Covid-19 encourages governments to play the meddling matchmaker

The misguided Nissan-Honda merger proposal is unlikely to be the last such effort from panicking officials

Leo Lewis


© Ingram Pinn/FT



When Soichiro Honda gave interviews on camera, the great industrialist would fizz with passion on a variety of subjects — from cutting-edge motorbike engines to vintage British sports cars. 

But what really ignited the late founder of Honda Motor was despair at his own government — a misguided (as he saw it), imagination-starved suppressant of the kind of dreams on which he had built his remarkable company. This, after all, was a cabal of politicians and bureaucrats who had derided Honda’s global growth strategy and tried to prevent it entering the car market and competing with favoured champions Toyota and Nissan. When the Honda S500 was released in 1963 it was part chic roadster, part blistering defiance from a man who once declared “I’m not going to do anything the government tells me to.”

So we can hazard a guess at what Honda, were he alive today, would have made of the recent attempt by top echelons of the Japanese government to prod his company into merger talks with its arch-rival, Nissan. The fact that neither carmaker was remotely enthusiastic, and that the idea has — for now — been allowed to fizzle, is not the point.

Although the doomed effort slightly predated the Covid-19 pandemic, it has come to light at a pivotal time. For many industries, even short-term survival in the crisis may depend on substantial restructuring. Some of that, say veteran investors, will involve such hastily conceived mergers of companies whose corporate DNA throbs with contempt for their nearest domestic rivals.

In Japan, one consequence of the pandemic, say deal bankers and several prominent chief executives, has been to reawaken the government’s urge to meddle. It has given senior figures and ministries the idea that they now have a proactive role to play in fortifying and reshaping a corporate world in crisis.

Yet, while Japan’s highly fragmented economy looks especially ripe for consolidation, it may well not be the only place where those instincts kick-in. Germany and South Korea are cited as countries where companies may experience similar pressures. The superficially defensive — but flawed — domestic merger proposal looks primed to become a defining unit of government interference. M&A lawyers say that may be compounded as companies are unable to perform adequate due diligence on overseas targets and turn to defensive deals that can be done at home.

The failed effort to bring Nissan and Honda together is instructive. The vision that came from the government was simplistic, and prone to repetition. By the end of December, when the idea emerged, there was no longer any disguising the fragility and irascibility of Nissan’s 20-year alliance with its French partner, Renault.

There were concerns that Nissan could be left exposed by a further breakdown in relations and there was a pre-emptive panic in government circles about how to prepare for that. Honda — still independent but also beginning to look vulnerable amid its global rivals — was the solution of a meddling matchmaker whose default template is the national champion.

A few people point to ways in which a Nissan-Honda tie-up might have some operational logic, even if it would, in practice, prove impossible to realise. Analyst Mio Kato, in a note on the SmartKarma platform, cited the potential for co-operation on electric, hybrid and fuel-cell vehicles. But, in reality, say the top executives of Japanese megabanks, steelmakers, oil refiners and others that have undergone the process, domestic mergers become supremely difficult from the moment integration begins and expectations of compatibility are shattered.

Counter-intuitively, said one banking chief executive, they may be more difficult than large-scale integration with foreign companies, where the starting point is an assumption of culture clash and a determination to overcome that.

The idea of getting Nissan and Honda together for talks required multiple suspensions of disbelief. It also illustrates a misunderstanding about how two of Japan’s most famous companies actually work. There were many reasons that the prospect of fruitful talks was so low: the 43 per cent stake in Nissan held by Renault; the geographic overlap; the debilitating management distraction of righting the Nissan ship after the chaos of former chairman Carlos Ghosn’s departure; and the unique engineering designs of Honda’s cars that make standardised supply chains difficult.

But infinitely clumsier was the government’s institutional amnesia over Honda’s history of dealing with “suggestions” coming from the corridors of power. The fact that Honda has an automotive business to merge with Nissan at all is because, woven into its fabric, is a contempt for the authority wielded by government economic planners.

The idea that a crisis might cause Honda to rethink that position underestimates the extent to which its founder’s passions — and his famous insistence that the government “was incapable of making automobiles, but I was” — still infuse the company almost three decades after his death.

The Japanese government’s problem, if Covid-19 does lure it further into the corporate matchmaking game, will be the realisation of how many quiet Hondas are lurking in corporate Japan — facing pandemic-induced crisis but fiercely protective of their culture and knowing full well why their industries have remained fragmented for so long.

Huawei and the tech cold war

China v America

Doing business with China



Nineteen years ago an unknown Chinese company set up its first European sales offices, in a suburb of Frankfurt and an English commuter town, and started bidding to build telecoms networks.

Today Huawei symbolises the daunting rise of China Inc—and a global trading system in which trust has collapsed. With sales of $123bn, it is known for its razor-sharp prices and dedication to the industrial goals of China’s rulers.

Since 2018 America has subjected it to a legal assault, making it a flashpoint in the trade war. Now Britain has said that it will block Huawei from its 5g networks. Other European countries may follow. But far from showing the West’s resolve, the saga reveals its lack of a coherent strategy. If open societies and authoritarian China are to keep their economic links and avoid a descent into anarchy, a new trade architecture is needed.

America’s security chiefs have always worried that Huawei’s equipment was designed to aid spying and would make its customers dependent on subsidised Chinese technology. But over 170 other countries decided the risks were manageable. Britain, which works closely with America on intelligence, created a “cell” of cyber-experts to monitor Huawei’s gear in 2010 and, later, confined it to less sensitive parts of the network. Other countries mirrored this approach. It offered a middle way between a naive embrace of Chinese state capitalism and a cold war.


Such a finely balanced judgment has proved untenable. The Trump administration has urged the world to ditch Huawei and enforced a unilateral embargo on its suppliers, preventing sales of some components as well as chips made abroad using American tools.

Forced to choose between an ally and a supplier, Britain was inevitably drawn to this week’s decision. It has become riskier for anyone to do business with a firm Uncle Sam wants to cripple. Huawei, for its part, has failed to reassure

Britain’s cyber-experts, who have complained that its buggy software is getting harder to monitor, or to reform its opaque governance and ownership. Any remaining illusions that China’s leaders respect the rule of law when it really matters have been shattered by events in Hong Kong.

The direct cost of ripping Huawei out of European networks is tolerable—adding less than 1% to Europeans’ phone bills if amortised over 20 years. Ericsson and Nokia, two Western suppliers, can ramp up production and new competition may emerge as networks come to depend more on software and open standards.

The true burden has nothing to do with antennae but stems from the decay of the world’s trading system. Perhaps a dozen countries might end up banning Huawei—Germany is sitting on the fence.

But it will still be used in much of the emerging world, hastening the splintering of the tech industry. Trade relies on common rules but Britain’s decision has been made amid a swirl of lobbying and threats. It is hard to elicit a principle behind it that can be usefully applied more broadly.

If the problem is gear made in China, then Ericsson and Nokia do that, too. If it is Chinese firms building systems which connect devices (in the case of 5G, robots and machines), then a similar logic could be applied across a digitising world economy. German cars and Apple phones sold in China are packed with software, data and sensors. Is China entitled to ban them, too?

This feeds a spiralling sense of lawlessness. The average tariff on Sino-American trade is 20%. Direct investment flows from China to Europe have dropped by 69% from the peak in 2016, according to Rhodium, a research firm. Other firms are caught in the crossfire. TikTok faces a ban in India and, perhaps, America.

China plans to impose sanctions on Lockheed Martin for selling arms to Taiwan. Now that President Donald Trump has ended Hong Kong’s special status, HSBC, a bank with huge interests there, could be subject to punishment by both China and America. Some Chinese lenders may be banned from dealing in dollars.

The logic of the Huawei ban is one of disengagement and containment. But this will not work if it is applied across the entire economic relationship. The West’s last great authoritarian rival, the Soviet Union, was a trade minnow. China accounts for 13% of world exports and 18% of world market capitalisation, and is the dominant economic force in Asia.

Instead a new trade regime is needed that acknowledges China’s nature. That is not easy. The World Trade Organisation (WTO), which aims to set universal rules, has failed to evolve with the digital economy.

Nor was it prepared for President Xi Jinping’s drive to increase state and Communist Party influence over private Chinese firms and those, like Huawei, which say they are mutually owned by workers.

Disillusioned with the WTO, the Trump administration’s negotiators unilaterally tried to wrestle China into liberalising its economy and cutting subsidies, using the threat of tariffs and embargoes. That has been a fiasco.

So how should the trade architecture work in an age of mistrust? The goal should be to maximise trade consistent with both sides’ strategic security. That means fencing off flashpoints, such as tech, that generate lots of tension but a minority of trade: perhaps a third of Western firms’ sales to China based on our analysis of Morgan Stanley’s data, for example.

These sectors will require scrutiny and international security certification of the kind Britain tried with Huawei. It may not work. But at least commerce in other areas can flourish.

Chinese firms should also be required to accept open governance of their big subsidiaries in the West, including local shareholders, foreign directors and managers with real autonomy, and disclosures that all help create a degree of independence from the state. This is not hard: multinationals such as Unilever have been doing it for decades. TikTok could be a pioneer.

The ultimate network effect

Open societies are stronger when they act in unison. Europe may be tempted to go it alone, ending decades of transatlantic co-operation. Yet at some point, soon if Mr Trump fails to win a second term, America will reinvigorate its alliances because it has been less effective without them.

The West cannot fundamentally change China or ignore it. But by acting together, it can find a way to do business with an authoritarian state it mistrusts.

Huawei marked a failure to do this. Time to start again.

The comfort of cash in a time of coronavirus

Americans have been hoarding cash during the pandemic, presenting the Federal Reserve with an expensive challenge
 
Brendan Greeley in Washington




At Sunshine Ace in Naples, Florida, signs have been put up to encourage contactless payments during the coronavirus pandemic. Employees at the chain of hardware stores constantly wipe down the touch pads of debit card readers, and at each checkout counter the chain has installed plexiglas shields.

When Michael Wynn, Sunshine’s third-generation owner, checked his books for June, payments in cash had dropped slightly since the start of the pandemic. It looked like another sign of the steady demise of cash.

Yet that is not the whole story.

The resilience of paper money — again illustrated during the pandemic — means the hardware chain and many other retailers like it cannot plan to get rid of bills and coins entirely.

Customers at Ace’s stores in poorer parts of southwestern Florida still like to pay for paint and hammers with cash.

At Ace’s Port Charlotte branch, cash was 19.3 per cent of sales in June, compared with an average of 13.3 per cent for all its stores. Parts of Florida, which on Tuesday reported 133 coronavirus deaths — a one-day record for the state, have returned to lockdown.

But Sunshine Ace has stayed open. Mr Wynn’s customers are showing what financiers would call a higher “liquidity preference” — they’re borrowing what they can and holding on to their cash in a time of uncertainty.

Early in the pandemic, he says, customers also loaded up on propane and water, the way they would if preparing for one of Florida’s frequent hurricanes. As storms approach, the state tells its citizens to have cash available.

“I think it’s a form of comfort,” says Mr Wynn, “because those are typically things we’ve done for our families — like taking out cash.” Retail surveys and data from the Federal Reserve support Mr Wynn’s theory.

Cash use at the till has declined slightly during the pandemic, as consumers accelerate the shift to electronic payments. But just like the period before a natural disaster, there has been a spike in cash withdrawals in the US.

While customers at Ace hardware are encouraged to use contactless payment, cash is still used by a substantial number of customers © Rory Doyle/Bloomberg




Americans are using less cash but they are holding more, which presents a challenge for the Federal Reserve and other central banks around the world. They have to maintain a vast network of secure printers and depots to deliver cash to where it is needed. As people use less cash, each piece of this infrastructure gets more expensive to operate.

But central banks will not be able to wind it down completely, for two reasons. First, the poor are more likely to still use cash, exacerbating the “digital divide”. And second, in a crisis, everyone wants a fistful of dollars.

“[Cash is] the one asset that people are pretty confident isn’t going to lose value,” said Eric Rosengren, president of the Boston Fed, in March.

“And so people are deciding they’d much rather hold more of their assets in cash.”



Demand for paper

In normal years, the Fed’s weekly measure of currency in circulation is metronomically cyclical. Cash in hand peaks in the last week of December, as people give gifts of crisp dollars in envelopes.

Then it drops again in January, as the dollars get deposited. As the coronavirus crisis began to intensify from March, currency held outside of banks began to shoot up. At the end of June it was 13 per cent higher than the same time last year, and up 8 per cent since the end of February alone, the most dramatic move since the Fed’s data began in 1975.

Fed policymakers say this behaviour is not evidence of a lack of faith in banks, and that there is no danger that an automated-teller machine will fail to produce bills.

In March, Patrick Harker, president of the Philadelphia Fed, told the FT: “We have more than enough capacity to hand over demand,” he said, adding that demand had increased.

The Fed is watching currency orders from banks closely and as always has a stock of bills ready, according to its board of governors in Washington.

In June, the Fed cautioned banks that consumers were depositing less change and the US Mint had been producing fewer coins as it carried out social distancing at its plants. As a result, the central bank is currently limiting its distribution of small change to banks.

Eric Rosengren of the Boston Fed: ‘People are deciding they’d much rather hold more of their assets in cash’ © Andrew Harrer//Bloomberg



Mr Rosengren says that a small number of wealthy people withdrew large amounts of cash in his district early in the pandemic, as an unimpeachable hedge when markets for even safe financial assets, like Treasuries, were behaving strangely.

Mostly, though, he believes that the withdrawals were just precautionary decisions by ordinary Americans.Bill Maurer, an anthropologist at the University of California, Irvine, who studies payments, calls the decision to withdraw cash “contextually rational”.

It’s not that people are worried about how the Fed distributes cash, he says. It’s that, as in any disaster, people are worried about everything else — the electrical grid, or the mobile network.

Frederick Wherry calls the phenomenon “comfort-food hoarding”. A sociologist at Princeton and an adviser to the Boston Fed, he says hoarding can be a response to feelings of helplessness or isolation.

When people eat real comfort food, he adds, “they are just trying to maintain a sense of stability and trying to have an object that feels familiar and stable. And to a large extent, paper money has been that.”



Diary of payments

Every year the Fed asks a group of about 3,000 Americans to keep a diary of how they pay for things. According to those accounts, the use of cash has been steadily dropping in the US — to 26 per cent of transactions in 2018, down from 31 per cent in 2016. There are conflicting reports of whether the pandemic has accelerated that process.

At the end of June, a survey by RTi Research showed that 32 per cent of Americans reported using less cash in the previous two weeks. That is down from a recent high of 38 per cent at the end of May, but up from 27 per cent in mid-March.

An April survey of firms by 451 Research, an arm of S&P Global Market Intelligence, showed 31 per cent of customers using less cash than before the pandemic, but 19 per cent using more.

“Cash is dying a very slow death,” says Jordan McKee, an analyst at 451. He adds that it is “a death we won’t see in our lifetimes”.


Federal Reserve data show cash use at the till has declined slightly during the pandemic as consumers accelerate the shift to electronic payments © Eric Baradat/AFP



The Fed’s diary data support the anecdotal sense from retailers that poorer, older Americans are more likely to pay with cash. And its basic obligation to provide cash has not changed.

Central banks still have to provide all citizens with a way to make payments, and they have to be ready to react to sharp spikes in demand for physical currency.

Complicating those plans is the new era of social-distancing at workplaces, such as the Fed’s cash-processing depots where key workers move cash in and out of armoured vehicles.

Regardless of any fall off in the use of cash, central banks in many developed countries will not see a proportional reduction in the costs associated with the infrastructure of depots and employees engaged in moving paper around a country.

The essential plumbing does not get any less complicated or expensive to operate. In the UK, the Bank of England and a group of commercial institutions are investigating how to make it cheaper for banks and stores to use cash, after an independent review found there was little point to shoring up the country’s disappearing ATM system if stores were going cashless.

A similar project is under way in New Zealand. Other countries are looking to Sweden. Cash use there is down to 15 per cent of transactions, and the Riksbank has become a leader among central banks in developing a digital currency.

But Sweden, too, has recognised that it cannot let its ability to move cash around atrophy completely.

In April, a Riksbank report pointed out that “it is difficult to get cash to work in the way it is intended in times of heightened alert and war, if cash is not used to a certain extent in normal times as well”.


Sweden’s Riksbank has become a leader in developing a digital currency in the country © Mikael Sjoberg/Bloomberg


Money factories

The Miami branch of the Federal Reserve Bank of Atlanta sits west of the airport, across the street from the four golf courses of the Trump National Doral.

To even get to the parking lot, a visitor has to follow a procedure similar to what it takes to enter a US embassy in a hostile country.

Inside the branch is a warehouse full of stacks of dollars. Asked how much money is piled up, a Fed employee says: “I would go with ‘a lot!’”, adding: “We don’t talk about specifics”.

The cash is distributed and moved via armoured trucks from the US Treasury’s printers to one of 27 depots like the one in Miami, then to banks, then back to the depots, as banks take in cash deposits.

Bays inside the Miami depot open for the trucks returning from commercial banks. The bills get wheeled into rooms with machines built by a German company, Giesecke & Devrient. These count and examine 40 bills a second.

Old bills are shredded immediately.Together, the Fed’s cash depots move 33bn bills a year. But the one in Miami looks less like a bank, and more like a factory.

“Cash is the payment vehicle that’s most often taken for granted,” says Mark Gould, head of the Fed’s Cash Product Office.

“You know, when people go to the ATM, there’s generally money there.”


Mark Gould of the Fed’s Cash Product Office: ‘I often say that cash is the payment vehicle that’s most often taken for granted. When people go to the ATM, there’s generally money there’ © John Moore/Getty



“When I hand you a $10 bill, hey presto, $10 of value has been transferred,” adds Prof Maurer, the anthropologist.

“Now of course we know there’s an enormous infrastructure behind that act, a set of systems that give the dollar value and that also allow it to settle at face-value level at par.

That’s all the work of the Fed and the Cash Product Office. But that’s invisible to us.”


Natural disasters

That work becomes more difficult during a natural disaster. After Hurricane Katrina in 2005, the Atlanta Fed realised that its New Orleans branch, on relatively high ground on historic St Charles Avenue, had become stranded, and unable to distribute cash.

The Fed introduced a system that allowed it to hand off orders to adjacent branches if any became unreachable — a system that was replicated with the Houston branch of the Dallas Fed during Hurricane Harvey in 2017.Just two weeks after Harvey came Hurricane Maria.

On the Monday after Maria made landfall, devastating the US territory of Puerto Rico including its electricity network, cash orders from the island were up more than 800 per cent.

To supply enough small bills for transactions, the Fed’s Cash Product Office needed an airlift.


Currency in circulation in the US is 13% higher than it was this time last year © Richard Levine/Alamy


Commercial flights to the island were filled with humanitarian supplies, so the Fed had to charter its own secure flights to get cash packs to San Juan, the capital.

The Cash Product Office was in constant contact with armoured carriers on the island — transporting the bills that were too heavy for a helicopter — to know which roads were still passable. The Fed is not the only central bank that has to respond to hurricanes.

In 2017, Banco de México announced “Plan Billete,” an agreement with the country’s commercial banks. The central bank owns and operates two Bombardier aircraft, and within 48 hours of an earthquake or an extreme weather event it can deliver cash anywhere in the country, along with telecommunications and point of sale equipment that can both distribute cash disaster benefits, and offer access to commercial accounts. Several central banks in Asia have looked into Plan Billete as a model.Severe hurricanes are more regularly making landfall.

And planners are already looking at what it means for the Fed and its cash flow challenge if such events become even more common as a result of climate change.

“I think one of the questions that we don’t know the answer to is, how will storm patterns change,” says Mr Gould.


Any increase in natural disasters could have implications for the Federal Reserve’s distribution of cash © Shannon Stapleton/Reuters


Back in Florida, Amanda Burke, a manager at a Sunshine Ace store in San Carlos, says that when her electronic payment systems briefly went down after Hurricane Irma in 2017, some people were reluctant to pay with cash.

Ms Burke’s customers were saving their dollar bills, she suspects, in case they needed them for food. Her experience is similar to that of millions of people across the US during the pandemic: they want cash, but they don’t necessarily want to use it. Holding on to a stack of bills, says Prof Maurer, is “the recognition that in a pinch I can use cash and it will work with anybody.

I don’t need a point of sale terminal. I don’t need to have [payment apps] PayPal or Venmo or Square. I can just go next door and say ‘Hey, I’m desperate for toilet paper.

Here is a five-dollar bill’.”

Interview with John Bolton

"Trump Is Capable of Almost Anything"

Interview Conducted by Susanne Koelbl und René Pfister

John Bolton in the Oval Office in 2019: "Part of Trump's difficulty with international affairs is his lack of any philosophical basis. He has no philosophy."
John Bolton in the Oval Office in 2019: "Part of Trump's difficulty with international affairs is his lack of any philosophical basis. He has no philosophy." Foto: Doug Mills / NYT / Redux / laif


DER SPIEGEL: Mr. Bolton, Donald Trump had already begun firing barbs at German Chancellor Angela Merkel back when he was still one of many Republican candidates for president. Merkel's refugee policies, he said at the time, had been a "disaster for Germany." Do we have the wrong impression, or is Trump rather obsessed with the German chancellor?

Bolton: Trump's relationships with Chancellor Merkel and (former British Prime Minister) Theresa May were two of the most difficult that I saw. I think there's an element of increased difficulty with female foreign leaders. But with Merkel, it's kind of complicated - the president's father was German, so that might have something to do with it.

But there are also political reasons. U.S.-EU trade relations have been a major source of controversy between the U.S. and Germany. Then there is the issue of support for NATO and the agreement that each member state would spend 2 percent of GDP on defense, which Germany is behind on.

DER SPIEGEL: Trump, though, has similar conflicts with a number of other world leaders. Could it be that he simply has a problem with women?

Bolton: I do think that is a factor. But he has a problem with a lot of democratically elected leaders, male or female. He seems to have better relations with authoritarian figures than with many who are elected in democratic countries.

DER SPIEGEL: How would you explain that?

Bolton: Part of Trump's difficulty with international affairs is his lack of any philosophical basis. He has no philosophy. That was a complicating factor across the board. I am a conservative Republican. He is not. But he's not a liberal Democrat either. He tends to confuse personal relationships with foreign leaders with the underlying bilateral relationship between the U.S. and that country.

DER SPIEGEL: In her visits to the U.S., Merkel intentionally presented herself as a kind of anti-Trump, such as in the speech she held at Harvard University, during which she sang the praises of multilateralism. Was Trump annoyed by that?

Bolton: No, because I don't think he knows what multilateralism is.

DER SPIEGEL: Why does Trump show no interest in cooperation with America's long-time partners?

Bolton: There is a constant effort by political commentators in the U.S. and Europe to understand Trump or to define a Trump Doctrine. Stop wasting your time! There isn't any Trump Doctrine.

The decision you get in the morning on an issue could be different in the afternoon, largely dependent on political considerations. He is primarily interested in his reelection.

DER SPIEGEL: In Europe, there was significant deliberation regarding how best to approach Trump. French President Emmanuel Macron, for example, invited Trump and First Lady Melania to a swanky restaurant in the Eiffel Tower. Merkel, though, didn't even make an effort to coddle him. Which approach is better?

Bolton: Everybody has to pick what they feel most comfortable with. I think Macron thought that if he could establish a good personal relationship with Trump, he could translate that into an advantage for France. I don't think that worked out.

DER SPIEGEL: Ever since Trump moved into the White House, the German government has been concerned that he might introduce punitive tariffs on German automobiles. Thus far, though, he has not followed through on his threats. Is the issue off the table?

Bolton: It's never off the table. Trump likes tariffs, and it's something he can do without Congressional approval. He likes that approach to international negotiations. The real focus ought to be on dealing with the common threat posed by China, which is stealing European intellectual property at the same rate it steals American intellectual property, engages in forced technology transfer and discriminates against really all foreign companies.

DER SPIEGEL: Another dispute between the Unites States and Germany is the Nord Stream 2 pipeline project. Is this really about serious concerns that Germany and Europe could grow overly dependent on Russia? Or is it more about business and American hopes to sell American natural gas to Europe?

Bolton: It's a combination of both. He talked about imposing sanctions all the time, but he never has. I think it would have stopped the pipeline. And it's not finished yet. It may yet be stopped. It is strategically damaging to Europe and the United States.



Participants in the Canada G-7 summit in 2018: "I don't think Trump knows what multilateralism is."Participants in the Canada G-7 summit in 2018: "I don't think Trump knows what multilateralism is." Foto: Jesco Denzel / Bundesregierung / Getty Images


DER SPIEGEL: There is a famous image from the G-7 Summit in Canada in April 2018. It shows Merkel leaning on a table with Trump facing her, his arms crossed and looking unhappy. You are standing right next to him. Can you remember what you were talking about?

Bolton: Yeah, it wasn't comfortable. In my recollection, it wasn't Chancellor Merkel speaking with Trump at that moment, I think it was President Macron. But that's just an historical detail.

To me, it demonstrates two things. One, why I don't like these communiqués at G-7 and G-20 meetings. I think maybe you cut down a lot of trees for no particular purpose. Number two, in this instance, by forcing Trump literally as well as figuratively into a corner, they made him very unhappy with the whole process.

Not long after that picture was taken, when we were back on Air Force One, Trump withdrew his approval for the communiqué. It was the first time that had ever happened. One thing I did in response to that was to precook the communiqué for the next NATO summit in July 2018, so that there wasn’t anything else left to decide or to negotiate.

DER SPIEGEL: You write that Trump referred to Merkel as NATO's "tap dancer,” a term that could best be translated as a "word twister.”

Bolton: Yes. "Tap, tap, tap, tap,” Trump liked to say. You’ll recall, even Barack Obama said in published interviews while he was president that many of our NATO allies were "freeloaders.”

Yet in contrast to Trump, he said increasing defense expenditures was voluntary. Trump, on the other hand, made a big point of it and has had considerable success in increasing aggregate defense expenditures by NATO members.

DER SPIEGEL: Will Trump withdraw U.S. membership from NATO if he gets re-elected?

Bolton: That is very hard to predict. Right now, he’s taking a hard line on China. But if he is re-elected, I think it is entirely possible that he’ll go right back to his buddy Xi Jinping and try and start negotiations again on a trade deal. The fate of Hong Kong and a variety of other subjects will drop to the wayside again.

DER SPIEGEL: Is the president just as unpredictable for his staff as he is for the rest of the world?

Bolton: You could say that. After the July 2018 NATO summit, we were flying to London to meet with Theresa May, and then on to Helsinki for the famous meeting with Putin. Trump said to the press corps on his way out to the airport: You know, out of all these meetings, the easiest one could be with Vladimir Putin. Who would have thought that? The answer is: Nobody else would've thought that except Donald Trump!

DER SPIEGEL: Will Germany and the rest of Europe have to be responsible for their own national security and defense in the future?

Bolton: Europe should view Trump as an anomaly in American politics. What Trump does is not a policy, and because it doesn't reflect a philosophy, it is not going to be that hard to get back to normal. The Republican Party believes that Europe should not be left on its own when it comes to defense.

The problem with the European Union is that there's a lot of rhetoric about strong security policies, but not a lot of follow through. You hear European leaders saying over and over again: "We'll defend ourselves." If people aren't careful, there will be others in America, like Trump, who say: "Fine, go ahead."

DER SPIEGEL: How reliable is the NATO Alliance?

Bolton: I think the alliance remains strong. But it's a big mistake for Europe to view it as the U.S. protecting Europe. That feeds into the Trump view of the world, that we're defending you and therefore you need to pay us more.

The fact is, it's a mutual defense alliance. The long-term future of the alliance depends in part on looking at suggestions such as those by former Spanish Prime Minister José María Aznar, who said we ought to make NATO global and bring in Japan, Australia, Singapore, Israel.


DER SPIEGEL: Has the Trump presidency damaged the reputation of the United States?

Bolton: There is damage. If Trump loses in November, that will be a major task for the Biden administration. But it's also up to the Republican Party to make sure that we don't end up with another nominee like that in the future.

The most I can offer by way of consolation to Europeans or others is something Winston Churchill once said. He said: "You can always count on the Americans to do the right thing – after they've tried everything else." What we're doing now is trying everything else.

DER SPIEGEL: Some Democrats are concerned that Trump would simply ignore a defeat at the polls and remain in the White House.

Bolton: I don't see any evidence of that. If there was, I would have put it in the book. He's capable of almost anything. But this is an aspect of what we call Trump Derangement Syndrome: Everything, all political analysis, is defined by Trump, by what Trump does or does not do. Analysis stops at that point.

DER SPIEGEL: What is your greatest fear should Donald Trump be given another four years in office?

Bolton: I am afraid the influence of authoritarian leaders could grow in a second term.

DER SPIEGEL: You published your book in part to prevent Trump from serving a second term. Many Americans say that if that was your true intention, then you would have testified at the impeachment hearings.

Bolton: I don't think it would have made any difference. The Democrats wanted a partisan war, and they got it. To convict in the Senate after impeachment, you need a two-thirds vote, which would have meant they needed a lot of Republican votes. But they only got one. I think whatever I would have said in the Senate would have been lost in the shuffle.

DER SPIEGEL: Following the publication of your book, Trump said that if you had had your way, the U.S. would be involved in several wars by now.

Bolton: (laughs) That is the kind of juvenile comment that, in my view, demeans the office of the presidency. I'm just not going to respond to it.

DER SPIEGEL: How should you be viewed? Are you a hero who left office because of his convictions? Or are you a traitor taking revenge for being fired, as Trump has claimed?

Bolton: The fact that the president has made that kind of argument proves my point. I have been involved in American politics and government since I was 15. I handed out leaflets and rang doorbells for Barry Goldwater in 1964 …

DER SPIEGEL: … the Republican presidential candidate that year.

Bolton: My philosophy has been consistent since then. I have served in four Republican administrations in a senior capacity. With all due respect, the media controversy will dissipate in 50 years. The players will be gone from the scene. The book will still be there.

DER SPIEGEL: Is there a chance that Trump will win the election in November?

Bolton: Absolutely. He's way behind now – in large part, because of the coronavirus pandemic and the economic consequences.

But the polls in 2016 showed him behind as well. There was a universal consensus on Election Day, including in Trump campaign headquarters, that he was going to lose.

In my view, we should never underestimate the ability of the Democratic Party to blow an election.

DER SPIEGEL: Mr. Bolton, thank you very much for this interview.

The Fastest Way Out of the Pandemic

During the 2009 swine flu pandemic, a few countries cornered the vaccine market, leaving the vast majority of the global population with no vaccine at all until the outbreak was effectively over. This scenario must be avoided at all costs during the current crisis – and, thanks to the COVID-19 Vaccine Global Access Facility, it can be.

SETH BERKLEY, RICHARD HATCHETT, SOUMYA SWAMINATHAN

berkley9_JEAN-PHILIPPE KSIAZEKAFP via Getty Images_coronavirusvaccinevials


GENEVA – Every day, the COVID-19 pandemic costs the world thousands more lives and billions more dollars. The most efficient way to bring this crisis to an end – possibly as early as next year – is with a safe and effective vaccine, manufactured in large quantities and distributed globally.

To avoid any unnecessary delays, governments should take this moment, while researchers work to develop the right formula, to prepare the ground for rapid production and broad, equitable deployment.

This is the principle on which the COVID-19 Vaccine Global Access (COVAX) Facility is based.

Created by Gavi, the Vaccine Alliance, the World Health Organization, and the Coalition for Epidemic Preparedness Innovations, this innovative platform aims to distribute at least two billion doses of COVID-19 vaccine by the end of 2021.

That many doses – which will be divided equitably among participating countries, regardless of their ability to pay – would cover some 20% of populations in participating countries. It would thus be sufficient to protect high-risk and vulnerable people and frontline health-care workers worldwide. (Additional doses would also be stockpiled, so that any future outbreak could be tackled before it spun out of control.)

As it stands, over 160 vaccine candidates are in preclinical or clinical development. There is no way to know which will pass clinical trials and be licensed (failure rates of vaccines in early development are high).

But we can ensure that, by the time one does, an effective framework for manufacture and deployment is in place. To that end, governments must invest in COVAX as soon as possible.

The problem is that governments may feel compelled to eschew cooperation, in favor of negotiating directly with vaccine manufacturers to claim the doses they need. Yes, governments are duty-bound to protect their own citizens above all. But this national approach carries serious risks, beginning with the possibility that a government may back the wrong vaccines.

Even if a government secures enough doses of an effective vaccine for its own population, some of its people – such as those who are immunocompromised and may not be able to be vaccinated – would be left exposed if other countries are unable to obtain enough vaccine. And this leaves aside the moral imperative of ensuring that people are not cut off from lifesaving drugs.

During the 2009 swine flu pandemic, a few countries cornered the vaccine market, leaving the vast majority of the global population with no vaccine at all until the outbreak was effectively over. This scenario must be avoided at all costs during the current crisis, not least because COVID-19 has a much higher infection and mortality rate.

By collaborating with global health agencies through COVAX, governments can ensure that everyone has equal access to COVID-19 vaccines. For countries that have secured bilateral deals with manufacturers, COVAX amounts to an insurance policy, in case they bet on the wrong candidates. For countries that haven’t secured any deals – the vast majority of the world – COVAX is the only way to avoid being pushed to the back of the line.

COVAX ensures that the benefits and risks of vaccine development are broadly shared. With the largest portfolio of vaccine candidates anywhere in the world, it gives participating governments the best odds of receiving a safe and effective vaccine as soon as it becomes available – and ensures that this moment comes much sooner.

When pharmaceutical companies are shouldering all of the financial risks, they will invest in scaling up production only after their vaccine has completed clinical trials and been approved.

This approach may make business sense, but it does not make sense in the context of a rapidly moving global pandemic.

COVAX employs a radically different approach. In addition to using “push” financing – direct investment in research, development, and manufacturing – it uses “pull” financing, in the form of advance purchase commitments for large numbers of doses upon licensure. This provides powerful incentives for the private sector to support urgent vaccine development.

Moreover, COVAX pools government resources to fund scaling up the most promising candidates even before clinical trials are completed. That way, when approval comes, large quantities of vaccine doses will be ready to go.

Already, WHO is working with a range of stakeholders, including member states and civil-society organizations, to develop and implement a mechanism for equitable and fair allocation of vaccine doses, once they become available.

COVAX will support only vaccine candidates that are developed in accordance with the highest possible safety standards. By working with experts around the world to develop target product profiles, share best-practice testing models, facilitate multi-country clinical trials, and promote regulatory harmonization, COVAX will establish a new benchmark for rapid, safe, and efficacious vaccine development and delivery.

We cannot afford to leave our economies on their current path for much longer. As global GDP shrinks – the International Monetary Fund and the World Bank forecast about a 5% contraction in 2020 – poverty and hunger are rising sharply.

With the world economy losing more than $10 billion each day, shortening the pandemic by even a few days would more than offset the costs of COVAX.

Global collaboration – where risks and benefits are shared equally – has never been a better value proposition.


Seth Berkley is CEO of Gavi, the Vaccine Alliance.

Richard Hatchett is CEO of the Coalition for Epidemic Preparedness Innovations.

Soumya Swaminathan is Chief Scientist of the World Health Organization.