As Investors Switch to E.T.F.s, So Do Managers

One of the most persistent investment trends is the migration of money out of stock mutual funds and into exchange-traded funds, which are easier to trade, have lower operating expenses and often have favorable tax treatment.

Over the last 10 years, a net $900 billion has flowed out of stock mutual funds and $1.8 trillion has flowed into stock E.T.F.s, according to Morningstar.

Eager to give the public what it wants, and to keep shareholders from walking out the door with their assets, some fund providers have begun to convert stock mutual funds into E.T.F.s. Others run E.T.F. versions of their popular mutual funds, and one company, Vanguard, allows tax-free direct swaps of mutual fund positions into equivalent E.T.F.s.

E.T.F.s are simpler and cheaper for managers to run than mutual funds. Investors benefit when the savings and convenience are passed on to them, and from other inherent advantages that drove the rise in E.T.F.s in the first place.

“There are real benefits to having more E.T.F.s, especially in larger, more liquid funds,” said Christopher Cordaro, chief investment officer of RegentAtlantic, a Morristown, N.J., financial-planning firm. “If I’ve got two versions of something and the E.T.F. has a lower-cost portfolio, it’s an easy decision to use the E.T.F. over the mutual fund.”

The decision to test the conversion concept was not all that easy for Guinness Atkinson Asset Management, which was the first fund provider to do it, said Todd Rosenbluth, director of E.T.F. and mutual fund research at CFRA Research. Jim Atkinson, Guinness Atkinson’s chief executive, said the plan was studied for two years. It was carried out in late March when Guinness Atkinson Dividend Builder and Guinness Atkinson Asia Pacific Dividend Builder became E.T.F.s listed on the New York Stock Exchange.

“This is a trial balloon for other funds,” he said. “Operationally, we want it to go OK.”

If it does, the firm’s alternative energy fund is up next. Mr. Atkinson conceded that while “there may be funds that are better as open-end mutual funds, our intention is to convert all of our funds.”

Dimensional Fund Advisors is sending aloft a trial balloon of its own. It plans to convert six stock mutual funds into E.T.F.s, with the first four conversions set for June. The new structure will allow it to reduce its annual management fee to 0.23 percent from about 0.32 percent on average.

A third fund provider, Foothill Capital Management, filed last month for approval to convert its Cannabis Growth Fund, with about $7 million of assets, into an E.T.F.

E.T.F.s are cheaper to run in part because the management company can stay out of the way and let buyers and sellers deal with one another. Operating a mutual fund means handling new investments and redemptions every day and having cash on hand in case redemptions significantly exceed sales.

Another advantage often accruing to E.T.F. shareholders is favorable tax treatment. Mutual funds generally have to distribute capital gains each year, whereas an E.T.F., like a stock, incurs tax liability only when the owner sells at a profit.

Converting a mutual fund to an E.T.F. is legally a merger of the old fund with the new, Mr. Atkinson said, and is thus not a taxable event.

Vanguard is using a different technique to let investors in 47 of its index mutual funds, 36 that own stocks and the others bonds, move their assets into E.T.F.s free of tax consequences. Each E.T.F. was created as a share class of the equivalent mutual fund, which the law regards as a nontaxable transfer.

Vanguard has no plans to convert any mutual funds, said Rich Powers, its head of E.T.F. and index product management, nor does the company expect to create E.T.F. share classes for any actively managed mutual funds.

Other fund providers run E.T.F. versions of their large index-based mutual funds, but Vanguard has a patent on the technique of tax-free transfers between share classes. Mr. Powers said there were discussions with other fund providers about licensing it, but none have taken the plunge, perhaps because the patent expires in two years and other companies may be waiting until then to offer such transfers.

Whichever companies follow in the footsteps of Guinness Atkinson and Dimensional in making conversions are not expected to be industry giants. Indeed, several of the largest fund providers — BlackRock, Vanguard, T. Rowe Price and Fidelity — said they had no intention to convert their mutual funds.

There are two reasons that conversions are more appealing to smaller firms. Mr. Cordaro noted that mutual funds can be bought and sold free of charge on platforms run by brokerages. The brokerages need large, popular fund providers — the BlackRocks of the world — to attract investors, but smaller managers need the platforms more than the platforms need them, so they often have to pay to be on them. E.T.F. managers face no such demand.

The other impediment for large managers is a feature of E.T.F.s that they might view as a bug, at least when it comes to actively managed portfolios: the requirement that most E.T.F.s disclose their holdings daily.

Disclosure is seldom a problem for smaller funds, which usually complete portfolio trades the same day. Mr. Atkinson said that is the case with the two funds that have been converted. But large funds may need several days to execute significant portfolio changes to avoid moving the market. If an E.T.F. discloses that it has begun buying or selling a particular stock, traders may jump in and do the same to try to take advantage of anticipated price movements.

Another issue that Mr. Powers cited to explain why Vanguard does not offer actively managed E.T.F.s, and would not be inclined to convert actively managed mutual funds, is that there is no way to restrict investment in an E.T.F. If a mutual fund in a frothy market segment attracts too much money, making managing the portfolio unwieldy, the manager can limit new investment, but that isn’t allowed with an E.T.F.

E.T.F. conversions may be limited to smaller funds, but Mr. Cordaro would worry about trying one with anything too small.

“There’s an ongoing downside to smaller, more thinly traded E.T.F.s when you have turmoil in the markets,” he said. “During big down days, when there’s a lot of dislocation or volatility, there can be a big discount” to a fund’s net asset value, “or a big impact on the bid-ask spread,” the difference between the price at which buyers buy and the slightly lower price at which sellers sell.

Whatever size portfolio might be the object of a conversion, Mr. Rosenbluth anticipates more of them after the first have had any kinks resolved and have been shown to be successful.

“We’re likely to see more of these once these pioneering strategies make the effort and we see that investors don’t revolt, and stay within the fund,” he said.

A potential limit on conversions is that “some investors are still comfortable with mutual funds,” Mr. Rosenbluth added. “What I hear from asset managers is they want to give investors choice.”

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Global Economy Expected to Grow 6% This Year, I.M.F. Says: Live Updates

World Economic Outlook report.

The emergence from the crisis is being led by the wealthiest countries, particularly the United States, where the economy is now projected to expand by 6.4 percent this year. The euro area is expected to expand by 4.4 percent and Japan is forecast to expand by 3.3 percent, according to the I.M.F.

Among the emerging market and developing economies, China and India are expected to lead the way. China’s economy is projected to expand by 8.4 percent and India’s is expected to expand by 12.5 percent.

Ms. Gopinath credited the robust fiscal support that the largest economies have provided for the improved outlook and pointed to the relief effort enacted by the United States. The I.M.F. estimates that the economic fallout from the pandemic could have been three times worse if not for the $16 trillion of worldwide fiscal support.

Despite the rosier outlook, Ms. Gopinath said that the global economy still faced “daunting” challenges.

Low-income countries are facing bigger losses in economic output than advanced economies, reversing gains in poverty reduction. And within advanced economies, low-skilled workers have been hit the hardest and those who lost jobs could find it difficult to replace them.

“Because the crisis has accelerated the transformative forces of digitalization and automation, many of the jobs lost are unlikely to return, requiring worker reallocation across sectors — which often comes with severe earnings penalties,” Ms. Gopinath said.

The I.M.F. cautioned that its projections hinged on the deployment of vaccines and the spread of variants of the virus, which could pose both a public health and economic threat. The fund is also keeping a close eye on interest rates in the United States, which remain at rock-bottom levels but could pose financial risks if the Federal Reserve raises them unexpectedly.

The global economy is on firmer ground one year into the pandemic thanks to the rollout of vaccines, the International Monetary Fund said on Tuesday. But the recovery will be uneven around the world because of persistent inequality and income gaps.

“Emerging market and developing economies are expected to suffer more scarring than advanced economies,” the I.M.F. said in its World Economic Outlook report, which projected 6 percent global growth in 2021. Here are projections for the growth of some individual countries:

  • The United States economy will expand 6.4 percent this year, after contracting 3.5 percent the year before, while Britain will grow 5.3 percent this year, after shrinking 9.9 percent in 2020.

  • China, the world’s second-largest economy after the United States, is expected to grow 8.4 percent this year, after expanding 2.3 percent in 2020.

  • India’s economy is expected to see the biggest jump among major economies and climb 12.5 percent this year, after contracting 8 percent last year.

Mickey Mantle’s 1952 Topps rookie card is one of the most sought-after cards. While a Mantle with a rating of SGC 7 like this one is valuable, a version of the same card rated PSA Mint 9 recently sold for $5.2 million.
Credit…Jeenah Moon for The New York Times

Topps, known for its trading cards and Bazooka gum, is going public by merging with a blank-check firm in a deal that values the company at $1.3 billion, the DealBook newsletter was the first to report.

The transaction includes an investment of $250 million led by Mudrick Capital, the sponsor of the special purpose acquisition company, or SPAC, along with investors including Gamco and Wells Capital. Michael Eisner, the chairman of Topps and former chief executive of the Walt Disney Company, will roll his entire stake into the new company and stay on.

“Everybody has a story about Topps,” Mr. Eisner said. That’s what initially attracted him to the trading card company, which he acquired in 2007 via his investment firm, Tornante, and Madison Dearborn for $385 million. Buying Topps was a bet on a brand that elicits an “emotional connection” as strong as Disney, the company Mr. Eisner ran for 21 years.

In the years since Mr. Eisner’s initial purchase, Topps has focused on a shift to digital, starting online apps for users to trade collectibles and play games. It also created “Topps Now,” which makes of-the-moment cards to capture a defining play or a pop culture meme. (It sold nearly 100,000 cards featuring Bernie Sanders at the presidential inauguration in his mittens.) And it has moved into blockchain, too, via the craze for nonfungible tokens, or NFTs.

The pandemic has driven new interest in memorabilia, especially trading cards. Topps generated record sales of $567 million in 2020, a 23 percent jump over the previous year.

The secondhand market is particularly hot, with a Mickey Mantle card recently selling for more than $5 million. “Topps probably made something like a nickel on it, 70 years ago,” said Jason Mudrick, the founder of Mudrick Capital. NFT mania will allow Topps to take advantage of the secondhand market by linking collectibles to digital tokens. Topps is also growing beyond sports, like its partnerships with Marvel and “Star Wars.”

It continues to see value in its core baseball-card business, as athletes come up from the minor leagues more quickly. “The trading card business has been growing for the last several years,” Michael Brandstaedter, the chief executive of Topps, said. “While it definitely grew through the pandemic — and perhaps accelerated — it did not arrive with the pandemic.”

That resilience is part of the bet that Mudrick Capital is making on the 80-year old Topps. It’s a surer gamble, Mr. Mudrick said, than buying one of the many unprofitable start-ups currently courting SPAC deals. “Our core business is value investing,” he said.

United Airlines is the first major U.S. carrier to run its own pilot academy.
Credit…Chris Helgren/Reuters

United Airlines said on Tuesday that it had started accepting applications to its new pilot school, promising to use scholarships, loans and partnerships to help diversify a profession that is overwhelmingly white and male.

The airline said it planned to train 5,000 pilots at the school by 2030, with a goal of half of those students being women or people of color. The school, United Aviate Academy in Phoenix, expects to enroll 100 students this year, and United and its credit card partner, JPMorgan Chase, are each committing $1.2 million in scholarships.

About 94 percent of aircraft pilots and flight engineers are white and about as many are male, according to federal data. United said 7 percent of its pilots were women and 13 percent were not white.

Airlines have had more employees than they needed during the pandemic, when demand for tickets fell sharply, and they have encouraged thousands, including many pilots, to retire early or take voluntary leaves. Since September, nearly 1,000 United pilots had retired or taken leave. Last week, the airline said it would start hiring pilots again after stopping last year.

But the industry is facing a long-term shortage of pilots because many are nearing retirement age and many potential candidates are daunted by the cost of training, which can reach almost $100,000 after accounting for the cost of flight lessons.

United is the first major U.S. carrier to run its own pilot academy, although many foreign airlines have run such programs for years. The company said it hoped the guarantee of a job after graduation would be a draw. In addition to the 5,000 pilots it plans to train, United said it would hire just as many who learned to fly elsewhere.

United Aviate is meant for people with a wide range of experience, from novices who have never flown to pilots who are already flying for one of United’s regional partners. A student with no flying experience could become a licensed pilot within two months and be flying planes for a living after receiving a commercial pilot license within a year, the airline said. Within five years, that person could fly for United after a stint at a smaller airline affiliate to gain experience.

The airline said it was also working with three historically Black colleges and universities — Delaware State University, Elizabeth City State University and Hampton University — for recruitment. The first class of 20 students is expected to start this summer.

Air France is considered too big to fail in its home country, but the company’s debt has ballooned during the pandemic.
Credit…Christian Hartmann/Reuters

Air France on Tuesday said it would receive a new bailout from the French government worth 4 billion euros ($4.7 billion) to help the beleaguered airline cope with mounting debts as a third wave of pandemic lockdowns around Europe prolong a slump in continental air travel.

The support comes on top of €10.4 billion ($12.3 billion) in loans and guarantees that Air France and its partner, the Netherlands-based KLM, received from the French and Dutch governments last year.

Air France-KLM chief executive, Benjamin Smith, citing an “exceptionally challenging period,” said the funds would “provide Air France-KLM with greater stability to move forward when recovery starts, as large-scale vaccination progresses around the world and borders reopen.”

Bruno Le Maire, France’s finance minister, said Tuesday that the new aid is taking the form of a state-backed recapitalization, which involves converting €3 billion in loans the government granted the airline last year into bonds with no maturity, as well as €1 billion in fresh capital through the issuance of new shares.

The French government is the airline’s largest shareholder, at 14.3 percent. The agreement could allow the government to raise its stake as high as 30 percent, Mr. Le Maire and Air France said, by buying some of the new shares. China Eastern Airlines, also a large shareholder, will also participate, Air France said.

Air France-KLM lost two-thirds of its customers last year, and its debt has nearly doubled to €11 billion. It expects an operating loss of €1.3 billion in the first quarter.

As vaccinations speed ahead in the United States, air travel has started to recover, fueling a return of ticket sales. Delta Air Lines announced it would add more passengers and start selling middle seats for flights starting May 1.

By contrast, Europe’s vaccine rollout has faltered and variants of the virus have gained ground, prompting renewed travel restrictions. That has left major flagship air carriers, including Air France-KLM, Lufthansa of Germany, and Alitalia of Italy, struggling.

The French government recently cut its economic growth forecast for 2021 to 5 percent, down from 6 percent.

Air France’s board approved the deal on Tuesday after the French government and European regulators agreed on the terms.

The Dutch government is holding separate talks with European regulators over converting a €1 billion loan to KLM into hybrid debt in return for slot concessions at the Schiphol Airport in Amsterdam.

Air France employs tens of thousands of workers in France and is considered too big to fail. Still, Mr. Le Maire said the aid was not a “blank check,” adding that the company would have to “make efforts on competitiveness” in exchange for the support and must continue to reduce its carbon emissions.

To conform to European competition rules, Air France was forced to relinquish 18 slots per day, representing nine round-trips, to competing airlines at Orly, Paris’ second-largest airport after Charles de Gaulle.

Credit Suisse’s offices in Zurich. The bank said it would hire outside experts to investigate what led to losses tied to its involvement with Archegos Capital Management and Greensill Capital.
Credit…Arnd Wiegmann/Reuters

Credit Suisse said Tuesday it would replace the head of its investment bank and the chief of risk and compliance after losses from its involvement with Archegos Capital Management, the collapsed hedge fund, totaled nearly $5 billion.

The bank, which is based in Zurich, is in turmoil after a series of disasters that have battered its reputation and are likely to diminish its global clout. Credit Suisse also serves as a warning of the risks that may lurk in the financial system, as bankers and investors try to earn returns when interest rates are at rock bottom and stock values are already frothy.

Credit Suisse detailed the financial impact of its dealings with Archegos for the first time on Tuesday, saying it would report a loss for the first quarter of 900 million Swiss francs after booking a charge of 4.4 billion francs, or $4.7 billion, related to the hedge fund. The losses were higher than some estimates.

Brian Chin, the chief executive of Credit Suisse’s investment bank, will leave on April 30. Lara Warner, the chief risk and compliance officer, will step down immediately, the bank said.

Members of Credit Suisse’s executive board will forgo their bonuses for 2020 and 2021, the bank said. Credit Suisse will also cancel plans to buy back its own shares, a way of pushing up the stock price. But the bank, seeking to dispel any questions about its overall health, said its capital was still at levels considered acceptable.

Credit Suisse shares were down more than 2 percent in Zurich trading early Tuesday. They have lost one-quarter of their value since the beginning of March.

Thomas Gottstein, the chief executive of Credit Suisse since last year, said the bank would hire outside experts to investigate what led to the “unacceptable” loss from Archegos as well as the bank’s involvement with Greensill Capital, which collapsed last month.

Credit Suisse’s asset management unit oversaw $10 billion in funds that Greensill packaged based on financing it provided to companies, many of which had low credit ratings.

“Serious lessons will be learned,” Mr. Gottstein said.

Tucson is building on a five-year growth plan that predated the pandemic. “We’re working together as a region,” Mayor Regina Romero said.
Credit…Rebecca Noble for The New York Times

Some midsize cities — like Austin, Texas; Boise, Idaho; and Portland, Ore. — may be poised to rebound faster than others because they have developed strong relationships with their local economic development groups.

These partnerships have established comeback plans that incorporate a number of common goals, like access to affordable loans, relief for small businesses and a focus on downtown areas, Keith Schneider reports for The New York Times.

In Tucson, the revitalization plan, which goes into effect this month, calls for assessing the effect of the pandemic on important business sectors, including biotech and logistics. Other provisions advocate recruiting talented workers and preparing so-called shovel-ready building sites of 50 acres or more.

City leaders are building on a five-year, $23 billion growth plan in industrial and logistics development in the Tucson region that resulted in 16,000 new jobs before the pandemic, according to Sun Corridor, the regional economic development agency that sponsored the recovery plan. Caterpillar and Amazon moved into the region, while Raytheon, Bombardier and GEICO were among the many prominent companies that expanded operations there.

Other cities are struggling to recover after pandemic restrictions emptied their central business districts. The question is how much these downtowns will bounce back when the pandemic ends.

“The number of square feet per worker has declined really dramatically since 1990,” said Tracy Hadden Loh, a fellow at the Brookings Institution. Couple that with recent announcements from companies like Google, Microsoft, Target and Twitter about remote work, and some cities could see less office construction activity.

A Starbucks cafe in Seoul.
Credit…Ed Jones/Agence France-Presse — Getty Images

Starbucks says it plans to eliminate all single-use cups from its South Korean stores by 2025, the chain’s first move of this sort as it seeks to reduce its carbon footprint.

The coffeehouse chain plans to introduce a “cup circularity program” in some stores beginning this summer, in which customers would pay a deposit for reusable cups that would be refunded when the containers are returned and scanned at contactless kiosks, the company said in a statement on Monday. The arrangement will be expanded to cafes across the country over the next four years.

“Starbucks Coffee Korea is a leader in sustainability for the company globally, and we are excited to leverage the learnings from this initiative to drive meaningful change in our stores and inform future innovation on a regional and global scale,” Sara Trilling, the president of Starbucks Asia Pacific, said in the statement.

South Korea has in recent years tried to cut back on disposable waste in cafes, banning the use of plastic cups for dine-in customers in 2018. Legislation introduced last year would require fast food and coffee chains to charge refundable deposits for disposable cups to encourage returns and recycling. Last year, the environmental ministry said it planned to reduce the country’s plastic waste by one-fifth by 2025.

The increased use of plastic packaging and containers amid the coronavirus pandemic has been a setback for initiatives aimed at reducing single-use plastic waste. In March 2020, Starbucks and other chains said they would no longer offer drinks in washable mugs or customer-owned cups to help prevent the spread of the virus.

Investors have been focused on the Biden administration’s infrastructure spending plan, which includes money to encourage investment in renewable energy, including wind turbines.
Credit…Mike Blake/Reuters

U.S. stocks dipped on Tuesday, a day after Wall Street’s major benchmarks climbed to records.

The S&P 500 climbed above 4,000 points last week for the first time amid signs that the economic recovery was strengthening, with manufacturing activity quickening and the biggest jump in jobs since the summer. The United States is administering three million vaccines per day on average, but the number of coronavirus cases has started to tick up again because of the spread of new variants.

That said, many investors have focused on the vaccine rollout and the potential impact of the Biden administration’s large spending plans, including the $2 trillion American Jobs Plan, intended to upgrade the nation’s infrastructure and speed up the shift to a green economy.

“Investors should not fear entering the market at all-time highs,” strategists at UBS Global Wealth Management said in a note on Tuesday, recommending stocks in the financial, industrial and energy sectors. The reopening of economies because of the vaccine rollout also favored small and medium-size companies, they wrote.

The Stoxx Europe 600 index rose 0.7 percent to a record in its first day of trading since Thursday because of the long Easter weekend. In Britain, mining companies led the FTSE 100 higher, which was up 1.2 percent. The DAX in Germany rose 0.9 percent

Asian stock indexes were mixed. The Hang Seng in Hong Kong rose 2 percent and the Nikkei 225 fell 1.3 percent.

The yield on 10-year Treasury notes slipped to about 1.69 percent.

Oil prices rose. West Texas Intermediate, the U.S. crude benchmark, rose 2 percent to just below $60 a barrel.

  • Disney Cruise Line will suspend departures through June after reviewing guidance from the Centers for Disease Control and Prevention, the company said Tuesday on its website. The C.D.C. recommends that people avoid travel on cruises worldwide because of the high risk of contracting the coronavirus aboard ship. The cruise line also canceled sailings in Europe through Sept. 18. Guests who have paid their reservations in full can choose either a credit with Disney Cruise Line for a future sailing or a full refund.

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Covid-19 Subdues Growth in Global Arms Industry

The diplomatic breakthrough that brought last summer’s normalization of relations between Israel and both the United Arab Emirates and Bahrain was also seen as a potential boon for the international defense industry.

But prospects for direct transfers of Israeli defense technology to the Arab countries instead have lagged amid the coronavirus pandemic—one of many factors contributing to reduced defense sales across the board.

Overall, defense analyst Janes expects the industry to grow this year, although at its lowest rate—just 0.7%—since 2013, with total global spending on defense at nearly $1.8 trillion. Janes expects significant drops in Africa, the Middle East and Russia, with no growth in Asia Pacific, Europe and Latin America.

These are tangible signs of how the coronavirus, and efforts to combat it, have affected the defense industry—usually resilient given its financial and geopolitical importance—as governments have deemed the public-health crisis a national-security issue.

Logistical and economic hurdles have disrupted sales, development and manufacturing. Many defense companies have been rocked by rising costs and production irregularities. And governments have poured trillions of dollars into combating the economic and public-health effects of Covid-19.

The impact of the virus on the defense industry has varied. The aerospace sector, with its heavy reliance on civilian aviation, has been hit especially hard as a result of pandemic lockdowns on travel. The General Aviation Manufacturers Association said global business jet deliveries declined 20.4% last year.

Military exercises, traditionally an opportunity for seller nations to showcase weapons systems to prospective clients, have been limited. The Pentagon suspended travel and troop deployments.

Last year in February, Washington and Seoul postponed planned joint military exercises due to the coronavirus and President Donald Trump’s objection to their cost. Military exercises on their own account for millions of dollars in economic activity.

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The pandemic has limited human intelligence gathering, increasing reliance on cyber intelligence and cybersecurity and continuing development of unmanned systems such as ariel drones. Analysts also have seen an increase in sales of thermal-imaging equipment, which can be used to take body temperatures remotely.

Despite setbacks, some analysts see the defense industry as broadly protected from major volatility, thanks to the multiyear nature of its contracting cycle.

“Demand over the next two years is unlikely to be affected, since budgets for these projects had been allocated prior to the pandemic, and the projects are critical to national defense,” a report released by accounting firm Deloitte LLP said.

But an acute reduction of in-person meetings—a necessity given the political aspects of most arms agreements—has impeded the progress of new deals. One Gulf official at last month’s International Defence Exhibition and Conference, held in Abu Dhabi, said some international counterparts were also reluctant to engage in videoconferences.

For this and other reasons, the biennial Abu Dhabi exhibition—the region’s largest defense conference, known as IDEX—held particular value for the industry. The fact that the Emiratis, who have employed strict public-health controls since the pandemic began, mounted the exhibition at all came as a surprise. More than 900 exhibitors from 59 countries attended.

By contrast, this year’s Paris Air Show, a traditional industry palm-presser scheduled for June, was canceled, one of many defense conferences and exhibitions called off, postponed or held remotely in the past year.

This year’s IDEX conference demonstrated the U.A.E.’s priority on becoming a major arms player against the backdrop of continued rivalry with Iran and the Biden administration’s review of U.S. arms sales to the U.A.E. and Saudi Arabia.

Coming after completion of the accords between Israel, the U.A.E. and Bahrain, this year’s gathering held promise in the arms industry as the first IDEX attended by Israeli defense companies, marking a major shift in the region’s defense complexion.

However, a coronavirus-related shutdown of international flights to and from Israel left the exhibition stands of those Israeli companies all but vacant.

Many companies that succeeded in attending the conference brought with them lessons of the difficulties of the pandemic. One of the few Israeli companies represented at IDEX, small-arms manufacturer Emtan Karmiel Ltd., halted production at its factory for several weeks and faced shipping costs that ballooned from $5 to $20 per kilogram.

The Biden administration approved a $60 million sale of Lockheed Martin’s F-16s to Jordan in the past month.

Photo: Luka Dakskobler/Zuma Press

“It’s because there were fewer flights,” said Ron Pollak, Emtan’s vice president of sales and marketing. “Our profit was damaged.”

An executive at the Edge, an Emirati defense conglomerate, said that some subsidiaries adopted what amounted to a staggered shift schedule in order to continue production while accommodating strict governmental health regulations.

Janes said that defense purchases in the Gulf region increased by 5.4% in 2020, to $100 billion, but were expected to decline by 9.4% in 2021, and fall further in 2022 to $89.4 billion. Janes predicts that Gulf military spending will return to its pre-pandemic level only in 2024.

China was among countries demonstrating resilience in the pandemic, with its 2021 defense budget marking an increase of 6.8%, to $209.4 billion, in the first year of a new five-year plan.

Israel wasn’t the only marquee country with a limited presence at IDEX. Pandemic concerns dissuaded the U.S., customarily the largest governmental mission at the exhibition, from sponsoring a delegation.

State-owned Israel Aerospace Industries saw record sales of $4.2 billion last year. An assembly line near Or Yehuda, Israel.

Photo: baz ratner/Reuters

The Pentagon has taken steps to shore up U.S. contractors during the past year, more than doubling the amount—$135 million in 2020, up from $64 million in 2019—annually distributed through the Defense Production Act. The act was known during the past year for its use in coronavirus-related procurements, but it has been regularly used by the Defense Department for national security.

The majority of that money, $80 million, went to Spirit AeroSystems Holdings Inc., a Kansas aircraft manufacturer that furloughed hundreds of workers due to aerospace-sector slowdowns.

For some U.S. companies, new defense deals continue despite the general slowdown. The Biden administration approved several large contracts in the past month, including a $60 million sale of Lockheed Martin Corp. F-16s to Jordan and an $85 million Raytheon Technologies Corp. missile sale to Chile.

Prosperity in hard times wasn’t limited to the U.S. Turkey’s largest defense manufacturer, Aselsan Elektronik Sanayi ve Ticaret AS ., increased its revenue last year by 24%, hitting $2.23 billion.

Owing to a new focus on profit ahead of a planned listing on the Tel Aviv Stock Exchange, the state-owned Israel Aerospace Industries, one of the country’s largest exporters, recorded record sales of $4.2 billion last year. Despite that, an IAI spokeswoman said, it was still a tough year.

“We had to do a lot of creative solutions to bring our products to our clients,” she said.

Write to Brett Forrest at brett.forrest@wsj.com

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Chaos Under Heaven: Trump as raging bull in a China policy shop

Covid-19 has left more than 530,000 Americans dead and China’s standing with the US at a historic low. Only Iran and North Korea fare worse. US opinion is no outlier. China’s reputation has taken a beating in Australia, the UK, Sweden, the Netherlands and Germany. Images of tanks rolling through Tiananmen Square in summer 1989 have been supplanted by Beijing stonewalling on the origins of the plague.

In Chaos Under Heaven, the Washington Post reporter Josh Rogin reminds us that under Xi Jinping, China halted the export of personal protective equipment made by US companies, sent defective PPE to the Netherlands and barred Australian beef exports after Canberra called for an inquiry into the genesis of Covid-19. In Rogin’s telling, China’s “mask diplomacy” was a blunt instrument, designed to still criticism abroad and sow fear at home.

Rogin delivers a needed modicum of clarity. Under the subtitle Trump, Xi and the Battle for the Twenty-First Century, he lays out what the US and its allies got wrong about China over decades, strife within the Trump administration and personal financial conflicts that affected US policy. Mitch McConnell, the Senate minority leader, and Jared Kushner and Ivanka Trump feature heavily. But Hunter and James Biden bear watching too.

McConnell’s wealth is tethered to his wife’s family interest in Chinese shipping. Angela Chao, his sister-in-law, is chief executive of the business and sits on the board of the Bank of China. Most recently, the US transportation department inspector general reported that Elaine Chao, McConnell’s wife and Trump’s transportation secretary, escaped criminal investigation after the justice department weighed in.

In fall 2019, McConnell and Trump thwarted progress on the Hong Kong Human Rights and Democracy bill, which had cleared the Senate foreign relations committee, then controlled by Republicans. Back in 1992, McConnell backed legislation enacted in connection with the autonomy of Hong Kong. As late as summer 2019, he wrote an op-ed in support. Time – and perhaps marriage – can change perspective.

Rogin has longtime interests in human rights and the far east. He spent the early days of his career at the Asahi Shimbun, a Japanese daily, and more recently rubbed shoulders with an informal group of opponents to the Chinese regime, which he calls the “Bingo Club”. One member was Peter Mattis, a former CIA analyst and nephew of James Mattis, Trump’s first defense secretary. During the 2016 Republican convention, Rogin broke the story of the Trump campaign “gutting” the GOP’s anti-Russia platform on Ukraine.

Chaos Under Heaven moves quickly, is well-written and draws the reader in. Rogin makes clear that tension between Beijing and Washington will probably remain for the foreseeable future. China’s economy and military continue to grow, America’s social chasms remain on display. Under Xi, don’t expect the Middle Kingdom to back down.

One of Rogin’s central points is that Trump correctly identified the threat and challenge posed by China yet proved incapable of formulating a coherent strategy and sticking with it. Much of the time, he conflated personal relationships with the national interest. As his approach to North Korea showed, not everyone was buying what he was selling. His effort to draw China into that quagmire was a bust. The art of the deal is way harder than Trump trumpeted.

On the ground, the food fights of 2016 carried over to the White House. The West Wing was riven with factions. Wall Street transplants, military veterans and diehard Maga-ites exchanged verbal blows. The former reality show host zigged and zagged, blowing hot and cold as TV and his moods took him.

During the 2016 transition, Trump accepted a congratulatory phone call from Tsai Ing-wen, president of Taiwan. Not surprisingly, China was angered – it regards the island as its own. Ambiguity toward Taiwan was central to US rapprochement with China in the 1970s. Trump walked his words back, invited Xi to Mar-a-Lago and treated him to the “most beautiful piece of chocolate cake that you’ve ever seen”.

As for Trump’s take on Taiwan, he told a senator it was “like two feet from China” and the US was “8,000 miles away”. Trump chillingly added that if the Chinese were to invade, “there isn’t a fucking thing we can do about it”. So much for US policy.

Trump’s inability to forge working alliances hampered US responses. Confronting China required playing well with others. Trump proved unable to set aside personal pique and drive a consensus forward. At times he caved on the technological threat China posed, for the sake of scoring an elusive trade deal.

Elaine Chao with her husband, the Senate minority leader, Mitch McConnell. Photograph: Michael Reynolds/EPA

On the plus side of the ledger, the conduct of Beijing during the pandemic made governments realize “their dependence on China was a political vulnerability”. The UK reversed course and banned Huawei, the Chinese communications Goliath, from its networks.

No book about Trump is complete without at least one salacious morsel. Chaos Under Heaven conveys that Trump came to believe an unfounded rumor that Gen HR McMaster, his second national security adviser, was conducting an extramarital affair. As expected, Trump could not keep the news to himself.

At a crowded Oval Office staff meeting, the former president queried: “Have you heard who McMaster is fucking?” Ever the puritan, Trump warned: “He’s gonna get us all in trouble if he can’t keep his dick in his pants.” The Manhattan district attorney is still investigating all things Trump, including payments to Stormy Daniels and Karen McDougal.

Rogin observes that Trump was “great at flipping over the chess board but he couldn’t set the board back up again”. That said, he had “shifted the conversation about China in a way that cannot be undone”.

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