Investors Weigh Fallout from Nvidia Spy Scandal

California's unprecedented billionaire tax is rejected by voters, plus how the fallout from the NVIDIA scandal could ramp up the U.S. and China's tech rivalry. And we look at how cartels, crimes, syndicates, and rebel groups are controlling more parts of the world than ever before. Ecuador has basically gone from being a relatively peaceful country to among one of the most violent countries in Latin America in the span of about five years. Just Tuesday, November 10th, I'm Sandra Killhoff for the Wall Street Journal filling in for Luke Vargas, and here's the AM edition of What's News, the top headlines and business stories moving your world today. The fallout from revelations and videos CEO had an affair with an executive suspected of working for Chinese intelligence is spreading to Washington, where both Democrats and Republicans are calling for new laws to cut off China from top AI chips. The push is gathering steam as global AI leaders descend on Lisbon in Portugal for the annual Web Summit tech conference. Our Luke Vargas is there and caught up with the journal's Brussels bureau chief Dan Michaels, who said it was clear that the U.S.-China tech rivalry is about to heat up even more. The one bipartisan issue in the U.S.'s is China bashing Democrats and Republicans agree that for the U.S., China is at very least an adversary, definitely commercially, maybe militarily and maybe I think a lot of people in the U.S. would say an enemy now. So something like this will, for many, many people, confirm suspicions and prompt walls to come up. More things like this happen with NVIDIA, with the assumption of espionage, the more everyone in the West is going to have their antenna out, be concerned, be nervous and be putting up barriers. Certain U.S. businesses could benefit from that, like those hoping to localize physical supply chains, but doing that with AI could prove trickier. The reality is that this is not containable. You cannot have a non-proliferation for AI. Alvin Graylin is a professor of AI policy at the University of Washington. With these models, within a week somebody will have it, within a month max somebody else will have it, whether through espionage, whether through distillation, whether through their own animation, whether through just rumor bills, software can just be on a USB stick. Right? And it's very easy to distribute. Graylin believes new AI export controls could further wall off the U.S. from Chinese competition and accelerate Beijing's push for technological independence, but he's not confident that he'll stop lawmakers from backing them. The likelihood is actually high because this creates this bogeyman fear or they're spying on us. There must be something, a reason why China is looking to influence China. It's a lot easier to create a simple story that does not require five minutes of explanation and does not require technical understanding, you know, because it has worked for the military and industrial complex. We have an enemy, they're after us, they're going to take over the world, and we need to do whenever we can to stay ahead. And Ardan Michael says that reinvigorated push in Washington will likely see the U.S. lean on its allies overseas to follow suit, dusting off the playbook it used to mixed results over the last decade to try and shut out Chinese 5G. The U.S. will most certainly push on Europe and other parts of the world, but when it comes to Europe, they're going to be pushing on open door or find a much more receptive audience than they did a few years ago, because every European country now is wary of China. Germany used to see China as a market and as far as a profit, no more. The political feeling and the feeling in European industry is that China is a threat to Europe. So Europe is coming around to the view in the U.S. It is harder for Europe to put up barriers than it is for the U.S. to do it, but the Europeans in Brussels, at the European Union and also in the capitals are shifting to trying to do something like what the U.S. has done to keep out the Chinese industrial and technological invasion. And we will have much more from Web Summit throughout the week, including a look at whether the AI bubble is already bursting. For now though, wider markets seem to be taking the Nvidia news and stride. This morning, investors continue to pile into tech stocks that plunged in last week's sell-off. This sector is getting a further boost from news that anthropic is sticking with its plan to list before Thanksgiving, despite its investors expecting a much lower valuation. We understand that the cloud maker has meetings lined up with investors this week and is aiming for its shares to start trading Thursday or Friday next week. Meanwhile, Japanese tech investment firm SoftBank released a disappointing earnings report this morning, booking a net loss after its push into power generation for U.S. data centers hit the wall. U.S. data center company SB Energy has delayed its IPO plans after getting pushback on its potential valuation. We're exclusively reporting that the U.S. has evacuated more military aircraft from a Royal Air Force base in England following a threat from Iran. Our UK correspondent Max Colchester has the story. So yesterday we saw the hurried evacuation of several U.S. refueling aircraft from RAF Milton Hall, whether it was imminent or a more general threat hasn't yet been determined, but clearly the situation was serious enough for the U.S. to decide to move those aircraft to other bases in Europe. So this follows a similar threat which occurred in late September at another UK Air Base area, Fairford. That U.S. officials believe was part of a wider Iranian plot to try and target bombers and service personnel on that base, the UK government has since come out saying it's suspect the Iranian state was behind that attempted attack, and it also points to a wider hybrid war that we're seeing Iran wage against Europe, where it's been allegedly involved in, for instance, turning off freezes in supermarkets across the continent, and where there's a long standing effort to target dissidents here, who criticize the regime, and generally just so confusion. It comes as President Trump indicated yesterday that a return to war with Iran was unlikely amid ongoing negotiations to resolve the conflict. "Taking the military action doesn't seem to be a very necessary thing, but we're locked and loaded ready to go for any reason that changes. Israel and the entire Middle East are protected from Iranian danger and threats, and we're seeing momentum toward the end of this conflict, I think it's going to be ending fairly soon." At the same time, negotiations between the US, Russia, and Ukraine are underway in Abu Dhabi to find a way to end the war in Europe. It's the first trilateral talks since February, with special envoy Stephen Whitkopf and Trump's son-in-law Jared Kushner leading negotiations. Voters in California have rejected a proposed billionaire tax, ending a heated and expensive fight over what could have been the nation's first modern tax on wealth. The initiative, proposed by a health care workers' union, had sought to impose a one-time 5 percent tax on the net assets of California residents worth more than 1 billion at the end of this year, in an effort to offset looming Medicaid cuts that President Trump signed into law last year. But success was never a sure thing, even in deep blue California, as opponents of the tax, including Google co-founder Sergei Brin and other tech executives and billionaires, poured hundreds of millions of dollars into campaigns to defeat it. The Trump administration has been trying to cut domestic drug prices, but so far its efforts haven't yielded any results. At the same time, it's triggered a 27 percent drop in new European drug launches over the past 17 months, according to market research firm Global Data. To avoid tariffs, more than 20 drug makers reached deals with the administration, agreeing to not charge much more in the U.S. than they do elsewhere, as a result some drug makers have pulled drugs from European markets or delayed launches to avoid lowering what they get paid in the U.S. Meanwhile, a new type of blood thinner that can prevent repeat strokes without significantly increasing a person's bleeding risk has just been approved for the U.S. market. Farmer reporter Alex Jainin says buyer Sonarbo aims to decrease a person's risk of dangerous internal bleeding. Pharmaceutical companies are investing in the next generation of blood thinners. For a couple of reasons, one, of course, is they say this is a major unmet medical need. Roughly one in five stroke survivors have another stroke within five years, despite existing treatments. So this new drug, which is a first in class medicine, works differently from those standard blood thinners and it does not increase significantly bleeding risk the same way those standard blood thinners do. And analysts estimate that it could eventually generate more than $4 billion in annual sales, which is, of course, a big commercial opportunity for these companies. Wall Street expects the FDA approval to give buyer a much-needed lift. The pharmaceutical giant is facing generic competition for several top-selling drugs, including a blood thinner at co-markets with Johnson & Johnson. Coming up, a record amount of people are now living under the control of gangs, cults and gorillas we look at the new empires emerging around the world after the break. The International Red Cross is now estimating that 200 million people live in areas run by non-government groups that are often armed. Journal correspondent James Arady looked into the Red Cross' findings to see how from violent cocaine cartels in Latin America, ethnic militias in Africa to industrial-scale front centers in Southeast Asia, criminal groups are sideline businesses and governments around the world. Another organization that we look to is called Aclid, which is measuring how many insurgencies there are taking place around the world. Sometimes, these involve going after the government, sometimes these are just violent acts, but we're not talking about street violence. We're talking about territorial conquest type violence. James says the dominance over territory and people is at a scale that's challenging the concept of nationhood. What we've seen is the nature of states, of countries, is actually changing. In many cases, these non-state actors that are controlling territory, they don't look at themselves as becoming a government, or even an independent country. And they're rejecting the principles of state that have been around since the 1600s, when the European powers develop the idea of state sovereignty. It tips right across borders and it changes the definition of what is the border. It changes the definition of what is the country, because different groups are in charge of so much territory, and that they're fighting among themselves and none of them are basically winning. James says one thing that criminal gangs and militias having common globally is they're technologically connected just like the rest of us. They're using satellite internet to connect from remote areas. They're communicating on what's up and telegram to keep their messages secret, because those platforms are encrypted. And they're moving their money with cryptocurrencies, like Tether. But what that allows them to do is to remain connected. Of course, many of the groups are using equipment and technology that normal people do not have. I mean, they're projecting force with drones that are equipped for shooting. They have often powerful machine guns and weaponry like that. And in some cases, even ballistic missiles. Journal correspondent Suner Rasmussen says one of the most extreme examples can be found in Ecuador, which was once one of Latin America's safest countries, but has since devolved into a primary battleground for global drug syndicates. In Ecuador gangs have moved from being what you call careers for foreign cartels to basically running local systems of control and governance, where they tax businesses, they take over minds, they run prisons, they buy judges. And trafficking here depends on people inside the drug supply chain, especially in ports. So traffickers have corrupted and intimidated police, customs agents, security guards and port workers into both helping with or ignoring container tampering. I met recently with drug trafficker in Spain, who showed me videos of some of his associates in Ecuador and how they could basically just break the seal on containers, place drugs inside, close it back up with formalized official seals. At this point, about 80% of the cocaine coming into Europe, which is now the second largest cocaine market in the world, after North America, comes through Ecuador, and that's according to the UK government. And Suna says the lawlessness in Ecuador has unleashed the kind of violence seen in Mexico's drug war. And as a sign of how powerful these gangs are, they take their listed revenues and follow them into untraceable cryptocurrency or their laundromoney, which is easier because the Ecuadorian economy is dollarized and they buy military-grade weaponry. One of the things is really noteworthy about Ecuador is how fast the situation has deteriorated. So last year, the country's homicide rate hit 51 murders per 100,000 people. That's higher than Colombia, higher than Mexico, and higher than Brazil, which are the usual countries that we associate with this kind of violence. Treat more in our reporting about how the so-called new global disorder has stymied Washington and other Western powers, find the link left in our show notes. And that's it for what's news for this Monday morning. Today's show was produced by Luke Vargas, Daniel Bach, and Honeymore. Our supervising producer was Michael Cosminas, and I'm Sandra Killhoff for the Wall Street Journal. We'll be back tonight with a new show. Until then, thanks for listening. [MUSIC]