sell and for how much could make the business even more attractive in a down market.
Indeed, Mr. Barton says he doesn’t view his business as “home flipping” but rather a market-making service, connecting sellers and buyers and adding liquidity to the market.
Zillow could still get stuck with the inventory but claims it can just sell at lower prices and raise service fees to compensate. The question, then, is how good is its data-based crystal ball?
IN BALTIMORE AND BEYOND, A STOLEN N.S.A. TOOL WREAKS HAVOC / THE NEW YORK TIMES
In Baltimore and Beyond, a Stolen N.S.A. Tool Wreaks Havoc
By Nicole Perlroth and Scott Shane
The National Security Agency headquarters in Maryland. A leaked N.S.A. cyberweapon, EternalBlue, has caused billions of dollars in damage worldwide. A recent attack took place in Baltimore, the agency’s own backyard. Credit CreditJim Lo Scalzo/EPA, via REX, via Shutterstock
For nearly three weeks, Baltimore has struggled with a cyberattack by digital extortionists that has frozen thousands of computers, shut down email and disrupted real estate sales, water bills, health alerts and many other services.
But here is what frustrated city employees and residents do not know: A key component of the malware that cybercriminals used in the attack was developed at taxpayer expense a short drive down the Baltimore-Washington Parkway at the National Security Agency, according to security experts briefed on the case.
Since 2017, when the N.S.A. lost control of the tool, EternalBlue, it has been picked up by state hackers in North Korea, Russia and, more recently, China, to cut a path of destruction around the world, leaving billions of dollars in damage. But over the past year, the cyberweapon has boomeranged back and is now showing up in the N.S.A.’s own backyard.
It is not just in Baltimore. Security experts say EternalBlue attacks have reached a high, and cybercriminals are zeroing in on vulnerable American towns and cities, from Pennsylvania to Texas, paralyzing local governments and driving up costs.
The N.S.A. connection to the attacks on American cities has not been previously reported, in part because the agency has refused to discuss or even acknowledge the loss of its cyberweapon, dumped online in April 2017 by a still-unidentified group calling itself the Shadow Brokers. Years later, the agency and the Federal Bureau of Investigation still do not know whether the Shadow Brokers are foreign spies or disgruntled insiders. Thomas Rid, a cybersecurity expert at Johns Hopkins University, called the Shadow Brokers episode “the most destructive and costly N.S.A. breach in history,” more damaging than the better-known leak in 2013 from Edward Snowden, the former N.S.A. contractor.
“The government has refused to take responsibility, or even to answer the most basic questions,” Mr. Rid said. “Congressional oversight appears to be failing. The American people deserve an answer.”
The N.S.A. and F.B.I. declined to comment.
Since that leak, foreign intelligence agencies and rogue actors have used EternalBlue to spread malware that has paralyzed hospitals, airports, rail and shipping operators, A.T.M.s and factories that produce critical vaccines. Now the tool is hitting the United States where it is most vulnerable, in local governments with aging digital infrastructure and fewer resources to defend themselves.
On May 7, city workers in Baltimore had their computers frozen by hackers. Officials have refused to pay the $100,000 ransom.Credit.
Before it leaked, EternalBlue was one of the most useful exploits in the N.S.A.’s cyberarsenal. According to three former N.S.A. operators who spoke on the condition of anonymity, analysts spent almost a year finding a flaw in Microsoft’s software and writing the code to target it. Initially, they referred to it as EternalBluescreen because it often crashed computers — a risk that could tip off their targets. But it went on to become a reliable tool used in countless intelligence-gathering and counterterrorism missions.
EternalBlue was so valuable, former N.S.A. employees said, that the agency never seriously considered alerting Microsoft about the vulnerabilities, and held on to it for more than five years before the breach forced its hand.
The Baltimore attack, on May 7, was a classic ransomware assault. City workers’ screens suddenly locked, and a message in flawed English demanded about $100,000 in Bitcoin to free their files: “We’ve watching you for days,” said the message, obtained by The Baltimore Sun. “We won’t talk more, all we know is MONEY! Hurry up!”
Today, Baltimore remains handicapped as city officials refuse to pay, though workarounds have restored some services. Without EternalBlue, the damage would not have been so vast, experts said. The tool exploits a vulnerability in unpatched software that allows hackers to spread their malware faster and farther than they otherwise could.
North Korea was the first nation to co-opt the tool, for an attack in 2017 — called WannaCry — that paralyzed the British health care system, German railroads and some 200,000 organizations around the world. Next was Russia, which used the weapon in an attack — called NotPetya — that was aimed at Ukraine but spread across major companies doing business in the country. The assault cost FedEx more than $400 million and Merck, the pharmaceutical giant, $670 million.
The damage didn’t stop there. In the past year, the same Russian hackers who targeted the 2016 American presidential election used EternalBlue to compromise hotel Wi-Fi networks. Iranian hackers have used it to spread ransomware and hack airlines in the Middle East, according to researchers at the security firms Symantec and FireEye.
“It’s incredible that a tool which was used by intelligence services is now publicly available and so widely used,” said Vikram Thakur, Symantec’s director of security response.
One month before the Shadow Brokers began dumping the agency’s tools online in 2017, the N.S.A. — aware of the breach — reached out to Microsoft and other tech companies to inform them of their software flaws. Microsoft released a patch, but hundreds of thousands of computers worldwide remain unprotected.
Microsoft employees reviewing malware data at the company’s offices in Redmond, Wash. EternalBlue exploits a flaw in unpatched Microsoft software.CreditKyle Johnson for The New York Times
Hackers seem to have found a sweet spot in Baltimore, Allentown, Pa., San Antonio and other local, American governments, where public employees oversee tangled networks that often use out-of-date software. Last July, the Department of Homeland Security issued a dire warning that state and local governments were getting hit by particularly destructive malware that now, security researchers say, has started relying on EternalBlue to spread.
Microsoft, which tracks the use of EternalBlue, would not name the cities and towns affected, citing customer privacy. But other experts briefed on the attacks in Baltimore, Allentown and San Antonio confirmed the hackers used EternalBlue. Security responders said they were seeing EternalBlue pop up in attacks almost every day.
Amit Serper, head of security research at Cybereason, said his firm had responded to EternalBlue attacks at three different American universities, and found vulnerable servers in major cities like Dallas, Los Angeles and New York.
The costs can be hard for local governments to bear. The Allentown attack, in February last year, disrupted city services for weeks and cost about $1 million to remedy — plus another $420,000 a year for new defenses, said Matthew Leibert, the city’s chief information officer.
He described the package of dangerous computer code that hit Allentown as “commodity malware,” sold on the dark web and used by criminals who don’t have specific targets in mind. “There are warehouses of kids overseas firing off phishing emails,” Mr. Leibert said, like thugs shooting military-grade weapons at random targets.
The malware that hit San Antonio last September infected a computer inside Bexar County sheriff’s office and tried to spread across the network using EternalBlue, according to two people briefed on the attack.
This past week, researchers at the security firm Palo Alto Networks discovered that a Chinese state group, Emissary Panda, had hacked into Middle Eastern governments using EternalBlue.
“You can’t hope that once the initial wave of attacks is over, it will go away,” said Jen Miller-Osborn, a deputy director of threat intelligence at Palo Alto Networks. “We expect EternalBlue will be used almost forever, because if attackers find a system that isn’t patched, it is so useful.”
Adm. Michael S. Rogers, who led the N.S.A. during the leak, has said the agency should not be blamed for the trail of damage.CreditErin Schaff for The New York Times
Until a decade or so ago, the most powerful cyberweapons belonged almost exclusively to intelligence agencies — N.S.A. officials used the term “NOBUS,” for “nobody but us,” for vulnerabilities only the agency had the sophistication to exploit. But that advantage has hugely eroded, not only because of the leaks, but because anyone can grab a cyberweapon’s code once it’s used in the wild.
Some F.B.I. and Homeland Security officials, speaking privately, said more accountability at the N.S.A. was needed. A former F.B.I. official likened the situation to a government failing to lock up a warehouse of automatic weapons.
In an interview in March, Adm. Michael S. Rogers, who was director of the N.S.A. during the Shadow Brokers leak, suggested in unusually candid remarks that the agency should not be blamed for the long trail of damage.
“If Toyota makes pickup trucks and someone takes a pickup truck, welds an explosive device onto the front, crashes it through a perimeter and into a crowd of people, is that Toyota’s responsibility?” he asked. “The N.S.A. wrote an exploit that was never designed to do what was done.”
At Microsoft’s headquarters in Redmond, Wash., where thousands of security engineers have found themselves on the front lines of these attacks, executives reject that analogy.
“I disagree completely,” said Tom Burt, the corporate vice president of consumer trust, insisting that cyberweapons could not be compared to pickup trucks. “These exploits are developed and kept secret by governments for the express purpose of using them as weapons or espionage tools. They’re inherently dangerous. When someone takes that, they’re not strapping a bomb to it. It’s already a bomb.”
Brad Smith, Microsoft’s president, has called for a “Digital Geneva Convention” to govern cyberspace, including a pledge by governments to report vulnerabilities to vendors, rather than keeping them secret to exploit for espionage or attacks.
Last year, Microsoft, along with Google and Facebook, joined 50 countries in signing on to a similar call by French President Emmanuel Macron — the Paris Call for Trust and Security in Cyberspace — to end “malicious cyber activities in peacetime.”
Notably absent from the signatories were the world’s most aggressive cyberactors: China, Iran, Israel, North Korea, Russia — and the United States.
CHINA EXPLOITS FLEET OF U.S. SATELLITES TO STRENGHTEN POLICE AND MILITARY POWER / THE WALL STREET JOURNAL
China Exploits Fleet of U.S. Satellites to Strengthen Police and Military Power
Beijing reaps benefits from the sensitive equipment, despite U.S. law, aided indirectly by private-equity giant Carlyle Group and Boeing Co.
By Brian Spegele and Kate O’Keeffe
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AsiaSat 9 headed into orbit at Baikonur, Kazakhstan, in September 2017. AsiaSat
Orbiting 22,000 miles above Earth, a fleet of American-built satellites is serving the Chinese government in ways that challenge the U.S.
Nine of these satellites have been part of efforts to connect Chinese soldiers on contested outposts in the South China Sea, strengthen police forces against social unrest and make sure state messaging penetrates far and wide, according to corporate records, stock filings and interviews with executives.
A tenth satellite, under construction by Boeing Co., would enhance China’s competitor to the U.S. Global Positioning System. Besides civilian uses, the navigation system could help China in a potential conflict, such as in guiding missiles to their targets.
U.S. law effectively prohibits American companies from exporting satellites to China, where domestic technology lags well behind America’s. But the U.S. doesn’t regulate how a satellite’s bandwidth is used once the device is in space. That has allowed China to essentially rent the capacity of U.S.-built satellites it wouldn’t be allowed to buy, a Wall Street Journal investigation found.
Tangled webs of satellite ownership and offshore firms have helped China’s government achieve its goals. Some of America’s biggest companies, including private-equity firm Carlyle Groupin addition to Boeing, have indirectly facilitated China’s efforts, the Journal found.
AsiaSat 9, the Hong Kong company’s most powerful U.S.-made satellite to date, being prepared for launch in September 2017. Photo: AsiaSat
All this appears to run counter to the U.S.’s stance of confronting China’s military buildup and condemning what international watchdog groups describe as widespread human-rights abuses by China’s police. That includes in far-flung territories, where the satellites help the government beam communications. Current and former U.S. officials who reviewed the Journal’s findings called the satellite deals worrisome examples of China using U.S. commercial technology for strategic gain.
“It’s a serious ethical and moral problem as well as a national-security issue,” said Larry Wortzel, a former chairman of the bipartisan U.S.-China Economic and Security Review Commission, a group that advises Congress.
Boeing, in response to questions, said it has put on hold its latest satellite deal involving China, the one that would bolster the Chinese rival to GPS. Boeing said it complies with all U.S. laws, as did Carlyle.
China and the U.S. are locked in a battle to dominate the world’s top technologies, such as biotech, chips and communications. U.S. officials say Beijing at times turns to espionage and cyberhacking to achieve its goals. In other cases, such as in the commercial satellite industry, it creatively sidesteps U.S. regulations and leverages American companies’ eagerness for revenue to reap the benefits of the technology it needs to further its strategic goals.
The Chinese satellite workaround has persisted for years. U.S. officials and industry players have said the profits American satellite exports generated could be reinvested in development to keep the U.S ahead. Some defense officials also said China’s use of U.S. satellites gave Washington valuable insight into its rival’s space capabilities. They assumed China would use U.S.-built satellites for benign purposes such as broadcasting sports.
A Hong Kong company called Asia Satellite Telecommunications Co. has long been a bridge between mainland China and U.S. satellite makers. AsiaSat is jointly controlled by Citic Group—a conglomerate owned by China’s central government—and Carlyle, which together own about 75% of the firm.
Under U.S. export controls, semiautonomous Hong Kong is considered separate from mainland China, so AsiaSat could buy U.S. satellites despite being partly Chinese-owned. Over the years, AsiaSat has put in orbit nine satellites built by U.S. companies, including Boeing and SSL, a Palo Alto, Calif., unit of Colorado-based Maxar Technologies Inc.A majority are still operating.
AsiaSat offers communications services across the Asia-Pacific, such as news and sports broadcasting. Its English-language financial filings and other statements make little mention of the use of its bandwidth by China’s government.
A fuller picture emerges in dozens of Chinese-language statements on the website of a Citic unit that has been responsible for marketing AsiaSat’s bandwidth in mainland China over the past decade.
Since AsiaSat launched its first satellite around 30 years ago, the Chinese government has used it to link state-run broadcasters to the provinces. “The country is rich and the military is mighty,” Citic said on its website in 2015 after AsiaSat helped broadcast a lavish military parade in Beijing. “Satellite communications are evidence of the nation’s development.”
China’s Ministry of Public Security has described satellites as core to police operations. Its records show the ministry relied on a satellite called AsiaSat 4, manufactured by Boeing, and one called AsiaSat 5, made by SSL, as it worked to build rapid-response forces capable of providing real-time audio and video from the field.
Citic’s satellite unit for years touted its links to the Chinese government. In 2008 and 2009, Citic said, AsiaSat’s satellites helped ensure communications for authorities as they quelled antigovernment protests and riots in Tibet and in Xinjiang, a heavily Muslim region in far-northwest China.
At a 2011 industry conference, a Citic manager listed the Ministry of State Security, China’s main spy agency, and the military as among a long list of end users of its satellite capacity for emergency responses, according to a copy of the presentation reviewed by the Journal.
Citic referred questions from the Journal to AsiaSat. AsiaSat declined to comment on individual users of its bandwidth.
In a statement, AsiaSat said China’s military wasn’t a direct customer but used capacity that was first procured by telecommunications operators for disaster relief.
AsiaSat said it didn’t know how the authorities used its bandwidth in response to the Tibet and Xinjiang uprisings. It declined to comment directly on whether its bandwidth is being used today by the police in Xinjiang, where authorities have been building an all-encompassing surveillance state and sending as many as a million ethnic Uighurs to internment camps. AsiaSat said it had no ability to retroactively monitor the contents transmitted via its satellites.
AsiaSat’s chairman is a managing director of Carlyle, which is among the largest and most politically connected private-equity firms, investing in sectors including defense, telecom and health care. Former U.S. Defense Secretary Frank Carlucci was Carlyle’s chairman for a decade. Former Secretary of State James Baker and the late President George H.W. Bush served as paid advisers at one time.
Carlyle said in a statement that AsiaSat’s equipment supports phone and web communications for Chinese phone companies’ customers, “just as IntelSat provides service to Verizon or AT&T in the U.S.”
“It is effectively a pipe,” Carlyle added, “and AsiaSat, because of privacy issues, doesn’t monitor or regulate the content that flows through it.”
A Carlyle spokesman added that the private-equity firm sends annual reports to the State Department to confirm AsiaSat’s compliance with U.S. export controls, ensuring that sensitive technical information is shared with authorized users only.
Starting in 2013, Citic said a Chinese state telecom operator tapped the Boeing-built AsiaSat 4 to provide 3G mobile internet to the Spratly Islands in the South China Sea. There, China has been building military infrastructure in a bid to control waters also claimed by the Philippines, Vietnam and others.
“Communications have always been a difficult problem for the soldiers and civilians facing hardships on the islands, making their lives, work and battle preparations hugely inconvenient,” Citic said at the time. U.S. officials began objecting to what they saw as Beijing’s militarization of the South China Sea, but China pushed ahead, with Citic saying connection speeds had been boosted to 4G in 2016.
A year later, Citic pledged to help China “uphold the country’s maritime rights and interests,” repeating a phrase the military and Foreign Ministry often use.
AsiaSat described its services in the South China Sea as being available for any user who needed it, including “fishermen and people on cruise ships or public vessels.”
Roger Tong, AsiaSat’s chief executive, said in an interview the company also previously provided coverage to China’s coast guard, but it didn’t engage directly with the military.
He said AsiaSat’s American purchases added more than $1.5 billion to the U.S. economy.
“AsiaSat should be seen as a success story in how two superpowers should work together,” Mr. Tong said.
The company’s financial filings show it earns around a quarter of its revenue from China, with the rest coming from offering connectivity elsewhere such as rural Australia. AsiaSat said its commercial technology doesn’t have advanced security features required for military communications. It said it takes regulatory obligations seriously.
AsiaSat 6, based on Space Systems Loral 1300 platform, was launched in September 2016. Photo: AsiaSat
China’s Defense Ministry, in response to questions about the deals, said: “Covering the full extent of our country’s territorial sovereignty is a very ordinary matter.”
Meanwhile, AsiaSat decided to drop U.S. government-funded outlets Radio Free Asia and Voice of America. They have been a thorn in the side for Beijing, beaming coverage of politically sensitive topics. AsiaSat in recent months told the U.S. Agency for Global Media, which manages the outlets’ contract, that it wouldn’t extend satellite services beyond June.
AsiaSat’s Mr. Tong said the decision was made for purely commercial reasons.
SSL, the Palo Alto satellite maker, has sold five satellites to AsiaSat in the past decade. SSL said it complied with all relevant U.S. laws, and the satellites didn’t include military encryption technology.
“Our satellites are built for commercial use,” said David Lihani, the company’s chief trade compliance officer.
Boeing said the satellite that became AsiaSat 4 was built under a deal negotiated by Hughes Space & Communications, pushed forward by Boeing after it acquired Hughes. Boeing said it wasn’t aware of any transfer of satellite technology that would have violated its export license. It said it was neither possible nor required by law to monitor each bandwidth user after a satellite it built is in space.
“The State and Commerce departments over four administrations—and most recently in 2017—have reviewed and approved export licenses for the AsiaSat satellite constellation to provide commercial bandwidth services to the Asia region, including China,” Boeing said.
A separate Journal investigation in December showed how a Chinese state-owned firm used offshore financing to funnel around $200 million to a commercial satellite project under development by Boeing. The company cancelled that deal following the report, citing customer default, and federal agencies launched investigations.
A Commerce Department spokesman said that though the agency regulates satellite exports, it doesn’t regulate bandwidth usage.
Commerce “regularly updates its regulations to counter evolving national security threats,” the spokesman said, and has a policy of denying export licenses when exports are contrary to the national security or foreign policy interests of the U.S., including promoting human rights.
The State Department, which also regulates satellite technology, said the U.S. “strongly urges companies to implement stringent safeguards to ensure that their commercial activities do not contribute to China’s human-rights abuses.” It condemned Beijing’s militarization in the South China Sea.
One of the latest transactions involving offshore companies and U.S. space technology involves an advanced satellite Boeing has contracted to build called Silkwave-1.
At the center of the deal is a Hong Kong company called CMMB Vision Holdings Ltd.Its founder, Chau-Chi Wong, was born in mainland China and attended Harvard University before eventually working for Goldman SachsGroup Inc.
Chau-Chi Wong, CEO of CMMB Vision Holdings, playing violin at a company office in Hong Kong last month. Photo: Billy H.C.Kwok for The Wall Street Journal
Mr. Wong said he had a deep affinity for the U.S. but was also a Chinese patriot. “We need the best technology for China,” he said.
Mr. Wong said his company could help alleviate congestion on China’s cellular network by using Silkwave-1 to broadcast content to connected devices, such as cars, rather than have people rely solely on cellular data. In a national emergency or wartime, he said, this could theoretically enable China’s leaders to connect to its 1.4 billion people with rapid nationwide alerts.
A U.S.-based partner of CMMB Vision, called New York Broadband LLC, which Mr. Wong also partly owns, will purchase the Boeing satellite, then essentially lease its capacity to CMMB Vision, Mr. Wong said. It’s a complicated arrangement that he and Boeing said U.S. officials had approved.
Soon after it inked the deal, CMMB Vision said China’s top economic planning body designated its work a “key national development project.” In Beijing, CMMB Vision then gave a majority stake in its China operation to a state-run broadcaster, a move Mr. Wong said was to comply with Chinese regulations.
Mr. Wong said his company wants to support President Xi Jinping’s Belt and Road initiative to deepen China’s influence in the developing world, with plans to extend the Silkwave-1’s services beyond China’s borders.
A cyclist riding past satellite dishes at AsiaSat offices in Hong Kong. Photo: bobby yip/Reuters
The company also plans to use the Boeing-built satellite to increase the precision of Beidou, China’s military-backed alternative to the U.S. GPS. In late 2017, CMMB Vision’s China joint venture partnered with a unit of China Aerospace Science and Technology Corp.—a state-owned space equipment and weapons producer—to use satellite signals from CMMB Vision to make Beidou more accurate.
U.S. officials have described Beidou as critical to China’s global ambitions. An April report by the U.S.-China Economic and Security Review Commission said Beidou could both improve China’s missile guidance and reduce its reliance on GPS.
Mr. Wong said Silkwave-1 would support Beidou’s commercial applications only. Pressed on whether he could guarantee China’s military wouldn’t benefit from his satellite, he said it would be illogical for the military to use such commercial technology.
“If out of desperation they want to use it, that they can do,” he said. “It’s not our business model.”
UNDERSTANDING THE ECONOMY: WHERE WE ARE HEADING / SEEKING ALPHA
Understanding The Economy: Where We Are Heading
by: Eric Basmajian
- Growth is undeniably slowing but the question is about the second half recovery (or lack thereof).
- Can the stock market continue to go up in the face of growth slowing?
- Where is the U.S. economy slowing?
- Can the U.S. economy continue moving forward without autos and housing?
Understanding The Economy: Where Are We Headed?
In growth rate terms, the coincident index has continued to decelerate, moving from a peak rate of 2.76% to 1.97%.
While the economy is not yet vulnerable to a recession, as the growth rate of the coincident index continues to deteriorate, that risk rises.
An Update On Cyclical Sectors - Housing, Autos and Durable Goods And A Word On Sequence
Looking at the same index, but in year-over-year growth rate terms shows that we are at one of the lowest levels of growth this economic cycle. The growth rate is not contracting but there has been a marked deceleration in growth.
While this may resolve itself in a soft landing, the chance that it does not could result in another 50% decline in your portfolio, something that has happened during the past two recessionary periods.
The consumption of household furnishings and general furniture has pulled back from a growth rate north of 10% to just 2.25% year over year as of the latest report.
There is clearly and undeniably a consumer slowdown in progress. The growth rate in the consumption of watches and general jewelry has pulled back from a reading above 10% to a contraction of 1% year over year.
There has clearly been a marked slowdown in consumption of various big-ticket items in the economy. The slowdown of housing, auto sales, and durable goods consumption typically proceeds broader economic contraction due to the three conditions mentioned at the start of this section.
Now a word about the sequence of data and how this slowdown starts to ripple.
Now that we have seen a marked pullback in consumption, let's look at production and the areas of production linked to those goods mentioned above.
Has This Impacted Production?
All of these data sources are some of the highest quality and most trusted data available.
At EPB Macro Research, we never stop with the headline metric. The industrial production report is categorized by industry group, most specifically manufacturing, mining and utilities.

Going into the manufacturing sector, we find the breakdown of durable goods and nondurable goods.
In this analysis, we are more concerned with durable goods as that category is more cyclical and contains the goods discussed in prior sections of this analysis.

What is dragging durable goods production and aggregate manufacturing lower?
The other category mentioned briefly in the consumption section was the dramatic pullback in the production of major household appliances which we can see has been under pressure since 2015, now down 5.56% year over year.
If we look at a chart of both household appliances consumption on top of household appliances production, the correlation is clear.
To demonstrate that the auto sector is what is dragging the entire manufacturing sector lower, we can look at the special categories section of the industrial production report and note that growth actually ticked up in the latest report when looking at industrial production excluding motor vehicles and parts.
This is not to suggest we should ignore the declines but rather to confirm the main drag is autos and also to highlight just how severe the decline in autos must be if it can turn the aggregate index from acceleration to a marked deceleration.
Industrial Production Growth Excluding Motor Vehicle & Parts (%):
As we continue to peel back the onion on the analysis of where the slowdown in the U.S. economy is radiating from, we are increasingly confident the auto sector is the main drag.
Has This Impacted Employment?
If we dig a little deeper, we can sum the weekly hours worked and the weekly overtime hours worked of production level manufacturing employees and the trend is even more clear.
Aggregate weekly hours of production level manufacturing employees (hours + overtime hours) has declined rapidly since the start of 2018 and the growth rate has fallen to -1.53% year over year.
The Feedback Loop To Income
EPB Macro Research uses composite leading indicators and a wide range of economic data to properly prepare for inflection points in the economic cycle.
Bienvenida
Les doy cordialmente la bienvenida a este Blog informativo con artículos, análisis y comentarios de publicaciones especializadas y especialmente seleccionadas, principalmente sobre temas económicos, financieros y políticos de actualidad, que esperamos y deseamos, sean de su máximo interés, utilidad y conveniencia.
Pensamos que solo comprendiendo cabalmente el presente, es que podemos proyectarnos acertadamente hacia el futuro.
Gonzalo Raffo de Lavalle
Las convicciones son mas peligrosos enemigos de la verdad que las mentiras.
Friedrich Nietzsche
Quien conoce su ignorancia revela la mas profunda sabiduría. Quien ignora su ignorancia vive en la mas profunda ilusión.
Lao Tse
“There are decades when nothing happens and there are weeks when decades happen.”
Vladimir Ilyich Lenin
You only find out who is swimming naked when the tide goes out.
Warren Buffett
No soy alguien que sabe, sino alguien que busca.
FOZ
Only Gold is money. Everything else is debt.
J.P. Morgan
Las grandes almas tienen voluntades; las débiles tan solo deseos.
Proverbio Chino
Quien no lo ha dado todo no ha dado nada.
Helenio Herrera
History repeats itself, first as tragedy, second as farce.
Karl Marx
If you know the other and know yourself, you need not fear the result of a hundred battles.
Sun Tzu
We are travelers on a cosmic journey, stardust, swirling and dancing in the eddies and whirlpools of infinity. Life is eternal. We have stopped for a moment to encounter each other, to meet, to love, to share.This is a precious moment. It is a little parenthesis in eternity.
Paulo Coelho

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