From the biggest cultural trends to the latest tax changes, we get to the bottom of what’s driving the news, untangling those complex issues you keep hearing about but need to get a handle on

Fortune Explains

Why and how did China introduce a series of sweeping regulatory crackdowns this year? And what does it mean for investors? We break it down.

China's regulatory crackdowns - explained

Xi Jinping appears on-screen at the centenary celebration of the ruling party in Beijing.

International

Why and how did China introduce a series of sweeping regulatory crackdowns this year? And what does it mean for investors? We break it down in this explainer.

Why and how did China introduce a series of sweeping regulatory crackdowns this year? 

The emergence of a more transmissible variant has forced some Asian economies to rethink their COVID strategies, as scientists say herd immunity is no longer a realistic goal.

Delta outbreaks challenge Asia’s COVID strategies

A worker in a hazmat suit disinfects a slum community in Manila. Photo by Ezra Acayan.

Health

The emergence of Delta has forced some Asian countries to rethink their COVID strategies, as scientists say herd immunity is no longer a realistic goal.

The emergence of a more transmissible variant has forced some Asian economies to rethink their COVID strategies.

The emergence of the more transmissible Delta variant has forced some Asian economies to rethink their COVID strategies, as scientists say herd immunity is no longer a realistic goal.

Poorer nations might not get vaccinated until 2023.

The COVID-19 vaccine rollout highlights global inequality

wildly uneven and unfair. That's how the describes the distribution of Covid vaccines around the world. Only about 2% of the world's vaccine so far have been administered on the african continent. As countries around the world rush to get their citizens vaccinated Covid 19 vaccines remain out of reach for many living in the world's poorest countries, according to predictions. High income countries like U. S. U. K. And most of you are expecting to vaccinate the majority of the citizens. By the end of 2021 all of these countries have already signed purchase deals with drug makers during the early development stage. Well before any data showed if the vaccines are safe or effective, Middle-income countries won't be able to vaccinate majority of the citizens until 2022. Other than buying vaccines from manufacturers, some of these countries will choose an alternative methods to secure more doses. One approach will be by signing manufacturing agreements if the country could produce vaccines domestically. Another way will be by posting clinical trials. If the country had the necessary resources, such as an information system to gather and process the data. However low-income countries and neither capacity will be left out. More than 85 developing nations will have to wait until 2023 before they can start vaccinating majority of their citizens. These countries will largely rely on pro vax to receive their vaccines. Kovacs is a global initiative designed to ensure fair access to the COVID-19 vaccine. It's a partnership between the rural health Organization, The Coalition for epidemic preparedness innovation and Gabby Kovacs aims to deliver two billion doses by the end of 2021. But in order to provide those as to poor countries, Kovacs needs funding support from public and private sectors. Today, I'm announcing the United States Is making a $2 billion Kovacs With the promise of initial $2 billion, there's others to step up as well. Unfortunately, by the time funds made their way to kovacs, the group was lost in line to request for vaccine doses, Kovacs has so far secured around 1.6 billion doses of COVID-19 vaccines, that's roughly around 18% of the world's current supply. While high income countries managed to secure more than half, some even have enough vaccines to provide their citizens with multiple doses, anticipating a vaccine surplus in wealthy nations In December of 2020, kovacs announced a plan to allow countries to donate vaccines to the global alliance. In April 2021, France became the first developed nations to donate vaccines to kovac. The pandemic has also brought back a long term debate over intellectual property rights. In October 2020, India and South Africa called on the Road Trade Organization to temporarily suspend I. P. Rights related to covid 19 until the road reach herd immunity. The proposal was backed by dozens of developing nations but it was blocked by Western nations including the U U. K. And the U. S. In mid april Over 170 former world leaders and Nobel laureate wrote to President Joe Biden urging him to support the India South Africa proposal in order to boost vaccine supply. And on May five the biden administration said it will work with the W. T. O. To negotiate a deal to wave I. P. Right on Covid 19 vaccines. But drug makers opposed to move and the framework is not about money, it's about making sure that those controls are in place. If we wave I. P. Rights altogether. The concern from my sight outside you can have a sort of dangerous free for all where scarce supplies. The desperately needs to keep that manufacturing going end up being diverted potentially to companies that don't know what they're doing and that will do more harm than good. As of mid May, Kovacs has delivered over 59 million doses, 222 countries and economies. The W. H. O. Continues to urge countries to fund and donate vaccines to the global alliance. The more transmission, the more violent and the more violent that emerge, the more likely it is that they will evade vaccines and as long as the virus continues to circulate everywhere, anywhere, people will continue to die, thread and trouble will continue to be disrupted and the economic recovery will be further delayed.

[MUSIC PLAYING] SPEAKER 1: TikTok, the viral video sharing app, and one of the fastest growing social media platforms in the world. Its biggest fans seem to be from Gen Z. How often would you say you use TikTok a day? SPEAKER 2: Like six or seven hours. SPEAKER 1: OK. And how many videos have you made on the app? SPEAKER 2: I've made over 800 videos. I've made 850, to be exact. SPEAKER 1: But there's growing controversy surrounding the app. JOSH HAWLEY: TikTok just does not want to answer questions under oath. SPEAKER 3: It collects your search history. It collects your keystrokes. BRYAN WARE: That should give us great concern. SHELDON WHITEHOUSE: Make the public know what the hazards are here. SPEAKER 1: TikTok is owned by Chinese tech company ByteDance, headquartered in Beijing. That's raised concerns that China can access and abuse TikTok's user data. The US launched a national security investigation of ByteDance in November. And although it likely would be tough to put off, US officials are threatening to ban the app altogether. MICHAEL POMPEO: We're certainly looking at it. We've worked on this very issue for a long time, whether it was the problems of having Huawei technology in your infrastructure. We've gone all over the world and we're making real progress getting that out. With respect to Chinese apps on people's cell phones, I can assure you, the United States will get this one right too, Laura. I don't want to get-- I do want to get in front of the president, but it's something we're looking at. SPEAKER 1: TikTok's response-- President Trump also raised the possibility of banning TikTok but his reasons are slightly different. GRETA VAN SUSTEREN: Secretary Pompeo has talked about possibly any TikTok in this country. China-- DONALD TRUMP: It's something we're looking at, yes. GRETA VAN SUSTEREN: Why would you ban it? DONALD TRUMP: Well, it's a big business. China-- look what happened with China with this virus. What they've done to this country and to the entire world is disgraceful. And we are looking at numerous different things. TikTok's one of them. One of many. SPEAKER 1: India, which was TikTok's largest market banned the app in June. And Australia is also considering doing the same thing. Partially in hopes of reassuring critics, TikTok pulled out of Hong Kong after passage of a new national security law. The law compels social media apps to hand over user data to Beijing. But regardless of this, US officials still remain skeptical. And when asked if US users should continue using the app, this was Pompeo's response. MICHAEL POMPEO: Only if you want your private information in the hands of the Chinese Communist Party. SPEAKER 2: I'm definitely not going to stop using TikTok at this point. Like it's just a normal thing for me to do and I love it. SPEAKER 1: And that seems to be the popular consensus. [MUSIC PLAYING] 

Fortune’s Devin Hance outlines the viral app's latest controversies.

TikTok: The complete guide to why its all over the headlines

Tech

TikTok: The guide to why its all over the headlines

Fortune’s Devin Hance outlines what you need to know.

Fortune’s Senior Writer Bernhard Warner dives into what you need to know, and why you should care.

Fortune Explains: GDP

Fortune’s Senior Writer Bernhard Warner explains.

Hey, Bernard. Hey, Joe From Rome. So what do you say we talk about some GDP? Yeah, GDP is an acronym that most often heard in the business press. What does it stand for? Gross domestic product. It's used all over the world. So the Japanese using the French use it, and we, of course, using. In the United States, Chris domestic product is basically the easiest way to describe the total value of all economic activity that occurs within the country. Even that level of detail can be kind of confusing. The best thing to describe to somebody about GDP is it. It's the health of the economy. If GDP is up, the economy is up. If the GDP is down, the economy is down. So it's more, uh, these days looked at as a quick reference point to see how is the economy winning or losing? At this point, it's just a natural part of us to quickly determine whether or not our society is moving in a direction. We wanted to move it within G. D. P. You have a couple different components, and this is what you might see the first day at introduction to macroeconomics the professor would turn around to the chalkboard and he would write. Or she would write C plus I plus G plus and X inside gross domestic product. You imagine a box, you pull out the box and you'd have seen for consumption personal consumption. It's what we spend on everything from dishwashers to haircut. Another letter we would pull out would be I for business. Investment has everything from real estate home purchases to factory equipment. After that, we have the letter G for government spending. That would be anything from your F 18 fighter jet to the salaries of your preschool teacher, public school teacher. And finally, we have the last letters net exports, which is X minus M exports minus imports. Those would be basically the value of train. If we are exporting more than we're importing, then that number would be positive. That has not been indicates for a long time, and one of the reasons for that is that the dollar is very strong, and so imports look pretty nice for somebody holding dollars in their wallet. The U. S. Economy is a pretty stable machine. It's a locomotive that's moving in a direction. It doesn't take that far up or that far down. And so economists every year when they build their models, they pretty much built in the beginning of the year. And they may tweak it a little bit here and there during the year. But they never tear it up and start over again. Coronavirus cause all the economists to just tear up their GDP models because things have gone completely off the rails and that is not does not happen very often, and economists have to rip up his GDP model. It usually means something really bad is happening. It's a financial crisis. It's a war, or it's something like what we're going through right now. A global center And you might have heard another term connected to GDP and that's called recession. Recession is two quarters in a row of GDP. Going down. Processions are really bad for the economy. They're really bad for economists. They're really bad for consumers and politicians really, really hate the R word. So that's what we're about to head into right now. We're going to go from a period of growth. I think it's been 23 straight quarters of growth two today Officially, we now know that the economy has in fact shrunk by 4.8% which is pretty significant. So the trillion dollar question that economists, business leaders and politicians are trying to trying to get their head around. By how much will the economy shrink? In other words, by how much will the GDP fall? Let's hope it's only a $1 trillion question. It could be more than that. Let me say something, though, about the criticisms of GDP. GDP gets a bad rap it and justifiably, it's not a perfect measure of the health of an economy. There is a good example of this. It's called the Netflix Effect. Yeah, a $12 a month subscription into Netflix. I can watch whatever I want to watch. I'm paying less to consume more where we have created these new ways of pricing the goods and services that we we want. And GDP does not do a very good job of measuring the value of either that service or the consumption of those services. It does not measures something that a lot of people think it's very important, which is the quality, poverty, health and well being, happiness you might think happiness is kind of a squishy idea, but it's written into the into the what the Founding Fathers say. The other thing that it doesn't do a good job actually completely misses is all the things that we do for one another that doesn't get paid child care, volunteering or even look at it another way. If we go go for a job or something like that to to make ourselves healthier, there's a societal benefit to that. We are staying healthy. We presumably stay out of the emergency room and on. So there are. There are limitations, the GDP. It's just that nobody has come up with a better measure. It might be something that we re think again in the age of the Covid 19 pandemic. What are we doing? The best job of really measuring the health and well being, um, an economy. You're going to need the measurement in order to grow responsibility. I'm confident that we will see a a big modifications of the definition of what it means to be a growing economy. GDP is one of these definitions standards that's going to be here to stay

By now I'm sure you heard of it. This is the Popeye's chicken sandwich. Okay. Popeye's fried chicken sandwich. Popeye's chicken sandwich. Wow. Popeye's chicken sandwich, it hit Popeye's menu on Agoust 12th and within 2 weeks the sandwich was completely sold out. Never seen nothing done like this. [ UNKNOWN ] took it away. I've never seen people line around block for a new item at a fast food restaurant, never. [ MUSIC ] Here's the story. Popeye's came out with a fried chicken sandwich, regular mayonnaise and a spicy mayonaise version. And they tweeted about it. And then a comparative war broke out with Chic- fil- A's version and there were a lot of celebrities that weighed in. Gayle King was seen eating it, musicians, rappers, etc. Everyone wanted to try the sandwich and wanted to express their opinion and get their favorite. That's why I think it went viral and that's why Everyone really got excited about our chicken sandwich. So for many years our guests have been asking us for a chicken sandwich at Popeyes and we took the challenge. It was always supposed to have been a permanent addition to the menu, unforntuately we were caught by surprise We had to pull for a little while but now we're ready to make a comeback. The fast food chain says it had to stop selling the sandwich just two weeks after its August debut. But Popeye's says the sandwich Is here to stay. I don't understand why they so Miss guest. There's something called concept testing where you test the idea and then product testing where you test. Does it live up to the concept and I think in this case, it was met or exceeded people's expectations which were pretty high. But if their suppliers were capacity constrained. They should've had a backup plan in case they exceeded expectations. We literally ran out of the chicken filet. It was literally the chicken so I mean, we would've had enough supply of mayo or pickles or the buns but But we literally ran out of the chicken fillets. The fact that they ran out of it indicated that they couldn't keep up with demand, which is always a very good sign. But why did it take two months for the return? Well, It took too much because we can't just go down the street and get the ingredients. They were created specifically for this program. And we needed time to go back and work with our partners to help them produce these products and ramp back up. So that's [ UNKNOWN ] still a very special kind. We're very specific about where it comes and where it gets cut out of the chicken breast. So, it wasn't something that you could just replicate very quickly and you got to keep in mind we sold in 2 weeks what we thought would last 2 months. It's like. Let's take the time and do it right. They know that they need to supply demand much higher than originally forecasted, so the choice was do you have people going to the store and being dissapointed because you've run out or do you wait until you have enough and then have a big big national launch? I think they did the right thing. The other alternative that they could have done was to have a limited amount in one market. But overall, I totally think they did the right thing. Now, let's break down the sandwich itself. Why do people think it's so great? Who's idea was this? The pickle on this sandwich, like who made this bread? You know what? You can't have a really good sandwich without incredible bread. So we landed on an artisan style brioche bun. And then I was very adamant that we were gonna Butter the vine, we use the same buttery topping that goes on our biscuits. So we already know people absolutely get crazy over that flavor. So we worked with a group [ UNKNOWN ] to come up with this fresh pickle. It's [ UNKNOWN ] cured, it's just a very simple brine But it makes all the difference in the world that it is a fresh product and not a shelf stable. It's only four ingredients, but they are literally the best four ingredients we could get our hands on. Look at the meat! This is the greatest chicken sandhwich Of all time. And turns out, running out of chicken wasn't a total disaster. One of the greatest things that happened with the entire sandwich launch was that all the demand that we had driven by the sandwich and driven by our entire menu overall Led Popeye's to one of its best quarters in about 20 years. I overall think it's a massive win. First of all, they had a sandwich which everybody loved, and you can't get any better than this. Great product, great visual comparison to competition. A lot of pent- up demand. A lot of people who love it, and are very vocal about it. So and low relatively, low class marketing and it all starts with having a great product because if they didn't have a great product that looks really good, this wouldn't be the case. This chicken sounds releases endorphins in my body. It is the perfect amount of spice. We missed the chicken sandwich. I can't wait to taste the deliciousness of the chicken sandwich again. I am in New York right now, but when I get back I'm going to Popeye's. [ BLANK_AUDIO ]

Popeyes Chicken Sandwich Is Back For Round Two

Entertainment

Here's the story behind the viral menu item that sold out within two weeks but turned into a big win for the company.

 Boeing. Authorities say a Lion Air passenger plane carrying 189 people has crashed into the sea. Breaking news-- an Ethiopian Airlines flight has crashed shortly after takeoff from Addis Ababa, killing all 157 passengers and crew thought to be on board. The world's largest aircraft manufacturer rocked the airline industry and instilled fear in players all over the world after two fatal crashes in five months. Up until these accidents, the 737 Max was the fastest-selling airplane in Boeing history. From the time it was announced in 2011, Boeing secured more than 4,700 orders for the plane from more than 100 customers. The Max fleet flew the skies for over two years before being grounded worldwide in March 2019. We're going to be issuing an emergency order of prohibition to ground all flights of the 737 Max 8 and the 737 Max 9. Now, Boeing is facing escalating bills, numerous legal threats, and a crisis of public confidence. Boeing operates four divisions-- Boeing Commercial Airplanes, Boeing Defense, Space, and Security, Boeing Global Services, and Boeing Capital Corporation. About 60% of Boeing's sales come from its commercial plane segment. So it's no surprise that the 737 crashes are hurting Boeing's bottom line. In Q2, Boeing suffered its biggest quarterly loss in the company's history. Boeing also saw a big dip in revenue in Q2 compared to last year, but classified $5 billion of that as a one-time charge related to compensating airlines affected by the worldwide grounding. Separately, Boeing has set aside over $100 million for victims' families and communities impacted. In another sign of financial trouble, Boeing delivered 104 fewer airplanes to customers in Q2. That leads to another major concern for the company-- competition. Airbus is Boeing's biggest rival. In Q2, Airbus managed to deliver more commercial planes than Boeing for the first time in eight years. So what happens to Boeing's finances from here? Boeing paints a relatively rosy picture. It says a partnership with Embraer, the world's third-largest producer of aircrafts, will help it battle Airbus. It points out that the world will need over 44,000 new planes, worth $6.8 trillion, between 2019 and 2038. And it expects to continue its reign as the world's top plane producer. But much depends on how quickly the 737 Max returns to the sky. The longer those planes sit on the ground, the more they cost Boeing. Even when the FAA clears the plane to fly again, there's no guarantee passengers will want to be aboard. Aviation experts say passengers are now afraid to fly on Boeing's 737 Max jets. 53% of American adults who were polled said they wouldn't want to get on one of these planes even when regulators say that it's safe. CEO Dennis Muilenburg says this is a defining moment for Boeing, and it truly is. 

Boeing: The Story Behind the Company's Financial Trouble

Travel

A timeline of how the 737 crashes impacted Boeing in more ways than one.

Boeing. The authorities say a Lion Air passenger plane carrying 189 people has crashed into the sea breaking news and Ethiopian Airlines flight has crashed shortly after takeoff from Addis Ababa, killing all 157 passengers and crew thought to be on board. The world largest aircraft manufacturer rocked the airline industry and still fear and flyers all over the world after two fatal crashes in five months. Up until these accidents with 7 37 Max was the fastest selling airplane in bowling history. From the time it was announced in 2011 Boeing secured more than 4700 orders for the plane from more than 100 customers. The Max Fleet Food Disguise for over two years before being grounded worldwide in March 2019 be issuing an emergency order of Prohibition to ground all flights of the 7 37 max eight on the 7 37 max nine. Now Boeing is facing escalating bills, numerous legal threats and a crisis of public confidence. Boeing operates four divisions. Boeing Commercial Airplanes, Boeing Defense Space and Security, Boeing Global Service is and Boeing Capital Corporation. About 60% of bowling seals come from its commercial plane segment, so it's no surprise that the 7 37 crashes are hurting Boeing's bottom line in cute, you bawling suffered its biggest quarterly loss in the company's history. Boeing also saw a big dip in revenue que tu compared to last year but classified five billion of that as a one time charge related to compensating airlines affected by the worldwide grounding separately, only set aside over $100 million for victims, families and communities impacted. In another sign of financial trouble, Boeing delivered 104 fewer airplanes to customers in queue to that leads to another major concern for the company competition. Airbus, Boeing's biggest rival in queue to Airbus, managed to deliver more commercial planes and going for the first time in eight years. So what happens to Boeing's finances? From here? Boeing paints a relatively rosy picture. It says the partnership with them Brier, the world's third largest producer of aircrafts, will help it battle Airbus. It points out that the world will need over 44,000 new planes worth $6.8 trillion between 2019 and 2038 and it expects to continue its reign as the world's top plane producer. But much depends on how quickly the 7 37 max returns to the sky. The longer those planes sit on the ground, the more they cost bowling. Even when the F A A clears the plane to fly again, there's no guarantee passengers will want to be aboard. Aviation experts say passengers are now afraid to fly on Boeing's 7 37 max jets. 53% of American adults who were polled said they wouldn't want to get on one of these planes. Even when regulators say that it's safe, CEO Dennis Muilenburg says, This is a defining moment for Boeing, and it truly is.

Tariffs. Tariffs. Tariffs. Tariffs. Tariffs. It's hard to escape the talk of tariffs, which means we've also been hearing a lot about- The trade war. Trade war. Trade war with China. Trade war with China. The question is, who is actually being helped by these tariffs and who is being hurt? The trade war hurts them, doesn't hurt us. Our trade policies have been a disaster. Think it's great to air the other side. I come out and favor the tariffs. I'm one of those people who just doesn't get it mister president. We've rounded up an all- star team to help explain how we wound up in a trade war in the first place. [ MUSIC ] [ MUSIC ] Let's start with the basics. Okay, so a tariff is a tax on a good that's imported into a country from some other foreign country. So if you're Walmart and you're importing blue jeans from China, and all of a sudden you've got a 10 % tariff from that represents $ 5 on every pair of blue jeans. That's a tax you pay to the government and then you tack for $ 5 back on to the price so in effect it's a tax on consumers who buy blue jeans. When did countries start using tariffs. So tariffs date back to the founding of America and was a major source of funding for the government for centuries. And the primary rationale at that point in time Was to use the tariffs to generate revenue. Now, the objective is primarily to hurt an importing country and or to help one or more domestic sectors of the American economy. That's what we're seeing now. President Trump claims that the tariffs his imposing on imports from China In other news as well protect American manufacturers, American producers American agriculture. The President may see the tariffs he's imposed as a defense measure. But China sees them as an act of aggression. And that sparked our current trade war. How did this all start? Trade war is when one country imposes tariffs or tries to block exports from another country, and then the country that is being blocked responds and retaliates by imposing tariffs on imports into their country. And that's precisely what's happened between the US and China. I think a significant part of the Trumpian worldview is. Is we have a very, very large bilateral trade deficit with China. So simply put, the trade deficit is exports minus imports. They sell $ 540 billion to us and we sell $ 120 billion to them so that the The balance of trade is very, very lopsided in China's favor and this is the target that Trump has taken on. And this is the reason why we're now involved in a trade war. So President Trump obviously ran for office on a platform of strenthening the American manufacturing sector. And the primary means by which he's done this, as far as relates the trade, is imposing tarriffs On China, on European nations, China is by far the country with which he's had the most aggressive stances that relates to the implementation of tariffs. Okay, will all of these tariffs fix the trade imbalance? Trump's view is that trade wars that are effective tactic, that trade deficits are all bad, that surpluses are all good. And that, this blunt instrument that he's using carries which haven't been tried before by any previous administration in modern times will exert the pressure that is required on China to finally change these unfair trade practices and to shrink this deficit. But the problem with President Trump's approaches that even though he is right, in terms of the criticisms that he makes about China, he uses the wrong policy instrument to solve the problem. So he seems to think, he meaning President Trump, that just by letting tariffs on Chinese products, we're going to be able to teach China lesson and we're going to in his language win. This trade war with China. Well, that's just not gonna happen because the problems, they require structural changes in China. And those kinds of structural changes, the Chinese have simply been unwilling to make. Thus far. What structural changes would need to be made? The Chinese economic development model, the state controls virtually every aspect of what firms can or cannot do. It directs who can buy or sell, and in what amounts. Now contrast that with the approach that's taken in the United States and in most of the Western world. The government rarely gets involved in the activities of private enterprises. So what we really have is a clash of two economic systems. As things stand now, how is this all impacting Americans? The Federal Reserve has estimated that as a result of the trade war with China, American consumers are going to have to deal with an additional $ 800 in annual costs. And that's a lot of money for some households. There is no question that the biggest losers in this whole trade war are gonna be low income households. Because they tend to buy the inexpensive goods that the Chinese can make a lot less expensively then US producers can make. So let's do a quick review. The US has had a giant trade imbalance with China for a long time. President Trump wants to fix this, so he's implemented a lot of tariffs. Unfortunately, according to our experts, tariffs aren't an effective way to solve the problem. In the meantime, the tit for tat tariffs have grown into a full blown trade war, and that's resulting in higher prices for American consumers. So is there a way to cut trade deficits with China without causing American consumers or businesses more pain? I think a lot of economists believe that the real solution is to find a way to open the the Chinese market to US goods in ways that's never been opened before. The way I see it there is only one approach and that one chance is for the United States to engage in robust diplomacy Which the European Union and the European Union and the United States needs to put up a combined EU, US or North America front telling the Chinese that you know what? All of our firms are affected by policies that we deem are fundamentally unfair. So if you want to have A regime which is based on openness, globalization, with the free flow of goods and services, you better change the way in which you do business. The ultimate goal is not to leave these tariffs on for all time so that US consumers get hit. He wants to get rid of terrorists, at least that's his stated goal. So, In order to do that, you have to get the Chinese to buy more of our goods. This is a bipartisan issue, which will take significant amount of effort to resolve and it's not gonna happen because it's a only a republican or only a Democratic issue or only the creation Of President Trump. It's far deeper then that. [ MUSIC ]

Fortune Explains: Tariffs and Trade Wars

How did we end up in a trade war in the first place? 

So a new month rolls around, which means you get paid. But that also means you've got to pay your bills. But what happens when you run out of cash before you could pay for all of that. Well you'd have to borrow money. Just like you and I, The United States government has bills to pay. Borrowing money is exactly what the U. S. Treasury has done for years when it's run out of cash. But governments can't just borrow whatever it wants. The Constitution says Congress must first authorize the borrower. And this is where the Debt Ceiling comes in. The debt ceiling is the limit on the amount of national debt that can be incurred by the U. S. Treasury. You can compare the nation's debt ceiling to the limit on your credit card. The credit card company puts a limit on how much you can spend. But here's the difference. The treasury can ask Congress to raise its Limit. If Congress refuses to increase the debt ceiling, it's saying it wants to spend, but not pay its bills. That's like your credit card company allowing you to spend above your limit, but then refusing to pay the stores for your purchases. The current debt limit is $ 22 trillion and we've already hit that ceiling. Raising the ceiling was once done without much debate, but like much in politics, its become a battleground and those political clashes make markets nervous. Failure to raise the ceiling would have some serious consequences. But we'll get to that later. So how did we get here? The government spends more money than it takes in. As you can see here, the US is in more debt than ever For before. In the last 50 years the debt ceiling has been raised over 70 times, which is a long way from where we started, when it was set at $ 11. 5 billion in 1917, and if you're wondering where the borrowed money comes from, the US issues Treasury Bonds in exchange for hard cash. [ MUSIC ] But just like anyone over time, the government has to give that money back plus interest. [ MUSIC ] Some people might say if Congress and the administration would just cut spending, they wouldn't need to increase the debt limit. [ MUSIC ] But according to the treasury, there is no credible budget plan that will allow the government to avoid the debt limit increase. That's because the government has already committed to so much spending, including the interest owed on its current debts. Those interest payments alone cost $ 896 million every Every day. So here's the question that should have everyone paying attention. What happens if Congress does not raise the debt ceiling when we have reached the limit? In the words of US Department of the Treasury Catastrophic economic consequences. Former treasury secretary Tim Geithner outlined some specific in the letter to Congress. One, interest rates would rise. Two, the dollar would drop and lose its status as a global world currency. And three, say good- bye to a list of things, including social security, Medicare, Medicaid benefits, tax refunds, the list goes on. Translation, another financial crisis. When delays in raising the debt ceiling occur, the Treasury Department uses so- called extraordinary measures. To avoid defaulting on the government's obligations. That's just a fancy term that means juggling around the funds to make sure that the government can continue to pay its bills for now. The Congressional Budget Office estimates time will run out on the current juggling act as soon as September 2019. [ MUSIC ]

Fortune Explains: The Debt Ceiling

Finance

A guide to what it is and why it matters. 

Understanding Brexit feels a lot like solving a Rubik's cube. There are a lot of moving parts, and just when you think you have it figured out, something new is brought to the table. Let's start from the beginning. [ MUSIC ] This a story that involves two main characters, the EU and the UK. Back in 2016, the United Kingdom voted to break free from the European Union. And the two have been in talks to hash out the terms ever since. Like, how will an independent UK handle trade deals, custom, immigration and other things. But as you can see this kind of split isn't easy. In fact it's been messy. And the leading lady U. K. Prime minister Theresa May. Tasked with ironing out all the brexit [ INAUDIBLE ] details. She's managed to reach a deal with the EU but it failed to gain approval at home more than once. The ayes to the right, 242, the nos to the left 391. So the nos have it, the nos have it. But she got it handed to her. she hasn't given up even after two attempts to remove her from office. So why all the opposition to her Brexit plan? These opponents thought her agreement left the UK tied to the EU in too many ways. They called this a soft Brexit. When what they wanted Wanted was a hard Brexit As you may know, I've don't recognize these terms of hard and soft Brexit. What I think we need to do is to build a new deep and special partnership with the European Union. We want that comprehensive free trade agreement, which enables us to have a seamless and frictionless a border as possible to continue the trade And cue the chaos. Order. Theresa May told lawmakers to hold their nerve and give her more time to negotiate a deal that's acceptable to both sides. Come to order, the Prime Minister. [ NOISE ] [ NOISE ] Every time we've come up to these votes the scuttlebutt has been that, well, maybe this time she'll get it through. Prime Minister Theresa May has delayed the crucial vote on her Brexit plan that was Due to take place tomorrow. For two years, Brexit was expected to start on March 29th, 2019. With the 21- month transtion period, making December 2020 the official date the UK would fly solo. But you can cross those dates off your calendar if you haven't already. Like many things [ UNKNOWN ] are related, things have changed and dates have shifted. Like a lot. The danger now is that Brexit will proceed without any deal at all. My God. Okay, it's happening. Eevrybody stay calm. Everybody stay calm. And nobody wants that. Here are some reasons why. Borders. The border between Northern Island and the Republic of Ireland has been a big sticking point in this whole mess. S, Northern Island would be the only land border between the EU and the UK. And there lies the problem. How would goods moving between the two be checked going forward? Custom post? Fences? Flash back to the troubles, a point in history where a 30 year border conflict caused horrible tension and thousands of deaths So a hard border strikes a sensitive chord from the past, but without a deal, the UK would suddenly fall back on World Trade Organization rules. This means it would have to strike separate trade deals with each country, or give all countries the same terms. Currently, there are no tariffs on trade between EU and UK Changing that could mean goods become more expensive for british businesses and consumers. It can also impact British sales abroad. And to make matters worse all of this will dramatically increase customs paperwork. And that could result in major delays for goods trying to cross the border. [ SOUND ] Summary, it may even lead to shortages of food and other essentials. And what about the people? That is what businesses are made up of, after all, A no deal Brexit would mean figuring out visas, passports and even what taking a flight between the zones with me. What happens to EU citizens living in the UK and vice versa? What about working in- between the two zones? So if you couldn't already tell by now, this is a confusing puzzle that so far nobody has been able to solve. [ MUSIC ]

Fortune Explains: Brexit

Politics

A guide to what it is and why it matters.

So I really want to make pizza, but I only have $ 3 to buy all the ingredients I need. My colleague, Lucinda, decides to chip in $ 20. But then I decide to add pineapple. Which I did not vote for, and never would have. Since making the pizza was my idea And since I'm the one who actually did all the work, I figured my vote counted more than hers. Sorry Lucinda. This is how voting works in some public companies. It may seem unfair in the beginning, but it's ultimately a really good thing in the long run. I disagree, but we'll explain. [ MUSIC ] So traditionally, when a company issues stock, one share equals one vote. But, increasingly, companies have been taking on a so- called dual share structure, which gives founders and inside investors outsized control in how their company is being Being run. Some company insiders like the foudners and early investors get super voting shares in which one share equals ten or more votes. The dual class share structure has actually been around for a really long time. But since the 1920s the structure has gone in and out of Family- owned businesses, as well as news organizations, have been the types of companies traditionally to employ a structure like this. Because they often wanna maintain news independence, or keep the control within the family. But now so many companeis are choosing to go this route, and many of them are tech companies. 25 % of the companies that listed on the US Exchange in 2017 Her dual class, share structure whereas only 1 % had it in 2005. Tech companies that have begun implementing this model in recent years have included Go Pro, Yelp, Google, Snap, Dropbox, Lyft, Ali Baba, LinkedIn, Square as well as Zynga. One of the most high profile companies to use this type of structure is Facebook And CEO, Mark Zuckerberg owns 14 % of shares, yet has about 60 % voting power at the company. This means that you and I can buy common stock, class A shares. Whereas, Mark Zuckerberg and a few company insiders Have class B stock, which is one share equals ten votes. This pattern of giving founders and their early shareholders an outsized level of power really came to a head with Snaps IPO in 2017. That company gave about 90 % of the voter rates to the two founders Evans Spiegel and Robert Murphy. When the CEO or founder holds the majority voting rights in a company that also means that they can turn down shareholder proposals very easily without input from their investor So critics argued that the dual- class share structure can promote something of a dictatorship in certain firms, where investors are expected to continuously trust a CEO regardless of his decisions. Shareholders also want more say in the Money that they are investing in it is their capital being put on the line I would argue that this is actually great for founders and for innovation in the company. So this type of structure incentivizes founders to stick with the company for the long term and make decisions that will maximize the value Otherwise you risk losing the founders and the keen management right when the company goes public with nobody to lead it into the future. I hear what you're saying, and that's why we're seeing more and more investors asking for a compromise known as the " sunset clause ". So, the sunset clause calls for the unwinding of individual class share structure over a period of say seven to ten years going to a one vote one share model at the end of the Period. That's a good compromise because without it companies might choose to stay private even longer than they do now or not go public at all, which is ultimately a loss for the public investor. And if those companies don't go public, nobody gets a piece of the pie.

Fortune Explains: Dual Class Shares

Lyft, Facebook and other tech companies use this structure - but who truly benefits?

Amazon nearly doubled its US profits in 2018 to more than $ 11 billion. Guess how much it had to pay in federal income taxes? Zero. In fact, it received a federal income tax refund. That's according to The Institute on Taxation and Economic Policy, a Washington DC based think tank, which notes that companies like Amazon have for years found ways to pay little to no tax. Amazon's tax bill of 2018 raises the question: how? A couple of important things to know, one is that we dont know for sure how much Amazon is going to pay out it's 2018 18 income taxes. You'll need the tax returns to actually know that, and all this information comes from the company's public SEC filings. So it's important to know that Amazon did pay state and international taxes. And whatever methods it's using to reduce its income tax burden are legal. So as we know, last year Amazon reported more than $ 11 billion [ MUSIC ] there's some US profits. Also, last year was the first year that new tax laws came into effect, meaning that the corporate tax rate was cut from 35 % to 21 %. So in theory, the amount that Amazon should have paid in federal income tax is somewhere around 2. 3 billion dollars. Just like most of us, companies seldom, if ever, end up paying the full amount that they're on the hook for. There are at least three ways By which Amazon was likely able to reduce its income tax burden for 2018. The biggest item appears to be related to stock- based employee compensation. That's nearly $ 1. 1 billion that Amazon was able to deduct from its federal income taxes related to the stock options that it provides its employees. Like a lot of companies these days, Amazon pays its employees at least a portion of their salaries in stock instead of traditional compensation. When employees activate those stock options, Amazon then is able to deduct that From federal income tax bill. This year there are only $ 1. 1 billion. And there is $ 565 million in deferred income taxes. Now, Amazon had CC filling are short on specifics, but presumably these are the income taxes that the company will have to pay at some point, but not this year. The company loss have claimed $ 419 million in tax credits this year. And this is where tax reform comes into play. Under the 2017 tax reform law, Amazon was able to immediately expense 100 % of its capital investments, and things like equipment. Whether it's machinery in its fullfilment centers, or its web servers. That has helped contribute to its lower tax bill. And then there are a whole array of items that we're not sure of, but which we can assume that Amazon is using. To reduce its income tax plan this year. That includes up to $ 1. 4 billion in federal income tax credits that 've carry over from the years past. Is the right parameter in the social development. Is also up to $ 627 million In net loss carry overs. These are net losses from years past, the company is now able to claim to help reduce its income tax burden. Amazon, of course, would point to its positive impact on The US economy. That includes 250, 000 people employed across The US, hundreds of billions of dollars that it's spent in growing its business, as well as billions of dollars in taxes that it has admittedly paid. Across the country and around the world. Still that won't have switched critics who are irked that the company received $ 129 million income tax refund from the US government this year, instead of paying a single cent in federal taxes. [ MUSIC ] [ BLANK_AUDIO ]

Fortune Explains: Amazon's Federal Income Taxes

Amazon is unlikely to pay federal income tax for 2018. Here's how.

Alexandria Ocasio- Cortez the youngest congress women in history, recently suggested a marginal income tax rate as high as 70 % for the wealthiest Americans. On your $ 10 million dollar, sometimes you see tax rates as high as Is 60 or 70 %. Her comment sparked a lot of headlines and apparently some confusion. [ MUSIC ] [ MUSIC ] She's not calling for top earners to pay 70 % of their income to the government, so what is she suggesting? I'll show you. [ BLANK_AUDIO ] First off, it's important to know that nobody's income is tax at a flat rate. There's seven tax brackets in the US. And based on your income, you'll likely pay into several of them. Let's say you make $ 84, 000 a year. You'll pay a 10 % income tax on your first $ 9, 700. You'll pay 12 % on anything you earned between $ 9, 700 and about $ 39, 000. When you earned between $ 39, 000 and $ 84, 000, you move on to the next tax bracket and you owe 22 % on earnings in that bracket. And so on. [ MUSIC ] Bottomline, the tax rate envisioned by Ocasio Cortez does not mean that the wealthy would pay 70 % on all their income. Instead they pay the higher rate on income that's over a certain threshold. She's proposing ten million. Who makes over ten million a year? I think Mark Zuckerberg, Oprah Winfrew and Bill Gates. Ocasio Cortez isn't the first person to come up with this tax rate idea, under President Eisenhower in the 1950s rates were as high as 92 % Rates hovered around 70 % when John F. Kennedy was in office before falling to 50 % after Ronald Reagan's first big tax cut in 1981. Today, the top marginal tax rate is 37 %. Keep in mind that Ocasio- Cortez's comment on higher tax rate is still just that. A comment. She hasn't released a detailed plan or official proposal. There is no bill featuring a 70 [ INAUDIBLE ] % tax rate on the rich at least not yet. [ MUSIC ]

Fortune Explains: Marginal Tax Rates

Alexandria Ocasio-Cortez suggested a tax rate as high as 70 percent on the rich.

 Sony has a really terrible history with hackers. They came under attack repeatedly. And if any one company should have been prepared for something like this, it was Sony. And they weren't. The FBI believes that hackers initially got into Sony's system through spear phishing email, which basically means that they targeted a particular message to an individual at the company, and inside of that message, there was malware or some sort of virus that jumped out and allowed them to gain a beachhead on the network. Many of the experts we spoke to said that the hackers were not super advanced. We spoke to one professor who said sort of a mid-level student could have pulled this off. Most hacks are done for commercial reasons or corporate espionage or secrets. This is a case where the purpose was to destroy information and embarrass a company. It's not entirely clear when the hack began, but the FBI believes that by the time it really surfaced, it was probably three months in. So for a period of months, the hackers are in there gathering huge amounts of information, which they then unleashed. Sony was paralyzed. They pulled the plug on the entire computer network. Everybody went back to using paper and pencil. And they dialed out on BlackBerrys, they used fax machines. Certainly no one imagined that exactly what happened would happen. But my reporting is that Sony had two explicit warnings that this was a possibility. They deny it. They say they got no warning of the danger of a cyber attack. That's their position. We did a poll of Fortune 500 CEOs where we asked them the greatest challenges they face. 2/3 said that cyber-security was either the top challenge or one of the top three or four challenges. So companies have woken up to the fact that this is a big threat they face, but they clearly haven't yet done what they need to do to protect themselves. When you look at the Sony hack or the Home Depot hack or the Target hack or the JP Morgan hack, you have to realize that you're next. Right now, Fortune 500 companies are being hacked-- right now. And the important thing is you need to shore up your defenses. Sony has rolled out a whole series of initiatives, and they overwhelmingly sound really good, assuming Sony implements all of them. For the first time, they're going to have a whole series of steps that will compartmentalize information and make it harder for one person to make off with a huge trove of information. One of the things I hear a lot from companies is it's hard to justify the hundreds of millions of dollars they're being asked to spend to protect themselves from cyber attack. But what costs more-- a bunch of software and a bunch of extra IT guys to handle these threats or the potential loss from information of actual financial assets, products, things like that? Companies are just going to have to belly up and deal with this as a kind of existential risk that's going to be with them no matter what software they buy or what else they do. 

What made Sony vulnerable to hackers (Part 2)

The company had been plagued by cyberinvasions in the past—what did it do wrong? And what can companies learn from this event? Fortune explains.

He has a really terrible history with hackers. They came under attack repeatedly, and if any one company should have been prepared for something like this, it was Sony and they weren't. The FBI believes that hackers initially got into Sony System through spear phishing email, which basically means that they targeted a particular message to an individual, the company. And inside of that message there was malware or some sort of virus that jumped out and allowed them to get a beachhead on the network. Many of the experts we spoke to said that the hackers, we're not super advanced. We spoke to one professor who said, You know, sort of a mid level student could have pulled this off. Most hacks are done for commercial reasons or corporate espionage or secrets. This is a case where the purpose was to destroy information to embarrass the company, not entirely clear when the hack began. But the FBI believes that by the time it really surfaced, it was probably three months in. So for a period of months, the hackers air in there, gathering huge amounts of information which they then unleashed. So he was paralyzed. They pulled the plug on the entire computer network. Everybody went back to using paper and pencil and Diana LL Blackberries. They use fax machines certain. No one imagined that exactly what happened would happen. But by reporting is that Tony had to explicit warning that this was a possibility. They deny it. They say they got no warning of danger of a cyber attack, that their position. We did a poll of Fortune 500 CEOs where we asked them the greatest challenges they face. 2/3 said that cybersecurity was either the top challenge or one of the top three or four challenges. So companies have woken up to the fact that this is a big threat they face, but they clearly haven't yet done what they need to do to protect. When you look at the Sony hack over the Home Depot hack, where the target hacker, the J. P. Morgan hack, you have to realize that you're next. Right now, Fortune 500 companies are being hacked right now, and the important thing is you need to shore up your defenses. Sony's rolled out a whole series of initiatives, and they overwhelmingly sound really good. Assuming the implements, all of them for the first time. They're going to have a whole series of steps that will compartmentalized information and make it harder for one person to make off with huge trove of information. One of the things I hear a lot from companies is it's hard to justify the hundreds of millions of dollars they're being asked to spend to protect themselves from cyber attack. But what costs more a bunch of software and a bunch of extra I t guys to handle these threats or the potential loss from information actual financial assets, products, things like that cos you're just gonna have to belly up and deal with this as a kind of existential risk that is gonna be with them, no matter what software they fire, what else they do?

 There was absolutely no explicit comment or evidence from the hackers. They were angry about a movie interview, and they're doing it for that reason. This particular hack was apparently sparked by the fact that they were making a movie that depicted Kim Jong Un, the leader of North Korea. This is a film where the interesting part started after the film was actually filmed. So the movie is sort of infamous as a tale of a talk show host who decides he's going to interview Kim Jong Un, the leader of North Korea, and he falls in with the CIA and becomes sort of their agent to go on a mission to North Korea and assassinate its leader. And studio chiefs had all signed off on that idea. They're a little nervous about it, but they had going forward. In June of 2014, when the CEO of Sony saw the movie, he got very nervous about what he had seen. He was very worried about causing conflict between Japan and North Korea, which had always had very difficult relations. This was before any threats of any sort. So he called the CEO of Sony Pictures, Michael Lynton, and Lynton started to scramble to try to distance Sony Corporation, the Japanese company, from this movie. Roman was very upset. He was mortified at the appearance that this film, which was all about satirizing a brutal dictator was being reedited to appease a brutal dictator. So there's a big internal conflict between the filmmakers and the studio, and it played out over the next few months over the biggest issue, which was the reediting of the final scenes where Rogen and Goldberg characters commandeer a tank and kill Kim. It was very gory, very graphic. You see his melting face. You see his head pop. That was the original version of it. And Kaz Hirai, the CEO of Sony Corp, was very intent on having that change. But very shortly after that, within days, North Korea went ballistic and started issuing threats against the studio. They weren't saying anything about cyberattacks at that point or hacking or any of that sort, but they were ominously warning that Sony would suffer for it. They continued to promote the film and planned a very wide release, and then the hack took place. The hackers threatening an attack on the order of 9/11. Instantly, the movie becomes an incredible hot potato. Movie theaters say they don't want to show it, so Sony is left sort of seemingly at odds and they announced that they're not going to try to show the movie because their opinion, no movie theater will show it. Sony was very harshly criticized, including by the president of the United States. Yes, I think they made a mistake. We cannot have a society in which some dictator someplace can start imposing censorship here in the United States. Now that's not who we are. Sony was absolutely flayed. And frankly, nobody in Hollywood came to their defense. Then they found a coalition of different people or companies who would show it. They announced they would show it video on demand. Some smaller chains announced they would show it too. So ultimately, it was a sort of a multi-step rollout with some video on demand, some smaller theaters. Ultimately, Apple and Sony even itself made the film available on their video on demand networks. 

The Interview: A costly decision for Sony (Part 1)

Fortune examines Sony’s disastrous hack and goes deep inside the studio before—and after—the attack took place.

there was absolutely no explicit comment or evidence from hackers. They were angry about the interview when we're doing it. For that reason, this particular hat was apparently sparked by the fact that they were making a movie. I think there's a film where the interesting part started after the film was actually filmed. So the movie is sort of infamous as a tale of a talk show host who decides he's going to interview Kim Jong Un, the leader of North Korea, and he falls in with the CIA and become sort of their agents. Thio go on a mission to North Korea and assassinated and studio chief. It all signed off on that idea there. Well, I'm nervous about it, but they had going forward. In June of 2014 the CEO of Sony saw the movie. He got very nervous about what he had seen. He was very worried about causing conflict between Japan, North Korea, which it always had during difficult relations. This is before any threats of any sort. So he called the CEO of Sony Pictures Michael living, and when you start to scramble to try to sell any corporation, a Japanese company from this movie. Roman was very upset, mortified at the appearance that the film, which was all about Satya Rising, a brutal dictator, was being re edited to appease a brutal dictator. So there's a big internal conflict between the filmmakers in the studio, and it played out over the next few months over the biggest issue, which was the re editing in the final scene, where Rogan and Goldberg characters commandeer a tank and kill him. Very gory, very graphic belting head pop that was the original version of it. And, um, catch a ride, of course, very intent on having that changing. But very shortly after that, within days on North Korea with ballistics and started issuing threats against studio. They weren't saying anything about cyber attacks at that point, or hacking or that sort, but they were ominously warning that something would suffer for it. They continue to promote the film and playing a very wide release, and then the actor place hackers threatening attacks on the order of 11. Instantly, the movie becomes an incredible hot potato movie. Theaters say they don't want to show it to. Sony has left sort of seemingly at odds. They announced that they're not gonna try to show the movie because their opinions don't show it. Sony was very harshly criticized, including by the president. United States. Yes, I think they made a mistake. We cannot have a society in which some dictator someplace can start imposing censorship here in the United States. That's not who we are. Sony was absolutely played, and frankly, nobody in Hollywood came to their defense. Then they found a coalition of different people or companies who would show up. They announced they would show it video on demand. Some smaller chains announced they would show it to. Ultimately, it was sort of a multi step roll out with some video on demand. Smaller theaters. Ultimately, Apple and Sony even itself made film available on their the on demand networks.

Fortune Explains

China's regulatory crackdowns - explained

Latest episode

Why and how did China introduce a series of sweeping regulatory crackdowns this year? And what does it mean for investors? We break it down.

Episodes (15 episodes)

China's regulatory crackdowns - explained

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The COVID-19 vaccine rollout highlights global inequality

TikTok: The complete guide to why its all over the headlines

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Popeyes Chicken Sandwich Is Back For Round Two

Boeing: The Story Behind the Company's Financial Trouble

Fortune Explains: Tariffs and Trade Wars

Fortune Explains: The Debt Ceiling

Fortune Explains: Brexit

Fortune Explains: Dual Class Shares

Fortune Explains: Amazon's Federal Income Taxes

Fortune Explains: Marginal Tax Rates

What made Sony vulnerable to hackers (Part 2)

The Interview: A costly decision for Sony (Part 1)