Good morning. Large institutional investors who own shares in rival companies risk violating antitrust laws if they use their influence to affect how those businesses compete, U.S. antitrust enforcers argued Thursday for the first time.

• The case: The Justice Department and Federal Trade Commission made those views public by submitting a brief in a case filed last year by Texas Attorney General Ken Paxton and other Republicans against BlackRock, State Street and Vanguard Group. The federal government’s filing, known as a statement of interest, says the asset managers’ holdings of multiple companies in the coal industry—known as common ownership—could violate competition laws.
   
• Allegations by red states: The Republican states’ lawsuit alleges BlackRock, State Street and Vanguard undermined competition in the coal industry by advancing a climate-change agenda on the companies. The asset managers last year collectively owned between 8% and 34% of publicly traded coal companies’ shares, the suit says. The coal companies produce nearly half of all U.S. coal, according to the Justice Department and FTC’s filing.
   
• Why now? Common ownership is a burgeoning worry for antitrust enforcers and other competition hawks. It has grown more salient as fund managers such as BlackRock amassed trillions of dollars of assets from retirement savers and pension funds. Progressives have raised more alarms about common ownership, but Republicans have now adopted the cause as part of their attack on environmental, social and corporate-governance investing.

Please note: The Morning Risk Report won’t be published Monday in observance of Memorial Day. We will be back Tuesday.

Partisan split at CFTC as commissioners depart.

Three commissioners from the U.S. Commodity Futures Trading Commission this month announced they are stepping down from the agency, reports Risk Journal’s Max Fillion, departures that might inhibit the derivatives regulator from taking any non-routine actions in coming months.

In an announcement Wednesday, Commissioner Kristin Johnson said she would leave “later this year.” Days earlier, commissioners Christy Romero, a Democrat, and Summer Mersinger, a Republican, said they would leave at the end of the month.

Romero and Mersinger’s departures will leave the agency with one Republican Commissioner, Acting Chair Caroline Pham, and one Democrat, Johnson. The partisan split could hamper the commission’s ability to vote through issues such as authorizing new investigations or filing legal actions in federal court. If Pham and Johnson split a vote, no action will be taken.

GOP defends ban on state AI laws over data-privacy concerns.

House Republicans are defending a move to block states from regulating artificial intelligence, including many current and proposed state bills that contain safeguards for data privacy and online security. With national efforts at a standstill, states have largely taken the lead in regulating AI.

At a House energy and commerce subcommittee hearing Wednesday, GOP lawmakers said that a patchwork of state laws could stifle innovation, allowing China and other U.S. adversaries to take the lead in developing a transformative technology.

• The Federal Trade Commission voted to dismiss a lawsuit against PepsiCo alleging the company was engaging in price discrimination.
   
• The U.S. on Wednesday said it would sanction anyone who knowingly supplies Iran with “strategic materials” that could be used for military purposes.
   
• Douglas Edelman, one of the U.S.’s largest known tax evaders, pleaded guilty Wednesday to tax crimes and defrauding the government on income he made from $7 billion in military contracts in Afghanistan.
   
• The GOP-led Senate voted Thursday to take away California’s ability to set its own tailpipe emissions standards, effectively killing the country’s biggest driver of EV investment.

The fortress that China built for its battle with America.

The storm clouds for China were gathering when leader Xi Jinping convened the country’s top scientists at the Great Hall of the People in Beijing in May 2018. The U.S. was beginning to clamp down on selling technology to China, with more restrictions on the way.

China must not be forced to beg others for technology, Xi said. Only through self-reliance “can we fundamentally safeguard national economic security,” he said.

Since then, China has raced ahead in many strategic sectors—and in some cases is catching up with the U.S. These successes and many others are helping to fortify China and its economy as Xi prepares the nation for an era of sustained hostilities with the U.S., including the continuing trade war.

Cotton from Turkmenistan flagged as forced-labor risk.

Cotton products sourced from suppliers in Turkey, Pakistan and Italy might be linked to forced labor in Turkmenistan, a coalition of human rights and trade groups said, warning global brands of possible supply chain risks.

European Union-based retailers in particular could have forced labor-linked cotton from Turkmenistan in their supply chains, the Cotton Campaign said in a report released Wednesday. Companies need to map out their entire textile supply chains, down to the raw material level, to eliminate cotton originating in Turkmenistan, the report advised. 

• Taiwan will commission its first-ever army drone units this year and introduce sea drones to its naval forces, part of its efforts to modernize its arsenal with cutting-edge technology to prepare for a potential Chinese invasion, Defense Minister Wellington Koo said in an interview.
   
• The Trump administration is weighing a withdrawal of thousands of American troops from South Korea, according to defense officials familiar with the discussions, a move that could stir new anxiety among allies worried about the White House commitment to Asia.
   
• Business activity in Europe and Japan declined in May, while the U.S. saw a rebound as changes in tariffs continued to have unpredictable consequences for the global economy, according to surveys released Thursday.
   
• On a call Monday, President Trump told European leaders that Russian President Vladimir Putin isn’t ready to end the war in Ukraine because he thinks he is winning, according to four senior European officials familiar with the conversation.
   
• Japan’s consumer inflation gathered pace in April due to higher energy and food prices, although it is unclear if this will pave the way for more monetary tightening by the Bank of Japan.
   
• North Korean leader Kim Jong Un’s dream of modernizing his country’s outdated naval fleet suffered a major setback after a much-touted warship crashed into the water after a botched exit from the dock.
   
• U.S. and Iranian officials are set to begin a fifth round of nuclear negotiations Friday, with Tehran warning that talks could collapse if the two sides can’t overcome a pivotal clash over the shape of a deal.
   
• President Trump wants to help fossil-fuel companies lay new pipes in the Northeast. Companies aren’t eager to rush in.

• A more humanlike generation of customer-service voice bots is here, spurred by advances in artificial intelligence and a flood of cash.
   
• PepsiCo is pushing back its climate goals. Its sustainability chief says the world “was a very different place” when it set its targets.
   
• An AI-generated PR pitch succeeded in generating attention—and hostility.
   
• Former audit regulators, academics and investors are preparing to fight the proposed elimination of an accounting oversight board created after Enron.

• The Trump administration is yanking Harvard University’s authorization to enroll foreign students, a major escalation and financial blow in the government’s pressure campaign against the nation’s most prominent university.
   
• The Supreme Court on Thursday rejected a plea to require state charter school programs to fund religious schools.
   
• The Republican-led House passed President Trump’s sprawling tax-and-spending bill early Thursday, after party leaders made a series of last-minute changes that united their warring wings.
   
• President Trump said Russia and Ukraine were undertaking a major prisoner swap, in a post on social media early Friday.
   
• Israelis woke up Thursday to the killing of two Israeli Embassy staffers in Washington, D.C., reinforcing a fear that the world has become increasingly dangerous for Israelis and Jews amid the war in Gaza and a global rise in antisemitism.
   

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