DealBook Briefing: Why the U.S. Is Spinning Its Wheels on Trade


____________________________

Photo

Shari Redstone

Credit
Mike Cohen for The New York Times

CBS heads to court against Shari Redstone today

The broadcaster’s case in Delaware’s Court of Chancery against its corporate parent, the Redstones’ National Amusements, is one of a number recently that challenge the kind of dual-class stock system used by the Redstones (and indeed by The New York Times Company).

Another part of CBS’s argument — that Ms. Redstone warned Verizon off bidding for CBS — took a hit yesterday. Verizon’s C.E.O., Lowell McAdam, told CNBC he didn’t want to invest in “linear TV.” (Read: CBS or 21st Century Fox.)

Speaking of Fox: An all-cash bid by Comcast for its assets could pit Rupert Murdoch, who would pay less tax on Disney’s share-based offer, against fellow shareholders. And in the middle of all this, Fox’s TV chiefs are in contract talks.

Elsewhere in deals: PaddyPower is reportedly close to buying FanDuel after the Supreme Court legalized sports betting. The hedge-fund mogul David Tepper signed a deal to buy the N.F.L.’s Carolina Panthers for $2.2 billion. FIFA is reportedly preparing a vote on the $25 billion offer by SoftBank and others for two new soccer tournaments. The two big proxy advisory firms urged Hyundai shareholders to side with Elliott Management against the management’s restructuring plan.

Photo


Credit
Ng Han Guan/Associated Press

Who doesn’t like Trump’s lifeline to ZTE

Lawmakers from both parties aren’t likely to support easing sanctions on the Chinese telecom company, even if the White House reckons it might persuade Beijing to lift import limits on American agriculture. Representative Mac Thornberry, the head of the House Armed Services Committee, told Bloomberg, “It is not a question to me of economics, it is a question of security.”

What others have said: John Harwood of CNBC said it was the president shrinking from another fight. And Lex said Mr. Trump was fighting from a position of weakness.

And the U.S. and China remain “very far apart” in trade talks, according to the U.S.’s ambassador to Beijing. Businesses are still lobbying for exemptions from Chinese tariffs, too.

The bigger picture: Is Huawei next for a reprieve?

The political flyaround

• The White House has eliminated the role of cybersecurity coordinator. (NYT)

• Novartis’s general counsel retired after its contract with Michael Cohen became public. Will President Trump’s latest financial disclosures reflect payments to Mr. Cohen?

• Robert Mueller was “squarely” within his rights as special counsel to indict Paul Manafort, a federal judge ruled. (Politico)

• The House is expected to vote on moves to roll back Dodd-Frank next week. Stephen Gandel of Bloomberg Opinion expects little to change, at least for the Volcker Rule.

• Preet Bharara is reportedly considering running for New York’s attorney general — as an independent. (Bloomberg)

• Mr. Trump may invoke a Cold War-era statute to keep coal and nuclear power plants online. (Bloomberg)

Photo

Mike Bloomberg

Credit
Krista Schlueter for The New York Times

Meet Mike Bloomberg’s answer to Davos

The New Economy Forum is designed for a world where China’s ascent looks unstoppable. So it’s in Beijing, rather than the Swiss Alps. Participants include the former Treasury secretary Hank Paulson, Henry Kissinger, Janet Yellen and Gary Cohn.

Mr. Bloomberg’s pitch in the FT:

“Davos has been around for a long time: It is a very big conference and it is focused on lots of world problems. This conference is focused on the world and China as an emerging power and how we all work together.”

Elsewhere in boldface-name endeavors: Richard Branson and Pierre Omidyar are backers of a financial instrument for nonprofit investments devised by NPX.

Photo

The onetime headquarters of Cambridge Analytica.

Credit
Andy Rain/EPA, via Shutterstock

Cambridge Analytica’s troubles aren’t over

The Justice Department and the F.B.I. are seeking to question the defunct firm’s former employees and banks, the NYT reports. That’s likely to keep concerns about Facebook’s privacy policies and role in the 2016 elections in the news.

Elsewhere on Facebook: The company says it deleted 583 million fake accounts, and has reportedly pushed up its content-review budget. Mark Zuckerberg is snubbing Britain’s Parliament. Some nurses at San Francisco’s general hospital want his name off the building.

Elsewhere in tech: Inside Tencent’s frenetic deal-making. Masa Son has high hopes for SoftBank’s next Vision Fund, and Japan probably should, too. Lyft joined Uber in eliminating mandatory arbitration for sexual misconduct cases. The Pentagon wants a nuclear-grade cloud.

Photo


Credit
Charles Rex Arbogast/Associated Press

The quarterly investor holdings flyaround

• Investors’ holdings of Apple dropped by the most since the first quarter of 2008.

• Warren Buffett’s Berkshire Hathaway raised its stakes in Teva Pharmaceutical and Monsanto.

• Bill Ackman’s Pershing Square Capital Management bought nearly 2 million shares in United Technologies. (A new book criticizes several of Mr. Ackman’s big moves.)

• David Einhorn’s Greenlight Capital invested in Office Depot and Abercrombie & Fitch.

• Stanley Druckenmiller bet on Alibaba and sold out of Facebook.

Photo

Tom Wolfe

Credit
Bebeto Matthews/Associated Press

Remembering Tom Wolfe’s chronicles of capital

The famed author died yesterday at 88. Business was one of his big subjects, as his obituaries noted:

• On “The Bonfire of the Vanities”: “a sweeping, bitingly satirical picture of money, power, greed and vanity in New York during the shameless excesses of the 1980s.” (NYT)

• “‘The Bonfire of the Vanities’ wickedly dissected the Wall Street money-grubbing crowd who thought they were rulers of the universe. ‘A Man In Full’ did the same for the American myth of the self-made mogul, as well as, perhaps, being a disguised story of himself.” (FT)

• On “The Electric Kool-Aid Acid Test”: “one of the great chronicles of Silicon Valley culture — although it wasn’t clear that it was about Silicon Valley at the time.” (CNBC)

Revolving door

• Two Tesla energy executives, Arch Padmanabhan and Bob Rudd, have left. (Bloomberg)

• Two senior UBS bankers — Severin Brizay, its head of M. & A. for Europe, the Middle East and Africa, and Laurent Dhome, a private equity specialist — are reportedly joining Bank of America. (Bloomberg)

• The human resources start-up Namely ousted its C.E.O., Matt Straz, over unspecified misconduct claims. (Bloomberg)

The speed read

• Jay-Z finally sat down for questioning by the S.E.C. It may be getting harder to prove fraud against sophisticated investors.

• The world is borrowing more. Investors are wary of companies spending more.

• Fox settled discrimination lawsuits involving 18 current or former employees for $10 million. (NYT)

• The messaging business WeChat is reportedly considering a service for bankers in China. (FT)

• Six more states sued the maker of OxyContin, Purdue Pharma. That makes 22. (Reuters)

• How Qatar is rebuilding in the face of a blockade led by Saudi Arabia. (FT)

Know someone who would enjoy this newsletter? Tell them to sign up here.

You can find live updates throughout the day at nytimes.com/dealbook.

We’d love your feedback. Please email thoughts and suggestions to bizday@nytimes.com.

Continue reading the main story

Tariff Impact Colors a Key House Race in Boeing Country


The district’s quirky boundary, which encompasses the vast airplane-making ecosystem to the west and thousands of acres of cherry and apple farms on the other side of the Cascade Mountains, makes the territory uniquely vulnerable to the president’s actions on trade. Boeing is probably the American company with the most riding on a healthy relationship with Beijing.

China is projected to buy more than 7,000 planes worth around $1 trillion in the next 20 years, more than Boeing’s current backlog for the entire world. Most commercial aircraft in China are made by Boeing, the company says, but if the trade pressures escalate, China could choose to award more work to Europe’s Airbus.

For now, Beijing has threatened to retaliate with tariffs on some airplanes, including older 737 models made in the Renton factory where Mr. Cesmat works, which is just outside the district.

“China knew exactly where to target,” said Kim Schrier, the Democratic candidate who has built the biggest campaign war chest ahead of the Aug. 7 primary. “They’re targeting districts where this could be problematic for Republicans.”

Ms. Schrier is among half a dozen or so Democrats gunning for a seat that became catnip for the party the moment that the seven-term Republican incumbent, Dave Reichert, announced his retirement in September. Despite Mr. Reichert’s success, the district favored Hillary Clinton by three percentage points over Mr. Trump, and it went twice for Barack Obama. Ms. Schrier, a pediatrician and first-time candidate, has been hammering Dino Rossi, the likely Republican nominee, on the tariff issue.

“These tariffs are a direct response to the policies of a president you helped elect. Don’t you have anything to say?” she tweeted to Mr. Rossi last month.

Mr. Rossi, a former state senator, is careful to note that the bluster could be part of Mr. Trump’s negotiating style. But he said he understood why everyone was so worried. “You really can’t get down to a trade war. In the end it will be very disruptive,” he said in an interview. “Hopefully this is more posturing than anything.”

Photo

Schilling Cider has grown quickly since it was founded five years ago. But with tariffs raising the cost of aluminum, it may have to pay $100,000 a year more for cans.

Credit
Kyle Johnson for The New York Times

But voters in the district say the escalating trade drama has already begun to complicate their daily lives. Companies that supply construction materials have suspended orders, waiting to see what happens to metal prices. Employees at a builder of truck components say managers have been hastily reassessing supply chains that run through China and Mexico. A local hard-cider brewer is reconsidering an expansion after the steel and aluminum tariffs made new tanks and cans more expensive.

And at Boeing, a company that employs grandfathers next to granddaughters and has introduced generations of Washingtonians to their spouses, the unease has been evident from the executive suite to the factory floor.

Mr. Trump’s hard line on trade didn’t used to inspire so much teeth-grinding among Boeing workers. A lot of union mechanics were happy last year when he pulled out of the Trans-Pacific Partnership, which would have reinforced the nation’s embrace of free trade. And the president earned a lot of fans in Washington when he criticized the company on the campaign trail in 2015 for setting up a new plant outside Shanghai, saying it would “end up taking a tremendous number of jobs away from the United States.”

Jim McKenzie, a union machinery repairman, remembered that comment when, several months ago, he came across a package of dorsal-fin parts at the Boeing plant in Auburn where he works. Mr. McKenzie pulled back the Bubble Wrap and saw a label that made him feel as if he were sinking into quicksand: Boeing China.

“We drill it and assemble it, but they ship the parts in from China,” Mr. McKenzie said. “There are people who have worked here for 25 years making those parts, and they’re proud of that.”

But Mr. McKenzie, 56, isn’t eager to blow up the Beijing relationship. “China will just buy all their planes from Airbus,” he said, leaning his chair back against a wall in the machinists’ union hall in Auburn.

He doesn’t have much hope that Mr. Trump will do anything to stop Boeing from setting up shop in China — he saw how Carrier shipped work from Indianapolis to Mexico even though the president had railed against the move. In Boeing’s case, Mr. McKenzie said, hiring some Chinese workers might be unavoidable. “You have to provide them jobs to sell them airplanes,” he said.

Photo

“Stirring the pot unnecessarily doesn’t help business whatsoever,” Mark Kornei, a co-founder of Schilling Cider, said of President Trump’s trade moves. “Give us a steady set of rules.”

Credit
Kyle Johnson for The New York Times

Ms. Schrier recently won the endorsement of the machinists’ union, which represents more than 26,000 Boeing workers. Mr. Cesmat, 27, plans to volunteer for her campaign. “She pledged to support our jobs,” he said.

Boeing’s political action committee donated $2,000 to Mr. Reichert’s campaign, but hasn’t contributed to any candidates vying to succeed him, according to the Center for Responsive Politics, a nonpartisan research group. It did donate $8,000 to Cathy McMorris Rodgers, who is facing a strong Democratic challenge in her quest for re-election in Washington’s Fifth District.

The fear over trade tensions has spread beyond Boeing’s hulking factories, all the way to Schilling Cider, a hard-cider company founded here five years ago by two friends, Mark Kornei and Colin Schilling. The business grew quickly, thanks in part to the state’s abundant apple orchards, but now it’s staring down an uncomfortable new reality.

The company that sells Mr. Kornei stainless-steel tanks told him recently that prices for its raw materials might rise by 20 percent. A single tank costs around $50,000. He has also heard from the manufacturer of his aluminum cans that prices could increase by 10 percent. Mr. Kornei will buy 11 million of them this year, so that uptick alone could cost him more than $100,000, he said.

“Stirring the pot unnecessarily doesn’t help business whatsoever,” Mr. Kornei said. “Give us a steady set of rules so we can figure out what we are going to do.”

Mr. Rossi acknowledged that some of what the president says and does “can at times” make it harder for him on the campaign trail. But he has raised more than $2 million, about twice as much as Ms. Schrier.

The Republican tax cuts are a big selling point for Mr. Rossi, who has a ready figure for exactly how much a typical household will save because of the law (“$3,357 — that’s real money”). He’s also counting on a personal bond with Republican voters east of the Cascades.

“I have a connection with folks that certainly precedes the president,” Mr. Rossi said. He was referring to his campaigns for the governorship in 2004 and 2008, the first of which he lost by fewer than 200 votes in a third recount. “They know I’ll advocate for trade,” he said. “They know me.”

Continue reading the main story

F.A.A. Orders Closer Engine Inspections After Southwest Airlines Failure


Photo

Federal investigators in Philadelphia examined damage to the turbofan engine on Southwest Airlines Flight 1380 that failed on Tuesday, leading a passenger’s death.

Credit
Getty Images

The Federal Aviation Administration on Friday issued an emergency order instructing airlines with the same type of engine as the one that failed catastrophically on Tuesday on a Southwest Airlines Boeing 737 to more thoroughly inspect the engines’ fan blades.

The agency told airlines to perform ultrasonic inspections — which can detect flaws or cracks not visible to the unaided human eye — within the next 20 days on fan blades of engines with more than 30,000 cycles. A cycle includes an engine start, takeoff, landing and shutdown.

The F.A.A.’s order came shortly after the manufacturer of the engines, CFM International, issued guidelines for the ultrasonic inspections. CFM, a joint venture of General Electric and the French company Safran Aircraft Engines, went further than the F.A.A., recommending that fan blades with 20,000 cycles be inspected by the end of August. It also recommended inspections of all other fan blades when they reach 20,000 cycles, and repeating the inspections every 3,000 cycles, which, it said, “represents about two years in service.”

The F.A.A. said it was acting because it determined that fan blade cracking “is likely to exist or develop in other products of the same type design.”

The agency’s order does not address those lesser-used engines, but said it was “considering further rule making to address these differences.” Airlines are not legally bound to follow a company’s guidelines. They are bound by the F.A.A. directive.

Continue reading the main story

Southwest’s Fatal Accident Prompts Scrutiny of Engine Inspections


The chairman of the National Transportation Safety Board, Robert L. Sumwalt, said a blade in the engine had broken in two places — where the blade attaches to the main hub and higher up, approximately at the midpoint of the blade. He said that a crack “was on the interior of the fan blade,” and that it was “more than likely not detectable from looking from the outside.”

But Mr. Sumwalt said it was too soon to reach conclusions on the cause of the engine failure. The board, he said, had not yet examined maintenance records, and was still examining the plane and interviewing its crew. He did say parts of the exterior of the plane’s engine had been recovered on the ground in a rural area outside Philadelphia.

The authorities are still finishing up their investigation of a similar incident on a Southwest flight in 2016, when a fan blade separated and debris ripped a 16-inch-long hole in the fuselage. No one was injured.

Photo

Exterior engine parts that landed in Penn Township, Pa., were photographed by an investigator from the safety board on Wednesday.

Credit
Bill Uhrich/Reading Eagle, via Associated Press

That was when CFM International recommended that airlines conduct ultrasound inspections of the blades. In the United States, carriers aren’t required to follow manufacturers’ guidelines.

The Federal Aviation Administration said a directive that it proposed last year to compel airlines to perform such inspections would take effect within the next two weeks. The European Aviation Safety Agency established such regulations for European carriers in late March.

Finding flaws isn’t always easy.

Metal fatigue, which investigators suspect is a factor in this week’s engine failure, can be a visible or an invisible weakness that is the result of bending, vibration or other stress. While it is often associated with older airplanes and engines, it can sometimes be the result of manufacturing flaws that cannot be seen.

“The forces in the engine are extraordinary,” said John Gadzinski, a 737 pilot and the founder of Four Winds Aerospace Safety, an aviation consultant. “Those small cracks that you may only see with an electron microscope will go from small to catastrophic failure in an instant.”

What occurred midair on Tuesday — a failure in which the engine parts are not contained in the housing and threaten the integrity of the airplane — is exceedingly rare, aircraft analysts said. The fact that it happened twice with the same airline in such a short time span makes it even more worrisome.

“It’s unusual that a fan blade would fail twice on the same engine model, with the same carrier, over two years,” said Kevin Michaels, the president of AeroDynamic Advisory in Ann Arbor, Mich., who has worked as a gas turbine engineer.

In the 2016 incident, a fan blade and another component separated from the engine. The debris did not enter the cabin. It did produce a gash in the aircraft’s side, causing depressurization, according to a preliminary report from the transportation safety board.

Photo

The Boeing 737 window that the Southwest plane’s engine debris shattered.

Credit
Marty Martinez, via Associated Press

The Boeing 737 involved was on its way to Orlando, Fla., from New Orleans and made an emergency landing in Pensacola, Fla.

If it turns out that this week’s engine failure had the same root cause, said Robert W. Mann, an airline analyst based in Port Washington, N.Y., the need to inspect 737 engines could be much more urgent.

“It could drive a significant event industrywide, but it’s hard to tell at this point,” he said. “It could be a defect of design, which would mean it’s subject to fatigue failures.”

In February, a United Airlines Boeing 777, which uses a different kind of engine, also experienced a blade separation and loss of other engine parts. That flight landed in Honolulu virtually on schedule, with no injuries reported and only minor damage, according to the safety board.

Aircraft experts say there’s no reason to worry about Southwest in particular, or about what this might say about the safety of flying in general. Southwest got into the aircraft business to “compete with the family car, which means they have saved tens of thousands of lives,” said Richard Aboulafia, an aviation analyst at the Teal Group in Fairfax, Va., alluding to the statistical fact that flying is safer than driving.

“The extreme worst-case scenario from these two incidents is that it might be prudent to inspect slightly more often,” he said.

Gary C. Kelly, Southwest’s chief executive, said in a news conference on Tuesday that the accident had not caused him to doubt the 737.

“The airplane, in my opinion, is proven,” Mr. Kelly said. “It’s very reliable. It has the greatest success of any other aircraft type.”

Continue reading the main story

Want to Sell Fighter Jets to India? Make Them There.


The Indian government is requiring that most of the planes it buys under the new contract be assembled in India. In other defense deals, the Modi government is taking a less strict approach, encouraging — but not mandating — foreign arms manufacturers to team up with local companies to make parts, or entire products, within the country.

Photo

Prime Minister Narendra Modi arriving on Thursday at the defense conference in Chennai, where he spoke about “the strategic imperative to make in India, to make for India and to supply to the world from India.”

Credit
Agence France-Presse — Getty Images

In essence, India wants foreign companies to transfer key technologies to their local partners so they can eventually do it all themselves.

“Today we live in an interconnected world where the efficiency of supply chain is a key factor in any manufacturing enterprise,” Mr. Modi said on Thursday in a speech at India’s defense exposition, held every two years, this time in the southeastern coastal city of Chennai. “Therefore the strategic imperative to make in India, to make for India and to supply to the world from India is stronger than ever before.”

Throughout the show, potential bidders for the fighter aircraft contract were showing off their capabilities in hangar-sized, air-conditioned tents.

Boeing, which intends to submit a bid to supply its F/A-18 Hornets, announced that it would partner with the government-owned aircraft maker Hindustan Aeronautics Limited and one of India’s largest conglomerates, Mahindra Group, to build the planes locally. At a booth at the show, it was offering visitors a chance to fly a Hornet simulator.

Lockheed, a leading rival, has partnered with Tata Sons, another Indian conglomerate, to pitch its F-16s. As part of the bid, the American company will offer to move its sole F-16 production line, currently in Greenville, S.C., to India to make the planes at a joint factory with Tata.

About 250 South Carolina workers could lose their jobs with the move, which would not occur for several years. But Lockheed said there was little other demand now for F-16s, which were originally designed in the 1970s, and that India’s large order would support jobs at American parts suppliers.

The Trump administration — which is threatening a trade war with China in part over that country’s demand that American companies transfer technology to Chinese firms — has been more supportive of the concept in India.

Photo

A display for Brahmos missiles, a Russian-Indian joint venture.

Credit
Arun Sankar/Agence France-Presse — Getty Images

“The U.S. is going to be very forward-leaning in technology, the transfer of technology, and indigenous production that we can offer to India,” Kenneth Juster, the United States ambassador to India, told a panel at the conference in Chennai on Wednesday.

He added that the United States planned to offer India “certain technology and platforms that we have offered to no other country in the world.” A fighter jet deal could lead to even more cooperation, he said.

Such sharing of sensitive technology is something the Russians have historically been reluctant to do, said Sameer Patil, director of the Center for International Security at Gateway House, a Mumbai think tank.

“Now the hope is that the private sector would get some technology transfer because the American partners have more confidence in the Indian ones,” he said.

The Trump administration sees weapons sales and technology transfers as part of a strategy to rely more on New Delhi to counterbalance Beijing in Asia.

At this point, India’s military is vastly outspent by China’s. Beijing unveiled a defense budget this year that was three times larger than New Delhi’s. However, India is investing in its navy, creating its own fleet of nuclear-powered submarines that American officials hope can help counter China’s navy, which has made vast inroads into the Indian Ocean.

After India gained independence in 1947, it decided to rely primarily on government-owned military suppliers for its needs. But those companies have a mixed record on quality, execution and technological innovation.

In some cases, the Indian military has not wanted to buy locally made products, the country’s defense minister, Nirmala Sitharaman, acknowledged on Wednesday. “It is their final call that I have to respect,” she said at a news conference.

So over the last few years, India has been encouraging the growth of private defense suppliers, from large industrial houses like Tata and Mahindra to hundreds of small and medium-sized companies.

The government is also requiring that foreign defense suppliers reinvest 30 percent of the value of their Indian contracts back in the country, a target that Mr. Modi said has largely been achieved during his tenure.

To help win an Indian contract for AH-64 Apache helicopters, Boeing started a joint venture with Tata to build the Apache fuselages in the central Indian city of Hyderabad. The factory will eventually be the sole supplier of that part for Boeing’s worldwide operations.

“It saved us money, gave Indians a capacity they didn’t have before, and it opened the doors for a $3.1 billion sale for us,” Pratyush Kumar, president of Boeing India, said in an interview.

Tata, a 150-year-old conglomerate with interests in everything from truck manufacture to management consulting, has a lot to learn about the defense business, according to Banmali Agrawala, its president of infrastructure, defense and aerospace. Partnerships like the ones with Boeing and Lockheed, he said, were important steps.

“We want to make sure whatever we do is globally competitive and meets global standards,” he said. “Let’s first gain some expertise by plugging ourselves into the global supply chain.”

Continue reading the main story

As Russia Empties Embassies, Who Will Replace That Lost Passport?


Intelligence officers working under “official cover” as diplomats were especially targeted. But with the reduction in numbers, the wheels of basic diplomacy, involving things like visas, consular services, cultural events and simply talking to people, are grinding ever more slowly and, in some cases, coming to a halt.

“The embassy is struggling to do basic operations. This latest round will hurt. Morale, of course, is also very low,” said Michael A. McFaul, who served as ambassador in Moscow from 2012 to 2014.

Even before this week’s expulsions of American diplomats, the wait for a United States visitor’s visa in Moscow was among the longest in the world. It now takes 250 days just to get an appointment with the visa section, compared with four in Beijing and 31 in New Delhi.

“What we call diplomacy now is an extremely complex business — it’s culture, visas, consular services, transport, business and trade,” said Stefano Stefanini, former Italian ambassador to NATO and a diplomat in Moscow and Washington. “The traditional diplomacy, the capacity to talk politics with Moscow, won’t be diminished by this tat-for-tat. But of course the workload for everyone will increase.”

Kori Schake, a former Pentagon and White House official now at the International Institute for Strategic Studies in London, said that continuing diplomacy in embassies really did matter. “Most of the high policy stuff can be done in Washington,” she said. “But what does get done and is especially important in authoritarian societies like Russia is to have American diplomats out and about, supporting civil society and independent journalists and engaging personally, so that people’s experience with Americans is different from what their government tells them.”

On Thursday morning, a few hours before the Russian foreign minister summoned Mr. Huntsman to inform him that he was losing yet more staff, the United States Embassy posted a video of Mr. Huntsman on its Twitter feed.

Photo

The British ambassador to Russia, Laurie Bristow, leaving the Russian Foreign Ministry headquarters in Moscow on Friday. Britain led the way in a coordinated ouster of more than 150 Russian diplomats.

Credit
Vasily Maximov/Agence France-Presse — Getty Images

“These are difficult times in the Russia-U.S. relationship,” he said, adding optimistically that “the doors to dialogue remain open.”

The opening, however, is growing increasingly narrow, not only because relations have become so strained but because there are simply fewer and fewer people on the ground to stop the door from slamming shut.

Many of the tasks that occupied the time of diplomats in the past, said Jeremy Shapiro, a former United States diplomat now at the European Council on Foreign Relations, “can proceed without having an embassy. That’s modern life. You don’t need an embassy to do banking across borders or trade.”

But, he added, you do need a functioning embassy to issue visas and provide consular services to Americans abroad, who lose passports, get mugged or end up drunk or in hospitals. “It’s not diplomacy, but it’s super-important,” he said.

Ejecting diplomats and closing consulates, as the United States has been ordered to do in St. Petersburg, “makes it harder for Russians to come to America and vice versa,” Mr. Shapiro said. It might not be diplomacy in the tradition of Henry A. Kissinger, he said, but it provides “the fine lines of the relationship.”

Charles A. Kupchan, who was Europe director of the National Security Council under President Barack Obama, said that “expulsions carry greater symbolic weight than substantive weight — diplomacy will go on even though Russians have fewer diplomats in the U.S. and Americans and Europeans fewer in Russia.”

But there are tangible costs, he said. “The parties lose some of their eyes and ears, so the quality of the reporting goes down. It’s not just intelligence but day-to day political and economic reporting: What’s the buzz in the street, what do interlocutors say. And consular services do get hit.”

Russia’s order on Thursday that Washington close its consulate in St. Petersburg, by far the biggest of three American consulates in Russia, will throw more sand in the machinery of diplomacy as it is really practiced. It will also leave Washington without eyes and ears in Russia’s second most populous city and its principal gateway to the West.

Russia wants the consulate shut in retaliation for Washington’s demand earlier in the week that Moscow close its own consulate in Seattle, which was seen as a nest of spies gathering secrets from Boeing and a nearby naval base, not to speak of the area’s high-tech firms.

The United States mission in St. Petersburg is unlikely to have been a haven for espionage: It was notoriously insecure. With walls connected to Russian-occupied buildings on both sides, it is an unclassified operation without Marine guards or a National Security Agency station, said a former American diplomat who worked there during the Cold War. Washington has been asking for a new location for years.

Simon Schuchat, a former diplomat in the Moscow embassy’s economics section, recalled how haphazard and unnerving the process of Russia weeding out alleged spies was during a round of expulsions in 2001. Inevitably, Moscow ordered out diplomats who had no connection to espionage.

“They tended to go for people with better language skills,” Mr. Schuchat said, adding that they “missed many spies and included many non-spies. We had a week or so waiting for the list to be issued.”

Photo

The United States Consulate in St. Petersburg, Russia’s second-largest city, has given America a presence in the country’s main gateway to the West.

Credit
Olga Maltseva/Agence France-Presse — Getty Images

The Russians, he said, also took care not to expel diplomats “from sections they thought were useful for them,” and left intact a large NASA presence.

One possible silver lining in the latest ruckus is that relations have deteriorated so much in recent years that American diplomats in Moscow have fewer tasks than they did; a once-sprawling canvas of diplomatic and other business ties between Russia and the United States has withered since President Vladimir V. Putin returned to the Kremlin in 2012 after a four-year stint as prime minister.

The embassy’s workload was slashed by a ban on Americans adopting Russian orphans — cutting the workload of consular officials handling immigrant visas — and a bar on American development workers with the United States Agency for International Development operating in Russia.

A near halt to once regular congressional junkets has also saved embassy staff from having to give briefings, arrange meetings and host cocktail parties.

All the same, there are still plenty of matters, like counterterrorism, space exploration and drug control, on which Moscow and Washington sometimes collaborate. The Department of Homeland Security, the Drug Enforcement Administration, NASA and the Department of Agriculture all have officials in the Moscow embassy.

Information Moscow, a handbook of foreign entities operating in Moscow, lists 108 accredited American diplomats, but the total number of Americans working at the embassy has been much higher.

The last publicly available detailed breakdown, contained in a 2013 report on the Moscow mission by the State Department’s Office of the Inspector General, put the total number of direct-hire American staff at the embassy at 289, alongside 867 foreign staff, mostly Russians working as drivers, guards and in administration and other support jobs.

Most of the Russians have now gone, axed last July on an order from Mr. Putin in retaliation for sweeping sanctions imposed by Congress. Their departure put such a strain on the embassy that it suspended for a time one of its most basic functions, the processing of visas.

Visas are now again issued, but so slowly that they have become yet another point of friction between the two countries, instead of a way to narrow the gulf that separates them.

Maria Zakharova, the Russian Foreign Ministry’s spokeswoman, recently accused Washington of “playing dirty” by stalling on visas for a Russian wrestling team that had hoped to compete in a tournament in Iowa City.

Their inability to get visas, she said, was “extremely outrageous.” She said the American embassy had told the Foreign Ministry that it could not process the wrestlers’ visas because of staff cuts demanded by Russia, which she called an excuse to keep Russians out of a world championship.

An American embassy spokesman declined to comment on why the visas had not been granted but told Russian media this week that the embassy had been placed under “significant constraints” by the Foreign Ministry and “could not accommodate all their many requests at all times, particularly for large groups.”

Such niggling issues, while not involving war and peace, highlight just how even routine matters normally handled easily by an embassy have become fuel for mutual recrimination and a climate of hostility.

Continue reading the main story