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Treasury deputy Adeyemo says U.S. will win support for global minimum tax

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Adewale Adeyemo, Treasury Secretary Janet Yellen’s deputy, on Wednesday said increasing the U.S. corporate tax rate to 28% will not make American companies less competitive, because the Biden administration is confident it can win the support of developed nations to set a minimum tax worldwide.

“We’ve worked very closely with our international counterparts to counter what has been a race to the bottom in terms of international taxation,” Adeyemo, who goes by Wally, told CNBC’s Sara Eisen.

“We believe through both the things we’re going to do globally in terms of the G-20, where the United States has made clear that we’re back and we’re looking forward to leading the world, we’re able to reach an agreement that will draw in the vast majority of developed countries in the world to set a minimum tax,” the No. 2 Treasury official said.

Yellen said on Monday that she was working with the Group of 20 nations to create a minimum corporate tax that will keep companies from relocating overseas to find lower rates. President Joe Biden has made raising the U.S. corporate tax rate a central mechanism to finance his massive $2 trillion infrastructure plan.

The Republican Party is also widely opposed to rolling back former President Donald Trump‘s 2017 tax cuts, which lowered the rate businesses pay on earnings to 21% from 35%. Biden’s plan would not only partially reverse the corporate tax decrease, but also strike other key provisions of Trump’s Tax Cuts and Jobs Act.

The president opened the door Wednesday to compromise on his proposed corporate tax hike, but said the U.S. must act boldly on infrastructure if it wants to keep up with nations like China.

Adeyemo defended the Biden administration’s wide-ranging infrastructure plan and said that the U.S. needs investments beyond repairs to road and bridges to compete globally in the modern era.

“The investments the president is calling for in the jobs package are the same investments the Chinese are making and other countries are making,” Adeyemo said. “It’s important that we make them now in order to make sure that America can compete in the 21st century.”

He said Biden’s plan and the White House’s broader definition of infrastructure are not only favored by progressive politicians, but by Wall Street executives, too.

Asked to address criticisms that the once-in-a-generation plan is both too large and not sufficiently focused, Adeyemo pushed back.

“The pandemic has taught us that we can’t only think about traditional infrastructure, which is roads and bridges and ports, but we need to think about what it takes for us to compete in the 21st century, which includes things like broadband,” Adeyemo said.

“One of the groups that has been hit the most by Covid-19 has been those who have to give care to others because they’ve been unable to enter the workforce,” he added. “A number of investments we make here are around making sure that those individuals have the support and infrastructure around them to ensure that they can return to the workforce and contribute to the economy.”

Adeyemo’s comments came one week after Biden first debuted his long-promised infrastructure proposal in Pittsburgh.

The American Jobs Plan, if passed, would invest hundreds of billions of dollars in transportation infrastructure, water systems, broadband access, electric grids, job training and other provisions. It calls for $400 billion to care for elderly and disabled Americans as well as $300 billion to build and retrofit affordable housing.

Republicans are virtually united in their opposition to the plan as written, deeming the legislation far too expansive in light of the $1.9 trillion Covid-19 relief package Democrats navigated through Congress earlier this year.

Both Yellen and Adeyemo have made history at the Treasury Department as the first woman to lead the agency and the first Black deputy secretary, respectively.

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CDU battle between Soeder and Laschet ahead of election

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German Chancellor Angela Merkel gestures as she sits down for the weekly cabinet meeting on April 13, 2021 at the Chancellery in Berlin.

JOHN MACDOUGALL | AFP | Getty Images

LONDON — It was never going to be easy to find a successor to Angela Merkel, German chancellor for the last 16 years. But the race has just become even more complicated, with two rivals contesting the conservative ticket.

The obvious conservative candidate in the upcoming German election would be Armin Laschet, head of the North Rhine-Westphalia state. He was elected leader of Merkel’s CDU party in January and claims he wants to modernize Germany.

That was until Markus Soeder, from the Bavarian sister party, the CSU, threw his hat in the ring. Soeder is arguably the most popular man in German politics.

“It has always been clear that the race to Angela Merkel’s succession will be long and will not follow a straight line. It might not be a blockbuster movie but rather a binge-viewing-worthy political series,” Carsten Brzeski, chief economist at ING Germany, said in a note on Tuesday.

Party leader or Mr Popularity

When it comes to federal elections, the CDU and CSU act together — and so will only field one candidate.

CDU lawmakers will discuss who that should be on Tuesday and hope to come to a decision this week. But it will be a difficult choice between their party leader and someone as popular as Soeder.

Elisabeth Motschmann, a lawmaker for the CDU, told CNBC’s Squawk Box Europe on Tuesday that she supports Soeder.

“For this very hard job, I think that Markus Soeder will do his best and is able to win,” she said. “I don’t think that (Laschet) would be hard enough and he can’t decide like Soeder.”

Jens Suedekum, professor at Dusseldorf Institute for Competition Economics, told CNBC via email that, “what characterizes Soeder is his unique degree of flexibility, you may call it opportunism, when it comes to political principles.”

Christian Democratic Union (CDU) party chairman Armin Laschet (L) and State Premier of Bavaria and Christian Social Union (CSU) chairman Markus Soeder.

Pool | Getty Images News | Getty Images

Vaccination boost

But things could be about to look up for the conservatives.

“Once the CDU/CSU’s official election campaign starts in full force and vaccinations ramp up, things will look better for them,” Naz Masraff, director at consultancy firm Eurasia Group, said in a note on Tuesday.

However, she stressed that Laschet would likely have a more difficult time consolidating the CDU/CSU’s voter base and winning back centrist voters from the Green party.

Laschet’s candidacy would benefit the Greens and the Social Democrats. It would also increase the chances of a Green chancellor after September’s elections.

Naz Masraff

Director, Eurasia Group

“He will also have to work hard to change his image as a weak and equivocating leader who hasn’t taken as strong a line on the pandemic, or on corruption in the party’s ranks, as many Germans expected,” Masraff added.

Whoever the CDU chooses to be its running candidate could ultimately have an impact on what kind of coalition will emerge in September.

“Laschet’s candidacy would benefit the Greens and the Social Democrats. It would also increase the chances of a Green chancellor after September’s elections,” Masraff said.

The CDU/CSU are currently in the lead in the polls, with around 27% of the vote; the Greens, however, are gaining ground with around 21%. The party with the most votes will lead coalition negotiations after the September election.

What it means for markets

Christian Schulz, chief economist at Citi, told CNBC’s Squawk Box Europe on Tuesday that as the September election approaches, investors will be looking at what the new government could mean for fiscal policy in the euro area.

He said that both conservative candidates “say very little about what they want to do,” but added: “Soeder gets across has having more Eurosceptic instincts, so he would probably be the worst outcome for markets at least in the short term.”

The yield on the 10-year German bond has risen since Soeder’s announcement on Sunday, indicating some concerns over political uncertainty.

People sit in a park on a warm day with temperatures up to 23 degrees during the coronavirus pandemic on March 31, 2021 in Berlin, Germany.

Maja Hitij | Getty Images News | Getty Images

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SoftBank-backed Grab agrees to deal to go public in world’s largest SPAC merger

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Southeast Asia’s ride-hailing giant Grab announced Tuesday that it’s set to go public through a SPAC merger with Altimeter Growth Corp., in a deal that values the company at $39.6 billion — the largest blank-check merger to date.

Grab says it intends to list on the Nasdaq under ticker symbol “GRAB” following the deal’s completion.

SPACs, or special purpose acquisition companies, are shell companies or blank-check companies set up for the purpose of raising capital to acquire private companies. A SPAC listing bypasses Wall Street’s traditional IPO process.

As part of the mega-deal, SoftBank-backed Grab will receive about $4.5 billion in cash, which includes $4 billion in a private investment in public equity (PIPE), managed by BlackRock, Fidelity, T. Rowe Price, Morgan Stanley’s Counterpoint Global fund and Singapore’s sovereign wealth fund Temasek. PIPEs are mechanisms for companies to raise capital from a select group of investors that make the final market debut possible through their financing.

Grab — most recently ranked No. 16 on last year’s CNBC Disruptor 50 list — delivers an array of digital services such as transportation, food delivery, hotel bookings, online banking, mobile payments and insurance services from its app. The Singapore-based company has operations throughout most of Southeast Asia, and serves more than 187 million users in over 350 cities across eight countries.

While SPACs have become a hot investment vehicle on Wall Street, they’re also gaining traction in Asia with six regional-focused SPAC companies that have collectively raised $2.7 billion thus far in 2021.

But in the first quarter this year, capital raised by blank-check firms like Altimeter has already outpaced 2020’s total issuance. It’s not only drawn the attention of the U.S. Securities and Exchange Commission, but also investors who are fearful of a market bubble.

Still, new deals continue to flood the market — more than 100 in March alone, according to SPAC Research.

While Grab’s merger remains record-setting, Boston-based biotech company Ginkgo Bioworks, ranked No. 44 on last year’s CNBC Disruptor 50 list, is said to be considering an equally-massive $20 billion blank-check merger of its own, according to Bloomberg.

Throughout the pandemic, Southeast Asia saw a surge in the use of digital services like e-commerce, food delivery and online payment. As many as 40 million people in six countries across the region — Singapore, Malaysia, Indonesia, the Philippines, Vietnam and Thailand — came online for the first time in 2020, according to a report from Google, Temasek Holdings and Bain & Company.

Still, Covid-19 has forced regional private market decacorns (start-ups valued at more than $10 billion) to cut staff and rethink what will define a dominant “super app” suite of on-demand services. It’s also intensified the competitive landscape in an already saturated market that’s proven difficult to turn a profit.

After a period of intense and expensive competition by Uber to dominate rideshare in many markets, Indonesian rival Gojek sold its Southeast Asia business to Grab three years ago in return for Uber receiving a stake in the company.

In January, Reuters reported that Grab’s net revenue had grown 70% year over year, recovering to pre-pandemic levels with its ride-hailing business breaking even in all operating markets, including its largest, Indonesia.

Grab and Gojek were reportedly close to finalizing a merger of their own late last year.

Reuters reported that Gojek — which is ranked No. 10 on last year’s CNBC Disruptor 50 list — is now in advanced talks with Indonesian e-commerce leader Tokopedia for an $18 billion merger, ahead of a potential dual listing in Jakarta and the U.S.

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Exports can’t help China grow as much this year

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Containers and trucks at the port of Qingdao, China on February 14, 2019.

Reuters

BEIJING — China’s economy was buoyed by strong exports last year, but that boost is waning.

The country’s customs agency said Tuesday that in dollar terms, exports rose 30.6% in March from a year ago, missing expectations for growth of 35.5%.

Looking ahead to the next three months, customs spokesperson Li Kuiwen told reporters that last year’s high base poses challenges for trade in the second quarter. In addition, Li said the resurgence of Covid-19 cases and overseas uncertainties — such as the Suez Canal blockage — mean China still has a long way to go in achieving stable growth in trade.

Chinese authorities would like to shift the economy’s reliance to private consumption for growth, and away from manufacturing of goods for export. But the category still plays a significant role in the overall economy. Last year, Chinese factories were able to resume production far earlier that those in other countries still struggling with the pandemic.

National exports rose 3.6% last year, while the country’s GDP grew 2.3% as the only major economy to expand amid the pandemic. Much of the exports growth last year came from a surge in demand for face masks and other protective gear.

China’s early emergence from the pandemic and stimulus overseas have driven purchases of products made by Chinese factories, noted Larry Hu, chief China economist at Macquarie.

“These two factors (will) both fade away in the rest of this year as other countries reopen and consumers are able to spend more on services,” he said in an email Tuesday. “Therefore, I don’t think the current pace could sustain.”

March’s 30.6% increase in exports comes off a low base. China’s exports fell by 13.6% in the first quarter of last year amid a GDP contraction of 6.8%, according to data accessed through Wind Information.

Nomura analysts expect export growth to decline to 10% to 15% in April, with a more significant slowdown in the second half of the year.

International e-commerce

In another sign of limits to trade’s ability to contribute to national growth, cross-border e-commerce between China and other countries showed muted performance in the first quarter.

The new, internet-driven trend contributed 419.5 billion yuan ($64.5 billion) to trade in the first three months of the year. That marked just under 5% of China’s trade during that time — little changed from the ratio of nearly 5.3% for all of last year.

While the first quarter figures marked 46.5% growth from a subdued base a year ago, the value of cross-border e-commerce trade in the first three months of the year was below last year’s quarterly average of 422.5 billion yuan.

“The proportion of cross-border e-commerce remains low, (showing) the limits it has on contributing to imports and exports and the economy as a whole,” said Bruce Pang, head of macro and strategy research at China Renaissance. That’s according to a CNBC translation of his Chinese-language statement.

He expects Chinese authorities will focus on expanding domestic demand and the local market, as a way to hedge against potential fluctuations in foreign trade.

Imports rose a greater-than-expected 38.1% in March.

China is set to release first-quarter GDP figures on Friday. Data for January and February are typically distorted by the Spring Festival, the country’s biggest holiday of the year.

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