* * * * * * WEDNESDAY, JULY 25, 2018 ~ VOL. CCLXXII NO. 20 WSJ.com HHHH $4 .00

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John Schnatter’s relationswith Papa John’s Interna-tional Inc., the pizza giant hefounded, appeared to crum-ble abruptly and irreparablyafter reports this month thathe had used a racial slur.

In fact, long before PapaJohn’s board moved to severformal ties with Mr. Schnat-ter in the past week, his re-lationship had been deterio-rating with the company andthe man he had chosen tosucceed him as chief execu-tive, over issues includingmarketing, sales and who ex-actly was running the show.

Mr. Schnatter had agreedto resign as CEO in Decem-ber following an uproar overhis criticism of the NationalFootball League’s handling ofplayers’ kneeling during thenational anthem, handingthe top job to operating

BY JULIE JARGON

INFERNO: Wildfiresripped throughpopular resortareas near Athens,leaving at least 74dead and more than100 injured, in thecountry’s deadliestfire season in morethan a decade.Tourists andresidents wereforced to flee tobeaches, wheremore than 800people were pickedup by coast guardand navy vesselsand fishing boats.Authorities saidthe number ofcasualties couldrise, as searchescontinued. A11

CVS HoldMusic DividesA Nationi i i

Tune drives some

batty, sends others

seeking its origins

BY JON KAMPAND SUMATHI REDDY

One of the most polarizingpieces of music in America isn’tbeing performed at any of thenation’s concert halls. Anyonecan hear it by calling CVS.

The on-hold tune drives Har-vard psychiatrist Steven Schloz-man out of his mind. “Whatthey’re playing is supposed tosoothe you, but after the threebillionth time it’s particularlyunsoothing,” Dr. Schlozmansaid. Adding up a career’s worthof pharmacy calls, he estimateshe has spent nearly 600 hourslistening to the same song.

By contrast, Mark Montcalm,a Michigan pharmacist who fre-

PleaseturntopageA12

WASHINGTON—The Trumpadministration said it wouldextend $12 billion in emer-gency aid to farmers amid

BY VIVIAN SALAMAAND JACOB BUNGE

U.S. agricultural exports, hasapplied tariffs on $34 billionworth of U.S. goods, includingsoybeans and pork. Otherplaces applying retalia-tory tariffs include allies suchas Canada, Mexico and the EU.

European Commission Pres-PleaseturntopageA6

trading partners’ “illegal retal-iation” to the policies of Mr.Trump, who has ordered tar-iffs on imports ranging frommetals to materials to clothingto electronic parts. Those tar-iffs apply to goods from abroad range of countries, in-cluding China and those of theEuropean Union.

U.S. trading partners are re-taliating, with ominous impli-cations for the American FarmBelt. China, a huge market for

and pork.“This is a short-term solu-

tion that will give PresidentTrump and his administrationtime to work on long-termtrade deals,” Mr. Perdue toldreporters. Agriculture Depart-ment officials said the aidwouldn’t need congressionalapproval.

Mr. Perdue said the move,tentatively planned for thecoming months, was in re-sponse to what he called U.S.

signs the U.S. agricultural sec-tor is beginning to feel the im-pact of President DonaldTrump’s escalating trade dis-putes with major U.S. tradingpartners.

Agriculture SecretarySonny Perdue said Tuesdaythat the U.S. governmentwould provide incrementalpayments to support prices ofsome of the hardest-hit com-modities, including soybeans,sorghum, cotton, corn, wheat

TrumpOffers Trade Aid to FarmersPackage of $12 billionis a response by U.S.to retaliatory tariffs;critics call it a bailout

WildfiresIn GreeceLeaveScoresDead

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� Many manufacturers shrugoff tariff concerns................... A6

� Apple is vulnerable in tradefight between U.S., China... A6

mercial real estate for the firsttime in a decade. They havespent tens of billions of dollarsto acquire hotels, office build-ings, and vast swaths of emptyland to build residential towers.

But Chinese investors sold$1.29 billion worth of U.S. com-mercial real estate in the sec-ond quarter, while purchasingonly $126.2 million of property,according to data firm RealCapital Analytics. This marked

the first time these investorswere net sellers for a quartersince 2008.

The more than $1 billion innet sales reflects how much theChinese government’s attitudetoward investing overseas haschanged in recent months.

Chinese investors beganscooping up U.S. real estate afew years ago after Beijing offi-cials loosened restrictions on

PleaseturntopageA2

Chinese real-estate inves-tors, facing pressure from Bei-jing, are reversing a yearslongbuying spree in the U.S. wherethey often paid record pricesfor marquee properties likeNew York’s Waldorf Astoria ho-tel.

Chinese insurers, conglomer-ates, and other investors haveturned net sellers of U.S. com-

BY ESTHER FUNG

ChineseSour onU.S.Property

Airline Bosses Speak From the Cheap Seats

FashionOut, Politics InFor the First Daughter

Ivanka Trump is closing hernamesake fashion brand andplanning a longer-term focuson policy in Washington.

The president’s daughter,who formally separated herselffrom the business more than ayear ago, holds an undefinedpolicy portfolio as a senior ad-viser in the White House, mostrecently centered on workforcedevelopment. Her decision toconcentrate on the WhiteHouse comes after months ofspeculation about whether sheand her husband, fellow WhiteHouse adviser Jared Kushner,would remain in the adminis-tration for the rest of the presi-dent’s term.

Apparel sales at the brand,which Ms. Trump launched inits current form in 2014,soared in the year of the 2016presidential election. But thecompany also became a light-ning rod for critics of her fa-

BY REBECCA BALLHAUSAND SUZANNE KAPNER

chief Steve Ritchie. PapaJohn’s was a top NFL spon-sor until February.

After that point, Mr.Schnatter, 56, who owns 29%of Papa John’s and is a direc-tor, became unhappy with thechain’s performance, he saidin an interview on Saturday.He was building a case to de-pose Mr. Ritchie, gain moredecision-making power andstar again in the kind of adsthat made him and his com-pany famous, he said.

Then news of his use ofthe slur “n—” during a Mayconference call derailedthose comeback efforts. Hepublicly apologized, sayinghe hadn’t used the word asan epithet, and agreed tostep down as chairman. Dayslater, fellow directors sug-gested he consider resigningfrom the board, The WallStreet Journal reported, cit-

PleaseturntopageA12

Discord PresagedPapa John’s Fall

Long before racial-slur scandal, John Schnatterwas at oddswith the pizza chain he founded

CLOSE CONFINES: Delta CEO Ed Bastian, above, and Doug Parker, American’s chief, both 6 foot 3,defend the tightest sections of their planes while sitting in them. The Middle Seat, A13

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ther’s policies, with one anti-Trump group last year urgingshoppers to boycott stores sell-ing Trump-branded goods. Re-tailers including NordstromInc. and Hudson’s Bay havestopped selling Ivanka Trumpproducts in the past 18 months,citing poor sales.

Abigail Klem, who took overas president of the New York-based brand in the spring of2017, told its 18 employeesTuesday the company would beshutting down. Ms. Trump ad-dressed the staff in personlater in the day.

Ms. Trump said she hadcontemplated the move in re-cent months as she grew frus-trated by the restrictions sheplaced on the company, IT Col-lection LLC, to avoid possibleconflicts of interest whileserving in the White House.

Ms. Trump said Tuesday shePleaseturntopageA4

� Tape reveals Trump, Cohendiscussing payment............... A4

Salesforce.#1CRM.

Ranked #1 for CRMApplications based onIDC 2017Market Share RevenueWorldwide.

19.6%

6.5%

7.1%

3.2%

4.0%

salesforce.com/number1CRMCRMApplicationsmarket includes the following IDC-defined functional markets: Sales, Customer Service, ContactCenter, and Marketing Applications. © 2018 salesforce.com, inc. All rights reserved. Salesforce.com is a registeredtrademark of salesforce.com, inc., as are other names andmarks.

2013 2014 2015 2016 2017

Source: IDC, Worldwide SemiannualSoftware Tracker, April 2018.

CONTENTSBusiness News.. B3,5Crossword.............. A16Heard on Street. B12Life & Arts...... A13-15Markets............. B11-12Middle Seat.......... A13

Opinion.............. A17-19Property Report... B6Sports........................ A16Technology............... B4U.S. News............. A2-7Weather................... A16World News...... A8-11

s 2018 Dow Jones & Company, Inc.All Rights Reserved

>

What’sNews

� TheTrumpadministrationsaid it would extend $12billion in emergency aid tofarmers amid signs the U.S.agricultural sector is start-ing to feel the effect ofTrump’s escalating tradedisputes with major U.S.trading partners. A1, A6� House Republicans un-veiled a plan to make re-tirement and savings acrucial part of their pushfor tax legislation this fall. A7� Ivanka Trump is clos-ing her namesake fashionbrand and is planning alonger-term focus on pol-icy in Washington. A1� Lawyers for Trump andCohen clashed over whetherTrump suggested making acashpayment tobuy the rightsto an ex-Playboymodel’sstory of an affair with him.A4� Israel shot down a Syr-ian jet fighter that entered itsairspace, raising tensions in aregion where Russia-backedSyrian forces are active.A8� Israel partially re-opened Gaza’s only com-mercial crossing, loosen-ing severe restrictions. A8� The administration said463 immigrant parents sep-arated from their childrenafter crossing the bordermay have been deported. A3� A dam project in south-ern Laos collapsed afterdays of heavy rain, killingseveral people and leavinghundreds missing. A10� The government said itwould resume billions ofdollars in payments ex-pected by insurers underan ACA program. A3

Chinese real-estate in-vestors are reversing a

yearslong buying spree inthe U.S., where they oftenpaid record prices for mar-quee properties. A1� Growth in AT&T’s newmedia division helped pa-per over deep losses in thesatellite-TV business.Overall, the company re-ported lower revenue. B1� U.S. stocks climbed, asinvestors were cheered bystrong corporate earnings.The Dow gained 197.65points to 25241.94. B11�Emerging-market govern-ment bonds have bouncedback froma first-half drop, butmany bond-fundmanagersaren’t buying the rebound. B1�Manymanufacturers intheU.S. are shrugging off con-cerns over trade tensions, asrobust demand yields stron-ger-than-expected profits.A6� Harley-Davidson said itsprofit would take a hit thisyear as tariffs compound along sales slump for themotorcycle maker. B3� Facebook said it wouldset up an innovation hub inChina to groom and supportdevelopers and startups. B4� The IRS won an appealscourt ruling over Intel in acase closely watched bytechnology companies. A2� Ford is carving out itsautonomous-vehicle programinto a separate wholly ownedcompany aimed at attract-ing outside investors. B5� United Technologies’profit rose 42%, promptingthe company to nudge itsfull-year outlook higher. B3

Business&Finance

World-Wide

A2 | Wednesday, July 25, 2018 * * THEWALL STREET JOURNAL.

U.S. NEWS

BY RICHARD RUBIN

IRS BeatsIntel inAppealsCourt

THE WALL STREET JOURNAL(USPS 664-880) (Eastern Edition ISSN 0099-9660)(Central Edition ISSN 1092-0935) (Western Edition ISSN 0193-2241)

Editorial and publication headquarters: 1211 Avenue of the Americas, New York, N.Y. 10036

Published daily except Sundays and general legal holidays.Periodicals postage paid at New York, N.Y., and other mailing offices.

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All Advertising published in The Wall Street Journal is subject to the applicable rate card, copies ofwhich are available from the Advertising Services Department, Dow Jones & Co. Inc., 1211 Avenue ofthe Americas, New York, N.Y. 10036. The Journal reserves the right not to accept an advertiser’s order.Only publication of an advertisement shall constitute final acceptance of the advertiser’s order.

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Christie’s International sold$877 million of contemporaryart during the first half of 2018,up 14% compared with theyear-earlier period, but its salesof Asian art fell 33%. A Life &Arts article on Tuesday aboutChristie’s sales incorrectly saidthe auction house sold $900million in contemporary art andthat its Asian-art sales fell 49%.

Chinese government bondswill be included in theBloomberg Barclays Global Ag-

gregate Index beginning nextyear. A Heard on the Street col-umn on Tuesday about China’sdebt market didn’t state whentheir inclusion will begin.

In some editions Tuesday,Daniel Kruger’s last name wasmisspelled as Kruge in the by-line of a Markets article aboutgovernment bonds.

The name of the Canadiancity of Edmonton was mis-spelled as Edmondton in a ref-

erence to the West EdmontonMall in a Review essay Satur-day about bucket lists.

A photo accompanying aReview article Saturday aboutbeach erosion showed SunnyIsles Beach, Fla. The captionincorrectly said it was MiamiBeach.

Irvine, Calif., was mis-spelled as Irving in a Sportsarticle on Tuesday aboutswimmer Ryan Lochte.

Readers can alert The Wall Street Journal to any errors in news articles by emailing wsjcontact@wsj.comor by calling 888-410-2667.

CORRECTIONS � AMPLIFICATIONS

AcquisitionsSales

Picking Off PropertiesDollar amount of acquisitions and sales of U.S.real estate by Chinese companies

THEWALL STREET JOURNAL.Source: Real Capital AnalyticsNote: Data track commercial real estate transactions that are at least $2.5 million.

$10

–2

0

2

4

6

8

billion

’14 ’15 ’16 ’17 ’182013

WASHINGTON—The Housevoted to repeal a 2.3% excisetax on medical devices, againshowing bipartisan supportfor eliminating the levy.

Congress created the tax inthe 2010 Affordable Care Actto help pay for expandinghealth insurance, but medical-device companies and theirhome-state allies in both par-ties have been fighting againstit ever since.

“This bill reverses a harmfultax that is hurting job growthand innovation across thecountry,” Rep. Erik Paulsen (R.,Minn.), the bill’s sponsor, saidTuesday on the House floor.

The tax took effect in 2013,but Congress suspended itstarting in 2016 and recentlyextended that moratorium untilJanuary 2020. The tax appliesto products such as pacemakersand artificial joints, not itemsdirectly sold to consumers.

Tuesday’s vote was 283 to132, with all but one Republi-can voting for the bill. AmongDemocrats, 57 voted for themeasure and 131 opposed it.The bill would reduce federalrevenue by about $22 billionover a decade.

Some Democrats opposedthe bill, arguing that it contin-ues a pattern of tax cuts thatwill deprive the government ofmoney needed to pay forhealth care.

Even senators who supportthe legislation are skepticalthat it could come up beforeend of the year. The bill wouldrequire 60 votes in the Senateand has some support fromDemocrats.

“I have supported that andwill wait to see what happens,”said Sen. Tina Smith (D., Minn),adding that her state has astrong medical-device industry.

BY RICHARD RUBINAND NATALIE ANDREWS

In Fall River, a former textilehub on the Massachusettscoast, Bristol County economicdevelopment director KennethFiola touts waterfront land anda workforce rooted in manufac-turing as reasons the citywould make a perfect base forthe U.S. offshore wind industry.

In Providence, R.I., officialsare promoting their port’s ex-perience helping build thecountry’s first offshore windfarm off Block Island. In Vir-ginia, representatives are sell-ing the advantages of a water-way with no bridges thatwould ease the transportationof enormous pieces of thebuilding-size wind turbines.

All along the East Coast, pol-iticians and economic develop-ment officials are beginning topitch their communities as po-tential hubs for the burgeoningU.S. offshore wind industry.Offshore wind developers,which have largely focused oncoastal Europe thus far, haveplans to build a dozen utility-scale farms off the U.S. side of

the Atlantic in coming years,spurring billions in investmentand thousands of jobs.

The competition has ratch-eted up this year, with leadersin some states, including NewYork and New Jersey, pushingaggressive wind-energy pro-curement goals and pledgingfinancial support to developthe necessary infrastructure.

“Every state is going to be inthis for themselves,” said DanShreve, director at Wood Mack-enzie Power and Renewables,which forecasts the U.S. willhave offshore wind farms capa-ble of generating nearly 6 giga-watts by the end of 2027. “Theneed to achieve first mover ad-vantage is significant.”

That’s because the offshorewind industry and its supplychain are likely to concentrateU.S. operations—and the re-sulting construction, manufac-turing and maintenance jobs—in only a few key locations.

Massachusetts, New Yorkand New Jersey have all set ag-gressive offshore wind energygoals that call for a combined7.5 gigawatts by 2030. New

York earlier this month said itwould soon solicit bids for 800megawatts of offshore windgeneration, and expects to an-nounce an award by mid-2019.

“We have so much going forus,” said Alicia Barton, chief ex-

ecutive of the New York StateResearch and Development Au-thority, which has been directedby Gov. Andrew Cuomo to in-vest $15 million in developingworkforce and infrastructure tosupport the offshore wind in-dustry. “This is going to hap-pen, and because we are seri-ous about it, a lot of it is goingto happen here.”

Virginia is hoping it hap-pens there. “We’ve hosted nu-merous visitors,” said John F.Reinhart, chief executive ofthe Port of Virginia.

New London, Conn., wants inon the game, too, said local de-velopment director Felix Reyes.He said he has been meetingregularly with Deepwater Wind,a developer planning an off-shore project that will serveConnecticut and Rhode Island.Deepwater Wind has alreadypromised to invest $15 millionin the New London State Pier,as well as $40 million for twoports in Rhode Island.

“The reality is we’re goingto need lots of ports,” said Jef-frey Grybowski, chief execu-tive of Deepwater Wind, which

developed the Block Islandwind farm.

So far, Massachusetts, whichstarted courting wind develop-ments years ago, seems to beahead. It is already home to a$40 million Wind TechnologyTesting Center, as well as a$113 million marine commerceterminal meant to support theconstruction of offshore windfarms. Three wind developerswith leases in waters off Mar-tha’s Vineyard have agreed touse the terminal.

EEW, a German steel manu-facturer, and Gulf Island Fabri-cation, which made the foun-dations for the Block Islandwind farm, are planning toopen a facility in Massachu-setts for offshore wind compo-nents. One of the sites theyare looking at: the formerBrayton Point power plant.

In Fall River, which sitsacross from the plant, officialsnow regularly meet with off-shore wind companies sizing upprospects, said Mr. Fiola, theeconomic development director.

“We are about putting foodon that table,” he said.

BY ERIN AILWORTH

Eastern States Compete OverWindU.S. states are vying to become hubs for the offshore wind industry. In Rhode Island, officials tout a port’s experience helping build the first U.S. offshore wind farm, above.

SEAND.ELLIOT/ASSOCIATEDPRESS

The Internal Revenue Servicewon a court case closelywatched by technology compa-nies, as an appeals court uphelda regulation governing how cor-porations divide expenses be-tween their domestic and for-eign operations.

Tuesday’s ruling by a panelof the Ninth Circuit Court ofAppeals in San Francisco repre-sents a loss for Intel Corp.,whose Altera subsidiary chal-lenged the regulation when itwas a separate company. Techcompanies had billions of dol-lars at stake in the case becausethe rules at issue determinewhere they report some deduc-tions.

The U.S. Tax Court, whichhandles disputes between tax-payers and the IRS, ruled in fa-vor of Intel. The IRS appealedthe decision.

“We conclude that the regu-lations withstand scrutiny un-der general administrative lawprinciples, and we therefore re-verse the decision of the TaxCourt,” wrote Chief Judge Sid-ney Thomas.

He was joined by Judge Ste-phen Reinhardt, who cast hisvote in the case before he diedthis year. Judge KathleenO’Malley dissented, arguingthat the IRS was “arbitrary andcapricious” because it didn’t ad-equately explain its regulations.

Intel is disappointed in thedecision and is considering itsoptions for further judicial re-view, spokesman William Mosssaid in an email.

The Altera case involvedtaxes on just $80 million of in-come, but the impact could befar larger. Alphabet Inc., theparent company of Google, saidin 2016 that it could gain asmuch as $3.5 billion if Alteraprevailed.

A spokesman for Alphabetdeclined to comment.

The IRS declined to com-ment.

—Douglas MacMillancontributed to this article.

cross-border real-estate climatehas been negatively impactedby the geopolitical climate,”said David Blumenfeld, a HongKong-based partner at PaulHastings LLP.

Likely sellers include AnbangInsurance Group, which wastaken over by Chinese regula-tors in February and whosechairman, Wu Xiaohui, wasconvicted of fraud and abuse ofpower. Anbang is consideringselling some of its U.S. hotels.But it has yet to strike anydeals, and has been renovatingits most prized purchase, theWaldorf in New York.

“The company is still in theprocess of reviewing overseasassets,” said Shen Gang, an An-bang spokesman. “We currentlydo not have specific asset opti-mization plan, nor a specifictimetable.”

The retreat by Chinese in-vestors could slow growth fur-ther in the U.S. commercialreal-estate market. Propertyvalues have plateaued on aver-age in the past 18 months afterrising sharply in the early yearsof the post-2008 financial crisisrecovery.

While Chinese buyers neverrepresented more than a frac-tion of the buying power in anyU.S. market, these companiesoften made headlines with thesteep prices they were willingto pay, which helped push val-ues higher in certain segmentsof the market.

In 2015, China’s Sunshine In-

surance Group bought the Bac-carat Hotel in midtown Man-hattan for around $230 million,a price that valued the luxuryproperty at about $2 million aroom. That was one of thehighest valuations ever for ahotel by the popular industrymetric.

Chinese investors had theirown reasons for paying top dol-lar. Some of the executives run-ning these firms felt that con-trolling trophy propertiesconferred prestige on theirowners and built their brandrecognition for future expan-sion, analysts say. A number ofChinese investors also plannedto hold these properties for

several decades, so theyweren’t worried about pricesfalling in major markets likeNew York, the analysts add.

For many Chinese firms, thatlong-term timetable has beenscraped after the governmentbegan pressuring companies toreduce their debt levels and tocut credit risk in the bankingsector.

Not every Chinese investoris under pressure to sell. Devel-opers of smaller residentialprojects and insurers that ownwarehouses and senior livingcenters aren’t in retreat, law-yers for these developers say.

And even for Chinese com-panies that face this pressure,

some have been able to sell at aprofit. The government has al-lowed investors to start by sell-ing properties that have in-creased in value to avoid losingface, according to Chinese in-vestors.

For example, this year HNAGroup and a partner sold 1180Sixth Avenue in Manhattan toNorthwood Investors foraround $305 million, accordingto data from CoStar Group. Theconglomerate, which has itsheadquarters in Haikou, a cityin southern China’s Hainanprovince, bought a 90% stake inthe office tower for $259 mil-lion in 2011.

HNA Group also has recentlysold a stake in 245 Park Avenueto SL Green Realty Corp, andSL Green will have operatingcontrol of the building. HNAbought the tower for $2.2 bil-lion last year.

“HNA Group has long said itwill be disciplined and thought-ful about its asset dispositionsas it realigns its strategy,” aspokesman of HNA said. Latelast year, HNA Group ear-marked roughly $6 billionworth of properties for sale, ac-cording to a person close to thematter.

Chinese lenders also want toavoid the painful repercussionsthat losses would cause.

“If there is a fire sale, thebanks also lose,” said EdwardTse, chief executive of Gao FengAdvisory Co., a Shanghai-basedconsulting firm.

foreign investment. Theyquickly made their mark in U.S.cities like Los Angeles, SanFrancisco, and Chicago withhigh-profile acquisitions—in-cluding the $1.95 billion pur-chase of the Waldorf Astoria,the highest price ever paid fora U.S. hotel.

Now, the Chinese govern-ment has changed course again,cracking down on certain typesof outbound investment thatinclude real estate in part tohelp stabilize the currency. Chi-nese companies like HNA Groupand Greenland Holding Groupare unloading prize propertiesto repay debt and to complywith regulatory and marketpressures from home, analystssaid.

“I was shocked,” said JimCostello, senior vice presidentat Real Capital Analytics. “Theyreally curtailed their buyingand stepped up sales.”

Analysts say that increasingtensions over trade and na-tional security between Chinaand the U.S. also have contrib-uted to the pullback.

“The China-U.S. outbound

ContinuedfromPageOne

ChineseSell U.S.Property

UpdraftSo far nearly all wind energygeneration in the U.S. has beeninstalled onshore, with stateslike Texas, Oklahoma and Iowa inthe lead. Now the industry islooking at potential offshore.

THEWALL STREET JOURNAL.Source: Energy Information Administration

*Includes Maine, Mass., R.I., Conn., N.Y.,N.J., Del., Md. and Va.

70

0

10

20

30

40

50

60

million megawatt hours

2001 ’05 ’10 ’15

OklahomaTexas

IowaEastern coastalstates*

Repeal of TaxOn MedicalDevicesClears House

THEWALL STREET JOURNAL. * * * * * Wednesday, July 25, 2018 | A3

U.S. NEWS

He appeared in ads with ashotgun, chain saw and truck,which he said he would use toround up illegal immigrants.

He got a boost last weekwhen President Trump en-dorsed him in a tweet, saying:“Brian is tough on crime,strong on the border and ille-gal immigration. He loves ourMilitary and our Vets and pro-tects our Second Amend-ment…I give him my full andtotal endorsement.”

Mr. Kemp thanked Mr.Trump for his tweet and VicePresident Mike Pence for cam-

paigning with him last week-end. “We had the momentumin this race, and those en-dorsements by the presidentand vice president, theypoured gasoline on the fireand fueled the Kemp surge tovictory,” he said.

In his concession speech,Mr. Cagle said he was disap-pointed in the results butwould endorse and supportMr. Kemp.

The two months since theMay 22 Republican primaryhave been unusually acrimoni-ous and featured a secretly re-

corded conversation of Mr. Ca-gle saying he voted for a pieceof school-choice legislation tostop a group from aiding anopponent, a move he de-scribed on the recording as“shit politics.”

Mr. Cagle said that he re-gretted the private conversa-tion being recorded and givento the media.

Mr. Cagle’s campaign criti-cized Mr. Kemp’s recent lead-ership of the secretary ofstate’s office, including a mis-take in which the Social Secu-rity numbers of more than sixmillion Georgians were ex-posed to people outside theoffice. Mr. Kemp has said theerror was caused by an em-ployee who later was fired.

Mr. Cagle, 52 years old, hadthe endorsement of currentGov. Nathan Deal, a populartwo-term incumbent who hasoverseen a growing economysince the recession. He wasthe top vote getter in the six-way primary with 39%, com-pared with Mr. Kemp’s 26%.

Under Georgia law, if a can-didate doesn’t win more than50% of the vote, the two topvote getters go to a runoff.

Mr. Kemp will face Demo-cratic nominee Stacey Abrams,who won her primary withmore than 76% of the vote.Democrats across the countryare backing her bid to becomethe nation’s first black womanelected governor.

The proposal would requireother states to register withthe New Hampshire attorneygeneral’s office at least 120days before they impose salestaxes against a remote sellerbased in the state or beforethey request customer infor-mation. The attorney general’soffice would collect a fee fromother states and evaluatewhether out-of-state requestscomply with New Hampshireand federal law.

The bill gives the attorneygeneral the ability to seek in-junctions against otherstates. Businesses could stillchoose to collect and remitother states’ sales taxes ratherthan risk potential penalties.

The Supreme Court’s deci-sion didn’t set explicit stan-dards on when state sales-taxcollection might violate theConstitution, leaving uncer-tainty for small and medium-size businesses. That vague-ness is likely to be resolvedthrough future court cases.The South Dakota law upheldby the court wasn’t retroac-tive, for example, and didn’trequire tax collection for busi-nesses with fewer than 200transactions or less than$100,000 in sales into thestate. But the court didn’t en-dorse those thresholds or ap-ply them to other states.

“They didn’t say how farthey would let you go,” saidKen Roberts, chairman of theIdaho Tax Commission and

president of the Federation ofTax Administrators, a group ofstate tax officials. “The courtsystem, the balance of timeand court cases will establishthat.”

Congress could step in toset national rules. But federallawmakers have been dead-locked on the issue for morethan a decade.

New Hampshire’s attemptsto restrain other states’ collec-tion efforts will have troublesucceeding because the Con-stitution’s “full faith andcredit” clause requires statesto respect one another’s legaljudgments, said Daniel Hemel,a professor at University ofChicago Law School specializ-ing in taxation.

“Our Constitution doesn’tallow states to wall them-selves off from the operationof other states’ laws,” he said.“Maybe Chris Sununu wouldget some political points fromthe small business communityin New Hampshire, but itdoesn’t seem to me like a seri-ous endeavor.”

The adjustment will betoughest in Delaware, Oregon,Montana, Alaska and NewHampshire, the five stateswithout broad-based salestaxes. New Hampshire, whichalso lacks a broad income tax,touts its low burdens in linewith its “Live Free or Die”ethos and its “New HampshireAdvantage” pitch to busi-nesses.

he said. “They’re introducing anew element and one that I’mfairly nervous about.”

States with sales taxes arestill figuring out how they willapproach out-of-state retail-ers. New Hampshire, with a

special legislative sessionscheduled for Wednesday, isn’twaiting to respond. Its reac-tion to the court’s decisionwill spur the next round ofskirmishes over cross-bordersales-tax collection.

“It’s going to be a long-term issue that threatens theNew Hampshire economy, be-cause we are a retail-basedeconomy,” said Jeb Bradley, aRepublican and majorityleader of the state Senate.

Jeffrey Bart, the third-gen-eration owner of Granite StateCandy Shoppe in Concord,N.H., has never collected salestaxes. That is probably aboutto change.

New Hampshire is one offive states without a broad-based statewide sales tax, astatus that had insulated Mr.Bart and other retailers from atask familiar to businesseselsewhere. That cushion lasteduntil the U.S. Supreme Court’sJune decision in South Dakotav. Wayfair, which lets statesrequire retailers to collectsales taxes even if those busi-nesses lack a physical pres-ence in the state.

That decision was a “hugemistake,” says New HampshireGov. Chris Sununu, who ex-pects to sign legislation thisweek to make it harder forother states to impose collec-tion requirements on NewHampshire retailers.

“We’re not saying statescan’t do it. We’re just puttingup a lot of hurdles that stateshave to jump over,” Mr. Su-nunu said. “We’re not goingdown without a fight.”

The Supreme Court cast itsruling as a reflection of chang-ing business models, wherephysical presence of a retailerisn’t the bright line betweenstate tax systems that it oncewas. Indeed, Mr. Bart, unlikehis predecessors running the91-year-old shop, does 20% to30% of his business online.That now opens him up to tax-collection demands from out-side New Hampshire. Hehasn’t heard from out-of-stateauthorities yet, but he’s wor-ried about compliance costs.

“We are not set up to col-lect a sales tax at all, period,”

BY RICHARD RUBINAND JENNIFER LEVITZ

New Hampshire Fights Sales-Tax RulingRetailers in five stateswith no sales tax faceburdens after highcourt’s decision

Jeffrey Bart, who runs the Granite State Candy Shoppe in Concord, N.H., does 20% to 30% of hisbusiness online. That opens him up to tax-collection demands from outside the state.

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In all, there have been 1,187“reunifications or other ap-propriate discharges” by theOffice of Refugee Resettle-ment, according to the filing.

The migrant children wereseparated from their parentsunder the government’s policyto prosecute nearly everyadult caught crossing the bor-der illegally and to separatechildren and parents in theprocess.

President Donald Trumpsigned an executive orderending the separation policyon June 20, and a court laterordered the government to re-unite all of the parents andchildren by Thursday.

The American Civil Liber-ties Union, which sued the

government in February overthe practice, has long worriedthat parents could be de-ported without their children.

The government had previ-ously acknowledged that 12had been deported beforethey could be reunited withthe youngest separated chil-dren.

Immigration advocates andlawyers have said that reunit-ing children with deportedparents is complicated andtime-consuming.

U.S. District Judge DanaSabraw also temporarilyhalted the deportation of fam-ilies that had been reunitedafter the ACLU raised con-cerns that parents and theirchildren could be removed be-

fore having their full immi-gration cases completed.

The administration objectedto that order Tuesday.

Justice Department law-yers argued in a 38-page filingthat a previous order fromJudge Sabraw to give families48 hours to decide if parentsand children would be de-ported together was sufficient.

The government added thatmaking parents, who havebeen ordered out of the coun-try and choose to be reunitedwith their children, decide asecond time about their child’sdeportation “is inconsistentwith this court’s effort to re-turn the children to the statusquo and bring families backtogether.”

The Trump administrationsaid 463 immigrant parents sep-arated from their children underthe government’s zero-tolerancepolicy for illegal border crossersmay have been deported.

In a court filing late Mon-day, Justice Department law-yers didn’t specify how manychildren are in the U.S. whoseparents have been deported,and noted that their parents’cases are “under review.”

The government said in itsfiling that 1,634 of 2,551 mi-grant children ages 5 to 17years old who were separatedfrom their parents had beendeemed eligible for possiblereunification.

BY ALICIA A. CALDWELL

Migrant Children’s Parents May Have Been Deported

A Guatemalan woman, who says she was deported from the U.S.without her son in June, protested in Guatemala City this month.

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Republican voters choseTrump favorite Brian Kempover Lt. Gov. Casey Cagle inthe Georgia gubernatorial pri-mary runoff Tuesday, picking asocial conservative over a fa-vorite of the GOP establish-ment.

Mr. Kemp was declared thewinner by the AssociatedPress.

Mr. Kemp, a 55-year-oldbusinessman and Georgia’s sec-retary of state, ran as a “politi-cally incorrect conservative.”

BY VALERIE BAUERLEIN

Trump Favorite Wins in Georgia Race

Brian Kemp celebrating his victory in the Georgia Republican gubernatorial runoff Tuesday.

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The new rule appears toclear the way for the plannedflow this fall of risk-adjust-ment money tied to the 2017plan year, a total that CMS hadsaid amounted to $10.4 billion.

“This rule will restore oper-ation of the risk adjustmentprogram, and mitigate some ofthe uncertainty caused by theNew Mexico litigation,” saidCMS Administrator SeemaVerma. “Issuers that had ex-pressed concerns about havingto withdraw from markets orbecoming insolvent should beassured by our actions today.”

Risk-adjustment paymentsare drawn from insurers andgo to other insurers. The pro-gram plays a major role in theACA markets as insurers withhealthier consumers enrolledin health-law plans reimburseinsurers that have sicker andmore-expensive enrollees. Theaim is to encourage all insurersto participate in the exchangesand sign up a broad consumerbase instead of just targetingyoung, healthy people.

Some supporters of the ACAand insurance-industry offi-cials said when the Trump ad-ministration announced thesuspension that there wereother, less disruptive ways ofresponding to the judge’s deci-sion, including issuing a ruleclarifying the reasoning for therisk-adjustment methodology.

WASHINGTON—The Trumpadministration said it would re-sume billions of dollars in pay-ments expected by insurers un-der an Affordable Care Actprogram, ending a brief suspen-sion that it had said was neces-sary because of a judge’s ruling.

The Centers for Medicareand Medicaid Services, whichadministers the programknown as risk adjustment, saidlate Tuesday it released a rulethat offers further explanationfor the program’s previouslyestablished methodology. Themove “allows us to resume therisk adjustment program with-out delay,” the agency said.

The Trump administrationannounced July 7 that it wassuspending the program, say-ing the action stemmed from aFebruary decision by a federaljudge in New Mexico whoruled that part of the risk-ad-justment program’s implemen-tation was flawed and hadn’tbeen adequately justified byfederal regulators.

The suspension drew imme-diate outcry from insurers,which rely on the payments.Industry officials said that ifthey didn’t get clarity aroundthe risk-adjustment program,insurers might push for higherpremiums on ACA plans fornext year.

BY ANNA WILDE MATHEWS

U.S. Ends SuspensionOver ACA Payments

A4 | Wednesday, July 25, 2018 P W L C 10 11 12 H T G K B F A M 1 2 3 4 5 6 7 8 9 O I X X * * * * * * THEWALL STREET JOURNAL.

U.S. NEWS

into possible campaign-financeviolations and his personalbusiness dealings.

The recording aired Tuesdaysuggests that Mr. Trump al-ready was aware at the time ofhis conversation with Mr. Co-hen of American Media’s pur-chase of Ms. McDougal’s story.Mr. Cohen didn’t mention hername or what information wasto be transferred, but Mr.Trump seemed to understandand follow along.

Rudy Giuliani, a lawyer forMr. Trump, said in an interviewthat the tape was “not defini-tive” on whether the presidentwas aware before his conversa-tion with Mr. Cohen that Ms.McDougal had sold the rights toher story. “There’s nothing herethat suggests the presidentknew about it,” he said. “I’mnot saying there’s anything herewhere he says, ‘I’m surprised, Inever heard about this before.’But there’s nothing here wherehe says, ‘I did know about it.’”

When Mr. Cohen talks about

financing to buy the rights, Mr.Trump makes a statement thatbegins inaudibly and then ap-pears to say, “with cash.” Mr.Cohen responds “no” severaltimes, and “I got it,” and thenMr. Trump appears to say,

“Check?” The tape then cuts off.A transcript produced by the

president’s lawyers describesMr. Trump as saying, “Don’tpay with cash…check,” beforeMr. Cohen begins to disagree. Inthe audio played by CNN, theword “don’t” can’t be clearlyheard. Mr. Giuliani said Tues-day that the transcript “accu-rately reflects the taped con-versation.” Mr. Giuliani last

week said Mr. Trump had sug-gested paying by check, whichhe characterized as exculpatoryevidence for the president. Hesaid Mr. Trump’s team had pro-duced “enhanced” audio to ana-lyze the recording, but declinedto provide a copy of it.

A lawyer for Mr. Cohen,Lanny Davis, said in atweet Tuesday that Mr. Trumpis actually suggesting a cashpayment. He wrote, “Truth isonce again on@MichaelCohen212 side. @PO-TUS @realDonaldTrump usedthe word cash, despite @Rudy-Giuliani falsely accusing Mr. Co-hen. Just as Richard Nixonlearned, tapes don’t lie!”

American Media Chief Exec-utive Officer David Pecker hasdescribed himself as a friend ofboth Mr. Trump and Mr. Cohen.In the recording, Mr. Cohentells Mr. Trump: “I need toopen up a company for thetransfer of all of that info re-garding our friend David.” Hesaid he had spoken to another

Trump Organization executive,Chief Financial Officer AllenWeisselberg, about “how to setthe whole thing up with fund-ing.”

Mr. Cohen says they shouldpurchase the rights to avoid un-certainty in the event some-thing happens to “that com-pany.”

“You never know where he’sgoing to be,” says Mr. Cohen, inan apparent allusion to Mr.Pecker.

“Maybe he gets hit by atruck,” Mr. Trump responds.

“Correct. So I’m all overthat,” Mr. Cohen says.

After he begins to talk aboutthe financing, Mr. Trump says,“What financing?” Mr. Cohentells him they will have to pay,and then the discussion aboutthe method of payment ensues.

Messrs. Weisselberg andPecker didn’t respond to re-quests for comment.

—Mark Maremontand Joe Palazzolo

contributed to this article.

Lawyers for President Trumpand his former attorney Mi-chael Cohen clashed Tues-day over whether Mr. Trumpsuggested making a cash pay-ment late in his presidentialcampaign to buy the rights to aformer Playboy model’s story ofan affair with him.

The comments were madeon an audio recording secretlymade by Mr. Cohen in Septem-ber 2016 and aired byCNN Tuesday evening. The menwere discussing buying therights to former PlaymateKaren McDougal’s story, whichhad been purchased for$150,000 a month earlier byAmerican Media Inc., owner ofthe National Enquirer, but notpublished.

The recording was seized bythe Federal Bureau of Investiga-tion on April 9 in a raid of Mr.Cohen’s home, office and hotelroom as part of an investigation

BY MICHAEL ROTHFELDAND REBECCA BALLHAUS

Tape Reveals Trump, Cohen Discussing Payment

There are signs the coupleare easing into their lives inWashington. They have rou-tinely hosted members of Con-gress and reporters at theirhome in the city’s upscale Ka-lorama neighborhood for din-ner parties and off-the-recordconversations. In recentmonths, they have been house-hunting for a permanent homein the city, according to peoplefamiliar with the matter.

Ms. Trump separated herselffrom the management and op-erations of the company but re-

tained her ownership interestthrough a trust. The ethics re-strictions she implemented in-cluded ordering the companynot to expand internationallyand to seek her approval beforestriking agreements with newdomestic partners.

The Ivanka Trump brandsells moderately priced ap-parel, shoes, handbags and jew-elry, such as a $200 pink hand-bag and $100 black pumps.

In January 2017, the companysaid it wouldn’t proceed with adistribution deal with Sanei In-

ternational that would bring thebrand to Japan after learningthat Sanei had ties to the Japa-nese government, according to aletter from Ms. Klem to theHouse Judiciary Committee.

The Ivanka Trump brand willallow its licensing agreementswith companies including G-IIIApparel Group Ltd., its appareldistribution partner, to expirein the coming months, accord-ing to a person close to thecompany, but will continue tofile trademark applications incertain instances. “There’s a re-

sponsibility to Ivanka to ensurethat others are not exploitingher name,” the person said.

Despite Ms. Trump’s effortsto separate herself from thecompany, it has proved difficultto fully extricate the brand fromher father’s administration.

After Nordstrom droppedMs.Trump’s line last year, the presi-dent in a tweet chastised thecompany for treating his daugh-ter “so unfairly.” Senior WhiteHouse adviser Kellyanne Conwaywas later rebuked for urging thepublic to “go buy Ivanka’s stuff”in an interview from theWhite House briefing room.

At the time, a Nordstromspokeswoman said sales haddeteriorated to the pointwhere “it didn’t make goodbusiness sense for us to con-tinue with the line.”

Neiman Marcus Group andT.J. Maxx in the last 18 monthshave scaled back or changedthe way they display IvankaTrump products.

Hudson’s Bay, a Canadiancompany, notified the IvankaTrump brand in the fall of 2017that it would phase out its mer-chandise, based on its perfor-mance, according to a personfamiliar with the situation.

An Ivanka Trump spokes-man attributed the decline toparticularly high online salesin early 2017 because of “new-found awareness” of the brandafter the president took office.

Fourth Amendment. Congressterminated the bulk collectionprogram in 2015, and Mr. Paulhas been an outspoken critic ofgovernment surveillance underpresidents of both parties.

President Donald Trump andRepublicans in Congress are

Americans. Mr. Paul met pri-vately with Judge KavanaughTuesday. A spokesman for Mr.Paul declined to comment onthe meeting.

Mr. Paul said his chief con-cern was whether the FourthAmendment, which protectsAmericans from unreasonablegovernment searches, allowsfor a national security exemp-tion. “The Fourth Amendmentwas intended to limit govern-ment in all ways and that thegovernment couldn’t say, ‘Ohwell, we just need to come toyour house any time so we canbe safe from terrorism,’ ” Mr.Paul told reporters on CapitolHill this week.

In interviews, Mr. Paul citeda 2015 opinion by Judge Ka-vanaugh that argued that thebulk collection of Americantelephone data by the NationalSecurity Agency was constitu-tional and consistent with the

eager to put Judge Kavanaughon the Supreme Court, lookingto capitalize on a once-in-a-generation opportunity tomove the court in a more con-servative direction after JusticeAnthony Kennedy announcedhe was retiring last month.

But Mr. Paul, along with ahandful of other undecided Re-publican senators, holds swayin Senate debates. With JohnMcCain (R., Ariz.) absent fromthe Senate while he undergoestreatment for brain cancer, thechamber is now closely dividedalong party lines, with Republi-cans having just 50 votes. Anydefection could derail a Senatevote if Democrats band togetherin opposition as a bloc—givingindividual Republicans clout.

It is a familiar position forMr. Paul, who also wavered onwhether to support otherTrump administration prioritiesand in some cases voted against

the president, all while repre-senting a state that Mr. Trumpwon by nearly 30 points.

Mr. Paul has sometimesbacked down under WhiteHouse pressure—notably re-versing himself after threaten-ing to oppose Mr. Trump’snominee to be secretary ofstate this year. Mr. Paul votedagainst Mr. Trump’s nomineefor CIA director.

The battle lines in the Sen-ate over Judge Kavanaugh arestill emerging. Many progres-sive Democrats have opposedhis nomination, saying theyfear he would roll back abor-tion rights, expand the powerof the presidency and favorcorporate litigants at the ex-pense of workers.

“Let’s just be blunt aboutwhat this means,” Sen. Eliza-beth Warren, a MassachusettsDemocrat, said Tuesday. “Hisnomination is a threat to peo-

ple of color, to women, toworkers, to the LGBTQ commu-nity, to people living in pov-erty. He is part of making thiscourt not represent equal jus-tice under the law but makingthis court represent corporateinterests against the interest ofindividual human beings.”

At the same time, Republi-cans are looking to win over ahandful of Democrats runningfor re-election this year instates won by Mr. Trump. Sen.Joe Manchin, a West VirginiaDemocrat, became the first inhis party to agree to meet withJudge Kavanaugh. The rest ofthe Senate Democratic caucushas declined to meet him, as le-verage to win concessions onthe release of documents aspart of his confirmation. Mr.Manchin is scheduled to meetthe judge next week.

—Siobhan Hughescontributed to this article.

WASHINGTON—The debateover whether to confirm BrettKavanaugh to the U.S. SupremeCourt has thrust Kentucky Sen.Rand Paul once again into themiddle of a major Capitol Hillfight where he holds significantsway over an urgent item onthe Republican agenda.

Mr. Paul, an iconoclast Re-publican with a libertarianstreak, says he remains unde-cided on whether he will voteto confirm Judge Kavanaughto the court, citing concernsabout the nominee’s views onnational security issues thataffect the privacy rights of

BY BYRON TAU

Paul Holds His Ground in Court BattleKentucky senator’svote could provecrucial to yet anotherRepublican priority

Sen. Rand Paul met with BrettKavanaugh on Tuesday.

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Customers shopping in December at an Ivanka Trump store in the lobby of Trump Tower; Ms. Trump last week at the White House.

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WASHINGTON—Republi-can congressional leaders madeit clear on Tuesday that if Rus-sian President Vladimir Putinaccepts President Trump’s invi-tation to the White House thisfall, he shouldn’t expect a visitto the other end of Pennsylva-nia Avenue.

“Putin will not be welcomeup here, at the Capitol,” saidSenate Majority Leader MitchMcConnell (R., Ky.).

The president’s July 16meeting with Mr. Putin in Hel-sinki, in which he questionedthe U.S. intelligence conclusionthat Moscow interfered in the2016 election, was roundlycriticized by Republican andDemocratic lawmakers. Mr.Trump later said he misspoke.

The White House said lastweek that Mr. Trump had in-vited Mr. Putin to Washingtonfor another summit in the fall,surprising lawmakers and se-nior administration officials.Mr. Putin hasn’t accepted theinvitation.

Should Mr. Putin visit,House Speaker Paul Ryan (R.,Wis.) said the Russian presi-dent wouldn’t be invited to ad-dress Congress. “We wouldcertainly not be giving him aninvitation to do a joint session.That’s something we reservefor allies,” Mr. Ryan said.

The GOP leaders of the Sen-ate and House didn’t saywhether they would condonelawmakers’ attendance at aproposedWhite House meeting.

BY NATALIE ANDREWS

No HillInvitationComingFor Putin

was uncertain whether shewould return to the retail indus-try once she leaves Washington.

“After 17 months in Wash-ington, I do not know when orif I will ever return to the busi-ness, but I do know that myfocus for the foreseeable fu-ture will be the work I am do-ing here in Washington,” shesaid. “So making this decisionnow is the only fair outcomefor my team and partners.”

When Ms. Trump and Mr.Kushner moved to Washingtonfrom New York in late 2016 tojoin the administration, it wasunclear how long they wouldstay. Mr. Kushner initially tookon an expansive portfolio thatincluded China relations, Mid-dle East peace and improvingthe federal government’s effi-ciency. Ms. Trump made anearly focus pushing to include achild-care tax credit in a fed-eral tax overhaul.

Since then, the couple hasfaced questions about theirroles at the White House andtheir companies’ financial deal-ings. Mr. Kushner was drawninto the special-counsel investi-gation into whether Trump as-sociates colluded with Russia’sefforts to interfere in the 2016U.S. election. Mr. Kushner andthe president have denied col-lusion, and Moscow has deniedelection meddling.

Ms. Trump also drew rebukesfor at times appearing to hawkher brand in her official capac-ity, including by wearing themerchandise in Instagram postsabout official appearances.

President Trump has oftenprivately expressed concernabout the couple and has sug-gested they would be happier inNew York, according to peoplefamiliar with the discussions.

Ms. Trump has focused inrecent months on promotingthe White House’s infrastruc-ture plan, which the adminis-tration has since declared dead,and workforce development,holding an event last weekwith lawmakers and corporateexecutives at the White Houseand making a presentation at acabinet meeting.

ContinuedfromPageOne

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The White House will stoproutinely releasing summariesof calls President Trump haswith foreign leaders, accordingto a person familiar with theplan, ending a longstandingpractice.

The White House will con-tinue to distribute readouts toadvisers in various govern-ment agencies but will offerthe press selective details ofMr. Trump’s calls only uponrequest, that personsaid. Press secretary SarahSanders is expected to addressthe issue in her next briefing,the person said, and it wasn’timmediately clear why theWhite House decided tochange the practice.

The change in the WhiteHouse practice was first re-ported by CNN.

The official White Housesummaries of calls with for-eign leaders, known as read-outs, publicly mark that a callhas taken place and typicallyprovide several sentences ofsummary, mentioning topicsthat were discussed while shy-ing away from specific detailsor disagreements. Many for-eign leaders also issue theirown readouts, providing theirversion of the calls, which cansometimes differ in tone andemphasis from the WhiteHouse summary.

BY VIVIAN SALAMA

White HouseIn Shift onSummaries

The recordingwas seized bythe FBI in araid of MichaelCohen’s home,office andhotel room.

A6 | Wednesday, July 25, 2018 * * * * * THEWALL STREET JOURNAL.

U.S. NEWS

Hog farmers and pork pro-cessors are dealing with a 62%tariff on pork shipped toChina and a 20% duty in Mex-ico, after both countries in-creased tariffs in early July.Mexico and China both rankamong the top buyers of U.S.pork, and lean hog futureshave dropped about 13% in thepast two months.

Trump administration offi-cials have acknowledged thefinancial hardship farmerscould face as major tradingpartners retaliate against foodcommodities, but say farmerswill share in the benefit ofnew trade policies that theadministration says will befairer to U.S. interests.

Mr. Trump, addressing a

gathering of veterans groupson Tuesday, urged patience ontrade, despite concerns raisedby critics: “Just stick with us,”he said. “It’s all working out.”

The plan announced by Mr.Perdue also includes pur-chases of surplus agriculturalcommodities for distributionto food banks. And the gov-ernment will fund trade pro-motion to find new exportmarkets for U.S. agriculturalproducts.

Asked if he would supportthe aid to farmers, Sen. ThomTillis (R., N.C.) said, “I don’tgenerally like federal bailouts,but if we’re going to havethese uncertainties in the ag-ricultural industry…we justhave to look at it.”

Earlier this year, the Trumpadministration imposed tariffsof 10% on aluminum importsand 25% on steel imports fromCanada, Mexico and the EU.The president has also leviedtariffs on $34 billion in im-ports of electronic goods, ma-chinery and other productsfrom China, with another $16billion expected in the nextfew weeks.

Mr. Trump has also askedhis team to study applyingtariffs to all vehicles enteringthe U.S., and said his adminis-tration would assess tariffson a further $200 billion of arange of consumer products.

—Natalie Andrewsand Siobhan Hughes

contributed to this article.

ident Jean-Claude Juncker isset to meet with Mr. Trump atthe White House on Wednes-day, and trade is expected tobe high on the agenda. Mr.Juncker is expected to try todissuade Mr. Trump from fur-ther escalation of trade fights,particularly over automobileimports to the U.S.

Many congressional law-makers expressed skepticismabout the administration’s aidplan. Farmers, the critics said,need certainty on trade, not abailout from the government.Even GOP senators who usu-ally defend Mr. Trump ex-pressed worry that aid mighthave to be extended to othersectors if he continues histrade fights on various fronts.

“What’s the strategy, what’sthe endgame here? At whatpoint do we start seeingthings move out of the chaoticstate they are in now and towhere we actually see newtrade agreements?” asked Sen.Mike Rounds (R., S.D.).

Sen. Heidi Heitkamp (D.,N.D.) said more aid might beneeded if Mr. Trump continuesimposing tariffs and othercountries retaliate. “Twelve bil-lion sounds like a lot of money,but we’re going to be losing lit-erally hundreds of millions ofdollars in every state” due tothe trade disputes, she said.

ContinuedfromPageOne

When European Commis-sion President Jean-ClaudeJuncker left for Washington tomeet with President Trump,his mission was to try to dis-suade the American presidentfrom escalating trade tensionsbetween the U.S. and EU.

Then Mr. Trump startedtweeting. “Tariffs are thegreatest!” Mr. Trump declaredearly Tuesday. “Either a coun-try which has treated theUnited States unfairly onTrade negotiates a fair deal, orit gets hit with Tariffs,” thepresident tweeted. Mr.Trump’s message surfaced asMr. Juncker was en route.

The White House said themeeting will focus on “a widerange of priorities, includingforeign and security policy,counterterrorism, energy secu-rity, and economic growth.”

And yet Mr. Trump’s tweetsshow that he remains focusedon maintaining a tough negoti-ating stance on trade, and sug-gest that any effort by Mr.Juncker to deter him from fur-ther action will be a signifi-cant challenge.

“I have an idea for them,”Mr. Trump tweeted late Tues-day, referring to his meetingswith the Europeans. “Both theU.S. and the E.U. drop all Tar-iffs, Barriers and Subsidies!That would finally be calledFree Market and Fair Trade!Hope they do it, we are ready- but they won’t!”

Mr. Trump had suggestedthe idea of a barrier-free, tar-iff-free trade zone at the con-clusion of the Group of Sevenmeeting last month, a pro-posal broadly viewed by theother G-7 member states asunrealistic.

Of particular concern to theEU are the Trump administra-tion’s proposed tariffs on allauto imports, which couldhappen as early as August.

An EU official said Europehad “tried everything” to dis-courage Mr. Trump from esca-lating the trade fight to suchareas, and that Mr. Juncker “isthe last resort.”

A senior European officialsaid the difficulty in dealingwith the Trump administra-tion is that “it’s not always aperfectly clear message” withregard to its position on trade.

The official stressed, how-ever, that a true “trade war”could be looming.

“Steel and aluminum wasnot a trade war, it was a tradeskirmish,” the official said. But“cars make that a seriousbusiness.”

BY VIVIAN SALAMAAND VALENTINA POP

EU LeaderSet to FaceTrump andHis Tweets

Republican lawmakers fromfarm states said they expect tomeet Wednesday afternoonwith Mr. Trump, following hismeetings with European offi-cials. U.S. trading partnershave targeted retaliatory tar-iffs on U.S. exports from ruralcommunities, areas that sup-ported Mr. Trump and Repub-licans in the 2016 election.

Polls suggest farming com-munities remain supportive ofMr. Trump. Victor Miller, whoraises soybeans, corn and hogsnear Oelwein, Iowa, said theTrump administration had rec-ognized the financial strainsome farmers face due to declin-ing livestock and crop prices.“Yeah, there’s going to be somepain immediately,” Mr. Millersaid. “But that pain, endured,will lead to amuch better futurefor all of us,” he predicted.

Farmers are beginning tofeel the pain of Mr. Trump’sbrinkmanship on trade. Soy-bean futures prices this monthhit their lowest point in nearlya decade. They have fallen by16% since the end of May, asagricultural traders weighedthe potential impact of tariffslevied by China this month.

China, the world’s largestsoybean consumer, last yearbought $14 billion worth ofthe oilseeds from the U.S., butthe Department of Agriculturethis month projected that thetariffs would erode U.S. ex-ports—and help push domesticsoybean stockpiles for thecoming crop year to a record580 million bushels.

Corn and wheat prices alsohave been weighed down bytariff concerns, with Chinaplacing duties on those U.S.crops this month.

“There’s a lot to like thisquarter, across our entire in-dustrial portfolio,” 3M ChiefFinancial Officer Nick Gang-estad said Tuesday on an in-vestor call. Mr. Gangestadsaid the maker of Scotch tapeand industrial adhesives,while prepared to pass oncost increases to consumers,would switch suppliers andalter production plans if

needed in the face of any newtariffs.

Investors will get further in-sight into how the trade ten-sions are affecting businessesWednesday when the auto mak-ers, Boeing Co. and Coca-ColaCo., among other companies,report their quarterly results.

The upbeat manufacturingnews started earlier thismonth with strong reports

from Fastenal Co. and W.W.Grainger Inc., which supplyfactories with everything frombolts to cleaning supplies.Honeywell International Inc.on Friday reported highersales and profit margins andsaid the trend is continuing inthe third quarter.

While U.S. tariffs on steeland aluminum imports haveraised domestic and interna-

tional prices, many big compa-nies have existing deals inplace and won’t feel the impactof the levies until next year.

—Austen Huffordand Andrew Tangel

contributed to this article.

Many U.S. manufacturersare shrugging off concernsover tariffs and trade tensionsso far, as strong demand athome and abroad is yieldingstronger-than-expected profits.

United Technologies Corp.and 3M Co. reported strongsales on Tuesday and said theywere less concerned about tar-iffs imposed by the U.S., Chinaand the European Union thanabout the rising cost of rawmaterials, labor and shipping.

“These tariffs aren’t helpfulto anybody but we’re going tohave to deal with them,” saidUnited Technologies Chief Ex-ecutive Greg Hayes. He saidthe impact of tariffs so far hadbeen “relatively modest” andthat the maker of Otis eleva-tors and Pratt & Whitney air-craft engines expects to passhigher costs on to consumers.

Manufacturers are bookingmore orders and deliveringhigher profits in a strong U.S.economy, many buoyed by arebound in oil prices that hasspurred demand from domes-tic drillers. U.S. aerospace andauto manufacturers have alsoreported strong orders. Salesin Europe and China have beenmore resilient than many ana-lysts expected, thanks in partto a weaker U.S. dollar duringthe second quarter.

Industrial companies havedelivered more forecast-beat-ing sales, profits and marginsfor the second quarter thanany sector except financial ser-vices and consumer staples,analysts at Credit Suisse said.

BY DOUG CAMERON

Manufacturers Play Down Tariffs

A Pratt & Whitney engine at an air show in the U.K. last week. Parent company United Technologies posted strong sales on Tuesday.

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during the Obama administra-tion.

Smartphones weren’t in-cluded in the levies on $34 bil-lion of Chinese goods imposedon July 6, nor are they targetedin a second round worth $16billion that is expected in Au-gust. They also haven’t been in-cluded in a third round of $200billion in goods that the Trumpadministration identified earlierthis month.

But now, President DonaldTrump is threatening levies ona total of $500 billion in im-ports, which would cover justabout everything China ships tothe U.S., including iPhones,trade experts say. The U.S. im-ported about $45 billion in mo-bile phones from China lastyear, according to data from theInternational Trade Centre.

China imports much lessfrom the U.S.—about $130 bil-lion in goods annually—whichlimits its options for tit-for-tattariffs. But China could retaliatewith higher duties and punitiveactions against American com-panies. Apple would be a likely

target because of the iPhone’s9% share of China’s smartphonemarket, according to Mr. Dollarand other trade experts.

Apple declined to comment.Chief Executive Tim Cook,

who has made the company’sChina business a pillar along-side the one in the U.S., hasmaintained his customary coolas tensions rise, while courtingofficials in Beijing and Wash-ington. In March, he visited Bei-jing and called for open trade atan event hosted by the Chinesegovernment.

In a visit to the White Housein April, Mr. Cook told the pres-ident tariffs weren’t the rightapproach to trade issues, theApple CEO said in a subsequentTV interview.

China already imposes avalue-added tax of 16% that af-fects iPhones. Apple has otherpotential targets for retaliation,including about 40 retail storesin China and an App Store thatis the largest in spendingworld-wide.

China’s Ministry of Com-merce and the State Council In-

formation Office didn’t respondto requests for comment.

For Washington and Beijing,dragging Apple into the tradefight carries risks.

Mr. Trump could angerAmerican consumers if tariffsmake the popular iPhone moreexpensive. He would also betaking on the world’s mostvaluable company, which haspromised to contribute $350billion to the U.S. economy overthe next five years. Included inthat figure is a one-time tax of$38 billion on its overseas cashholdings, which came in re-sponse to a major overhaul ofthe U.S. tax code.

China also has an interest inkeeping the peace, given thenumber of jobs Apple provides.About 10,000 people in Chinaare employed directly by Apple,the company said. Indirectly,Apple says it accounts for threemillion jobs there through itssupply chain.

Apple is more vulnerable tosmartphone tariffs than rivalsbecause it hasn’t diversified itsmanufacturing.

The phrase on the back ofiPhones—“Designed by Apple inCalifornia. Assembled inChina”—highlights a key reasonfor the company’s remarkablesuccess but also shows how ex-posed it is to the escalatingU.S.-China trade fight.

By assembling its phones inChina, Apple Inc. tapped intoChina’s vast workforce and for-midable manufacturing capabil-ities. But it also made Apple’smost-profitable product a Chi-nese export—one that could besubject to tariffs in the tradedispute.

On top of that, China is byfar Apple’s most importantmarket outside the U.S., leavingit exposed if Beijing decides toretaliate by squeezing its sales.

“They should be nervous,”said David Dollar, a Chinascholar at the Brookings Insti-tution, who was the U.S. Trea-sury’s top official in Beijing

By TrippMickle in SanFrancisco and YokoKubota in Beijing

Apple Is Vulnerable in U.S.-China Dispute

Corn prices have been hit by tariff concerns, with China placing duties on the crop this month.

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Apple’s revenue breakdown by region

U.S. Greater China Others

2013 ’14 ’15 ’16 ’17

19.5%

29.5%

51%$229 billionin 2017

billion

0102030405060$70

Bilateral BusinessApple relies on the U.S. andChina for about half of its totalrevenue, making it vulnerable astrade tensions escalate.

Sources: the company; Loup Ventures(estimate for U.S. share of Americas revenue)

THEWALL STREET JOURNAL.

The U.S. remained by farthe largest driver of globalcurrent-account imbalances in2017, running the world’s larg-est deficit and adopting poli-cies—mainly a shift towardmuch larger fiscal deficits—that are likely to increase itsimbalances in coming years.

The U.S. ran a $466 billioncurrent-account deficit, mean-ing the nation imported farmore than it exported. TheU.S. has become an increas-ingly large driver of globaldeficits, accounting for 43% ofall global deficits last year, upfrom 39% in 2016, according tothe International MonetaryFund’s annual assessment ofthe state of global imbalances.

Washington’s shift towardmajor deficit spending willmove the U.S. trade deficit“further from the level justi-fied by medium-term funda-mentals and desirable poli-cies,” the IMF said.

The report highlights theleading role the U.S. plays inimbalances, at a time whenthe Trump administration hasmade cutting the trade gapone of its stated goals.

Maurice Obstfeld, the IMF’schief economist, told reportersthat the current set of imbal-ances “does not pose an immi-nent danger.”

BY JOSH ZUMBRUN

U.S. DeficitsPlay BiggerGlobal Role,IMF Says

THEWALL STREET JOURNAL. * * * * Wednesday, July 25, 2018 | A7

U.S. NEWS

U.S.WATCH

MICHIGAN

University ChiefGrilled Over Scandal

Acting Michigan State Univer-sity President John Engler facedsharp questioning during a U.S.Senate hearing Tuesday over hisactions following the sexual-abuse scandal involving formerMSU and USA Gymnastics doc-tor Larry Nassar.

Sen. Richard Blumenthal (D.,Conn.) repeatedly asked Mr. En-gler about his meeting with Kay-lee Lorincz, a plaintiff in a law-suit against Nassar who saidthat Mr. Engler in March offeredher a $250,000 private settle-ment agreement without herlawyer present.

Mr. Engler repeatedly deniedoffering money to Ms. Lorincz.

Sen. Maggie Hassan (D., N.H.)criticized Mr. Engler for a privateemail in April in which he ac-

cused Rachael Denhollander, avictim of Nassar’s abuse, of tak-ing kickbacks from trial attor-neys involved in suing MSU. Mr.Engler later apologized.

“I think you have some repairwork today, to put it mildly,” Ms.Hassan said. Several dozen Nas-sar survivors who attended thehearing burst into applause.

Mr. Engler, a former Michigangovernor, took over as interimMSU president in January. Lastmonth, Michigan State’s boardapproved a $500 million settle-ment with victims of Nassar’ssexual abuse.

—Rachel Bachman

CALIFORNIA

Officials Close Part ofYosemite Amid Fire

Authorities have closed theheart of Yosemite National Park,one of the nation’s most popular,

as a fast-burning wildfire closesin during peak tourist season.

This is the first time a firehas closed down Yosemite Valley,the affected section of the north-ern California park, since the1990 A-Rock fire, which burned17,770 acres, said Scott Gediman,a spokesman for Yosemite.

The current blaze, known asthe Ferguson Fire, is about 2miles away from the park, saidRich Eagan, a spokesman for theCalifornia Department of Forestryand Fire Protection. Firefightersare focused on battling flamesthat are moving toward thepark’s western boundary, he said.

The Ferguson Fire hasscorched 36,587 acres since it be-gan July 13. It is 25% contained,and 3,311 personnel had been dis-patched to battle the blaze as ofTuesday morning. Nearly 3,500structures are threatened. Onefirefighter has been killed.

—Benjamin Din

CALIFORNIA

Officer’s Bullet KilledTrader Joe’s Worker

The Trader Joe’s assistantmanager who died of a gunshotwound Saturday was hit by gun-fire from a Los Angeles PoliceDepartment officer, LAPD ChiefMichel Moore said Tuesday.

Police were engaged in astandoff Saturday with 28-year-old Gene Atkins, who they werepursuing after a separate shoot-ing incident. The victim, 27-year-old Melyda Corado, was an assis-tant manager at the Trader Joe’sin the Silver Lake neighborhood,where she was hit, police said.

Chief Moore defended the of-ficers’ actions, saying they werenecessary to protect the peoplein the store Saturday. The twoofficers involved in the shootingwere firing at Mr. Atkins.

—Benjamin Din

Storm Leaves Hail Piled Up in Colorado Town

ANKLE DEEP: Madison Guessford, 5, played in the hail Tuesday in Manitou Springs, Colo. Heavy rain also triggered mudslides and flooding.

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variety of needs. Currently,taxpayers can save on a tax-ad-vantaged basis in individual re-tirement accounts and 401(k)-type accounts for retirement,in 529 accounts for college andin health savings accounts forhealth-related costs.

Rep. Kenny Marchant (R.,Texas), also a Ways and Meansmember, has said the universalsavings accounts would befunded with post-tax dollarsbut would allow tax-free earn-ings and offer more flexiblewithdrawal rules than existingretirement accounts.

The House Republican planwould also allow families to usemoney saved in 529 college sav-ings accounts to pay for thingsaside from college tuition, in-cluding costs associated withhome schooling and studentdebt and apprenticeship fees.

With a 529 plan, contribu-tions are made with post-taxdollars and grow free of federaland often state income tax,provided they are used forhigher-education expenses.Many states also allow the useof these funds for tuition for el-ementary or secondary schools.

The House plan also wouldallow families to access retire-ment savings penalty-free uponthe birth or adoption of a child.Currently, those who tap a tra-ditional IRA before age 59½must pay income tax on thewithdrawal plus a 10% penalty.

“We want to help familiesstart saving earlier and savemore throughout theirlives,” the Ways and Meanspanel said in a news release.

Rep. Richard Neal of Massa-chusetts, the top Ways andMeans Democrat, said, “Thisnew framework is more of thesame—it rewards the well-offand well-connected...and leavesthe middle class behind.”

House Republicans unveileda plan Tuesday to make retire-ment and savings a crucialpart of their push for tax leg-islation this fall.

Retirement and savings in-centives, which include an ex-pansion of 529 college savingsaccounts and penalty-free accessto retirement accounts for new-born-baby care, make up one ofthe three bills in the HouseGOP’s “Tax Reform2.0” package.

The centerpiece of the pack-age is an extension of last year’stax cuts for individuals and so-called pass-through businessesbeyond their 2025 expirationdate, though that is unlikely to

draw enough Democratic votesto become law. Pass-throughbusinesses are partnerships,sole proprietorships, limited-lia-bility companies and S corpora-tions, and their owners paytheir business taxes throughtheir individual tax returns.

Rep. Kevin Brady (R.,Texas), chairman of the Waysand Means Committee, hassaid he hopes the new retire-ment bill will attract bipartisansupport. The House is in ses-sion this week and then gonefor its summer break. The in-tention is to vote in September.

The part of the package fo-cused on retirement would es-tablish a universal savings ac-count that could be used for a

BY ANNE TERGESENAND RICHARD RUBIN

Retirement,SavingsFocusOf GOP Bill

The House measureincludes an expansionof 529 college savingsaccounts.

Achieve Mission Success With Splunk.Splunk turns data into answers to help businesses protect and serve.More than 15,000 customers around the world are using Splunk to accelerateIT modernization and secure their systems.See how: splunk.com/get-value

© 2018 Splunk Inc.

COUNTERERRORISM.

A8 | Wednesday, July 25, 2018 * * THEWALL STREET JOURNAL.

erally abandoned Britain’s op-position to the death penalty.”

The government “is not justplaying with the lives of theseparticular terrorists but thoseof other Britons—includingpotentially innocent ones—allover the world,” she said.

The case of Messrs. Koteyand Elsheikh highlights thediffering approaches amongEuropean governments to for-eign nationals who joined Is-lamic State and have been cap-tured in Iraq or Syria.

Britain “often share[s] evi-dence that leads to prosecu-tions in court,” Mr. Wal-lace told Parliamenton Monday. “We will alwaysdo that where we think it isabout seeking justice and thebest place for that justice tobe delivered. In this case, wefelt the best place was theUnited States of America.”

Shami Chakrabarti, of theopposition Labour Party, saidthat with the move, the govern-ment had “secretly and unilat-

to conduct airstrikes, butdown sharply from about20-30 kites and balloons a day.

Israel’s Defense MinisterAvigdor Lieberman promisedSunday to reopen the crossingif Hamas continued to refrainfrom sending balloons andkites into Israel. The cease-fireis the second in a week andcomes after Israel and Gazasuffered the fiercest clasheson the weekend of July 14-15

since the 2014 war.Nickolay Mladenov, the

United Nations’ special coordi-nator for the Middle Eastpeace process, said 100,000tons of fuel provided by theU.N. crossed into Gaza onTuesday and would be priori-tized for hospitals and emer-gency services.

“[The] situation in thesouth remains tense butquiet,” he said on Twitter.

The U.N. warned over theweekend that the fuel restric-tions had forced at least onehospital to shut down for sev-eral hours, while others haddramatically reduced services.Gaza’s sole electricity com-pany said Monday that it hadstopped working due to a lackof diesel, leaving residentswith only about four hours ofpower a day.

Flaming balloons and kites

tion against Iranian positionsin Syria—after it said Iranianforces there fired rockets at itssoldiers in the Golan Heights.

Mr. Netanyahu on Mondaymet with Russia’s ForeignMinister Sergei Lavrov to dis-cuss Israel’s demands thatRussia use its influence tocompletely remove Iran’s mili-tary presence in Syria.

Israel has increasinglylaunched strikes against mili-tary bases and warehouses in-side Syria it says are part ofIran’s military entrenchmentin the country, but this is thefirst time it has shot down aSyrian jet fighter since 2014,when it also downed a plane itsaid infiltrated its airspace inthe Golan Heights.

Israel shot down a Syrianjet fighter that entered its air-space, its military said, poten-tially raising tensions in afraught border region wherePresident Bashar al-Assad’sRussia-backed forces are bat-tling to retake a pocket ofsouthwest Syria.

The plane, which Israel’smilitary said it believes waseither a Sukhoi 22 or Sukhoi24, crossed a little more thana mile into Israeli airspaceover the occupied GolanHeights on Tuesday before itwas shot down, Israeli officialssaid. Across the border inSyria, heavy clashes continuedbetween the Syrian govern-ment and a group affiliatedwith Islamic State.

It wasn’t clear if its war-plane mistakenly entered Is-raeli airspace. A Syrian mili-tary official said the warplanewas in Syrian airspace, Syrianstate media reported. The offi-cial accused Israel of support-ing armed terrorist groups byattacking one of the warplanescarrying out airstrikes on theIslamic State-affiliated group.

The group known as theKhaled bin Waleed army holdsterritory in the Yarmouk Ba-sin, which borders on the Go-lan Heights in Syria.

By Felicia Schwartz inTel Aviv and Raja

Abdulrahim in Beirut

WORLD NEWS

Lt. Col. Jonathan Conricus,an Israeli military spokesman,said the military was confi-dent the plane belonged toSyria. He said Israel was stillassessing what the plane’smission was.

The fate of the jet’s pilot isunclear, he said, adding that theplane appeared to have crashedin the southern Syria GolanHeights. He couldn’t explainhow the plane entered Israelbut landed on the Syrian side.

The Israeli military said ithas observed increased internalfighting in Syria since earlyTuesday, including more activ-ity by the Syrian air force.

“We are following what isbeing done in the Syrian GolanHeights, and are determined

to enforce the [1974] separa-tion-of-forces agreement,”said Brig. Gen. Ronen Manelis,a spokesman for the Israelimilitary. He was referring toan agreement signed betweenIsrael and Syria creating a de-militarized zone between thetwo sides.

The event caused concernamong diplomats who worryabout further escalation.

“These hostilities demon-strate a disturbing trajectoryof increasingly frequent anddangerous confrontations,”Nickolay Mladenov, the UnitedNations’ special coordinatorfor Middle East Peace, told theSecurity Council.

Israeli Prime Minister Ben-jamin Netanyahu accused

Syria of a “gross violation” ofthe 1974 agreement betweenthe two countries and said Is-raeli forces acted appropri-ately in response.

“I have reiterated and madeclear that we will not acceptany such violation. We will notaccept any such penetrationof, or spillover into, our terri-tory, neither on the groundnor in the air,” he said.

Israel said the plane tookoff from Syria’s largest air-force base, known as T-4,which hosts governmentforces, Russian fighters and anIranian drone fleet.

Russian planes also operatein the area, Israel’s militaryand other observers said. Themilitary said it issued warn-

ings to the aircraft in severallanguages and had used a so-called deconfliction channelwith Russia earlier in the daymeant to ensure that militaryforces stay out of each other’sway.

Leaders of Israel and Russiahave spoken regularly in re-cent months about the conflictin Syria.

While Israel says it has apolicy of noninterference inthe Syrian war, it has beencarrying out strikes againstIranian targets there, hopingto contain Tehran’s influenceso close to its border.

In May, Israel’s military car-ried out strikes against Iraniantargets in Syria—in what itcalled its largest-ever opera-

Israel Shoots Down a Syrian Jet FighterMilitary says warplanecrossed border duringcampaign to retakeregion in southwest

A picture taken on Tuesday from the Israeli-annexed Golan Heights showed several explosions during airstrikes across the Syrian border.

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The Democratic Republic ofCongo declared an end to itsninth Ebola outbreak Tuesday,marking a victory for newtools and an experimental vac-cine health agencies used toprevent a repeat of the epi-demic that swept West Africafour years ago.

Congo’s Health Ministrysaid 42 days had passed sinceanyone was diagnosed withthe hemorrhagic fever, carry-ing the central African nationpast the virus’s maximum in-cubation period. Thirty-threepeople are believed to havedied from the virus, which wasconfirmed May 8 in the re-mote province of Équateur,while 21 patients recovered,the ministry said.

The virus spread to four lo-cations, including Mbandaka, atransport hub on the CongoRiver and home to more than amillion people. That triggeredfears that patients could carrythe disease to the capital Kin-shasa, a city of around 12 mil-lion, and to neighboring states.

From 2014 to 2016, the larg-est outbreak of Ebola in historykilled some 11,300 people, pri-marily in Guinea, Liberia andSierra Leone. The World HealthOrganization and other public-health agencies came underfire for responding too slowly.

Oly Ilunga, Congo’s healthminister, said a fast responsemade a difference this time. Aresponse team was dispatchedfrom Kinshasa within hours,and planes carried medicalworkers, equipment and sup-plies to remote villages at thecenter of the outbreak. Healthworkers tracked and isolatedpeople who had come into con-tact with patients and imple-mented safer burial practices.

Still, it took nearly twoweeks to deploy an experimen-tal Ebola vaccine developed byMerck & Co. Because the vac-cine hasn’t been licensed yet,Congo’s government had toapprove a WHO protocol thatallows injections for contactsand contacts of contacts ofsuspected Ebola patients. Intotal, 3,330 people were vacci-nated, the WHO said.

“None of the people whowere vaccinated developed thedisease,” said Jessica Ilunga,spokeswoman for Congo’sHealth Ministry. “It was such agame changer.”

BY NICHOLAS BARIYOAND GABRIELE STEINHAUSER

CongoCalls EndTo EbolaOutbreak

have caused hundreds of firesin recent months in Israeli ter-ritory, destroying thousands ofacres of farmland, Israeli offi-cials have said.

Israel began blocking ship-ments through the crossing onJuly 9 as part of an effort topressure Hamas to changecourse. It has also demandedan end to rocket and mortarfire from the Palestinian terri-tory and weekly violent pro-tests at the border.

Palestinians have held regu-lar demonstrations at the fencedividing Gaza from Israel sincethe end of March, calling foran end to Israel’s blockade andto be allowed to return to theland from which they fled dur-ing the 1948 war with Israel.Some protesters have chargedthe fence, rolling burning tiresand firing at Israeli forces.They have also thrown Molo-tov cocktails and flown theflaming kites and balloons.

Since the protests began,Israel’s military has killedmore than 140 Palestiniansand injured thousands withlive fire. Israel maintains manyof those killed were Hamasmilitants and says its securityconcerns necessitate its block-ade of Gaza. Palestinian offi-cials say the protesters aremostly unarmed.

—Dov Liebercontributed to this article.

TEL AVIV—Israel partiallyreopened Gaza’s only commer-cial crossing Tuesday, loosen-ing severe restrictions put inplace earlier in July.

Gas, fuel, food and medicineswill be allowed through theKerem Shalom crossing fromnoon Tuesday, Israel’s DefenseMinistry said in a statement.

The crossing was originallyclosed to pressure Hamas,Gaza’s ruling party, to stoplaunching flaming balloonsand kites into Israeli territory.The reopening was partial be-cause the launches had re-duced but not stopped, Israel’sDefense Ministry said.

“The return of the KeremShalom to full operation iscontingent on the completecessation of the launching ofincendiary balloons and fric-tion on the border,” the minis-try added.

A fragile cease-fire betweenIsrael and Hamas has largelyheld since Saturday, easingfears that the two sides areveering into another war. Thatpossibility seemed acute afteran Israeli soldier and threeHamas militants were killed ina bout of intense fighting latelast week.

There were several balloonsreported over the weekend,prompting the Israeli military

BY FELICIA SCHWARTZ

Gaza Crossing Is Reopened to Select Goods

A truck carrying fuel crosses the reopened border area between the Gaza Strip and Israel.

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but haven’t addressed accusa-tions that they participated ina cell that the U.S. believes tohave beheaded more than 27hostages and tortured manyothers. The cell gained notori-ety for the beheadings of Mr.Foley, of Steven Sotloff, anAmerican-Israeli journalist, andU.S. aid worker Peter Kassig.

The U.K. abolished capitalpunishment for treason in1998 and hasn’t executed any-body since 1964 after capitalpunishment for murder wasabolished in most of the coun-try in 1965. When assistingforeign governments withprosecutions or extraditions,the U.K. typically seeks assur-ances that countries won’tseek to execute suspects.

This is the first case inwhich the government has ac-knowledged that it didn’t seeksuch assurances.

Security Minister Ben Wal-lace said the U.K. was con-cerned foreign fighters de-tained in Syria could bereleased and that the U.K. de-cided to waive assurances toensure the men were broughtto justice.

Germany offers assistanceto all its citizens, includingthose involved in terrorism,and is actively trying to repa-triate its nationals.

France, one of the largestEuropean sources of foreignfighters, has said its nationalsthat joined Islamic Stateshould face local laws even ifthis means the death penaltyin some cases. France has dis-patched special forces to trackdown and kill French foreignfighters, according to Iraqi of-ficers and French officials.

The U.S. State Departmentsaid Mr. Elsheikh served as ajailer for Islamic State and“earned a reputation for wa-terboarding, mock executions,and crucifixions.” It said Mr.Kotey served as a cell guardand “likely engaged in thegroup’s executions and excep-tionally cruel torture methods,including electronic shock andwaterboarding.”

The U.S. hasn’t charged themen and hasn’t said whetherit would seek their extradition.

—Jessica Donatiin Washington

contributed to this article.

LONDON—A U.K. decision toshare intelligence with the U.S.about two Islamic State fighterswithout assurance that theywon’t face the death penalty ifprosecuted has stirred criticismfrom lawmakers and high-lighted the challenges that Eu-ropeans fighting for terroristorganizations in the Middle Eastpose for their home countries.

The U.S. State Departmenthas designated the two men,Alexanda Kotey and El ShafeeElsheikh, as global terrorists,saying they were involved inthe killing of British andAmerican citizens in Syria andIraq, including U.S. journalistJames Foley.

Both from West London,the two were captured in Jan-uary by the Syrian DemocraticForces, a Kurdish-led group al-lied with the U.S. They haveremained in SDF custody andhave given interviews to West-ern media in which they askedto be tried in the InternationalCriminal Court.

The two have admitted tobeing members of Islamic State

BY WILL HORNER

U.K. Draws Criticism for Helping U.S. in Terror Case

El Shafee Elsheikh, left, and Alexanda Kotey admit ISIS membership.

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Russia: U.S. General‘Discredited’ Trump

Russia’s Defense Ministrycriticized the top U.S. mili-tary commander for the Mid-dle East, saying he “discred-ited the official position” ofPresident Donald Trump byexpressing hesitance towardworking with Russian coun-terparts in Syria.

Army Gen. Joseph Votel,U.S. Central Command chiefover the weekend told TheWall Street Journal and ABCNews while en route to Af-ghanistan that watchingRussia’s military actions inSyria gave him “some pause”about working closer withits forces.

—Nancy A. Youssef

THEWALL STREET JOURNAL. * * * * * Wednesday, July 25, 2018 | A9

WORLD NEWS

Mexico’s security spendingquintupled from 2006 to 2018,but much money earmarkedfor security measures such asimproved training for local po-lice hasn’t been accounted for,according to the congressionalaudit office. The office hasn’tsaid whether those funds werestolen outright or diverted

but has offered no specifics onthe plan. Beginning nextmonth, Mr. Durazo is set tocoordinate seminars in differ-ent parts of the country todiscuss security policy.

Meanwhile, observers saycriminal violence remains on arising trend. There were 18%more homicides in the firsthalf of 2018 than in the year-earlier period. In the past,changes of administration atthe state and municipal levelshave often led to spikes incriminal violence as linkssever between corrupt officialsand criminal organizations.

“There are deeply rooted in-stitutional problems that needa system redesign,” said Ale-jandro Hope, a security analystand former Mexican intelli-gence officer. “The idea thatLópez Obrador’s mandate willforce change by itself is naive.”

A dozen former governors ofMexican states have been con-victed, arrested or indicted oncharges including embezzle-ment, racketeering and moneylaundering in recent years, as vi-olence has engulfed their states.

As part of his strategy, Mr.López Obrador has said hewould hold a daily 6 a.m. meet-ing with his team to review se-curity across Mexico and carryout a unified anticrime plan.

“This sends an importantsignal that the president is tak-ing political responsibility forthe strategy and its results,”said Eduardo Guerrero, a secu-rity consultant in Mexico City.

Mr. Durazo said the new gov-ernment “will persuade” the na-tion’s 32 governors to follow thepresident’s lead and hold simi-lar early-morningmeetings withtheir security staff in an effortto strengthen accountability.

After giving an electoraldrubbing to both the ruling In-stitutional Revolutionary Party,or PRI, and the conservativeNational Action Party, or PAN,

MEXICO CITY—MexicanPresident-elect Andrés ManuelLópez Obrador plans to lever-age his strong political man-date to tackle the rampant vio-lence ravaging the country,according to a top aide.

Mr. López Obrador intendsto take personal command ofMexico’s security strategy, reinin errant state governors anderadicate the corruption thatfuels violence, said AlfonsoDurazo, a veteran politicianwhom the president-elect haschosen to head a new PublicSecurity Ministry after theDec. 1 inauguration.

Messrs. López Obrador andDurazo are taking on a daunt-ing challenge. Violence ex-ploded in Mexico after 2006,when the government declaredwar on powerful drug cartelsthat control swaths of the na-tion’s territory. In 2017, therewere close to 30,000 homi-cides, the most since modernrecords began in 1997.

Polls identified the rise inviolence and corruption asamong the main reasons thatmore than 53% of Mexicanvoters cast their ballots onJuly 1 for Mr. López Obrador.The overwhelming victorygives him the political capitalto exact cooperation fromMexico’s governors, Mr. Du-razo said in an interview.

“We have exceptional con-ditions, and we are betting onthat,” he said. While the newgovernment will work on im-proving police capabilities, Mr.Durazo said, “the political willof López Obrador is essentialand almost enough to end cor-ruption and violence.”

The lack of policy details,however, has rendered someexperts skeptical. Mr. LópezObrador has said he wouldcreate a National Guard as themain weapon to fight crime,

BY JUAN MONTES

Mexico’s NextPresident VowsTo Curb Violence

Mr. López Obrador will be thefirst president in more than 20years to have the backing of amajority in both houses of con-gress. His party and smaller al-lies will also control 19 of the32 state legislatures, giving himreal sway over governors, mostof whom belong to the estab-lishment parties he trounced.

Note: Figures through 2013 represent murderinvestigations, which could include multiplevictims. Source: Mexico's Interior Ministry

THEWALL STREET JOURNAL.

Mounting TollThe number of homicides inMexico has soared since thegovernment declared war ondrug cartels in 2006.

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into party campaign coffers, asmany observers suspect.

Some state governors havealready pledged support to theincoming head of state; Mr.Durazo suggests they will haveno choice. “They won’t be ableto steal the money,” said Mr.Durazo. “The era of the vice-roys is over.”

Forensic personnel inspecting the bodies of three people found slain in Sinaloa state on July 11.Mexico’s murder rate is soaring. In 2017, there were close to 30,000 homicides in the country.

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Negotiator OffersNafta Flexibility

The man tapped as chieftrade negotiator for MexicanPresident-elect Andrés ManuelLópez Obrador suggested flexi-bility in making a new deal torevamp the North American FreeTrade Agreement before hisboss takes office in December.

Jesús Seade, the WorldTrade Organization veteranwho will join Mexico’s negotiat-ing team for talks in Washing-ton this week, said he is willing“to explore options” in some ofthe sticking points on Nafta.

He also urged U.S. counter-

parts to make concessions onMexico’s “red lines,” such assome of the provisions Presi-dent Trump wants to put inany new deal to return manu-facturing jobs to the U.S.

“The whole negotiation hasto evolve,” Mr. Seade said in aninterview Tuesday. “After oneyear, things haven’t changedthat much. The controversialtopics are still there.”

The U.S. wants to removemechanisms to solve commercialdisputes, and insert a sunsetclause under which the accordwould expire every five yearsunless explicitly renewed. Canadaand Mexico reject that proposal.

—Juan Montesand Santiago Pérez

BOGOTÁ, Colombia—ÁlvaroUribe, a powerful former pres-ident and mentor to President-elect Ivan Duque, abruptly re-signed from the Senate onTuesday after the SupremeCourt announced he would beinterrogated in a witness-tam-pering investigation.

Mr. Uribe, a 66-year-oldpower-broker who spearheadedMr. Duque’s successful presi-dential campaign, is both be-loved and loathed in this coun-try for the way he prosecuted awar against Marxist guerrillasduring two terms that ended in2010. Though well positionedto influence policy once Mr.Duque takes office Aug. 7, Mr.Uribe surprised his country-men in a series of messages onhis official Twitter account ex-plaining his resignation.

“The honorable SupremeCourt has called me for ques-tioning, I feel morally impededto serve as senator and at thesame time advance my de-fense,” Mr. Uribe said in onemessage. “Because of that, Irenounce from the senate.”

The resignation means thatMr. Duque, who has beendogged by criticism that Mr.Uribe would pull the stringsduring his presidency, will nowhave more leeway to be his ownman, said Adam Isacson, whotracks Colombian politics forthe Washington Office on LatinAmerica policy group. “HavingUribe out of the Senate meansDuque has a lot more freedomfrom that far-right, populist el-ement in his party,” he said.

But it also means Mr. Duquewill have to work hard to buildalliances to push forward hispolitical agenda. “That comeswith a price,” Mr. Isacson said,referring to pork-barrel proj-ects that will have to be pro-vided in exchange for supportin Congress.

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A10 | Wednesday, July 25, 2018 * * THEWALL STREET JOURNAL.

China defended its $62 bil-lion infrastructure-buildingprogram in Pakistan, sayingthe initiative isn’t causing adebt crisis in the South Asiancountry.

A statement from the Chi-nese Embassy in Islamabad,posted on its website lateMonday, criticized a WallStreet Journal report that theembassy said “deviates fromthe facts” and took issue withcritics it didn’t identify whosay that the infrastructure pro-gram is becoming a debt trap.

The Journal report, whichwas published online Sunday,said that Pakistan is headingfor a debt crisis, caused in partby a surge in Chinese loans andimports for the infrastructureprogram, known as the China-Pakistan Economic Corridor, orCPEC. The Journal cited Paki-stani officials as saying that af-ter national elections, whichtake place Wednesday, a newgovernment is likely to seek abailout from the InternationalMonetary Fund.

“We stand by our report-ing,” said a spokesman forDow Jones, publisher of theJournal.

Pakistan is one of China’sclosest diplomatic partners.Beijing has described theCPEC as the centerpiece ofChinese President Xi Jinping’s“Belt and Road Initiative,” a

By Jeremy Page inBeijing and Saeed Shah

in Islamabad

plan to build a new network ofports, railways and other in-frastructure linking China tothe rest of the world.

In defending the CPEC, theChinese Embassy said thatPakistan’s debt troubles, if any,are caused by multilaterallenders and the Paris Club of22 large creditor nations. Thatgroup doesn’t include China.

The embassy said Pakistanigovernment data show that42% of Pakistan’s foreign debtis from multilateral institu-tions and 18% from the ParisClub, while Chinese preferen-tial loans accounted for 10%.

The statistics quoted by theembassy, however, appear par-tial, including only low-inter-est or concessional Chineseloans to Pakistan’s governmentfor transport projects. Thoseloans accounted for about 10%of Pakistan’s $66.9 billion intotal public debt and liabilities

at the end of December.Seemingly excluded from

the embassy’s figures aremore than $12 billion of Chi-nese commercial loans thatPakistan’s official statisticsshow have gone to completedand ongoing energy projects,as well as some $3 billion inemergency funding that Paki-stani officials say has comefrom Chinese commercialbanks to support Pakistan’sforeign-exchange reserves.

Most of the energy projectsare being undertaken by Chi-nese companies, either solelyor in joint ventures with Paki-stani companies.

The IMF in March cited CPECas a factor in Pakistan’s in-creased current-account deficit,its rising external debt-serviceobligations and balance of pay-ments. Pakistan’s outgoing gov-ernment blames its debt prob-lems on an overvalued rupee.

China Denies Infrastructure PlanCausing Debt Crisis in Pakistan

succeed President Joseph Es-trada, who was forced from of-fice under pressure from corrup-tion charges, protest marchesand a loss of military support.

Ms. Arroyo’s new role offersa chance at redemption. Heryears as president wereplagued by power struggles,corruption allegations and twomutinies by military officers.She faced multiple arrests af-ter leaving office in 2010.

It is common in the Philip-pines for top officials to facecriminal charges once out ofpower, and Ms. Arroyo becamea target for an anticorruptioncampaign led by her successor,Benigno Aquino III, who him-self now faces corruptioncharges. He denies wrongdoing.

Ms. Arroyo was charged withmisusing lottery funds, whichshe denied, and held for morethan four years in a militaryhospital while being treated forwhat her doctors said was aspinal condition. The SupremeCourt dismissed the charges inJuly 2016, weeks after Mr. Du-terte succeeded Mr. Aquino.

Two years after the dis-missal of corruption chargesagainst her, former PhilippinePresident Gloria MacapagalArroyo is back, but in a newrole—speaker of the House ofRepresentatives—where shecan boost the political agendaof President Rodrigo Duterte.

Ms. Arroyo, 71 years old,won election as speaker Mon-day in a surprise last-minutebid. On Tuesday she issued astatement of support for Mr.Duterte as he doubles down onhis bloody war on drugs, seeksto increase infrastructurespending and pursues closerrelations with China. Analystsbelieve she can bring the leg-islature’s lower chamberfirmly behind the president,though signs of dissent de-layed her swearing-in.

A Georgetown Universityclassmate of Bill Clinton’s, Ms.Arroyo is the daughter of a for-mer president. Elected vicepresident in 1998, she wassworn in three years later to

BY JAKE MAXWELL WATTS

Ex-President GetsKey Philippine Post

but also upstream in China anddownstream in Cambodia.

The Xe Pian-Xe Namnoy hy-dropower project is part ofLaos’s plans to turn itself intoa major power producer inSoutheast Asia, supplyinglarger neighbors such as Thai-land and Vietnam. Valued ataround $1 billion, it is a jointventure between South Koreancompanies SK Engineering &Construction, which holds a26% stake in the project, andKorean Western Power, whichholds 25%, with Thailand’sRatchaburi Electricity Gener-

ating Holding and state-runLao Holding State Enterpriseholding the remaining shares.

Ratchaburi Electricity saidin a statement that a so-calledsaddle dam constructed tohold water for a reservoir frac-tured, sending water down-stream 3 miles from the site.

“The incident was causedby continuous rainstormswhich caused a high volume ofwater to flow into the project’sreservoir,” the company said.

Environmental groups havelong questioned the safety ofLaos’s hydropower projects, of

which more than 70 have ei-ther been built, are under con-struction or have beenplanned along Laos’s stretchof the Mekong River. Activistsworry over how they might af-fect rural communities, partic-ularly the impact on fishstocks, the main means of sus-tenance in the country.

Pianporn Deetes, of the lob-bying group International Riv-ers, said the collapse raisedquestions about whether theXe Pian-Xe Namnoy dam wassufficiently well-designed tocope with extreme weather.

A hydroelectric dam projectbeing built in southern Laoscollapsed after days of torren-tial rains, leaving hundreds ofpeople missing and severalothers confirmed dead, statemedia reported.

The official Laos newsagency KPL on Tuesday saidpart of the Xe Pian-Xe Namnoydam collapsed late on Monday,swamping several villagesnear the site and leaving morethan 6,600 people homeless. Itsaid more than 5 billion cubicmeters of water gushed outjust after 8 p.m.

Prime Minister ThonglounSisoulith went to the affectedregion with other top officialsand ordered security servicesand other state agencies tojoin the relief effort in Attapeuprovince, where the dam wasbeing built.

Images published by KPLshowed scores of people wad-ing through swirling floodwa-ters and seeking shelter inboats or on rooftops.

Monday’s disaster will likelyadd to the concern over thespate of dam-building along theMekong River, not just in Laos

BY JAMES HOOKWAY

Laos Dam Fails; Hundreds Missing

Villagers take refuge on a rooftop in southeastern Laos.

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THEWALL STREET JOURNAL.

Rescued Thai Boys and CoachPrepare for Buddhist Ordination

The young soccer teammatesand their coach who were res-cued after being trapped in a cavein northern Thailand had theirheads shaved in a ceremony asthey prepared to be ordained asBuddhist novices and monks.

Eleven of the 12 boys andtheir coach prayed to ancient rel-ics and offered drinks and des-serts to spirits at a temple. The12th team member didn’t takepart because he isn’t Buddhist.

The boys, whose ages rangefrom 11 to 16, will be ordained tobecome Buddhist novices onWednesday, while the 25-year-oldcoach will be ordained as a monk,said Parchon Pratsakul, the gover-nor of Chiang Rai province.

Buddhist males in Thailand aretraditionally expected to enter themonkhood, often as novices, at

some point in their lives to showgratitude, often toward their par-ents for raising them. It is be-lieved that once a person is or-dained they gain merit that isalso extended to their parents.

Praphun Khomjoi, chief ofChiang Rai’s Buddhism office,said the 12 to be ordained willdedicate their merit-generatingact of entering the monkhood toa volunteer diver and formerThai navy SEAL, Samarn Gunan,who died while diving during amission to supply the cave withoxygen tanks essential to help-ing the boys escape.

Dozens of local residentsjoined in the ceremonies to showsupport for the group, whoserescue captivated Thais as wellas people around the world.

—Associated Press

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Soccer coach Ekkapol Chantawong, seated right, and members of his team have their heads shaved in a Buddhist ceremony.

The Orange Line metro in Lahore is one of the program’s projects.

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AHMED/X

INHUA/ZUMAPRESS

Pakistan RaceTightens on EveOf Historic Vote

LAHORE, Pakistan—Pakistanivoters go to the polls Wednes-day in the country’s secondstraight democratic transition,with former cricket star ImranKhan poised to lead his party toits best-ever performance—per-haps even good enough to makehim prime minister, according topre-election polls.

The election campaign has

been marred by terrorist attacksand allegations the military isworking behind the scenes tosupport Mr. Khan. The militaryand Mr. Khan’s Pakistan Tehreek-e-Insaf (PTI) party deny the mili-tary is backing him or his party.

The election is being closelyfought between Mr. Khan’s partyand the party of former PrimeMinister Nawaz Sharif, and re-cent polls show Mr. Khanslightly ahead. Mr. Khan alsoseems to have more options toform a coalition governmentwith other parties. Polls suggestthat no party will get a majority,

and a coalition will be requiredto establish a government.

Mr. Khan, a nationalistwhose campaign promises toend corruption in public life andprovide better health and educa-tion services, entered politics 22years ago after a glamoroussporting career that culminatedin Pakistan winning the CricketWorld Cup in 1992.

Mr. Sharif’s party is relyingon its traditional stronghold inthe province of Punjab to returnto power.

—Saeed Shahand Bill Spindle

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WORLD NEWSWORLDWATCH

CANADA

No Terror Link SeenIn Toronto Shooting

Canada’s Public Safety Minis-ter Ralph Goodale said Tuesdaythere was no evidence that aToronto shooting on Sundaynight was linked to a broadernational security threat such asterrorism.

“At this stage of the investi-gation, on the basis of every-thing that’s known at the mo-ment...there is no nationalsecurity connection between thisindividual and any other nationalsecurity issue,” Mr. Goodale said.

Canadian authorities on Mon-day identified Faisal Hussain asthe gunman in the Toronto massshooting. Mr. Hussain, who diedafter a shootout with police, shot15 people, killing an 18-year-oldwoman and a 10-year-old girl.His family said he suffered fromsevere mental-health challenges.

—Vipal Monga

ARGENTINA

Economy ContractedBy 5.8% During May

Argentina’s economy took abig hit in May as it contractedby 5.8% from the year earlier,statistics agency Indec says.

Activity was affected by a se-vere drought that sent the agri-culture sector tumbling 35%from May 2017, as well as a cur-rency crisis that has fueled infla-tion and led President MauricioMacri to seek a $50 billion creditline from the IMF.

The manufacturing, fishing,and telecommunications sectorsalso contracted, while construc-tion and finance activity ex-panded, according to Indec.

Goldman Sachs said there isnow a “very significant risk”that Argentina will enter into arecession this year after theweaker-than-expected economicresults. The economy contractedin April by 0.6%.

—Ryan Dube

NICARAGUA

Brazilian Student,3 Others Are Killed

A Brazilian medical studentand three other people werekilled amid unrest that hasrocked Nicaragua for over threemonths, her university and a hu-man-rights group said.

Rayneia Lima was riding in avehicle in the capital Mondaynight when it was riddled withbullets that struck several vitalorgans, said Ernesto Medina,rector of the American Univer-sity of Managua.

Mr. Medina said the shotscame from armed pro-govern-ment civilians who have takenover the National AutonomousUniversity of Nicaragua sinceJuly 13, as she was travelingnear that campus. Police attri-buted her death to a “private se-curity guard,” saying he openedfire “under circumstances thathave not yet been determined.”

—Associated Press

ATHENS—Wildfires ragedthrough popular resort areasnear Greece’s capital, leavingat least 74 dead and morethan 100 injured, in the coun-try’s deadliest fire season inmore than a decade.

Fires fanned by strongwinds broke out Monday after-noon on both sides of Athens,ripping through pine forestsand towns. Tourists and resi-dents were forced to flee tobeaches, where more than 800people were picked up bycoast guard and navy vesselsand fishing boats.

The fires hit areas of wide-spread unregulated construc-tion with narrow streets andhouses mixed among tinder-dry forest, which likely con-tributed to the death toll.Greece’s Red Cross said thebodies of 26 people believedto be trying to escape werefound near a beach, some ofthem hugging each other.

Fires are common duringGreece’s hot and dry summers,

BY NEKTARIA STAMOULI

little warning.“It took people by surprise

and it all happened reallyfast,” Ambulance Service dep-uty director Miltiadis Mylonassaid. “The task we face now isorganizing the identificationof victims by members of theirfamilies.”

Greek Prime Minister AlexisTsipras declared three days ofmourning. “The country is go-ing through an unspeakabletragedy,” he said. “Nothingand no one will be forgotten.”

The Supreme Court prose-cutor ordered an investigationand Mr. Tsipras said the ex-tent of the fires raised suspi-cions of illegal activity.

Greece has been particu-larly hard-hit this year. Spain

and Portugal, normally fire hotspots, have been relieved by arainy spring and cooler sum-mer temperatures. Spain hashad one major fire as of July15, compared with 10 duringthe year-earlier period, whendry weather conditions andhigh temperatures scorchedthe Iberian Peninsula.

The government in Lisbonhas taken steps to containblazes after more than 100people died in summer fireslast year, including some whowhere trapped in their cars asthey tried to flee. Lisbon hasresponded by increasing in-vestments and trying to clearflammable growth.

An exodus of residents fromthe countryside to urban cen-

in part because of a lack offorest maintenance and weakzoning laws. Public-spendingcuts imposed during the coun-try’s financial crisis haveeaten into fire-service fundingand fire brigades struggle withaging equipment.

“This was a deadly mix: amega fire, strong winds ofmore than [50 miles per hour]in an unregulated area at thepeak of the tourist season,”said Yiannis Stamoulis, headof the Association of GreekFirefighters.

Even after the fires werecontained, authorities said thenumber of casualties couldrise as rescue crews checkscorched areas and the coastguard conducts a search-and-rescue operation for peoplewho may have fled by swim-ming or in boats.

“It will take several days,maybe even months to checkall the area,” Mr. Stamoulissaid. “We have to check roomby room in hundreds of build-ings and cars.”

In addition to the deathtoll, 184 were injured, includ-ing 23 children and 11 peoplein critical condition, a fire bri-gade official said. Some bodieswere found just a few feetfrom shore or from homesthat had been engulfed with

ters during the past severaldecades has accelerated thespread of deadly fires as fewerpeople control the brush, saidJavier Madrigal, who studiesforest fires.

In addition, uncontrolled andunregulated urbanization incity centers has pushed peopleinto areas that border forests,leaving their homes vulnerable.

The death toll in Greece isthe largest since 2007, whenfires burned in the southernPeloponnese for days.

Small fires were burning insome areas Tuesday afternoonwhile white smoke billowedfrom others. The resort townof Mati, about 20 miles east ofAthens, was destroyed.

“Mati doesn’t even exist asa settlement anymore,” onewoman who managed to es-cape told local television. “Isaw corpses, burned-out cars.”

Greece requested interna-tional help through the Euro-pean Union, while parts of At-tica, the peninsula thatincludes Athens, declared astate of emergency. Spain andCyprus have offered assis-tance. Hundreds of firefighterswere redeployed and the armywas called in to help.

—Jeannette Neumannin Madrid

contributed to this article.

GreekWildfires Leave Scores DeadBlaze in tourist regionis latest in nation’sdeadliest season inmore than a decade

A woman surveys the ruin in the village of Mati, near Athens. At least 74 people were killed by fires burning east and west of the capital. The toll is expected to rise.

COSTA

SBALTAS/R

EUTE

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Mati

KinetaRafina

Aegean Sea

Athens

Fires detected sinceearly Monday, local time

Corinth

GREECE10 miles

10 km

THEWALL STREET JOURNAL.Source: NASA’s Fire Information for Resource Management System

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IN DEPTH

Mr. Ritchie had already hireda new marketing chief, a chiefinformation and digital officerand Laundry Service, a digital-marketing agency that wouldhelp the company reduce its re-liance on television advertisingand create social-media ads.

Still, even after he steppeddown as CEO, Mr. Schnattersaid, he gave Mr. Ritchie his in-put on everything frommarket-ing to new-product introduc-tions. “I had to say to him,‘When people listen, goodthings happen to Papa John’s.When people don’t listen, badthings happen.’ ”

Performance worsened in the2017 fourth quarter, with same-store sales in North America

down 3.9% from the year-earlierquarter. Mr. Schnatter said herepeatedly raised concernsabout the business to Mr.Ritchie, who he said kept tellinghim sales would improve. Hesaid he began voicing concernsabout the business to the board.

“We know our potential is somuch greater than our results,and we are taking significantsteps to reinvigorate our recordof profitable growth,” Mr.Ritchie said in a statement onthe earnings results.

Mr. Schnatter said he dis-agreed with the direction of thenew ads, which he said he feltstrayed too far from the brand’sheritage. One featured puppiesplaying. He said Mr. Ritchie

didn’t show him the ads beforethey aired. Mr. Schnatter wasalso upset at the speed withwhich the company shifted itsadvertising from television andradio to social media. Thesethings, he said, contributed tothe declining sales, but hedidn’t have specific evidence.

“I had the expectation,” Mr.Schnatter said, “that until hefully got his arms around run-ning Papa John’s, which is avery complicated, very complexjob, that I would have a lot ofinput on the big decisions.”

On the May earnings call,Mr. Ritchie said the new adswere intended to appeal toyounger audiences. Mr. Ritchiewas one of the few executives

Play it again, CVS

ing people familiar with thematter.

The board on Sunday ad-opted a shareholder-rights planto prevent Mr. Schnatter fromgaining a controlling interest inPapa John’s. He declined tocomment on the plan.

Mr. Schnatter in the inter-view the day before said he hadno intention of giving up hisseat. “What’s next? They’llwant me to sell my shares.Then they’ll say I can’t use aPapa John’s logo,” he said,wearing a black polo shirt withthe company emblem. “I own30% of the company. I want aseat on that board.”

People close to the companysaid Mr. Schnatter is to blamefor poor sales and that his NFLcriticism sent revenues on adownward trajectory fromwhich it still hasn’t recovered.As the face of the brand, theysaid, he drove away customerswith his comments. “We had atleast four third-party compa-

nies tell us that John was theAchilles’ heel of the organiza-tion,” said one of the people.

Hints of his machinationsagainst Mr. Ritchie added togrowing tension internally, saidone of the people familiar withthe company, and news of hisracial slur was the culmination.Papa John’s formed a specialcommittee of the board’s inde-pendent directors, which barredhim from appearing in ads andmarketing material and from us-ing his office at Papa John’sLouisville, Ky., headquarters.

Mr. Ritchie issued a state-ment condemning “insensitivelanguage, no matter what thecontext.” Papa John’s removedall mention of Mr. Schnatterfrom its website. Mr. Ritchie de-clined to be interviewed.

Face of the brandMr. Schnatter said he quickly

came to regret his decision tostep down as chairman. Seeingthe chain’s poor performance,Mr. Schnatter said, he had beenplanning to urge the board toappoint him executive chairman.Amonth before the N-word inci-dent became public, he said, hebegan working on a detailedevaluation of Mr. Ritchie he stillplans to share with the boardduring a meeting scheduledfor this Thursday.

Mr. Schnatter has often por-trayed himself as a savior toPapa John’s, one who left theCEO position twice only to re-turn when sales were slidingand nurse the company back tohealth. Papa John’s was doingwell for a lengthy period under

ContinuedfromPageOne

Investor AppetitePapa John's stock rose nearly12% on news of John Schnatter'sresignation as chairman, thenresumed its downward trend.

THEWALL STREET JOURNAL.Source: FactSet

$70

45

50

55

60

65

July 11, 2018Mr. Schnatter resigns.

2018J F M A M J J

quently called CVS for matterssuch as prescription transferswhile working for a competitor,posted his version of the on-hold song on YouTube. Sittingat a piano in a white pharma-cist’s coat, he rattles off aphone-tree script—“to refill aprescription, press one”—andtickles the ivories.

“It had a good melody,” hesaid. “For someone who’s mu-sical, it’s definitely one of theless annoying tunes that getsstuck in your head.”

One commenter to his postwanted to arrange the song foracoustic guitar. Another calledit “hypnotizing, deeply moving

ContinuedfromPageOne

and somewhat existentialist.”The composition is a key-

board song that flows throughgentle valleys and builds to dra-matic peaks, and has beenplayed by thousands of CVSstores for almost two decades.Admirers have fueled questionsabout its origins reaching back acentury. “Personally, I’m a fan,”said Cristina Stacy, marketingdirector at Houston-based OnHold Marketing Works, a com-pany that provides such music.“It’s beautiful in its simplicity;it’s sort of the quintessential‘on-hold’ tune.”

CVS Health Corp. said mostcomments about the song arecomplimentary. “We’ve kept thissong as our on-hold music forso long because of the numer-ous positive comments we’vereceived from customers overthe years,” spokesman MikeDeAngelis said.

Hold music is engineered tokeep people on the line. “Youwant something that is light,

that is upbeat and that is notgoing to put listeners to sleep,”said Mitch Keller, marketingchair for the Experience Market-ing Association, formerly the OnHold Messaging Association.

The CVS song has become aprescription for annoyanceamong some frequent callers,many of whom are irritated bypoor sound quality. RobinLapham, 62, an Arizona residentwho said her health insurer re-quires her to use CVS, posted acomplaint on Facebook andemailed the company to urge achange. “That music enrages meevery time I hear it,” she said. Achange.org petition, which hasabout 30 supporters, suggests“Scandinavian thrash metal ornature sounds of whales mat-ing” as an alternative.

Mr. DeAngelis said all ofCVS’s pharmacies should be us-ing the same sound file, andpeople can call customer serviceto report any quality problems.

The company has long told

customers the song is called“Golden Dragon” and waspenned by Karl King, a famouscircus composer who died in1971. But keepers of Mr. King’slegacy insist this is completelyoff key. Mr. King did write anoverture called “The GoldenDragon” more than 100 yearsago, but it requires at least 25instruments and runs for morethan 11 minutes, said JerroldJimmerson, conductor of theKarl L. King Municipal Band inFort Dodge, Iowa.

He has fielded inquiries fromfans led his way by details fromCVS. So has C.L. Barnhouse Co.,the Oskaloosa, Iowa, music com-

pany that has published KarlKing’s work since 1909. “It’ssuch a stretch to me that somany people are interested inthis; originally I thought one ofmy friends was playing a prankon me,” said Andrew Glover, ex-ecutive vice president at themusic publisher.

CVS doesn’t know how it ar-rived at the Karl King explana-tion. The company started usingthe music when it came loadedon an interactive voice-responsesystem purchased around 2000,Mr. DeAngelis said.

Laura Romeo, an assistant toa vice president at Boston Col-lege, said she knows the answer:Her husband, James Romeo,created the song long before hedied in 2002, and licensed it outfor use. His name has poppedup in some online forums wherefans have discussed the song.

A Harvard-educated musicianand businessman, Mr. Romeoran a company with Ms. Ro-meo, who is also a musician,

and they created music for ev-erything from entertaining catsto backing magicians’ stageshows. A Catholic, Mr. Romeowas particularly proud of his sa-cred music, Ms. Romeo said.

He likely licensed the song fora modest, one-time fee, said Ms.Romeo. She hasn’t found paper-work regarding the deal, but saidCVS contacted her to ensure thecompany could still use the songafter Mr. Romeo passed away. “Isaid yeah, of course,” she re-called. CVS said it doesn’t haverecords of that conversation.

Ms. Romeo said her husband,who died due to amyotrophiclateral sclerosis, or ALS, wouldhave loved the song’s lastinglegacy. She still enjoys hearing itwhen she’s on hold. “It’s likeJim’s in the room.” She said thepoor sound quality detractsfrom the song, but sympathizedwith people frequently stuck onhold. “I think I’d get tired of it ifI had to listen to it all day long,”she said.

Mr. Schnatter, posting strongannual same-store sales growthbetween 2011 and 2016.

Mr. Schnatter founded PapaJohn’s in a converted broomcloset in his father’s Jefferson-ville, Ind., tavern. He expandedit into the world’s third-largestpizza delivery chain after Dom-ino’s Pizza Inc. and Yum BrandsInc.’s Pizza Hut, with more than5,000 locations in 45 countries.Mr. Schnatter became popularas the brand’s affable face, andhis many appearances at sport-ing events made him a celebrity.

With the company perform-ing well in 2015, Mr. Schnattersaid, he was getting ready toretire for good. He turned to hisoperating chief, Mr. Ritchie, a22-year Papa John’s veteran.

Mr. Schnatter said hehanded daily operations to Mr.Ritchie in mid-2016 and re-tained the CEO position in titleonly, planning to coach Mr.Ritchie on public relations andmarketing until he was ready tofully assume the CEO role.

That came sooner than Mr.Schnatter expected. Salesgrowth had slowed since late2016, then took an unexpectedhit in the third quarter of 2017.The people close to the companysaid that a drop in televisionfootball ratings because of theprotests was a factor as well ascompetition from lower-pricedrivals and tech-savvy Domino’s.

At an Oct. 27, 2017, meetingin Atlanta, the board directedMr. Schnatter not to say any-thing about the NFL during theearnings call, for fear it wouldcause a furor, said a person fa-miliar with the meeting. Theplayers’ protests—and conflict-ing opinions about them—wereall over the news at the time.Mr. Schnatter agreed, this per-son said, and “he then goescompletely off script on theearnings call.”

Mr. Schnatter told investorson the Nov. 1, 2017, call that theNFL’s not acting quickly to re-solve national-anthem protestshurt Papa John’s sales.

On social media, peoplecalled Mr. Schnatter racist, ap-parently equating his disap-proval of the NFL’s not taking astand on the protests with adisapproval of the proteststhemselves, which were in-tended to call attention to po-lice brutality in America, par-ticularly in African-Americancommunities.

The sales impact was imme-diate, said the people close tothe company. Many African-Americans and people under 35walked away from the brand,one of them said, citing datafrom the chain’s customer-loy-alty program and a widespreaduninstallation of Papa John’smobile-order app from custom-ers’ mobile devices.

Weeks later, the board andMr. Schnatter agreed he shouldstep down as CEO in favor ofMr. Ritchie. Mr. Schnatter saidat the time: “We couldn’t havea more proven leader to guidePapa John’s through its nextstage of growth.”

Privately, he said, he told Mr.Ritchie: “Listen, you’re going toget the title, but you’re still go-ing to have to listen to me whenit comes to PR and marketing.”

When he gathered employ-ees to announce Mr. Ritchie’sappointment, he told themhe was still going to be makingthe decisions, said a personwho attended. “Steve was nevergiven true authority to beCEO,” this person said. “It wasa puppet regime.”

Mr. Schnatter said he toldemployees he would still haveinput into some—but not all—of the company’s decisions. In aJournal interview when his ap-pointment as CEO was an-nounced, Mr. Ritchie said that“I want to put the focus back onour people and pizza.”

who pushed back on Mr.Schnatter, said some of thepeople close to the company.

Papa John’s reported thatsame-store sales in its NorthAmerican pizza shops declinedby 5.3% in the first quarter of2018 from the year-earlierquarter. Mr. Schnatter said thepace of new product introduc-tions was too fast—the com-pany rolled out pan pizza,doughnut holes and submarinesandwiches without removingitems, which he said compli-cated kitchen operations,slowed service and frustratedworkers. “I think we just triedto do too many things at once.”

A person familiar with thecompany said the sandwichesare being tested in only somemarkets and that it has scaledback on rolling out limited-timepizzas.

Mr. Schnatter said there wasmuch discussion in recentmonths with Mr. Ritchie andthe marketing team about hisreturning to appear in ads. Mr.Ritchie and the marketing teampushed back, said some of thepeople close to the company.“He fought every piece of datathat opposed his view,” saidone of them. “We had consumerdata that showed peopleequated John with Trump.”

Mr. Schnatter commissionedads on his own that featuredhim “to see if anybody wouldget upset with me being back inthe commercials.” He said view-ers didn’t voice any complaints.The board signed off on theads, said one of the peopleclose to the company.

The ‘N-word’The company agreed to

bring him back to events suchas one involving the NationalHot Rod Association in Chicagoin May and arranged to haveLaundry Service conduct a role-playing session that would posetough questions he might facefrom reporters. Asked duringthe session whether he was rac-ist, he said, he answered “no,”and went on to use “n—” whenexplaining that Colonel Sandersused the word but Papa John’sdidn’t. He said he resisted themarketing firm’s suggestion touse rapper Kanye West in adswith him because Mr. Westused the “N-word” in songs.

Laundry Service declined tocomment on the sessions.

In June, Mr. Schnatter said,he was preparing his criticalevaluation of Mr. Ritchie aheadof the July 26 board meeting,hoping to push Mr. Ritchie outin August.

On July 11, Forbes reportedMr. Schnatter’s use of the racialslur. Mr. Schnatter agreed tostep down as chairman. Sharesrose nearly 12% on the news.

Mr. Schnatter’s comments onthat call were the last straw,said one of the people close tothe company. “I don’t think he’sracist but it doesn’t even mat-ter,” the person said. “How doyou not know in this day andage not to say that word?”

Mr. Schnatter, in a letter tothe board, said the release ofthe information was the resultof a “smear campaign” byLaundry Service. The ad firmstrongly denied that. He said hewas shocked the board acted soquickly to distance him fromPapa John’s without conductingan investigation of events thatled up to the latest controversy.

He said no one from theboard’s special committee hadinterviewed him, despite his re-quests they do so. One of thepeople close to the companysaid the board didn’t need toinvestigate, because he admit-ted to using that slur.

Mr. Schnatter said he plansto run for re-election to theboard at the next shareholdermeeting in May.

On-HoldMusicDivides

The DiscordBefore PapaJohn’s Fall

John Schnatter, here with football stars Archie Manning and Deshaun Watson, was the face of Papa John’s.

‘What’s next? They’ll want me tosell my shares. Then they’ll sayI can’t use a Papa John’s logo.’

John Schnatter, founder of Papa John’s

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for Lauren Salzman called theindictment “extreme govern-ment overreach.”

In a letter to the judge, pros-ecutors said Ms. Bronfman wasinvolved in obtaining usernamesand passwords of Nxivm’s sup-posed enemies to monitor theiremails; of using a deceased per-

son’s credit card to help Mr. Ra-niere avoid paying taxes; and ofhelping to illegally smuggle awoman into the country.

Ms. Bronfman is the daugh-ter of the late Edgar BronfmanSr., the former chairman ofSeagrams. In a letter, prosecu-tors said his net worth was

sues and that his deportationwould harm his family.

Mr. Villavicencio, who cameto the U.S. in 2008 and lives inHempstead, N.Y., is married toa U.S. citizen and has two citi-zen daughters. One girl has acongenital heart defect and isbeing treated in New York, ac-cording to court documents.

On Tuesday, Mr. Villavicen-cio, who was held at the Hud-son County Correctional Facil-ity in Kearny, N.J., didn’tappear in court.

His wife, Sandra Chica, sat in

the front row of the courtroomwith their 2- and 4-year-olddaughters. The girls neatly ar-ranged toys on a wooden dividerseparating the audience fromthe lawyers.

Ms. Chica has filed an ap-plication that is an initial steptoward her husband staying inthe U.S. legally. Mr. Villavicen-cio has an interview with im-migration authorities nextmonth, his attorneys said.

Government lawyers con-tend that Mr. Villavicencio isin the U.S. illegally and there-

fore breaking the law. In 2010,an immigration judge told himto leave the country, they say,but he remained.

During the Tuesday hear-ing, Judge Crotty asked whythe government wants to de-port Mr. Villavicencio soquickly. “What’s the harm tothe country and its immigra-tion policy in letting him fin-ish a process that’s fairly ac-cessible to him?” he asked. “Ifhe’s deported, he would be de-prived of this.”

Assistant U.S. Attorney Jo-

for a district school.Success Academy founder

Eva Moskowitz said in an inter-view that her well-trainedteachers often get poached. Shesaid teachers frequently moveon after a leadership change,such as high school principalAndrew Malone’s announce-ment in March that he wouldleave in June. Further, she saida revision of scheduling, struc-ture and courses meant rede-

ploying some teachers to mid-dle schools this fall, and somedidn’t accept offers to switch.

“When you’re doing thatkind of massive redesign, Idon’t think it’s surprising” tosee departures, Ms. Moskowitzsaid. “It’s regretful and itmakes it really hard on kidsand families and on ourselves.”

Network officials said theyhave filled nearly all positionsat the high school. It is merg-

ing with its Bronx counterpartat the Manhattan site on East33rd Street for a year, due tospace constraints. Together,they will serve about 650 stu-dents, officials said.

Supporters of the city’s larg-est charter operator championits 47 sites as high-performingalternatives to failing districtschools. This fall, it expects16,500 students, who are mostlypoor and black or Hispanic.

GREATER NEW YORKSuccess Academy won ap-

plause for graduating its first16 seniors in a jubilant cere-mony last month. All are head-ing to college, with nearly $2million in financial aid, ac-cording to the network.

Students say they rely onclose ties with staff to handleintense academic pressure.Keisa Johnson, parent of a ris-ing senior, said her daughterwas stressed by the departureof teachers who understoodher. “She was devastated,” Ms.Johnson said. “She was havingpanic attacks.”

Several teachers said theywere upset that some bright,capable students were sent toa prior grade midyear whenthey felt the network shouldhave found ways to help themcatch up on missed work.“Holdover should not be usedas academic intervention,” Ms.Venner said. Network officialssaid 15 students returning tothe Manhattan high school willrepeat a grade because theyfailed classes.

Some teachers said stu-dents and faculty were re-duced to test scores to mea-sure self-worth. One teacherwho left, Lynn Strong, is anadjunct assistant professor ofwriting at Columbia Univer-sity. When she taught Ad-

PleaseturntopageA12B

Success Academy’s first highschool has seen a wave ofteachers leave in recentmonths, with some describing apunitive culture overly focusedon testing and rigid discipline.

Of the 67 teachers and ad-ministrators at the Manhattanhigh school last fall, 20 will beback when classes start in Au-gust, its officials said. Theysaid 25 quit, nine were dis-missed and 13 took jobs else-where in the network.

Faculty said the rate of de-partures is high even in an or-ganization known for turnover.Six teachers who left SuccessAcademy High School of theLiberal Arts-Manhattan had arange of complaints, such asharsh policies that require stu-dents to repeat a grade and alack of respect among networkchiefs for staff viewpoints.

“What really makes me sadis the number of first-yearteachers who quit and decidednever to teach again,” saidNatasha Venner, an experi-enced history teacher who left

BY LESLIE BRODY

School Sees Wave of Teacher ExitsSuccess Academy’sfounder rejects criticismthat its first high schoolhas punitive culture

History teacher Natasha Venner left Success Academy’s Manhattan high school for a district school.

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The New York state law per-mitting the use of speed cam-eras in school zones is set toexpire Wednesday, promptingfinger-pointing among advo-cates and government officials,and stoking concerns aboutpedestrian safety at a timewhen New York City has seendeclines in pedestrian deaths.

The decision to renew orexpand the use of the camerasis effectively up to the stateSenate; the Assembly passedlegislation in support of speedcameras in June. Senate Ma-jority Leader John Flanagan, aRepublican, hasn’t called hiscolleagues back into session topass a version of the bill.

In a statement, Paul SteelyWhite, the executive directorof Transportation Alternatives,an advocacy group, said thatthe cameras have been provento save lives.

“A handful of Senate Repub-licans, including Senate LeaderJohn Flanagan, Senator MartyGolden and Senator [Simcha]Felder have decided theywould rather let the speedcamera program expire, effec-tively legalizing deadly drivingin New York City school zones,than act to protect New York-ers,” he said.

Messrs. Flanagan and Felderdidn’t return requests for com-ment.

Mr. Golden, who has said hesupports a version of speed-camera legislation, Tuesdayannounced a news conferencefor Wednesday where he willpress New York Gov. AndrewCuomo to call the legislatureimmediately back into sessionto pass a speed-camera bill.

In response to Mr. Golden’sannouncement, Mr. Cuomo’soffice released a statementthat said Mr. Golden and Sen-ate Republicans’ refusal topass legislation was a derelic-tion of duty.

“Here’s a tip for SenatorGolden—maybe he should holda protest in front of SenatorFlanagan’s office and demandhe bring his own conferenceback to Albany to vote forspeed cameras on the merits,like they should have done inJune,” the statement said.

Presently, there are speedcameras in 140, or about 7%, ofthe city’s school zones. City of-ficials, along with hundreds ofother groups representing hos-pitals, schools and parents,have pushed for the speed-camera program to be renewedand expanded to another 150school zones.

According to New York CityMayor Bill de Blasio’s office,the speed cameras have re-sulted in a 63% decline inspeeding violations at a typicalschool-zone camera location.

Total traffic fatalities fell 7%in the city last year, with pe-destrian deaths dropping to 101from 148, but more drivers, bi-cyclists and motorcyclists werekilled in accidents, according toa year-end report released inMarch by the mayor’s office.

BY MELANIE GRAYCE WEST

SpeedCamerasSet to EndIn the City

seph Cordaro said Mr. Villavi-cencio could continue the im-migration process in Ecuador.

In his written ruling issuedTuesday evening, Judge Crottyalso temporarily postponedMr. Villavicencio’s deportationwhile he pursues legal status.

A spokesman for the U.S.attorney’s office in Manhattandeclined to comment. AdrieneHolder, a lawyer at the LegalAid Society, which is repre-senting Mr. Villavicencio, said“the rule of law, humanity andmorality prevailed.”

A Manhattan federal judgeTuesday ordered that an ille-gal Ecuadorean immigrantwho had been arrested whiledelivering pizza to a Brooklynarmy base be immediately re-leased from detention.

In his ruling Tuesday, U.S.District Judge Paul Crotty saidthe immigrant, Pablo Villavi-cencio Calderon, had stayed inthe U.S. unlawfully, but other-wise been a model citizen. “Hehas no criminal history. He haspaid his taxes,” the judge wrote.“And he has worked diligentlyto provide for his family.”

Mr. Villavicencio, 35 yearsold, was detained last monthwhile delivering a catering or-der to Fort Hamilton militarybase in Brooklyn. His arrestand subsequent detention gen-erated widespread publicityand outcry from numerous ac-tivists and elected officials, in-cluding Gov. Andrew Cuomo,U.S. Sen. Kirsten Gillibrandand New York City Mayor Billde Blasio, all Democrats.

During a hearing Tuesdaymorning, Judge Crotty ques-tioned how Mr. Villavicencio’sdetention served immigrationpolicy.

“The powerful are doingwhat they want, and the poorare suffering what they must,”he said, referring to federal im-migration authorities’ push todeport the delivery man. “Isthere any sense of justice here?”

Last month, lawyers repre-senting Mr. Villavicenciofiled a so-called habeas corpuspetition, challenging his con-finement. They argued thatMr. Villavicencio didn’t receivegood legal advice when deal-ing with past immigration is-

BY CORINNE RAMEY

Judge Frees Immigrant Pizza Delivery Man

Protesters gathered outside a Manhattan courthouse on Tuesday to show support for Pablo Villavicencio Calderon, who was detained in June.

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dicted Mr. Raniere and Ms.Mack on charges of sex traf-ficking, sex-trafficking con-spiracy and forced labor con-spiracy. Mr. Raniere is beingjailed in Brooklyn, recordsshow, and Ms. Mack is underhouse arrest in California.

Ms. Bronfman pleaded notguilty in federal court inBrooklyn on Tuesday. U.S. Dis-trict Judge Nicholas G. Garau-fis released her on a $100 mil-lion bond with home detentionand an ankle bracelet.

The other three defendantspleaded not guilty in federalcourt in Albany.

Ms. Mack and Mr. Raniere,who are expected to make aWednesday court appearance,previously pleaded not guilty.

Susan Necheles, a lawyerfor Ms. Bronfman, said Tues-day her client did nothingwrong. “Nxivm was not acriminal enterprise but insteadwas an organization thathelped thousands of people,”

she said in a statement.“The charges against Clare

are the result of governmentoverreaching and charging anindividual with crimes just be-cause the government dis-agrees with some beliefstaught by Nxivm and held byClare,” she added.

A lawyer for Ms. Mack de-clined to comment. An attor-ney for Mr. Raniere said thenew charges are baseless.

In an updated indictmentunsealed Tuesday, prosecutorsaccuse Mr. Raniere and whatthey called his “inner circle”—Ms. Mack, a “master” to somefemale “slaves”; Ms. Bronfmanand Lauren Salzman, membersof its executive board; KathyRussell, its bookkeeper; andNancy Salzman, its presi-dent—with acting as an orga-nized criminal enterprise.

A lawyer for Nancy Salz-man declined to comment andan attorney for Ms. Russellcouldn’t be reached. A lawyer

about $2.6 billion. “Because ofher extraordinary wealth andextensive foreign ties, theamount of the bond should besubstantial and largely se-cured,” prosecutors wrote.

To prove racketeering-con-spiracy charges, the govern-ment must show the peopleinvolved had an agreement toengage in a pattern of illegalactivity, said Rebecca Ricigli-ano, a former federal prosecu-tor in Manhattan.

“Rarely do you find crimi-nals signing a contract agree-ing to commit crimes,” saidMs. Ricigliano, who isn’t in-volved in the case. “It could beeveryone doing the samething, with a shared under-standing of the goal.”

Racketeering charges in-crease the possible prisontime and can extend the stat-ute of limitations for crimesinvolved, she added.

—Gerald Porter Jr.contributed to this article.

Four additional women, in-cluding Seagram Co. heiressClare Bronfman, were arrestedTuesday and charged with rack-eteering conspiracy for whatprosecutors said was theircriminal involvement in an up-state New York cultlike group.

The group’s founder, KeithRaniere, and Allison Mack, anactress best known for herrole in the television series“Smallville,” also were chargedTuesday with racketeeringconspiracy. The two face pre-vious charges related to theirinvolvement in the group.

The charges were part of acontinuing investigation byfederal authorities into Nxivm,pronounced “NEX-i-um,” apurported self-help groupbased in Albany. Former mem-bers have called Nxivm a cultand said they were forced intobizarre rituals and sexual acts.

In April, a grand jury in-

BY CORINNE RAMEY

FourMore, Including Heiress, Charged in Cultlike Group Probe

Clare Bronfman, left, Tuesday departed federal court in Brooklyn.

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cost of smoking, I didn’t quitfor good until 2015, when mymother—who stopped whenshe was 24—was diagnosedwith terminal lung cancer.

These are the sorts of in-terventions the governmentcannot arrange.

My neighbor, Mr. Melia,concedes that regulationshave led him to halve hisabout a pack-a-day habit. Butquit? Not likely. “It does cur-tail my use,” he says. “Butthey’ll have to pry my ciga-rette from my cold, dead fin-gers.”

anne.kadet@wsj.com

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2002 can be attributed tohigher cigarette taxes. A 10%increase in price typicallyleads to a 3%-5% decrease inadult cigarette consumption,says Sonia Angell, a deputycommissioner with the cityhealth department.

The $13 minimum deterssmoking, she says, because itallows the city’s black-marketcigarette dealers to commandhigher prices. “Because thelegal price is higher, they cancharge more,” she says.

I suspect that the truth issomewhere in between. WhileI never met someone whoquit smoking entirely because

of the expense—they’re ad-dicts, after all—it definitelycan be a factor.

My most recent friend toquit, 43-year-old filmmakerHeather Quinlan, says shewas bothered for years byher spending on cigarettes,even though she smoked lessthan half a pack a day. But itwasn’t until she started dat-ing her boyfriend, whose wifehad died of cancer, that shefinally quit in April. “I’d feellike such [a jerk] smoking infront of him,” she says.

I smoked for 16 years andhave a similar story. While Ihated the inconvenience and

METRO MONEY | By Anne Kadet

Price Hike? ‘Proud’Smokers Won’t Quit

Last month,in its continu-ing effort tostop peoplefrom smoking,New York City

raised the minimum price ofa pack of cigarettes from$10.50 to $13—the highest inthe nation. But that hasn’tstopped my neighbor, JohnMelia, from puffing away. Aself-described “proudsmoker,” he says there’snothing better than a ciga-rette after a good meal.

“The Marlboro Man is veryinspiring to me,” says the 66-year-old labor consultant.

The price hike, he says,didn’t affect him one bit. Hetypically buys cigarettes dur-ing visits to his sister’s vaca-tion home in Georgia, wherea pack costs about $6. Whenhe runs out, he hits one ofseveral bodegas in downtownBrooklyn that sell untaxedpacks for $7. He clearly gets akick out of this black-marketindulgence. “Everyone has apirate streak,” he says. “Thathappens to be mine.”

According to the New YorkCity Department of Health

and Mental Hygiene, thereare about 867,000 adultsmokers in the city. Officialsare determined to reducethat number by 160,000 dur-ing the next 18 months.

It won’t be easy. I spent amorning last week chattingwith smokers on Wall Street.Of the 10 I interviewed, onlytwo said they paid full pricefor cigarettes at the store.One woman said she maderegular cigarette runs toPennsylvania, where a packcosts about $8. Othersbought from Indian reserva-tions (as low as $35 a cartonat some New York state res-ervations) or airport duty-free shops.

How easy is it to evade thecity minimum? I took thetrain two stops from theWorld Trade Center station inManhattan to the Grove StreetStation in Jersey City, N.J.Near the station, a drugstoresells a carton of Marlboros—that’s 10 packs—for $82.

Thanks in a large part tonew taxes, the typical priceof a pack in New York Citydoubled from $7 in 2002 toabout $14 today. The citywide

adult smoking rate, mean-while, dropped from 22% in2002 to 13% in 2016, accord-ing to the city’s health de-partment. Some smokers saythe decline largely is due tofactors other than price, suchas an increased awareness ofthe health risks and new citylaws banning smoking frombars, plazas, parks andbeaches.

Audrey Silk, a retired po-lice officer and president ofNYC Citizens LobbyingAgainst Smoker Harassment,doubts the new $13 priceminimum would have muchimpact on smoking rates be-cause anyone easily can skirtthe law. She grows her owntobacco in the backyard ofher home in Brooklyn’s Ma-rine Park. “I call it ‘ScrewYou Bloomberg Gardens,’ ”she says, referring to the for-mer city mayor who bannedsmoking in bars and parks.

Using statistical methodsto determine the impact ofvarious government mea-sures on smoking rates, how-ever, the city says it has de-termined that 36% of thereduction in smoking since

of a test-prep factory,” with al-most daily drills in the springof multiple-choice questionson reading passages.

Ms. Moskowitz said thenetwork gives teachers a setcurriculum so they can devotethemselves to instruction andrequires a reasonable amountof preparation for tests thatare a key part of college ad-missions. She said the networkpaid for an online PrepScholarplatform so they could havefree access to the kind of SATprep that wealthy families buy.

Some departing teacherscited a punitive climate, wherestudents were suspended for

The New York City Depart-ment of Education is investigat-ing whether city yeshivas aremeeting standards for seculareducation. An article Tuesdayabout a lawsuit filed againststate education officials incor-rectly stated the state Educa-tion Department was conduct-ing the investigation.

CORRECTIONS �AMPLIFICATIONS

Readers can alert The Wall StreetJournal to any errors in news articlesby emailing wsjcontact@wsj.com or

by calling 888-410-2667.

small infractions.Success Academy sent fami-

lies a July 13 email warningthat rising seniors had to finish10 half-hour lessons every weekon PrepScholar during thesummer. “If your scholar doesnot complete summer home-work, they are at risk of notmatriculating to senior year,”the email said.

Ms. Moskowitz said scalingup her first high school was ahuge challenge, and her staffstrives for a loving, nurturingenvironment. “I think the re-sults are promising, and wehave a culture of continuousimprovement.”

vanced Placement literature toSuccess Academy juniors lastfall, she said network leadersdecided she wasn’t focusingenough on the AP exam andreassigned her to seniors. Shesaid the juniors’ new class-room “became my worst fears

ContinuedfrompageA12A

DepartureRate HighAt School

serves about five million peo-ple. The Rutgers Board of Gov-ernors voted to support theaffiliation pact Tuesday. A newmedical group will be formed,but officials didn’t say what itwould be called.

Officials stressed that thepartnership isn’t a merger andemployees of each institutionwould remain as they are now.The initial $100 million will goto the recruitment of re-searchers, among other ex-penses, said RWJBarnabasHealth President and Chief Ex-ecutive Barry H. Ostrowsky.

New Jersey’s largest health-care system and its largest uni-versity on Tuesday announcedthe launch of a partnershipthat would create one of thebiggest health-care systems inthe U.S.

The agreement has RWJBarn-abas Health investing $100 mil-lion initially, and more than $1billion over 20 years, into thepartnership with Rutgers, theState University of New Jersey.

RWJBarnabas Health is NewJersey’s largest employer and

BY MELANIE GRAYCE WEST

Rutgers, Health System Team Up

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THEWALL STREET JOURNAL. Wednesday, July 25, 2018 | A13

LIFE&ARTS

THE MIDDLE SEAT | By Scott McCartney

Airline CEOs Try the Cheap SeatsThe leaders of Delta and American defend the tightest sections of their planes while sitting in them

H ave you ever been vac-uum-packed into ashrunken coach seatwishing the airlineCEO had to endure the

same discomfort?We did that for you, sort of. The

Middle Seat asked the chief execu-tives of the big three U.S. airlines toplop down in the back of one oftheir airplanes and explain whythey think the skimpy confines ofcoach today are acceptable.

Two agreed. Delta CEO Ed Bas-tian, 6-foot-3, arranged for an in-terview on his company’s most re-cently reconfigured Boeing 777-200 in Atlanta. American CEODoug Parker, also 6-foot-3, snug-gled into a coach seat on a recon-figured 777-200 in a Dallas-FortWorth airport hangar.

One refused. United’s Oscar Mu-noz declined to be interviewed ina coach seat. Asked why, Uniteddeclined to comment.

Messrs. Bastian and Parker fit,although knees were kissing dis-tance from the seat in front. Nei-ther had to contend with a mid-dle-seat neighbor to rub shouldersand sides or a passenger recliningin front of them.

Neither apologizes for packing inmore, skinnier seats. Their message:If you want more space, buy it.

U.S. airlines in recent yearshave improved on many fronts,from reducing lost baggage toconsistently earning profits. Thebiggest backslide, at least fromthe reader emails I receive con-stantly, is standard coach accom-modations.

Legroom in standard coach onAmerican, Delta and United is lessthan what you routinely get onSouthwest and JetBlue.

More bodies in the same spaceagitate and aggravate the flyingpublic. Many travelers believe air-lines made coach unpleasant toforce them to buy extra room theyused to get automatically.

“Management should beashamed of themselves,” saysJohn Wydeven, an electrical engi-neer from the Appleton, Wis.,area. A 13½-hour Delta flight incoach from Detroit to Seoul lefthim with his knees knocking theseat in front once he put someitems in the seat pocket. He foundmore space in coach on KoreanAir and Singapore Airlines flightson the same trip.

Frustrated passenger advocateshave unsuccessfully lobbied Con-gress to force a federal standard onairlines and tried to argue thattighter rows are a safety hazard inan evacuation. Evacuation expertsat the FAA and independent re-searchers say struggling out of atighter seat just means you won’twait as long in the aisle to evacuate.The limiting factor is the exit doors.

With so much attention focusedon sardine seating, here’s whattwo airline chiefs have to say intheir own defense:

Do You Fly Coach?Both CEOs say they fly standardcoach a lot, though not for the

Will Seats Get Smaller?Both CEOs pledged that they won’tgo any tighter.

Mr. Bastian says Delta has set-tled on a standard seat pitch of 31inches. (Seat pitch, the lengthfrom one spot on a seat to thesame spot on the seat in front, isthe industry measurement for thespace of one row.) Delta does havesome 30-inch rows on its AirbusA320s and A319s, a relic of yearswhen the airline wasn’t making asmuch money. “We’re not makingthose decisions any longer,” Mr.Bastian says.

But the number of seats in a rowalso makes a difference. The Delta777 economy seat Mr. Bastian set-tled into is actually 1 inch widerthan American’s, because Americanhas gone to 10 seats across eachcoach row of the 777, while Deltahas remained at nine.

Mr. Bastian promised that Deltawould stick with nine-abreast in its777s. It’s part of the airline’s overallstrategy to be more reliable andeven comfier than rivals. “We be-lieve we get more revenue by hav-ing a better product,” he says.

Mr. Bastian’s particular seat had1 more inch of legroom than Mr.Parker’s, too. Delta’s 777-200s havesome rows temporarily set at 32inches of seat pitch instead of theairline’s standard 31 inches. Thatinch will disappear when moreextra-legroom coach seating ar-rives, leaving standard coach allat 31 inches.

United’s standard seating on777s is similar to American’s—seats that are 17 inches wide with10 to a row. Rows have 31 inchesof space, including the seats.United A319s, A320s and some737s have 30-inch rows.

American is bringing in newplanes with even skinnier seats setin 30-inch rows. That’s as low asAmerican will go, Mr. Parker says.

He argues American pushedrows together only when they hadskinnier seats “that allow the cus-tomer space to remain the samewhile adding another row of seatsthat allows us to take care of morecustomers.” American hasn’t “doneanything that makes the maincabin product less desirable thanit was before.” If customers com-plain enough about tight seatingspace, American would change. Hesays that hasn’t happened.

Mr. Parker did get complaintsfrom his own flight attendantsabout some aspects of American’snew Boeing 737 MAX 8 airplanes,which have gone up to 172 seatsfrom 160, and 148 before that.Shrunken seats and shriveled bath-rooms allow the addition of twoextra rows.

So far, American’s customer sur-vey scores on seat comfort on the737 MAX 8 are a bit higher, butbasically in line with existing 737s,Mr. Parker says. The plane has lotsof other enhancements over exist-ing 737s, including speedy satelliteWi-Fi and huge overhead bins.Customer satisfaction scores simi-lar to existing planes might sug-gest that those benefits are can-celed out by tighter seating at 30inches a row.

American initially ordered theplanes with three rows at 29inches, but backed off when wordleaked. Squeezing basic coach “isnot something we will continue topush,” he says.

What Else to Expect?American’s strategy now is to offerpassengers more seating choices—a strategy seen clearly from Mr.Parker’s seat in the back of the re-configured 777.

Those interested in low faressit in the back, where Americanhas 146 basic coach seats. Ifyou’re willing to pay more or have

Delta 777-200

American 777-200

Business class

Sources: Delta; SeatGuru Mike Sudal/THEWALL STREET JOURNAL.

Premium economy Extra legroom coach Coach

One Plane, Two Seat PlansDelta and American each fly 777-200 jets, but have made different choices in how they divvy up the seating.One major difference: American fits 10 seats across in coach, while Delta only has nine.

FROM

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American CEO Doug Parker, left, and Delta CEO Ed Bastian, right, agreed to spend some time in their coach cabins to discuss traveler complaints about cramped conditions. The two CEOS have pledgednot to make the space in coach any smaller. But they say if travelers want more room, they need to buy up.

nine-hour stretches that manyfind painful.

Mr. Bastian says he flies coachon most of his domestic trips be-cause he thinks it’s good practice.Customers and employees are im-pressed when they see him there,and he wants to experience flightslike more customers do.

This month he imposed a policythat all Delta director-level em-ployees and above must ride incoach on trips under three hours.

Mr. Parker says he’s in coachroughly one out of every threeflights, typically when first classand extra-legroom seats are al-ready booked. Asked how he’d feelon a five-hour flight with the pas-senger in front reclining into him,Mr. Parker briefly flashed a roadwarrior’s instinctive nod.

“I feel what our customers expe-rience,” he says. “Without a doubt,this is, by design, less space thanyou have in cabins for our custom-ers who desire a different product.”

Airline AirbusA320

Boeing737

JetBlue 34 inches —

Alaska 32 31-36

Southwest — 31-33

American 31-32 30-32

Delta 30-32 30-32

United 30 30-31

Spirit 28 —

Source: SeatGuru

Here’s the PitchSeat pitch—the length from onespot on a seat to the same spot onthe seat in front—is shrinking.Here’s a look at the space in coachon widely used planes.

elite status, 66 coach seats pro-vide extra legroom. You can payseveral hundred dollars more andmove up to premium economy: 24seats that are 19 inches wide in-stead of 17 and have 38 inchesrow to row. Then there are 37 lie-flat business-class seats. Nearlyhalf of the plane’s 273 seats offerextra room.

“The customers that reallyvalue additional space have a lotmore options on us,” Mr. Parkersays.

Like American, Delta is focusedon customers willing to pay upfor more space, and offering a stan-dard coach seat. It’s rolling out pre-mium economy on internationalflights. It’s also betting that peoplewill spend more for service andreliability.

“Our strategy has been for sometime to differentiate ourselvesby showing the market we’re not acommodity,” Mr. Bastian says.

If you’re a WSJ subscriber and anair traveler, you’re invited toparticipate in our airport survey.Find it in the online version ofthis article at WSJ.com.

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A14 | Wednesday, July 25, 2018 THEWALL STREET JOURNAL.

In 1964, when 14-year-old Clarke Fowers paid $25 for his 1929 Model AA truck, top, he had toborrow $20 from his sister. He put the vehicle through two restorations. Above, inside therefurbished truck, which Mr. Fowers describes as ‘not bad for the original $25 investment.’

Clarke Fowers, 67, a retired entrepreneurfrom Morgan, Utah, on his 1929 Ford ModelAA truck, as told to A.J. Baime.

One day back in 1964, I was driving atractor on a neighbor’s farm, harvesting hay,when I looked over and saw this old trucksitting in a field on the neighboring prop-erty. The truck had clearly been there foryears. I was 14, and as I would soonlearn, that truck had been sittingthere for longer than I hadbeen alive.

I found the owner—hisname was Brian Ross—andI asked him if I could buythe truck. He said no, butI worked on him all sum-mer long. Finally, he said,“OK, sure, I’ll sell it to youfor $25.”

I went home as fast as Icould, grabbed all the money Ihad—$5—and borrowed $20 from mysister. I went back, hooked a chain onto thatold truck, and pulled it home with the tractor.The truck was missing one of its doors, so Iwent back to find it. Turns out, the previousowner, Mr. Ross, was using the truck’s dooras a door for his pigpen. I had to build him aswinging wood door for his pigpen so hewould let me have the truck door.

When I began work on the truck in a shopon our family’s dairy farm, a lot of people dis-couraged me, saying I was just a dumb kid.That made me want to work harder. Thetruck’s bed had been used to carry sugarbeets and it was rotted out. I found anothertruck submerged in water on another neigh-bor’s farm. I pulled it out of the water with

my tractor and bought the truck bedfor $10, so I could use the steel

posts for a new wagon bed formy truck. A local lumber manhelped me craft the wood forthe bed for free.

I started driving thattruck to high school in Roy,Utah. Everyone in townknew the truck. I took it toUtah State University, and

when I met my future wife, Itook her on dates in the truck.

She liked me but I think she likedthe truck even more. When we had

our kids, we took them to drive-in movies inthe truck, all seven of them, and today wetake our 15 grandchildren on rides.

From 1964 until today, I have ownedthis truck—not bad for the original $25investment.

—Contact A.J. Baimeat Facebook.com/ajbaime.

The truck’s hood ornament, inset, is original and also serves as the vehicle’s radiator cap. Mr.Fowers’s truck has a 1929 Utah license plate, below, which he discovered while plowing a field.

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THEWALL STREET JOURNAL. Wednesday, July 25, 2018 | A15

There is much to spur interest,but the exhibition should havebeen better. It might have exploredthe idea of perspective, or fea-tured better explanations. It cer-tainly should have been mounted

less banally. And though it is cele-bratory, I left thinking that themore imposing intellectual andaesthetic achievements are not inusing elaborate apparatuses tocreate images that seem to have

three dimensions, but in creatingimages of extraordinary dimen-sionality, using just two. The illu-sion of space on a flat surface hasgreat depth. The 3-D enterprise isalmost all surface.

3D: Double VisionLos Angeles County Museum of Art,through March 31, 2019

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Mariko Mori’s ‘Birth of a Star’ (1995),above; Ken Jacobs’s ‘The Surging Seaof Humanity’ (2006), right; JosephJastrow’s ‘Experiments in VisualPerception’ (c. 1905), below; MarcelDuchamp’s ‘Rotoreliefs’ (1935/65),top

Los AngelesIT TAKES A LOT of paraphernaliato view images in three dimensions,as we find out at “3D: Double Vi-sion,” a new exhibition at the LosAngeles County Museum of Art.Four kinds of glasses are requiredat times to add depth to length andwidth: “anaglyph” glasses with redand blue lenses; polarized lenseslike those used at 3-D movies; aviewer that automatically overlapstwo “stereo” images; and glassesthat come with a “battery-operatedliquid-crystal automatic shutter sys-tem.” There are other contraptionsas well: a replica of a stereoscopeinvented in the 1830s that uses mir-rors to send images to the eyes; a“Holmes Stereoscope” that led tomass-produced viewers with binoc-ular eyepieces; and a commerciallyproduced 20th-century View-Masterwith round disks holding miniature3-D slides. Here too are all mannerof processing, trickery and technol-ogy: lenticular imaging, etched ho-lograms…well, you get the idea.

In the catalog Michael Govan,the director of LACMA, calls thisexhibition “the first-ever survey of3D objects and technology in aNorth American art museum.” Thesubject is a terrific one and manyof the offerings are fascinating—even if, overall, the exhibition is abit too two-dimensional.

But before looking cross-eyedat it (which is, incidentally, a wayto view some stereo images with-out special glasses), consider howextraordinary the 3-D enterpriseis. Aren’t we like Moliere’s bour-geois gentleman who discovershe’s been speaking prose hiswhole life? 3-D is the way we usu-ally see. Why make such a fussabout replicating it?

The curator, Britt Salvesen (thehead of the photography and printsand drawings departments at themuseum), acknowledges in the ex-hibition text that 3-D “may seem tohave an episodic or peripheral rela-tionship” to mainstream cultureand art, but suggests it provides anarena for exploring perception andimagery—some of which happenshere. The show is roughly chrono-logical, with the first galleries—themost interesting—bringing us up tothe 1950s, when “3D” was firstnamed. Some of these experimentsare lovely: slides for learning geom-etry; Auguste Belloc’s stereo photo-graph of a nude (c. 1850-51); MarcelDuchamp’s evocations of space inthe flat spinning wheels and spiralsof “Rotoreliefs” (1935/65).

One of the most fascinating ex-hibits shows clips of 3-D films firstscreened in 1922. Builders extend awall beyond the screen’s frame, apitcher throws a baseball towardyour face. It is like a series of ex-plorations, explosions, gags. But3-D effects never evolved past nov-elty. Even decades later, whenHitchcock shows us a woman beingstrangled who gropes for a pair ofsharp scissors (“Dial M for Mur-der”), the result remains at thelevel of sensation. A screeningroom offers excerpts from 3-D filmsof the mid-1980s and mid-2010s,reaching a climax in the virtuosityof “Avatar” and “Hugo,” but it is as-tonishing how little would be lostwithout that extra dimension.

Contemporary virtual-realityheadsets are also little more thanamusements. Why? After all, thereis information in some imagesthat can’t be found otherwise. Welearn here, for example, that be-tween 1942 and 1945, the Ameri-can military purchased 100,000View-Masters for training pur-poses: Intelligence officers rou-tinely scrutinized 3-D images ofenemy defenses.

But 3-D can also alter an imagein unexpected ways. A large circu-lar kiosk here with multiple view-ing stations is modeled on a late19th-century commercial entertain-ment. One set of binocular viewersreveals a 3-D slideshow of Parisianstreets; another, 3-D photographsof the Civil War, which are stun-ning. But it isn’t because they aremore “lifelike” or “real.” PresidentAbraham Lincoln and Gen. GeorgeB. McClellan sit in a tent in 1862 atAntietam (photographed by Alexan-der Gardner) like clay figures; youend up paying attention to the 3-Dworld around them: the drapingAmerican flag, or dried, trampledleaves of grass. You could imaginetouching these objects, but it is aworld of artifacts and artifice.

That seems to be the effect,again and again: 3-D makes spaceseem more desiccated, not more vi-tal. That may remain the case untila simulacrum of space is indistin-guishable from our own. Is thereartistic possibility in this? Art-works here by Trisha Baga, LucyRaven, Roberto Cuoghi, MarikoMori, Michael Snow and others arenot encouraging. The most intrigu-ing effort is a 1949 oil by OskarFischinger, “Triangular Planes.”Two panels of intersecting geomet-ric forms—looking like a splinteredKandinsky—become dramatic whenoverlapped as a stereo image: Ver-tices of skewed triangles touch at acharged point in virtual space.

BY EDWARD ROTHSTEIN

ART REVIEW

AMultidimensionalShowFeels Flat

The Los Angeles County Museum of Art’s exhibition of 3-D technology and objects makes one wishthe visual trickery seemed more vital

LIFE & ARTS

A16 | Wednesday, July 25, 2018 THEWALL STREET JOURNAL.

WeatherShown are today’s noon positions of weather systems and precipitation. Temperature bands are highs for the day.

City Hi Lo W Hi Lo W City Hi Lo W Hi Lo WToday Tomorrow Today Tomorrow

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Anchorage 67 59 sh 67 56 pcAtlanta 89 71 t 91 71 pcAustin 101 72 pc 102 72 sBaltimore 80 69 t 86 69 tBoise 100 65 s 99 63 sBoston 82 72 sh 82 70 tBurlington 82 69 t 85 66 shCharlotte 87 68 t 90 70 tChicago 88 69 s 80 60 pcCleveland 81 67 t 85 66 pcDallas 100 77 pc 102 80 pcDenver 89 59 t 80 58 tDetroit 86 64 pc 83 61 pcHonolulu 87 76 pc 90 78 pcHouston 98 76 s 99 77 sIndianapolis 86 64 pc 85 61 pcKansas City 90 67 pc 82 58 tLas Vegas 113 90 s 112 89 sLittle Rock 93 71 s 96 73 sLos Angeles 98 72 s 95 70 sMiami 91 78 t 91 76 tMilwaukee 86 68 s 78 61 pcMinneapolis 78 57 t 71 57 pcNashville 90 69 pc 92 72 sNew Orleans 93 79 pc 95 79 sNew York City 79 72 t 84 73 tOklahoma City 94 70 pc 91 69 pc

Omaha 84 65 t 79 59 pcOrlando 87 73 t 88 73 tPhiladelphia 80 73 t 88 72 tPhoenix 116 91 pc 113 90 pcPittsburgh 79 60 t 83 65 pcPortland, Maine 76 67 sh 80 65 tPortland, Ore. 95 63 s 93 62 sSacramento 103 65 s 101 62 sSt. Louis 89 71 s 88 66 pcSalt Lake City 96 70 pc 93 70 pcSan Francisco 72 56 pc 71 57 pcSanta Fe 90 61 t 89 60 tSeattle 90 63 s 89 62 sSioux Falls 79 57 t 74 54 pcWash., D.C. 81 71 t 88 73 t

Amsterdam 85 66 pc 90 71 tAthens 87 74 pc 84 72 tBaghdad 114 89 s 110 86 sBangkok 90 79 t 89 79 tBeijing 89 75 t 89 76 sBerlin 87 64 pc 87 66 sBrussels 89 67 t 93 70 tBuenos Aires 57 49 pc 59 51 cDubai 103 92 s 104 92 sDublin 71 54 pc 74 55 pcEdinburgh 73 53 pc 76 57 t

Frankfurt 93 68 pc 93 68 sGeneva 86 62 t 89 64 tHavana 91 70 pc 91 73 pcHong Kong 89 82 t 89 81 tIstanbul 83 75 t 86 76 sJakarta 89 75 pc 90 73 pcJerusalem 94 71 s 88 69 sJohannesburg 68 38 s 70 40 sLondon 86 65 pc 90 66 pcMadrid 95 64 s 96 65 sManila 88 79 t 87 78 tMelbourne 58 43 pc 58 49 pcMexico City 80 54 pc 77 56 pcMilan 91 70 pc 92 70 tMoscow 73 63 c 81 68 pcMumbai 85 80 c 85 80 cParis 91 70 t 95 69 tRio de Janeiro 79 67 pc 80 67 sRiyadh 107 85 c 108 85 sRome 90 67 s 88 70 sSan Juan 89 79 pc 88 79 pcSeoul 91 79 pc 93 79 pcShanghai 98 80 t 97 82 tSingapore 88 80 t 88 79 shSydney 70 48 s 66 47 cTaipei City 96 80 t 93 79 pcTokyo 88 77 c 86 76 pcToronto 82 63 t 83 64 pcVancouver 78 60 s 78 61 sWarsaw 82 66 t 83 67 tZurich 87 61 pc 87 60 pc

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TheWSJ Daily Crossword | Edited by Mike Shenk

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Across1 Unilevercleansingcream

8 Virgil Tibbs’sportrayer

15 Have for a visit,say

16 Informalalliance

17 Some gardeningtools

18 Takes outsurgically

19 Furnish withnew gear

21 Chartered

22 Noted New YorkTimes film criticVincent

Previous Puzzle’s Solution

26 You need two tospell “Santorini”

27 Sun Devils’ sch.

29 Baseball’s Lefty

30 Org. thatproduces manymaps

31 He skeweredTweed

33 Intro to Egypt?

34 “Bad” cholesterol

35 “Holberg Suite”composer

37 P&G detergentformulated forbaby clothes

38 Techno partyattendee

39 Bull’s warning

40 FaceTime need

43 Bayer brand

44 Hand on theJolly Roger

45 Peeper, to Pedro

46 Wild brawl

47 More than “-y”

48 Plumber’swheels

49 “Twilight” authorStephenie

50 Bannedorganochlorine

52 “West SideStory” song

55 Tommy gunsound

57 Shrill insect

62 Billboard, tomany

63 Serial section

64 Like much salt

65 Win back

Down1 Casual denial

2 End for verb

3 Classic Jaguarmodel

4 “Superman II”villainGeneral ___

5 This completedgrid contains...

6 Piddling

7 Militarystorehouse

8 Reading

9 “Dedicated tothe ___ Love”

10 ...in otherwords...

11 Simple top

12 ...so it treats thealphabet...

13 End for kitchenor luncheon

14 Kick back

20 Thigh muscle

22 They’re commonin winter

23 Trims

24 ...in other words,there are...

25 Like beta-testedcode, in theory

28 Seller of PerfectPairings pies

32 Idiot box

36 “The FemaleEunuch” author

40 Much in demand

41 Cracked, say

42 Informal label

50 Eins und zwei

51 “Come, MisterTally Man, tallyme banana” song

53 Arabian mother

54 Promontory

56 “Try ___ may...”

58 Fashionmonogram

59 Classic film noir

60 First name inUgandan infamy

61 “___ Bums”(BrooklynDodgers)

s

Solve this puzzle online and discuss it atWSJ.com/Puzzles.

A T O M E L S A A P A T HL O D E L A H R V O G U EF O O D C O U R T E L E N AA T R I A N E I N K N I T

C R I C K E T M A T C HA H A A S H H I DB U S T L I N C N O D T OB R I E F E N C O U N T E R SA T A R I G O N G S A U L

A D A S L O L E OC A R B O N D A T I N GE B A Y D O U R E A R L SL U S T Y T R A C K M E E TE S T E E H A I R M E G AB E A S T E E N Y A L O T

THEBIGPICTURE | By Mel Rosen

LARRY WAYNE Jones Sr., the fa-ther who produced one of thegreatest third basemen ever toplay in the major leagues, wor-shiped Mickey Mantle, the bestswitch hitter in history. So as soonas his son, Chipper, could pick up abat, he instructed him to swingfrom both sides of the plate, re-en-acting the lineups from the Satur-day Game of the Week.

Chipper didn’t fully understandwhy his dad cared so much atfirst. He hit fine as a righty, hisnatural side. So one day in thebackyard, as Chipper swatted ten-nis balls with a piece of PVC pipe,Larry decided to teach his boy alesson: He spun a curveball.

“I realized, ‘You know what?It’ll probably be easier for me tosee those breaking balls cominginto me versus away from me,’ ”the younger Jones said. The mes-sage stuck. Jones committed him-self to switch hitting and kept itup all the way to the baseball im-mortality.

Now, as he prepares for his in-duction into the Hall of Fame thisweekend, Jones finds himself in anever-shrinking club, as the art ofswitch hitting devolves into an en-dangered species.

In 1992, the year before Jonesfirst came up with the AtlantaBraves, switch hitters accountedfor nearly 20% of the plate appear-ances across the league. That num-ber sits at 13% this season, the re-sult of a steady two-decade declinethat will almost certainly continue.

The remaining crop of switchhitters hardly resembles Jones. Itconsists largely of speedsters andslap hitters rather than prodigioussluggers, with Cleveland’s JoseRamirez and Francisco Lindoramong the few exceptions. At thispoint, it seems unreasonable to ex-pect any active switch hitter tojoin Jones in Cooperstown.

“I don’t think this is an anom-aly,” said retired first basemanMark Teixeira, who bashed 409home runs as a switch hitter from2003 through 2016. “This is atrend.”

Professional organizations oncecoveted switch hitters, valuingtheir versatility no matter the op-posing pitcher. Washington Na-tionals hitting coach Kevin Longsaid that for his first ever coach-ing assignment in 1997, the KansasCity Royals sent him to Wilming-ton, Del., to help show a youngoutfield prospect how to switchhit. His name? The recently retiredCarlos Beltran, perhaps the lastswitch hitter right now with a re-alistic chance of reaching the Hall.

Jones tells a similar story.

While in rookie ball in 1990, notlong after the Braves selected himwith the first overall pick of thedraft, Jones endured a brutalslump from the left side. Con-cerned that prolonged struggleswould hurt his chances of a pro-motion, he received permissionfrom his manager to bat exclu-sively as a righty during games.His performance immediately im-proved.

But before he knew it, Jonessaid some top people in the Braveshierarchy visited him in Florida totell him, “You are not going to giveup switch hitting.” They didn’tgive him a choice. The next year inSingle-A, Jones hit .326, en routeto a big-league career that fea-tured a .303 batting average, 468homers and an MVP award in 1999.

“That wouldn’t happen today,”Long said. “They’re not going todo that. It’s too hard.”

Teams increasingly view the po-tential added benefit of switch hit-ting as not worth the additionaleffort and won’t hesitate to con-vert switch hitters into one-wayhitters if they falter.

Switch hitting presents a chal-lenge for the players who attemptit, requiring them to hone andmaintain two separate swings withdifferent mechanical flaws. NewYork Yankees infielder Neil Walkersays it takes “two times the work,”essentially forcing him to put his

body through double the amountof batting practice as his team-mates. Even then, he might goweeks without facing a left-handedpitcher, leaving him limited oppor-tunities to use his right-handedswing in a game situation.

Given that, few switch hittersactually produce equally from bothsides of the plate. Walker, for in-stance, owns a lifetime on-base-plus-slugging percentage of .791against right-handed pitchers ver-sus .678 against southpaws, dis-couraging teams from using him asa true switch hitter. Meanwhile,the rise of the defensive shift,which disproportionately hurtsleft-handed batters, makes switchhitting less of an advantage.

“Putting in the time to basicallybe two hitters has become a lotmore time-consuming,” said RubenAmaro Jr., the general manager ofthe Phillies from 2009 through2015. “It takes away from trying toperfect the craft of hitting.”

Coaches at the youth level dis-courage switch hitting as well,with competitive travel squadsemphasizing wins over recreationand development.

Teixeira remembers that aroundthe age of 10, a coach called himout in a team meeting, saying,“Some of you think you switch hitand aren’t thinking about theteam.” At age 13, faced with an-other coach who didn’t want Teix-

eira to switch hit, Teixeira’s fathertold him that if he wanted Mark onthe team, he needed to let him batboth ways.

Andrew Romine, the lone switchhitter on the Seattle Mariners’ ac-tive roster, wishes somebody hadordered him to stop a long timeago. His father pushed him towardswitch hitting, and now Rominewonders if he would have faredbetter focusing entirely on hisright-handed swing.

Indeed, of the players with thetop 100 batting averages of alltime, only two—Roger Connor andFrankie Frisch—hit from bothsides. Only six switch hitters haveever hit more than 350 home runs.One of them, Lance Berkman, oncesaid in an interview that if hecould start his career again, hewouldn’t switch hit at all.

“If switch hitting was so valu-able, wouldn’t most people try toswitch hit?” Romine said. “Nobodyshould ever choose that.”

Jones said he doesn’t regretswitch hitting and insists thatplayers who stick with it can stillreap rewards.

With his plaque about to go upin Cooperstown, nobody could ar-gue with the results.

“If I had been strictly a right-handed hitter, I would have been anice player,” Jones said. “But a guyworthy of consideration for theHall of Fame? That’s a stretch.”

BY JARED DIAMONDAND MATTHEW GUTIERREZ

MLB

Lost Art of SwitchHittingTeams used to value batters who could hit from both sides. Now, it isn’t really worth the extra effort.

Bagnères-de-Luchon, FranceThe peloton has covered more

than 1,700 miles over 16 gruelingstages at this Tour de France, fromthe cobblestones of the north tothe mountains of the Alps. Everyrider here has been on the bike, inrace conditions, for at least 68hours since this ordeal beganthree weeks ago.

And yet, after all that suffering,the matter of who wears the yel-low jersey into Paris could comedown to the shortest road stage ofthe race.

At just 40 miles, less than halfthe distance of a typical mountainstage, Wednesday’s scramble fromBagnères-de-Luchon to Saint-Lary-Soulan—two villages high in theFrench Pyrenees—is the shortestnon-time-trial road stage at theTour de France in at least 30years.

But brevity should not be con-fused for simplicity. More than60% of the stage is spent going up-hill on three of the most brutalclimbs the Tour de France has tooffer. It finishes with the Col duPortet, a 10-mile meat grinder thataverages an 8.7% grade.

“I did a reconnaissance of it andthis stage is for crazy people,” saidJulian Alaphalippe, who currentlyholds the polka dot jersey as theTour’s King of the Mountains.

The craziest people in the stagemight be the two teammates vyingfor the overall lead, Team Sky’sGeraint Thomas, who has neverwon a Grand Tour, and ChrisFroome, the four-time Tour deFrance champion. After two stagewins in the Alps, Thomas leads histeammate by 1 minute, 39 seconds.

Following a quiet Pyreneanstage for both men on Tuesday,Wednesday’s free-for-all could eas-ily turn into a high-mountain duel.

“It’s only 65 kilometers, but it’sa lot of climbing,” Thomas said.“It’s going to be massively decisivereally.”

TOUR DE FRANCE

TOUR’SSHORTSTAGE

BY JOSHUA ROBINSON

SPORTS

Geraint Thomas in the yellow jersey.

JEFF

PACH

OUD/A

GENCE

FRANCE

-PRESSE/G

ETT

YIM

AGES

GETT

YIM

AGES/A

SSOCIATE

DPRESS

It seems unreasonable at this point to expect any active switch hitter to join retired star Chipper Jones in Cooperstown.

THEWALL STREET JOURNAL. Wednesday, July 25, 2018 | A17

Beyond aReasonable DoubtOn TruthBy Simon Blackburn(Oxford, 142 pages, $12.95)

BOOKSHELF | By Julian Baggini

OPINION

Defenders of truth have had a big job in recent decades,first tackling the challenge of postmodernism and,more recently, the rise of “post-truth.” Simon

Blackburn dealt with the first in his 2005 “Truth: A Guide.”Perhaps surprisingly, he gets post-truth briskly out of theway early on in his second short, nonacademic book with“truth” in the title. That is perhaps because he correctlydiagnoses that there is no “crisis in the very concept oftruth.” Certain politicians might be playing fast and loosewith truth, but “perjury is still a serious crime, and we stillhope that our pilots and surgeons know their way about.”The very fact that we deplore the disregard of truth is proofthat we still value it.

The post-truth phenomenon is largely a crisis of trust.The proliferation and Balkanization of news sources, abettedby the cloak of web anonymity, has left people feeling that

they “have been denied trust-worthy sources of informa-tion,” Mr. Blackburn writes. Inresponse, they “take refuge inbelieving whatever they wouldlike to be true.” If you can’ttrust anyone or anything, youare left only trusting your gut.

“On Truth” addresses thisloss of trust obliquely, steppingback and examining how we canbest reinstate our minds asjudges. The first part runsthrough the standard textbooktheories of truth, and the second

deals with truth in specific contexts,particularly art, ethics and religion. This

potentially dry structure allows the author, afellow at Trinity College, Cambridge, to develop a sustainedargument in defense of truth. As in his earlier books, Mr.Blackburn displays a rare combination of erudite precisionand an ability to make complex ideas clear in unfussy prose.

If truth has seemed unattainable, he argues, it is becausein the hands of philosophers such as Plato and Descartes itbecame so purified, rarefied and abstract that it eludedhuman comprehension. Mr. Blackburn colorfully describestheir presentation of truth as a “picture of an entirely self-enclosed world of thought, spinning frictionless in the void.”

The alternative is inspired by more groundedphilosophers, like David Hume and especially the Americanpragmatists of the late 19th and early 20th centuries:Charles Sanders Peirce, William James and John Dewey. Mr.Blackburn repeatedly returns to a quote from Peirce thatserves as one of the book’s epigraphs: “We must not beginby talking of pure ideas—vagabond thoughts that tramp thepublic highways without any human habitation—but mustbegin with men and their conversation.” The best way tothink about truth is not in the abstract but in media res, asit is found in the warp and weft of human life.

Put crudely, for the pragmatists “the proof of the puddingis in the eating.” We take to be true what works. Newton’slaws got us to the moon, so it would be perverse to denythat they are true. It doesn’t matter if they are not the finallaws of physics; they are true enough. “We must rememberthat a tentative judgment of truth is not the same as adogmatic assertion of certainty,” says Mr. Blackburn, asentence that glib deniers of the possibility of truth shouldbe made to copy out a hundred times. Skepticism abouttruth only gets off the ground if we demand that trueenough is not good enough—that truth be beyond allpossible doubt and not just the reasonable kind.

Truth of the more modest variety is neither mysteriousnor elusive. We accept things as true not because they areimmune from any conceivable doubt but because they aresupported by the evidence of experience. As a school ofthought called “coherentism” maintains, there is no rock-hard, indubitable foundation for our beliefs, only a mutuallysupporting web of beliefs that hang together.

Seen in this way, truth even has a role in ethics andaesthetics. Ethics does not establish facts akin to scientificlaws, but it can get things more or less right. Racism andsexism, for example, rest on false views of humandifference, and the morality of abortion cannot be divorcedfrom truths about how the fetus develops. “Ethics is ourtechnique for living,” says Mr. Blackburn, “and like anytechnique it can be practiced well or badly.”

He is sympathetic to the different theories he presents,trying to find what is true in each of them, even when thewhole is false. The exception is religion, in which he findsno substantive redeeming features. Religion needs “to weldpeople into a social unit or congregation,” he writes, and forthat it needs a faith that “deliberately stupefies theunderstanding” with ideas of ineffability and mystery. Theonly kind of religion that Mr. Blackburn finds remotelyintellectually credible is one in which we express awe andgratitude to an unknown source of being without anypretense of understanding it.

Given his stress on how provisional and uncertain ourgrasp of truth is, he could perhaps have been moreaccommodating. As he quotes Peirce saying, inquiry “is notstanding upon the bedrock of fact. It is walking upon a bog,and can only say, this ground seems to hold for the present.Here I will stay until it begins to give way.” Many non-fundamentalist forms of religion would seem to exemplifythis spirit. Ironically, Mr. Blackburn’s own last words suggestthat we can be justified in believing some things that wecannot rationally establish. Expressing his hope that theenemies of reason will not prevail, he leaves the reader withan exhortation to “have faith that the best will overcome theworst.” Amen.

Mr. Baggini is the author of “A Short History of Truth,”“The Edge of Reason,” and “Freedom Regained: ThePossibility of Free Will.”

A philosopher argues that truth is humble,not absolute: ‘A tentative judgment . . . is notthe same as a dogmatic assertion of certainty.’

Does Everyone Have Two Jobs?

Do Americans have toomany jobs? DemocraticSocialist congressional

candidate Alexandria Ocasio-Cortez said last week that“unemployment is low be-cause everyone has two jobs”and “people are working 60,70, 80 hours a week and canbarely feed their family.” Sen.Elizabeth Warren said peopleare “working minimum wagejobs that won’t support themor they’re working two, threeor four jobs.”

But Bureau of Labor Statis-tics data show only a smallminority of Americans workmultiple jobs. That percentagehas been around 5% of work-ing Americans since 2010,though it was higher beforethen. Last month 7.6 million,or 4.9%, of the 155.5 millionworking Americans had multi-ple jobs.

Are people working “60,70, 80 hours a week”? Rarely.But for a brief dip during the

recession, private-sector em-ployees have worked an aver-age of 34.2 to 34.6 hours aweek since BLS began track-ing the data in 2006. The av-erage stood at 34.5 hours inJune.

BLS considers 35 hours aweek “full time,” so working70 or 80 hours would beequivalent to two full-time

jobs. Only 360,000 peopleworked two full time jobs inJune—0.2% of the workforce.There may well be peopleworking 60 hours a week ormore on one job—but if thatwere common, the overall av-erage for hours worked wouldbe well above 34.5.

Ms. Warren also claims peo-ple are “working minimumwage jobs that won’t support

them.” No doubt some peoplework minimum-wage jobs, par-ticularly younger employeesgetting their first work experi-ence. That they have access tosuch jobs is a positive ratherthan a negative. But the fixa-tion on minimum-wage jobs isincreasingly disconnected fromreality. With economic growthaccelerating and the demandfor workers increasing, anyonedriving by fast-food restau-rants or other retail establish-ments will see signs seekingemployees for $10 to $12 anhour, well above the $7.25 fed-eral minimum wage and moststate minimum wages.

On a year-over-year basis,wages for all employees in-creased 2.7% in June. That’sa good, not a great, number.But individuals working pro-duction and nonsupervisoryjobs in the retail and hospi-tality-and-leisure sectors didmuch better. These sectorshave the lowest averagehourly wage of any sectorthe BLS measures, at $15.87

and $13.82 respectively.In June, wages increased

3.8% year over year for retail-sector employees. It was theirhighest percentage increasesince 2001 using June as thebase year. Wages in the hospi-tality-and-leisure sector, in-cluding restaurants, rose 3.3%year over year—on top of a4.3% increase in 2017. In afast-growing economy, the de-mand for labor increases, andmore employers have to payabove the applicable minimumwages to get employees.

As the economy continuesto improve, so will jobs andwages for American workers.For progressives like Ms. Oca-sio-Cortez and Ms. Warren,the difficulty will lie in at-tempting to explain away thebenefits of economic growthfor American workers.

Mr. Puzder is a former CEOof CKE Restaurants and au-thor of “The Capitalist Come-back: The Trump Boom andthe Left’s Plot to Stop It.”

By Andy Puzder

A critical look at theleft’s latest economictalking point.

Fiat ChryslerCEO SergioMarchionnehad plannedto retire nextyear. He hadspoken to re-porters aboutthis soon-to-be deliver-ance from ajob to which

he devoted 24 hours a day,sleeping on planes, seldom see-ing loved ones. It is likely thatChrysler wouldn’t exist todaywithout his sacrifices.

Accounts are sketchy, but asurgery this month didn’t endwell, leaving him in what re-ports bleakly call a grave con-dition. His untimely fate willsend a shiver through worka-holics everywhere, not tomention all who need multi-ple packs of Muratti ciga-rettes to get through theirworkload. Mr. Marchionne de-served better.

As Steve Rattner, theObama auto czar, later said,Mr. Marchionne’s willingnessand availability was crucial toa divided administration’s de-cision to give Chrysler onemore roll of the dice: “If wehad not had Sergio, actuallywe would have let it go rightthere probably.”

Mr. Marchionne had alreadyshown his brilliance in turningaround Fiat in 2004, butChrysler was his masterpieceof industrial and political en-gineering. He won Fiat’s initialstake for nothing more than apromise to provide small-cartechnology to Chrysler. Acredulous New York Times

AWorkaholic Saved Chryslersaid at the time the big riskwas whether Chrysler couldsurvive long enough for thesesmall cars to begin rolling offassembly lines.

Uh huh. Mr. Marchionneknew perfectly well Americansdidn’t want small cars. Obamaadvisers had to “nail me to acondition” that served a sym-bolic purpose for the adminis-tration, he said. Those smallcars wouldn’t be coming, ex-cept for a modest number ofFiat 500s from its plant inMexico. The Fiat rescue ofChrysler that would soon be-come a Chrysler rescue of Fiatwas built on big American carssold to big Americans.

All this was plain enoughthis week with the naming ofhis successor—Mike Manley,who had been running its Jeepand Ram truck divisions. Alsoworth noting is the fact thatGM and Ford have now copiedChrysler’s decision to abandonbasic sedan production.

The Italian-Canadian Mr.Marchionne was not a productof Detroit’s temples of obfus-cation, where executives areconditioned to elide awkwardtruths about what they do andwhy, under pressure from bu-reaucrats, green groups andmau-mauing politicians.

When pressed at a Brook-ings seminar on what hadgone wrong with Chrysler, hepointed to the “unpresentable”bathrooms, unfit for workerswho were expected to turn out“high-quality product . . . tocompete internationally withthe best of the best.”

Nor would he likely haveachieved as much under a

conventional board of direc-tors. His high-risk, high-can-dor adventures were possiblethanks to the almost mysticalbacking of his boss, John El-kann, the 42-year-old grand-son of legendary Fiat patri-arch Gianni Agnelli.

Yes, the company remainsoverly dependent on the U.S.market, missing out on China.Vehicle quality lags behind its

peers in published surveys. Es-tablishing Alfa Romeo as anew luxury performance brandin the U.S. remains a workwithout visible progress.

What’s more, his wooing ofGM was as painful to watch asDonald Trump’s wooing ofVladimir Putin, though that’swhere the comparison ends. Ifall your bets pay off, he mighthave said, you’re not makingenough bets.

Mr. Marchionne knew thatcustomers want more thanjust Toyota-like transporta-tion. They want cars thatmean something. “Nationali-ties of brands matter,” hesaid.

He was not the first to no-tice the untapped potential ofJeep, a name that sings thebest kind of American can-do-ism. But under his leadership,Chrysler finally did somethingabout it, tripling annual sales

to 1.9 million vehicles in sevenyears.

If there was a Faustian ele-ment in his dealings with theObama administration, it waselectric vehicles, about whichhe was typically frank. Pleasedon’t buy my Fiat 500e, hejoked more than once, onwhich the company loses$20,000 per car.

He was equally and prop-erly skeptical of self-drivingvehicles, but also struck apartnership with Google’sWaymo unit. He recognizedthat autonomy would not bethe competitive advantage ofany single company. Self-driv-ing features will eventuallyemerge as a package of capa-bilities that auto makers willbuy off the shelf.

In fact, his recurrent themewas his industry’s penchantfor wasting capital on duplica-tive under-the-hood differenti-ation that held no value forconsumers. He also under-stood better than most whythis must be so: Because inevery country, politics abhorsthe downsizing of an autocompany.

He came up as an accoun-tant and entered the car in-dustry late, but he understooda few things apparently. Bythe count of Morgan Stanley’sAdam Jonas, Mr. Marchionnetook $2.3 billion and turned itinto $84 billion for investors.Speaking ahead of time formany of these shareholderstoday, Mr. Jonas said on aconference call in January,“God bless you, Sergio. We’renever going to see anyone likeyou again.”

Sergio Marchionnewas bold and frank ina way that violatedhis industry’s norms.

BUSINESSWORLDBy Holman W.Jenkins, Jr.

As his presi-dential cam-paign gatheredmomentum inearly 2016,Donald Trumpdeclared that“I could standin the middleof Fifth Ave-nue and shootsomeone and I

wouldn’t lose voters.” At thetime, this was regarded asmemorable hyperbole, but sub-sequent events—capped by hismeeting with Vladimir Putin—suggest it is closer to literaltruth.

Though no one would havecalled President Trump “re-strained” during his first yearin office, he has upped the antein 2018 by challenging estab-lished arrangements at homeand abroad. From immigrationand trade to NATO, North Ko-rea and Russia, the assump-tions that have guided Ameri-can policy in the postwar erahave been cast aside.

Many of Mr. Trump’s initia-tives lack public support. De-spite his breathtaking embraceof Mr. Putin in Helsinki, a re-cent NBC News/Wall StreetJournal poll found that only 5%of Americans have a positiveview of the Russian president.They disapprove of Mr. Trump’shandling of U.S.-Russian rela-tions by a margin of 2 to 1. By asimilar margin, Americans be-lieve Mr. Trump’s tariffs willraise costs and hurt averagecitizens. About 6 in 10 Ameri-cans also believe that immigra-tion helps rather than hurts the

Why Republicans Can’t Get Enough TrumpU.S., despite Mr. Trump’s hard-line policies. And Americansdon’t share Mr. Trump’s con-tempt for the North AtlanticTreaty Organization; they sup-port the alliance by a 3-to-1margin.

What’s more, Mr. Trump’sdisruptive efforts haven’tyielded notable success. De-spite his insistence that tradewars are easy to win, China ispushing back with tariffs of itsown, and the lost agriculturalsales are beginning to hurtAmerica’s heartland. U.S. trad-ing partners in the Europe andAsia are banding together innew multilateral agreementsthat leave the U.S. in the cold.North Korean leader Kim JongUn is resisting U.S. efforts totranslate his vague promises atthe Singapore summit intomeaningful progress towarddenuclearization. NATO mem-bers have pledged only mar-ginal increases to their defensecontributions. And the Trumpadministration’s “zero toler-ance” stance on immigrationenforcement led to the cul-de-sac of family separations, draw-ing widespread condemnationat home and abroad.

On Mr. Trump’s most un-popular policies, there is a biggap between Republicans andthe rest of the electorate.Whereas two-thirds of Ameri-cans opposed family separa-tion as a method of immigra-tion enforcement, 55% ofRepublicans supported it, ac-cording to a June 2018 Quin-nipiac poll. While only 26% ofAmericans approve of thepresident’s handling of U.S.

relations with Russia, 53% ofRepublicans do.

But these narrow majoritiesof support for specific policiesare dwarfed by overwhelmingRepublican backing—amongthe highest levels ever re-corded—for the president’soverall performance in officeand for the president himself.

Moreover, Mr. Trump has man-aged to increase the intensity ofsupport he enjoys. Just threemonths ago, 22% of votersstrongly approved of his jobperformance. Today, this figurestands at 29%. His personal fa-vorability has also intensified:In April 21% of voters were“very positive” about him, com-pared with 28% today.

There are three reasons, Ibelieve, why President Trump’sapproval has remained rock-solid in the face of unendingcontroversies and policy fias-coes. First, the economy haskicked into higher gear,spurred by tax cuts, deregula-tion and Republicans’ now-fa-miliar willingness to enactlarge budget deficits into pol-icy even as they denouncethem in principle.

Second, President Trumphas kept faith with the 46% ofAmericans who voted for himin 2016. He gave economic

conservatives the tax cuts andderegulatory policies he advo-cated during the campaign. So-cial conservatives have gottenthe judicial nominees theywere promised, along with pol-icy changes in areas fromtransgender bathrooms toabortion and religious liberty.And the populist conservativeswho put Mr. Trump over thetop in key Midwestern stateshave found an unswervingchampion of the nationalistpolicies—on trade, immigra-tion and putting Americafirst—that energized themduring the campaign.

The third reason transcendspolicy. In Donald Trump, dissat-isfied Americans have found aman who resents cultural elitesas much as they do, who is asdismissive of convention asthey would like to be, and,above all, who fights constantly,retreats rarely, seldom apolo-gizes, and takes every setbackas an opportunity to renew theunending struggle.

In a speech at MadisonSquare Garden three days be-fore the 1936 election, FranklinD. Roosevelt described thepowerful interests arrayedagainst him. “Never before inall our history have theseforces been so united againstone candidate as they stand to-day,” he declared. “They areunanimous in their hate forme—and I welcome their ha-tred.” Mr. Trump shares thisview, I believe, and so do hissupporters. It is thrilling tohave a leader who not only pro-motes your interests but alsovalidates your passions.

Despite unendingcontroversies andfiascoes, he is keepingcampaign promises.

POLITICS& IDEASBy WilliamA. Galston

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A18 | Wednesday, July 25, 2018 * * * * THEWALL STREET JOURNAL.

Cadillac Tax Does More Harm Than GoodA tax that targets older, sicker

workers and drives up health-carecosts for 178 million Americans isn’tworth keeping. In “An Obamacare TaxWorth Keeping” (op-ed, July 20),James Capretta fails to recognize thedamage already caused by the Afford-able Care Act’s 40% “Cadillac tax.”

While Mr. Capretta is right thatthe “Cadillac tax” causes employersto raise deductibles and restrict ben-efits, he is wrong that as benefits arecut and costs are shifted to workers,employers will provide a commensu-rate pay raise. According to the Kai-ser Family Foundation, in anticipationof the looming “Cadillac tax” employ-ers have been forced to slash benefitsand increase out-of-pocket costs forworkers by 89%. And those wage in-creases Mr. Capretta promises? Theyhaven’t materialized. Over the sameperiod, wages have remained rela-tively flat. Workers are paying moreand getting less.

Mr. Capretta fails to mention thatfor every $1 the federal governmentforgoes, employers provide an addi-tional $4.45 return on that invest-ment, according to American BenefitsCouncil estimates—a great ROI. Thisinvestment in employers’ innovativehealth-care solutions drives a healthyeconomy, controls costs and keepsworkers healthy. I know this first-hand as a longtime small-businessowner.

Taxing health care through the“Cadillac tax” or by limiting the ex-clusion won’t reduce America’s risinghealth-care costs. Taxing health careis bad policy and undermines thebenefits of the pro-growth tax cutsenacted seven months ago.

REP. MIKE KELLY (R., PA.)Washington

Rep. Kelly is the lead sponsor ofH.R. 173, bipartisan legislation tofully repeal the 40% “Cadillac tax.”

A 40% excise tax on any employer-based premiums over $11,000 for anindividual and $30,000 for families ishardly market based. A true market-based plan could start with tax parityfor whomever buys an insurance pol-

icy, whether individual or employer,with the proviso that pretax dollarsmay be used up to $11,000 per indi-vidual and $30,000 per family, period.

Congress should repeal the essen-tial medical-benefits rules and letstates decide what baseline insurancecovers, opening the door to inexpen-sive catastrophic “bare bones” insur-ance to prevent medical bankruptcy.Second, expand Health Savings Ac-counts with reasonable limits and al-low pretax dollars to be used forwhomever funds them. The net effectwould be a gradual shift to cash-based health care with true marketcompetition and more prudent use ofhealth-care resources as individualsand families would be spending theirown health-care dollars directly.

Some of my patients tell me theyare paying $600 a month for a pre-mium with a $5,000 deductible, andtheir “copays” don’t go toward theirdeductible. They are essentially cashpayers on top of the insurance theywill only realistically use in theevent of an unexpected disaster, es-sentially making “Cadillac” paymentsfor a bare-bones policy. To add in-sult to financial injury, their insur-ance company limits their choices indrugs, practitioners and other ancil-lary services.

According to the Kaiser FamilyFoundation’s Health System Tracker,only 6% of the age 64 and underAmerican population spends morethan $2,500 a year on actual medicalexpenditures. For most people twogood years would mean they couldpay their insurance premium andmost of their deductible from theirHSA.

JANE LINDELL HUGHES, M.D., FACSSan Antonio

I am glad to hear that the $11,000I’m paying for my bare-bones, $7,000deductible before anything is coveredBlue Cross plan for one person isconsidered a Cadillac. I really thoughtof it as a used Pinto. Thanks for theclarification.

DENISE MISSONRichmond, Mich.

LETTERS TO THE EDITOR

Letters intended for publication shouldbe addressed to: The Editor, 1211 Avenueof the Americas, New York, NY 10036,or emailed to wsj.ltrs@wsj.com. Pleaseinclude your city and state. All lettersare subject to editing, and unpublishedletters can be neither acknowledged norreturned. “I’m binge working tonight.”

THEWALL STREET JOURNAL

A Different Look at Those Immigration PollsThe Pew Research survey William

A. Galston cites (“Americans Want anImmigration Deal,” Politics & Ideas,July 11) found that Americans aresympathetic to illegal immigrantswho were brought here as children (aconvincing refutation of the frequentcharge that Americans have turnedxenophobic). But what Pew didn’task, and other polls have, is underwhat conditions should this cohort ofillegal immigrants be permitted tostay here?

A recent Harvard-Harris poll foundthat 63% of Americans want any ben-efits given to these illegal immigrantsto be conditioned on adopting amerit-based, legal immigration policy,eliminating the visa lottery and build-ing a border-security barrier. Seventypercent think we need stricter immi-gration laws, and 61% believe thatpeople who arrive here illegally withtheir children should be sent back.

Much as the Pew poll revealedthat most Americans are unawarethat the majority of immigrants arehere legally, another Harvard-Harrispoll makes it clear that most Ameri-cans have no idea how many immi-grants are admitted to the U.S. Whilemany respondents might think they

support more immigration, over-whelming majorities want less.Asked an open-ended question abouthow many immigrants the U.S.should admit each year, 81% gave afigure that is less than the approxi-mately one million we currently ad-mit each year.

Those, like Mr. Galston who con-tinue to cherry-pick polling results,may find it stunning that Congresskeeps running into roadblocks to leg-islation that grants amnesty to illegalimmigrants without decisively ad-dressing the failures that led to massillegal immigration. Americans aregenerous and sympathetic, not stu-pid. They want conditions met in ex-change for their generosity.

DAN STEINPresident, Federation for American

Immigration ReformWashington

Before Condemning Trump,Look at the 2016 Choices

F.H. Buckley is only half right in“Trump Fans, Acknowledge His Fail-ings” (op-ed, July 19) because ittells only half the story. He saysthat President Trump has mademany blunders but that his support-ers are silent. The problem with thisanalysis is that it ignores the 800-pound gorilla in the room—thatDonald Trump didn’t run in a vac-uum. He ran against the likes of Hil-lary Clinton, Bernie Sanders and therest of the far-left Democratic Party,which campaigned for governmentpolicies even further left than theObama administration’s.

I’m a supporter of PresidentTrump, not because he is perfect, andhe’s far from it, but because thethought of a far-left Democratic ad-ministration in office now gives mereal nightmares. I thank heaven thathis election, at least temporarily,halted America’s slide into the social-ist abyss. That’s why I am silentabout his faults, not because I ignorethem or condone them, but because Ifeel that the alternative would bemuch worse.

MAX WISOTSKYHighland Park, N.J.

Impressive, but Ms. Ocasio-Cortez Got Very Few Votes

Roger Kelly’s July 21 letter re-sponding to Sen. Joe Lieberman’sJuly 18 op-ed (“Vote Joe Crowley, forWorking Families”) about AlexandriaOcasio-Cortez is misguided. She wonin Congressional District 14 of NewYork with only about 16,000 votes.The total population of District 14 isjust under 700,000, which means thatonly a bit more than 2% of the dis-trict’s population voted for her.

By the way, almost half of the pop-ulation in the district is Hispanic.

SAM TAYLORColorado Springs, Colo.

CORRECTION

Pepper ...And Salt

The Minnesota Public UtilitiesCommission voted to approve theLine 3 oil pipeline. A July 23 edito-rial, “Standing Rock Redux,” mis-stated which state utilities commis-sion had approved Line 3.

Tricky Dick Schumer

S pare a thought for Chuck Schumer. TheSenate Minority Leader is under enor-mous political pressure to defeat Su-

preme Court nominee BrettKavanaugh, or at least pretendthat he’s trying very hard. Hisstrategy so far is to stall fortime and compare the nomi-nee to Richard Nixon. Bearwith us; you’ll enjoy this.

As expected, Mr. Schumer has demandedmillions of documents from Mr. Kavanaugh’syears in government to push a confirmationvote past the November election. The NewYorker has refused even to meet with Mr. Ka-vanaugh unless Republicans first agree to letDemocrats dive through the Bush and Clintonarchives.When hewasMinority Leader in 2013,Mitch McConnell met with nominee Elena Ka-gan within two days.

This Democratic sitzkrieg isn’t likely towork.Joe Manchin of West Virginia and Heidi Heit-kamp of North Dakota have already said they’llmeet with the nominee, date to be determined.Others running for re-election will likely followas their opponents back home highlight the pet-tiness of not meeting.

More substantively, Republicans have noreason to agree to what are unreasonable Dem-ocratic demands. Judiciary Chairman ChuckGrassley is trying to work out a document dealwith ranking Democrat Dianne Feinstein. ButDemocrats are seeking literally millions of doc-uments from Mr. Kavanaugh’s years as StaffSecretary in the George W. Bush White Housethat are irrelevant to his views or his qualifica-tions for the Court.

TheWhite House has said it is willing to pro-duce some 80,000 document pages and 200,000email pages from Mr. Kavanaugh’s time in theWhite House counsel’s office. This is more thanthe 173,000 pages produced for Justice Kagan’sWhite House service, and the 182,000 pages forNeil Gorsuch’s time in the GeorgeW. Bush Jus-tice Department.

The ObamaAdministration produced no doc-uments from Justice Kagan’s years in the Solici-tor General’s office. The reason was that suchdocuments were said to be the crown jewels ofthe executive branch’s deliberations on legal is-sues. They surely would have been relevant tohow Justice Kaganwould rule on the bench, butfailing to turn those over is a precedent.

Documents from Mr. Kavanaugh’s time asWhite House Staff Secretary weren’t created byhim and would say little or nothing definitiveabout his views on the issues. The Staff Secre-tary’s job is to channel to the President thework product of the rest of theWhite House andgovernment. The documents relate to Mr.Bush’s decisions, not Judge Kavanaugh’s.

If Democrats want to examine a relevant re-cord, they have more than 300 of his judicial

opinions to inspect. When she was nominated,Ms. Kagan had none. Mr. Grassley stands onsolid ground if he chooses to limit the document

search on Mr. Kavanaugh tothe standard that prevailedfor Justice Kagan.

Which brings us to Mr.Schumer’s resort to DickNixon, which suggests he’sgetting desperate. Mr. Ka-

vanaugh submitted his speeches, opinions andother writings to the Judiciary Committee lastweek, and it included the transcript of an ex-change aboutU.S. v. Nixon, the famous 8-0 rul-ing in which the Supreme Court ordered Presi-dent Nixon to turn theWatergate tapes over toa federal court.

In a 1999 panel discussion with Bill Clinton’sdefense team, Mr. Kavanaugh pointed out thatthe executive privilege arguments used by Pres-ident Clinton were similar to those used byNixon in the tapes case. He then argued that aClinton lawyer on the panel had “not arguedthat Nixonwas wrongly decided,” adding “butmaybe Nixon was wrongly decided, heresythough it is to say so.”

Mr. Schumer jumped on these snippets tocharge on Monday that “if Kavanaugh wouldhave let Nixon off the hook, what is he willingto do for President Trump?”

i i i

The answer is that Mr. Kavanaugh wouldn’thave left Nixon off the hook and he’s certainlywilling to hold Presidents accountable underthe law. It’s clear from the context of the 1999discussion that Mr. Kavanaugh was debatingthe compatibility of the Clinton arguments withthe Nixon case, not his views of the 8-0 rulingon the merits.

The nominee’s views are clear from otherstatements over the years in which he has sup-ported Nixon. In a 2014 speech Judge Ka-vanaugh called the ruling one of the three“most significant cases in which the judiciarystood up to the President,” along withMarburyv. Madison and the Youngstown steel case.

In a 1998 law review article, Mr. Kavanaughsaid there is “no need to revisit”Nixon and thatit should not be overruled. He added that theruling “reflects the proper balance of the Presi-dent’s need for confidentiality and the govern-ment’s interest in obtaining all relevant evi-dence for criminal proceedings.”

Ken Starr and others who worked with Mr.Kavanaugh in the independent counsel’s officein the 1990s have also said that the nomineesupported the Nixon ruling.

The political point of all this is that Republi-cans shouldn’t be the least bit defensive aboutJudge Kavanaugh’s record, andMr. Grassley hasgood reasons to limit a document search. Mr.Schumer is the fellow who is employing someNixonian deception.

The latest anti-Kavanaugh claimsare, well, Nixonian.

A $12 Billion ‘Rounding Error’

H ours after President Trump tweeted onTuesday morning that “tariffs are thegreatest!,” his Administration an-

nounced a $12 billion aidpackage for American farmersto offset the harm from theTrump trade wars.

If you’re confused, join theWhite House. The Trump Ad-ministration is trying to fix aneconomic problem of its ownmaking by puttingthe victims on the federal dole. Perhaps this iswhatWhite House trade adviser Peter Navarromeant when he said the trade harmwasmerelya “rounding error.”

In May the U.S. imposed tariffs on steel(25%) and aluminum (10%) using a preposterousclaim of harm to national security. Earlier thismonth it put new duties on $34 billion of im-ports from China. It has also been threateningto blow upNafta. Canada,Mexico, the EuropeanUnion and China have retaliated by imposingnew tariffs of their own on exports they knoware crucial to U.S. producers, and by strength-ening trade relationships with suppliers fromother countries.

This is hurting U.S. businesses, and nowheremore than in highly efficient U.S. agriculture.American farmers need access to foreign mar-kets for output they can’t sell domestically.When their exports get hit with higher tariffs,they become less competitive against growersthat don’t face those tariffs.

The upshot is a glut of American food, fromsoybeans to pork, beef and corn—and fallingfarm prices. The right solution would be to end

the trade war and restart the flow of Americanproducts to foreign customers.

Instead the USDA announced it will use theCommodity Credit Corpora-tion, born in the Great Depres-sion, to buy surplus farmgoods that are driving downcommodity prices. Tappingthe CCC means that the pro-gram doesn’t need congressio-

nal authorization. If the surpluses are neversold, the losses will be piled on taxpayers at alater date.

But don’t worry: U.S. Agriculture SecretarySonny Perdue says this is only a “short-term so-lution.” Tell that to the farmer who took yearsto cultivate a customer a half a world away. AsNebraska Republican Senator Ben Sasse put it,“This administration’s tariffs and bailoutsaren’t going to make America great again,they’re just going to make it 1929 again.”

The Iowa Corn Growers Association said onTuesday that, given the circumstances, the gov-ernment ought to help. But it added: “Ulti-mately, resolving trade differences and repair-ing relationships with our trading partnersmust be our top priority because much of thedemand for our corn lies outside our state andour country’s borders” and so “fair and opentrade remains the key.”

American farmers won’t prosper onwelfare.They need access to customers abroad. Mr.Trump may think that his farm tariff bailoutwill get Republicans past the November elec-tion, but sooner or later bad economic policybecomes bad politics.

The Trump farm tradebailout won’t make up

for lost markets.

Election-Year Devices

D emocrats want the November electionto be all about Donald J. Trump, andDonald J. Trump seems to agree. Thus

the President’s attempt todominate every news cyclewith tweets and political ral-lies. But far more will be atstake in the battle to controlCongress, as a House voteTuesday showed.

The House voted to repeal the 2.3% excisetax onmedical devices that was part of the 2010Affordable Care Act. Because the tax hits sales,companies have to pay it even if they aren’tprofitable—whichmakes it especially damagingfor new firms short on cash.

“This bill reverses a harmful tax that is hurt-ing job growth and innovation across the coun-try,” said chief sponsor Erik Paulsen, a Republi-

can from Minnesota, which is home toMedtronic and other device companies.

Congress has suspended the tax twice but themoratorium expires in January2020. The House vote was bi-partisan and overwhelming,with all but one Republicanand 57 Democrats in favor, and131 Democrats against. ThoseDemocratic nays include

nearly all of the House Democratic leaders, whowill control the agenda if they retake the House,as they are now favored to do. Mr. Paulsen is aleading Democratic target.

Senate Democrats are expected to block thebill before the election, though many of themhave voted for it in the past. They want to blockany GOP legislative victory—another reminderof the policy stakes in November.

The House votes torepeal a nasty tax onmedical innovation.

REVIEW & OUTLOOK

OPINION

THEWALL STREET JOURNAL. Wednesday, July 25, 2018 | A19

For years, the Federal TradeCommission has had nearlyabsolute power over howcompanies manage theirdigital security. In theory,

this arrangement protects consum-ers. But in reality, at least accordingto one federal court, the FTC hasbeen abusing its authority.

The FTC has brought more than60 cybersecurity cases since 2002,often ordering companies to over-haul their cybersecurity operationsdespite no adjudication of anywrongdoing or specific legal viola-tion. That kind of demand exceedsthe commission’s authority, accord-ing to a ruling last month from the11th U.S. Circuit Court of Appeals.The court held that the FTC mustlay out concrete data-security stan-dards for companies to follow,rather than relying on “an indeter-minable standard of reasonable-ness.” If the ruling stands—which islikely, since the FTC’s only remain-ing legal option is a long-shot appealto the Supreme Court—it will causea sea change in the commission’s cy-ber enforcement.

At the center of the case isLabMD, a startup that worked withphysicians to perform cancerscreenings. LabMD is now defunct,but when this saga began a decadeago, it was a promising companywith 30 employees and $4 million inrevenue.

In 2008, LabMD was approachedby Tiversa, a private cybersecurityfirm in Pittsburgh. Tiversa claimedthat a file containing LabMD’s sensi-tive patient information had beenfound unprotected on the internet.Tiversa offered to help LabMD ad-dress the problem—for a price.

Quickly, LabMD’s internal teamfound the apparent issue on its own.A billing manager who wanted todownload music had used a file-shar-ing program, contrary to company

The FTC’s Abusive Cyber Enforcement

policy. This inadvertently exposed afile on her computer containing bill-ing data on some 9,000 patients:birth dates, Social Security numbers,laboratory test codes. After remov-ing the program, LabMD declined tohire Tiversa.

The next year, Tiversa arrangedto deliver the data file to the FTC,which soon began investigatingLabMD. In 2013, after LabMD de-clined to settle the case, the FTClaunched an enforcement actionseeking to overhaul the company’spractices, including by requiring itto have a third-party security as-sessment performed biennially forthe next 20 years. One of the com-missioners, J. Thomas Rosch, hadwarned against relying on evidenceprovided by Tiversa, because thecompany had a conflict of interest.

His plea was ignored, and his termexpired.

The FTC’s approach was shapedby its previous successes in cyber-security enforcement. Instead of is-suing specific rules to explain whatsecurity practices would pass mus-ter, the commission relied on legalsettlements—with Uber, WyndhamWorldwide and Oracle—as precedentfor its expansive authority.

But the case against LabMDdidn’t hold up. A former Tiversa fo-rensic analyst, Richard Wallace,turned whistleblower in 2015. Hetestified at the trial that Tiversa’sbusiness model was to troll file-sharing networks looking for sensi-tive data exposed by unsuspectingcompanies. Then Tiversa would le-verage the threat of an FTC investi-gation, Mr. Wallace said, “to letthem know that an enforcement ac-tion is coming down the line andthey need to hire us or face the mu-sic, so to speak.” Tiversa has deniedthis allegation.

The case caught the attention ofRep. Darrell Issa, who launched aninvestigation into Tiversa’s activities.The report, issued in 2015, said that“Tiversa often acted unethically and

sometimes unlawfully.” It questionedthe company’s friendly relationshipwith the FTC, which used Tiversa’sdata without doing any substantiveverification. The Issa report said thatTiversa provided the FTC with a listof 88 potential targets for cybersecu-rity enforcement. The commissionsent warning letters to 63 of thosecompanies and opened investigationsinto nine of them.

In 2015, the FTC’s chief adminis-trative law judge, D. Michael Chap-pell, held that the commission hadfailed to prove its case againstLabMD. Although the data file hadbeen accidentally exposed, there wasno evidence it had been downloadedby anyone other than Tiversa. Not asingle instance of identity theft orother untoward use of LabMD’s pa-tient information could be found. Yetthe FTC reversed Judge Chappell’sruling in a 3-0 vote and reinstatedthe case. LabMD appealed to the 11thCircuit.

That court’s ruling has now effec-tively blocked, at least for a while,the FTC’s legally questionable ap-proach to cybersecurity enforce-ment. But no one has been held ac-countable for the commission’smissteps, and in the meantimeLabMD has been forced out of busi-ness. Fortunately, the FTC now has achance to get to the bottom of whathappened. Four new commissioners,appointed by President Trump, weresworn in two months ago. The FTCalso has a new acting inspector gen-eral, Andrew Katsaros, appointedlast month. The commission oughtto demand that Mr. Katsaros investi-gate the LabMD debacle. The FTCcannot responsibly oversee compa-nies’ data security without first safe-guarding the integrity of its ownprocess.

Mr. Newman is a partner withPatterson Belknap Webb & TylerLLP, and chairman of its privacy andcybersecurity practice.

By Craig A. Newman

ISTO

CK/G

ETT

YIM

AGES

An investigation sparkedby a dubious securityfirm leads to a verdictthat could force reform.

A Deal for Trump and Juncker

If the fate of the 20th century wasdecided in the West, the fate ofthe 21st will be decided in Asia.

In recognition of this, the Trump ad-ministration is refocusing U.S. pol-icy to counter a rising China. To besuccessful, the U.S. will need tomuster as many partners as it can inthe region lately called the “Indo-Pacific.” An unlikely potential ally,European Commission PresidentJean-Claude Juncker, arrives inWashington this week.

Despite trans-Atlantic tensions,there is increasing convergence be-tween U.S. and European interests inAsia. European companies, like theirAmerican counterparts, are concernedabout China’s unfair trade practices,intellectual-property theft, and gov-ernment-backed efforts to dominatenew technologies. As the U.S. updatesits foreign-investment screeningmechanism, Mr. Juncker has proposeda Europewide screening mechanism,modeled in part on America’s.

Meanwhile, European govern-ments, like the U.S., are increasinglytargets of Chinese influence opera-tions. China has attempted to exploitdivides between Brussels and poorermember states in Southern and East-ern Europe since launching the “16+1”initiative in 2012. “Countries are wel-come to board China’s economic ex-press to share opportunities ofChina’s development,” said Chinese

Premier Li Keqiang during a 16+1meeting in Bulgaria earlier thismonth.

Such statements should concernanyone familiar with China’s historyof buying, bribing and stealing itsway to prosperity, not to mention itsabysmal human-rights record.

Like the Trump administration,Europeans are attempting to firm uprelations with key Indo-Pacific part-ners. French President EmmanuelMacron recently visited India andAustralia, where he vowed to work toprotect the region from “hegemony.”Mr. Juncker and European CouncilPresident Donald Tusk signed asweeping trade agreement withJapan last week. In coming monthsthe EU will announce the details ofits new approach toward relationswith India as well as its response toChina’s Belt and Road Initiative tofund infrastructure projects acrossSouth and Central Asia.

Europeans still tend to viewChina—and Asia more broadly—through the prism of trade and invest-ment. But when it comes to Beijing’s

bullying of Taiwan or its tighteningpolitical grip on Hong Kong, Europeshould take a stronger stand. Whilemost European militaries have nottraditionally had a robust presence inthe Indo-Pacific, EU officials havelately been touting European naval pa-trols in the South China Sea. Europeshould do more to increase its secu-rity and diplomatic engagement in theregion.

Most important, Europeans needto ensure that their tensions withthe American president don’t turnthem into easy marks for Beijing. AsMr. Trump was in Helsinki meetingRussian President Vladimir Putin,Mr. Juncker was concluding his ownsummit in Beijing. At that meeting,the Chinese attempted to convincethe former prime minister of Luxem-bourg that they, not the U.S., wereEurope’s natural partners in uphold-ing the international order on issuesranging from climate to Iran totrade.

With Europe finally getting seri-ous about the threat posed by China,there couldn’t be a worse time for theTrump administration to antagonizeits natural allies with tariffs on steel,aluminum and automobiles. Thereare some issues on which the U.S. cango it alone. This isn’t one.

Mr. Fly is a senior fellow and di-rector of the Asia Program at the Ger-man Marshall Fund of the UnitedStates.

By Jamie Fly

When the EU leader visitsWashington this week, thetalk should be on standingunited against China.

OPINION

The GlobalOrder WillOutlast U.S.Leadership

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A Critique of Identity Politics—From ObamaFor better or worse,Donald Trump is be-coming a far moretransformative pres-ident than many ofhis critics like to ac-knowledge. Demo-crats become for-eign-policy hawkswhen the topic turnsto Russia. And theymorph into states’

rights activists when they want toshield illegal immigrants from de-portation.

Meanwhile, conservative NeverTrumpers who have spent entire ca-reers advocating for deregulation,lower taxes, judicial restraint andcolorblind public policies haveabandoned those principles to makecommon cause with liberals andtheir media allies. These days, evenMr. Trump’s immediate predecessor,Barack Obama, doesn’t quite soundlike his old self.

Mr. Obama traveled to Johannes-burg last week to give a speechmarking the 100th anniversary ofNelson Mandela’s birth, and thechoicest passages sounded like gentledigs at his fellow leftists back home.Mr. Obama didn’t mention the cur-rent president by name, but he didweigh in on some current controver-sies, including immigration.

Democrats in Congress are underthe impression that voters want ournation’s porous international borderserased rather than fixed. To thatend, they are calling to abolish Im-migration and Customs Enforcement,the agency that tracks down humantraffickers, drug smugglers andother people who are in the countryillegally.

But Mr. Obama, sounding a lotmore like Mr. Trump than like Eliza-beth Warren or Alexandria Ocasio-Cortez, told his South African audi-ence that “it’s not wrong to insistthat national borders matter, [that]whether you’re a citizen or not isgoing to matter to a government,that laws need to be followed.” He

added that “newcomers shouldmake an effort to adapt to the lan-guage and customs of their newhome. Those are legitimate things,and we have to be able to engagepeople who do feel as if things arenot orderly.” Wow!

But wait, there’s more. Sinceleaving office, Mr. Obama has be-come not only a stickler for borderenforcement and cultural assimila-tion but also a critic of identity poli-tics. To make democracy work, hetold the crowd, we have to “engagewith people not only who look dif-ferent but who hold differentviews.” We should endeavor to “getinside the reality of people who aredifferent than us,” he said. “And youcan’t do this if you just out of handdisregard what your opponents haveto say from the start. And you can’tdo it if you insist that those whoaren’t like you—because they’rewhite or because they’re male—thatsomehow there’s no way they canunderstand what I’m feeling, thatsomehow they lack standing tospeak on certain matters.”

Regular readers of these pagesdon’t need to be reminded that Pres-ident Obama rarely practiced whathe’s now preaching. He made overtracial and ethnic appeals to voters.He embraced racial demagogues likeAl Sharpton and movements likeBlack Lives Matter. The Obama Jus-

tice Department exploited raciallycharged police incidents in Balti-more, Ferguson, Mo., and else-where. And when facing objectionsto his administration’s stance oneverything from health-care reformto voter-identification laws to en-vironmental protection, Mr. Obamaseldom failed to ascribe the basest

of motives to his critics.Mr. Obama can take the high

road now because he’s done run-ning for elective office, but heshares as much blame as anyone forthe political rancor and racial divi-sion we see today. In a sense, Don-ald Trump stole Barack Obama’splaybook and reminded the left thatDemocrats aren’t the only ones ca-pable of successfully playing re-sentment politics.

If Mr. Obama’s advice to Demo-crats is disingenuous, however, thatdoesn’t make it unwise. The formerpresident seems to understand bet-ter than most leaders in his partythat simply calling President Trump

a racist nincompoop as often aspossible and dismissing his sup-porters may not be the best strat-egy for winning back Congress inthe fall or taking the White Housein 2020. If it were, Hillary Clintonwould be president.

What we’re hearing from Mr.Obama isn’t entirely new or surpris-ing. Before becoming president, hefamously dismissed talk of separate“red” and “blue” and “liberal” and“conservative” and “black” and“white” Americas, and he cam-paigned as a unifier. Of course, Mr.Obama governed as a leftist ideo-logue, and Democrats today increas-ingly believe that moving still furtherleft will bring political success.

Policy proposals that once placedyou on the political fringe—single-payer health care, free college tuition,guaranteed jobs, drug legalization—are now considered mainstream Dem-ocratic positions. Mr. Obama remainsthe most popular Democrat on theplanet, but the party now belongs tohard-core progressives who don’tpretend to be anything else on thecampaign trail.

Mr. Obama believes that hisparty must win back those working-class whites in the Midwest whovoted for him twice and then swungthe 2016 election to Mr. Trump. Re-publicans should hope that Demo-crats continue to ignore him.

If Democrats want to winback Congress and theWhite House, they’ll listento the former president.

UPWARDMOBILITYBy Jason L.Riley

President Trump is clearly no fanof the liberal international or-der, but he isn’t an isolationist

or unilateralist either. He is a bilater-alist. Mr. Trump prefers to negotiatewith each nation one-on-one, confi-dent that no individual competitorcan match American power. But astrategy of divide and rule works onlyif competitors stay divided.

One effort to defend Mr. Trump’sskeptical view of multilateralism ap-peared on these pages during his ad-ministration’s first months. In a May2017 op-ed, the president’s then na-tional security and economic advis-ers, H.R. McMaster and Gary Cohn,argued that “the world is not a ‘globalcommunity’ but an arena where na-tions . . . compete for advantage.”

Consistent with this view, Mr. Trumphas railed against the North AtlanticTreaty Organization, the North Amer-ican Free Trade Agreement, theUnited Nations, the World Trade Or-ganization and the European Union—all major multilateral institutions—while withdrawing the U.S. from theParis climate accord, the seven-nationnuclear agreement with Iran and theTrans-Pacific Partnership.

This behavior runs counter to 70years of U.S. policy. At the ends ofboth world wars, America sought toestablish multilateral arrangements tokeep peace and promote prosperity. Itsucceeded on its second try; two warsand the Great Depression had pro-vided compelling evidence that neitherisolationism in foreign policy nor bi-lateralism in trade policy would serveU.S. interests. So America built an in-ternational order in which nations stillcompete for advantage, but do sowithin rules that restrain armed con-flict and trade manipulation.

Many are now questioning whetherany rules-based multilateral order cansurvive the withdrawal of its foundingand leading member. The answer isyes. There is plenty of evidence thatEurope, China, Japan and the rest ofthe developed world will continue tomaintain existing multilateral struc-tures and build new ones, even ifAmerica bails. The other partners ofthe TPP have decided to go aheadwithout the U.S. Japan and the EUreached an agreement last week toform the world’s largest free-tradepartnership. And the EU is strength-ening its security arrangements,hedging against the possibility thatNATO won’t suffice.

Though the order will survive, itwill become less liberal, less demo-cratic and perhaps less peaceful. Chinaalready is working both to buttressthe international system and reshapeit in its interest. It moved within theInternational Monetary Fund to makethe renminbi a reserve currencyalongside the dollar. China also hascreated its ownmultinational develop-ment bank, which has secured the par-ticipation of many major American al-lies, including Germany, France, theUnited Kingdom and Australia. TheChinese have become the largest con-tributor to international peacekeepingefforts among the five permanentmembers of the U.N. Security Council.Finally, China’s Belt and Road Initia-tive is promoting massive new infra-structure projects to tie together theeconomies of 70 countries from EastAsia to Western Europe.

The real alternative to an Ameri-can-led rules-based international or-der isn’t successful bilateralism. It’s aChinese-led order.

Mr. Dobbins is a senior fellow withthe Rand Corp. and a former assis-tant secretary of state for Europe.

China and Europe willhappily take the reins—toAmerica’s detriment.

© 2018 Dow Jones & Company. All Rights Reserved. * * * * * THEWALL STREET JOURNAL. Wednesday, July 25, 2018 | B1

BY MATT WIRZ

Debt FundsBack OffEmergingMarkets

TECHNOLOGY: FACEBOOK TO GROOM CHINESE STARTUPS WITH EYE ON MARKET B4

BUSINESS&FINANCES&P 2820.40 À 0.48% S&PFIN À 0.33% S&P IT À 0.50% DJTRANS g 1.53% WSJ$ IDX g 0.04% LIBOR3M 2.335 NIKKEI (Midday) 22610.83 À 0.45% Seemore atWSJMarkets.com

LUKESHARRETT

/BLO

OMBERGNEWS

HARLEY WARNSOF ROAD RASH

AHEAD

EARNINGS, B3

GOOD PROFITSPOWER

BLUE CHIPS

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June 30 despite getting amore than $1 billion revenueinjection from Time Warnerfor the 16 days that AT&Towned the business duringthe quarter.

AT&T acquired the ownerof CNN, HBO and WarnerBros. last month in an $81 bil-lion cash-and-stock deal thatturned the Dallas-based tele-communications company intoan overnight media giant.That division, now calledWarnerMedia, enjoyed gainsin advertising and premiumsubscriptions.

AT&T Chief Executive Ran-dall Stephenson said the com-pany’s new media assets per-

formed well. “We’ve nowassembled the key elements ofa modern media company,” hesaid Tuesday in a conferencecall with analysts.

The Justice Departmentsued last fall to block theTime Warner deal saying itwas anticompetitive, but thecompanies prevailed at trial.The Justice Department hasappealed the decision, but Mr.Stephenson said the companywas moving forward with itsplans. “We’ve had a fewmonths of distraction,” hesaid. “That is behind us.”

The country’s second-larg-est wireless carrier by sub-scribers reported 46,000 more

cellphone customers on post-paid plans, a category inves-tors value for its predictabil-ity. AT&T ended the quarterwith 93.6 million subscriberson postpaid and prepaidplans.

Wireless competition hascooled in recent months ascompanies focus on their bal-ance sheets and use other of-fers, like free video, to enticenew customers.

The detente helped rivalVerizon Communications Inc.add 199,000 postpaid phonecustomers in the recent quar-ter without cutting prices.AT&T raised the administra-tive fees it charges postpaid

customers to $1.99 a month,which boosted revenue.

Television viewers contin-ued to seek cheaper videopackages. AT&T’s DirecTV lost286,000 satellite-TV custom-ers during the second quarter,ending with just under 20million connections. Thecheaper online DirecTV Nowbusiness posted a net gain of342,000 customers, endingthe quarter with 1.8 millionaccounts.

The DirecTV satellite unithas lost more than one millioncustomers after five straightquarters of declines. AT&Thas offered free HBO to cer-

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Growth in AT&T Inc.’s newmedia division helped paperover deep losses in the com-pany’s satellite-TV businessstemming from a cord-cuttingtrend that executives havesaid first drove their appetitefor entertainment assets.

Overall, the company re-ported lower revenue for thethree-month period ended

BY DREW FITZGERALD

AT&T Gets Help From New AssetsWarnerMedia keepsrevenue from fallingfurther, as DirecTVcontinues to struggle

been hits on television, thereare no recent examples of re-corded stage shows that playin theaters globally, like a tra-ditional movie.

Several studios have ex-pressed interest in “Hamilton,”the people with knowledge ofthe deal talks said. Contendersinclude AT&T Inc.’s WarnerBros, which in June bought therights to adapt Mr. Miranda’smusical “In the Heights,” and21st Century Fox Inc.’s Twenti-eth Century Fox, which made

“The Greatest Showman.”Netflix Inc. recently bought

the rights to stream a recordedversion of Bruce Springsteen’sone-man Broadway show formore than $20 million, saidpeople with knowledge of thatdeal. It is also a potential bid-der for “Hamilton,” one ofthose people said. If the sub-scription-video company is suc-cessful, the show would likelyplay in few, if any, theaters.

—Joe Flintcontributed to this article.

HOUSTON—A Google execu-tive wearing white jeans and anavy T-shirt stood before aroomful of suit-clad oil execu-tives here last month and de-livered a blunt sales pitch: Wecan manage your data betterthan you.

Darryl Willis, part of a newgroup Google has created tocourt the oil and gas industry,said energy companies havereams of data but only use 5%of it, a serious problem in thedigital economy. Signing acloud deal with Google, part ofAlphabet Inc., could solvethat, he argued.

“Companies in the oil andgas industry will either be acatalyst for change or theywill be a casualty of change,”he said during a presentationat the Unify Conference, an in-

Emerging-market govern-ment bonds have bouncedback from their decline in thefirst half of 2018, but manybond-fund managers aren’tbuying the rebound.

Individual investors putabout $100 million into emerg-ing-market debt mutual fundsin the second week of July asprices rose, reversing monthsof outflows, and adding to $13billion they had already in-vested since mid-2016, accord-ing to Lipper. Rising dollar-de-nominated bond prices in Julyerased more than half of thelosses from the first half ofthe year, showing the appealof high-yielding bonds issuedby nations including Argen-tina, Egypt and Brazil at atime of solid global growthand low interest rates.

Yet portfolio managers whofocus on emerging debt remainlukewarm, zeroing in on signsthat the debt remains risky de-spite price declines earlier in2018. A survey of emerging-market debt investors con-ducted by Citigroup in earlyJuly found increasingly bearishsentiment compared with thesecond quarter, with more re-spondents building up cash inexpectation of further price de-clines and 50% believing a full-blown trade war will break out.Trading and issuance remainbelow year-earlier levels, andfirms such as Deutsche BankAG and Nomura Holdings Inc.have cut staff in their emerg-ing-market bond departments.

Among the concerns voicedby many bond managers: A re-surgent dollar could take off,reigniting fears about debtsustainability and economicresilience in countries whosedebt-servicing capacity standsto decline as local currenciesdepreciate.

“There are very strong andsometimes opposing forcesthat make this a very chal-lenging time,” said Henry Pea-body, co-manager of an $810million global bond fund atEaton Vance. About half of thefund’s investments are inemerging markets, but Mr.Peabody is keeping about 12%in cash in anticipation of fur-ther downturns. “If we see amore pronounced dollar rally,that’s when we want to buy,when others are forced sell-ers,” he said.

Buying dollar-denominatedemerging bonds paid off in2017, with returns of 8.2%,counting price changes and in-terest payments, according toBloomberg Barclays data. Thisyear, trade tensions have rat-tled these markets and sad-dled emerging-market bond-

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dustry forum on digital tech-nology put on by BakerHughes, a part of GeneralElectric Co.

Silicon Valley has come toHouston, as tech companiespush to sign oil and gas com-panies to lucrative cloud andartificial intelligence deals. Inrecent months, companies in-cluding Chevron Corp., Equi-nor ASA, Total SA and RepsolSA have entered into contractswith companies such asGoogle and Microsoft Corp.collectively worth billions ofdollars.

But the relationship be-tween Silicon Valley and theenergy industry is compli-cated. While oil and gas com-panies need Silicon Valley’sexpertise, some energy execu-tives worry they could becompeting with technologycompanies in years to come,

especially as both sides ex-plore renewable energy. Inlearning the ways of the in-dustry, tech companies couldalso develop analytical exper-tise of value for energy pro-duction and oil-field services.

“I can imagine us compet-ing with, but also partneringwith digital companies,” saidMaarten Wetselaar, the headof the gas and new energiesbusiness at Royal Dutch ShellPlc. “There’s a very differentcompetitor set that couldemerge in this business.”

Companies in other sectorshave already seen their cloudproviders encroach on theirbusiness.

The big question, then, forenergy companies is: Are theycomfortable turning over theirdata to potential competitors,analysts say.

While energy companies

have been using AI and cloudservices for years, they haverecently become more aggres-sive in digitizing operations asthe industry undergoes a mod-ernization push. That is creat-ing a race in Silicon Valley towin their business.

Google recently hired Mr.Willis, who despite his decid-edly tech-like business attire,worked at BP PLC for the betterpart of three decades, as the in-ternet company seeks a biggerpiece of the energy action.

“If it has to do with heating,lighting or mobility for humanbeings on this planet, we’re in-terested in it,” Mr. Willis saidin an interview, playing downany potential competition be-tween Google and energy com-panies. “Our plan is to be thepartner of choice for the en-ergy industry.”

Microsoft also is increas-

ingly focused on the energy in-dustry, said Jason Zander, exec-utive vice president atMicrosoft Azure, the company’scloud platform. He said thecompany is sensitive to cus-tomers’ concerns that providerscould use their data even if in-directly to become competitors.

“Our message is: ’We arenot in these industries. I’m notin retail. I’m not in energy,’”he said.

Chevron signed a seven-year deal with Microsoft inOctober worth hundreds ofmillions of dollars. Azure willcapture and store the tera-bytes of data Chevron gener-ates around the globe in ev-erything from underwater oilexploration to refineries, al-

PleaseturntopageB4

BY CHRISTOPHER M. MATTHEWS

Oil MixesWith Silicon Valley—butWarily

Up in the AirEstimated size of the public cloudmarket, by company

Sources: Gartner; Goldman Sachs (estimates)

THEWALL STREET JOURNAL.

Note: 2018-19 are projections

Amazon Microsoft Google

OtherAlibaba

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INSIDE

“Hamilton” may be comingto movie theaters, exactly asaudiences saw it on Broadway.

Hollywood studios are cur-rently bidding for the big-screenrights to Lin-Manuel Miranda’shit musical about founding fa-ther Alexander Hamilton, ac-cording to people involved insales talks. But in an unusualtwist, the “Hamilton” moviewon’t be a filmed adaptation.Instead, it is a recording of theshow made in 2016 with itsoriginal cast, including Mr.Miranda in the lead role.

The world-wide theatricalrights for “Hamilton” could sellfor more than $50 million, twoof the people with knowledge ofthe deal talks said. Representa-tives for the production have re-cently screened the recordingfor interested buyers. A spokes-man for Mr. Miranda didn’t re-spond to a request for comment.

Though some stage showshave played in a limited num-ber of theaters as one-timeevents, and live musicals like“Jesus Christ Superstar” have

BY BEN FRITZ

Coming: ‘Hamilton’ theMovie

Lin-Manuel Miranda’s hit musical could be headed to the cinema.

JOANMARCUS/PBS/A

SSOCIATE

DPRESS

HEARD ON THE STREET | By Aaron Back

Kimberly-Clark HasBig Mess to Clean

A combina-tion of risingcompetition,higher costsand reducedpricing power

are hitting consumer-goodsmakers. Few are suffering asmuch as Kimberly-Clark.

The maker of Kleenex tis-sues, Scott toilet paper andHuggies diapers reportedsecond-quarter results thatnarrowly beat muted analystestimates. But the companyalso lowered its outlook forfull-year earnings, citinghigher commodity costs.

U.S. retailers like drug-stores and supermarkets,themselves under pressurefrom online retailers andhard-discounter supermar-kets, are responding by pres-suring suppliers for lowerprices and investing in pri-vate-label alternatives.

Kimberly-Clark is espe-cially exposed to thesetrends because its productcategories have weakerbrand value compared withthe likes of Colgate tooth-paste or Tide detergent. Pri-vate-label market share infacial tissues has risen to24% from 22% over the pastfour years, according toWells Fargo analyst BonnieHerzog, while the private-la-bel share of toilet paper hasrisen to 22% from 19%.

In the second quarter,Kimberly-Clark’s comparablenet sales were flat from ayear earlier. In the personal-care segment that includesdiapers, North America salesfell 1%. In the consumer-tis-sue segment, North Americasales declined 4%.

The company is runningtwo concurrent cost-cutting

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� Heard on the Street: Cloud israinmaker for Google.......... B12

B2 | Wednesday, July 25, 2018 * * * * * THEWALL STREET JOURNAL.

holder vote by both companieson July 27. The Big Ten Net-work is among the assets Foxisn’t selling to Disney—alongwith Fox News, Fox Sports 1,the Fox broadcast network andlocal television stations.

Comcast is still challengingFox for control of Europeanpay-TV giant Sky PLC. Fox hasa 39% stake in the companyand is seeking to consolidateits ownership. Comcast’s bidfor all of Sky is valued at $34billion, about 5% higher thanFox’s last bid.

21st Century Fox and The

Century Fox in recent monthsrebuffed overtures from Com-cast to buy the bulk of Fox’sentertainment assets, favoringa bid from Walt Disney Co.

Comcast felt during themerger talks that Fox didn’tconsider its offer seriously, ac-cording to people familiarwith the situation, a chargeFox executives have denied.Comcast officially withdrewits interest last week after abidding war left Disney withthe highest offer on the table.

The $71.3 billion Disney-Foxdeal will be up for a share-

BUSINESS & FINANCEINDEX TO BUSINESSESThese indexes cite notable references to most parent companies and businesspeoplein today’s edition. Articles on regional page inserts aren’t cited in these indexes.

AAlibaba Group.............B4Alphabet.......B1,B11,B12Amazon.com.............B12American Internatl...B10Apple...........................A6Argo AI........................B5AT&T............................B1

BBiogen .......................B11Bitwise AssetManagement...........B11

Boeing..................A6,B11

CChevron.......................B1Christie's Internatl.....A2Coca-Cola.............A6,B11Comcast.......................B2Credit Suisse Group .B12Cushman & WakefieldB6CVS Health ...............A12

DDalian Wanda Group..B6Deere.........................B11Deutsche Bank............B1

EEli Lilly ......................B11Equinor........................B1Exor .............................B5

FFacebook..............B4,B11

Fiat Chrysler ...............B5Ford Motor..................B5

GGeneral Motors ...B5,B11

HHarley-Davidson...................... B3,B11,B12

IIntel.............................A2

JJetBlue Airways.......B11

KKeskinoglu Poultry...B12Kimberly-Clark............B1

LLaSalle InvestmentManagement.............B6

Lockheed Martin.........B3Lululemon Athletica...B3LVMH Moët HennessyLouis Vuitton ......B2,B3

MMetLife......................B10Microsoft...................B12

NNomura Holdings........B1

O - POmega Healthcare......B6Papa John's.................A1Pershing Square .........B3

Peugeot.......................B5Prudential Financial..B10

Q - RQuest Diagnostics....B11Repsol..........................B1

SSinclair Broadcast.......B3Sky...............................B2Societe Generale.......B12SoftBank Group..........B5SolidX Management.B11SparkCognition............B4

TTexas Instruments .....B4Third Point..................B33M...............................A6Total ............................B1Tribune Media.............B321st Century Fox........B2

UUBS Group.........B10,B12United Parcel Service...................................B11United Technologies............................... A6,B3

V - WVan Eck Associates..B11Verizon........................B2Visa............................B11Walt Disney................B2Whirlpool.....................B3

INDEX TO PEOPLE

programs. One has been go-ing for years and yielded$110 million of cost savingsin the quarter, according tothe company. An additionalrestructuring announced inJanuary, to cut 13% of itsglobal workforce and close10 factories, saved $40 mil-lion. These savings wereoverwhelmed by $200 mil-lion of higher input costs,

ContinuedfrompageB1

though—especially for thepulp that goes into tissueproducts.

The company’s gross mar-gins have fallen to 31.6% inthe second quarter from36.1% a year earlier, accord-ing to S&P Capital IQ.

The company said itwould “continue to aggres-sively manage costs andevaluate further opportuni-ties to increase net sellingprices.” It isn’t easy, though,to raise prices in such acompetitive market.

Kimberly-Clark shares aredown around 13% so far thisyear. With no clear way outof trouble for the company,they don’t look set to re-bound any time soon.

A - BAckman, William........B3Anderson, Richard......B6Arnault, Bernard.........B2Bellamy, Ethan .........B11

C - EChandler, Mark..........B11Crutcher, Brian............B4Ermotti, Sergio.........B10

F - GFiola, Kenneth ............A2Gang, Hu.....................B6Goulart, Steve...........B10Grybowski, Jeffrey.....A2Guiony, Jean-Jacques.....................................B2Gupta, Anil................B10

H - LHansen, Ole...............B11Hayes, Greg.................B3Hewson, Marillyn .......B3Husain, Amir...............B4Lai, Adrian.................B11Levatich, Matt............B3Loeb, Daniel................B3Lohscheller, Michael...B5

MManley, Mike..............B5Marakby, Sherif ..........B5

NNavy, Ric...................B11

OO'Brien, Wade...........B10Olin, John....................B3

P - RPeabody, Henry...........B1Peters, Jim..................B3Pollock, Darren..........B11Porat, Ruth ...............B12Reinhart, John............A2Reyes, Felix.................A2

S - TShreve, Dan................A2Silverman, Mark.........B2Smotrich, Ross ...........B6Tanner, Bruce..............B3Tavares, Carlos ...........B5

W - ZWillis, Darryl...............B1Zander, Jason..............B1Zuckerberg, Mark .......B4

Kimberly-Clark HasBig Mess

entertainment group, whichincludes DirecTV, fell to $11.7billion, down about $1 billionfrom a year earlier.

Revenue in the wirelessbusiness slipped to $17.28 bil-

lion. Excluding the impact ofchanges to revenue-recogni-tion rules, the company saidquarterly wireless service rev-enue rose for the first timesince 2014.

AT&T boosted its annualprofit target, saying it expectsmore than $3.50 a share, anumber that reflects the ex-pected contribution fromWarnerMedia assets.

Verizon CommunicationsInc. bolstered its base of wire-less phone subscribers in thesecond quarter as industry-wide promotions died downand the company avoided thedeal-making that is reshapingits rivals.

The largest U.S. wirelesscarrier by subscribers gained anet 199,000 new phone con-nections during the period, af-ter losing some of those cus-tomers in the early months ofthe year. Revenue gains in thewireless division offset de-clines in Verizon’s landlinebusiness and flat revenue inits Oath internet business.

Cellphone promotions sub-sided in the wireless industryin the first half of the year, al-leviating some pressure on Ve-rizon as it defends its sub-

scriber base. Verizon hasrecently tried to sell subscrib-ers on more flexible, tiered“unlimited plans,” which allowsubscribers to mix the data al-lotments within family plans.

The company “appears toalso be benefiting from cus-tomers stepping up to higher-priced wireless plans,” WellsFargo analysts said in a note,as well as adding new connec-tions to existing accounts.

“The competitive intensityebbs and flows,” Chief Finan-cial Officer Matt Ellis said inan interview. Fewer second-quarter promotions are un-likely to indicate what is tocome for the rest of the year,he said.

While the net phone addi-tions were positive for the pe-riod, it was the lowest net ad-dition of those customerssince the fourth quarter of

2016.The company had 116.5 mil-

lion wireless connections atthe end of June, up from 116.2million at the end of March.The company added 369,000connections for gadgets suchas smartwatches and con-nected vehicles in the secondquarter, while losing 37,000tablet connections.

Verizon focuses primarilyon postpaid customers whopay their bills at the end ofthe month under longer-termcontracts. Those customersare seen by carriers as morevaluable because they are astable source of revenue andrarely switch providers.

In the landline business, Ve-rizon said it added 43,000home broadband connectionsbut lost 37,000 Fios video cus-tomers, as cord-cutting contin-ues to erode traditional pay-

TV services. Unlike rivals,Verizon doesn’t have a stream-ing-video service and it re-cently scrapped a mobile videoapp called go90 that failed tocatch on.

The period was the last fullquarter under the leadershipof longtime Chief ExecutiveLowell McAdam. Chief Tech-nology Officer Hans Vestbergis scheduled to take the reinson Aug. 1. On his final earn-ings call with analysts, Mr.McAdam said his strategy ofinvesting in the company’snetwork had left it in a strongfinancial position.

“I also have to say a littlebit with a smile on my face—I’m glad we didn’t follow a lotof the things the analysts andthe bankers told us we had todo,” he said, alluding to alarge-scale content acquisi-tion.

BY SARAH KROUSE

VerizonWireless Adds Customers

The wireless carrier reported 46,000 more cellphone customers on postpaid plans for the latest quarter.

BRIANSNYDER/R

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tain wireless subscribers andrecently rolled out a $15-a-month streaming package toattract “cord cutters” aban-doning more expensive tradi-tional TV plans.

WarnerMedia helped offsetthe weakness in TV distribu-tion. Revenue in its Turner di-vision grew by about 4%,helped by stronger ad reve-nue. Its premium HBO divisionposted 13% more in revenueas subscriptions climbed.

AT&T’s overall profitclimbed to $5.13 billion, or 81cents a share, from $3.92 bil-lion, or 63 cents a share, inlast year’s second quarter.Revenue fell 2.1% to $38.99billion despite a $1.13 billionboost from media assets.

Revenue in the company’s

ContinuedfrompageB1

AT&T IsHelped byNew Assets

trade fight that has roiledstock markets and fueled fearsof a global slowdown. Duringthe half, the two countries im-posed tariffs on dozens ofproducts.

LVMH Chief Executive Ber-nard Arnault, whose family isthe company’s controllingshareholder, struck a cautiousnote amid the record results.

“Despite buoyant global de-mand, monetary and geopoliti-cal uncertainties remain,” Mr.Arnault said.

Investors worry that aneconomic slowdown in Chinacould damp spending by Chi-nese shoppers, who are theluxury industry’s most impor-tant clientele. Beijing has

launched a campaign to curblending, leading economists topredict that the economy isset to slow. LVMH executivesTuesday said there were nosigns of a Chinese slowdownhitting its business.

Still, Jean-Jacques Guiony,LVMH’s chief financial officer,told investors that maintain-ing first-half growth rates forthe rest of the year would be achallenge, given LVMH’sstrong performance in the sec-ond half of last year and thethreat of a spillover effectfrom U.S. and Chinese tariffs.

“The current trends cannotrealistically be extrapolated tothe rest of the year,” Mr. Gui-ony said.

Wall Street Journal parentNews Corp share commonownership

The Big Ten Network isavailable in more than 50 mil-lion homes, according to in-dustry research firm KaganS&P Global Market Intelli-gence. Its average monthly feefor carriage is 56 cents persubscriber, according to Ka-gan. That fee is in the midtierrange for programmers; morepopular sports and entertain-ment channels average wellabove $1 per subscriber andsome such as Disney’s ESPNget several dollars.

The friction over the Foxmerger discussions and Skypursuit could add an extralayer of tension to the Big TenNetwork carriage negotiations.

In a speech in Chicago at aBig Ten event on Tuesday, FoxSports National NetworksPresident Mark Silverman saidComcast hasn’t responded toproposals “dating back to Feb-ruary.”

If Comcast doesn’t strike adeal to carry the Big Ten Net-work, it could also result inFox blacking out Big Tengames that are carried on itsnational sports channel, FoxSports 1, according to a personclose to the network.

Distributors that don’tcarry the Big Ten Networkdon’t have access to the con-ference games shown on FoxSports 1 unless they pay anadditional surcharge, the per-son said.

21st Century Fox and Com-cast Corp., which have beenplayers in a contentiousmerger drama this summer,may have something new tofight about: the Big Ten Net-work.

Comcast’s agreement tocarry the college sports chan-nel, which features eventsfrom Big Ten schools, expiresAug. 31. Fox is seeking an in-crease in carriage fees fromthe cable company under anew deal.

A senior Fox Sports execu-tive said Tuesday the companydoesn’t believe Comcast willrenew the contract, based onthe tenor of negotiations.Comcast serves 10 of the 14markets where Big Ten col-leges are located.

“Comcast’s agreement withcontent providers like the BigTen Network expires fromtime to time. We are commu-nicating with the Big Ten Net-work about continuing tocarry it after August 31 andlook forward to productive ne-gotiations,” a Comcast spokes-woman said.

Such fights between cableprogrammers and distributorsare commonplace in the mediaindustry. Quite often, the dis-putes are resolved very closeto the expiration of the exist-ing carriage deal.

This potential showdowncomes at a sensitive momentfor the two companies. 21st

BY JOE FLINT

Big Ten Network Battle Stage Is Set

Big Ten Network’s Bobby Carpenter interviewing Malcolm Jenkins.

ADAM

LACY

/ICO

NSMI/ZUMAPRESS

Wearing ThinKimberly-Clark quarterly gross margin

THEWALL STREET JOURNAL.Source: S&P Capital IQ

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The world’s well-heeledshoppers pushed up first-halfrevenue at luxury conglomer-ate LVMH Moët HennessyLouis Vuitton SE to a record,brushing aside worries of atrade dispute between the U.S.and China to splurge on every-thing from handbags and jew-elry to fine wines.

Revenue in the first sixmonths of the year hit €21.8billion ($25.5 billion), up 10%compared with the same pe-riod a year ago, LVMH saidTuesday. LVMH’s net profitjumped 41% to €3 billion.

LVMH is the world’s biggestluxury-goods company by

sales, and its results are seenas a bellwether for the indus-try. LVMH owns leather-goodsgiant Louis Vuitton, couturehouse Christian Dior, jewelerBulgari, cognac label Hennessyand dozens of other brands.

The results reflect solideconomic growth across majoreconomies that has promptedwealthier consumers world-wide to open their wallets.The Trump administration’stax cut has propelled the U.S.stock market to records. Chi-nese growth has defied expec-tations of a slowdown. Andthe eurozone is recovering af-ter years of crisis.

Shoppers splurged even asthe U.S. and China kicked off a

BY MATTHEW DALTON

LVMH Zips Up Record Revenue

THEWALL STREET JOURNAL. * * * * * Wednesday, July 25, 2018 | B3

BUSINESS NEWS

Lockheed Martin Corp. ex-pects to end the year with arecord order backlog of morethan $110 billion, driven byoverseas sales and more Pen-tagon spending.

The world’s largest defensecompany by sales has been aprime beneficiary of congres-sional actions boosting Penta-gon spending above requestsfrom the White House. The ef-fort is aimed at replacingworn-out equipment and ad-dressing an array of threats,including North Korea’s nu-clear program and militarybuildups by Russia and China.

Investors have fretted thatdefense companies weren’ttranslating the buoyant mili-tary budget climate intohigher sales and profits, butLockheed Martin raised itsown full-year financial guid-ance after reporting forecast-beating quarterly earnings.

Chief Executive MarillynHewson on Tuesday high-lighted additional F-35 combatjets and Thaad missile-defensesystems requested by Congressduring an upbeat investor call.

Lockheed ended its secondquarter with a backlog of $105billion, which is expected to risewith a final agreement on sell-ing another 141 F-35 jets. Lock-heed Martin is also competingfor two other big Pentagon con-tracts: an Air Force trainer anda refueling drone for the Navy.

Chief Financial OfficerBruce Tanner said the com-pany had won more contractsin the quarter than it antici-pated, and was already secur-ing sales from the recently en-acted 2018 defense budget.Congress granted Lockheedaround $7 billion more in workthan requested by the presi-dential budget, and the com-pany is likely to gain billionsmore from the 2019 budget be-ing debated by lawmakers.

Congress approved almost$47 billion in arms sales duringthe first half of the year, some$5 billion more than in all of2017. Lockheed’s wins include a$450 million deal to start build-ing frigates for Saudi Arabiaand $1.1 billion to supply Bah-rain with 16 F-16 jet fighters.

Lockheed raised the mid-point of its 2018 profit guid-ance by 6% to a range of$16.75 to $17.05 a share, aboveanalysts expectations.

The company reportedprofit of $1.16 billion in theJune quarter, with per-shareearnings rising to $4.05, abovethe $3.92 consensus amonganalysts.

It took a $96 million chargein the quarter for severanceand restructuring costs.

BY DOUG CAMERON

Pentagon’sSpendingBoostsLockheed

crease in sales to Europe. Thecompany said its global motor-cycle shipments fell 11% in thelatest quarter, but Harley main-tained its forecast of shipping231,000 to 236,000 motorcy-

cles this year.The company’s latest quar-

ter ended on July 1, about aweek after the EU’s motorcycletariffs went into effect, so theimpact on the financial results

Hayes stressed that other out-comes are possible. He saidthat UTC’s 2015 evaluation ofa spinoff of its Sikorsky Air-craft business led to sellingthe helicopter maker to Lock-heed Martin for $9 billion.

Activist investor WilliamAckman’s Pershing SquareCapital Management LP andDaniel Loeb’s Third Point LLChave been pushing the com-pany to pursue a split.

Shares in UTC rose 3.8%, or

$4.87, to $134.24 on the NewYork Stock Exchange.

Mr. Hayes warned that ris-ing costs from commodities,as well as from a labor short-age in the U.S. and Europe, are“a recurring theme” in UTC’scommercial businesses.

The company expects tariffsto cut 2018 earnings by fivecents a share.

“If you think about nextyear, obviously, you can see amuch bigger impact from all

of these tariffs,” Mr. Hayessaid. The rising costs will leadto higher prices and inflation,with the company being mind-ful that larger price tags couldreduce demand.

The adjusted earnings of$1.97 a share exceeded analystexpectations of $1.85, accord-ing to Thomson Reuters. Reve-nue of $16.7 billion also beat aprojection of $16.27 billion.

UTC boosted its 2018 ad-justed-earnings outlook to a

range of $7.10 to $7.25 a share,up from a previous view of$6.95 to $7.15 a share. It alsoraised the low end of its 2018sales projection by $500 mil-lion and now expects $63.5billion to $64.5 billion.

The company reported sec-ond-quarter net income ofabout $2 billion, up from $1.4billion a year earlier. Per-shareearnings rose to $2.56 from$1.80. Total sales rose 9% to$16.7 billion from $15.3 billion.

United TechnologiesCorp.’s second-quarter profitrose 42%, prompting the in-dustrial company to nudge itsfull-year outlook higher assales increased in all its majordivisions.

The Farmington, Conn.,conglomerate said revenuegrowth was driven by its Pratt& Whitney jet-engine unit andits aerospace-systems busi-ness. While positive on theyear, the company warned thatit is working to manage risingcosts across its businessesthrough cost reductions andprice increases.

United Technologies ownsone of the world’s biggest jet-engine makers, Pratt & Whit-ney, along with Otis elevatorsand Carrier air conditioners.UTC expects to close its $23billion acquisition of aero-space company Rockwell Col-lins in the coming months, af-ter which it will explorerearranging the portfolio.

“I think all options are onthe table,” Chief ExecutiveGreg Hayes said during a con-ference call with analysts. UTCcontinues to work with itsboard on reviewing the portfo-lio, including a potential splitof the company into threepieces, and will share its deci-sion in the fourth quarter.

While a breakup has re-ceived the most attention, Mr.

BY THOMAS GRYTA

United Technologies Looks UpGroup raises outlookas jet-engine businesshelps bolster revenue;latest profit leaps 42%

A fire-safety display at UTC’s Center for Intelligent Buildings in Florida. The group warned that it is working to manage rising costs.

RICHARDGRAULICH

/THEPA

LMBEACH

POST/ZUMAPRESS

analyst estimates. Before Tues-day, the stock had fallen 19%this year amid slowing U.S.sales and concerns about theimpact from tariffs.

In June, Harley said it wouldmove more production over-seas to avoid European Unionduties applied in response toTrump administration tariffson foreign steel and aluminum.

Executives said Tuesday afinal decision hasn’t beenreached on where productionwill be moved.

President Donald Trump andunion leaders have criticizedHarley’s move.

Chief Executive Matt Levat-ich on Tuesday defended thedecision, which he said wasmade to keep down the cost ofits motorcycles in Europe.

Harley’s sales in Europe andother foreign markets have be-come increasingly important assales stall at home.

Harley’s U.S. retail sales fell6.4% to 46,490 motorcycles inthe second quarter, while inter-national sales rose 0.7% to31,938 including a 3.6% in-

released Tuesday was limited.Harley had said that until it

shifts production abroad, it willcover the cost of the tariffsrather than raise prices in theEU. That will add up to about$2,200 per motorcycle and atotal of up to $35 million thisyear, Harley said.

Pricier steel and aluminumin the U.S. will cost Harley upto $20 million more thanplanned this year, Harley said.Prices for domestic flat-rolledsteel in the U.S. have risen bymore than 30% this year in re-sponse to a 25% U.S. tariff onimported steel.

Overall, Harley’s revenuefrom motorcycles and accesso-ries fell 3.3% in the secondquarter to $1.53 billion.

Harley posted a profit of$242.4 million, or $1.45 ashare, compared with $258.9million, or $1.48 a share, a yearearlier. Excluding certain costs,the company reported per-share earnings of $1.52.

Harley-Davidson Inc. saidits profit would take a hit thisyear as tariffs compound along sales slump for the motor-cycle maker.

Harley said its costs wouldincrease by up to $55 millionthis year as the Milwaukee-based manufacturer pays morefor steel and aluminum used tomake its motorcycles in theU.S. and pays higher duties onhogs it exports from the U.S. toEurope.

“We are working with theadministration and all the gov-ernments we can to do the bestwe can to get these tariffs re-moved,” Harley Chief FinancialOfficer John Olin told investorson Tuesday.

Harley said its operatingmargin, a measure of profit-ability, would be 9% to 10% thisyear, down from a previousforecast of 9.5% to 10.5%.

Still, Harley shares rose 7.7%to $44.63 as the company’sper-share earnings surpassed

BY AUSTEN HUFFORDAND BOB TITA

Harley Warns Higher Duties Will Hogtie It

U.S.46,490t6.4%

Int’l31,938s0.7%

2Q 2018

THEWALL STREET JOURNAL.

2

–12

–10

–8

–6

–4

–2

0

%

’182017

Uneasy RiderHarley shares rose on Tuesday as per-share earnings beat analystestimates, while international sales have become more important assales fall in the U.S.

Motorcycle unit sales, changefrom previous year

Harley-Davidson share price infive minute intervals

Source: the company

$46

40

41

42

43

44

45

19July 18 20 23 24

Tuesday$44.63

▲7.7%

� Heard on the Street: Harleyrides to the border............... B12

BUSINESSWATCH

LULULEMON ATHLETICA

New CEO RecruitedFrom Sephora

Lululemon Athletica Inc. hasappointed Calvin McDonald asits next chief executive officer,tapping a top executive ofbeauty company Sephora to leadthe athletic-wear maker.

Lululemon said Tuesday thatMr. McDonald’s appointment iseffective Aug. 20. He will have a$1.25 million base salary andserve as a board director, ac-cording to a Securities and Ex-change Commission filing.

The hire comes as the Van-couver-based retailer has beensearching for several months fora successor to former CEO Lau-rent Potdevin, who abruptly re-signed in February after thecompany said he engaged in be-havior that failed to meet thecompany’s standards. Mr. Pot-devin had served as CEO sinceJanuary 2014.

Mr. McDonald, 46 years old,has been the president and CEOof the Americas for Sephora,owned by French luxury goodsconglomerate LVMH Moët Hen-nessy Louis Vuitton, since 2013.

—Waverly Colville

SINCLAIR BROADCAST GROUP

Trump Calls BlockingA Deal ‘Disgraceful’

President Trump said Tues-day it was “disgraceful” that fed-eral regulators have blocked Sin-clair Broadcast Group Inc.’s $3.9

billion acquisition of TribuneMedia Co., taking sides againstthe Federal CommunicationsCommission in the politicallycharged deal.

“So sad and unfair that theFCC wouldn’t approve the Sin-clair Broadcast merger with Trib-une,” tweeted Mr. Trump. He saidthe acquisition would have cre-ated a “much needed conserva-tive voice by and for the people.”

The FCC didn’t immediatelyrespond to a request for com-ment. Jessica Rosenworcel, aDemocratic commissioner on theFCC, tweeted a one-word re-sponse: “Disagree.”

Earlier this month, the Re-publican chairman of the FCC,Ajit Pai, said he had “seriousconcerns” about the deal andtook action to block it. Mr. Paisaid that proposed station dives-titures by Sinclair to meet FCCregulations could leave the com-pany in practical control of thosestations “in violation of the law.”

—John D. McKinnon

WHIRLPOOL

Appliance MakerReports Soft Demand

Whirlpool Corp. said U.S. de-mand for its washing machineswas “very soft” in the secondquarter as the appliance makerraised prices to cover the risingcost of raw materials.

Whirlpool shares fell 15% to$128.82.

Chief Financial Officer Jim Pe-ters said Whirlpool’s rivals stock-piled appliances before the im-plementation of tariffs that thecompany wanted the U.S. to en-act. The Wall Street Journal lastweek reported signs of decliningdemand for washing machines inthe wake of the tariffs.

Whirlpool swung to a second-quarter loss after booking $747million in charges on its Euro-pean business and paying $114million for an antitrust settle-ment in France.

—Andrew Tangel

Lackluster sales of laundry appliances dented quarterly sales.

DANIELACK

ER/B

LOOMBERGNEWS

B4 | Wednesday, July 25, 2018 * * THEWALL STREET JOURNAL.

ceding management of theirdata to future competitors.While it seems unlikely thatGoogle or Amazon would everenter actual oil production,control of data plausibly couldbecome the more profitableaspect of the business if tech-niques such as fracking arecommoditized, he said.

Both Google and Amazonalso have invested hundreds ofmillions of dollars in renew-able power, largely for theirown needs, an area many largeEuropean energy companiesare starting to invest in.

“If the value chain becomesentirely digital and [SiliconValley] owns it and is provid-ing alternative energy sources,is that really a business to bein?” Mr. Husain said.

Equinor, the company for-merly known as Statoil, an-nounced last month it hadsigned a cloud contract withMicrosoft worth hundreds ofmillions of dollars.

But it has developed itsown cloud platform, Omnia. Itwill move the majority of itsdata to Azure, but continue touse Omnia to analyze data andshare it internally and exter-nally, said Ashild Hanne Lar-sen, the company’s chief infor-mation officer,

“That’s the benefit of Om-nia, we can connect withsmaller tech startup compa-nies,” she said, adding, “it’snot a defense against Micro-soft.”

—Sarah Kentcontributed to this article.

Google executive Darryl Willis at the Unify Conference in June.

BAKERHUGHES

a major player in China’s mo-bile internet ecosystem.

The hub will offer trainingand workshops to help devel-opers and entrepreneurs in theregion innovate and grow, aFacebook spokeswoman said,and is similar to centers thecompany has established incountries including France,Brazil, and India.

Despite Facebook’s limitedpresence in China, its chief ex-ecutive, Mark Zuckerberg, hasmade China a priority, turningup at gatherings in the Asiannation almost annually. Thecompany also internally devel-oped a tool that people famil-iar with the matter say wouldhave allowed third parties—in-cluding governments likeChina—to block content beforeit could be posted on Face-book.

Yet the absence of signifi-cant progress for the com-pany’s main business in China

reflects the challenges socialnetworks face in a countrywhere the government keeps atight rein on information chan-nels, including social media, tocontain political dissent.

According to a filing byFacebook with the NationalEnterprise Credit InformationPublicity System, China’s busi-ness registration website, thenew $30 million subsidiarywould engage in internet ser-vices such as internet technol-ogy research, handle commer-cial inquiries and organizeevents.

The filing listed Facebook’sHong Kong entity as the onlyshareholder of the Hangzhousubsidiary, with Damian Yeo,Facebook’s Singapore-basedassociate general counsel andhead of its Asia Pacific legalteam, as chairman of the newcompany.

—Zhu Lin in Beijingcontributed to this article.

SHENZHEN, China—Face-book Inc. said it would set upan innovation hub in China togroom and support the na-tion’s developers and startups,the latest in a series of stepsaimed at expanding its pres-ence in the world’s largestconsumer market.

Facebook’s social networkhas been blocked in Chinasince 2009, leading the MenloPark, Calif., company to pursueother initiatives to gain a foot-hold. In January, Facebooksigned an agreement with Chi-nese hardware company Xi-aomi Corp. to produce a vir-tual reality headset only forthe Chinese market.

Facebook’s new China hubwill be located in Hangzhou,home to Chinese internet giantAlibaba Group Holding Ltd.,the owner of China’s two mostpopular e-commerce sites and

BY LIZA LIN

FacebookPlansChinaHubTo Nurture Tech Startups

Mark Zuckerberg has made China a priority despite the company’s limited presence in the country.

TPG/Z

UMAPRESS

lowing it to be analyzed in realtime, said Bill Braun, Chev-ron’s chief information officer.

Major oil companies likeChevron, BP and Shell will usethe cloud to do everythingfrom finding more oil to pre-dicting needed maintenanceon equipment before it breaksdown.

Chevron is in the process ofselling some of its data cen-ters to Microsoft and plans tomove the majority of its dataand applications to Azure incoming years, Mr. Braun said.“This is happening, and it’shappening fast,” he said.

Not everyone is convincedthe deals make sense. JohnGibson, who heads the digitalteam at energy investmentbank Tudor Pickering Holt &Co, said the magnitude of en-ergy data can make it prohibi-tive to get off the cloud onceparked there.

“It’s like the Hotel Califor-nia, you can check in anytimeyou want, but you can neverleave,” Mr. Gibson said.

Amir Husain, chief execu-tive of SparkCognition Inc.,an Austin-based AI company,said energy companies may be

ContinuedfrompageB1

Oil GiantsGet HelpWith Data

Texas Instruments Inc. saidit expects strong growth tocontinue in its industrial andautomotive businesses, whichthe chip maker has singled outas two key growth areas.

The two markets drove the9% revenue increase to $4 bil-lion in the second quarter.When combined, they accountfor more than half of the com-pany’s revenue and serve abroad range of sectors fromspace and defense to carmaker’s “infotainment sys-tems.” The company’s quar-terly results were announcedTuesday by Chief ExecutiveRich Templeton, who returnedto the helm last week afterBrian Crutcher resigned lessthan two months into the role

over what the company quali-fied as code-of-conduct viola-tions.

The company hasn’t elabo-rated on the alleged violationsbeyond saying that they re-lated to personal behavior.

The Dallas-based company,which had released prelimi-nary second-quarter resultslast week as it announced Mr.Crutcher’s resignation, onTuesday reported a 33% profitincrease to $1.41 billion, or$1.40 a share, on $4.02 billionin revenue.

Gross profit margin, a keyindicator of underlying profit-ability, improved to 65.2% from64.3% a year earlier.

Research and developmentexpenses increased 1.6% as thecompany continues to ramp upspending to expand market

share.This quarter, the company

projects profit of $1.41 to $1.63a share on $4.11 billion to$4.45 billion in revenue, com-pared with the consensus esti-mate of $1.48 a share on $4.27billion in revenue, according toanalysts surveyed by ThomsonReuters.

Founded in 1930 as an oil-and-gas company, Texas In-struments took its currentname in the 1950s as it shiftedinto the burgeoning semicon-ductor business. Today, it isone of the world’s largest chipcompanies with a market valueof more than $111 billion.

Shares, which have outper-formed the market with a 41%increase over the past 12months, were down 0.57% to$113.15 in after-market trading.

BY MARIA ARMENTAL

Texas Instruments ExpectsA Strong Third Quarter

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TECHNOLOGY WSJ.com/Tech

NY

THEWALL STREET JOURNAL. Wednesday, July 25, 2018 | B5

BUSINESS NEWS

BY MAX BERNHARD

November, Peugeot Chief Exec-utive Carlos Tavares launchedan ambitious restructuring ofOpel, aiming to repeat the suc-cess he had in rejuvenatingPeugeot.

Tuesday’s results may bethe first clear indication thathis effort is paying off.

Peugeot, which also manu-factures the Citroën brand, saidgroup net profit in the first halfof the year rose to €1.48 billion($1.73 billion) from €1.26 billiona year earlier, beating expecta-tions. Revenue rose 40% to€38.40 billion.

Opel made an operatingprofit of €502 million andsharply increased its operatingmargin. Mr. Tavares said theunit cut fixed costs by 28% andhas started to reduce variablecosts ahead of schedule.

“We have been right-sizingthe costs, investing much more

efficiently than in the past andpreparing for the rebound,”Mr. Tavares said in referenceto Opel while discussing Peu-geot’s results on Tuesday.

Opel was a drag on GM foryears, racking up billions ofdollars in losses in a Europeanmarket struggling with overca-pacity and low profits. Thesale left GM with almost nopresence in Europe, theworld’s third-biggest automarket.

But Mr. Tavares bet thatwith Opel he could replicatethe turnaround he has engi-neered at Peugeot, where aftertaking the helm in 2014 heslashed jobs and production toturn it into one of Europe’smost profitable companies.

Mr. Tavares was quick toannounce sweeping changes atOpel after the acquisition.

As well as cutting jobs and

pushing further into electricvehicles, the company haspushed adoption of its technol-ogy companywide, allowingthe car maker to reduce costsby building Peugeot, Citroën,Opel and Vauxhall models withthe same equipment and parts.

“The group demonstratessince 2014 its recurring abilityto level up global profitability,efficiency and volumes, despitestrong headwinds,” Mr. Tava-res said Tuesday in the com-pany’s news release.

He applauded Opel’s man-agement team and employees,and asked shareholders to ac-knowledge their achievement.

“I knew from day one thatthey were great people,” Mr.Tavares said.

Opel is led by MichaelLohscheller, who was financechief at the unit before beingpromoted to CEO last summer.

Peugeot Gets Opel in GearUnder new owner,former GM businessis turning the cornerafter years of losses

Opel recorded an operating profit in the first half. Cost cuts and the adoption of Peugeot technology have aided the German unit.

CHRIS

RATC

LIFF

E/B

LOOMBERGNEWS

Delays have hobbled the launch of the redesigned Ram 1500.

MATT

ROURKE/A

SSOCIATE

DPRESS

General Motors Co. failed tomake money out of Opel foryears. Now Peugeot SA isshowing its U.S. rival how ithas done.

Shares in Peugeot jumped11% Tuesday after the Frenchcar maker said its newly ac-quired German unit sported anoperating profit in the firsthalf.

GM sold Opel and Britishbrand Vauxhall to Peugeot lastAugust for $2.2 billion afternumerous attempts to pull theunit out of losses stretchingback about two decades. In

Valley companies as electric-car maker Tesla Inc. and ride-sharing provider Uber Technol-ogies Inc. have matched orexceeded the car companies’valuations despite losingmoney.

Ford’s new company couldbe a “precursor to outside in-vestment and unlocking value”from the car maker’s autono-mous efforts, RBC Capital Mar-kets analysts said in a researchnote. The bank said Ford’sdriverless-car program mightneed further investment, eitherfrom new investors or raisingcapital by other means.

Shares of Ford rose about1% to $10.57 Tuesday. Thestock is down about 5% in thelast year.

Ford also said it will invest$4 billion in its autonomous-vehicles efforts through 2023,including its $1 billion invest-ment in Argo AI, the com-pany’s Pittsburgh-based part-ner for self-driving systemdevelopment. That spendingwould be in the same range asGM’s recent pace of investmenton driverless cars, which is ex-pected to total around $1 bil-lion this year.

Ford named Sherif Marakbyas chief executive of Ford Au-tonomous Vehicles. He is cur-rently the Ford vice presidentof autonomous vehicles andelectrification and has spentmost of his career at the automaker, though he served asUber’s vice president for globalvehicle programs for about ayear until April 2017.

Ford said the newly formedentity would bring togetherseveral teams currently work-ing on self-driving vehicles. Itwill be based in Detroit’s Cork-town neighborhood, a scruffyarea near downtown whereFord is investing in old build-ings to serve as a technical hubfor electric and driverless-vehi-cle development.

Ford Motor Co. is carvingout its autonomous-vehicleprogram into a separate whollyowned company, a bid to accel-erate its driverless-car effortsby attracting outside investors.

Ford said Tuesday the newlyformed unit, Ford AutonomousVehicles LLC, will be struc-tured to take on third-party in-vestment. The setup will allowlarge investors to bet on a partof Ford’s business that has highgrowth potential but likely willbe a financial drain in the nearterm, without taking a stake inthe slower-growth business ofmaking traditional cars.

The move follows rival Gen-

eral Motors Co.’s disclosurelast month that Japan’s Soft-Bank Group Corp. would in-vest $2.2 billion in GM Cruise,the auto giant’s driverless-carbusiness. That deal—whichgave SoftBank a 19.6% stake inGM Cruise, valuing the com-pany at $11.5 billion—allowsGM to pursue a driverless-carstrategy without siphoning asmuch capital away from itscore vehicle-manufacturingbusiness.

For years, the Detroit automakers have struggled to lifttheir stock prices, despite re-cord or near-record profits anddriverless-car programs thatsome analysts view as rivalingthose of tech giants, likeWaymo, Google parent Alpha-bet Inc.’s autonomous-vehicleunit. Meanwhile, such Silicon

BY MIKE COLIASAND AISHA AL-MUSLIM

Ford Takes StepTo Help FinanceSelf-Driving Push

truck, said John Kleintop, gen-eral manager at a Ram dealer-ship in Slatington, Pa. Thecompany told dealers onepricey option that allows formaximum towing capacitywon’t be available until Janu-ary, Mr. Kleintrop said.

“The launch of this truckhas been inhibited by a lot ofthese constraints,” he said.

Those delays appear to beweighing on Fiat Chrysler’struck sales. Ram pickup salesfell 7% this year through June,to 233,539 trucks.

The consensus adjusted op-erating-profit forecast amongWall Street analysts is for €2.1billion ($2.5 billion) in the sec-ond quarter, up from €1.6 bil-lion the previous quarter and€1.8 billion a year ago, Ever-core said.

—Eric Sylverscontributed to this article.

Exor NV, Fiat Chrysler’scontrolling shareholder, onTuesday voiced its support forthe continued independence ofthe car maker in the wake ofMr. Marchionne’s sudden ill-ness and exit as CEO. Exor,which owns 29% of FCA,hadn’t commented previouslyafter the weekend revelationof Mr. Marchionne’s illness.

Ironing out the Ram’s pro-duction issues is a near-termtest for Mr. Manley.

He must grapple with sev-eral changes roiling the globalauto industry, such as a shifttoward electric and self-driv-ing technologies, as well asheightened tensions betweenthe U.S. and its major tradingpartners over tariffs. FiatChrysler also has been doggedby recalls and federal investi-gations into allegations of in-tentional emissions cheatingand labor-law violations, bothof which it has denied.

Representatives for thecompany declined to commenton the Ram’s production untilafter its release of second-quarter earnings.

The Ram competes againstFord Motor Co. and GeneralMotors Co. in a highly profit-able full-size pickup segment,where average selling priceshave far outstripped other cat-egories, surging nearly 35%since 2010 to more than$43,000, according to re-searcher J.D. Power.

Fiat Chrysler has limiteddealer orders on several op-tion packages for the new

One of the first issues MikeManley will likely have to ad-dress as Fiat Chrysler Auto-mobiles NV’s new chief execu-tive is a problem from his oldjob: a slow-moving redesign ofthe Ram 1500 truck.

Mr. Manley took the helmof the Italian-American automaker on Saturday and is ex-pected to make his first publicremarks on Wednesday, whenFiat Chrysler reports second-quarter earnings.

Manufacturing delays havehobbled the launch of the re-designed Ram 1500, FCA’s top-selling U.S. vehicle, some sixmonths after the start of pro-duction. Sales of Ram trucksand Jeep sport-utility vehiclesare critical to Fiat Chrysler,accounting for what UBS saysis 80% of the company’s profit.

The success of those twobrands is a big part of FiatChrysler’s revival and likelyhelped vault Mr. Manley, whorecently led Jeep and Ram,into the job of CEO. He wasnamed to the top spot afterthe company announced theresignation of longtime chiefSergio Marchionne, whosehealth deteriorated suddenly.

Mr. Marchionne, who forgedthe company into a profit-maker by combining the once-ailing Fiat and Chrysler, is at aZurich hospital. The companyhasn’t provided any updateson his condition since its ini-tial statement on Saturday.

BY CHESTER DAWSONAND MIKE COLIAS

For Fiat Chrysler’s New CEO,Truck-Assembly Woes Linger

The company looks tokeep pace with GMby drawing outsideinvestors to new firm.

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billion in 2009, the year afterthe stock-market crash, downfrom $5.1 billion in 2008 and$6 billion in 2007.

Global brokerage firms havebeen trying to insulate them-selves from this volatility bybuilding up businesses withsteadier revenue like propertymanagement. Such “recurring”

revenue represented 47% ofCushman’s total in 2017, ac-cording to papers the firmfiled with the Securities Ex-change Commission.

Still, the brokerage businessdraws the biggest profit fromits more economically sensi-tive businesses, rather thanthose generating steady recur-

CBRE Group

JLL

Booming BrokersShare-price performance since 2012

THEWALL STREET JOURNAL.Source: WSJ Market Data Group

150

0

50

100

%

2013 ’14 ’15 ’16 ’17 ’18

alty Corp. for $308 million.The consortium purchased

the site for $171 million in Au-gust 2016 and said at thattime it will invest $1 billion tobuild a biotech complex,called Oyster Point. It alreadybroke ground on the projectand it isn’t clear how much ithas spent by now.

“The decision to sell OysterPoint was purely a businessdecision,” said Hu Gang, pres-ident and chief executive offi-cer of Greenland USA lastmonth.

Greenland also placed its350-room Hotel Indigo in LosAngeles on the block earlierthis year, but no transactionhas materialized yet. “We areopen to strong offers from se-rious buyers,” Mr. Hu said.

In at least one prominentcase, another Chinese owneralso seems ready to hold outrather than sell too cheaply.Conglomerate Dalian WandaGroup purchased prime landin glitzy Beverly Hills, Calif.,to build a condominium andhotel development, to becalled One Beverly Hills, for$420 million in 2014.

It planned to build 193high-end condo units and a134-room luxury boutique ho-tel, which was slated to becompleted by 2020. Real-es-tate developers in the area es-timate Wanda has pumped inan additional $80 million in

fees and taxes into the projectsince 2014, before putting iton the block earlier this year.

After failing to get its de-sired price, Wanda now ap-pears to be holding on to theproject until a higher bidcomes along, market partici-pants said.

The conglomerate retainedRichard Meier & Partners Ar-chitects to design the projectbut then ran into the buzzsaw of Los Angeles politics.

Wanda fought a bruisingpolitical brawl with OasisWest Realty, owners of Bev-erly Hilton, over the projectdesign that the latter com-plained would impede traffic.It also clashed with a hotelworkers union, Unite Here Lo-cal 11, that accused Wanda ofusing foreign money to influ-ence a city ballot measure.

Late last year, contractorsthat had worked on One Bev-erly Hills filed liens againstthe property, saying theywere owed millions for theirwork.

Real-estate developers inthe area estimate Wanda haspumped as much as $80 mil-lion in fees and taxes into theproject. The City of BeverlyHills said it has issued shor-ing and excavation permitsfor the project, but no workhas been done yet.

Wanda declined to com-ment.

Chinese investors are be-ginning to retreat from theU.S. commercial real-estatemarket, but they aren’t stag-ing any fire sales.

These investors, who wereamong the most aggressive inthe U.S. market, have becomenet sellers to repay debt, tooffset losses or under pres-sure from Chinese govern-ment to curtail overseas in-vestment.

In most cases, they havebeen able to profit when sell-ing because the U.S. economyis still going strong andprices in commercial real-es-tate market are holdingsteady. Some Chinese sellers,though, may have barelymade their money back.

Often, it is tricky to figureout exactly how much any in-vestor has made on a real-es-tate deal. But HNA Group, forexample, sold the City Centercomplex in Minneapolis inJune for $320 million. TheChinese conglomerate paid$315 million for the 51-storyoffice tower and a three-storymall in late 2016.

Profit and loss can geteven murkier.

A group led by Shanghaistate-owned developer Green-land Holding Group lastmonth sold a waterfront sitein San Francisco to Kilroy Re-

BY ESTHER FUNG

Chinese Developers RetreatIn U.S., but Not at Any Price

ing buildings for skilled nurs-ing facilities, followingchanges to reimbursementstructures that have hurt nurs-ing-home operators and re-sulted in court battles over un-paid rent.

But these properties are start-ing to produce higher returns.Shares of real-estate investmenttrusts focused on skilled nursingfacilities, such as Sabra HealthCare REIT and Omega Health-care Investors Inc., have thisyear outperformed REITs that in-vest primarily in medical officebuildings.

Still, medical offices areconsidered the safest of alltypes of health-care real es-tate, in part because they are

less vulnerable to changes toreimbursements and regula-tions. These properties usuallyinclude outpatient surgerycenters, which are expected tobenefit from efforts to rein inhealth-care costs and lengthyhospital stays.

“There’s a sense of stabilityabout the asset class that isappealing to a wide range ofinvestors,” said Richard Ander-son, managing director at Miz-uho Americas Research, whofocuses on health care real es-tate, among other sectors.

Medical office buildingshave predictable incomestreams, with tenants gener-ally paying $1 in rent for every$10 generated in revenue, solandlords have some room toraise rents, Mr. Anderson said.

Stock investors are await-ing one of the real-estate in-dustry’s most closely watchedinitial public offerings inyears, setting up what couldbe a Wall Street referendumon the current economic ex-pansion.

Cushman & Wakefield, aglobal brokerage and real-es-tate-services firm that re-ported $6.92 billion in 2017revenue, hopes to sell $719million to $931 million inshares in an IPO that wouldvalue the firm at roughly $6billion including debt, accord-ing to pricing documents re-leased Monday.

Trading is expected to be-gin in early August on theNew York Stock Exchange af-ter a roadshow in which back-ers of the offering will discussCushman with potential inves-tors, the firm said.

The real-estate business isclosely aligned with the healthof the broader economy, andthe success or failure of Cush-man’s IPO will reflect in partwhether investors believe eco-nomic growth in many parts ofthe world will continue.

Like CBRE Group Inc., JLLand other publicly traded real-estate firms, Cushman ishighly dependent on sales andleasing brokerage commis-sions. These balloon whencompanies are expanding andreal-estate investors are gob-bling up office buildings, ho-tels, apartment buildings andother commercial property.

But this revenue craterswhen economies contract. Forexample, CBRE reported $4.2

BY PETER GRANTAND MAUREEN FARRELL

THE PROPERTY REPORT

ring revenue.Real-estate bulls believe the

current economic expansionmay have years to run. Theypoint out that shares of CBREand JLL, the world’s largestand second-largest commercialreal-estate firms, respectively,are trading near record highs.

“I think we’re in for an ex-tended cycle,” said RossSmotrich, an analyst with Bar-clays who follows CBRE andJLL.

But Wall Street bears pointto signs that the rebound ofcommercial real-estate valuesthat began shortly after thelatest recession ended is run-ning out of steam.

Meanwhile, rising interestrates have increased the likeli-hood that capital will increas-ingly shift from commercialreal estate to the bond market,driving down property values.These concerns already havesent tremors through the real-estate investment trust sector,causing it to underperform thebroader stock market since thebeginning of 2016.

Cushman IPO Faces a TestClosely watched debutto serve as a measureof investor confidencein economic growth

Cushman & Wakefield expects to raise up to $931 million in an IPO that would value it at $6 billion.

RICH

ARD

B.LEVINE/NEW

SCOM/ZUMAPR

ESS

A medical office building inHouston sold this month formore than $400 million, thelargest price ever paid in theU.S. for such a building andthe latest sign that manyhealth-care-related propertiesare in high demand.

LaSalle Investment Man-agement said one of its fundsbought the 28-story, 500,000-square-foot building, which isanchored by Memorial Her-mann, the largest not-for-profit health-care provider inTexas, and is 99% occupied.Pricing wasn’t disclosed, butthe Chicago-based investmentfirm paid $405 million for theMemorial Hermann MedicalPlaza, according to a personfamiliar with the matter.

The record sale reflects howreal-estate investors are pilinginto medical offices and otherproperties that serve an agingpopulation. About 14.5% of theU.S. population is 65 years oldor older, according to the Cen-sus Bureau’s 2012-2016 Ameri-can Community Survey. Peoplein that age group will outnum-ber children by 2035, the Cen-sus Bureau projects.

“Competition among real-estate investors for high-qual-ity medical office buildings isintense,” property consultancyCBRE wrote in a recent re-search report.

That doesn’t mean anyproperty in the health-caresector is poised to benefit asbaby boomers grow older andhave more health-care needs.Recent changes to the Afford-able Care Act and tax policieshave made predicting whichones will thrive from the shift-ing health-care landscape morecomplicated, analysts say.

Many investors say theyhave become wary about own-

BY ESTHER FUNG

Medical BuildingSells at a Record

Shanghai-based Greenland Holding put its 300-room Hotel Indigo in Los Angeles on sale this year.

EARL

GIBSO

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IMAGES

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‘Competition forhigh-quality medicaloffice buildings isintense.’

Business Real Estate & ServicesADVERTISEMENT

To advertise: email sales.realestate@wsj.com orWSJ.com/classifieds

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BANKING & FINANCE

NetStock SymClose Chg

Symantec SYMC 20.55 -0.36SynchronyFin SYF 33.82 0.31Synopsys SNPS 91.97 0.13SynovusFin SNV 50.33 -4.79Sysco SYY 70.23 -0.63

T U VTAL Education TAL 39.79 0.03TD Ameritrade AMTD 59.61 0.55TE Connectivity TEL 94.00 2.30Telus TU 36.01 -0.12Ternium TX 36.92 1.05TIM Part TSU 17.08 0.37TJX TJX 97.01 -0.55T-MobileUS TMUS 58.78 0.42TRowePrice TROW 121.30 -0.01

s TableauSftwr DATA 108.32 -3.40

TaiwanSemi TSM 40.39 -0.35TakeTwoSoftware TTWO 125.16 -1.64TallgrassEnergy TGE 22.29 0.02Tapestry TPR 47.97 -0.27TargaResources TRGP 52.03 0.05

s Target TGT 79.36 0.67TataMotors TTM 18.78 0.19TechnipFMC FTI 29.94 0.04TeckRscsB TECK 24.88 0.40TelecomArgentina TEO 19.91 0.13TelecomItalia TI 6.97 -0.05TelecomItalia A TI.A 6.18 -0.04TeledyneTech TDY 211.15 2.24Teleflex TFX 275.20 -3.40Ericsson ERIC 8.14 -0.01TelefonicaBrasVIV 11.71 0.23Telefonica TEF 8.66 -0.02TelekmIndonesia TLK 27.89 0.17

Tenaris TS 36.69 0.03Teradyne TER 40.38 -0.35Tesla TSLA 297.43 -5.77TevaPharm TEVA 23.18 ...TexasInstruments TXN 113.80 -0.87TexasPacLand TPL 778.50 5.69Textron TXT 67.00 0.48ThermoFisherSci TMO 221.40 2.92ThomsonReuters TRI 42.04 -0.02

t 3M MMM200.68 1.84s Tiffany TIF 137.93 -0.20Torchmark TMK 84.52 0.17Toro TTC 60.38 -0.11TorontoDomBk TD 57.91 0.14Total TOT 61.95 0.70

s TotalSystem TSS 90.57 -0.73ToyotaMotor TM 132.58 0.85TractorSupply TSCO 78.34 -1.94

NetStock SymClose Chg

NetStock SymClose Chg TransCanada TRP 44.28 0.03

TransDigm TDG 363.66 5.54TransUnion TRU 73.57 -1.88Travelers TRV 124.75 0.51Trimble TRMB 34.86 0.23TripAdvisor TRIP 59.69 -0.6121stCenturyFoxA FOXA 45.23 -0.6921stCenturyFoxB FOX 44.91 -0.63Twilio TWLO 62.06 -1.85Twitter TWTR 42.17 -1.14

s TylerTech TYL 236.92 -3.81TysonFoods TSN 63.10 -0.46UBS Group UBS 16.05 0.53UDR UDR 36.55 -0.17UGI UGI 52.74 -0.08US Foods USFD 39.62 -0.45USG USG 43.07 -0.03UbiquitiNetworks UBNT 86.39 -1.53UltaBeauty ULTA 249.24 -5.81

s UltSoftware ULTI 289.00 -4.94UltraparPart UGP 11.70 0.62

NetStock SymClose Chg

UnderArmour AUAA 20.61 -0.78UnderArmour CUA 19.24 -0.59Unilever UN 57.09 -0.14Unilever UL 56.36 0.08UnionPacific UNP 142.39 -2.46UnitedContinentalUAL 80.04 -1.55UnitedMicro UMC 2.88 -0.03UPS B UPS 112.44 -0.27UnitedRentalsURI 147.94 -1.38US Bancorp USB 51.65 -0.22US Steel X 37.87 0.43UnitedTech UTX 134.24 4.87UnitedHealth UNH 253.76 1.02UniversalHealthBUHS 114.33 -1.17UnumGroup UNM 38.40 0.20Uxin UXIN 7.66 0.01VEREIT VER 7.46 0.01VF VFC 91.48 -0.79VICI Prop VICI 20.48 -0.12

s Visa V 140.03 ...VailResorts MTN 281.01 -6.01

NetStock SymClose Chg

Vale VALE 13.77 0.60ValeroEnergy VLO 107.27 0.99VarianMed VAR 117.43 1.10Vedanta VEDL 12.59 0.46VeevaSystems VEEV 80.19 -3.54Ventas VTR 57.70 -0.28

s VeriSign VRSN 148.43 -0.70s VeriskAnalytics VRSK 112.82 0.10Verizon VZ 51.51 0.76VertxPharm VRTX 174.88 -1.66Viacom A VIA 32.20 -0.15Viacom B VIAB 27.32 -0.29Vipshop VIPS 9.97 -0.11VistraEnergy VST 22.45 -0.44VMware VMW 149.20 -1.74Vodafone VOD 23.68 0.18VornadoRealtyVNO 71.86 0.12VoyaFinancial VOYA 50.01 0.28VulcanMatls VMC 122.58 -1.06

NetStock SymClose Chg

W X Y ZWABCO WBC 120.31 0.56WEC Energy WEC 64.43 0.13

s WEX WEX 195.78 -1.32W.P.Carey WPC 64.81 -0.75WPP WPP 77.93 -0.24WPX Energy WPX 19.17 0.28

s Wabtec WAB 107.05 1.76WalgreensBootsWBA 65.51 0.17Walmart WMT 87.96 0.33WasteConnections WCN 75.50 -1.39WasteMgt WM 81.49 -0.75Waters WAT 197.77 1.32Watsco WSO 182.46 -2.66Wayfair W 122.49 -4.39Weibo WB 88.27 -0.09WellCareHealthWCG 251.90 -5.02WellsFargo WFC 58.35 0.35Welltower WELL 63.24 -0.49

NetStock SymClose Chg

WestPharmSvcsWST 98.99 -1.09WestAllianceBcpWAL 58.41 -1.22WesternDigitalWDC 75.11 -1.27WesternGasEquityWGP 36.13 -0.38WesternGasPtrsWES 50.51 0.43WesternUnionWU 20.22 0.01WestlakeChemWLK 105.23 -1.23WestpacBankingWBK 22.05 0.06WestRock WRK 57.46 0.28WeyerhaeuserWY 34.55 -0.03WheatonPrecMetWPM 21.21 0.18

t Whirlpool WHR 128.82 -21.89Williams WMB 29.18 0.38

s WilliamsPartnersWPZ 43.94 0.71WillisTowers WLTW 161.46 0.87Wipro WIT 5.08 0.03WooriBank WF 44.57 0.05Workday WDAY 130.91 -3.01

s WW Ent WWE 81.03 -1.49Worldpay WP 83.90 -3.80WyndhamDestWYND 45.68 -0.67

NetStock SymClose Chg

WynnResorts WYNN 163.56 -0.18XL Group XL 56.13 0.14XPO Logistics XPO 99.25 -3.81XcelEnergy XEL 45.54 0.26Xerox XRX 24.80 -0.30Xilinx XLNX 67.74 -0.63Xylem XYL 68.30 0.51YPF YPF 17.10 0.69YY YY 94.50 -0.57Yandex YNDX 37.29 0.15YumBrands YUM 78.25 -0.70

t YumChina YUMC 33.50 -0.71ZTO Express ZTO 20.94 -0.19ZayoGroup ZAYO 37.04 -0.25ZebraTech ZBRA 144.06 -2.10

s Zendesk ZEN 59.07 -2.04Zillow C Z 60.80 -2.17Zillow A ZG 61.42 -2.26ZimmerBiomet ZBH 114.61 1.71ZionsBancorp ZION 52.25 -1.55Zoetis ZTS 83.50 -0.46

NetStock SymClose Chg

Continued From Page B7

Biggest 1,000 Stocks | WSJ.com/stocks

Net YTDFund NAV Chg %Ret

American Century InvUltra 50.48 +0.24 16.3American Funds Cl AAmcpA p 34.01 +0.05 10.7AMutlA p 41.68 +0.16 3.1BalA p 27.69 +0.06 2.9BondA p 12.53 +0.02 -1.6CapIBA p 60.78 +0.29 -1.7CapWGrA 51.67 +0.34 2.2EupacA p 54.48 +0.37 -0.3FdInvA p 64.59 +0.29 5.2GwthA p 55.64 +0.17 12.3HI TrA p 10.19 ... 1.5ICAA p 41.51 +0.27 5.0IncoA p 23.15 +0.10 0.5N PerA p 46.54 +0.21 7.8NEcoA p 49.24 -0.05 10.3NwWrldA 66.52 +0.49 -0.6SmCpA p 59.53 -0.32 6.7TxExA p 12.82 -0.01 -0.1WshA p 45.89 +0.16 4.7

Net YTDFund NAV Chg %Ret

Baird FundsAggBdInst 10.54 +0.02 -1.8CorBdInst 10.88 +0.02 -1.7BlackRock Funds AGlblAlloc p 19.65 +0.05 0.1BlackRock Funds InstEqtyDivd 23.27 +0.07 3.1GlblAlloc 19.76 +0.04 0.2StratIncOpptyIns 9.75 ... -0.3Bridge Builder TrustCoreBond 9.85 +0.01 -1.6CorePlusBond 9.80 +0.01 -1.4Del Invest InstlValue 22.19 +0.06 4.2Dimensional Fds5GlbFxdInc 10.90 ... 0.3EmgMktVa 29.58 +0.38 -5.3EmMktCorEq 21.53 +0.21 -6.8IntlCoreEq 14.11 +0.10 -1.8IntlVal 19.53 +0.20 -2.9IntSmCo 20.80 +0.12 -2.0

Net YTDFund NAV Chg %Ret

IntSmVa 21.76 +0.16 -5.3TAUSCoreEq2 18.98 -0.02 5.3US CoreEq1 24.09 ... 6.4US CoreEq2 22.56 -0.02 5.2US Small 38.57 -0.32 7.7US SmCpVal 40.44 -0.30 6.9US TgdVal 26.16 -0.19 5.5USLgVa 39.10 +0.07 0.9Dodge & CoxBalanced 107.15 +0.31 2.3GblStock 13.80 +0.08 -0.4Income 13.41 +0.01 -0.9Intl Stk 44.21 +0.37 -4.6Stock 209.09 +0.87 4.6DoubleLine FundsCoreFxdIncmI 10.71 +0.01 -0.8TotRetBdI 10.41 ... -0.3Edgewood Growth InstitutiEdgewoodGrInst 35.31 +0.22 19.5Fidelity500IdxInst 98.63 +0.48 6.6

Tuesday, July 24, 2018

Mutual Funds Net YTDFund NAV Chg %Ret

Net YTDFund NAV Chg %Ret

Net YTDFund NAV Chg %Ret

Net YTDFund NAV Chg %Ret

Net YTDFund NAV Chg %Ret

Net YTDFund NAV Chg %Ret

Net YTDFund NAV Chg %Ret

Top 250 mutual-funds listings for Nasdaq-published share classes by net assets.

e-Ex-distribution. f-Previous day’s quotation. g-Footnotes x and s apply. j-Footnotes eand s apply. k-Recalculated by Lipper, using updated data. p-Distribution costs apply,12b-1. r-Redemption charge may apply. s-Stock split or dividend. t-Footnotes p and rapply. v-Footnotes x and e apply. x-Ex-dividend. z-Footnote x, e and s apply. NA-Notavailable due to incomplete price, performance or cost data. NE-Not released by Lipper;data under review. NN-Fund not tracked. NS-Fund didn’t exist at start of period.

500IdxInstPrem 98.62 +0.47 6.6500IdxPrem 98.62 +0.47 6.6ExtMktIdxPrem r 67.13 -0.68 8.3IntlIdxPrem r 42.86 +0.30 -0.6SAIUSLgCpIndxFd 15.23 +0.08 6.7TMktIdxF r 81.35 +0.18 6.9TMktIdxPrem 81.34 +0.18 6.9USBdIdxInstPrem 11.22 +0.01 -1.7Fidelity Advisor INwInsghtI 35.18 +0.09 12.2Fidelity FreedomFF2020 16.41 +0.04 1.5FF2025 14.33 +0.04 1.8FF2030 17.99 +0.05 2.3Freedom2020 K 16.39 +0.04 1.5Freedom2025 K 14.31 +0.04 1.8Freedom2030 K 17.97 +0.05 2.3Freedom2035 K 15.25 +0.05 3.0Freedom2040 K 10.72 +0.04 3.1Fidelity InvestBalanc 24.94 +0.06 5.9BluCh 102.43 +0.23 16.7Contra 138.50 +0.50 14.9ContraK 138.48 +0.50 14.9CpInc r 10.10 +0.01 1.7DivIntl 39.74 +0.20 -0.7GroCo 207.64 -0.57 16.2GrowCoK 207.70 -0.57 16.3InvGB 7.69 +0.01 -1.6InvGrBd 10.93 +0.01 -1.3LowP r 55.47 -0.05 1.7MagIn 110.00 +0.42 10.2OTC 12.91 +0.01 17.5Puritn 24.66 +0.05 6.1

SrsEmrgMkt 20.18 +0.21 -5.7SrsGroCoRetail 19.44 -0.05 16.9SrsIntlGrw 16.49 +0.10 2.1SrsIntlVal 10.45 +0.10 -2.2TotalBond 10.35 +0.01 -1.3First Eagle FundsGlbA 58.73 +0.12 -0.6FPA FundsFPACres 35.48 +0.23 2.9FrankTemp/Frank AdvIncomeAdv 2.31 +0.01 1.0FrankTemp/Franklin ACA TF A p 7.30 -0.01 -0.5IncomeA p 2.33 +0.01 0.9RisDv A p 62.94 +0.15 3.4FrankTemp/Franklin CIncome C t 2.36 ... 0.6FrankTemp/Temp AGrowth A p 27.18 +0.14 -0.3FrankTemp/Temp AdvGlBondAdv p 11.70 +0.01 1.2Harbor FundsCapApInst NA ... NAIntlInst r NA ... NAHarding LoevnerIntlEq NA ... NAInvesco Funds AEqIncA NA ... NAJohn Hancock Class 1LSGwth 16.50 +0.03 2.6John Hancock InstlDispValMCI 23.52 -0.02 0.9JPMorgan FundsMdCpVal L 41.04 -0.07 1.9

JPMorgan R ClassCoreBond 11.26 +0.01 -1.4CorePlusBd 8.05 +0.01 -1.3Lazard InstlEmgMktEq 18.01 +0.12-10.0Lord Abbett FShtDurIncm 4.17 ... 0.3Metropolitan WestTotRetBd 10.36 +0.01 -1.5TotRetBdI 10.36 +0.01 -1.4TRBdPlan 9.75 +0.01 -1.3MFS Funds Class IValueI 40.31 +0.15 -0.3MFS Funds InstlIntlEq 25.76 +0.16 1.2Nuveen Cl IHYMunBd 17.27 -0.01 1.9Oakmark Funds InvestEqtyInc r 32.41 +0.08 0.7Oakmark 88.02 +0.37 4.4OakmrkInt 26.90 +0.36 -5.8Old Westbury FdsLrgCpStr 15.06 +0.03 4.1Oppenheimer YDevMktY 42.59 +0.23 -0.8IntGrowY 43.16 +0.25 -1.1PGIM Funds Cl ZTotalReturnBond 14.05 +0.02 -1.9PIMCO Fds InstlAllAsset NA ... NAShortT 9.88 ... 1.3TotRt 9.96 +0.01 -1.6PIMCO Funds AIncomeFd NA ... NAPIMCO Funds I2

Income NA ... NAPIMCO Funds InstlIncomeFd NA ... NAPrice FundsBlChip 113.03 +0.51 17.4EqInc 33.59 +0.14 1.7EqIndex 75.73 +0.36 6.5Growth 71.82 +0.24 14.6HelSci 79.21 -0.67 12.6InstlCapG 43.28 +0.18 17.3IntlStk 18.57 +0.06 -0.5IntlValEq 14.54 +0.10 -3.8MCapVal 31.72 +0.03 4.3MidCap 94.34 -0.37 8.4N Inc 9.17 +0.01 -1.8NHoriz 62.17 -0.85 18.3OverS SF r 11.30 +0.06 -0.1R2020 22.98 +0.04 2.0R2025 18.02 +0.04 2.4R2030 26.66 +0.06 2.9R2035 19.58 +0.05 3.2R2040 28.19 +0.06 3.5Value 37.28 +0.10 -0.1PRIMECAP Odyssey FdsAggGrowth r 49.71 -0.73 12.1Growth r 41.51 -0.25 11.4Stock r 33.15 -0.06 3.9Principal InvestorsDivIntlInst 13.71 +0.10 -1.4Schwab FundsS&P Sel 43.90 +0.21 6.6TIAA/CREF FundsBdIdxInst 10.47 +0.01 -1.8EqIdxInst 20.99 +0.04 6.8

IntlEqIdxInst 20.08 +0.12 -0.4Tweedy Browne FdsGblValue 29.21 +0.10 2.5VANGUARD ADMIRAL500Adml 260.66 +1.25 6.6BalAdml 35.57 +0.06 3.5CAITAdml 11.63 ... 0.2CapOpAdml r168.98 -0.08 10.0EMAdmr 36.05 +0.39 -4.8EqIncAdml 78.25 +0.43 1.6ExplrAdml 101.59 -1.42 14.9ExtndAdml 91.25 -0.91 8.3GNMAAdml 10.20 ... -0.9GrwthAdml 80.23 +0.28 11.5HlthCareAdml r 89.85 +0.55 6.3HYCorAdml r 5.73 +0.01 -0.2InfProAd 25.18 +0.02 -0.7IntlGrAdml 101.96 +0.33 6.7ITBondAdml 10.93 +0.01 -2.3ITIGradeAdml 9.39 +0.01 -2.0LTGradeAdml 9.75 +0.04 -5.9MidCpAdml 199.77 -1.03 5.0MorgAdml 102.75 +0.12 13.3MuHYAdml 11.25 ... 0.5MuIntAdml 13.91 ... ...MuLTAdml 11.42 -0.01 -0.2MuLtdAdml 10.87 ... 0.8MuShtAdml 15.74 ... 1.0PrmcpAdml r147.42 +0.28 10.3RealEstatAdml114.14 -0.56 -1.0SmCapAdml 76.17 -0.75 8.2SmGthAdml 63.20 -0.91 12.1STBondAdml 10.23 ... -0.4STIGradeAdml 10.45 ... -0.2TotBdAdml 10.41 +0.01 -1.7

TotIntBdIdxAdm 21.88 ... 1.4TotIntlAdmIdx r 29.53 +0.20 -1.9TotStAdml 70.76 +0.15 6.9TxMIn r 14.01 +0.08 -1.2ValAdml 41.94 +0.21 2.5WdsrllAdml 68.10 +0.30 2.4WellsIAdml 63.76 +0.21 -0.9WelltnAdml 72.67 +0.30 1.5WndsrAdml 79.70 +0.23 1.8VANGUARD FDSDivdGro 27.43 +0.02 5.3INSTTRF2020 22.88 +0.06 1.6INSTTRF2025 23.29 +0.06 1.9INSTTRF2030 23.62 +0.07 2.2INSTTRF2035 23.95 +0.08 2.5INSTTRF2040 24.28 +0.09 2.8INSTTRF2045 24.50 +0.09 2.9INSTTRF2050 24.53 +0.10 3.0IntlVal 39.04 +0.18 -2.1LifeCon 19.95 +0.04 0.9LifeGro 34.20 +0.12 2.6LifeMod 27.35 +0.08 1.7PrmcpCor 28.62 ... 6.4SelValu r 30.16 -0.20 -3.5STAR 27.39 +0.05 2.9TgtRe2015 15.50 +0.04 1.1TgtRe2020 31.86 +0.08 1.5TgtRe2025 18.84 +0.06 1.8TgtRe2030 34.35 +0.10 2.1TgtRe2035 21.20 +0.07 2.5TgtRe2040 36.76 +0.13 2.8TgtRe2045 23.16 +0.09 2.9TgtRe2050 37.26 +0.14 2.9TgtRetInc 13.52 +0.02 0.7

TotIntBdIxInv 10.94 ... 1.3WellsI 26.32 +0.09 -0.9Welltn 42.08 +0.18 1.4WndsrII 38.38 +0.16 2.4VANGUARD INDEX FDS500 260.65 +1.25 6.5SmValAdml 59.44 -0.37 5.1TotBd2 10.37 +0.01 -1.8TotIntl 17.65 +0.12 -2.0TotSt 70.74 +0.16 6.9VANGUARD INSTL FDSBalInst 35.58 +0.06 3.5DevMktsIndInst 14.02 +0.07 -1.2DevMktsInxInst 21.92 +0.12 -1.2ExtndInst 91.25 -0.91 8.3GrwthInst 80.24 +0.29 11.5InPrSeIn 10.26 +0.01 -0.7InstIdx 257.31 +1.23 6.6InstPlus 257.33 +1.24 6.6InstTStPlus 62.91 +0.14 7.0MidCpInst 44.13 -0.23 5.0MidCpIstPl 217.65 -1.12 5.0SmCapInst 76.17 -0.75 8.2SmCapIstPl 219.85 -2.18 8.2STIGradeInst 10.45 ... -0.2TotBdInst 10.41 +0.01 -1.7TotBdInst2 10.37 +0.01 -1.8TotBdInstPl 10.41 +0.01 -1.7TotIntBdIdxInst 32.83 ... 1.4TotIntlInstIdx r118.07 +0.78 -1.9TotItlInstPlId r118.09 +0.78 -1.9TotStInst 70.78 +0.16 7.0ValueInst 41.94 +0.22 2.5Western AssetCorePlusBdI 11.31 +0.02 -2.2

Data provided by

since 2009, mostly through theissuance of local-currency debtthat was increasingly sold toforeign investors, according tothe Institute of International

Finance. Foreign ownership ofgovernment bonds has dou-bled in many emerging mar-kets over the past decade andexceeded 30% in countries in-

for in the security’s design, itcould have proved destabiliz-ing.

“India has never allowed apublic-sector bank to fail,”said Anil Gupta, vice presidentat ICRA, the local affiliate ofMoody’s Investors Service.“It’s the most sacrosanct thing

for the government to keepthe faith in its banking sys-tem.”

Mr. Gupta said nonpaymentmight have caused some in-vestors to lose confidence inthe banking system, no matterthe features of the bond.

India’s banking sector is

dominated by 21 state-ownedlenders, which account fornearly 70% of the industry’sassets. These banks havestruggled with soaring badloans, as well as paper losseson their bond portfolios, asprices of Indian governmentdebt have fallen.

India banking is dominated by 21 state-owned lenders, which account for 70% of industry assets.

DHIRAJSINGH/B

LOOMBERGNEWS

data from Bloomberg BarclaysIndices. Dollar bonds returnedmore than local-currency onesbut were more volatile thanU.S. junk debt, the data show.

“What we’ve seen in emerg-ing-markets debt, frankly, overthe years is a lot of downsideand not enough upside to off-set it,” said Wade O’Brien, amanaging director at Cam-bridge Associates who advisesfoundations and endowmentson bond-market investing. Herecommends clients trade inand out of emerging marketstactically, rather than dedicat-ing a fixed percentage of theirportfolios to the asset class.

Borrowing by emerging-market countries surged afterthe financial crisis as low in-terest rates in the U.S. and Eu-rope pushed institutional in-vestors to scour the globe forhigher-yielding investments.

Government debt in the top30 emerging markets morethan doubled to $15.2 trillion

cluding South Africa, Malaysia,Peru and Russia as of March31, according to the IIF.

When the aftershocks of thecrisis faded, emerging-marketfund managers predicted a newage of better regulation and fi-nancial stability would dampthe political risks.

“Years of progress towardbetter governance and maturefinancial markets have allowedemerging-markets debt to es-tablish deeper and broadersupport from investors,” in-vestment firm Nuveen said ina December research report.

But recent selloffs in Turk-ish and Argentine governmentbonds offer a reminder thatthere is a potential price to bepaid for that support. TheTurkish lira has lost 22% thisyear against the dollar, andthe Argentine peso has fallen32%, the two worst perfor-mances in a basket of curren-cies tracked by The WallStreet Journal.

holders with an average lossof 2.7% as of Monday.

The managers’ caution un-derscores an unhappy factabout emerging-market sover-eign bonds issued in local cur-rencies: On average, they ha-ven’t returned much giventheir well-chronicled risks,ranging from economic volatil-ity to political upheaval.

Local-currency emerging-market bonds delivered averageannualized total returns of 2.9%over the past 10 years. Over thesame span, U.S. investment-grade corporate bonds returned5.5% and U.S. junk-rated corpo-rate bonds, 8.4%, according to

ContinuedfrompageB1

EmergingBonds FailTo Excite

ZURICH—UBS Group AG onTuesday said strong gains atits investment bank boostedoverall profit in the last quar-ter, but warned political andtrade tensions could shake in-vestor confidence in financialmarkets.

The better-than-expectedresults could help the Swissbank convince investors aboutits strategy of focusing onmanaging money for wealthyclients while maintaining astreamlined investment-bank-ing operation.

UBS has struggled to per-suade investors on its ap-proach at a time it faceshigher costs and low interestrates across Europe. That hasmade for a stagnant share

price since the start of 2017.Switzerland’s largest bank

said net profit rose 9.4% to1.28 billion Swiss francs ($1.29billion) in the second quarter,beating analysts’ forecast of1.02 billion francs.

The bank’s results were“relatively solid,” according toanalysts at Baader Helvea Eq-uity Research. “But we seealso a couple of weaker datapoints, which might over-shadow the headline beat,”

noting the bank’s cautious out-look regarding client activityamid muted market volatility.

The rise in profit wasdriven by an improvement atits investment bank, wherepretax profit rose 26% to 569million francs, above expecta-tions of 397 million francs.The increase was driven byrevenue growth at its equities,currency and rates units.

UBS’s wealth-managementunit reported a 7% year-over-year increase in adjusted pre-tax profit to 1.08 billion francs.

But wealth management re-ported net outflows of 1.2 bil-lion francs in the quarter,which UBS attributed to nor-mal tax-related outflows in theU.S. and about 4.4 billionfrancs leaving from a singlecorporate employee share pro-gram in the Americas region.

Despite this almost “perfectstorm” of forces damping netmoney inflows, UBS Chief Ex-ecutive Sergio Ermotti said onan analyst call that the bankstill expects to reach its full-year target of 2%-4% growthin net new money in 2018.

However, the bank did issuenotes of caution on both costsand political tensions.

Mr. Ermotti said UBS facedannual regulatory costs ofabout 1.5 billion francs, withsome of these costs expectedto be permanent. This year,regulatory-related costs asso-ciated with Britain leaving theEuropean Union will amountto around 100 million francs,he said.

There are infrastructureand technology costs associ-ated with merging the bank’sU.K. subsidiary into its Euro-

pean holding company, whichis in Frankfurt, one senior ex-ecutive said, as well as coststo make sure the entity com-plies with European regula-tions.

The bank was also cautiousabout the prospects for theglobal economy and the resil-ience of client activity.

“Global economic-growthprospects continue to providea supportive backdrop to mar-kets, although ongoing geopo-litical tensions and rising pro-tectionism have dampenedinvestor confidence and re-main a threat,” UBS said.

“Market volatility remainsmuted overall which is usuallyless conducive to client activ-ity,” UBS said.

UBS Buoyed by Investment Bank

shore up the balance sheet.However, the Indian gov-

ernment occupies an unusualdouble role: as a major share-holder in many publicly tradedbanks and the guardian of thefinancial system. It has beenreluctant to let these instru-ments function as intended,for fear that would upset in-vestors.

Before the capital injection,Punjab National Bank’s coreequity was at 5.95% of risk-weighted assets. This gauge offinancial health needed to beat least 7.375% before the bankwas able to make interest pay-ments on these bonds.

Some analysts said India’ssecond-largest state lender byassets should have skipped thecoupon and let the central bankdecide if the bonds needed tobe converted. But while thiswouldn’t technically havecounted as an “event of de-fault,” because it is provided

India injected more than$400 million into one of itslargest state-backed lenders,scrambling to avoid a poten-tial crisis of confidence in thedebt markets.

Late Monday, Punjab Na-tional Bank said it had re-ceived 28.2 billion rupees($408.9 million) from the gov-ernment. The infusion meansthe bank, which earlier thisyear said it had suffered a $2billion fraud, will be able tomake a coupon payment duethis week on 15 billion rupeesof “contingent convertible”bonds, or Cocos.

Cocos were created afterthe 2008-09 global financialcrisis to help minimize tax-payer-funded bailouts. Theybehave like bonds, paying reg-ular coupons, but if a bankruns short of capital they canbe converted into equity to

BY MANJU DALAL

India Pumps UpFraud-Hit Lender

Sergio Ermottisays UBSexpects toreach itstarget forgrowth in netnew money.

ReboundingTotal returns for some emerging-marketbonds have improved this month.

THEWALL STREET JOURNAL.Source: FactSet

*Through Monday

First half of 2018Month to date*

Emerging-marketsU.S. dollar aggregate

U.S. high-yield

U.S. investment-grade

Emerging-markets local-currency government

U.S. Treasurys

–3.8%

1.2%

0.2

0.7

–3.3

0.2

–3.0

–0.3

–1.1

–0.5

BY BRIAN BLACKSTONEAND PIETRO LOMBARDI

� Heard: UBS’s defense againstcautious clients....................... B12

Wall Street money manag-ers are having problems hang-ing onto insurance companiesas customers.

American InternationalGroup Inc. and MetLife Inc.pulled more than $700 millionfrom hedge funds in the firstquarter of 2018, according tofilings. That followed billionsof dollars in withdrawals overthe previous two years.

Net hedge-fund outflowsfrom all U.S. insurersamounted to $8.7 billion in2016 and 2017, according to anew report from ratings firmA.M. Best Co.

Total insurance-industry as-sets held by hedge funds were$16.4 billion at the end of 2017,down 8.5% from the same timea year earlier.

Six other insurers beyondAIG and MetLife also reducedtheir holdings in 2017, accord-ing to A.M. Best. Twelve insur-ers, including Prudential Fi-nancial Inc., added to theirinvestments, but those inflowswere collectively smaller thanthe industry’s outflows.

Insurers aren’t the only in-vestors rethinking their hedge-fund holdings. Clients pulled anet $70 billion from hedgefunds in 2016, according to re-search firm HFR, before add-ing back roughly $10 billion in2017. Through the first sixmonths of 2018, they havepulled another $2 billion.

Hedge funds still oversee$3.24 trillion, according toHFR. Hedge funds typically beton or against stocks, bonds orother securities, often usingborrowed money and charginghefty fees. Since the latest fi-nancial crisis, the funds havestruggled to do better thanlow-cost, passive investmentproducts that track indexessuch as the S&P 500.

“Many hedge funds havebeen challenged on the perfor-mance front and hedge fundsalso attract the same capitalcharges as private equity andother equity products thathave achieved higher net re-turns,” said MetLife Chief In-vestment Officer Steve Goulartin an email.

BY MENGQI SUN

InsurersRetreatFromFunds

DwindlingInsurance-industry assetsheld by hedge funds

Source: A.M. Best

$25

0

5

10

15

20

billion

2013 ’14 ’15 ’16 ’17

THEWALL STREET JOURNAL. * * * * Wednesday, July 25, 2018 | B11

MARKETS

Full of EnergyA rally in crude oil and other commodities prices buoyed sharesof energy and materials companies in the S&P 500 Tuesday.

THEWALL STREET JOURNAL.Source: FactSet

2.0

0.0

0.5

1.0

1.5

%

9:30 10 11 noon 1 2 3

S&P 500S&P materialsS&P energy

AUCTIONRESULTSHere are the results of Tuesday's Treasury auctions.All bids are awarded at a single price at themarket-clearing yield. Rates are determined by the differencebetween that price and the face value.

FOUR-WEEKBILLSApplications $156,164,841,200Accepted bids $55,000,121,200" noncompetitively $807,505,800" foreign noncompetitively $0Auction price (rate) 99.853778

(1.880%)Coupon equivalent 1.909%Bids at clearing yield accepted 26.78%Cusip number 912796PV5

The bills, dated July 26, 2018,mature onAug. 23, 2018.

TWO-YEARNOTESApplications $104,146,278,700Accepted bids $36,900,694,700" noncompetitively $437,836,600" foreign noncompetitively $100,000,000Auction price (rate) 99.938070

(2.657%)Interest rate 2.625%Bids at clearing yield accepted 19.42%Cusip number 912828Y46

The notes, dated July 31, 2018,mature on July 31,2020.

A bitcoin mine in Canada. Optimism about a bitcoin ETF grows.

LARS

HAGBE

RG/AGEN

CEFRANCE-PRE

SSE/GETTY

IMAGES

of the biggest gainers in theS&P 500 on Tuesday, rising1.3% as the price of U.S. crudesettled up 0.9% at $68.52 abarrel. The materials sectorwas also strong, rising 1.3%,along with the small telecomsector, which rose 1.8%.

Of the S&P 500’s 11 sectors,

only shares of real-estate andconsumer-discretionary com-panies declined.

Shares of agriculture andindustrials companies rose asthe White House said it wouldprovide farmers with $12 bil-lion to counter any falloutfrom tariffs. Shares of Deere

stimulus, a risk-on rally instocks and commodities, andon heightened US-Iran jaw-boning,” said Ethan Bellamy atBaird Equity Research. “Wedoubt the ramp in rhetoric be-tween Trump and Iran willamount to much. In contrast,we would expect other pro-ducers to step up and use thegeopolitical turmoil as coverto sell more oil.”

Oil prices had swung be-tween gains and losses beforeclosing lower Monday follow-ing threats between PresidentDonald Trump and his Iraniancounterpart, Hassan Rouhani,as the oil market tried to as-sess how much Iranian crudesupply might be at risk.

Mr. Trump in May pulledthe U.S. out of a 2015 interna-tional agreement to curb Iran’snuclear program, setting thestage for the reimposition ofeconomic sanctions that areexpected to hinder Iran’s oilindustry. Analysts have esti-

mated that as much as 1 mil-lion barrels a day of Iran’smore than 2.5 million barrels aday in crude exports could beat risk. Mr. Trump has vowedto impose the strictest sanc-tions possible.

“The market wants to getits head around the actual

production in Iran” that willbe affected by the renewedsanctions, said Ole Hansen,head of commodities strategyat Saxo Bank. “The market isplaying it a little on the coolside,” he added, noting that, inthe past, concerns over risk toIranian supply have buoyed

prices much more.After Mr. Trump withdrew

from the nuclear accord inMay, Brent temporarilybreached the symbolic $80-a-barrel threshold for the firsttime in more than 3½ years.

Tuesday’s rise in oil pricesmight not last, said Ric Navy,senior vice president for en-ergy futures at R.J. O’Brien &Associates. He noted oil pricesrose in part due to higherprices for gasoline and dieselfutures as opposed to funda-mental factors, and said com-ing U.S. statistical data maydetermine oil’s next move.

Official weekly data fromthe Energy Information Ad-ministration on U.S. oil inven-tories is due Wednesday, and aWall Street Journal survey ofanalysts and traders indicatesthat, on average, stockpilesfell by 2.9 million barrels lastweek.

The American PetroleumInstitute, an industry group,

said late Tuesday that its owndata for the week showed a3.2-million-barrel decrease incrude supplies, a 4.9-million-barrel drop in gasoline stocksand a 1.3-million-barrel de-crease in distillate inventories,according to a market partici-pant.

Oil prices in general havecome down over the pastmonth following a decision bythe Organization of the Petro-leum Exporting Countries—defacto led by Saudi Arabia—andpartner producers such asRussia, to begin ramping upcrude output after more thana year of holding back produc-tion. The decision came amidconcerns that rapidly rising oilprices could dent demand andhamper global economicgrowth.

Among refined products,gasoline futures rose 0.2% to$2.0956 a gallon. Diesel fu-tures were 0.7% higher$2.1326 a gallon.

Oil prices rose Tuesday onexpectations China’s plan toboost government spendingwill keep global oil demandrobust and on concerns sim-

m e r i n gt e n s i o n sb e t w e e nthe U.S.

and Iran may disrupt oil sup-plies.

Light, sweet crude for Sep-tember delivery ended 63 cents,or 0.9%, higher at $68.52 a bar-rel on the New York MercantileExchange. Brent crude, theglobal benchmark, was up 0.5%at $73.44 a barrel.

China’s State Council re-vealed new measures to sup-port growth, such as taxbreaks and special bonds forinfrastructure investment,which translated into broadbuying in financial markets.

“Oil rose today on Chinese

BY CHRISTOPHER ALESSIAND DAN MOLINSKI

Crude Oil Rises on China Stimulus, Iran Tensions

for 2018.Shares of JetBlue Airways,

however, declined 2.02, or 10%,to 17.79 after the companymissed earnings estimates andlowered the top end of its ca-pacity guidance for the year.Shares of Quest Diagnosticsdeclined 9.47, or 8.2%, to105.42 after the medical-test-ing firm lowered the high endof some of its annual guidance.

Coca-Cola and General Mo-tors are on tap to report earn-ings results before the marketopens Wednesday, along withBoeing and United ParcelService. Facebook and Visaare among the companies thatwill report after the marketcloses Wednesday.

Despite investors’ interestin earnings, trading volumes,which have slumped in recentweeks, remained light. About4.53 billion shares changedhands on exchanges operatedby the New Stock Exchangeand Nasdaq, the lowest fullday for trading volume thisyear, according to WSJ’s Mar-ket Data Group.

The energy sector was one

rose 4.31, or 3.2%, to 139.84.“If you look at people out-

side of the market, people aremore fearful” when it comes totrade, said Darren Pollock,portfolio manager for CheviotValue Management LLC. “Themarket is so optimistic lookingat Trump’s negotiating style.”

President Trump is set tomeet Wednesday with Euro-pean Commission PresidentJean-Claude Juncker abouttrade policies between the U.S.and EU. Ahead of that meeting,Mr. Trump tweeted about tar-iffs Tuesday, calling them “thegreatest.”

In overseas markets, theStoxx Europe 600 added 0.9%.Asian stocks rose after China’scabinet, the State Council, un-veiled measures to boost do-mestic consumption amid eco-nomic pressure from the tradespat with the U.S. Hong Kong’sHang Seng Index rose 1.4% andthe Shanghai Composite Indexadded 1.6%. Early Wednesday,the Hang Seng was up 0.7%and the Shanghai benchmarkwas flat. Japan’s Nikkei waswas up 0.4% early Wednesday.

U.S. stocks rose as investorscheered what is shaping up tobe a strong corporate-earningsseason.

With results in from about20% of the companies in the

S&P 500, thevast majorityof companiesin the indexhave posted

stronger-than-expected earn-ings and revenue, according toFactSet. Strong results fromGoogle parent Alphabethelped set the upbeat tone inmarkets Tuesday.

The Dow Jones IndustrialAverage rose 197.65 points, or0.8%, to 25241.94. The S&P500 rose 13.42 points, 0.5%, to2820.40, and the tech-heavyNasdaq Composite edged down1.11 points, or less than 0.1%, to7840.77, giving up its earliergains.

Earnings from U.S. compa-nies have been “unparalleled”elsewhere, said Michael Scan-lon, portfolio manager at Man-ulife Asset Management. Headded that although somemoney managers have said in-vestors should put moremoney in places such asemerging markets, he thinksinvestors should zero in evenmore on the U.S.

Mr. Scanlon also noted that“stocks have been respondingmore favorably” to good re-sults this earnings seasoncompared with last. Althoughthere are worries with tradeand tariffs, “thus far it hasn’thit results,” he said.

Among Tuesday’s big mov-ers, shares of Alphabet jumped$47.15, or 3.9%, to $1258.15 af-ter the search giant reportedrevenue and adjusted earningsthat beat analysts’ estimates.

Harley-Davidson climbed3.18, or 7.7%, to 44.63 as earn-ings topped projections andthe motorcycle maker backedits guidance for the year, eventhough it said the tariffs woulddent its profit.

Shares of Eli Lilly rose 4.47,or 5%, to 93.35 after the com-pany reported strong resultsand said it would take a mi-nority stake in its animalhealth business public. Sharesof Biogen rose 14.71, or 4.1%,to 372.84 after the companyraised its financial guidance

BY ALLISON PRANGAND BEN ST. CLAIR

Dow Gains, Powered by Strong Earnings

Coca-Cola is among several large companies scheduled to report earnings Wednesday. The beverage maker’s stock rose 0.7%.

ZHANGPENG/LIGHTR

OCKET/GETTY

IMAGES

TUESDAY’SMARKETS U.S. government-bond

prices rose Tuesday as inves-tors’ concerns about central-bank policies eased.

The yield on the benchmark10-year Treasury settled at2.949%, compared with2.963% Monday. Yields fall as

bond prices rise.The 10-year

yield traded in anarrow rangeTuesday morn-

ing before edging lowershortly after manufacturingand services data showedsteady growth so far in July.The yield edged higher beforeTuesday afternoon’s $35 bil-lion auction of two-year notes,which drew solid demand, an-alysts said.

The yield on the two-yearnote, which is typically moresensitive to changes in expec-tations for Federal Reservepolicy, rose to 2.637% from2.633% Monday.

“There was nothing reallyin the way of news; the onlyspillover was higher yieldsfrom” Monday, said MarkChandler, head of fixed-in-come strategy at RBC CapitalMarkets.

Tuesday’s relative calm fol-lows the largest one-day gainfor the 10-year yield in morethan seven weeks on Mondayamid concerns that centralbanks were poised to take newsteps back from postcrisisstimulus. Reports that theBank of Japan could adjust itspolicies rattled global debtmarkets, pushing yields higherin the U.S. and other devel-oped markets.

The jump in benchmarkyields Monday ended a periodof quiet for the Treasury mar-ket unrivaled since the springof 1978. In the 21 sessionsended Friday, just 0.075 per-centage point separated thehighest and lowest levels onthe benchmark 10-year yield.

Treasurys investors will bewatching this week for the re-lease of the European CentralBank’s policy statement Thurs-day and data on U.S. gross do-mestic product Friday.

“There’s still lingering con-cern about what Japan’s cen-tral bank is planning to do, al-lowing rates to drift higher,”said Mark MacQueen, bondportfolio manager at Sage Ad-visory. “If they adjust the pol-icy to slight tightening, itwould be the end of the globalparty.”

BY ORLA MCCAFFREY

TreasurysDrift UpAs PolicyFears Ease

CREDITMARKETS

The price of bitcoin soaredabove $8,000, extending arally that has lifted the largestcryptocurrency by marketvalue to its highest level intwo months.

After a dismal first half ofthe year, bitcoin has shownsigns of life in recent weeks.It hurdled back above $6,000a token in late June, sur-passed $7,000 last week andexceeded $8,000 on Tuesday.The 25% gain so far in Julyputs bitcoin on pace for itssecond biggest monthly gainthis year.

Bitcoin late Tuesday traded

at $8,226.15, its highest levelsince May, according to re-search site CoinDesk.

Some market watchers saidthe gains have been fueled bymounting optimism that thefirst bitcoin-based exchange-traded fund could eventuallycome to fruition. Asset man-ager Van Eck AssociatesCorp. and startup SolidXManagement LLC applied lastmonth to the Securities andExchange Commission for per-mission to launch a regulatedbitcoin ETF.

Bitwise Asset Manage-ment Inc., a San Francisco as-set manager specializing incryptocurrencies, on Tuesdayfiled with the SEC for permis-sion to launch an ETF thatwould track an index of thetop 10 cryptocurrencies suchas bitcoin and ethereum.

Such instruments couldboost bitcoin’s valuation by

opening it up to a broaderrange of investors.

“There are a lot of rumorsthat a bitcoin ETF is finallygoing to be approved,” saidAdrian Lai, managing directorat BlackHorse Group, a cryp-

tocurrency investment firm inHong Kong. “I’m not so sure.It’s too optimistic to think it’sactually going to happen, butthe market is reacting reallywell to this speculation.”

The SEC has previously

been resistant to approvingsuch products. In January,Wall Street’s top regulator allbut shut the door to approv-ing ETFs that hold bitcoin andother cryptocurrencies. Theagency questioned whether

such products could complywith rules meant to protectindividual investors.

Van Eck and SolidX, bothbased in New York, have saidtheir proposal was designedto address the SEC’s mainconcerns.

The recent rebound alsohelped lift rival digital curren-cies such as ether and ripple,pushing the market capitaliza-tion for the entire cryptocur-rency market back above $290billion, according to researchsite Coinmarketcap.com. Butbitcoin has recently started toseparate itself from the pack.Bitcoin’s market cap has risento 47% of the entire market,up from 33% in January.

Even after the latest surge,bitcoin is still down about60% from its peak late lastyear.

—Asjylyn Lodercontributed to this article.

BY STEVEN RUSSOLILLO

Price of Bitcoin Jumps Above $8,000Some attribute digitalcurrency’s recentstrength to hopesan ETF is in works

Bouncing BackBitcoin has gained 25% in July,putting it on pace for its secondlargest monthly gain this year.

THEWALL STREET JOURNAL.Source: CoinDesk

$18,000

0

6,000

12,000

’182017

0.9%New York crude futures rose thismuch on Tuesday.

COMMODITIES

B12 | Wednesday, July 25, 2018 THEWALL STREET JOURNAL.

MARKETS

data showed.A sliding currency makes it

harder to repay those foreigndebts.

“The credibility of the insti-tutions, especially the centralbank, [is] diminished for acountry that has a lot of needfor external support, externalmoney,” said Luca Sibani, a se-nior portfolio manager at Ep-silon SGR.

Pressure on local businesscan be seen at companies suchas Keskinoglu Group, one ofTurkey’s leading poultryfirms.

The costs in lira of the soyit imports to feed chickenssoared 50% in the past year,but the company said itcouldn’t pass that extra ex-pense on to customers.

Strapped for cash, and un-able to meet installments onsome loans carrying interestrates of about 25%, the com-pany filed for protection fromcreditors in June.

“In a good year, profit onlyreaches 3% to 5%,” said Meh-met Keskinoglu, vice chair-man and son of the firm’sfounder. “It is impossible forproducers to stand on theirfeet.”

Most Turkish banks arewell-capitalized, but investorsare concerned that a pickup introubled loans could weigh onthe sector.

“Loan quality in the bank-ing sector is clearly deterio-rating,” said Rob Drijkoningen,co-head of emerging-marketdebt at Neuberger Berman.“The system can ill afford an-other major depreciation cycleof say 10% to 20%” in the lira,he added.

Mr. Albayrak, the financeminister, said the concerns aremisplaced.

Returning from a meetingof Group of 20 finance minis-ters in Argentina this week-end, he told Turkish reportersthat the government wouldn’tfight with markets.

“An effective central bankin all processes is one of ourmain goals,” he said.

BY CHRISTOPHER WHITTALLAND DAVID GAUTHIER-VILLARS

Turkish Lira Sinks on Fear of Interference

Sources: Thomson Reuters (currencies); IHS Markit (credit-default swaps);Organization for Economic Cooperation and Development (current accounts); Turkish central bank via GAM (loans) THEWALL STREET JOURNAL.

s SURPLUSt DEFICIT

Investors see Turkey as among the weakest links in global markets.

Howmany Turkish lira one U.S. dollar buysScale inverted to show weakening lira

TuesdayMonday

Annual cost of insuring $10 million of debtagainst default for five years,as measured by credit-default swaps

$500,000

0

100,000

200,000

300,000

400,000

2018

Turkey

Brazil

Argentina

S. Africa

Current-account balance as a share ofgross domestic product, quarterly

0

–8

–6

–4

–2

%

2014 ’15 ’16 ’17 ’18

Turkey

Brazil

S. Africa

Argentina

Percentage change againstthe U.S. dollar, year to date

S. African rand

Brazilian real

Turkish lira

Argentine peso

Share of bank loans to Turkish companiesmade in foreign currency

30

0

10

20

%

2010 ’15 ’18

4.75 lira

4.80

4.85

4.90

4.95

Tuesday, 7 a.m. ETCentral bank surprises investorsby keeping rates on hold.

–32.3

–11.7

–22.3

–7.0%

reticence is temporary,bought on by nervousness attrade-fight saber rattling, orif it signals a turn in the

Google’s cloud businessmay seem small now, but itmay be the first of the com-pany’s many endeavors thatcould eventually change itsstatus as the world’s largestand most successful one-hitwonder.

Google, under parent com-pany Alphabet Inc., has itsfingers in many pies. Yetthose pies, including its An-droid mobile operating sys-tem and the megapopularYouTube streaming video ser-vice, mostly serve the com-pany’s search-ad business.

Advertising accounted for96% of Google’s total revenueover its first decade as a pub-lic company and represented90% of total revenue as re-cently as 2015.

That contribution slippedto 86% last year, though, de-spite the continued stronggrowth of advertising. Thechange is mostly due to theperformance of the segmentdubbed “Google Other,”which comprises the cloudbusiness as well as the

Google Play app store andhardware such as the com-pany’s Home smart speakerand Pixel smartphones.

“Other” revenue totaled$8.8 billion for the six-monthperiod ended June 30, up36% year over year comparedwith 24% growth for thecompany’s advertising busi-ness over that time. Thecloud business is credited as

the top driver of that growth.With large companies still

early in their embrace ofcloud computing, the poten-tial for Google is vast, alongwith its main cloud rivalsAmazon.com and Microsoft.Amazon’s success in particu-lar could show the way for-ward for Google. Its AWScloud service now accountsfor 10% of the retail giant’s

total revenue compared with7% three years ago.

Google, though, still re-fuses to break out results forits cloud venture. That reti-cence has likely helped keepa lid on its stock. Alphabet’sshare price is up 19% for theyear compared with Ama-zon’s 55% gain.

Better disclosure wouldhelp Alphabet’s investors un-derstand the payback poten-tial for the billions they areinvesting.

Capital spending for thecore Google business, whichincludes the cloud business,hit $5.3 billion in the secondquarter, nearly doubling yearover year. Alphabet CFO RuthPorat also cited the cloud asthe main driver of the com-pany’s increased spending inresearch and developmentalong with sales and market-ing. Investors understandthat you have to spendmoney to make money.Google could do better athelping them understand howmuch. —Dan Gallagher

UBS Defends Against Cautious ClientsUBS Group is fine—it is

the Swiss bank’s clients youshould worry about.

Trading and risk takingamong UBS’s global base ofwealthy customers slowed inthe second quarter, accord-ing to results reported Tues-day. The bank has built gooddefenses against this in re-cent years by shifting the fo-cus of its private-bankingand wealth-managementbusiness away from tradingcommissions to regular feesfrom investment advice andasset management.

But even as UBS cele-brated 10-year highs forquarterly net interest incomeand recurring-fee income, itstransaction revenue fell morerapidly than expected. Thequestion is whether clients’

market cycle after years ofcentral-bank stimulus.

It is likely a bit of both.That puts a damper on theoutlook for wealth manage-ment and investment bank-ing over coming years.

UBS’s investment bank didwell enough in the secondquarter, especially equitiestrading. That bodes well forother equities-focused Euro-pean banks like CreditSuisse and Société Gé-nérale.

But in global wealth,which supplies 55% of UBS’srevenue, there were signs ofa slowdown. New moneyfrom clients was weak. His-torically fast-growing Asiaslowed dramatically com-pared with last year, whileoutflows from the U.S. arm

more than offset Swiss in-flows.

UBS’s clients were less ac-tive, too. Transaction-basedrevenue dropped 11% in dol-lar terms versus a year ago.UBS has a strong bias towardAsia, where it is by far thebiggest Western wealth man-ager, and Asian clients werenotably more risk averse.This may be partly nervous-ness over political and tradetensions, but it is also linkedto the strengthening dollar,which brings with it tightermonetary conditions andlower liquidity.

UBS and other wealthmanagers are protectedagainst a sudden drop in rev-enue, but finding growth isturning into a grind.

—Paul J. Davies

Google Makes Rain From CloudCloudWatchingGoogle's 'other segment' revenue per quarter

THEWALL STREET JOURNAL.Source: the company; FactSetNote: Nest revenue included starting in Q1 2018

$6

0

1

2

3

4

5

billion

’16 ’17 ’182015

Charged UpUBS global wealth revenues splitbetween repeated business andcommissions, quarterly

THEWALL STREET JOURNAL.Source: S&P Capital IQ

100

0

25

50

75

%

’182017

Net interestRecurring feesTransactions

range of $30 million to $35million, from $30 million to$45 million. One reason isthat the company was ableto send a lot of bikes to Eu-rope before the tariffs wentinto effect last month. Thathelped cause a 25% jump inits inventories from a yearearlier. The company expectsoperating margins to fall bya less-than-expected halfpercentage point, to a rangeof 9% to 10% this year.

Harley says that if it doesnothing, the combined effectof tariffs will cost it $90 mil-lion to $100 million nextyear. But rushing bikes overto Europe shows how ag-gressively the company ismoving. Harley already hasfactories in Brazil and Indiaand expects to open a fac-tory in Thailand early in thefourth quarter.

When it announced itplans to move productionabroad, Harley said the pro-cess could take nine to 18months to fully complete.The early evidence is inves-tors could be surprised byhow quickly Harley moves.

—Justin Lahart

Harley-Davidson IsRiding to the Border

Harley-Davidson is anAmerican icon. A key ques-tion for the motorcyclemaker is just how soon itwill be able to ramp up pro-duction outside the U.S.

Harley has had a roughride this year. Already strug-gling to attract new riders asits customer base ages, Har-ley was hit first by tariffs onsteel and aluminum importsand then by retaliatory tar-iffs from the EuropeanUnion. Last month the com-pany announced plans tomove production of bikesdestined for the EU out ofthe U.S. in order to avoidtariffs—a costly plan criti-cized by President DonaldTrump who tweeted, “I’vedone so much for you, andthen this.”

For investors in the com-pany, Tuesday offered a re-spite: Harley reported sec-ond-quarter earnings thattopped analyst estimates,helping to send its shares upsharply.

Harley also lowered therange on its estimate of howmuch the European tariffswill cost it this year to a

Why does the luxury indus-try move into places that in-vestors are deserting?The Turkish lira plunged 3%

against the dollar Tuesday af-ter the Turkish central bank un-expected kept its policy rate onhold.President Recep Tayyip Er-

dogan, a vocal critic of higherinterest rates, has furthertightened his grip on economicpolicy since voters elected himto another term last month, in-cluding by appointing his son-in-law to the finance ministry.The currency has lost morethan half of its value over fiveyears.

Investors’ worries don’tseem to put off luxury goodsmakers. Exclusive leather-goods brand Hermès openedits third store in Istanbul, Tur-key’s financial capital, in May. Itchose the Emaar Square Mall,which already contains a Cart-ier outlet and is about to getGucci and Rolex stores.There is a logic here: Fancy

French bags and Swisswatches are a highly portableform of wealth that may keeptheir value better than troubledlocal currencies. Problems inemerging markets may there-fore spell opportunity for lux-ury brands. Next up, Argentina?

OVERHEARD

Turkey’s currency fellsharply amid investor con-cerns that President RecepTayyip Erdogan’s growing in-fluence over the central bankcould push the country towarda currency crisis.

In its first monetary-policydecision since Mr. Erdoganwas re-elected in June and in-herited vastly expanded execu-tive powers, the central bankleft its main rate unchanged at17.75%.

Many analysts had antici-pated a rise of at least a per-centage point to combat infla-tion, which hit 15.4% in June,its highest annual rate in 15years.

The decision sent the liradown by about 3% against thedollar in late European trad-ing on Tuesday, while govern-ment bonds sold off, reflect-ing investors’ fear that thecentral bank is bowing to Mr.Erdogan’s preference forlower interest rates to sup-port investment and con-sumer demand.

The currency has shednearly one-quarter of its valuethis year at a precarious timefor developing economiesaround the world.

Emerging markets havecome under intense pressureamid a strengthening dollar,higher U.S. interest rates andan escalating trade conflict be-tween the U.S. and other coun-tries.

Investors say they believeTurkey is especially vulnera-ble, given that a sliding cur-rency makes its large pile offoreign-currency debt muchharder to pay off, and whatthey see as political interfer-ence in the central bank.

Tuesday’s decision “wasn’tabout monetary policy, it wasabout the independence of thecentral bank,” said ViktorSzabo, a senior investmentmanager at Aberdeen Stan-dard Investments.

“Turkey needs to get lucky

with the external environ-ment not to get a currencyselloff. It’s the most obviousvictim, having one of thepoorest external balances,” headded.

In June, Argentina wasforced to ask for a $50 bil-lion credit line from the In-ternational Monetary Fundafter a sharp drop in its cur-

rency.Economists had viewed

Tuesday’s central-bank deci-sion as an important sign ofits intentions to implementmarket-friendly policies.

The central bank’s decisionto raise interest rates aggres-sively ahead of the election todefend the lira cheered manyinvestors.

But during the electioncampaign, Mr. Erdogan said hewould promote lower rates.

In June, Mr. Erdogangranted himself the sole rightto appoint the central bank’sgovernors and named BeratAlbayrak, his son-in-law, as fi-nance minister.

Preventing the lira from go-ing into free fall is crucial in

an economy the InternationalMonetary Fund estimates hadexternal debt of 53% of grossdomestic product at the endof 2017, one of the highest lev-els among emerging econo-mies.

Around one-third of bankloans to Turkish companieswere in foreign currency as ofthe end of May, central-bank

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