Trump policies and Corporate America

The excessive focus on merchandise trade deficits and tariffs, while important, overlooks several important imbalances facing the world economy. In simple terms, excesses in production and savings, centred around China, interact with excesses in consumption and borrowing, centred around the US. This bad equilibrium has been amplified (or may have been co-created) by efficiency and profit-maximising American capitalism. 

I’ll do a longer post on these excesses separately. This post tries to unpack this issue from the perspective of Corporate America. 

The US stocks have easily outperformed others at least since the turn of the millennium. American firms have benefited from the fortuitous confluence of several factors that have contributed to their superior competitiveness. 

I can think of at least a dozen contributors. 

1. Widespread adoption of technology to improve efficiencies, enhance service delivery, and expand business opportunities. American firms, especially in the technology industries, have been leaders in R&D investments and in operating at the technology frontiers. 

2. Access to cheap and long-term sources of credit, on the back of the long period of ultra-low interest rates (it was below 2.5% from March 2008 to August 2022), especially since the Global Financial Crisis. 

3. Innovative financing models like private equity and venture capital, themselves riding on the low interest rates, have allowed firms plentiful access to growth-focused risk capital. 

4. The US marginal corporate tax rate dropped sharply to 21% in 2018 (Trump 1.0), even as effective corporate tax rates have declined steadily since 2000. 

5. Liberalised markets, mostly deregulated in the emerging technology industry, have allowed socialisation of costs, private appropriation of benefits, and the maximisation of returns from size and scale. 

6. The general rules of the game in the technology services industry (covering intellectual property, data ownership, taxation, labour contracting, regulation, etc.) have been laid down by Big Tech in the US. Their global adoption has been critical to the flourishing of the technology industry, dominated by US firms. 

For example, as Cory Doctorow explains here, US technology firms have benefited enormously from the intellectual property law called "anticircumvention", which prohibits tampering with or bypassing software locks that control access to copyrighted works.

7. Access to cheap goods and inputs, particularly from China, have been big boosters to US businesses in sectors like trading, construction, manufacturing etc. 

8. The relentless pursuit of cost-minimising strategies like outsourcing, offshoring, contract labour, and automation. 

9. The generalised adoption of a business model aimed at retaining high-value tasks while hiving off low-value ones. 

10. The generalised trend of business concentration across sectors has increased margins and profitability, especially among the largest firms. 

11. They have fed off its unmatchable innovation ecosystem, built around its great universities, large public research funding, and public and private research labs. 

12. Finally, the perceived stability and dynamism of the US economy have been a strong tailwind for its firms in attracting talent and capital. This stability itself owed significantly to the macroeconomic benefits of globalisation in moderating inflation while also ensuring low unemployment. 

However, there are signs that things may be changing now. Thanks to the confluence of another set of factors, some of the important contributors described above may now have weakened considerably or are weakening. So much so that the possibility of a regime shift now looms large. 

These emerging factors include the normalisation of interest rates, the reversal of several markers of globalisation, a new normal of higher tariffs and protectionist tendencies globally, backlash against immigration, and the instability and uncertainty engendered by the policies of the Trump administration. All of them, especially the last, have diminished the general attractiveness of US assets, its firms, and the economy itself. 

In this context, even as the Trump flip-flops induce ever more uncertainty, it’s useful to step back and look at how Chinese firms came to dominate manufacturing. One less discussed perspective is that it is the culmination of the relentless pursuit of efficiency and profit maximisation by large Western (mostly American) corporations.

As the world globalised on the back of sharp declines in logistics and communication costs and the emergence of the WTO, large Western companies realised the benefits of outsourcing and offshoring many of their activities to countries with cheap labour and weak regulations. China, with its abundant cheap and skilled labour, dynamic local governments competing fiercely to attract foreign companies, and its entry into the WTO in 2001, emerged as the natural destination for these contracts. 

It was the perfect incentive-compatible arrangement. It created tens of millions of jobs and turbocharged Chinese economic growth. It lowered costs, boosted margins, and drove corporate profitability in the US. As Ricardo Marto of St Louis Fed shows, US corporate profitability surged in two episodes - 2001-2007, and then after the COVID-19 pandemic. 

Unsurprisingly, the biggest beneficiary sectors were those most exposed to China - trade and manufacturing. 

Any decoupling of the tightly wound and mutually beneficial relationship between China and US corporations will hurt both sides. While there will be factory closures and job losses galore in China, US firms will lose access to cheap inputs and a large market, and must abandon their outsourcing and offshoring-centred business models. Further, the major share of the tariffs may be borne neither by Chinese manufacturers nor American consumers but by the US corporations. All this will hurt their margins and lower their profitability substantially. American consumers, who benefited from cheap Chinese consumption goods, will face higher prices and a resultant negative income effect. 

The critics of globalisation and the supporters of the Trump tariffs harp on the undeniable costs of globalisation, especially in the form of erosion of the American manufacturing base, while overlooking the real benefits it brought to American corporations and consumers. These were conscious choices made by corporate America, aided by its consumers, and enabled by successive governments. 

And all this had an ideological basis in the economic orthodoxy of comparative advantage and free trade, as well as efficiency-maximising capitalism. 

On this issue, Joe Nocera has an essay where he misleadingly points to Dani Rodrik as one of “the intellectual godfathers of protectionism”. Rodrik is hardly a supporter of protectionism. Instead, he’s a critic of globalisation gone too far to the detriment of US manufacturing and workers. He also questions the central assumption behind the application of comparative advantage to the globalisation era, that of labour market adjustment (people who lose their jobs will move on and find jobs elsewhere, and would require at most some reskilling training). The centrality of comparative advantage in the canon of economic orthodoxy has meant that economists were willing to overlook anything problematic about its application. 

Another of Nocera’s “godfathers of protectionism”, Michael Pettis, directly refutes this description here. Pettis has written extensively, blaming the current situation on structural imbalances in the world economy. Even as America outsourced and offshored manufacturing to China, its consumers, corporations, and government gorged on cheap debt from the flood of capital that flowed into the US due to its exorbitant privilege and the massive surpluses enjoyed by exporters like China. In Pettis’ telling, the Chinese and East Asians manufactured, generated surpluses and lent them to America to consume. 

This argument appears too simple and circular. It raises the question of whether it is Chinese manufacturing and surpluses or American debt-fuelled consumption that has brought us to this situation. This argument about causation may never be resolved satisfactorily. But in any case, it points to the unavoidable need for rebalancing of excesses on both sides. 

As I have blogged on multiple occasions, as China weaponises its manufacturing dominance, decoupling from China is today a critical and urgent national security imperative for not just the US but for all major economies. 

But as we discussed earlier, this rebalancing must also reconcile to lower margins and profits by US corporations, higher prices for US consumers, lower borrowings by US governments, and higher cost of capital for all sides in the US. More fundamentally, it would require a recalibration of the vaunted efficiency and profits maximising model of American capitalism. It’ll require greater sharing of profits by capital with labour. Also, American consumers must adjust to an era of higher-priced goods and significantly reduce their propensity to assume excessive debts. 

Fortunately, given the distortions engendered by these excesses, all these would be much-desirable adjustments. 

These outcomes will have profound implications for American capitalism and require a fundamental unsettling of deeply entrenched interests. But the political economy of these adjustments for rebalancing is daunting. 

Only a maverick like Donald Trump could have pushed the agenda so far and so quickly in the direction of decoupling from China. But as the repeated U-turns by President Trump when faced with market pressures - pausing the reciprocal tariffs and now lowering and pausing the high tariffs on China - show, the political economy is starting to bind. 

Given the corporate interests that are closely intertwined with, and even funding, the Trump administration, there will be enormous pressure to back away from measures that will hurt corporate profits and cause equity market turbulence. This will be complemented by inflationary pressures on mass consumption goods, forcing popular discontent. 

The signs so far appear to indicate that Trump will blink when push comes to shove on issues that deeply hurt corporate interests. As the ongoing rally indicates, the markets also think that corporate interests will finally win out. This does not bode well for necessary structural rebalancing within the US (and therefore the world economy itself). 

However, amidst these disturbing prospects, there are some signs that Corporate America will not have everything its way. One of the most encouraging signs emerging from the Trump administration is its apparent resolve to continue the antitrust agenda against Big Tech launched by the Biden administration. It’s pushing ahead with suits to break up or significantly constrain Google, Meta, and Amazon. The course of these trials over the next two years will be critical. 

The Executive Order to control Big Pharma by drastically reducing drug prices and cutting out intermediaries is a massive decision, given the political influence held by pharmaceutical companies. I don’t think any other President could have pushed it through. But it remains to be seen how it’ll be implemented. Amidst these, Wall Street continues to hold sway. 

When all is said and done in the next four years, one of the most important contributors to what the world will look like will depend on how this political economy plays out. 

Public policy's gatekeeping problem

This post will examine the rise of an important but less-discussed trend in public policy, the emergence of a category of entities as gatekeepers in the form of agents who accredit, certify, validate, or authorise the quality or efficacy of specific tasks or entities. In short, gatekeepers signal compliance of a third party with some benchmark. 

Such gatekeepers are pervasive in the market economy. Their examples include credit rating agencies, process and financial audit firms, product certification entities, third-party authorisers for insurance claims, asset valuation entities, etc. In the context of public policy, such gatekeepers include institutional certification agencies, standards certification firms, infrastructure works quality certification, licensed professionals (like architects, town planners, surveyors, etc.), rankings, and so on. Each performs the roles of assessment/evaluation and/or certification/validation.

I’ll skip the role of gatekeepers who operate in well-established markets and whose problems are widely known. Instead, this post will focus on the role of these firms in public services and development sectors. Some observations:

1. Gatekeeping is a specific form of outsourcing, since it involves the parcelling and contracting out of a distinct activity hitherto done in-house. It has its basis in the private sector, where activities can be neatly parcelled out, quantification of performance is possible, accountability can be fixed, and contractual incentives are aligned. The same cannot be said about the public sector.

A critical difference between the use of gatekeeping in the private sector and the public sector is the absence of any market test in the latter. Specifically, since users don’t pay for these services (or pay only a small part of the cost), there’s no competitive pressure to ensure good quality. 

In this context, it would be useful to keep in mind the example of the Ease of Doing Business (EoDB) rankings. While the rankings have doubtless triggered policy measures to simplify procedures and reduce hassles for businesses, the absence of a complementary attitudinal and cultural change management focus has reduced it to a performative exercise. Now that it has played out, I’m not sure about its signalling value for prospective investors. 

2. In keeping with the theory of scaling in the private sector, it’s a widely held view that state capability constraints to rapid expansion can be overcome by the likes of standardisation, outcome-based financing, and targeting. Accordingly, enlisting gatekeepers has become a prop to skirt around state capability deficiencies and rapidly scale activities. 

A good example is cleanliness programs like the Open Defecation Free (ODF) scheme. Another example is the certification of various kinds of educational, vocational training, skilling, and healthcare institutions. Similarly, with the certification of self-help groups, farmer producer organisations, and co-operatives. The Government of India enlisted the services of the Quality Council of India to undertake many of these activities. 

Poor service or institutional quality exists due to fundamental constraints arising from personnel capabilities and resource deficiencies. No gatekeeper or ranking can help systems leapfrog these deficiencies and overcome those fundamental constraints. They require sustained accumulation of capabilities and allocation of resources. 

For this reason, the ISO certification that had become a fad in the 2000s among government offices in many states has since fallen out of favour. The ISO 9001 certified offices had the form of quality without its substance. It was classic isomorphic mimicry. A tickbox exercise of cosmetic infrastructure upgrades, procedural changes, and role clarifications cannot be a substitute for state capability improvement and good governance. 

3. Ironically, the very state capability deficiency that necessitated the reliance on gatekeepers is generally also the reason for the failure of the gatekeeping solution. In the absence of monitoring, gatekeepers are vulnerable to being captured by the same interests they are supposed to evaluate or certify. 

4. Certifications can add layers of costs to the total price of the product or service. Certification comes with additional compliance requirements. A green certification often comes with the need for solar panels, water harvesting structures, new lighting fixtures, and so on, which add significant incremental costs compared to business as usual. The value of at least some of these requirements, especially their universal application, can be questionable. For example, the requirement of backup power sources like a diesel generator and solar panels to meet certain standards adds considerable incremental costs.

These cost layers can become a problem in an emerging market. The higher cost shrinks affordability, reducing the market size needed for these nascent markets to emerge and grow. This is best seen in the affordable housing market, where the restrictive zoning regulations, when supplemented with desirable features like sustainability, add several layers of cost that make the struggling market even less likely to emerge. It’s the classic everything bagel liberalism. 

5. On a related note, there’s a possibility that gatekeeping, by differentiating the certified/validated products, results in a distortionary market evolution. Let’s take the example of a star rating, where a product or a building is rated from 1 to 5 stars. Since people are less likely to buy the 1 or 2-star rated products, the sellers are more likely to invest in the higher-rated products. This results in perverse incentives like cutting corners on compliance and distorting the market with the lemon problem. Further, the higher cost of the higher-rated products also shrinks the addressable market. 

It’s, therefore, important to weigh the pros and cons before embracing gatekeepers. One strategy would be to confine gatekeeping to the higher market segments where signalling is valuable and where affordability is not a concern. 

6. Finally, in weak disciplining environments, like in the case with public sector institutions, gatekeepers are amenable to being captured and becoming handmaidens of vested interests. This distorts the gatekeeping signals and offers misleading information. 

There are several examples of this. Independent engineers and third-party quality audit firms becoming captured by the work contractors is not an uncommon feature in engineering works, especially in lower and mid-value works. Perhaps the most common are the several examples of rankings (of individuals in functional roles, institutions, administrative units, etc.) that are supposed to convey quality and performance. They have unfortunately become captives of unhealthy quid pro quos between the ranking agencies and those ranked. 

The Insolvency and Bankruptcy Code (IBC) in India triggered a new market for insolvency resolution professionals (IRPs), one that grew at a pace faster than the supply side could keep up with. The result is a system with a surfeit of poor-quality IRPs who have contributed to the lowering of the credibility of the process itself. The recent Supreme Court judgment in the case of the IBC-intermediated takeover of Bhushan Steel by JSW is a case in point (it’s perhaps more about the incompetence of the IRP than capture). 

For this reason, policymakers must be cautious and gradual in the adoption of gatekeeping in any sector.

Weekend reading links

1. From the early evidence, it appears that the New York City congestion charges are a success. 

Several indicators suggest a sustained decrease of traffic into, within and around the congestion zone. MTA data shows a 13 per cent drop in vehicles entering the central business district in March against a historical average, plus faster movement through the bridges and tunnels that are often snarled with traffic. This is supported by data from analytics firm INRIX that also shows minimal changes on Manhattan bridges outside the zone. On the funding side, the $500mn that the MTA anticipates raising this year from securities ahead of a big bond issue has provided investment for projects including signal upgrades, station elevators and a line extension.

This is corroborated by the findings of researchers in a new working paper who used Google Maps Traffic Trends data. They found speed increases for traffic into and inside the zone, without negative effects on local roads (spillover effects). 

This has also meant shorter response times for emergency service vehicles. 

2. Domestic value addition in exports has been declining in the US and India.

The share of domestic content in the output of US-based manufacturers dropped from 65 per cent in 1997 to 52 per cent in 2023. This decline was most pronounced during the period between 1997 and 2008, coinciding with the peak years of globalisation, when offshoring production to lower-cost economies became the dominant corporate strategy... India’s share of domestic value addition in its gross exports of manufactured goods (as a percentage of gross exports) has declined sharply from 88.2 per cent in 1995 to 63.3 per cent in 2012, before rising to 73 per cent in 2020.

3. Private equity distributions decline sharply

According to Bain & Company’s Global Private Equity Report, distributions as a percentage of net asset value have fallen from an average of 29 per cent in the period from 2014 to 2017 to only 11 per cent today. PitchBook estimates there are more than 12,000 US portfolio companies — around seven-to-eight years of inventory at the observed pace of exits. This is much higher than the five-and-a-half-year median exit time they’ve observed across the industry to date.

4. Nigel Farage's right-wing populist Reform Party has emerged as the biggest party in UK's local government elections even as Labour and Tories suffered their worst performance in decades. 

5. Cory Doctrow offers a negotiating strategy for other countries while negotiating with the Trump reciprocal tariffs. He points to the intellectual property law called "anticircumvention", which prohinit tampering with or bypassing software locks that control access to copyrighted works. 

The first of these laws was Section 1201 of America’s Digital Millennium Copyright Act, which Bill Clinton signed in 1998. Under DMCA 1201, it’s a felony (punishable by a five-year sentence or a $500,000 fine) to provide someone with a tool or information to get around a digital lock, even if no copyrights are violated. Anticircumvention laws are the reason no one can sell you a “jailbreaking” tool so your printer is able to recognise and use cheaper, generic ink cartridges. It’s why farmers couldn’t repair their own John Deere tractors until recently and why people who use powered wheelchairs can’t fix their vehicles, even down to minor adjustments like customising the steering handling. These laws were made in the US... The US trade representative has lobbied — overtly in treaty negotiations; covertly as foreign legislatures debated their IP laws — for America’s trading partners to enact their own versions. 

The quid pro quo: countries that passed such laws got tariff-free access to American markets. Canada enacted its anticircumvention law, Bill C-11, in 2012, after the ministers responsible dismissed 6,138 opposing comments on the grounds that they were the “babyish” views of “radical extremists”. Mexico enacted its version in the summer of 2020 in order to fulfil its obligations under the US-Mexico-Canada Agreement... Why should every peso that a Mexican iPhone owner pays to a Mexican app creator make a round trip through California and come home 30 centavos lighter? Why accept that for every 1,000 rupees someone pays in-app to India’s Dainik Bhaskar newspaper, the paper only gets 700 rupees? After all, if an Indian tech company makes its own app store, it could charge competitive fees that lure away all of Apple’s best Indian app maker customers. And why shouldn’t every mechanic in the world offer a one-price unlock of all the subscription features and software upgrades for every Tesla model... Monopolistic US companies have spent the first quarter of this century extracting trillions of dollars from consumers all over the world, insulated from competition by anticircumvention laws that they lobby to maintain. From printer ink to ventilator repairs, they have been able to pursue monopoly pricing, secure in the knowledge that no one would undercut them with cheaper and/or better add-ons, marketplaces, software, consumables and service offerings.  

6. Fascinating story about Disco Corp, a 87-year-old Japanese company with 7000 employees and $20.8 bn revenues that makes about three-fourths of all machinese used globally to cut, ground and dice semiconductors and has been run on pure free market pricinples. 

Disco is a business unlike any other. Since 2011, it has conducted a radical experiment to operate a blue-chip company on purely free-market principles. Nobody has a boss. Superiors cannot tell juniors what to do. Each day, employees choose whatever tasks they want. They can quit or join a different team at their own volition. Within this state of perfect freedom, most of their decisions will be guided by Will, as Disco’s internal currency is known. Employees earn Will by doing tasks. They barter and compete at auction with their colleagues for the right to do those tasks. They are fined Will for actions that might cost the company, or compromise their productivity. Their Will balance determines the size of their bonus paid every three months. The Will system, as it functions today, is the brainchild of Disco’s chief executive, 59-year-old Kazuma Sekiya, who sees his unorthodox management plan as fundamental to the company’s culture and success...

The Will system works like this. Sales of Disco’s machines generate Will. For each ¥1bn (£5.2mn) of revenue Disco accrues, approximately 400mn Will is typically generated for the sales staff to channel down through the company. They use that Will to reward or incentivise other employees to do tasks that support them. For example, they might pay Will to the manufacturing team to produce new machines for them to sell, pass on a stream of royalties in Will to the research team, or offer a tributary gift to their colleagues in HR for paying their salaries (in yen). Further down the food chain, the exchange of Will can be negotiated informally between employees in return for other tasks, paid for upfront, after completion or however the two parties agree is best. Disco also has an auction system for tasks, which works by dynamic pricing. The fewer people able or willing to do a task, the more Will has to be offered. If someone is desperate to do a certain job, or learn skills from a particular virtuoso, they might offer to pay Will for the privilege. Disco now has a team of eight employees who manage the Will system. They oversee a framework of 772 penalty and 337 reward items. About 187 of these payments and rewards are used regularly. 

The purchasing department fines people who write the wrong address on letters and packages, for example. The communications team has Will subtracted for negative articles that are published about the company. For Disco employees, Will dictates almost everything they do. Each member of staff starts the month with a negative Will balance, which they must strive to get above zero — an “existence cost”, so to speak. The system assumes employees are an inherent drag on the company until they prove otherwise. And the more senior you get at Disco, the greater your cost to the company is assumed to be.

7. Which developed country has had the most impressive economy since 1990?

This performance has helped the country maintain a AAA rating since 2003. The article is a good long read and examines the reasons for this economic perfornance. 

Mining grew to become one of the country’s largest exports, accounting for 12.2 per cent of GDP in 2024, according to Australia’s central bank. For the past three decades, Chinese demand for iron ore and copper, and Japan and South Korea’s hunger for natural gas and coal, have been the key drivers of economic growth... Australia’s lopsided economy, says Chris Bradley, director of the McKinsey Global Institute. The effects of what he calls a “productivity crisis” have been partly masked by the mining boom, high levels of immigration and increased state expenditure, according to a report he co-authored and published in December... “There is no greater beneficiary of the rise in China than Australia,” says Richardson... Whereas average productivity grew more than 1.5 per cent annually between 1993 and 2016, it has not grown since and has been falling since 2022. GDP per capita is down from 2.5 per cent between 1993 and 2007 to negative 1 per cent in the past two years.

8. Huawei has done several extraordinary things. But what it's attempting to do now is even more so and these efforts have accelerated since the US imposed sanctions in 2019. 

Huawei is involved in projects that aim to develop alternatives to technology from chip designer Nvidia, equipment maker ASML, memory-chip maker SK Hynix, and contract manufacturer Taiwan Semiconductor Manufacturing Company.

9. Fascinating description of the importance of the charkha by Mahatma Gandhi

“The spinning wheel represents to me the hope of the masses. The masses lost their freedom, such as it was, with the loss of the charkha. The charkha supplemented the agriculture of the villagers and gave it dignity. It was the friend and the solace of the widow. It kept the villagers from idleness. The charkha included all the anterior and posterior industries — ginning, carding, warping, sizing, dyeing, and weaving. These, in their turn, kept the village carpenter and the blacksmith busy. The charkha enabled the seven hundred thousand villages to become self-contained. With the exit of the charkha went the other village industries, such as the oil press. Nothing took the place of these industries. Therefore, the villagers were drained of their varied occupations, creative talent, and what little wealth they brought them.”

10. Akash Prakash makes an important point about how bringing back manufacturing to the US will be counterproductive for US companies.

Outsourcing has been led by US corporations; they are the masters of moving the capital-intensive manufacturing piece overseas to China and white-collar services to India. The only reason to offshore is to lower costs. Given a choice, it is always easier to have your employees and manufacturing next to you. Offshoring brings complexity to supply chains and is only done if costs can be brought down by 15-20 per cent at a minimum. If the endgame of these tariffs is to bring more manufacturing back to the US, it will affect corporate margins, as it is more expensive to do the job in the US — the reason it was offshored in the first place. Every company cannot pass on the higher costs. US corporate margins are near all-time highs, with return on equity above 16 per cent; both will go lower in the coming years.

This reduction in corporate margins can be seen in two related perspectives. In the first place, these inflated margins were the result of externalisation of the costs of supply chain resilience and national security. The tariffs and trade war with China is now forcing an internalisation of these costs. And that's a good thing. 

11. DOGE may have failed, and Musk may be on his way out, but he may have clinched Starlink's biggest business opportunity.

Trump’s “Golden Dome”, which aims to replicate Israel’s “Iron Dome” for all of the US, could be one of the biggest taxpayer outlays since Ronald Reagan’s strategic defence initiative, better known as “Star Wars”. In dollar terms Trump’s dome may even rival Nasa’s Project Apollo, which cost $280bn in today’s money. Since the missile shield would need to rely on swarms of satellites, Musk’s SpaceX would be the largest beneficiary. The company has formed a Golden Dome consortium with Palantir and Anduril, which are run by his Big Tech friends. Musk’s lasting impact on Washington may thus be to divert a big chunk of US taxpayer money to his empire. As leaving gifts go, this one would be very nice. Whether it would enhance US national security is someone else’s problem. Ditto on whether Golden Dome contracts qualify as waste, fraud or abuse. When only one company can fulfil the project’s biggest functions, there is little prospect of an open bidding process.

12. The definitive graphic on China's continuously rising trade dominance.

This is staggering

“China has surpluses, not just with the US, not just with Europe, but with 172 economies in the world,” Bert Hofman, a former Beijing-based country director for China at the World Bank, told a meeting of the Foreign Correspondents’ Club of China. “And if you have surpluses with 172 economies in the world, that’s not a great soft power position.”

As also this

China was the subject of 198 trade investigations by WTO members over alleged dumping or illegal subsidies last year, double the tally of the previous year and accounting for nearly half of all measures reported to the global trade body, according to research by Peking University economics professor Lu Feng. More than half of the trade cases against China last year were initiated by developing countries, including India, Brazil and Turkey. Even close partner Russia has pushed back on China’s car exports.

13. One area where China is chronically dependent on US suppliers is in the aeroplane manufacturing industry.  

Beijing had been hoping that Comac C919, its domestic aeroplane, would challenge Airbus and Boeing.

With China’s three big state-owned airlines already flying 17 C919s and Comac expecting to build at least 30 more of the single-aisle aircraft this year, the tensions between Washington and Beijing are highlighting how Chinese companies can be heavily dependent on US companies in their supply chains. The C919, which made its maiden commercial flight in China in 2023, has 48 major suppliers from the US, 26 from Europe and 14 from China, according to Bank of America analyst Ron Epstein...

For most western aircraft components for the jet, there are no domestic alternatives readily available, analysts say, meaning the US “can [halt] Comac in its tracks anytime it wants”, said Richard Aboulafia, managing director of AeroDynamic Advisory. One of the most crucial parts of the C919, its LEAP-1C engine, is built by CFM International, a joint venture between the US group GE Aerospace and French manufacturer Safran. While China has been developing a domestic alternative, the CJ-1000A, it is still being tested and is “not ready yet”, said Dan Taylor, head of consulting at aviation consultancy IBA... But if the US, at some point, decides to restrict exports of key components to China and “if China stops buying aircraft components from the US, the C919 programme is halted or dead”, Epstein said.

14. In an important event, Foxconn has struck a deal to manufacture electric vehicles for Mitsubishi Motors of Japan. Foxtron, its EV subsidiary, will develop and produce a Mitsubishi vehicle for Australian and New Zealand markets. In an industry where in-house manufacturing has been the norm, this outsourcing model is a potential turning point for the industry. 

15. Alaska Sovereign Wealth Fund

In 1980, Alaskan leaders created the Alaska Permanent Fund to invest 25 per cent of the state’s revenue from North Slope oil. Each year the fund, which began with less than $1mn and now has around $80bn of assets, pays out a dividend to every Alaskan resident.

16. Agencies have sprung up offering "place-of-origin-washing" services to Chinese exporters by routing their exports to the US through third countries. 

17. Zara's remarakable supply chain integration that changed clothing retail.

In the old days, retailers released just two main collections a year, Spring/Summer and Autumn/Winter. For decades, most chains have outsourced manufacturing to lower-cost factories in the far east with the clothes arriving up to six months later. Zara went against conventional wisdom by sourcing a lot of its clothes closer to home and changing products much more frequently. That meant it could respond much faster to the latest trends and drop new items into stores every week. Just over half of its clothes are made in Spain, Portugal, Morocco and Turkey. There's a factory doing small production runs on site at HQ, with another seven nearby, which it also owns. As a result, it can turn around products in a matter of weeks. More basic fashion staples are produced with longer lead times in countries like Vietnam and Bangladesh... Every piece of clothing is packaged and despatched from its distribution centres in Spain, as well as one in the Netherlands...

CEO Mr Maceiras says, "It's something that allows us to make the right decision in the last possible minute, in order to assess properly the appetite from our customers, in order to adapt our fashion proposition to the profile of our customers in different locations." In other words, getting the right products to the right shops. At HQ, product managers then receive real-time data on how clothes are selling in stores worldwide, and – crucially – feedback from customers, which is then shared with designers and buyers, who can adjust the ranges along the season according to demand. Unlike some other High Street rivals, it only discounts when it stages its twice-yearly sales.

18. Amidst all the talk of the impact of the tariffs on the world economy, here's the impact of GFC and Covid 19 for perspective.

The GFC caused world economic growth to fall from 2.7 per cent in 2008 to minus 0.4 per cent in 2009, a decline of 3.1 percentage points. The Covid crisis saw global growth fall from 2.9 per cent in 2019 to minus 2.7 per cent in 2020, a drop of 5.6 percentage points... The International Monetary Fund (IMF) sees global economic growth slowing from 3.3 per cent last year to 2.8 per cent this year — a deceleration of 0.5 percentage points... The drop in global growth of 0.5 percentage points projected on account of the tariff shock seems piffling in comparison.

19. Muted salary and wage growth of India Inc's 457 listed companies that have declared their results for Q4  FY25

The combined salary & wage expenses of the country’s listed companies grew just 4.8 per cent in the January-March quarter of 2025 (Q4FY25) over a year earlier — in single digits for a fifth straight quarter, and the slowest rate in at least 17 quarters. For comparison, these companies’ combined salary & wage expenses had increased 6.1 per cent year-on-year in the same quarter of FY24 and 5.1 per cent in Q3FY25... The share of salary & wage expenses in Indian companies’ net sales declined to 12 per cent in Q4FY25 — against 12.14 per cent last year, and a five-year average of 12.6 per cent...

The combined net sales (gross interest income in case of lenders) of the 457 companies in our sample was up 6.4 per cent Y-o-Y in Q4FY25 — the slowest growth rate in six quarters. Their revenue is now set to grow at a single-digit rate for an eighth consecutive quarter —since the quarter ended June 2023. These companies’ combined net profit (adjusted for exceptional gains & losses) were up 6.7 per cent Y-o-Y at around ₹2.24 trillion in Q4FY25 — a decline from 7.1 per cent in Q3FY25, but an improvement from 6.4 per cent in Q4FY24... A slowdown in India Inc’s salary & wage expenses was led in the past by IT services companies like Tata Consultancy Services, Infosys and Wipro, the current round of rationalisation is led by BFSI, which has faced a slowdown in growth and margin pressures in recent quarters. Companies in the IT services and BFSI sectors are the biggest employers in the listed space, accounting for 48 per cent and around 30 per cent of the salary & wage expenses of all companies in our sample.

Idea or implementation - which is more important?

I just completed reading Abundance, the excellent new book by Ezra Klein and Derek Thompson. It tries to provide the basis for a narrative to shape a new “political order” based on abundance to counter the current politics of scarcity with all its discontents and turmoil. It proposes a combination of deregulation, improving state capabilities, focusing on implementation, and generally using technology and innovation to produce more sustainably. Its essence boils down to this question: “Can we solve our problems with supply?” 

I’ll blog more on the book itself later, for despite my reservations on its rather reductionist approach, it frames an agenda that deserves a wide readership and discussion. 

This post is on one of the main insights of the book and the narrative it seeks to propagate. In the context of innovation, the authors say, “Implementation, not mere invention, determines the pace of progress.” Klein and Thompson write

“For many, progress appears to be a mere timeline of such eureka moments. Our mythology of invention treats the moment of discovery as a sacred scene. In schools, students memorise the dates of major inventions, along with the names of the people who made them – Edison, lightbulb, 1879; Wright Brothers, airplane, 1903. The great discoverers – Franklin, Bell, Curie, Tesla – get bestselling biographies, and millions of people know their names. It’s the story of progress you might expect to see in Hollywood or read in nonfiction books that hail the lonely hero whose flash of insight changes the world. 

But this approach to history is worse than incomplete; it’s downright wrong. Inventions do matter greatly to progress. But too often, when we isolate these famous scenes, we leave out the most important chapters of the story – the ones that follow the initial lightning bolt of discovery... When a good idea is born, or when the first prototype of an invention is created, we should celebrate its potential to change the world. But progress is more about implementation than it is about invention. An idea going from nonexistence to existence – from zero to one – introduces the possibility of change. But the way individuals, companies, and governments take an idea from one to one billion is the story of how the world actually changes. And it doesn’t always change, even after a truly brilliant discovery. The ten-thousand-year story of human civilisation is mostly the story of things not getting better: diseases not being cured, freedoms not being extended, truths not being transmitted, technology not delivering on its promises… 

The US has thrown tens of billions of dollars annually into scientific discovery. But it hasn’t brought as much progress as we’d expect… we have haphazardly burdened the scientific process with the same flavour of procedural kludge that has slowed down other critical parts of the economy… we have gotten worse at translating our inventions into domestic industries. To borrow some familiar language, it’s not just that ideas are getting harder to find. The problem is also that new ideas are getting harder to use... we have become too enthralled by the eureka myth and, more to the point, too inattentive to all the things that must follow a eureka moment.”

They point to the work of historian Joel Mokyr, one of the most important and profound social scientists of our times, in my opinion, in this regard. Tinkering, embodiment, and scaling are examples of what Mokyr calls microinventions, or the incremental improvements needed to turn a new idea into a significant product. These microinventions are often more important than the original breakthrough. Making technology useful often means building it at scale. Unfortunately, this insight has not been taken seriously. Mokyr says,

“Most major inventions initially don’t work very well. They have to be tweaked, the way the steam engine was tinkered with by many engineers over decades. They have to be embodied by infrastructure, the way nuclear fission can’t produce useful electricity until it’s contained inside a working reactor. And they have to be built at scale, the way Ford’s Model T came down in price before it made big difference to the country.” 

The point that progress depends on implementation and not mere invention is borne out by Wright’s law of manufacturing. Named after Theodore Wright, who served as the vice chairman of NASA’s predecessor organisation, the National Advisory Committee for Aeronautics, it states that some things get cheaper as we learn to build more. 

“It says that innovation is not a two-stage process, where a loner genius conceives of a brilliant idea and then a bunch of thoughtless brutes manufacture it. Innovation is enmeshed in the act of making. Wright’s law is the story of penicillin, whose costs declined as the government learned to cook larger batches of the medicine. It is the story of the Model T automobile, which became more affordable as Ford built larger and larger factories. It is also the story of the computer chip. In the 1960s, Gordon Moore, the founder of Intel, wrote that the number of transistors on a chip might double every two years. His prediction became prophecy. Fifty years later, transistor costs declined by a factor of one billion.”

Wright’s law is best captured in China’s spectacular success across sectors in starting small and then continuously iterating and bringing down costs, while also continually moving up the value chain of manufacturing.

The best illustration of this insight comes from the folklore around antibiotics. Alexander Fleming may have discovered the value of penicillin to treat bacteria in 1928 by way of an accidental contamination of some of his staphylococcus bacterium samples with spores of mould that blew into his lab while he was on a holiday. But its commercialisation took several more years till 1942. Two Oxford University professors, Howard Florey and Ernst Chain were responsible for this commercial development by testing it on mice and then human beings. But they could not produce penicillin on a commercial scale. For scaling, they had to rely on a US OSRD-supported group of scientists in Peoria, Illinois, who discovered that adding “corn steep” (water soaked with corn) could increase penicillin production tenfold. Finally, it was the OSRD and War Production Board in the US that spent millions to establish penicillin plants. Pencillin production soared from 10 million units per plant per month in 1942 to 646 million per plant per month by June 1945. The cost of producing antibiotics plummeted by over 95%. This collaborative effort belies the simple story of attributing all credit to Alexander Fleming. Ideas are not what leads to progress, but workmanship on those ideas!

Another example is that of Edison and the incandescent light bulb. In 1800, the Italian physicist Alessandro Volta reportedly built the first battery with an electric current. In 1809, Humphry Davy built the first practical “arc lamp” that sent a span of sparks across two rods. In 1841, the English investor Frederick de Moelyns was granted the first patent for a charcoal-powered incandescent lamp. So what did Edison do? In his Menlo Park lab in 1879, Edison burned hundreds of materials inside a glass vacuum until he settled on a carbonised bamboo to serve as an efficient lightbulb filament. Understanding the need for steady delivery of electricity, he also built a system of generators to make power, wires to carry it, sockets and switches to turn it on and off, and meters to measure usage and allow for the billing of customers. His microinventions were useful to illuminate the scaling path. “Through exhaustive tinkering, embodying, and scaling, he made electric light useful.”

All this has significance in the debates on international development. 

In the context of development interventions, I blogged here highlighting the obsession in international development circles with new ideas and innovations and neglect of implementation of regular development interventions; herequestioning the belief that there are several new ideas and innovations waiting to make a transformative impact; and herethat ideas and policies in most of the development matter very little and it's mostly about implementation. A long paper is here. 

The fundamental insight is that it’s not ideas that lead to development but their implementation, and that implementation is almost always far more daunting than the process of discovery of the idea itself. In fact, only a fraction of the pipeline of ideas ever finds its way into successful implementation. 

It goes back to a deep philosophical point. The most valuable individual and collective attributes for progress and development may be the desire and skills to tinker and embody (or institutionalise) to solve problems. In development in particular, they are far more important than the ability to ideate and innovate. Persistence and not mutation is what drives development (and much else in life). 

This insight is borne out in Mokyr’s work around the idea of useful knowledge. He describes useful knowledge as that which promotes material progress. It consists of propositional knowledge (“what”) and prescriptive knowledge (“how”). It’s a distinction between people who know things (savants) and who make things (fabricants). A feature of the Age of Enlightenment, which led to the Industrial Revolution, especially pronounced in England (as against the contintental Europe), was the generation of useful knowledge by the creation of incentives (patents, awards, prizes, medals, pensions, memberships in Royal Societies, and generally higher social status, etc.). It became easier and cheaper to access existing knowledge through written compilations like libraries, book indexes, alphabetisation, compilations based on topic, etc.

I’m inclined to argue that the narrative generated by the innovations and innovators in information and communication technology (ICT) in the US over the last three decades may have led to the diminution of persistence and implementation, and elevated ideas and eureka moments as the defining values and skills of progress. This narrative has also been fueled by venture capital and ideologues on 

It’s a different matter that this narrative of college drop-outs working in isolation in garages and inventing their eureka moments is itself highly misleading and inaccurate. The story of Amazon is a good example of how success emerged from a confluence of factors - being at the right moment in time at the right place; bringing together and building on technologies that were already available; long duration of tinkering, iteration, failures, persistence, and deferred gratification; the nature of the market with its network effects induced entry barriers that allowed for iteration and growth; regulatory arbitrage that allowed harvesting of first-mover windfalls and rents, etc. Similar stories in varying degrees apply to all the Big Tech firms of today. 

It’s therefore apposite that development embraces and elevates the attributes, skills, and values of problem-solving through the process of tinkering, embodying, iterating, and scaling, instead of the current fetish with new ideas and innovation. This is an important message for international development organisations, philanthropic donors, US-based academic researchers, and Western think tanks, who have been most culpable for development straying from focusing on implementation and instead getting hooked on ideas and innovation.

Some thoughts on urban planning

 Cities are perhaps the most complex organisational entities on earth. This is most vividly manifest in how cities respond to changes in urban planning instruments. The impact of any change depends on the combination of instruments used, their nature, their respective extent/scope of application, the development stage of the city, and its context. 

Let’s illustrate with the example of how affordable housing supply is impacted by urban planning instruments. 

The supply of housing can happen at two levels. At the intensive margin, it’s about squeezing out more from the same land footprint by increasing the FAR and easing restrictions on height, road width, setbacks, etc. At the extensive margin, it’s about greenfield construction on vacant or under-utilised lands, new areas, and suburban expansions. 

There are two duelling ideologies on this issue. The status quoists, especially among urban planners working with governments, tend to view increasing FAR and easing zoning regulations with suspicion. They argue that allowing more construction would clog the area’s infrastructure carrying capacity and result in congestion and scarcity, even a breakdown of utility services. The progressives, among the commentariat and experts, scorn suburban sprawls and favour high-rise densification through liberalised zoning regulations. They argue that liberalised zoning regulations will allow the market forces to play out and will result in densified developments. 

I’m increasingly inclined to a third messier and nuanced view, especially for developing countries. Their social and political economy contexts, stage of development, and the diverse nature of their housing markets mean that both suburban sprawl and high-rise densification are relevant for them. Both are unavoidable and desirable. 

Ideally, liberalised zoning regulations should incentivise vertically densified growth by lowering the marginal cost of adding a housing unit since it’s added on the same land footprint. The additional unit also ends up lowering the average cost of all the units in that complex. Econ 101 teaches us that these incentives will ensure vertically densified developments. But reality plays out very differently from theory. 

Econ 101 overlooks practical realities that come in the way. For one, vertical densification beyond a threshold increases the construction and maintenance costs enough to offset the benefit of building on the same land footprint. Two, vertically densified development requires solving an important coordination (or market demand) problem. A certain critical mass of buyers is required for the development of high-rise apartment complexes. In general, cities in developing countries or smaller towns anywhere are unlikely to be able to mobilise such demand for any category of housing. Only a small proportion of the expansions, and that too mostly in the largest cities, meet this demand threshold. 

Three, land ownership in the expansion areas is generally fragmented into small parcels. In the absence of consolidation, such expansions happen in a fragmented, staccato manner. And the aforesaid coordination problem prevents such consolidation. Fourth, the housing and land markets are heavily distorted by real estate’s investment attractiveness and the looming presence of black money, especially in the largest and rapidly growing cities of India. The result is that hoarding and speculative transactions among a handful of well-off and/or powerful people dominate these markets in India. Fifth, cultural and economic factors ensure the preference for low-rise developments. Finally, a combination and interaction of all the above means that the vast majority of new developments must invariably happen in fragmented, small land parcels, and the demand for vertically densified developments is justified only when property prices are beyond a certain level. 

All this means that liberalised zoning regulations on their own are unlikely to lead to vertically densified growth in new growth areas, especially but not only in developing countries. Further, given their structural conditions, densified growth is unlikely to materialise in these areas in any significant manner, even with active use of urban planning instruments. Sprawls become inevitable. 

So, what does all this mean?

There’s a strong case that, given their faster growth, cities in developing countries should be allowed to expand at both the extensive and intensive margins. At the extensive margin, cities should be allowed to grow outward, ideally as vertically densified communities, but also as lower-rise developments depending on the local market conditions. At the intensive margin, zoning regulations should encourage the regeneration of blighted and older areas and densified growth in general. 

Both these types of growth will take time to play out. Apart from active intervention through public housing schemes for various income groups, the role of public policy in the housing market is to expedite these plays, both through enabling policies and opportunistic interventions. In the first phase, even with the most liberalised zoning regulations, for the aforesaid reasons, greenfield developments are more likely to be low-rise and lower density. Higher density will emerge only with time, through renewal, market maturity, and much increased demand. In the meantime, zoning regulations should be liberal enough to allow renewal in older and already built-up areas. 

In conclusion, no matter the pathway of change, it’s a highly desirable requirement that zoning regulations be liberalised to incentivise new construction. 

Weekend reading links

1. Blackstone is Spain's biggest residential property landlord. 

Over the past decade, Blackstone has become Madrid’s largest private owner of residential real estate, and the second largest in all of Spain. Ms. Riquelme’s apartment is one of 13,000 that Blackstone currently owns in Madrid, and among 19,600 it owns nationwide. Across Spain, around 185,000 rental properties are now owned by large corporations, half of those by firms based in the United States, according to a review of property registries by the nonprofit Civio. Rental prices have increased 57 percent since 2015 and home prices 47 percent, according to PwC, in large part because the country has failed to build enough homes for its growing population, even as more than 4 million homes sit empty. After the pandemic pushed Spain’s unemployment rate up to 15 percent, evictions nationwide spiked. In Madrid, tenant groups estimate that 20,000 renters in the city currently face the threat of eviction.

Ms. Riquelme, a bookkeeper by trade, emigrated from Chile in 2000 and bought her apartment for 56,000 euros during the housing bubble, making mortgage payments to CaixaCatalunya, a now defunct bank. After she and her husband split, she could no longer keep up, and the bank eventually foreclosed. CaixaCatalunya sought €150,000 ($170,000) in fees and mortgage arrears, then sold her apartment at auction for just €40,000 ($45,000) to a subsidiary of Blackstone... Ms. Riquelme’s apartment was one of 400,000 private units across the country bought a decade ago by three American equity firms: Blackstone, Cerberus and Lone Star. Blackstone oversees at least 27 different domestic subsidiaries and investment funds in Spain that use a variety of models to buy both private and public housing. Some funds have focused on buying foreclosed residences, often converting entire buildings into short-term rentals. Others have scooped up public-housing units from cash-strapped city governments and then privatized them. Still more bought up homes as the government cleared its books of troubled assets after nationalizing several banks amid the Eurozone debt crisis...

For Blackstone, it was an expansion of a real estate plan that took root in the wake of the 2008 housing crash... In 2013, Madrid’s city government sold 5,000 public-housing units to Blackstone and to another American investment bank, Goldman Sachs. Blackstone bought 1,860 apartments in 18 complexes for €128.5 million ($146 million) — including hundreds of units in the PAU development in Carabanchel. That amounts to just €69,500 (about $78,000) per unit, on average. A court-mandated audit of the deal later revealed that the sales were made at well below market rates... These days, just 2 percent of Spanish homes available for rent are public housing, according to the Organization for Economic Cooperation and Development. In France it’s 14 percent; in the Netherlands it’s 34 percent.

2. The Chairman of Maruti Suzuki India Ltd (MSIL), the largest car maker in India, has said that car purchases in India are largely limited to the top 12% of households with an annual income of over Rs 12 lakh. MSIL reported a 4.3% year-on-year decline in net profit for Q4 FY 25. While overall passenger sales for 2024-25 grew by 2% to 4.3 million units, the sale of small cars declined by 9%. He said, 

“We have seen that in this current year, the sale of small cars (sedans and hatchbacks) has declined by about 9 per cent. So, if there is a 9 per cent decline in the car segment that is bought by 88 per cent of the people in this country, from where will you get the growth?” he added. Bhargava further noted that India has penetration of cars of just 34 of 1,000, “probably the lowest among any country around this area of the world”. “For a country that is growing, this PV sales growth rate of just 2-3 per cent a year is not going to increase the penetration of cars at all... especially because 2025-26... growth has been foreseen at 1-2 per cent.” The MSIL chairman expressed doubts on whether the major income tax relief, given by the Union government in the latest Budget, is going to boost small car sales in 2025-26.

“The cost of the car has gone up by an average of ₹80,000-90,000. How much cash will the income tax relief give? People are not going to put all the income tax savings aside and use it to buy a car. They have other priorities too. I mean, these are small households and they have many requirements. Their children have requirements. A car is not going to be the top requirement for these people,” he said. The small car segment has been declining over the past few years. In 2024-25, the Indian car industry sold 1.353 million sedans and hatchbacks, which was about 12.6 per cent lower year-on-year, according to Siam. Bhargava said it is a fallacy to think that the decline in the small car market and the growth of the SUV (sport utility vehicle) market is a result of people’s aspirations changing, and people wanting to buy big cars. “It's not true. What is happening is that people can’t afford small cars,” he added.

3. Is there a bond market "put" that's a boundary for President Trump's policies?

Nouriel Roubini, the economist, telling his clients that “traders [now] trump Trump”. Or, to put it another way, there now seems to be a bond market “put”, or a level of price swings that will force the White House to modify policy, at least verbally — probably around 4.5 per cent for 10-year yields.

4. The world of Trump in a graphic!

Adam Posen says

“China at present imports very few things from the US that it can’t get from others, including money. The US imports all kinds of things that we can’t get from anyone other than China at speed, or at affordable prices.”

Wonder why he does not ask where China will sell all its $300 bn odd goods that used to go to the US, and how those factories will remain open?

5. Robots are largely born in Asia. 

6. Important illustration of public engagement with scientific research promotion.

In June 1941, and in response to a proposal by the MIT engineer Vannevar Bush, Roosevelt established the Office of Scientific Research and Development. Bush was its head, reporting directly to the president. The results of its work — mass production of penicillin for battlefield wounded, proximity fuses that transformed anti-aircraft fire, and, not least, the Manhattan Project — made an unarguable case for the partnership between government and university-based research science... Largely forgotten now beyond histories of science, he was one of the 20th century’s most remarkable visionaries, not least for his conviction that peacetime federal governments had an obligation to fund basic scientific research, liberated from the demands of commercial profit...

Bush argued that since colleges were “the wellsprings of knowledge and understanding”, they should be parties to research contracts with the government that would provide the necessary stability of funding for sustained experimental work. This would guarantee the “free play of free intellects working on subjects of their own choice, in the manner dictated by their curiosity for exploration of the unknown”. The National Science Foundation, created by Congress and signed into law by President Harry S Truman in May 1950, owed much to Bush’s eloquence and vision.

7. The US Treasuries have not been a risk-free asset for several decades, as this graphic's volatility shows. 

This is a good long read on the US Treasury basis trades of hedge funds.  

8. Vietnam's problems in two graphics. China's share of its imports doubled to 32% between 2005-22. 

And in the same period, US share of its exports rose from 18% to 29.5%!

Vietnam's merchandise trade (imports plus exports) as a share of its GDP rose from 96% in 2000 to 158% in 2023!

9. Manufacturing trends

But most economists agree that the decline in manufacturing jobs is mainly the result of rising productivity. New technologies have boosted output per worker, pushing down the relative price of manufactured goods. One study by Michael Hicks and Srikant Devaraj at Ball State University in Indiana estimated that 88% of the decline in manufacturing jobs in America between 2000 and 2010 can be attributed to productivity improvements. Trade accounted for only 13%.

Changing consumption patterns are also a factor. When incomes rise in poor countries, individuals tend to spend less on food and more on manufactured goods, a phenomenon known as Engel’s law. When incomes rise in rich countries, consumption shifts away from manufactured goods towards services. In 1950 goods accounted for around 60% of American consumption; today they represent just a third of spending with services accounting for two-thirds.

10. Some statistics on India's life and health insurance markets. 

Health and general insurance companies covered 572 million lives in FY24. The industry settled claims worth Rs 83,500 crore in FY24, up 17.7 per cent from FY23. It processed 26.8 million claims that year, up from 23.5 million the previous year, and 21.8 million in FY22. The stand-alone health insurance companies improved their claim ratio to 89 per cent in FY24, from 84 per cent in FY23. The industry had an agent network of 1.9 million and assets under management of Rs 4.75 trillion in FY24. There were 25 general insurance companies in FY24, including four public sector undertakings. The number of stand-alone health insurance companies was five. Overall, the non-life insurance penetration in India, which includes health insurance, is just 1 per cent of GDP. This includes health coverage by different government schemes. Globally, the US has the maximum non-life insurance penetration (9.3 per cent), followed by the Netherlands (7.2 per cent), Canada (4.7 per cent), Germany (3.4 per cent), and Australia (3.3 per cent). Insurance penetration is measured as the percentage of insurance premium to gross domestic product (GDP)... 

Medical inflation was 14 per cent in FY24, the highest in Asia... the growth rate in health insurance dropped in FY25 to 8.98 per cent from 20.25 per cent in the previous year, with the gross premium income of insurers at Rs 1.18 trillion against Rs 1.08 trillion in FY24... The stand-alone health insurance industry operated on around a 3.5 per cent profit margin in 2023-24 (FY24). For the overall general insurance industry, it’s slightly higher. The private general insurers enjoy a much higher margin; the public sector players much lower. The average margin for hospitals could be at least 30 per cent.

11. Signs of re-routing of Chinese manufactured exports to the US.

Some China-based firms hit hard by US tariffs are reaching out to Indian exporters to fill orders on their behalf and help them retain their American customers as they navigate a trade war causing seismic shocks in global commerce. At the Canton Fair that runs through May 5 in Guangzhou — the world’s biggest trade fair — several Indian firms were approached by Chinese companies to supply goods to their US customers... In return for the sales, the Indian firms would pay a commission to the Chinese businesses... Indian firms at the Canton Fair were instead approached to supply goods to US companies under the brands of the Chinese firms, or co-branded with the Indian firms... Most of the queries came in sectors like hand tools, electronics and home appliances... The commission paid to the Chinese firms would be negotiated between the buyers and suppliers.

12. India healthcare facts of the day.

India’s out-of-pocket expenditure (OOPE), as a percentage of total health expenditure (THE), declined from 62.6 per cent in 2014-15 to 48.2 per cent in 2018-19, the year when Ayushman Bharat was launched. Since then, it has dropped down further to 39.4 per cent in 2021-22. Such reduction in OOPE has gone hand-in-hand with increased public spending in healthcare from 29 per cent of THE in 2014-15 to 48 per cent in 2021-22.

Over half of those admitted in the Ayushman Bharat authorised hospitals for treatment under the scheme were above 45 years.

90% of the 36,118 empanelled hospitals have less than 50 beds. 

13. Good article that brings out the issues likely in the India-US FTA negotiations. Important point that the value add in India on an iPhone retailing for $1000 is less than $25, compared to $450 captured by the US. 

14. FT graphics on 100 days of Trump. 

Market reactions and electoral support will likely be the two restraining forces on Trump. His pause on reciprocal tariffs in reaction to the Treasury market convulsions is definitive evidence. The stock market performance in the first 100 days of Trump has been the worst in five decades!

15. World trade facts of the day

Between 1995 and 2023, world trade (goods and commercial services) registered strong growth, averaging 5.8 per cent per year, resulting in almost a fivefold increase... (it) outpaced growth in global gross domestic product (GDP), which increased by an average of 4.4 per cent per year over the same period. The global trade-to-GDP ratio showed a significant upward trend, rising from 20 per cent in 1995 to 31 per cent in 2022.

16. Finally, the collapse of the Spanish and Portuguese electricity grids is a stark reminder of the challenges with electricity grid management once intermittent renewables assume a high share of the energy mix.  

At 12.33pm local time on Monday, the frequency on Spain’s electricity grid suddenly dropped, from the 50 hertz level at which the grid’s operator tries to maintain it, to 49 hertz, according to Aurora Energy Research, a consultancy. A move bigger than 0.1 hertz forces many power stations to automatically switch off for safety reasons. Any loss of power in Spain has an immediate knock-on effect in Portugal, which relies heavily on its neighbour for electricity supplies... Frequency fluctuations are not uncommon, but grid operators normally overcome them by asking power generators to increase or decrease their output, or by using batteries. However, in this case, not enough additional generation capacity could be brought online fast enough...

Renewables are weather-dependent, but solar panels lack the big turbines that can help keep the system running if there is a power failure somewhere along the line — a process known as “inertia”. About a fifth of Spain’s annual electricity supply comes from solar, on average, but at lunchtime on Monday the proportion was far higher — at more than 55 per cent. Aurora said the lack of inertia “contributed to the instability”... Greater use of batteries, as well as cables that import and export power to other countries, can also help balance out intermittent supplies. Spain’s relatively poor connection with France has long been a source of complaint in Madrid.

In fact, it's reported that of the scheduled 26 GW of electricity supply on Monday, just 5 GW came from non-intermittent sources.