Deregulation is rarely a stroke-of-pen reform

There’s a widespread belief that deregulation, as the name appears to suggest, is about the elimination of certain regulations. Eliminate those restrictive provisions with the stroke of a legislative order or an executive decree, and you are all set in the new deregulated world. Unfortunately, while there are some strokes-of-pen deregulations, the vast majority are far from that easy and require sustained engagement. 

Urban planning is a fertile ground for stillborn deregulation. The three commonly discussed planning variables are FAR, height restrictions, and land-use restrictions. Deregulation, as is perceived by commentators, would involve raising FAR and height limits, and promoting mixed-use construction, coupled with measures to ease the process of getting the requisite permissions. But this overlooks several layers of small detail that have the potential to derail any deregulation. 

For illustration, this is the common building rules of a state government. Even without the Annexures, the Government Order itself runs into 26 pages with several details on setbacks, minimum road width, minimum plot size, parking provisions, open spaces, amenities, fire safety and other compliances. This is a consolidation of all the relevant documents and is more than 370 pages long. As can be imagined, the devil is in the details.

It’s therefore not surprising that some Indian cities that claim to have implemented urban planning reforms, including higher FAR and Transit Oriented Development (TOD), have achieved little in substance. One study of a metropolitan city found that onerous details (in terms of minimum plot size and road width requirements) meant that very few sites were able to utilise the liberalised norms on FAR and height. As aforementioned, given the highly detail-oriented context of the reform, notwithstanding its high-minded objectives, it was dead on arrival.

Another example is the Ease of Doing Business (EoDB) rankings. Its biggest failure was its excessive focus on stroke-of-pen changes to laws/rules. The mere enactment of a legislation or issuance of an executive order to change a process was enough to improve rankings, often significantly. The net result was that EoDB resulted in a lot of performative enactments and decrees, with far less substantive improvements in the actual ease of doing business. 

Take the example of the Insolvency and Bankruptcy Code (IBC), hailed as ushering in dramatic improvements in the insolvency restructuring process and contributing to a step change in India’s EoDB ranking. But as the recent Supreme Court judgment on the takeover of Bhushan Steel by JSW shows, effective implementation of the IBC requires addressing the serious deficiencies at the levels of Resolution Professionals (RPs), Committee of Creditors (CoC), NCLT, NCLAT, and the Supreme Court itself. 

The form of an IBC does not automatically translate to the substance of an effective and expeditious bankruptcy resolution. It requires painstaking, long-drawn engagement that complements the iteration and refinement of the law itself with the building of capabilities and ecosystem to ensure effective implementation. 

In general, while there are some such stroke-of-pen reforms, for most changes, the statutory order is often only the first step in a long journey. 

This is a global problem. 

Consider two examples from the UK of the challenges with the effective implementation of deregulation. The Labour government in the UK came to power promising to build aggressively and expand the affordable housing supply. One area of focus is the redevelopment of blighted sites. 

Britain’s cities contain large tracts of brownfield (ie, underused, previously developed) land, thanks to rapid deindustrialisation at the end of the last century. London alone has some 3,500 hectares (8,650 acres). That is around 25 times the size of Hyde Park, and enough space for more than 400,000 homes (London has a target of around 80,000 new homes a year). Clustered by the canals and rivers that were once industrial arteries, the sites are pretty much the only available land in the city. And yet few are being taken on by developers. Building work for just 1,200 new private housing units started in London in the first quarter of 2025, the lowest since 2009 and just 5.5% of the city’s quarterly target, according to Molior, a consultancy. 

But the challenges of building in these sites are immense.

Many borough councils, which largely wield permit power, insist that as many as half of homes in a given development are “affordable”, which immediately rules out smaller sites. At the same time developers are hemmed in by height restrictions and minimum room and unit sizes. From 2026, any building over seven storeys will have to have a second staircase… Some sites, like the former gasworks, require extensive remediation… Ironically, a big problem with ex-industrial plots is biodiversity… Developers must prove that existing biodiversity levels will be increased by 10%, and maintained for 30 years… Such rules illustrate how incentives are skewed. Brownfield developers must go to great lengths to raise the ecological value of derelict, inaccessible sites, often by offsetting. Meanwhile, less environmentally friendly greenfield developments in the suburbs face far lower hurdles.

Another area of focus has been to speed up planning decisions and build on the green belts. But tens of thousands of houses are “stuck in a pipeline because the new Building Safety Regulator is imposing complex design requirements and delaying construction by as much as 18 months.” Then there are mandates on solar panels on all new homes in the spirit of “everything bagel liberalism”. 

Even well-intentioned reforms get caught in the regulatory quagmire that ends up stifling or even killing them. In their book Abundance, Ezra Klein and Derek Thompson write,

“In California broadly, and San Francisco specifically, dozens of pro-housing bills have not led to the construction of more homes, in part because those bills are layered with additional requirements and standards that builders must meet in order to take advantage of the newly streamlined processes. For developers we spoke to, the added costs of compliance weren’t worth it, so the legislation hadn’t led them to build any new homes at all, much less build them faster. The breakneck deployment of wind and solar infrastructure and battery manufacturing has been slowed by outdated permitting and procurement rules that split the Democratic coalition.”

If deregulation is (mostly) not about high-level legislative or regulatory enactments, not one-off enactments, and involves detailed executive orders and painstaking iteration, it’s important that the spirit of deregulation must be imbibed by officials. 

Governments make laws/rules to govern certain activities that must be regulated in the public interest. In terms of the nature of activities being regulated, regulations broadly cover the issue of statutory certificates, payments and benefits (household cash transfers to industrial policy incentives), municipal and utility services (property tax assessment to electricity connections), licenses and permissions (driving licenses to running a school or hospital to consent for establishment of an industry), procurement processes (eligibility requirements to contract enforcement), and generally compliance with existing laws and regulations (Labour Codes to Companies Act). 

These laws/rules have two broad parts: technical guidance and implementation safeguards. The former can consist of a standard (on, say, a technical aspect like safety or efficacy), identification, an eligibility qualification (technical and/or financial) to perform the activity, a legal requirement, or a combination of some or all of these. The latter consists of provisions to prevent abuse of the implementation of the technical guidance (multiplicity of validations). It also includes compliance reporting. While not alone in culpability, many hassles and accessibility problems arise from the latter (implementation safeguard), which applies to the implementation of the enactment. 

I blogged earlier here on many of these issues in brief. 

Every day, government agencies are issuing orders and notifications across central, state, and local governments. Some norms and principles must restrain this process. All such new orders must be examined with respect to these norms and principles. I’ll present a few below whose spirit must be individually and collectively imbibed within the bureaucracy and polity:

1. The first requirement for any new regulation or condition should be a clear and simple articulation of its objective, identification of the stakeholders impacted, and the manner they will be impacted (in terms of their compliance and reporting). It’s not uncommon to find extra layers of regulation creeping in due to a lack of focus on the objective or trying to cover multiple unrelated objectives. . 

2. The second requirement is prudence on the extent of regulation required, which involves a trade-off between objective and practical considerations. 

Consider a product or a technology or a process in the private sector. Their regulatory validation is contingent on meeting some threshold for success. Any increase in the threshold would entail significant incremental costs. The cost-benefit assessment deems this threshold acceptable. This also assumes a certain acceptable likelihood of failure, false negative or false positive. 

However, in public policy, government agencies often tend to frame guidelines to eliminate any abuse. This leads to tight gatekeeping and access requirements that invariably end up detracting from the objectives. It manifests in the form of enhanced eligibility requirements, additional documentation and certifications, physical verifications, etc. To prevent the likelihood of abuse by 1%, the remaining 99% are penalised with the additional implementation safeguards. 

One way to address this problem would be to have a mechanism that requires officials formulating the safeguard to necessarily examine and trade-off between the elimination of abuse and harassment of the stakeholders in an explicit manner, and then make a choice. 

3. A third requirement should be that the compliance criteria should be defined with clarity, without leaving it open to interpretation. The flexibility to exercise discretion in the interpretation of a regulation, especially in high-stakes issues, is a recipe for harassment and corruption. 

4. A fourth requirement is that the regulation must be formulated with the least burdensome and lowest cost path to achieve the objective. So if there’s an alternative formulation that meets the objective and is less burdensome (or invasive), the same must be preferred. 

5. If a regulation/condition is difficult to define and/or monitor and/or enforce, it’s better to eliminate it (if existing) or not enact it at all (if newly proposed). For example, the assessment of the income of a household to issue an income certificate is fraught with problems. Similarly, the requirement of setbacks on small plots (say, less than 200 sq yards) is most often violated and engenders perverse incentives.

6. If a criterion or compliance requirement is so onerous as to be impossible for compliance by all but a few, it’s best avoided. It should be replaced with a second-best compliance requirement. 

So, for example, if testing facilities are too few, it’s impractical to mandate the criterion/standard. Or, where compliance reporting burden/cost is prohibitive in terms of transaction costs and can be monitored with reasonable certitude through governance interventions like random sample audits, they should be preferred. Another option is to accept self-certifications and supplement them with random sample audits to ensure deterrence, depending on the stakes involved. 

7. The uniform application of a regulation that’s primarily intended for a subgroup must be avoided. For example, if one subgroup poses a risk, it’s best to confine regulation to that group rather than have it applied to everyone. It’s best to have targeted regulations, or have differentiated regulations appropriate for each subgroup, or use governance mechanisms to regulate the subgroup. 

8. Governments tend to respond to emerging reports of abuse of the provisions of a law by incorporating additional safeguards that act as a new layer of regulation. This should be done with caution, since while the new safeguard will likely limit the abuse by those few, it will also increase compliance burdens for everyone. 

Therefore, as a default, the abuse of a system should be addressed through better governance instead of regulation. Such governance would involve more rigorous monitoring, use of data analytics, digital workflows etc., without adding a new regulatory/compliance layer. 

9. On a related note, in general, a very high standard of scrutiny must be applied for any proposal to add to or tighten an existing condition/regulation. They should have a compelling justification that’s recorded by the competent authority. 

10. If there are significant and quantifiable costs associated with the regulation, it’s useful to quantify and undertake a cost-benefit assessment. If the stakeholders must bear these costs, it’s useful to also examine how it would impact them (for example, in the case of a business, its business model). 

11. Finally, as a principle, the incorporation of any new regulatory/compliance requirement should be accompanied by the easing out of two old requirements.

All of the above can be consolidated into a checklist that can be applied to screen any new regulation/condition that imposes a compliance on an individual or company. Foremost, can the objective be achieved by some other mechanism, which is less invasive or burdensome? Can compliance be monitored and enforced? Is the process for compliance easy and simple? Is the reporting of compliance easy and simple? Are the abuse safeguards onerous? And so on. 

On the same lines as for new compliances, any reform involving deregulation should be subject to a similar test on implementation. Does the deregulation achieve its objective in practice? Are there implementation details that are likely to derail its applicability? And so on. 

It may be useful for governments to consolidate these principles and issue them in the form of executive directives to guide the formulation and implementation of regulations. 

Weekend reading links

1. Tim Harford points to "zero-sum thinking", or the frame where we think in terms of winners and losers, us and them. This contrasts with the frame where the pie is expanded and everyone wins, or the rising tide lifts all the boats. 

If one person is to get richer, someone else must get poorer. If China is doing well, then the US must logically be doing badly. Jobs go either to the native born, or to foreigners... a zero-sum thinker tends to be in favour of more redistribution and in favour of affirmative action — traditionally leftwing policies — but also in favour of strict immigration rules. Rightwing populists also think affirmative action is important, they just think it’s important and wrong... Stantcheva’s work strongly suggests that zero-sum thinking isn’t some sort of senseless blind spot. When people see the world in dog-eat-dog terms, they usually have a reason. Young people in the US tend to see the world as zero sum, reflecting the fact that they have grown up in a slower-growth economy than those born in the 1940s and 1950s. A similar pattern emerges across countries: the higher the level of economic growth a person grew up with, the less likely they are to see the world in zero-sum terms. People whose ancestors were enslaved, forced on to reservations or sent to concentration camps are more likely to see the world in zero-sum terms.

2. Early takeaways from the UK-US trade deal. The main theme is the UK's commitment to ensure that Chinese manufactured goods don't enter the US through the UK. The text of the agreement is here. 

The tariff reductions on UK exports will depend on the findings of the US Section 232 investigations (to determine whether and how specific imports affect US national security). It argues that the the United Kingdom will work to promptly meet U.S. requirements on the security of the supply chains of steel and aluminum products intended for export to the United States and on the nature of ownership of relevant production facilities.

3. China's weaponsisation of its manufacturing dominance should be seen as part of a long-drawn-out conscious strategy. Sample this from Xi Jinping (the speech here).

Chinese leaders must “tighten international production chains’ dependence on our country, forming a powerful capacity to counter and deter foreign parties from artificially disrupting supplies” to China, Mr. Xi said in his speech to the Central Financial and Economic Affairs Commission in 2020.

The Chinese language original version of the speech appeared to have a more threatening tone.

"We should increase the dependence of international supply chains on China and establish powerful retaliatory and menacing capabilities against foreign powers that would try to cut supplies."

4. Interesting long read on the late French philosopher, Rene Girard, who has emerged as an ideologue for those currently ruling the US. His central contribution is the idea of "mimetic desire".

Girard is best known for his theory of “mimetic desire”, the idea that humans don’t desire things in and of themselves, but out of a wish to imitate and compete with others. On the back of this insight, the writer built a distinctive anthropology, borrowing from and contest-ing the theories of Nietzsche and Freud... Girard’s first book, Deceit, Desire and the Novel (published in French in 1961), which describes how Don Quixote, Madame Bovary and characters from Stendhal, Proust and Dostoyevsky come to desire things because others already want them. “Man is the creature who does not know what to desire, and he turns to others in order to make up his mind,” he wrote. The fact that desires are borrowed means they are necessarily competitive. If you desire your neighbour’s husband, you have to contend with your neighbour in order to get what you want — or what you think you want. Mimetic desire leads to fruitless competition, unhappiness and even violence... Over the past half-century, mimetic desire has been Girard’s chief legacy, not only in humanities departments but also, increasingly, among Silicon Valley entrepreneurs and east London brand managers. Inducting Girard into the Académie Française in 2005, the philosopher Michel Serres called him “the Darwin of the human sciences”.

He also came up with a set of ideas on scapegoating and how it impacts politics. 

His second book, Violence and the Sacred, published in 1972 and perhaps the most influential of all his work, describes how human societies enter into periods of crisis in which competition becomes unbearable. The solution, Girard claimed, is a violent act of scapegoating. The scapegoat has certain recurrent features: they are a foreigner, someone with a disability or a person in a position of authority. Such acts are then commemorated in the founding myths of cultures, myths in which the scapegoat becomes deified... Girard rarely used contemporary case studies, preferring to find his evidence in ancient literature, scripture and anthropology, but his view on lynchings ancient and modern was unambiguous: they were unconscionable. The insistence that the scapegoat was innocent would become a justification of Girard’s faith as well as the basis for a darkly pessimistic vision of politics later taken up by both Vance and Thiel. Girard’s next book, Things Hidden Since the Foundation of the World, published in 1978, argues that Christianity had revealed the hidden truth of the scapegoat mechanism. By insisting on their saviour’s innocence, Christians had deconstructed the “primitive” belief in the scapegoat’s guilt. It is for this defence of Christianity that Girard has been called a modern Church Father.

5. After scorning and abhorring arms manufacturing for decades, buoyed by a punishing industrial slowdown and the commitment to much higher defence spending due to the growing unreliability of the US defence umbrella, the German Mittelstand are taking to the defence industry with some vengeance. Thanks to the legacy of industrial co-operation with the Nazis, arms making had become taboo in Germany. 

6. Indians are the largest content consumers in the digital world, but does not rank among the top 7 content creators. 

In addition to its software industry stuck at the lower end of the value chain, the lack of world-class brands and mass market companies, lack of companies and startups who have gone on to become global companies, its startup ecosystem with little to show at the frontier, we now also have its massive entertainment industry which does not figure among the top content creators globally despite being the largest consumption market by volume and digital traffic. 

The FT article points to how Japanese content makers have since the pandemic conquered the world with their anime genre of cartoons, and their manga comic books from which these anime characters and stories are derived. 

The Japanese content industry — including gaming, publishing, movies TV and animation — saw overseas sales triple during the past decade, to an estimated ¥5.8tn in 2023. “The export value of the content industry is bigger than the steel, petrochemicals and semiconductor sectors,” says Minoru Kiuchi, the country’s economic security minister and the man now in charge of its anime and manga strategy. The government now wants to push even harder, Kiuchi says, increasing overseas content sales to ¥20tn by 2033. Yet previous efforts to reap the proceeds domestically have struggled. In 2013, the government launched an initiative called Cool Japan, which funded an ill-fated anime streaming platform called Daisuki that aimed to rival the likes of Netflix. Cool Japan has been relaunched multiple times — most recently last year, with greater emphasis on subsidising better working conditions, combating piracy and promoting overseas expansion.

This is a tantalising possibility

If Japan succeeds in boosting the economic clout of its entertainment industry, then anime, manga and other sources of valuable IP could help offset the effects of the country’s declining population and vulnerable industrial base.

The article is a good short history of the emergence of manga comics and anime cartoons, and how since the pandemic it has gone global. 

Begs the question why India's Jataka Tales or Hitopadesha or Panchatantra in the form of the Tinkle comics did not spread beyond the country's borders.

7. The Supreme Court's ruling overturning the NCLAT order on the sale of Bhushan Steel to JSW, more than four years after its consummation, opens several questions for discussion - the competence and integrity of the Resolution Professionals, the rigour and fidelity of the IBC processes, the competence of the NCLT and NCLAT, and finally, the Supreme Court's decision-making delays and its decision principles. 

This is a good summary of the issues. This is another good article. Finally, this raises some important issues about its impact on investor confidence.

It is a case study in institutional compromise. The Resolution Professional acted more as a passive bystander than a statutory officer. The CoC, far from being a sentinel of creditor interests, capitulated to a flawed plan and later defended it in Court with shifting arguments. The NCLT and NCLAT, expected to be guardians of due process, failed to check even the most basic procedural violations, including eligibility criteria, payment timelines, and the resolution applicant’s bona fides... The Supreme Court invoked Article 142 to direct BPSL’s liquidation. While this may be legally tenable, one is compelled to ask: could this power have been better used to restore legality without derailing an otherwise successful business revival?

Substantively, JSW has already paid substantial sums to creditors, restarted operations, and brought BPSL back into the industrial fold. Was it not possible to preserve this progress by correcting procedural anomalies, imposing penalties, or directing compliance retrospectively? Couldn’t the Court have modified the Plan to align with the IBC instead of nullifying it entirely? This verdict may inadvertently send a chilling message to global investors that in India, even resolution plans implemented over 7- 8 years may be overturned due to procedural infirmities, regardless of real-world success. With the world watching India’s insolvency ecosystem as a key plank in its “ease of doing business” pitch, the implications are serious.

In this context, MS Sahoo makes an important point. 

If irregularities are discovered post-facto, those responsible must face swift and stringent civil, regulatory, or criminal consequences. However, the underlying transaction must remain undisturbed. This principle of punishing the wrongdoer without unsettling the transaction is firmly embedded in securities jurisprudence. Trades executed on stock exchanges are never reversed, nor are public issues unwound, even if grave irregularities are discovered post-facto... It is time the law, policy, and institutions recognised the finality of commercial transactions, which should form the bedrock of all economic regulatory frameworks. The legal architecture should enable rigorous oversight to prevent and deter misconduct and hold wrongdoers accountable. However, such oversight must be disentangled from the validity of commercial transactions once they have been lawfully approved or deemed approved.

 This is the balance sheet of the IBC itself since its formation.

8. Shifting market expectations on tariffs

There is an emerging view that Trump’s tariff climbdown will ultimately bring US duty rates closer into line with his campaign plans; 10 to 20 per cent for most countries, and 60 per cent for China. Given all the tariff twists and turns over the past few weeks, markets might be forgiven for thinking that’s a good outcome. But prior to the president’s inauguration, that was most analysts’ worst-case scenario.

9. Trump tariffs and their impact on the US Dollar is helping indebted developing countries.

In practice, and purely by accident, Trump’s tariff wars have created a surprisingly benign environment for emerging markets. Although no one could claim with a straight face that he is judiciously managing the exchange rate lower as part of some fantastical “Mar-a-Lago Accord”, the dollar has weakened, benefiting EMs that borrow in the US currency. The traditional perverse effect whereby risk aversion arising from eccentric US policymaking actually causes a flight to safety and strengthens the dollar has so far been absent. The net effect of a shambolic trade strategy and weakening growth has also been to reduce US Treasury yields, similarly supporting capital flows to higher-yield markets elsewhere. The spread of EM bond prices over US bonds, which typically rises at times of financial market stress and uncertainty, has remained well contained.

10. UK minimum wages now match those of some white collar entry level workers.

11. Ajai Srivastava of GTRI feels that India's FTA with UK has crossed several red lines.

For the first time in any free trade agreement (FTA), India has agreed to slash car import duties, open up its vast government procurement market to a foreign country, and weaken its patent regime under external pressure... India’s decision to slash car import duties from 100 per cent to 10 per cent — even with quotas — is a first in any trade deal. The cuts also cover electric and hybrid cars where Indian industry is just beginning to grow. India will soon receive requests from the European Union, the United States, Japan, and South Korea, demanding equal or deeper tariff cuts...

Around 40,000 high-value Indian government contracts will now be open to UK companies, covering transport, green energy, and infrastructure sectors. One of the most problematic provisions is that UK firms will be treated as “Class 2” local suppliers if just 20 per cent of their product value originates in the UK. This grants UK firms the same procurement preference previously reserved for Indian suppliers with 20–50 per cent domestic content. It allows them to use up to 80 per cent Chinese or European inputs while still benefiting from local supplier status in India. UK companies will also have access to India’s central e-procurement portal, making tracking and winning public contracts easier... India has, for the first time in any FTA, agreed to rules that go beyond its obligations under the WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights. This threatens not only access to affordable medicines within India but also its global leadership as a supplier of generic drugs to developing countries. This move hands over a big win to global pharma giants.

12. It's the uncertainty that kills. John Coates writes,

What happens if you go up and over that cortisol curve? Then you start to change. In our studies we found that prolonged volatility elevated cortisol chronically and caused traders to become dramatically more risk-averse. The masters of the universe turned timid (potential pushovers in bonus — or tariff — negotiations). Here again we can see a biological mechanism driving macro events: during a bear market, the higher volatility increases risk aversion, which causes more selling and even more volatility and risk aversion, in a runaway chain reaction that ends in a crash. Uncertainty has this power. Uncertainty over whether something nasty might happen can be more stressful than the nasty thing itself. Experiments have shown this. Imagine you are exposed to something mildly unpleasant, like brief blasts of white noise; but the blasts come at predictable time intervals, say once every two minutes. Between blasts you have downtime and need not brace yourself against the noise. In this timing regime, your stress hormones would probably be only slightly elevated. But now imagine the intervals fluctuate, making it more difficult to predict when to brace yourself, so you brace for longer periods of time. Now your stress hormones begin to rise. As the intervals become random and cannot be predicted, cortisol levels reach a maximum. Under each timing regime, you have been subjected to an identical amount of noise. But your cortisol levels increased with the uncertainty of the timing. 

My colleagues and I observed this effect in traders: their cortisol did not track their profits and losses but rather the variance of their returns. This effect was also observed during the second world war. German soldiers on the front lines during the Battle of Stalingrad faced constant attack, while soldiers manning supply lines faced danger less frequently but more unpredictably, and it was here, behind the front lines, that they suffered a higher incidence of gastric ulcers. So uncertainty over when something nasty is going to happen to you, such as losing money, or a bandage being ripped off, can be more stressful than the actual event. It is the not-knowing when it will happen that keeps us on edge, keeps us revving our engine. In fact, we hate being kept in a state of uncertainty. Some macabre experiments conducted in the 1970s found that animals — and humans too, presumably — will accept four times more aversive stimuli if they are delivered predictably rather than unpredictably.

This has relevance to policy making

This stress biology could be harnessed by policymakers. Central banks, for example, could use uncertainty, as does Ref #2, to control the financial markets, and to deflate bubbles by increasing risk aversion. Paul Volcker, chair of the Federal Reserve from 1979-87, understood this power, and possessed the knack to scare the pants off the financial markets. Part of that fear stemmed from his tendency to move interest rates enormously, in the early 1980s raising the Fed funds rate to 20 per cent. But he also kept the market guessing as to when he would act, and by how much. Street wisdom says do not fight the Fed, and no one did with Volcker lurking in the hood. Today, the Fed could veil its activities with a similar uncertainty as a means of calming market exuberance, even cooling an inflationary economy, and all without raising rates. In fact, a deft application of uncertainty could well drive investors into Treasury bonds, thereby lowering long-term interest rates and reducing the debt burden. Since Volcker’s time, however, central banks everywhere have relinquished uncertainty, one of their most potent weapons, in favour of a policy called forward guidance, which involves communicating clearly their intentions, in other words reducing uncertainty. Not surprisingly, this namby-pamby policy has failed utterly in taming the wild beast that is irrational exuberance. To control the market you need to corral its animal spirits, and uncertainty has more than enough power to do so.

This is important since for all his unpredictability, it's emerging that there's one big predictability with Trump policies - they'll not cross a threshold laid down by the markets. In other words, there's an emerging Trump put to the downside risk with US equity markets. It's no surprise that the markets have responded to the temporary truce with China by rebounding in a manner that makes one feel that the whole issue is now settled. The market reaction was stunning. Wall Street had the biggest one-day gain in five years.

In fact, markets are now behaving as though Liberation Day not only did not happen but the underlying issues have been fully resolved.

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.