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Axios Sneak Peek

Welcome to Sneak Peek, our weekly lookahead for both ends of Pennsylvania Avenue, plus the cream of the Sunday shows. I'd love your tips and feedback: jonathan@axios.com.

Please urge your friends and colleagues to join the conversation by signing up for Sneak Peek and the other Axios newsletters. See you all week in the Axios STREAM, and next Sunday evening in Sneak Peek.

1 big thing: Trump's potentially explosive China play

The big sleeper issue in the U.S.-China relationship: cars.

Senior White House officials are quietly preparing to confront China over what they consider unfair handling of automobiles, one of the world's largest industries. It's a move that could profoundly disrupt relations between the superpowers.

Watch for the issue to pop in President Trump's talks next month with China's Xi Jinping.

What you need to know:

  • When U.S. automakers sell in China, they are met with import tariffs of 25%. That's why 96% of the 27.5 million vehicles sold in China last year were built there.
  • When U.S. automakers like GM build in China, they are required by law to form joint ventures with Chinese companies. Those Chinese companies must own 50% or more of the venture.
  • By contrast, the U.S. imposes tariffs of just 2.5% and lets foreign car companies own their entire U.S.-based operations.
  • U.S. companies have swallowed these rules since the '90s because the Chinese market is so lucrative. But Trump and his top nationalist-minded advisers — Steve Bannon, Stephen Miller and Peter Navarro — believe the status quo is unacceptable.

The White House's calculus: China currently exports very few cars to the U.S., but it's itching to sell dramatically more. Trump is perfectly positioned to negotiate the terms of China's market entry. He's got plenty of leverage with tariff levels and ownership restrictions — though the Trump folks are still hashing out their negotiation strategy.

A playbook for Trump: Michael Dunne, an authority on the Chinese auto market, has three rules — from his book "American Wheels, Chinese Roads" — for American negotiators to deal with China:

  1. If the Chinese want to sell their cars to Americans, they must invest in plants in America.
  2. Chinese companies will be free to own 100% of their operations in America — provided that American car companies get the same rights in China. If the Chinese refuse, then America will reciprocate.
  3. Profits from operations stay inside the United States. Repatriation to China will be limited and will require approvals from the the U.S. government.

2. Crossroads at Pennsylvania Ave.

"Fox News Sunday" host Chris Wallace called this week a "critical crossroads" for the administration on Russia, the president's Supreme Court nominee and dismantling Obamacare.

Essentials:

  • Obamacare changes: The key moment on "Fox News Sunday" was when Wallace showed Paul Ryan a graphic of how the current House plan would hurt low-income seniors. Ryan replied that he's looking at changing the healthcare bill to offer "additional assistance to people in those older cohorts."
  • Trump's budget blues: Trump has zero chance of getting his 20% cut to the National Institutes of Health. Ryan told Wallace the medical research body is "particularly popular in Congress." Sen. Susan Collins called the NIH cuts "disturbing" in her interview with NBC's Chuck Todd on "Meet the Press."
  • Alternative facts: Ryan told Wallace he was on track to pass healthcare. Conservative Sens. Rand Paul and Ted Cruz beg to differ. Paul told ABC's "This Week" that House leaders are "flat-out false in telling us, oh, you guys ran on this plan." Cruz on CBS' "Face the Nation" called phase three of the GOP leaders' health care package — the bills that have to be passed separately — "the sucker's bucket," because they won't get 60 votes.
  • Inconvenient intelligence: House Intelligence chair Devin Nunes confirmed on Fox that the Justice Department report refutes Trump's wiretapping claims. FBI director James Comey testifies before Nunes' committee tomorrow and will likely say the same thing — his long-awaited public commentary on the allegations.

3. Obamacare replacement: Final countdown

After showering attention on conservatives, the healthcare whip team is turning focus to the moderates who worry Ryan's healthcare plan will hurt their elderly constituents.

Steve Scalise's whip team met with a couple dozen members of the Tuesday Group on Thursday, but these House moderates couldn't agree on what they'd need from leadership to get to "yes." They're fed up with being taken for granted on tough votes and they're worried that they'll take a tough vote for the team only to watch the bill die in the Senate.

The count: Everybody knows it's going to be extremely tight. A Freedom Caucus source says "short of some major change — which we are being told won't come — the bill does not have the votes." Leadership hopes pressure from Trump and Steve Bannon — who texts regularly with Freedom Caucus leader Mark Meadows — can sway conservative holdouts.

What's next: A full court press, with a mixture of public advocacy (Trump's rally in Kentucky tomorrow) and private cajoling. Vice President Pence and HHS Secretary Tom Price are making last-minute pitches to reluctant members. Price meets with conservative movement leaders tomorrow and key industry groups later in the week.

What's on the table: Leadership will likely offer more generous tax credits to seniors and are considering buying off moderates with a reserve fund that would be used in the Senate to boost up the tax credits. But that risks solidifying the remaining Freedom Caucus members against the bill.

4. Hot in the West Wing

Top West Wing officials are avidly reading and passing around a dissent by Judge Jay Bybee of the Ninth Circuit making the case for the president's authority to issue the travel ban:

"We are judges, not platonic guardians. It is our duty to say what the law is, and the meta-source of our law, the U.S. Constitution, commits the power to make foreign policy, including the decisions to permit or forbid entry into the United States, to the President and Congress."

The president's aides say the dissent crystallizes their view of the role of the federal judiciary and power of the executive.

It's a good forecast of the arguments the team will make both in court and in the court of public opinion. Don't be surprised if the dissent gets mentioned in Gorsuch's confirmation hearing tomorrow.

But the dissent isn't all good news for the president. At the end of it, Bybee chastises Trump (without naming him) for his attacks on federal judges: "Such personal attacks treat the court as though it were merely a political forum in which bargaining, compromise, and even intimidation are acceptable principles."

1 fun thing: Meme-ing Miss Blueberry

The internet is getting a major kick out of Olivia Nuzzi's New York mag cover story on Kellyanne Conway. Nuzzi reports that Conway picked berries as a child in New Jersey and now answers to the Secret Service codename "Blueberry." This news — of course — inspired memes...

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Graham-Cassidy could delay tax reform rollout

Sen. Lindsey Graham speaks at the Capitol last week. Photo: Andrew Harnik / AP

Administration officials have been debating whether to delay the tax rollout until the first week of October to clear space for the Graham-Cassidy health care bill. Sources with direct knowledge tell me no final decisions have been made as of Wednesday afternoon, but Trump has been impatient for tax reform to begin so he may not tolerate any more delays.

Why it matters: Sources involved say the plan is still to roll out tax reform next week, but some officials are wringing their hands about the health care bill — the Senate could vote as early as Wednesday — ruining tax reform's launch week by sucking all of the attention away from tax.

Why it's happening: Trump wants tax reform on schedule, but the Senate is running out of days to use reconciliation to change elements of the Affordable Care Act. Meanwhile, there is concern of potential leaks from the upcoming House Ways and Means Committee retreat, and the "Big Six" that's negotiating the plan has yet to decide what to put in the document that will guide tax reform.

  • An administration official told me the White House invited Big Six communications and coalitions teams to the Roosevelt Room on Wednesday afternoon to discuss what a rollout of tax reform would look like.
  • The group is still operating under the assumption that the rollout will happen next week as originally planned.
The "Big Six": House Ways and Means Committee chairman Kevin Brady, House Speaker Paul Ryan, Senate Majority Leader Mitch McConnell, Senate Finance Committee chairman Orrin Hatch, Treasury secretary Steven Mnuchin and White House economic adviser Gary Cohn.
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Mueller's probe shifts to Trump's presidency

Robert Mueller testifies on Capitol Hill in 2013. Photo: J. Scott Applewhite / AP

Special Counsel Robert Mueller has sent the White House a request for documents pertaining to some of President Trump's most controversial moves in office, per a report from The New York Times. The news suggests that at least part of the Russia probe is focused directly on Trump's time as president.

What Mueller wants: Trump's meeting with high-ranking Russian officials in the Oval Office the day after Comey's firing; the events leading to the firing of Michael Flynn; and the White House's response to questions from NYT about Donald Trump Jr.'s Trump Tower meeting with Russian officials.

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Artificial intelligence pioneer calls for the breakup of Big Tech

Illustration: Lazaro Gamio / Axios

Yoshua Bengio, the artificial intelligence pioneer, says the centralization of wealth, power and capability in Big Tech is "dangerous for democracy" and that the companies should be broken up.

Why it matters: Bengio is a professor at the University of Montreal and a member of the three-man "Canadian Mafia" that pioneered machine learning, the leading method used in AI. His remarks are notable because of his influence in the AI community and because he or his peers all either directly lead or consult for Big Tech's AI programs. Says Bengio: "Concentration of wealth leads to concentration of power. That's one reason why monopoly is dangerous. It's dangerous for democracy."

The AI pioneers: Bengio consults for IBM and his colleagues Geoffrey Hinton consults for Google and Yann LeCun for Facebook. Ruslan Salakhutdinov, a protege of Hinton's, runs Apple's AI research effort.

Benigo said the concentration of resources, talent and knowledge among giant tech companies is only increasing and governments must act. "We need to create a more level playing field for people and companies," Bengio told Axios at an AI conference in Toronto last week.

In recent years, Apple, Facebook, Google and Microsoft have amassed a towering lead in AI research. But now, they are subject to growing scrutiny because of their outsized influence on society, politics and the economy. I asked Bengio if the companies should be broken up. He harrumphed and responded that anti-trust laws should be enforced. "Governments have become so meek in front of companies," he said.

"AI is a technology that naturally lends itself to a winner take all," Bengio said. "The country and company that dominates the technology will gain more power with time. More data and a larger customer base gives you an advantage that is hard to dislodge. Scientists want to go to the best places. The company with the best research labs will attract the best talent. It becomes a concentration of wealth and power."

When some of the young people gathered around him looked a bit dejected, Bengio responded, "Don't despair — fight."

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After summer of historic lows, Trump's popularity improves

Photo: Carolyn Kaster / AP

After several months of reaching record-lows in approval, new polls are showing President Trump's ratings beginning to climb upwards, according to Politico.

  • POLITICO/Morning Consult: 39% last month vs. 43% this week
  • Gallup: 35% last month vs. 38% last week
  • RealClearPolitics average: 37.4% August 14 vs. 39.9% September 20

How it happened: Politico reports Trump's responses to hurricanes Irma and Harvey helped his approval, after his ratings taking a over Charlottesville. Also, while his decision to end DACA was unpopular, he gained momentum from his negotiation with Sen. Schumer and Rep. Pelosi. But, his "popularity still remains historically low for a first-year president."

Other findings: Trump's upward trend over the past month is bigger with independents (+5%) than Republicans or Democrats (both +2%).

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Howard Schultz: Companies need to balance profit and conscience

AP

Howard Schultz, who rose from the projects in Brooklyn to create Starbucks, is making it a personal mission to find jobs for some of the least-advantaged and, in his view, most deserving in the United States: veterans and their families, refugees, and, with a job fair today, young people who are neither going to school nor working.

Why it matters: Schultz and his partners are attempting to pull a much-overlooked segment of U.S. society into the work force at a time that public hostility is driven in large part by low and stagnant salaries, and deep pockets of joblessness in inner cities and rust belts.

We caught up with Schultz at the Convention Center in downtown Washington, DC, where Starbucks and about a dozen other companies were conducting interviews with some 1,800 job-seekers aged 16 to 24 years old, seeking to hire as many as possible on the spot, and others over the coming months.

The background: The official national unemployment rate is just 4.4%, but we all know that statistic camouflages a world of misery: Among it is an 11.7% jobless rate for people 16 to 24 — those trying to just get started — and worse for black youths (14.6%) and Latinos (11.9%). Between the lines are young people who have dropped out of school, are jobless, have a criminal record, or are a parent.

Schultz's organization is attempting to attack the whole crippling system. Downstairs from where we spoke, there was a place for job applicants to leave their child while they were interviewed; a place to type up a quick resume; a place to put on a tie and jacket; and one for makeup. For those hired on the spot, there was advice for finding a place to stay, for public transportation, and child care. Companies, Schultz said, need to find "a balance between profit and conscience."

A need for "truthfulness": Regardless of what I asked in our quick, 15-minute chat, Schultz kept returning to what he said the country sorely needs — civility and respect toward one another. "There is a need for more truth and more transparency, not only because of Donald Trump becoming president," he said. "We've needed that for some time. There is a great need for servant leadership and truthfulness."

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Fed to begin reversing its huge stimulus program

Federal Reserve Chair Janet Yellen testifies before Congress. Photo: Pablo Martinez / AP

The Federal Reserve will begin selling off the government debt and mortgage bonds it amassed to help drive down interest rates and stabilize the housing market in the aftermath of the financial crisis, a move that signals the central bank's growing confidence in the U.S. economy.

Steady as she goes: The Fed will shrink the value of its portfolio of bonds by just $10 billion per month, a fraction of its $4.5 trillion stockpile. The modest nature of the move reflects the Fed's recognition that despite historically low unemployment rates, wage growth has been tame and inflation remains below the bank's 2% annual target.

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Obama: ACA is the reason "people are alive today"

Barack Obama delivers his speech during the 4th Congress of Indonesian Diaspora Network in Jakarta, Indonesia this July. Achmad Ibrahim / AP

While speaking at an event sponsored by the Bill and Melinda Gates Foundation today, former President Barack Obama said "people are alive today because of" the Affordable Care Act, "and when I see people trying to undo that hard-won progress…it is aggravating."

Obama ripped into the Graham-Cassidy bill, which proposes block grant funding to be distributed among the states. Obama said it would "raise costs, reduce coverage and roll back protections for older Americans, and people with pre-existing conditions." Based on current projections from consulting firm Avalere Health, health care cuts could top $4 trillion under this bill.

Other key quotes:

  • "Nationalist thought, xenophobic sentiment ... a politics that threatens to turn good people away from the kind of collective action that has always driven human progress."
  • On climate change: It's the "threat that may define the contours of this century more than any other."
  • On the future of the internet: "I don't think we can count on conventional media to spread the word [of progress]. This is where the power of the internet has not been harnessed the way it needs to be, particularly when you think of young people and young audiences.
Watch Obama speak:

Obama is speaking across town from Trump's UN appearance.

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Trump tells leaders his friends are going to Africa "to get rich"

President Trump addressed African leaders at a UN luncheon, and discussed the "tremendous potential" of Africa, particularly economically. He also said he was disturbed by violence in South Sudan and the Congo, and planned to send UN Ambassador Nikki Haley to Africa.

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Amazon reportedly talking to pharmacy benefit managers

Amazon may be trying to start building pharmacy contracts. Photo: Richard Drew / AP

Amazon may be talking with some middle-market pharmacy benefit managers "in an effort to get into various contract arrangements," according to analysts at investment bank Leerink Partners who spoke with pharmacy executives. Amazon may pursue a mail-order pharmacy that initially targets uninsured customers or people who have high deductibles and pay cash for most of their prescription drugs.

Reality check: The country is still a long way from Amazon handling people's prescriptions, if that time even comes. But conservations with prescription drug middlemen make it appear "that this is the direction Amazon is moving in," Leerink said in a report. Pharmacy executives who spoke with Leerink said it would take at least 18 to 24 months for Amazon to get proper drug licenses in 50 states. Amazon didn't immediately respond.

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Ransomware hack targeting 2 million an hour

This photo shows fingers on a laptop keyboard in North Andover, Mass. Elise Amendola / AP

A ransomware attack sweeping the globe right now is launching about 8,000 different versions of the virus script at Barracuda's customers, Eugene Weiss, lead platform architect at Barracuda, told Axios, and it's hitting at a steady rate of about 2 million attacks per hour.

Weiss' gut reaction on this hack: "What's remarkable about this one is just the sheer volume of it."

Here's what you need to know on the latest:

  • Automated hacking: "Nobody actually sat there and made 8,000 digital modifications," Weiss said. The way they do it is by using a kit that essentially automates code variations.
  • What to watch out for: An incoming email spoofing the destination host, with a subject about "Herbalife" or a "copier" file delivery. Two of the latest variants Barracuda has detected include a paragraph about legalese to make it seem official, or a line about how a "payment is attached," which tricks you to click since, as Weiss puts it, "everyone wants a payment."
  • The hackers are using social engineering to get people to click. That's increasingly becoming a trend, per Weiss. It's "less pure technical hacks" and instead using psychological tactics "get someone to click on something they shouldn't be."
  • If you remember one thing: "Don't click the link that is absolutely the most essential thing."
  • The targets: Email addresses at businesses or institutional groups in the U.S. or Canada.
  • It's likely not a nation-state perpetrating the hack, since the hackers' motives are financial. Instead it's a small, sophisticated group of criminals. The attacks are originating in Vietnam for the most part, as well as India, Colombia, Turkey, Greece, and a few other countries.
  • The future of global hacks: "At some point in the future you may see multilingual internationalized" hacks, Weiss said. In other words, they could be language-targeted. While the messages from these particular hackers are all in English so far, the virus programs are assessing the target computers' language settings.