TheChek News Flow

European ports ‘overflowing’ as Trump tariffs cause congestion

Barges and container ships face unusually long waits at major hubs with problems expected to last several months

Donald Trump’s erratic tariff policies combined with low river levels are causing Europe’s worst supply chain congestion since the coronavirus pandemic, shipping and logistics companies warn.

Barges have been left waiting days to pick up goods and container ships have faced long waits, with the problems — worst at the ports of Rotterdam, Antwerp and Hamburg — expected to persist for at least several months.

“All the large hubs are overflowing,” said Caesar Luikenaar, managing director of WEC Lines, a Netherlands-based shipping company. A number of important ports across Europe were operating at their maximum capacity, Luikenaar said.

Albert van Ommen, chief executive of the Netherlands-based logistics company Euro-Rijn Group, said he thought the congestion was the worst since the pandemic, when cargo flows remained unexpectedly resilient and overwhelmed ports that were struggling with staffing.

The problems are the latest blow to a worldwide logistics system that had until recently allowed many companies to maintain minimal stock inventories, secure in the knowledge that scheduled shipping services would replenish stock regularly, to a fixed timetable.

One German logistics company, Contargo, has warned customers that barges are waiting an average of 66 hours to load containers at Antwerp and 77 hours at Rotterdam. Barges are normally offered fixed time slots to load at container terminals, to ensure they can remove the containers quickly and efficiently.

Casper Ellerbaek, a senior executive at Germany’s DHL, said the delays had not yet forced any of his customers to halt production because of component shortages but that such “drama” remained a risk.

Van Ommen said that at Antwerp, Europe’s second-busiest container port, ships were unloading between three and five days behind schedule.

“When we collect the containers by barge, they can’t load on time because the sea vessels aren’t on time,” Van Ommen said. “In the end, the customer or final end user is getting his stuff late.”

Logistics companies blamed the crisis on issues including the sharp changes of US tariff policy under US President Donald Trump, which have forced container shipping lines to revamp their networks to accommodate sharply changing worldwide trade flows.

The problems are being further exacerbated by restrictions on the loading of barges on the River Rhine after a dry spring left the water unusually shallow.

At the same time, terminals have been coping with a substantial realignment of alliances between shipping lines after Switzerland’s Mediterranean Shipping Company and Denmark’s Maersk, the two biggest container lines, ended their previous co-operation agreement. Such changes can lead to short-term disruption because they prompt lines to change their schedules or switch to different terminals.

Meanwhile, European ports are also coping with increased import volumes from Asia, as high US tariffs cause goods to be diverted elsewhere.

DHL’s Ellerbaek blamed the sharp growth in container volumes from Asia to Europe — which he estimated was running at about 7 per cent year-on-year — on changes of strategy by Asian exporters.

“If you look at the growth levels on the different trades, there’s no doubt that we’ve seen Europe take in a lot of share that historically would have been meant for the US market,” Ellerbaek said.

Industry figures said terminal operators — mostly private companies that lease quay space from publicly owned port authorities — were rushing to recruit new staff and buy new equipment to try to alleviate the strains.

ECT, one of the main terminal operators in Rotterdam, acknowledged the facility was “quite busy” but insisted the phenomenon was common across ports in northern Europe.

It pointed to the changes in alliances, rising demand and “geopolitical and economic uncertainties” as reasons for the issues. HHLA, the main terminal operator in Hamburg, did not immediately respond to a request for comment.

Mark Rosenberg, chief commercial officer for ports and terminals at Dubai’s DP World, which owns terminals in locations including Antwerp and Rotterdam, said the company’s teams were “working diligently” to manage the flow of cargo and “mitigate disruption wherever possible”.

“DP World remains committed to maintaining high service levels, investing in capacity, and driving resilience across our European terminal network to support our customers through this period of industry-wide transformation,” Rosenberg said.

The Port Authority of Antwerp-Bruges, the public sector landlord for the port, acknowledged there was “prolonged, increased congestion”.

It added: “This leads to short-term operational inefficiencies, but our systems continue to function within the planned buffers.”

However, some in the industry expressed pessimism that the congestion could be easily resolved.

Luikenaar said some shipping companies serving the local market in Europe were being forced to spend a week, instead of the normal maximum of three days, collecting containers from different terminals at Rotterdam for distribution to the region’s ports.

He said it would take years for investments in capacity to resolve all of the problems.

He added: “This is not something that goes easily away.”

Additional customs inspections cause long delays that threaten to disrupt global supply chains

China’s export controls are spilling over into products beyond the rare earths and magnets officially identified by Beijing, threatening broader supply chain disruption and undermining US claims that a new trade deal had resolved delays to shipments.

Beijing, which dominates global supply of critical minerals, began requiring licences for exports of seven rare earth metals and related magnet materials in April in retaliation for Donald Trump’s sweeping tariffs on Chinese imports.

On June 10, the US said it had agreed with China that rare earth shipments should be expedited, reviving a 90-day trade truce on their tariff war reached the previous month in Geneva.

But China’s commerce ministry and customs officials have started to demand additional inspections and third-party chemical testing and analysis of products that are not included in the original control list, according to Chinese companies and western industry executives.

“As long as it contains even a single sensitive word [such as magnet], customs won’t release it — it will trigger an inspection, and once that starts, it can take one or two months,” said a salesperson at a Chinese magnet exporter. 

“For example, titanium rods and zirconium tubes are also being held up,” the person said. “The actual controlled item is titanium powder. While our rods and tubes are not on the control list, they still aren’t being cleared.”

A representative of a second Chinese company said it had been “heavily affected” and that logistics companies were “refusing to handle magnets”. The company serves customers across various sectors including magnetic separators, industrial filtration, apparel, food and electronic components.

“Even if the products don’t contain controlled substances . . . they worry that, if customs inspect the shipment, it could affect other goods in the same container and cause delays for the whole shipment,” the person said. 

China’s General Administration of Customs and Ministry of Commerce did not respond to questions. 

Beijing’s export controls are a significant point of leverage over its trading partners. The country dominates the processing of rare earths and the manufacturing of the magnets in which they are used. Rare earths and their related magnets are widely deployed in electronics, heavy machinery and defence applications such as in fighter jets.

In response to US curbs on tech exports to China, Beijing has over the past two years expanded controls over other strategic materials crucial to chip manufacturing, including gallium, germanium, antimony, graphite and tungsten. 

The Financial Times reported earlier this month that the commerce ministry has been asking for production details and confidential lists of customers to secure rare earths and magnets, raising concerns about potential misuse of data and exposure of trade secrets.

According to several industry insiders, the commerce ministry’s export control licence approval process has improved since it was first implemented in April.

Over recent weeks, European companies, industry associations and EU officials have been providing the ministry with lists of the “most urgent applications”. These have mostly been approved by the Chinese side, but European groups said that, under ideal circumstances, more companies and countries would be covered.

“We have seen an improvement of licence approvals recently, but in order to stabilise global supply chains, we need to switch from the current firefighting mode to a regular, stable and predictable approval process,” said Jens Eskelund, president of the EU Chamber of Commerce in China. 

According to a survey conducted among western companies in China in June, more than 60 per cent of respondents reported that their export applications had not been approved.

One senior European executive in China who requested anonymity said some companies that had obtained an export licence for rare earths and related magnets had subsequently encountered additional delays, due to the customs authorities’ new chemical testing and analysis requirements. 

“It is like a black box: you have no idea who is doing the analysis, how long it takes, where we are in the process. This is very frustrating,” the person said.

Some exporters with licences were choosing to airfreight the approved magnets, rather than ship them. While more expensive, this is believed to lower the chances of being hit with additional testing and analysis requirements. 

“Our products are heavy but small, so we can still use express shipping — though that also carries some risk, inspections there are less strict,” another Chinese magnet salesperson said.

Targeted attacks showed intelligence prowess and took out a layer of leaders, but a new generation could blunt the impact

When Israel’s attacks on Iran began before dawn on June 13, explosions shattered the homes of some of Iran’s top scientists, killing nine people who had worked for decades on Tehran’s nuclear program. All nine were killed in near-simultaneous attacks to prevent them from going into hiding, according to people familiar with the attacks.

Eleven days later, hours before a cease-fire brokered by the U.S. and Qatar took effect Wednesday, an attack in northern Iran killed another scientist, Sayyed Seddighi Saber, according to Israeli and Iranian state media. He was sanctioned just weeks ago by the U.S. for his nuclear weapons-related work.

The attack on the scientists was considered so fantastical by even its planners that it was called “Operation Narnia,” after the fictional C.S. Lewis series.

The killings were the culmination of 15 years of efforts to wipe out one of Iran’s most prized assets—the top cadre of scientists who worked on a secret nuclear-weapons-related program that Iran had pursued at least until 2003. Israel has closely tracked the scientists ever since.

While the U.S. and Israel are trying to assess the extent of damage done by their strikes on Iran’s main nuclear sites, Israeli Prime Minister Benjamin Netanyahu has claimed the killings have pushed back Iran’s nuclear program by years.

Former officials and experts say the attacks against the scientists delivered a powerful blow against Iran’s ability to race for the bomb in the aftermath of the conflict. Most of the people killed, a total of at least 11 by the time a cease-fire took effect Wednesday, had hands-on experience in testing and building components of a warhead, like the detonation systems, high explosives and the neutron sources that trigger the chain reaction.

“It’s one thing to lose that expertise slowly over time, especially if you are not trying to actually build a bomb. You have time to replace them,” said Eric Brewer, who was U.S. national security director for counterproliferation. “But if you’re in the middle of trying to build a bomb or if you see that as a potential near-term option, then it’s going to have a bigger impact.”

Iran has retained and passed a lot of that expertise on to a new generation of scientists. It has denied ever having sought the bomb, saying its program is peaceful.

The U.N. atomic agency said Iran had a nuclear-weapons-related program, known as the AMAD project, until 2003. Israeli and Western officials say that Iran’s nuclear weapons work has continued in a more fragmented way since then, leaving Iran within months of being able to build a bomb. But much of that work has been confined to studies and computer modeling, always carefully designed to be explained away as conventional military work.

A week after the June 13 attacks, Israel used a drone to kill another scientist who was being kept in what was supposed to be a safe house in Tehran. The person hasn’t been named. Israel also said last week it had bombed the Tehran headquarters of the SPND, the successor organization of AMAD.

The deadly airstrikes were the first to target Iran’s nuclear scientists since 2020, when Mohsen Fakhrizadeh was gunned down with a remote-controlled weapon. Israel has never denied or confirmed its role in the deaths of five Iranian scientists between 2010 and 2020.

On Saturday, thousands attended the funerals of the scientists and other prominent Iranians killed during the conflict, Iranian state media said. Some of the coffins carried family members of the scientists, the semi-official Fars News Agency reported. Israel hasn’t commented on whether family members were also killed in the strikes targeting the scientists.

Israel said its actions have stopped Iran from crossing the threshold to having a nuclear weapon.

Among the most important targets was Fereydoon Abbasi-Devani, the former head of the Atomic Agency of Iran and one of the founders of Iran’s nuclear weapons-related work, according to David Albright, president of the Institute for Science and International Security. Abbasi-Devani was a manager and senior adviser to the AMAD program, with his scientific work focusing on the development of neutron initiators, which fire neutrons into the core of a weapon to trigger a chain reaction.

Abbasi-Devani survived a car-bomb assassination attempt in 2010 on the same day another Iranian nuclear scientist was killed. In a recent TV interview, Abbasi-Devani said Iran had all the knowledge it needed for a nuclear weapon. “If they tell me to build a bomb, I will build it,” he said.

Another killed scientist was Mohammad Mehdi Teranchi, who led a unit under Fakhrizadeh focusing on high explosives, which are needed to detonate a nuclear weapon, according to the U.S. Treasury Department. He later became a professor at the physics department of Tehran’s prestigious Shahid Beheshti University, where a large number of nuclear scientists, including Abbasi-Devani, worked, said Ronen Solomon, an Israeli security analyst.

One of the last targets, Sayyed Seddighi Saber, was head of the key Shahid Karimi Group, which runs explosives-related projects for the SPND program. A spokeswoman for the Israeli military declined to name the person killed.

“Seddighi Saber is linked to projects including research and testing applicable to the development of nuclear explosive devices,” the U.S. Treasury Department said when it sanctioned him on May 12.

Abbasi-Devani and Teranchi were also sanctioned by the U.S. along with others for their nuclear-related work. So was Shahid Beheshti University.

Andrea Stricker, a research fellow at the Foundation for Defence of Democracies, a Washington think tank, said Israel’s targeted killings took out the “brain trust of nuclear scientists” and dealt “a blow to Iran’s ability to draw on people who have past and possibly ongoing experience in constructing specific components of nuclear weapons.”

Yet others describe a sophisticated system Iran had developed for retaining and advancing its nuclear-weapons expertise. That system has allowed Iran’s nuclear program to advance even as its top scientists were being killed.

Iran has for years maintained a nuclear archive detailing all the work it had carried out before 2003, as well as Tehran’s future plans. It was discovered and raided by Israeli commandos in 2018. Iran kept old nuclear-weapons-related equipment, including undeclared enriched uranium, just down the road from the archive. It was dispersed in 2018 and the U.N. atomic energy agency has been demanding answers ever since to where it was sent.

Iran has used universities like Shahid Beheshti, the Sharif University of Technology and Malek Ashtar University to keep alive its nuclear-weapons expertise over the past two decades, Solomon said.

At these universities, Iran often matches up its nuclear scientists on experiments and other studies with younger students, Solomon said. Two of the scientists killed on June 13, Ahmadreza Zolfaghari and Abdulhamid Minouchehr, published an article in the Annals of Nuclear Energy in June 2024 that used advanced computer modeling to show how neutron sources behave in a chain reaction, he said.

That information can be used for civilian purposes, like building a nuclear reactor, or to help trigger a chain reaction in a nuclear weapon.

“There are the professors, and they are teaching the younger scientists…to enter the heart of the Iranian nuclear program,” Solomon said.

The official manufacturing purchasing managers index for June came in at 49.7

China’s manufacturing activity declined for the third straight month in June as trade frictions with the U.S. continued to weigh on the world’s second-largest economy.

The official manufacturing purchasing managers index for June–the first full month after the China-U.S. trade truce was reached in London–came in at 49.7, edging up from May’s 49.5 and matching the 49.7 tipped by a Wall Street Journal poll of economists, according to data released by the National Bureau of Statistics on Monday.

A reading above 50 suggests an expansion in manufacturing while a reading below that suggests a contraction.

Monday’s print followed a run data suggesting the Chinese economy had lost some momentum in May amid the remaining U.S. tariffs slapped on Chinese goods despite the trade detente.

Still, economists say Chinese policymakers seem satisfied with the economy’s performance so far this year.

Chinese Premier Li Qiang last week said that economic indicators continued to improve in the second quarter despite external challenges. Also, China’s central bank has also adopted a less dovish policy tone, according to Goldman Sachs’ economists in a recent report.

“We think the upcoming July Politburo meeting is unlikely to announce major stimulus and additional easing measures should be targeted (e.g., focusing on labor and property markets) rather than broad-based,” the Goldman economists said.

Other subindexes released Monday showed mild improvements. The production subindex increased to 51.0 in June from 50.7 in May. The subindex for total new orders moved back to the expansionary territory and climbed to 50.2 in June, compared with 49.8 in May, and the new export orders subindex rose to 49.7 from 47.5.

China’s nonmanufacturing PMI, which covers both service and construction activity, edged up to 50.5 in June from 50.3 in May, said the statistics bureau.

Noting the signs of improvement in June, Zichun Huang, an economist at Capital Economics remained cautious about China’s economic outlook, citing weaker export growth and a fading fiscal tailwind that is likely to slow activity later this year.

Economists say eventually Beijing will need more aggressive stimulus to secure its official annual goal for around 5% economic growth as policymakers grapple with a protracted property slump and a bleak labor market.

Trump has repeatedly urged Powell to lower the Fed’s key interest rate in order to lift growth

Public calls for lower interest rates of the kind directed by President Trump toward Federal Reserve Chair Jerome Powell are not a threat to the central bank’s independence, the Bank for International Settlements said Sunday.

The Switzerland-based BIS is owned by most of the world’s leading central banks, although not the Fed, and has long provided a forum to policymakers for sharing ideas and concerns.

Over recent decades, the BIS has advocated for giving central banks freedom to set interest rates to meet the goals mandated by legislatures, which usually include keeping the inflation rate at a specified level or within a range.

On a number of occasions, Trump has urged Powell to lower the Fed’s key interest rate in order to lift growth. Earlier this month, he called on Powell to reduce the rate to between 1% and 2% from 4.3% in order to contain the rising costs of servicing the government’s debts.

While the BIS said in an annual report that doubts have been raised about the administration’s commitment to central bank independence, it judged that comments of the kind made by Trump don’t represent a threat to the Fed’s autonomy.

“As long as society supports an institution with a mandate to preserve stability, it should not be a threat,” said Agustin Carstens, general manager of the BIS and a former governor of Mexico’s central bank.

Despite Trump’s criticisms of the Fed’s policy decisions, opinion polls suggest a majority of voters continue to back its independence in setting interest rates. A mid-April survey of 4,941 U.S. adults by YouGov found that 57% supported the Fed’s independence, while just 14% wanted to see it removed. However, 29% were undecided.

Carstens said disagreements between governments and central banks are “almost by design,” since the power to set interest rates is delegated to a central bank precisely because it will be willing to take decisions that a government would not.

“It shouldn’t necessarily surprise us that there will be from time to time tensions because what society has said is this institution should do what it deems necessary to protect the value of the currency, and oftentimes what needs to be done doesn’t match with what governments may want to see,” he said.

The BIS repeated its view that the independence of central banks is essential if they are to succeed in protecting the value of money, and warned that failure to perform that task can have serious consequences.

“We have had quite substantial episodes where monetary policy mismanagement has led to devastating effects on inflation, affecting the well being of individuals and firms, oftentimes bringing countries to a brink,” Carstens said.

In its annual report on the global economic outlook, the BIS said the prospects for growth have been weakened by the unpredictability that the Trump administration has brought to policy making, in addition to the new barriers to trade that tariffs represent.

“Beyond the policy measures themselves, the repeated cycle of announcements, adjustments and reversals has fostered an atmosphere of uncertainty and volatility, compounding the challenges for the global economy,” the BIS said.

The BIS said the fragmentation of the global economy wrought by higher tariffs would likely increase the frequency of inflation surges such as those that occurred in the wake of the Covid-19 pandemic.

“As supply chains adjust, there is the potential for significant disruptions to trade and temporary shortages of some goods,” the BIS said. “As witnessed during the pandemic, such disruptions can have significant and long-lasting ramifications for production and prices across the economy.”

Sixth Street’s Alan Waxman says his publicly traded rivals are turning private credit into a commoditized business—and he isn’t following suit

Private credit is in a golden age. The biggest firms are marching further into bank territory, raking in money from insurance companies and individual investors and setting their sights on the trillions of dollars in U.S. retirement accounts.

But one of its pioneers thinks the industry is losing track of what made it great.

Alan Waxman, CEO of investment firm Sixth Street, says publicly traded rivals such as Apollo Global Management and Blackstone have reoriented their credit businesses to take in huge sums of money from insurance companies and individual investors. That means money flows in and must be put to work quickly, whether or not the investment opportunity is ripe.

The 50-year-old Waxman, who in 2000 created one of the first private-lending businesses while at Goldman Sachs, isn’t predicting this will end with a blowup. Instead, he argues these firms are turning private credit from a bespoke type of investing with relatively high returns into a commoditized, lower-returning business.

His rivals, Waxman says, have become factories, churning out deals with little consideration of their long-term prospects.

“What does a factory do?” he asked a room full of Sixth Street investors at the firm’s annual meeting in October. “It’s, ‘I want to get as many widgets out the door as fast as possible, as cheap as possible…regardless of what the environment is.’”

Waxman’s warnings come at a sensitive time. Some institutional investors are already starting to complain private credit isn’t living up to its prior gains. And regulators are evaluating ways to make it easier for 401(k) investors to participate in private markets.

His critique is also convenient for Sixth Street, which has been late to the biggest trends fueling private credit’s growth. It was years behind Apollo’s move to manage assets for insurance companies and Sixth Street has yet to offer products aimed at individual investors, who now account for nearly a quarter of Blackstone’s assets under management.

Waxman thinks Sixth Street can withstand the tide. He regularly gets calls from bankers arguing that the $115 billion firm, one of the last big stand-alone private-credit specialists, needs to embrace the factory model to stay relevant—by selling to a bigger asset manager or going public.

He argues Sixth Street’s structure encourages collaboration, helps it attract top talent and allows it to remain flexible, putting billions of dollars to work by constantly pivoting.

Sixth Street is more than a private-credit shop. It is known for tailored financings that can consist of debt, equity or anything in between. Among its recent transactions: a loan tied to royalties to finance drug development and equity deals for real-estate businesses in the U.K. and Asia, a major franchisee for restaurant-chain Wingstop and stakes in the San Francisco Giants and Boston Celtics.

Some of its biggest wins have come through creative structures. Sixth Street more than doubled its money on a 2016 loan to Spotify ahead of its IPO, which included a piece that could be converted to equity, and a 2020 loan to Airbnb to help it weather Covid-19. It quadrupled its money with a complex equity deal to finance the creation of Asia data-center operator AirTrunk in 2017.

The firm’s publicly traded direct lending arm has returned a net 13.3% including dividends since inception, as of May, versus an average of 7.3% for public peers. It also charges higher fees than newer nontraded peers that have been created to raise money from individuals.

“There is no firm in the world that’s private and looks like us,” Waxman said.

Private-credit foundations

A former college soccer player with a full head of salt-and-pepper hair, Waxman is obsessed with risk. Reminders are scattered around Sixth Street’s San Francisco headquarters. There is a conference room named “risk unit, return unit,” after the idea that returns should be viewed in relation to their corresponding risk.

A large sculpted tiger mask hanging near the entry is called “Face the Tiger,” a mantra Waxman invokes to encourage colleagues to confront challenges head on.

Waxman started as a junior analyst at Goldman in 1998. He worked in the special situations unit, which invested the firm’s own money in areas such as corporate equity and debt, real estate and infrastructure.

Early on, he was sent to review a portfolio of loans Goldman wanted to buy. The loans, to radio and television companies, were made by a nonbank lender. Waxman noticed the lender could charge hefty interest rates making loans banks wouldn’t because it was willing to account for the value of the borrowers’ underlying assets, not just its cash flows.

“By looking at things differently than a strict bank, we were able to get comfortable with making loans to these businesses,” Waxman says. “I thought: Why can’t this be applied across other industries?”

Waxman rose to lead special situations and was just 31 when he became a Goldman partner.

Then, at the height of the financial crisis in 2008, Goldman became a bank holding company, making it eligible for emergency government loans but subjecting it to stricter regulation.

The next day Waxman decided to leave. He and his partners launched what eventually became Sixth Street, with the goal of replicating the flexibility of investing from Goldman’s balance sheet.

The Tao

Sixth Street’s flexibility relies on a $30 billion fund called Tao. Named after a term that roughly translates to “the way” in the ancient Chinese philosophy of Taoism, Tao can raise more money as needed and doesn’t need to return capital to investors over a set period. Everyone at the firm gets paid from the fees it generates.

Tao often invests alongside Sixth Street’s other funds, allowing them to compete for big deals when needed and sit out deals it thinks aren’t good enough.

In direct lending, for example, Sixth Street has remained active when rivals have retreated during periods of volatility, such as after the rapid rise in interest rates in 2022. It is now more cautious, arguing rivals with billions of dollars from individuals are rushing to put money into deals.

Co-Chief Investment Officer Josh Easterly warned in an April letter to shareholders of Sixth Street’s publicly traded lending arm that rivals would only be earning about a 5% return on equity—not much higher than what a certificate of deposit pays. Some rivals dispute his math.

Sixth Street was absent from some of the biggest direct-lending deals of the first quarter, including a $2.3 billion loan to MB2 Dental, led by KKR. But it did help finance the buyout of pharmacy chain Walgreens, a complex situation that involved lending against the company’s assets.

Waxman acknowledges Sixth Street will eventually need to find a way to approach individual investors, but he says the firm needs to do it in a way that stays true to its principles.

That is what it did in insurance, where it selectively manages assets for insurers in areas where it thinks it has an edge. In its latest big move, it struck a deal in January with Northwestern Mutual, to invest $13 billion with Sixth Street and take a stake in the management company.

As Waxman often says: “Just because you can raise the capital doesn’t mean you should.”

‘Sapiens’ Author Yuval Noah Harari on the Promise and Peril of AI

The author of ‘Sapiens’ says that for the first time in tens of thousands of years, humanity has competition. And it’s coming fast.

Does the rise of artificial intelligence mean the decline—and even end—of Homo sapiens? That’s the question we posed to author, historian and philosopher Yuval Noah Harari, who sees the potential for both enormous benefit and enormous danger from AI. He discussed the outlook with WSJ Leadership Institute contributing editor Poppy Harlow at The Wall Street Journal’s recent CEO Council Summit.

Here are edited excerpts of their conversation.

Bringing up baby

WSJ: You call artificial intelligence—or alien intelligence, as you refer to it throughout your writing—the rise of a new species that could replace Homo sapiens.

YUVAL NOAH HARARI: Yeah. For the first time, we have real competition on the planet. We have been the most intelligent species by far for tens of thousands of years, and this is how we got from being an insignificant ape in the corner of Africa to being the absolute rulers of the planet and of the ecosystem. And now we are creating something that could compete with us in the very near future.

The most important thing to know about AI is that it is not a tool, it is an agent, in the sense that it can make decisions independently of us. It can invent new ideas. It can learn and change by itself. All previous human inventions, whether the printing press or the atom bomb, are tools that empower us.

WSJ: They needed us.

HARARI: They need us because a printing press cannot write books by itself and it cannot decide which books to print. An atom bomb cannot invent the next, more powerful bomb. And an atom bomb cannot decide what to attack. An AI weapon can decide by itself which target to attack and design the next generation of weapons by itself.

WSJ: The way you talk about it in your latest book, “Nexus,” is that it is a baby, because it learns from us. And therefore, your argument is that we, especially the powerful leaders in this room, have a lot of responsibility, because how we act is how AI will be. You cannot expect to lie and cheat and have benevolent AI. Explain that.

HARARI: There is a big discussion around the world about AI alignment: We are creating these increasingly superintelligent, very powerful new agents. How do we make sure that these agents remain aligned with human goals and with the benefit of humanity, that they do what is good for us?

There is a lot of research and a lot of effort focused on the idea that if we can design these AIs in a certain way, if we can teach them certain principles, if we can code into them certain goals, then we will be safe.

But the two main problems with this approach are: First, the very definition of AI is that it can learn and change by itself. So when you design an AI, by definition, this thing is going to do all kinds of things which you cannot anticipate.

The other, even bigger, problem is that we can think about AI like a baby or a child. And you can educate a child to the best of your ability. He or she will still surprise you for better or worse. No matter how much you invest in their education, they are independent agents. They might eventually do something which will surprise you and even horrify you.

The other thing is, everybody who has any knowledge of education knows that in the education of children, it matters far less what you tell them. It matters far more what you do. If you tell your kids, “Don’t lie,” and your kids watch you lying to other people, they will copy your behavior, not your instructions.

Now if we have now this big project to educate the AIs not to lie, but the AIs are given access to the world and they watch how humans behave and they see some of the most powerful humans on the planet, including their parents, lying, the AI will copy the behavior.

Everything, everywhere

WSJ: We took a poll this morning, asking the leaders in this room how consequential they think AI has been so far in the businesses they lead. And only a small portion said significantly. Most, it was moderately or not at all. Can you speak to them as if we were sitting here 36 months from now? Is there any world in which AI doesn’t have a significant impact on their business?

HARARI: The question is one of time scale. Imagine that we are now sitting in London and the year is 1835. The first railway has been opened between Manchester and Liverpool five years ago. And we have now this conference in London in 1835 and people are saying, “You know, all this talk about railways changing the world, the Industrial Revolution, this is nonsense. We have had railways for ages. Five years. And look.”

So we now know that the Industrial Revolution and trains, they completely transformed everything. But it just took more than five years. The same is likely to happen with AI in all fields, from the obvious to the less obvious.

I think that one of the first fields we’ll see major changes in is finance, that AI is going very quickly to take over the financial system. Because finance is purely an informational realm. You don’t see these tens of thousands of self-driving vehicles yet. The problem is that for driving, you need to deal with the messy, physical world of pedestrians and holes in the road and whatever. But in finance, it’s only information in, information out. It’s much easier for an AI to master that.

And what happens to finance once AIs, for instance, start inventing new financial devices that the human brain is simply incapable of dealing with because it’s mathematically too complex?

A useless class

WSJ: Let me get back to what you’ve said about replacing jobs. You’re worried about what becomes a useless class. What do we do to make sure we, as a society, not only survive, but thrive?

HARARI: I want to emphasize that AI has enormous positive potential as well as dangerous potential. And I don’t believe in historical or in technological determinism. You can use the same technology to create completely different kinds of societies. We saw it in the 20th century—we used exactly the same technology to build communist totalitarian regimes and liberal democracies.

It’s the same with AI. We have a lot of choices about what to do with it—if we remember that for the first time, we are dealing with agents and not tools, so it makes it much more complicated. But still, most of the agency is in our hands. And the question of how we develop the technology and, even more importantly, how we deploy it, we can make a lot of choices there.

The main problem is that now the companies and countries that lead the AI revolution have been locked into an arms-race situation. So even if they know that it would be better to slow down, to invest more in safety, to be careful about this or that potential development, they are constantly afraid that if we slow down and they don’t slow down, they will take over the world.

Digital immigrants

AUDIENCE MEMBER: When we talk about AI, we’re not talking about something that is monolithic, right? This is going to be multiple plethoras of AIs manifesting themselves. When there are all of these competing AIs that are evolving fast, what does that world look like?

HARARI: That’s a very, very important point. The AI will not be one big AI. We are talking about, potentially, millions or billions of new AI agents with different characteristics and produced by different companies, different countries everywhere. And we just have no idea what the outcome will be.

We have zero experience in what happens in AI societies when millions of AIs compete with each other. This is not something you can simulate. So in a way, it’s the biggest social experiment in human history. And nobody has any idea how it will develop.

One analogy to keep in mind—we now have this immigration crisis in the U.S., in Europe, elsewhere. Lots of people are worried about immigrants. Why are people worried about immigrants? There are three main things that come to people’s mind: They will take our jobs. They come with different cultural ideas; they will change our culture. They may have political agendas; they might try to take over the country politically.

Now you can think about the AI revolution as simply a wave of immigration of millions and billions of AI immigrants that will take people’s jobs, that have very different cultural ideas, and that might try to gain some kind of political power.

And these AI immigrants, these digital immigrants, they don’t need visas. They don’t cross the sea in some rickety boat in the middle of the night. They come at the speed of light.

And I look, for instance, at far right parties in Europe. If they care about the sovereignty of their country, if they care about the economic and cultural future of their country, they should be far more worried about the digital immigrants than about the human immigrants.

Goldman Sachs Scraps Plans to Build Hotel Brand in Greece

The firm had big ambitions for three resorts with views of the Aegean Sea. It recently sold the properties, barely breaking even.

ust a few years ago, Goldman Sachs GS 0.53%increase; green up pointing triangle had ambitions to create a hotel brand in Greece that could one day expand to spots around the Mediterranean.

The Wall Street giant bought three seaside resorts in northern Greece in 2022, with plans to spruce them up and start welcoming guests as soon as this year. Tourism in the country was on a tear, and the bank saw an opportunity to snap up properties on the mainland with views of the Aegean Sea, rather than on the pricier Greek islands.

This spring, Goldman abruptly sold the three hotels, barely breaking even on the roughly €100 million (about $117 million) it had invested in the project, according to people familiar with the matter. It also pulled the plug on its plans for a hotel brand in the region, the people said.

The resorts never opened, and some employees who worked on the investment are no longer with the firm.

Greek media described the deal as a “shipwreck.”

While the investment was a small one for Goldman’s asset-management division, it was emblematic of the firm’s search for big returns and steady fees to offset its lucrative but volatile Wall Street businesses. Its goal in Greece was to use mostly client money and financing to drive up the hotels’ value, then book big profits when they were sold. All the while, Goldman would collect management fees from clients whose money was invested.

When it bought the resorts, Goldman was enticed by the country’s strengthening economy, embrace of foreign investments, and cheaper property prices compared with Western Europe. Many hotels in Greece are also family-owned and switching hands to new generations who are more open to selling.

Other firms had also invested in the country, including Blackstone’s successful bet on Hotel Investment Partners, which has a portfolio of dozens of hotels in the Mediterranean that have spread to include around 10 in Greece. Goldman decided that its own Mediterranean adventure would begin in Greece.

The firm continued to cast about for additional hotel acquisitions and explored buying the Grand Resort Lagonissi, according to people familiar with the matter. The hotel sits on an area known as the Athenian Riviera, a stretch of beaches with new luxury hotels and residences. Goldman didn’t pursue the effort.

Around last summer, Goldman President John Waldron visited Greece and met with the country’s prime minister and local bank chief executives. His message was clear: Goldman was invested in the country in a big way, both through its investment banking and asset management.

But by then, Goldman’s investment in the hotels was souring. The renovations required a gut job that would cost far more than the firm had expected.

Late and over budget

Goldman had planned to largely demolish and rebuild the hotels, located on Greece’s northern peninsula of Halkidiki, before throwing open their doors again.

The firm’s asset-management employees in London and Spain worked on the investment from the opposite ends of Europe, with a partner in Madrid in charge. The bank decided to create its own management team to oversee the renovation, rather than hire a firm experienced in the hotel sector as others had done.

Goldman lacked the connections to easily navigate on-the-ground construction hurdles. It created a hospitality platform in Greece called “Ousia,” which means substance, that would oversee the resorts and help find new hotel investments. It had around 10 employees in Athens, including several with significant experience in the hotel industry.

About a year into Goldman’s investment, delays with permits, construction and engineering started becoming a concern.

Goldman realized it would need more time and money to complete the project. The original plan had been to invest between about €150 million and €200 million. Costs for construction materials and labor increased, eating into the investment’s projected returns.

At one point, Goldman and a construction company it was working with decided to part ways.

Goldman had preliminary discussions for a local partner to help with the work. Around last fall, Goldman began exploring a sale.

The firm sold the hotels in the spring to Sani/Ikos Group, a privately held company that owns and operates hotels in Greece and Spain.

In the end, Goldman decided on a full pullout from hotel investments in the country, with the exception of its minority stake in real-estate investment company Prodea.

Goldman said it evaluates unloading investments when it is in the interest of its clients. “We actively manage all of our investments, maintaining a strong focus on operational discipline and value add,” a spokeswoman said.

The firm’s focus on investment banking and asset management in Greece is otherwise unchanged.

The new owner of the hotels announced a more than €400 million investment in the project. The properties will feature nearly 750 rooms, multiple pools, more than 30 restaurants and bars, theaters and spas.

The hotels are scheduled to open in 2029.