Corporate America is breaking with Donald Trump

Executives are now more worried about democracy than their tax bills or the president’s tweets

Andrew Edgecliffe-Johnson

© Ingram Pinn/Financial Times


In recent days, leading US industry associations, chief executives, investors and business school professors have issued oblique rebukes of Donald Trump’s suggestions that he may not abide by the results of next week’s election if he does not like them. Most have been carefully worded but, as with any artfully indirect social media post, their meaning has been unmistakable. 

Most notably, several of the US’s biggest industry groups joined forces on Tuesday on a statement as striking as it was anodyne. 

“We urge all Americans to support the process set out in our federal and state laws,” they wrote. That such traditionally cautious groups felt the need to say this speaks volumes. As anyone who has ever haggled over the phrasing of a statement with so many authors will tell you, its lowest-common-denominator wording was also as close as the business community will come to sending a shot across the president’s bows.

Faith-based investors had urged business A-listers who were keeping quiet to champion a peaceful transfer of power or risk being seen as “complicit in the chaos”. JPMorgan’s Jamie Dimon is one of the few to do so, though Expensify’s CEO went as far as to implore the 10m users of its expenses software to vote for Joe Biden because “not many expense reports get filed during a civil war.” 

Whether hesitant or hyperbolic, these statements all carry the same message: there is a growing consensus in corporate America that Mr Trump is no longer good for business. That represents a sharp change since the start of the president’s term, but also an understandable consequence of what has happened since. 

Back in 2017, “business leaders held their nose and engaged in dialogue with this president because they saw some immediate financial opportunities and decided to look past what some wanted to believe were just stylistic peculiarities”, recalls Aron Cramer, CEO of BSR, a group which helps multinationals navigate their social responsibilities. 

Those opportunities were quickly realised, in the form of deregulation and a historic cut to corporate tax rates. But even early on they also came with sharp disagreements over tariffs, immigration, racist violence and environmental policy. 

Once tax cuts were in the bag, “the business relationship went from the good, the bad and the ugly, to just the bad and the ugly”, remarks Bennett Freeman, an adviser to companies on labour and human rights issues. 

Share prices rose, but CEOs found themselves having to manage trade wars, growing divides among staff and customers, and threats to the status of employees who held visas or were brought to the US illegally as children. 



And as big companies embraced “stakeholder” causes, from inclusion to environmentalism, Mr Trump espoused a dated caricature of capitalism: his focus on stock markets as the yardstick of economic progress made him look like one of the last devotees of Milton Friedman’s shareholder primacy doctrine. 

His inattention to issues such as economic inequality, racial injustice and climate change also forced reluctant CEOs to fill the void by speaking out on politically charged topics they would rather avoid. 

Corporate America is no political monolith. In industries such as healthcare and energy, many executives still believe Mr Trump would be better for their bottom lines. Yet fear of Mr Biden’s agenda is ebbing. As a recent PwC survey shows, executives worry Democrats would raise taxes but believe Mr Trump would be worse on US-China relations, immigration and foreign policy.

Markets’ relative stability as Mr Biden has led the polls supports this view. Polls also explain executives’ willingness to turn their backs on Mr Trump as the risk of speaking out has fallen with his re-election chances. 

Most executives entered 2020 determined to avoid getting sucked into a bitterly contested election. Their belief that the Trump administration handled the pandemic and the racial justice protests that have defined this year less capably than their companies changed the equation. 

But it is only recently that executives have come off the fence, as Mr Trump’s musings about not accepting a peaceful transfer of power tested companies’ vaunted conversion to social responsibility, notes Deepak Malhotra. The Harvard Business School professor wrote a letter signed by more than 650 academics, which urged executives to speak out against the threat they argue the president poses to the republic. 

“The pendulum often swings left to right but here’s something that might rip the pendulum off the clock,” he argues. 

In private conversation, business leaders have run through the worst-case scenarios. If a peaceful transfer of power looks doubtful, BSR’s Mr Cramer says, top executives would quickly make their alarm public, not least to congressional Republicans, who understand the risk of alienating donors. 

Whether or not the subtweets become a tweetstorm, CEOs who once dreaded @realDonaldTrump tweets have lost their fear of the man behind them. 

They got the tax cuts they wanted and see little to lose in breaking with him now. 

Three strongmen and their battle for the Middle East

The Russian, Turkish and Saudi leaders are engaged in a struggle for power and influence

Gideon Rachman 

© James Ferguson


Vladimir Putin, Recep Tayyip Erdogan and Mohammed bin Salman have a lot in common. The Russian, Turkish and Saudi leaders are all nationalists with regional ambitions. They are autocrats who have centralised power and have been ruthless with domestic political opposition. And they are all risk-takers, who are happy to use military force.

These three strongmen are also believers in the diplomacy of personal relations. Like mafia dons, they can be best friends one day and bitter enemies the next. That matters because their often conflicting interests are fomenting conflict across a swath of territory from the Middle East to north Africa and the Caucasus. If their rivalries get out of hand, civilians will suffer.

The relationship between Mr Putin and Mr Erdogan is particularly peculiar. The presidents of Russia and Turkey have backed conflicting sides in three regional conflicts — Syria, Libya and now Nagorno-Karabakh. At times, they have clashed directly — the Turks shot down a Russian plane over Syria in 2015. Turkish troops were killed in bombing raids in Syria, earlier this year, by Moscow-backed Syrian forces.

Yet the Russian and Turkish leaders retain a wary friendship. To the outrage of its Nato allies, Turkey chose to buy S-400 anti-aircraft missiles from Russia. When Mr Erdogan was almost overthrown in a 2016 coup attempt, Mr Putin quickly offered support, while the US remained silent.

The reason that the two presidents instinctively understand each other is linked to why they clash with each other. Both are anti-US autocrats, seeking to expand their influence into the power vacuum created by a reduced US role in the Middle East. They are willing to act, while the EU hovers on the sidelines. Mr Putin and Mr Erdogan are not the only ambitious, strongman leaders jostling for influence in their shared neighbourhood. A third key player is Prince Mohammed bin Salman — the crown prince and de facto leader of Saudi Arabia — who is much more closely aligned with Washington.

The willingness to use violence — at home and abroad — links all three. Mr Putin annexed Crimea in 2014, intervened in Syria in 2015 and has authorised a range of intelligence black-ops, including allegedly the attempted murder of Alexei Navalny, his most dangerous domestic political opponent. Prince Mohammed has launched a war in Yemen, blockaded Qatar and has taken responsibility as Saudi leader for the 2018 murder of the journalist, Jamal Khashoggi, although he denies personal involvement.

Mr Erdogan has sent Turkish troops into Syria and Libya and is risking another military conflict in the eastern Mediterranean with Greece — while supplying military support to Azerbaijan, in its struggle with Armenia. At home, the Turkish president increasingly locks up political opponents, journalists and civil-rights activists.

To some extent, these three leaders are engaged in a zero-sum struggle. The Turkish-backed government of Libya is battling Saudi and Russian-backed rebels. Turkey’s support for Qatar and the Muslim Brotherhood, and its closeness to Iran, enrages Saudi Arabia.

The Saudi-Russian relationship is more complex. Mr Putin helped to rehabilitate Prince Mohammed, after the Khashoggi murder, with an infamous high-five at a G20 summit in 2018. But the Russian and Saudi leaders fell out badly over oil prices this year.

By and large, however, the three leaders have been able to manage their conflicts. Russia and Turkey may be on opposite sides of the Syrian civil war — but their most urgent priorities are compatible. For Mr Erdogan, it is stopping the establishment of a secure Kurdish enclave within Syria. For Russia, it is preventing the fall of Syrian president Bashar al-Assad.

But these carefully balanced accommodations can easily come unstuck. After two weeks of fighting, the Russians brokered a ceasefire in the conflict between Azerbaijan and Armenia over Nagorno-Karabakh. But the peace is fragile, there are already reports of fresh fighting and, while Turkey is wholeheartedly behind Azerbaijan, Russia has a defence treaty with Armenia. Moscow is unlikely to tolerate the long-term expansion of Turkish influence on former Soviet Union territory.

All three leaders also have delicate balances to strike between foreign intervention and domestic stability. At the time of Mr Putin’s Crimea annexation, Russians joked that they were faced with a choice between the television and the refrigerator. The fridge was empty, but the TV was full of news of exciting military victories. Mr Putin’s popularity soared after his Crimean success. But, as the economy has struggled and nationalist fervour has subsided, he has faced new, fridge-driven discontent.

Mr Erdogan faces a similar trade-off. Turkey’s military adventures are bolstering his popularity at a time of economic weakness. But small wars overseas can eventually be seen as a waste of resources, particularly if they start to go wrong. Prince Mohammed has a version of the same dilemma. His decision to launch a war in Yemen excited many young Saudis. But a quick victory has not materialised and the Saudi economy is suffering from low oil prices.

As their economies struggle, all three leaders need more than ever to demonstrate strength overseas. The danger of clashes between them is rising.

Should Fiscal Policy Get More Chinese?

New IMF research suggests the rich world substantially increase public investment

By Nathaniel Taplin

             The Chinese model. / PHOTO: ALEX PLAVEVSKI/SHUTTERSTOCK


China spends too much on infrastructure. The U.S. and some other wealthy countries, it is widely accepted, invest too little. Now the International Monetary Fund, long a champion of fiscal rectitude, is suggesting that rich countries inch a bit further in China’s direction by substantially increasing public investment.

An unusual confluence of factors suggests the IMF’s note last week may be right. Interest rates are near record lows. Public capital stock in wealthy countries, particularly the U.S., has badly eroded. The level of uncertainty about growth is particularly high, even by the standards of past recessions.

And global political winds are shifting: Once the pandemic dies down, a significant effort to diversify supply chains away from China is likely. To take advantage, countries need solid infrastructure—both the hard physical type and “soft” kinds like a healthy, well-educated populace and well-funded research institutions.


Recent research on public investment highlights some interesting trends. A July working paper from the World Bank found that while returns to infrastructure and government investment were higher in China than in the U.S. for most of the 1980s, ‘90s and early 2000s, the opposite has been true for much of the past decade.

The IMF has come to similar conclusions: It blames much of the slowdown in Chinese productivity growth—which has roughly halved since 2009—on falling returns to investment in infrastructure. But it finds that the stock of public capital in rich countries has eroded greatly relative to output since the early 1990s. Fixing all of America’s roads and bridges alone would cost an estimated 3.5% of GDP, the fund says.

Interestingly, the IMF also finds that when economic uncertainty is very high—as measured by how widely dispersed forecasters’ growth estimates are—fiscal policy sparks private-sector investment as well, perhaps because private companies see a big fiscal push as a strong signal of a government’s commitment to growth and stability. 

The IMF finds that an unexpected fiscal investment expansion of 1% when uncertainty is high leads to output gains of about 2.7% and private-investment gains of about 10.1% after two—but a small negative impact on both when uncertainty is low.

And uncertainty has been very high indeed in 2020: The IMF’s data shows that the standard deviation of forecasts for U.S. and eurozone growth in early 2020 was orders of magnitude greater even than in late 2008. What this means is that right now, boosting public investment could pack a particularly big punch.

There are some significant caveats, though. The IMF finds that when companies are highly leveraged, the evidence of a positive impact on private investment disappears. 

For the U.S., where corporate leverage has risen quickly in recent years and jumped even further in the wake of the coronavirus, that might dilute some of the benefits. Spreads on U.S. junk bonds have declined sharply since their spike this spring, but still remain well above late-2019 levels.

China has gone too far building infrastructure and has already paid a substantial price in lost productivity. But for wealthy countries that have run too far in the other direction over the past three decades—particularly those where companies have been relatively prudent—now might be a uniquely good time to invest in the rusty underpinnings of the economy.

Strait shooting

Defending Taiwan is growing costlier and deadlier

Would America have the stomach for such a fight?


Rousing music accompanies the h-6k, a hulking Chinese bomber, as it sweeps up into a pink sky. Moments later, its pilot presses a red button, with the panache and fortitude that only a People’s Liberation Army (PLA) officer could muster, and a missile streaks towards the island of Guam. 

The ground ripples and a fiery explosion consumes America’s Andersen air force base. 

Never mind that the pla propaganda film released in September pinches footage from Hollywood blockbusters; the message is that this is what America can expect if it is foolhardy enough to intervene on behalf of Taiwan in a regional war.

China’s Communist Party claims Taiwan, a democratic and prosperous country of 24m people, although the island has not been ruled from the mainland since 1949. 

A tense peace is maintained as long as Taiwan continues to say that it is part of China, even if not part of the People’s Republic. 

China once hoped that reunification could be achieved bloodlessly through growing economic and cultural ties. But two-thirds of Taiwanese no longer identify as Chinese, and 60% have an unfavourable view of China. 

In January Tsai Ing-wen of the Democratic Progressive Party was resoundingly re-elected as president over a China-friendly rival.

Last year Xi Jinping, China’s leader, declared unification to be an “inevitable requirement for the historical rejuvenation of the Chinese nation”. 

The PLA has stepped up pressure on Taiwan in recent months, sending warplanes across the “median line” that long served as an unofficial maritime boundary and holding large naval drills off several parts of Taiwan’s coast.



Defending Taiwan is growing ever harder. A decade ago China had four times as many warships as Taiwan. 

Today it has six times as many. It has six times the number of warplanes and eight times as many tanks. China’s defence budget, merely double Taiwan’s at the end of the 1990s, is now 25 times greater (see chart).

American intelligence officials do not think that China is about to unleash this firepower. The PLA’s amphibious fleet has grown slowly in recent years. 

China has never held even a single exercise on the scale that would be required for a d-Day-type campaign. Indeed, no country has assaulted a well-defended shore since America did so in Korea—with good reason.

Although China could wipe out Taiwan’s navy and air force, says William Murray of the us Naval War College, the island would still be able to fire anti-ship missiles at an invading armada, picking out targets with mobile radar units hidden in the mountainous interior. That could make mincemeat of big ships crossing a narrow strait (see map). 

“The PLA can’t use precision weapons to attack small, mobile things,” says Ethan Lee, who as chief of general staff at Taiwan’s defence ministry in 2017-19 developed a strategy for asymmetrical warfare.


Nor can China put all its forces to use. “Only a fraction of the pla could be deployed,” says Dennis Blasko, a former American army attaché in Beijing, “because its overwhelming numbers can’t all fit into the Taiwan front or in the airspace surrounding Taiwan at one time”. 

Satellite reconnaissance would give Taiwan weeks of warning to harden defences and mobilise reserves. Mr Blasko thinks a nimbler air assault, using helicopters and special forces, is more likely than an amphibious attack. Even then, he says, the island is “very defensible, if it is properly prepared and the people have the will to defend it”.

Alas, Taiwan’s preparedness and its will to fight both look shaky. “The sad truth is that Taiwan’s army has trouble with training across the board,” says Tanner Greer, an analyst who spent nine months studying the island’s defences last year. “I have met artillery observers who have never seen their own mortars fired.” 

Despite long-standing efforts to make the island indigestible, Taiwan’s armed forces are still overinvested in warplanes and tanks. Many insiders are accordingly pessimistic about its ability to hold out. Mr Greer says that of two dozen conscripts he interviewed, “only one was more confident in Taiwan’s ability to resist China after going through the conscript system.” 

Less than half of Taiwanese polled in August evinced a willingness to fight if war came.

A vital question is therefore whether Americans would do so, for the sake of a distant country whose defence spending has fallen steadily as a share of gdp over two decades. America does not have a formal alliance with Taiwan. 

But it sells the island weapons—$13bn-worth over the past four years—and has long implied that it would help repel an invasion if Taiwan had not provoked one. 

Yet the same trend that imperils Taiwan in the first place—China’s growing military power—also raises the price of American involvement.

In wargames set five or more years in the future, “the United States starts losing people and hardware in the theatre very quickly,” says David Ochmanek of the rand Corporation, a think-tank. 

“Surface combatants tend to stay far from the fight, forward air bases get heavily attacked and we’re unable to project power sufficiently into the battlespace to defeat the invasion.” 

America is disadvantaged by geography, with its air force reliant on a handful of Asian bases well within range of Chinese missiles. American bombers can swoop in from the safety of American soil, but there is a shortage of missiles to arm them. 

Nor is it clear how America’s technology-dependent armed forces would fare against an inevitable physical and electronic barrage on their satellites and computer networks.

In another wargame conducted earlier this year, the Centre for a New American Security (CNAS), another think-tank, assumed that Taiwan would fight tenaciously and that America would have access to weapons still under development. 

Under those rosier circumstances, the island survives—at least after ten notional days of combat—but even then only at huge cost. The seas around Taiwan would look “like no-man’s-land at the Somme”, notes Christopher Dougherty of CNAS.

The question is whether America has the stomach for this. The conquest of Taiwan would not just dent American prestige but also expose the outlying islands of Japan, an ally America is pledged to defend. 

The Trump administration has sent several high-level officials to Taipei to show its support—one reason for the recent Chinese bluster. In Congress support for Taiwan is at “new highs”, says Bonnie Glaser of the Centre for Strategic and International Studies (csis), another think-tank.

Polls by csis show that Americans broadly support coming to Taiwan’s aid, roughly as much as they support helping South Korea, Japan or Australia. Such enthusiasm may wane, however, if American ships start getting sunk in large numbers.

American losses in the cnas wargame amount to a hundred or so aircraft, dozens of ships and perhaps a couple of carriers. “An aircraft-carrier has 5,000 people on it,” says Mr Murray. 

“That’s 100 voters in every state of our union. That’s a lot of funerals.”

Fear of such losses might deter an American president from entering the fray. But incurring them might stiffen American resolve. America and its partners can use this dynamic to their advantage, says Elbridge Colby, a former Pentagon official. 

If American troops were to disperse in allied countries like Japan and draw on allied support to repel a Chinese attack, China would have to choose between striking a wide range of targets beyond Taiwan, and outraging American and Asian public opinion, or sacrificing military advantage.

Escalation might go even further. The fact that Chinese nuclear missiles can now reach any American city raises the stakes dramatically. “When the bullets really start flying,” says Michael Hunzeker of George Mason University, “the American people, most of whom can’t find Taiwan on a map, will be hard-pressed to say, ‘No, I’m really willing to trade Los Angeles for Taipei.’”

Taiwanese officials acknowledge these grim trends. Even if America is willing to come to Taiwan’s aid, that is no use if it is not capable of doing so, Su Chi, a former secretary-general of Taiwan’s National Security Council, has argued. But the logical response, transforming Taiwan’s own defences, is hard when only a fifth of people think war will come. 

In the sleepy fishing village of Zhuwei, on the north-west coast, an area thought to be a prime landing site for the pla, tourists eat stir-fried seafood in restaurants as multicoloured fishing vessels bob in the harbour. 

“The Chinese won’t invade,” says Lin Fu-fun, an airport safety inspector who has come to watch the waves splash on a jagged breakwater. “Our language and culture are the same.” 

In Search of a Solution to Russia’s Strategic Problem

By: George Friedman


Russian President Vladimir Putin described the collapse of the Soviet Union as the greatest geopolitical catastrophe in history. Though it may not be true of all of history, it is certainly true of modern Russian history, because it cost Russia what it needs most: strategic depth. 

Until 1989, Russia’s western border was effectively in central Germany. The Caucasus shielded Russia from the south. 

Central Asia was a vast buffer against South Asia and potentially China. The Russian heartland, in other words, was secure from every direction.

The fall of the Soviet Union pulled its western border back behind the Baltics, Ukraine and Belarus. Russia retained the North Caucasus but lost the South Caucasus – Azerbaijan, Georgia and Armenia. 

Central Asia broke down into independent states. This contraction of Russia represented not only a diminution of size but a decreased distance between potential enemies.

Russia inevitably sought to redraw the borders before a serious threat emerged. That no serious threat existed gave Russia some time. But for a country like Russia, insecurity can manifest quickly. 

Germany went from being a national wreck to an existential threat in less than a decade. The Russians had to increase their strategic depth, but they had to do so without triggering the attack they feared before their depth was increased.

We have seen three events in recent months – one in Belarus, one in the South Caucasus, one in Kyrgyzstan – that together encompass portions of the borderlands Russia lost. To be clear, it is always possible to see three disconnected events connected by logic, and to assume that this logic has anything to do with Russia’s strategic problem. 

Coincidences abound in history and these three events do not even constitute a perfect coincidence. Even so, where coincidences are accidents that appear to be deliberate, it is easy to dismiss deliberately connected events as simple coincidence. The answer to this is to simply note that a coincidence has occurred, and that regardless of intent by anyone, a coincidence could have the same consequence as an intentional event.

In Belarus, a key buffer on the North European Plain, longtime President Alexander Lukashenko was reelected in what many describe as an illegitimate election in August. 

Protests against the results have gone on more or less ever since. Russia’s relationship with Lukashenko is complicated – he tries to balance between Russia and the West when he can – but Lukashenko could hardly be described as pro-West. 

He and Moscow have their differences, but Moscow has always been very influential in Minsk and thus has always had an imperfect solution to its strategic dilemma to the west. If Lukashenko were replaced with someone more antagonistic toward Russia or more sympathetic to the West, it could effectively move NATO, Poland and the Americans farther east, relegating cities such as Smolensk to border towns.

In Kyrgyzstan, which sits between Russia and China, there is similar political unrest. 

Here, too, an election has resulted in claims of fraud and large-scale demonstrations. 

The Russians have some military facilities there, but the most important point is that it provides a buffer between Russia and China. 

Russia and China are not currently at odds, but they fought each other as recently as the 1960s. Though that was 60 years ago, geopolitics tends to repeat itself, and whatever current interests might guide them, both are old hands at the shifts of history, and neither wants the other to have an advantage. 

It’s unclear whether the Belarusian playbook will work here, but Moscow has a stake in what happens, and given the likelihood that an arbiter will be needed, involvement would not be surprising.

In the South Caucasus, a war has broken out between Azerbaijan and Armenia over Nagorno-Karabakh, a disputed enclave governed by ethnic Armenians inside Azerbaijan. Broadly speaking, Azerbaijan is backed as before by Turkey, a country with whom Azerbaijan has an ethnic affinity, while Armenia is supported by Russia. 

But the conflict is much more complicated than that. For one thing, Azerbaijan has important relations with Russia that it cannot afford to sever. For another, Russian intelligence would surely have been aware of war preparations in Azerbaijan and so would have advised them to back off given Moscow’s relations with Armenia. That didn’t happen. 

Last, Russia has noted that the treaty it has with Armenia does not include Nagorno-Karabakh and that therefore Moscow has no obligation to intervene militarily on Armenia’s side. The Russians are clearly using the war to increase their influence with Azerbaijan, the most powerful and wealthy country in the South Caucasus. (Moscow helped to broker a cease-fire, but it quickly fell apart.) 

Without Russia, Armenia has few options. Georgia, which was invaded by Russia in 2008, won’t be much help, and the United States, which helped Georgia in said war, will likely choose to abstain. 


By appearing to shift their support from Armenia to Azerbaijan or, more precisely, bringing them both into the Russian orbit, the Russians solve a vital strategic problem. 

First, it helps to secure the South Caucasus, which, second only to Eastern Europe, is the path most likely taken by potential invaders. Second, by increasing control of the South Caucasus, the North Caucasus are made more secure. 

Of course, Russia already controls the North Caucasus and maintains a strong line of defense there, but Chechnya and Dagestan are home to militant Islamist movements, which Moscow claims are supported by the U.S. through intermediaries from the South Caucasus. True or not, Moscow isn’t taking any chances.

So we see events in Russia’s western and southern frontiers playing out in such a way that the geopolitical catastrophe Putin spoke of is being rectified. There are no tanks rumbling in either direction, but the politics of the situation appear to be heading that way. Of course, all of this may be coincidence 

But it’s interesting to note the process that coincidence or calculation seems to have put in motion. But the Russians aren’t fools, and with Armenia and Azerbaijan aligning with Russia and Turkey excluded from the game, Georgia is isolated, and a repeat of 2008 would undermine the subtlety of the Russian move.   

The Great Wall (Street) of China

2020 marks the year when Beijing finally threw open its doors to US banks despite broader Sino-American tensions

Patrick Jenkins 

© FT Montage, Nicholas Kamm, AFP/Johannes Eisele, AFP


At the high point of Donald Trump’s relationship with Xi Jinping, when they met in Beijing three years ago, the Chinese president responded to his US counterpart’s pressure to liberalise financial services with a pledge: “We will never close our doors. They will only open wider and wider.”

Barely had Air Force One whisked Mr Trump from Beijing than, sure enough, China’s finance ministry announced sweeping reforms to remove ownership limits on foreign financial services companies operating in the country — much to the delight of Wall Street.

As the Financial Times series on the “New Cold War” outlined last week, US-China relations today look very different. A battle is being fought on many fronts between the world’s top two economies. Yet in the realm of finance, there is no evidence of relations breaking down.

JPMorgan is just completing the $1bn buyout of a joint venture partner in asset management to give it full control of China International Fund Management. The bank has also set in a train a process to take control of its Chinese securities and futures joint ventures. 

Goldman Sachs is meanwhile poised to buy out its securities joint venture partner, in a deal that could establish it as the first major fully foreign-owned investment bank allowed to operate in China.

If 2020 has been the year when Sino-American tensions escalated to resemble the 1980s stand-off between the US and the USSR, it has also been the year when Beijing — after 20 years of baby-step financial liberalisation — finally threw open its doors to Wall Street.

JPMorgan and Goldman are far from alone in winning greater control of their Chinese operations.

Like JPMorgan, Morgan Stanley in March took majority control of its securities joint venture, increasing its stake from 49 to 51 per cent, with a plan to push for 100 per cent ownership. Last month, Citigroup secured regulatory authorisation to become the first US custody bank in China, allowing it to hold securities on behalf of fund managers in China. 

That followed the August news that BlackRock had secured the go-ahead to run its own wholly owned mutual fund business in the country and that Vanguard would set up a new regional headquarters in Shanghai.

The big question is: why? When US rhetoric has become poisonous, translating into damaging disruption to Chinese manufacturers and existential threats to China’s tech giants, why has Wall Street not been dragged into the stand-off?

Mutual expediency is the short answer. It suits the big banks, asset managers and insurers to be given freer access to what will soon be the biggest economy in the world, albeit one where profits in the short-term remain elusive. 

If western financial institutions are more embedded in the blood flow of the Chinese economy, that also suits western governments. A more predictable regulatory landscape, underpinned by Beijing’s five-year planning system, has reassured foreign money.

As for Beijing, President Xi’s growing appetite for a Chinese slant on western capitalism makes financial market liberalisation an obvious means to the end: Chinese financiers can gain from greater exposure to western counterparts and the economy can benefit from the access to capital they bring.

Chinese policymakers are concerned that lending by domestic banks and non-banks is the dominant source of corporate finance. At the same time, there is scope to do more with the mounting savings of middle-class Chinese: there is a gap in the country’s personal finance market between the two traditional extremes of under-the-bed cash-hoarding and wild speculation on single stocks. 

A more developed insurance and pensions market is another key policy goal. Most of all perhaps, China believes that having friends on Wall St will be a soft-power relaxant of geopolitical tensions.

The timing of the latest push is interesting, though. Some see a correlation with the political crackdown on Hong Kong with foreign firms being used as a lever to advance Shanghai’s relative rise. There may also be some truth in speculation that Beijing is keen to cut some of the biggest players in Chinese private sector finance down to size.

Will the financial detente last? If Joe Biden wins next month’s US election, Wall Street’s advance into China may face new hurdles given his hawkish stance on Beijing. 

But even under President Trump, there are worries, says one seasoned banker. 

“We’re constantly on tenterhooks that we’re going to wake up to a tweet saying something like: ‘JPMorgan, Goldman Sachs: GET OUT OF CHINA!’”

Buttonwood

What takeovers of fund managers tell you about markets

Trian, an activist hedge fund, has taken stakes in two asset managers. It has mergers on its mind


Martin amis, a novelist, was once asked why he preferred roll-ups to ready-made cigarettes. “It’s simply the best burn available,” he replied. In finance, a roll-up is a strategy of buying lots of small companies in the same industry and combining them into a big one. 

A big firm can cut costs by reaping economies of scale—in marketing or it, say, or in negotiations with suppliers. The markets are attracted to the glow. They often assign big companies a higher valuation than small ones.

Could a roll-up work in fund management? The question is often asked, only to be dismissed: you would have to be unusually daring (or smoking roll-ups of the jazz variety) to consider taking on such a challenge. 

So a few eyebrows were raised when it emerged last week that Trian, a hedge fund led by Nelson Peltz, a veteran agitator for corporate change, had taken stakes of almost 10% in two asset managers, Invesco and Janus Henderson. 

Asset management is undergoing significant change, noted Trian in its regulatory filings. Firms with scale and a breadth of products are better placed to succeed. So Trian has in mind “certain strategic combinations” to generate value from its newly acquired stakes.

Both Invesco and Janus Henderson are the product of recent industry mergers. Were Trian to act as broker to a merger between them, the result would look awfully like a roll-up. If so, it is a bold gambit. But it is one that is telling about the state of the industry, and the markets more broadly. 

The pressures in fund management come from two familiar sources. The first is lower expected returns. 

Long-term interest rates in both nominal and real terms have been declining steadily for four decades. They took a decisive fall after the global financial crisis of 2007-09. 

The pandemic has postponed any prospect of a revival. 

The value of many assets has risen in lock-step with the fall in real interest rates. Share prices in America have rarely been higher relative to company earnings. Since fund-management companies charge a fixed fee on the stock of the assets they manage, a stockmarket boom is a boon to current revenues. 

But higher valuations today mean lower expected returns tomorrow. 

And that translates into a gloomier outlook for asset managers in general.

The second factor is the growth of low-cost index investing. An index fund holds shares in proportion to its constituents’ market capitalisation. Trading costs are negligible. 

The fund buys shares when they qualify for the index and sells those that drop out. 

The market for large-capitalisation stocks is liquid enough to absorb any sales or purchases without moving prices whenever index funds need to match inflows or redemptions. 

There are powerful economies of scale in index investing, which is why just three firms—BlackRock, Vanguard and State Street—have come to dominate it. 

The marginal cost of running a bigger fund is trivial: it simply requires a bit more computing power. There are no expensive portfolio managers. 

So management fees are low—just a few basis points.



You can see the effect in the diverging path of share prices (see chart). Conditions seem ripe for an industry roll-up. Scale seems to be an advantage; there are plenty of target firms to buy; and the prices of many firms have become more attractive. 

“A lot of midsized players are now priced for ripping out costs,” as one industry bigwig rather brutally puts it.

As anyone who has fiddled with a tobacco pouch and papers can attest, the results of a roll-up are not always great. For a start, there are the problems that bedevil any biggish merger: clashes of business culture; incompatible it systems; mutinous staff; and so on. 

It is far from easy to find savings in asset management, where the biggest cost is people. 

And the industry’s main problem is growth. For the past half decade, the flow of new business has gone to index funds, much of it to the Big Three. 

Active managers have suffered outflows. Their business is steadily shrinking. Drawn-out mergers often make the outflows even worse. 

New clients may stay away while a tie-up is pending. And bigness is not itself a very distinctive capability. The index giants are already working that particular corner.

Yet for all the pitfalls, there is something almost inevitable about a fund-management roll-up. The scale economies of index investing create excess capacity. Mergers are a way to reduce it. 

Like the tobacco version, industry roll-ups are messy. You can be easily burned. 

But if you need a fix, you’ll try it—if only because there are no alternatives around.

The American Dream: Bringing Factories Back to the U.S.

By Matthew C. Klein

Illustration by Dave Murray


For years, investors cheered as U.S. companies shifted manufacturing overseas to reduce costs and boost profit margins. That could soon start to change, with decades of offshoring replaced by reshoring.

The shortages of personal protective equipment and other essential items during the early stages of the pandemic were a powerful reminder that corporate managers’ obsession with efficiency and cost-cutting at the expense of diversification and resiliency had made the American economy vulnerable. 

A report from the McKinsey Global Institute found “180 products across value chains for which one country accounts for 70% or more of exports, creating the potential for bottlenecks.” 

Worse, many of those products come from an increasingly hostile China, a circumstance with profound national-security implications for the U.S. and other democracies. That’s why Democrats and Republicans alike are looking for ways to revive U.S. manufacturing.

They’ll have to work hard. Despite the trade conflict, the coronavirus, and fear of a new cold war, a recent survey by the American Chamber of Commerce in Shanghai found that 71% of U.S. manufacturers had no plans to move production out of China, while only 4% said they would transfer some to the U.S. 

Moreover, even those that expected to move some production from China planned only small changes, not wholesale shifts in supplier relationships.

U.S. companies have directly invested about $260 billion in Chinese operations since the early 1990s, according to an analysis from the Rhodium Group. Replacing those assets elsewhere would be expensive—especially if the new property, plants, and equipment were in America—and the running costs would be far higher, as well. 

The worst-case scenario for investors is that they will have to bear trillions of dollars of losses as companies write down stranded assets, are forced to hold more inventories, and shift operations in ways that lower margins.

The good news is that reshoring doesn’t have to hurt. The past few decades of globalization drove business cycles closer together and made companies increasingly dependent on global sales. 

Researchers at the Boston Consulting Group’s think tank note that this came at the cost of tighter correlations of financial assets across countries, which means that reshoring could help diversify international stock portfolios and improve the risk/return trade-off for investors. 

What’s more, investors stand to benefit if reshoring means a longer-term revival in innovation and flexibility in production. And higher operating costs could be offset by higher revenues, whether that’s through higher wages leading to greater consumer demand, government support, or some combination.

But reshoring won’t succeed without long-term commitments of money, attention, and expertise from the federal government. Companies have spent decades developing supply chains and procurement practices to cut costs to maximize returns for their shareholders and to cut prices for consumers, so the only way to alter their behavior is to offer new, radically different incentives. 

“Made in America” won’t happen at scale unless Washington makes it significantly more profitable than the alternatives.


Some politicians seem to appreciate this, which explains why the latest batch of ideas from Democrats and Republicans—who are sometimes working together on these issues—are about structural changes to the U.S. economy. In 2019, Sens. Tammy Baldwin (D., Wis.) and Josh Hawley (R., Mo.) co-wrote legislation to make American manufacturing more competitive by lowering the value of the dollar, while Sen. Marco Rubio (R., Fla.) called for a new “industrial policy” to encourage business investment in the U.S. to counter Chinese protectionism. Since the pandemic began, Sen. Elizabeth Warren (D., Mass.) and Rubio have cooperated on bills to reduce America’s “overreliance” on Chinese pharma products.

Both presidential candidates want to bring manufacturing back, but their strategies differ. Democrat Joe Biden has unveiled a plan to boost federal spending on U.S.-made goods, support research and development, change the tax code to discourage offshoring, and close loopholes in rules that already require Uncle Sam to “Buy American.”

“The U.S. economy is far less resilient to shocks than it needs to be,” Jared Bernstein, one of Biden’s top economic advisers, tells Barron’s. “Serial abuse from dumb industrial policy” inflicted by Washington hollowed out the U.S. manufacturing sector, he says, and America needs to “onshore certain supply chains, both medical and defense.” One area of particular concern is the “increasing share of defense procurement that comes from foreign production.”

That last concern is shared by the Trump administration, which has defended the legality of its tariffs, on the grounds that they are necessary to protect the “defense industrial base.” 

But where Biden seeks to boost the nation’s manufacturers through additional procurement and R&D subsidies, Trump’s preferred approach has been corporate tax cuts and deregulation to encourage domestic investment, with levies on imports to discourage purchases of foreign-made goods. 

The Pentagon has also recommended “direct investment in the lower tier of the industrial base…to address critical bottlenecks, support fragile suppliers, and mitigate single points-of-failure.”

At the same time, Robert Lighthizer, the administration’s chief trade negotiator, is encouraging other countries to buy more U.S. products. The most substantial deal has been with Canada and Mexico, and is notable for its emphasis on labor standards, local content requirements, and environmental regulations. 

It also contained an unusual provision that any signatory that agrees to “a free trade agreement with a non-market country”—such as China—can get kicked out of the North American pact. George Magnus, the former chief economist of UBS and a China expert, told Barron’sthis could become a template for future deals that promote trade while excluding China. (Lighthizer didn’t respond to requests for comment.)

One thing that’s often lost in the debate on reshoring is that the U.S. is still a manufacturing superpower, producing more than $6 trillion of goods in 2019. 

The problem is that, while the U.S. and global economies are far bigger than they were in 2000, America’s manufacturing sector hasn’t grown at all. Real output and productive capacity have been stagnant for two decades. 

While it’s not surprising that labor-intensive textile and apparel manufacturing have almost completely relocated to places with low wages such as Bangladesh, many technologically advanced industries, including metals, machinery, and electronics have also shrunk significantly. The most extreme change has been in pharmaceutical and medicine manufacturing, where production has dropped more than 20% since the peak in 2006.


The upshot is that the growth in both U.S. and global demand for manufactured goods since 2000 was satisfied entirely by foreign producers. 

Imports displaced American production while American exports lost market share in foreign markets—even in high-tech sectors that Americans had pioneered, such as semiconductors and aerospace.

According to an analysis from the Coalition for a Prosperous America—a nonpartisan group backed by labor unions, ranchers, and manufacturers—imports from the rest of the world went from satisfying 23% of America’s domestic manufacturing needs in 2002 to 31% by 2019, with substantially larger increases in high-value sectors such as computers, electronics, appliances, machinery, and pharmaceuticals. 

As a result, the U.S. now imports about $1 trillion more in manufactured goods than it exports each year, a deficit equal to roughly 4.5% of gross domestic product.


Imports ballooned at the expense of American workers because companies outsourced production—and the associated capital expenditures, which would otherwise have depressed profit margins—to countries with lower labor and environmental standards, bigger subsidies for businesses, and cheaper currencies than the overvalued U.S. dollar. 

While American companies sometimes opened their own factories in China and other low-cost countries, they often preferred to contract the work out to third parties. (Think of Apple and Foxconn, the electronics manufacturer that makes the bulk of the iPhones, in addition to videogame consoles, laptops, and televisions for other multinationals.)

Foreign profits of U.S. multinationals boomed—to shareholders’ delight—but the strategy came with significant costs. The offshoring fad hollowed out America’s ecosystem of suppliers, researchers, and skilled workers. The factories that remain are highly specialized and reliant on outside suppliers and capital equipment. That has had consequences for jobs, economic dynamism, and national security.


“What’s missing is the capability to pivot” to respond to sudden changes in demand, Erica Fuchs, a professor of engineering and public policy at Carnegie Mellon, said in recent testimony to Congress. Americans faced shortages of masks and ventilators in the first months of the pandemic, in part because medical-supply companies lacked U.S. “technicians and operators with the know-how” to adjust to changing circumstances. 

In contrast, Chinese factories accustomed to making a wide range of goods for multinational customers could quickly adapt to redirect production, she tells Barron’s.

Technological progress often comes from tinkering and experimentation, which is harder to do if research, production, and design aren’t all in the same place. Fuchs, along with colleagues Chia-Hsuan Yang and Rebecca Nugent, found that companies that can cut costs by offshoring to lower-wage countries face fewer incentives to innovate. 

That might have contributed to the sharp slowdown in U.S. productivity since the mid-2000s. Similarly, economists David Autor, David Dorn, Gordon H. Hanson, Gary Pisano, and Pian Shu found that American manufacturers that didn’t offshore production responded to competition from cheap Chinese imports by slashing their research and development spending.

This is a problem even in the heart of America’s high-tech economy—and it’s a long-term threat for investors. While Silicon Valley is now known for software, it originally prospered as a manufacturing center that supported fundamental scientific research in physics, electronics, and materials science. 

Many of the world’s leading electronics hardware companies are still headquartered in Silicon Valley, but most don’t manufacture anything there.

Consider what this has meant for Intel (ticker: INTC). While Intel still makes the chips it designs, it has fallen behind rivals such as Taiwan Semiconductor Manufacturing (TSM) and Samsung Electronics (05930.Korea) in manufacturing. Since the beginning of 2004, TSMC shares have returned almost 1,000%; Samsung’s have gained more than 400%; and Intel’s are up less than 100%.


Hassan Khan, who focused on the semiconductor and advanced-electronics industry when he was a consultant at McKinsey, says that TSMC and Samsung have an advantage, in part because they have practice making chips for a wide variety of custo
mers with different designs and preferences. 

In contrast, Intel is vertically integrated and makes chips only for itself. That makes the two big foreign firms more flexible and innovative when it comes to production techniques than Intel, which recently raised the possibility of shifting at least some output to contract manufacturers.

There is historical precedent for vertically integrated manufacturers being left behind by the market: A similar fate befell IBM, once the world’s leader in silicon processing, Khan notes. One solution is to focus on design at the expense of production. Advanced Micro Devices (AMD) spun off its manufacturing arm into GlobalFoundries in 2009. That has been great for AMD’s stock, but less so for Americans’ ability to make the most sophisticated chips.

Rebuilding America’s high-tech ecosystem is doable, but it could take decades. Brookings Institution economist Geoffrey Gertz notes that China’s rise as a manufacturing power was a result of “a decadeslong intentional push by the Chinese government,” and that a comparable commitment would be necessary to restore what has been lost in the U.S.

China’s production ecosystem developed with the help of targeted infrastructure investment, generous subsidies for businesses, procurement rules that favored “indigenous” companies, and managed competition. 

All of that could be part of a long-term American strategy, should voters decide it’s worthwhile. (State-sponsored technology theft, the suppression of workers’ rights, and lax environmental regulations probably wouldn’t be.)

In the crucial pharmaceutical industry, offshoring was driven less by sustained government intervention than by glitches in the U.S. tax code. The U.S. headline corporate tax rate effectively stopped applying to the profits earned by foreign subsidiaries of American companies in the late 1990s. 

That led to increasingly aggressive efforts to shift profits to tax havens, especially after the corporate tax holiday of 2005. The good news is that fixing those glitches could quickly lead to a resurgence in U.S. pharmaceutical production, although investors would have to accept higher effective corporate tax rates for pharma companies.


Inventing new drugs and figuring out how to produce them is expensive, but once that’s done it isn’t that hard to manufacture them at scale. That makes it relatively easy for pharma companies to shift their profits to low-tax jurisdictions. 

“Many pharmaceutical companies conduct the bulk of their research and development in the United States, but then seek to minimize their tax burden by transferring their intellectual property to places like Bermuda and producing their drugs in yet another low tax jurisdiction like Ireland,” Brad Setser of the Council on Foreign Relations recently testified. 

“The resulting products are then imported back to the United States, where typically they are often sold at a higher price than in the rest of the world.”

This behavior was turbocharged by the 2017 Tax Cuts and Jobs Act, which penalized U.S. companies for putting intangible assets offshore unless they also increased their physical assets. 

The perverse result, Setser explains, was that a company “would automatically lower its calculated U.S. tax if it built a factory in Ireland” while “a firm that reduces its tangible U.S. assets by licensing its intellectual property to an offshore subsidiary that supplies global markets from a factory abroad would have a lower tax rate than a firm that keeps its factory in the United States.”

The results can be seen in the data. After steadily rising for decades, American production of pharmaceuticals and medicines peaked at the end of 2006 and has since declined more than 20%. 

Over that same period, real imports have more than doubled. Much of the growth in imports of pharmaceuticals and medicines since then can be attributed to corporate tax havens such as Belgium, Ireland, the Netherlands, Singapore, and Switzerland. Since the end of 2016, 70% of the growth in U.S. imports of pharmaceuticals and medicines by dollar value has come from these tax havens.


Bringing manufacturing back to America isn’t impossible by any means—especially in capital-intensive sectors such as electronics and pharmaceuticals. It may even benefit investors, at least in certain industries. 

Success will depend on Americans’ willingness to commit to a long-term strategy and investors’ willingness to pay the costs. 

The experience of the past few years suggests that rhetoric without major policy changes won’t do much, one way or the other.

Bob Woodward on the 2020 Election

“How Can You Not Be Worried?”

Famed Journalist Bob Woodward brought down U.S. President Richard Nixon with his reporting on the Watergate scandal. Now he talks to DER SPIEGEL about Donald Trump’s "catastrophic" handling of the coronavirus, the outcome of the coming election and his new book, “Rage.”

Interview Conducted By Roland Nelles

Foto: Stephen Voss / DER SPIEGEL


Washington seems dead amid the COVID-19 pandemic. Many of the offices around the White House have been closed, and the few restaurants in the United States capital that have stayed open are usually empty.

Bob Woodward, 77, is also working from home. For decades, he has been among the most important chroniclers of political affairs in the capital. In the early 1970s, he uncovered the Watergate scandal together with his colleague Carl Bernstein at the Washington Post, leading to the 1974 resignation of President Richard Nixon. He later wrote books about the Sept. 11 terrorist attacks and George W. Bush and Barack Obama. Woodward has been awarded two Pulitzer Prizes.

For his new book, "Rage,” which was just published in German, he interviewed top government figures over a span of 10 months, including President Trump.

Due to the COVID-19 pandemic, DER SPIEGEL spoke to Woodward via telephone.

DER SPIEGEL: Mr. Woodward, in your book, you conclude that Trump is the wrong man for the job of the presidency. Why?

Woodward: I concluded that the evidence is overwhelming that he failed catastrophically in managing the virus. In a top-secret meeting with his National Security Adviser Robert O’Brien and others on Jan. 28, it was laid out to him in the clearest terms that a pandemic was coming, that it was going to be like the 1918 Spanish flu epidemic that killed 675,000 people in this country. 

Fifty million people died in that pandemic a century ago. And Trump, instead of telling the public about it, covered it up.

DER SPIEGEL: As of now, more than 8 million people have been infected with the virus in the U.S. So far, 217,000 Americans have died.

Woodward: The president could have leveled with the public -- particularly at his State of the Union Address on Feb. 4 when talking to Congress -- and laid out what's going on, what's happening. He only spent, what, 15 seconds on the virus? 

He said we are doing everything we can. And 40 million people are watching this. He could have said, "I've been warned, and we have a major public health crisis coming."  

And he did nothing of the kind.

DER SPIEGEL: Do you have an explanation for his behavior?

Woodward: I think, doing all this reporting on him and spending nine hours talking with him just this year, he doesn't understand his responsibility as president to protect the people, and he doesn't understand his responsibility to tell the truth. And he does not understand his moral responsibility to carry out the duties of the presidency. 

I know some Republican senators who agree that Trump is the wrong man for the job but will not say so publicly and are silent. Based on the evidence I had, I was not going to join the ranks of the silent.

DER SPIEGEL: Trump was willing to talk to you for your book, seemingly to explain his view of things. You conducted 18 interviews with him. Sometimes he called you during the night.

Woodward: It was after 10 in the evening.

DER SPIEGEL: You always had a voice recorder with you so that you could record him if he called you unexpectedly.

Woodward: I had to do that. Only once did I not have the machine with me and I couldn't record him. So, I took notes.

DER SPIEGEL: How did the meetings with Trump in the Oval Office go?

Woodward: The first interview was on Dec. 5, 2019, so that's last year. And I went in and took my little tape recorder, my Olympus tape recorder. I turned it on, put it down on the Resolute desk and said to him, "This is all on the record for a book that will come out in September and October," and I repeatedly told him I was recording it. He knew that, acknowledged. 

I went into the office, and he had pictures of Kim Jong Un there. He had propped in the binder copies of the letters he had exchanged with Kim, and then in the center of the desk, he had these formal appointment orders for judgeships, which are very important to him. And it was kind of like these are the props he has.

DER SPIEGEL: Trump wanted to make an impression on you?

Woodward: He showed me the pictures of Kim Jong Un, which he said were unique. But they were all familiar. The same pictures were everywhere on the internet.

DER SPIEGEL: You write about these letters that Kim Jong Un sent to him that were full of flattery, in which Kim Jong Un called him "Excellency" and once wrote that his relationship with Trump was like a fantasy film. What were you thinking when you read through these letters?

Woodward: Well, I thought this is Trump doing it his way. He told me that all he gave Kim Jong Un was "a fucking meeting.” It was risky. But Trump argues that we have not had a war, and he thought there might be a war at one point. 

I am not so sure of that. This is something Trump maybe did right. Maybe he did it wrong. We don't know. 

Having served in the U.S. Navy during Vietnam, painfully aware of war and its consequences, I have to give Trump some credit, for not having a war.

DER SPIEGEL: There were preparations for a nuclear strike. Jim Mattis, the secretary of defense at the time, went to the National Cathedral in Washington D.C. to pray.

Woodward: What a moment in history that the secretary of defense has to go pray and reflect on his responsibility that in order to protect our country, he may have to incinerate millions of people. It's chilling.

DER SPIEGEL: There are a lot of interesting scenes in the book where you describe the relationship between Trump and other top officials, including Mattis and Rex Tillerson, the then secretary of state, and then Director of National Intelligence Dan Coats. All these people come to the conclusion that this president is a threat to the national security of the United States. Why did they serve under him?

Woodward: Well, he recruited them. All three of them‑‑Mattis, Tillerson, and Coats‑‑were at the end of their careers. He made pledges or implied they were going to have control of their departments and access to him. 

And this is one of his frauds, one of his broken promises. Trump just ignored them, issued orders by tweet, no organization, no consultation. As Mattis says, it's government by Trump's impulse of the moment, dangerous, hazardous, makes no sense. 

This is a leadership failure.

DER SPIEGEL: You exposed the Watergate scandal. Is Trump in any way comparable to Richard Nixon?

Woodward: Nixon was a criminal, and we wrote that. And it was proven with his secret tape recordings. No one has proven that Trump is a criminal to my satisfaction. Yes, there are lots of questions. There's the Mueller investigation, the impeachment, but no one ever established criminality on his part. 

Trump has failed above all to protect the country from the pandemic. 

In Vietnam, the total number of deaths on the American side was 58,000, and the pandemic will soon have caused four times as many deaths in the U.S. It is the president's duty to warn the people. Trump did not do that. Instead, he denied and failed to manage the crisis. 

And there is still no plan.

DER SPIEGEL: Many people would say that democracy is in danger in the United States, and that Trump wants to govern like an autocrat. Do you agree?

Woodward: I write in the book that leadership failed, but democracy is holding on, at least for the moment. He doesn't go around shutting down the press. No one has raided my offices or home. The free press still operates. We have a functioning electoral system, though he's attacked that too.

DER SPIEGEL: The polls strongly suggest that Trump is going to lose the election on Nov. 3.

Woodward: Well, it is certainly possible that he is going to win. A number of people think it's not possible. I don't believe the polls. I talked to him at some length about this. Are you familiar with Barbara Tuchman's book, "The Guns of August”?

DER SPIEGEL: … about the outbreak of World War I …  

Woodward: … which I talked to Trump about. Barbara Tuchman points out that in Europe before the war, the old order was dying, and people didn't realize it. And I think in 2016, in this country, the old order was dying. Both parties failed to meet the moment. 

They didn’t understand the expressed and unexpressed views of the populace. And in an amazing way, Trump intuitively, not intellectually, I believe, but intuitively understood this. 

And he saw history's clock in 2016. That’s how he won. I talked to him about it, and he said, "Yes, I did.”  

And he said he's going to do it again.

DER SPIEGEL: Do you think that Trump is not going to accept the outcome of the election if he doesn't get elected?

"Pomposity stalks the halls of all institutions in the United States."

Woodward: Well, he said that, and, you know, he casts suspicion. Here again is the unthinkable. If there's any responsibility a president has, it's to ensure the transfer of power, ensure the integrity of the voting process, the most basic right that Americans have, and he's trampled all over it and said, "We won't know who's been elected." 

There is an unprecedented level of chaos and disorganization threatening the election.

DER SPIEGEL: Are you worried about your country's future?

Woodward: Yes. How can you not be worried now? We may have been living in a bubble in this country for hundreds of years. 

Yes, there have been some extremely difficult and terrible times for Americans. There have been crises like the Kennedy assassination, Vietnam. Now Trump has destroyed any sense of innocence. 

How do you restore trust in the institutions? I mean in us, for example, the news media. 

We are mistrusted. We have to acknowledge that.

DER SPIEGEL: What does that mean for you?

Woodward: I learned something that truly surprised me in the last month. The book comes out, and a reporter at CNN, Jamie Gangel, and my wife, Elsa Walsh, persuaded me, "Oh, put out audio of people, conversations with Trump." And I said, well, you know, it's in the book. They said, "No. You've got to put out the audio so people can hear themselves. 

People don't trust the news media, but when they hear it themselves, they'll accept it" ‑‑ because Trump has the most recognizable voice in the world. People will have heard those and say, "Ah. That's him. 

That's what he's saying. This is the context.” 

I think in the end people accepted the truths in this book also because they heard these recordings of the conversations. Nobody shouted "fake news."

DER SPIEGEL: You recently recounted on U.S. television that Katharine Graham, your boss at the Washington Post during the Watergate scandal, warned you that you shouldn’t become overconfident as a journalist. Why is the story important to you?

Woodward: In 1974, after Nixon had resigned, she wrote Carl Bernstein and myself a letter on a yellow legal pad: "Dear Carl and Bob, you did some of the stories about Nixon, and he's gone. Now, that's fine, but don't start thinking too highly of yourselves. Let me give you some advice. 

The advice is: Beware of the demon of pomposity." 

As you know, pomposity stalks the halls of all institutions in the United States, not just the media, but business, politics, academia, you name it. There's a lot of pomposity, over‑self‑confidence, and I thought that was a really important warning, important advice.

DER SPIEGEL: We understood that to mean you worry you might have been too harsh in your judgment of Donald Trump. Are you going too far as a journalist here? Would it be better as a reporter to stick to reporting the facts rather than saying at the end of a book: He's the wrong man for the job?

Woodward: No, I don't think I went too far. I've been thinking about whether I was leaving my territory a little bit there as a reporter. But I feel that I definitely have enough insight to make a judgement in this regard.

DER SPIEGEL: Mr. Woodward, we thank you for this interview.


Bob Woodward's new book, "Rage," was published in the United States by Simon & Schuster in September. The German edition was published on Oct. 16 by Hanser Verlag.