Weekend reading links

1. After all the bluster about "reclaiming the Panama Canal" from Chinese owners, it now emerges that the Chinese authorities have not yet cleared the $23 bn sale from HK-based CK Hutchison and a Blackrock-backed consortium. And apparently, China’s state-owned shipping conglomerate Cosco is now seeking at least a 20-30 per cent stake in the deal. 

2. Spain is taking a contrarian path. 

Spain is having a moment bucking Western political trends. The country has recently recognized Palestine as a state, resisted President Trump’s demand that NATO members increase their defense spending to 5 percent of gross domestic product and doubled down on D.E.I. programs. But there’s no better example of Spain going its own way than immigration. At a time when many Western democracies are trying to keep immigrants out, Spain is boldly welcoming them in. The details are striking. In May, new regulations went into effect that eased migrants’ ability to obtain residency and work permits, and the Spanish Parliament began debating a bill to grant amnesty to undocumented immigrants. These reforms could open a path to Spanish citizenship to more than one million people. Most of them are part of a historic immigration surge that between 2021 and 2023 brought nearly three million people born outside the European Union to Spain.

3. Domestic Institutional Investors (DIIs) are driving Indian equity markets, having replaced the role of Foreign Institutional Investors (FIIs).

Investments by DIIs grew at a much higher rate of 55.4 per cent from 2014-15 to 2019-20, compared with 37 per cent in the post-Covid period (2021-22 to 2024-25)... In absolute terms, investments by DIIs reached an all-time high of ₹14 trillion at end-March 2025. In contrast to the rapid growth of DII investments over the past decade, FII investments grew at only 4.9 per cent. Consequently, their outstanding investments, at ₹10 trillion at end-March 2025, were about 29 per cent lower than those of DIIs...

The co-movement (correlation) between FII investments and the equity market (BSE Sensex), which was 0.37 from January 2000 to March 2014, fell to a negligible (–) 0.03 from April 2014 to June 2025, implying that over the past decade, FIIs have had virtually no impact on the equity market. In contrast, the correlation between DII investments and the equity market, which was (-) 0.20 during January 2000 to March 2014, rose sharply to 0.59 during April 2014 to June 2025, suggesting that over the past decade, DIIs have predominantly influenced the equity market.

4. DeepSeek further delays the release of its new model after failing to train it using Huawei's chips, exposing the limits of China's indigenous chips.

DeepSeek was encouraged by authorities to adopt Huawei’s Ascend processor rather than use Nvidia’s systems after releasing its R1 model in January, according to three people familiar with the matter. But the Chinese start-up encountered persistent technical issues during its R2 training process using Ascend chips, prompting it to use Nvidia chips for training and Huawei’s for inference, said the people... Training involves the model learning from a large dataset, while inference refers to the step of using a trained model to make predictions or generate a response, such as a chatbot query... Industry insiders have said the Chinese chips suffer from stability issues, slower inter-chip connectivity and inferior software compared with Nvidia’s products. Huawei sent a team of engineers to DeepSeek’s office to help the company use its AI chip to develop the R2 model, according to two people. Yet despite having the team on site, DeepSeek could not conduct a successful training run on the Ascend chip, said the people. DeepSeek was still working with Huawei to make the model compatible with Ascend for inference, the people said.

5. India's wealth and income landscape.

6. GST notices issued by Karnataka Commercial Taxes Department to informal traders who use UPI payments system forces some of them to turn back on UPI.

The trigger was a series of Goods and Services Tax (GST) notices sent to street vendors who have been using the Unified Payments Interface (UPI) to accept payments. The state’s GST department had flagged them as unregistered traders whose turnover exceeded the limit over which GST registration is mandatory—Rs 40 lakh per annum for the supply of goods and Rs 20 lakh for services. These notices have set off a wave of fear rippling through small traders in several states where governments have taken similar action. In Karnataka, over 14,000 street vendors recently threatened to go on strike over the issue. The strike was called off after the state government hit pause on 6,000-odd notices following the backlash, but reports say other states like Andhra Pradesh, Uttar Pradesh, Tamil Nadu, and Gujarat have also begun requesting merchant turnover data. UPI may have brought simple, instant digital payments to India’s streets, but as the country’s small traders are finding out, it’s also brought fully traceable transactions—putting them directly under the lens of tax authorities for the first time.

7. The Bola Tinbu administration in Nigeria devalued the Naira sharply after taking charge in 2023, plunging the economy into chaos. Impressively, things seem to be looking up now, especially in manufacturing.

Facing ever-rising input costs and the threat of stock shortages, some companies used last year’s shock as a catalyst to reduce their reliance on imported materials... The use of local raw materials in the manufacturing sector increased to an average of 57.1 per cent last year, up five percentage points from 2023, according to MAN... In instances where some key raw materials are not available domestically, companies are finding other clever ways of keeping costs down... Regulatory uncertainty still bedevils business, although executives are hopeful that a new tax law signed by Tinubu and set to take effect next year would streamline the onerous burdens on them. Even so, the fight to localise supply chains has been worth it for those that succeeded. The naira has also stabilised since last year’s devaluation, as Tinubu’s reform agenda shows signs of bearing fruit.

One more example from recent times of how sharp devaluations have yielded quick wins. Argentina is the other example.

8. From a review of Breakneck, a book by Dan Wang, a Chinese-Canadian tech analyst.

Wang’s central contention is that China is run as an engineering state that excels at construction while the US has become a lawyerly society that favours obstruction. By 2020 all nine members of the Chinese Politburo’s standing committee had trained as engineers. By contrast, the US has turned into a “government of the lawyers, by the lawyers and for the lawyers.” The result is that the country’s legal aristocracy prioritises process over outcomes and systematically favours the well-off, Wang argues. From 1984 to 2020, every single Democratic presidential and vice-presidential nominee had attended law school. The consequences of these differing approaches can be seen in how the two countries have built high-speed railways. In 2008 Californian voters approved funding for an 800-mile rail link between San Francisco and Los Angeles, while China began construction on a similar length railway between Beijing and Shanghai. Three years later the Chinese line opened at a cost of $36bn and carried 1.4bn passengers in its first decade of operation. The first segment of California’s train line may open some time between 2030 and 2033 at an estimated cost of $128bn.

The book has some very striking statistics

For example, in 1990 there were just half a million cars in China. By 2024 there were 435mn, many of them electric. China now has the (over) capacity to build 60mn cars a year out of a total global market of 90mn cars sold. The country has emerged as a world leader in drones, precision manufacturing, industrial robotics and solar and wind energy, and is rapidly deepening its expertise in artificial intelligence, where the US probably still retains an edge. China also has 31 nuclear power stations under construction, compared with just one in the US. By 2030, China will account for 45 per cent of the world’s industrial capacity compared with 38 per cent for all the world’s other high-income states, including the US, Europe and Japan, according to the United Nations Industrial Development Organisation... Although 50 per cent of China’s economy may be dysfunctional, Wang argues 5 per cent performs superbly well with its leading tech companies now challenging the best in the world.

9. Tej Parikh writes that the rise of intangibles (IP, brand value, code, content, talent etc.) is responsible for four major trends in the US equity markets - high concentration, exceptionalism, volatility and bubble-like valuations. American investment in intangible assets surpassed tangible ones and its intangible investment of $4.7 trillion in 2024 is nearly twice that of combined France, Germany, the UK, and Japan. 

He also writes that intangible assets make up 90% of the total enterprise value of the 15 largest US companies, considerably higher than that of the broader US corporate sector. 

For US stocks, Kai Wu of Sparkline estimates that accounting for intangible assets would cut perceived overvaluation by about 25 to 50 per cent, relative to headline valuation metrics. “While the market is by no means cheap, once firms are given credit for their intangible assets, valuations look far less frothy than the headlines imply,” he says.

This graphic compares the US and European high-tech companies.

10. India's textile exports story.

Until around 2010, India held the second spot in global apparel exports, but its slow growth through the 2000s allowed Bangladesh to overtake it... During this period, many large Indian companies, too, expanded their manufacturing ecosystem to Bangladesh. Trade-policy analyst S Chandrasekaran indicates that roughly 25 per cent of textile manufacturing units in Bangladesh are Indian-owned — including brands like Shahi Exports, House of Pearl Fashions, Jay Jay Mills, TCNS, Gokaldas Images, and Ambattur Clothing. As they grew in size and faced labour issues here, they moved to a place where this problem could be addressed, said Kumar of Premier Agencies. While the average salary of employees in Tiruppur is over $180-200 (about ₹15,500-17,500) a month, in Bangladesh, it is around $100-115 (about ₹8,500-10,000). Despite these challenges, industry players believe India retains an edge due to its strong raw material base. The country is the world’s largest cotton producer and has an abundant supply of polyester, silk, jute, and man-made fibres, while Bangladesh relies on imports from India and China.

11. Two graphics from Unhedged on the extent of market concentration in the US equity markets.

And this

12. Peter Navarro takes aim at India for its Russian oil and arms purchases. 

13. SpaceX survives on government contracts and pays no taxes.

SpaceX has most likely paid little to no federal income taxes since its founding in 2002 and has privately told investors that it may never have to pay any, according to internal company documents reviewed by The New York Times... SpaceX can seize on a legal tax benefit that allows it to use the more than $5 billion in losses it racked up by late 2021 to offset paying future taxable income. President Trump made a change in 2017, during his first term, that eliminated the tax benefit’s expiration date for all companies. For SpaceX, that means that nearly $3 billion of its losses can be indefinitely applied against future taxable income... In 2020, federal contracts generated about $1.4 billion, or 83.8 percent, of the company’s total revenue that year. The next year, federal contracts brought in about $1.7 billion, or 76 percent, of the total revenue.

14. A summary of Indonesia's economy.

Official figures suggest annual GDP growth is still close to 5 per cent, a number that has remained largely stable over the past decade other than during the Covid-19 pandemic. But more granular economic data indicates that Indonesia’s once-burgeoning middle class is shrinking, the economy is creating more informal jobs than formal jobs, underemployment is rising, car and motorcycle sales are plummeting, and credit growth is at a three-year low... The economy is growing more slowly and creating fewer quality jobs, both of which are eroding the purchasing power of the country’s 280mn citizens. Manufacturing’s share of GDP has slid from a peak of 32 per cent in 2002 to 19 per cent last year, though it remains the biggest contributing sector to GDP... At the heart of the problem is Indonesia’s focus on developing its cyclical and capital-intensive commodities sector over labour-intensive manufacturing, which generates more employment and higher wages. Although the resource-rich archipelago is the world’s top exporter of nickel products, palm oil and coal, it is the country’s factories that have created more high-paying jobs and underpinned middle-class employment...

Indonesia was once home to a thriving manufacturing industry that created millions of stable jobs and formed the foundation of the country’s aspiring middle class. For years it ranked among the world’s top producers of apparel, footwear and furniture. Its success came despite a late start relative to its south-east Asian neighbours. Modernisation only began in earnest during the 1960s as a result of the industrial policies of former dictator Suharto. The industrial sector grew by an annual average of 10.7 per cent in the three decades starting from 1967, when he took office. In 1993, the World Bank described Indonesia as one of the “east Asian miracles” for its rapid growth, and declining inequality and poverty. But the glory days ended in 1997, when Indonesia and several of its neighbours suffered rapid capital flight during the Asian financial crisis and had to be bailed out by the IMF. Suharto was toppled in 1998. Growth plummeted, and between 2000 and 2024, the manufacturing sector averaged 4.3 per cent a year, less than half the previous rate. That period coincided with an increased focus on boosting Indonesia’s resources sector amid a global commodities boom driven by industrialisation and urbanisation in China. Successive governments introduced protectionist policies such as the local content rule, which requires manufacturers to source a certain percentage of products from the domestic market, to support domestic companies.

Mobilising municipal finances - focus on property taxes and LVC

A Business Standard op-ed has this paragraph, which could be taken as a balance sheet of two decades of the pursuit of innovative municipal financing in India.

The 2015 Smart Cities Mission mobilised local innovation but saw limited private participation — only 6 per cent of projects used PPPs, and by 2023, just 12 per cent had achieved financial closure, far short of the 21 per cent target. The viability gap funding scheme, despite offering up to 80 per cent support for social infrastructure, saw only 71 projects approved over two decades — hindered by bureaucratic delays, opaque contracting, and poor lifecycle oversight. Municipal bonds remain underused as most urban local bodies (ULBs) lack creditworthiness.

It’s not incorrect to say that we have a misguided prioritisation of policy focus in municipal financing, driven mostly by ideologies peddled by multilateral institutions, financial market participants, and experts in general. 

Given its very low baseline, increasing municipal revenues should be the primary focus of municipal governments in India for the foreseeable future. This would primarily involve revenues from two sources - property tax and the use of urban planning instruments. 

The former would involve expanding the tax base (especially by detecting under-assessed properties), shifting to capital value-based taxation (if not already done), and increasing property tax rates. This would require the pursuit of good governance practices - survey and analyse locality-wise data, identify leakages, review for follow-up actions, rigorous monitoring, enforce, and repeat. They should be coupled with rationalisation and simplification of the assessment processes and rates themselves. These basic plumbing actions are especially important, also since they get marginalised as officials pursue innovations and technologies (GIS mapping, etc.). Increasing property tax revenues should form the primary focus of municipal governments across the country. 

Urban planning instruments are a much under-utilised source of local government revenues. They range from the commonly used fees for various planning permissions (layout development, build permission, land-use change, etc.) to the scarcely used instruments of purchasable Floor Area Ratios (FARs) and land value capture (LVC). On the former, it may be useful to shift from a flat fee to an ad valorem (percentage of the property's basic value) basis. 

Currently, purchasable FARs are in the form of sales of transferable development rights (TDR) certificates issued in lieu of land lost to road widenings and other public purpose acquisitions. See this post on operationalising TDRs. This must be expanded in scope to include the purchase of FARs beyond the permissible limit on payment of a defined fee. In this regime, property rights come with a basic building right, beyond which the building rights must be purchased. This can be operationalised in several ways. Two methods are discussed in the paper here. 

The first is a ‘choose your FAR’ system which dispenses with administratively fixed FAR and replaces it with market-based model where unlimited FAR can be purchased. The second is an FAR trading model where the municipality fixes the permissible additional FAR and periodically auctions them. 

Mumbai already has a purchasable FAR regime where the government has defined a basic FAR that goes with property rights, and any further FAR (up to the Master Plan-defined limit for the area) must be purchased on payment of a percentage of the basic value (which varies depending on the land-use). The zoning regulations of Amaravathi, the capital of Andhra Pradesh, mandate that “wherever FSI exceeds 1.75, the applicant has to pay impact fee as levied by APCRDA from time to time” (Section 210.5 of AMRDA Zoning Regulations). More Indian cities must adopt similar policies. 

LVC instruments are a very powerful but severely underused planning tool to mobilise municipal revenues. Examples include betterment levy, impact fees, tax increment financing (TIF), etc. There’s a Government of India policy on LVC, which can form the basis for its widespread adoption. I have blogged here, here, here, here, and here exploring the LVC idea, including specific suggestions on the operationalisation of LVC policy. 

Apart from a few cases, despite being discussed for nearly two decades, LVC (outside of some small betterment levy) has struggled for adoption by Indian cities. Hyderabad’s transformational Outer Ring Road (ORR) is a good example of how impact fees levied on land development within a band on both sides of the 160 km road were escrowed to partially finance its construction. The National Highways Authority of India (NHAI) could adopt this for all its greenfield roads and widenings. Also, all metro railway projects. A few cities under the Smart Cities project used TIF, where the municipality raises resources to finance an infrastructure investment in a locality by levying an increment on the property tax on properties in that locality for a defined period. 

It’s not an exaggeration to argue that even if a small share of the high-level focus and efforts expended on PPPs, VGF and municipal bonds could have been spent on the boring issues of increasing property taxes and adoption of LVC instruments, Indian cities could significantly increase their revenue base.

Cities, as those in developing countries like India, with a low baseline of property tax and LVC revenues, would benefit disproportionately from focusing on property taxes and LVC. As the financial strength of the cities improves and average incomes rise, innovative financing tools like municipal bonds and PPP would assume greater relevance. 

A complement to this on the debt raising side, of greater relevance than municipal bonds, is to focus on plain bank loans through a project finance route. In other words, raise debt on revenue-generating municipal assets like water and sewerage, mass transit etc., without any recourse to the municipal general funds. A proposal in this regard is here. 

Deregulation as an organisational culture

A recent op-ed in the Business Standard had this to say about how corporate social responsibility spending is regulated.

The additional problem with legally mandated CSR spending is the opportunity it affords for increasing government intrusion. In a throwback to the licence raj era, the law already tells companies how much to spend and what they can spend it on. It is not outside the realm of possibility that the discovery of the skewed geographical nature of CSR spending would prompt the government to stipulate region-wise targets next. The legal obligation creates additional headaches. In 2018, for instance, the government issued preliminary notices to 272 companies for not complying with their CSR obligations. 

Another had this about the UGC’s regulations. 

In principle, determining and maintaining standards of teaching, examinations and research at universities is among the primary functions of the UGC… It performs the functions of licensing, regulation and disbursement. These three functions are not performed by one institution anywhere in the world because this eliminates all checks and balances. Such power enables the UGC to exercise enormous control over universities. Its interventions at political behest and its belief that one-size-must-fit-all drives its fetish for standardisation, whether curricula, appointments, promotions, salaries, evaluation, administration or institutional architecture. Such levelling crowds out or pre-empts excellence, because it stifles diversity, pluralism and differentiation in higher education, all of which are necessary to develop academic excellence.

Deregulation is back with a bang globally. Also, I had blogged earlier, highlighting the point that there are very few stroke-of-pen deregulation measures.

It’s also important not to see deregulation as a one-time exercise. While easing existing laws and rules/regulations/orders is important, an equally important focus should be on ensuring new rules and orders are formulated, keeping in mind the concerns of ease of doing business and ease of living. Otherwise, it’s only a matter of time before things get back to where they started. I blogged here proposing that a set of principles be outlined that govern all law/rule-making processes and be kept in mind by officials who are processing them. 

Statutes passed by a legislature are generally too high-level and broad-sweep to impact the ease of living or doing business directly, at least in most cases. These laws are operationalised through executive directives - rules (by government departments), regulations (by regulators), and administrative guidelines (by any government entity). The difference between the three is the authority levels (Cabinet/Minister/Officers) at which they are approved. In one way or the other, at each level, there is often an element of interpretation of the objectives of the law, and this gets reflected in the directives issued at that level. 

In other words, these executive directives interpret the statute and outline the details of implementation. It’s most often in the details of these operational directives (and not in the statutes themselves) that the problems with ease of doing business and ease of living lie. 

As an illustration, while the statute would empower the government to prescribe building rules, the details of those rules are prescribed in executive directives (Government Orders, Office Memorandum, etc.) that the Department typically issues internally. They define how various urban planning elements like Floor Area Ratio (FAR), setbacks, road-width, plot-size, building height, and land-use would apply in combination to different areas/localities. 

This can create issues in implementation that detract from the purpose of the reforms. For example, over the years, state governments have claimed to have initiated “reforms” to building byelaws that have either done away with FAR or considerably raised FAR. But in reality, its objectives were defeated by defining high minimum road width and plot size requirements (and height restrictions), which meant that very few properties were eligible to avail these incentives. Similarly, some other states eased building regulations, but only below a certain height and above another height, which effectively excluded the most relevant categories of apartments. 

Or take the issue of processes and requirements that are put in place as safeguards to access a service. Often, as newspapers report stories of abuse of the process, instead of taking actions to address them as governance failures, government entities prefer to respond with additional layers of safeguards and requirements. So, for example, as instances of fake invoices and Input Tax Credit (ITC) claims in the Goods and Services Tax (GST) rose, registration requirements were progressively made so tough as to make it difficult even for the vast majority of genuine businesses (till a recent directive addressed this partially). 

There are similar examples across departments where the operationalisation of laws and reacting to emerging adverse news items have spawned unintended regulatory thickets.

Therefore, all directives are double-edged swords. They can be used to promote their objectives or detract from their objectives, as in the aforementioned examples. The choice is exercised both by the leadership within the Departments, who formulate and guide the implementation of the directives, and by the frontline functionaries who implement the directives. 

No sustained and meaningful change in the regulatory environment is possible without instilling a culture of regulatory concern, or restraint, or thoughtfulness among officials across all levels regarding issues of ease of doing business and ease of living. The principles outlined here could form a basis for building this culture. 

As an institutional process, every executive directive issued by the Department that directly impacts businesses or citizens should be screened for its compliance with a set of principles on smart regulation. This can be in the form of a checklist (like with the Cabinet Note) that must be certified by the proponent officials as a procedural requirement before approval of the directive. Even at the risk of this becoming perfunctory over time, it can be a good starting point to focus the attention of the system on concerns of regulatory excess. 

Another step would be to initiate a high-profile system-wide awareness campaign to sensitise officials across levels about the importance of caution with administrative directives to ensure ease of doing business and ease of living concerns. For example, each Department could be asked to identify one or two of its most important services and re-engineer them from the perspective of ease of doing business and ease of living. As a process, the collective learning from this exercise could be significant. These kinds of measures could be supplemented with employee training using simple and easily understood illustrative examples that highlight the importance of this endeavour. 

The fundamental point is that while we can deregulate by liberalising existing laws/rules, any sustained deregulation cannot happen without the spirit of deregulation being imbibed by officials across levels.

Weekend reading links

1. McKinsey is facing new challenges following the expansion of its digital practice.

In the 2010s, as many chief executives grew increasingly nervous that their companies would be the next victims of digital disruption, McKinsey invested to broaden its offerings. Between 2013 and 2023 it acquired at least 16 specialist technology consultancies, giving it the ability to assist clients not only with their digital strategies, but everything from developing prototypes of new products to building whizzy data-crunching tools. That points to the final source of the firm’s recent expansion, as it has pushed more widely into implementing its own advice. Having counselled a client to spruce up its technology, sharpen its operations or squeeze its suppliers, McKinsey will often now hold their hands through the process. That has meant muscling in on a segment of the consulting market traditionally dominated by Accenture and the “big four” professional-services giants, which charge considerably lower rates, notes Tom Rodenhauser of Kennedy Intelligence. To compete, McKinsey has had to rethink how it charges clients (fees are now often tied to the results of a project) and whom it hires (focusing less on generalists, more on geeks and grizzled executives).

And there's the threat from the newbies like Palantir.

As bosses look to AI to transform their businesses, they are asking McKinsey and other consultancies for help. But they are also turning to less conventional partners. Palantir, an analytics firm, offers tools to feed enterprise data into AI models, and embeds its so-called forward-deployed engineers with its clients to get them up and running. Its revenue is still small (just under $3bn in 2024) but is growing at a blistering pace (48%, year on year, in the second quarter of 2025). Although it began by serving governments, it now makes over two-fifths of its revenue from businesses. Its market value has septupled over the past year, to more than $400bn. Analysts at UBS, a bank, describe Palantir as “McKinsey meets Databricks”, alluding to a software firm whose tools also help enterprises connect their data with AI models. That sounds a lot like QuantumBlack, McKinsey’s own AI unit and the crown jewel of its digital practice. Other AI companies are taking inspiration from Palantir, too. OpenAI, maker of ChatGPT, has begun offering a consulting-like service to help businesses deploy its models.

2. Impact of Trump tariffs on India's $86.5 bn exports to the US.

3. Taiwanese public opinion on integration with China.

4. Naushad Forbes writes about India's corporate R&D landscape.

We invest 0.3 per cent of gross domestic product (GDP) in in-house R&D to a world average of 1.5 per cent. Our 10 most successful non-financial firms (highly profitable firms in refining, information technology services and consumer goods) invest 2 per cent of profit in R&D; whereas their 10 most successful peers in the United States, China, Japan and Germany invest between 29 and 55 per cent. And Indian firms are completely missing in five of the 10 most technology-intensive industrial sectors worldwide… Our hundredth largest spending firm invested about ₹97 crore in R&D in 2022–23; our two-hundredth largest, about ₹33 crore; and our three-hundredth largest, about ₹16 crore. These are small numbers relative to the world’s leading firms.

5. China seeks to consolidate its semiconductor chip making industry.

Consolidation in the chip equipment space would help boost China’s bid to build a self-sufficient semiconductor supply chain and replace equipment from US groups such as Applied Materials and Lam Research, said Edison Lee, semiconductor analyst at Jefferies. Currently, a Chinese fab buying local equipment has to use multiple vendors, whose technology is not well integrated. “In the equipment industry, it is difficult to be very successful as a single-product company. Fabs prefer to buy multiple machines from the same vendor, which makes it easier to use,” he added. By consolidating, Beijing also hopes to better direct funding to firms deemed strategically significant... Little progress has yet to be made in consolidating China’s sprawling network of foundries — a segment that remains highly fragmented and politically sensitive. The past decade saw a surge in foundry projects backed by local governments, many of which built capacity in parallel, resulting in a glut of supply of mature chips and steep price competition. Chip experts note that China could also benefit from streamlining its advanced fabrication market, to concentrate talent and the most advanced chip equipment machinery in one place instead of being spread across disparate projects.

6. Some details of where Apple will source its US components from

For example, Apple said that all of its cover glass for iPhones and Apple Watches would be made by Corning in Kentucky, and that it would spend $2.5 billion on that effort... Apple also highlighted its partnership with Coherent, a longtime supplier of lasers for Apple’s facial recognition hardware, which is made in Texas... The iPhone maker said it expanded a partnership with Texas Instruments to make chips in Texas and Utah. Texas Instruments has long supplied chips for the iPhone, such as circuits to control USB interfaces or power displays... Other partnerships are with Applied Materials, a tooling company, GlobalFoundries, a chip foundry, and GlobalWafers America, which is supplying Taiwan Semiconductor Manufacturing Co. and Texas Instruments with made-in-USA wafers, the starting point for a batch of chips. GlobalFoundries manufactures chips for Broadcom, which supplies wireless chips for iPhones. Both will work with Apple to develop and manufacture 5G components in the U.S. Meanwhile, Apple will buy millions of advanced chips made by TSMC in Arizona, where it will be the factory’s largest customer... Apple said it would invest in and become a customer at an Arizona Amkor facility, which packages and tests chips, the final stage before installation in a computer. Apple also said it would expand existing data centers for artificial intelligence in North Carolina, Iowa, Nevada and Oregon.

This is a break-up of Apple's spending a year

In Apple’s fiscal 2024, the company spent $210 billion globally on cost of goods sold, $57.5 billion on operating expenses and $9.45 billion in capital expenditures for nearly $275 billion in global spending during the period.

7. Global rice prices plunge to an eight year low on the back of record harvests and India's resumption of exports. 

8. More on India's Russian oil imports

Indian refiners had gained $16bn in extra profit from importing discounted Russian oil, with almost $6bn of that going to Reliance... Before Moscow’s full-scale invasion of Ukraine in February 2022, India imported a minimal amount of Russian seaborne crude. Indian government data shows it has since bought discounted Russian oil worth nearly $140bn, which Ambani’s Reliance and others have processed into petrol and diesel for sale in both domestic and international markets... the country’s refineries operate by the book and that oil from Russia, unlike Iran and Venezuela, has not been subject to direct sanctions. Washington previously made no objection to the trade, as long as purchases were priced below the $60-a-barrel G7 price cap intended to limit Russian revenues while keeping oil flowing into the global market... Energy Aspects estimates that since the start of the war in Ukraine, India has received an average discount of $11 for each barrel of Russian oil compared with the international price of crude, though the discount has fluctuated and is now about $2 before freight costs.

See also this. 

9. Fascinating discussion about towns in France and England.

Yet it is shocking to realise that the medieval feudal lords had more of a stake in ensuring their new towns were sustainable than most property developers today. “The private sector has no financial interest in the sort of heavyweight placemaking you need to build at scale,” argues Hugh Ellis, director of policy at TCPA. “Even mining companies in the 1920s cared more about providing a decent home for their workforce than modern property development does.” Thrift adds: “If you look at the private sector housebuilding model, their necessity is to get the highest possible price for that house on the day they sell it. If it all goes downhill afterwards, it really doesn’t matter, because they’ve gone somewhere else by then.”

By contrast, the postwar new towns had a strong stewardship model of “owning the shops in the town centre and the business premises in the industrial area, having that money coming back in and being able to reinvest it for the good of the town and its maintenance,” says Congreve. But Ellis adds that the model “was deliberately broken in the 1980s by an ideological decision to basically vandalise the programme by forcing a fire sale of most of their assets to the private sector”. One reason why Milton Keynes — often held up a model new town — still has such good green spaces is that when its development corporation was wound up in 1992, a trust was created with an endowment to continue to manage the parkland.

10. Turmoil in the Chinese military as Xi replaces officials accused of corruption.

Three of the seven seats on the Central Military Commission — the Communist Party council that controls the armed forces — appear to be vacant after members were arrested or simply disappeared... Mr. Xi has set a 2027 target for modernizing the People’s Liberation Army, or P.L.A... In the first years after Mr. Xi came to power in 2012, he launched an intense campaign to clean up corruption in the military and impose tighter control, culminating in a big reorganization... The most jarring absence in the military leadership is that of Gen. He Weidong. The second most-senior career officer on the Central Military Commission, General He has disappeared from official public events and mentions, an unexplained absence that suggests he, too, is in trouble and may be under investigation. Another top commander, Adm. Miao Hua, who oversaw political work in the military, was placed under investigation last year for unspecified “serious violations of discipline,” a phrase that often refers to corruption or disloyalty. He was among around two dozen, if not more, senior P.L.A. officers and executives in the armaments industry who have been investigated since 2023, according to a recent tally by the Jamestown Foundation. Both men had risen unusually quickly under Mr. Xi’s patronage...

Since Mao Zedong’s era, the military has served not only as a fighting force but also as a lever of political control for Chinese leaders, as their ultimate protection against potential rivals or popular uprisings... Mr. Xi is the only civilian party leader who sits on the Central Military Commission, which ensures his singular power over the military. That also means that he cannot turn to other civilian officials to help him... The purges are likely to disrupt coordination, weaken confidence in commanders and prompt Beijing to be more wary of considering an amphibious assault on Taiwan

11. Excellent NYT editorial video advocating a change in the air ticket tax to fund the Federal Aviation Authority (FAA) that ends up as a case of taxing the regular air travellers to subsidise private jets. 

12. How the surge in gold exports provoked Trump's 39% tariff on Switzerland.

America’s trade deficit in goods with Switzerland was just over $38 billion last year. In the first six months of this year, the deficit ballooned to nearly $48 billion... In recent months, two-thirds of Switzerland’s exports to the United States were accounted for by various forms of gold. These bars of gold are often sent from London, a trading hub, to Switzerland, a refining hub, where the metal is forged into bars sized for the standards required by U.S. warehouses and then shipped across the Atlantic. Surging demand for gold in the United States as Mr. Trump threatened to upend the global trading order fueled a spike in Swiss gold imports — and greatly expanded the U.S. trade deficit with Switzerland. Excluding gold, Switzerland’s mammoth pharmaceutical industry accounts for half the value of Swiss products shipped to America. In 2024, Swiss drug companies, which include the pharma giants Roche and Novartis, exported around $35 billion worth of medicines, cancer treatments, vaccines and other drugs.

13. Some facts and observations about GCCs.

There are over 1,000 global organisations that collectively operate over 1,700 GCCs across India. They employ over 2 million professionals. They generate over $40 billion in annual value, set to surpass $100 billion in another five years. So, what’s the problem? Well, most GCCs are technically doing work that could have been outsourced to Indian outsourcers like Infosys, TCS, Wipro, HCL, etc. In fact, GCCs are so successful a strategy that they’re growing much faster than Indian outsourcers. And as if taking away potential revenue from Indian outsourcers weren’t enough, GCCs are now also taking away talent. That’s right. They’re hiring experienced and talented professionals using higher salaries, better brands and the promise of better work.

It's time somebody analysed the nature of the work done by in-house GCCs and that done by outsourced service providers like the Indian software firms. Is it significantly a case of the multinational firm (a) vertically integrating its activities and bringing them in-house, or (b) identifying more outsourceable work and relocating them to India, or (c) doing non-outsourceable, higher-skilled work in India? 

14. Fascinating statistic from Ruchir Sharma on wealth-creating companies.

Since 2015, the world has generated a total of 444 companies with average annual returns in dollar terms of more than 15 per cent, and a market cap that today exceeds $10bn. A solid majority of these — 248 — emerged outside the US... Countries such as Japan, Canada, Taiwan, Switzerland and Germany have their fair shares but the big numbers are in China, with more than 30 such compounders and... India has produced 40 steady compounders in that time. Most of the compounders have arisen in manufacturing, tech or finance... More than 50 — and thus more than one in five — of the steady compounders are European. And after a long slumber, signs are emerging of an entrepreneurial awakening: the number of tech start-ups in Europe more than quadrupled in the last decade to 35,000... Since 2015, the global billionaire population grew by 1,200 to over 3,000, and seven out of 10 new ones surfaced outside the US. While the number of names on the Forbes list grew by 70 per cent in America, it grew by 90 per cent or more from India and China to Canada, Israel and even Italy... Another cloak obscuring wealth creation worldwide is the market for private equity, credit and other assets, also widely seen as a US preserve. Nearly half of the $13tn in these private assets, and more than half in categories such as venture capital and infrastructure projects, is held outside the US. Unicorns — private firms valued above $1bn — are not an exclusively American species either; roughly 40 of the top 100 are based in other countries.

15. In a remarkable arrangement, the first such one, Nvidia and AMD have agreed to pay 15% of the revenues from chip sales in China to the US government in return for export licenses for their chips.

The two chipmakers agreed to the financial arrangement as a condition for obtaining export licences for the Chinese market that were granted last week, according to people familiar with the situation, including a US official. The US official said Nvidia agreed to share 15 per cent of the revenues from H20 chip sales in China and AMD will provide the same percentage from MI308 chip revenues... According to export control experts, no US company has ever agreed to pay a portion of their revenues to obtain export licences... Nvidia tailored the H20 for the Chinese market after President Joe Biden imposed tough export controls on more advanced chips used for artificial intelligence.

Trump has basically converted the US into a country where the rule of law has been replaced with the rule by law (made by Trump himself personally)! Talk about institutions!

16. India's exports to the US and their share of the country's exports of those products.

17. Europe rearms.

EU defence commissioner Andrius Kubilius told the FT that since Moscow’s invasion, Europe’s annual capacity to produce ammunition had increased from 300,000 to reach about 2mn by the end of this year Rheinmetall’s expansion will account for a big part of this growth: the company said its annual production capacity for 155mm rounds was set to rise from 70,000 in 2022 to 1.1mn in 2027.

18. In order to overcome deflationary pressures and stimulate household spending, China announces an interest subsidy of 1 percentage point on consumer loans (typical consumer loan interest rates are 3%) for purchases up to Rmn 50,000 ($7000). The subsidy will be borne 90% by the central government and 10% by local governments. This shift away from investment subsidy to consumer subsidy comes on top of a "trade-in" scheme whereby buyers can receive subsidised prices when they upgrade old goods like smartphones, air conditioners, and rice cookers. 

Some thoughts on six months of Trump 2.0

I had blogged here with some early thoughts on Trump 2.0 and had said that I’ll revisit them as the administration progresses. This is a six-month stock taking. 

It’s now clear that Donald Trump is single-handedly redrawing the economic and political map of the world. The former (economic) is already done, and the latter (political) must follow in due course. While there’s some clarity on the contours of the former, though its long-term consequences may still be uncertain, the impact on the latter may be slower in emerging and likely more profound. 

Whatever its merits and however vague the trade deals, he has managed to bully and arm-twist almost the entire world to unilaterally open up their economies; accept an unthinkable level of high tariffs on their exports to the US; commit to purchase vast quantities of US goods like oil, gas, and arms; and commit hundreds of billions of dollars in manufacturing and other investments in the US. The abject surrender by the EU’s 27 members after holding out initially for zero-for-zero tariffs, exemplified by Ursula Von Der Leyen’s virtual prostration before Trump at Turnberry, Scotland, will remain as the totemic moment in this regard. 

He forced America’s NATO allies to voluntarily commit to raising their low shares of total defence expenditures to 5% of GDP, including 3.5% of GDP for core defence requirements, by 2035. And the European allies have already started taking action in their budgets. 

Not even the most imperial and colonial of powers and kings/rulers could have wrested such commitments. And all this has been done without a bullet being fired or a bomb being dropped. It would have been unimaginable for anyone to think that a single man’s bully diplomacy could have brought the entire world to its knees without even a fight. Countries have reluctantly acquiesced into these egregiously one-sided trade deals on the simple belief that it’s better to strike these deals than suffer greater damage from tit-for-tat tariffs. Such has been the fear generated by one man that leaders globally have refrained from publicly criticising or contradicting him. 

In this respect, the first six months of Trump 2.0 are enough to be described as the most imperial moment in world history. Previous imperial kingdoms held sway over small parts of the world, but this one rules over the world as a whole.

The FT’s Robert Armstrong coined the delicious phrase, Trump Always Chickens Out (TACO), to describe the US stock market’s surprising calmness in the face of Donald Trump’s capricious policies. This needs to be qualified. TACO applies only when there’s a match on the other side. The bond markets and China are two standout examples. Even those like Mexico’s Claudia Sheinbaum and Canada’s Mark Carney, who have kept their card close and refused to play the Trump-pleasing game, have managed to keep Trump guessing. But in all those cases (except perhaps the UK) where countries have gone overboard in trying to please him, he has slapped tariffs and wrested other commitments. All this only confirms the adage that a bully always wins against those who do not stand up to him. Sadly, world leaders, at least for now, have sought to acquiesce rather than fight. 

While the immediate economic impact of these policies in the US is most likely a recession and higher prices sometime next year, their medium-term consequences for the US economy could, on balance, even be beneficial. This is perhaps the most optimistic scenario for the US economy. For a start, even after Donald Trump leaves and even if a Democratic administration emerges, some of these tariffs will likely stay. The regime that emerges will surely rebalance the currently lop-sided nature of the Trump trade deals. But even after the most optimistic (for the US’s trade partners) revisions, it is likely to remain in favour of the US. In other words, Trump 2.0 may have conferred a big long-term advantage to the US in its international trade relations. 

The reshoring of manufacturing, in some form or other, is a train that has started. Multinational corporations have been forced into shedding their exclusively efficiency-maximising business models and adopting strategies that build resilience through supply chain diversification, ideally by reshoring to their home bases. The US economy will collect three to five times more revenue from tariffs (from the current monthly collection of about $8 billion, it’s already over $30 billion), and it’s likely to play an important role in financing the country’s burgeoning fiscal deficit. Unfortunately, these significant revenues once tasted by the US fiscal system will create incentives to perpetuate even after Trump leaves. 

A high-level perspective is that the world economy has enjoyed windfall gains since the 1990s from trade liberalisation and the WTO. Tariffs have fallen spectacularly to historic and, perhaps, undesirable lows. After all the sectoral and country-specific carve-outs and dispensations, and general renegotiations that will happen in the coming months, the Trump tariffs may calibrate tariffs to more realistic levels. That may be a good economic outcome. 

But there are many aspects of the other side of the ledger that are unmitigatedly bad for the US and its allies. For a start, the commitments given by countries on the purchase of US goods and investments in the US are most unlikely certain to not materialise in any meaningful manner. It’s most likely that all countries will drag their feet on these commitments, preferring to wait out the Donald Trump regime by allowing for some cosmetic and politically expedient wins for him. 

All the deals are filled with fantastical investment commitments, all of which are too impossible to comply with. Investment decisions are with corporates and are done purely on commercial considerations. No government (except perhaps the Chinese) can force its corporations to make investment commitments just to meet some national foreign policy obligations. And given the commercial viability challenges associated with reshoring manufacturing to the US, coupled with Trump’s whimsical nature, very few companies would be willing to bite the bullet. Besides, given that investment decisions can take years to materialise, countries and companies will wager that it’s a smart thing to make some vaguely worded “commitment” and get the tariffs out of the way. One can always renegotiate, if needed, or, more likely, Trump will move on to other things, and domestic political and geopolitical trends will dissipate the commitments. 

Ironically, the vagueness of the trade deals may have been the convenient escape clause that made it alright for countries to agree to deals with the US and present Trump with ego-boosting wins. The deal with EU is filled with feel-good triumphs with little substance. This article illustrates how the EU conceded on the (politically and substantively unimportant) imports of lobsters and bison meat but refused to concede on the more substantive issue of imports of hormone-raised beef and acid-washed chicken. 

Several of the incentives the European Union used to clinch the agreement may look like gifts, but if so, they are gifts unearthed from the back of the closet, dressed up in nice wrapping paper and topped with a fancy bow. They look good, but they did not cost Europe much. Take Europe’s promise to buy $750 billion in energy. That number is spread across three years, and it includes Europe’s existing purchases of American gas and oil, expected future additional purchases and anticipated investments in things like nuclear infrastructure by American companies in Europe. But while the European Commission, the bloc’s executive arm, can estimate how much European companies might spend, those decisions are up to the private sector. The European Union cannot force businesses to buy American energy if the math does not make sense. Likewise, the bloc’s promise to invest hundreds of billions of dollars in the United States is a tally of expected spending from European companies. It is simply an expectation of how much money could flow toward America, not even a commitment of how much will.

With time, they might get exposed as mere Pyrrhic victories that stoked the President’s vanity without achieving much in substance. 

The geopolitical consequences of these policies will be felt in the months ahead. Credibility and trust, built over decades of painstaking work, can erode spectacularly in a few months of flippancy, capricity, and unreason. Thanks to just six months of Trump 2.0, America may have significantly and irreversibly eroded its soft power in diplomacy and in shaping global institutions. The example of India-US strategic relationships (more later) is a case in point. 

Further, it has surely brought together other like-minded blocs and countries like the EU, non-US G7 economies, India, Japan, East Asian economies, Brazil, Mexico, and others in shaping global institutions in a manner that derisks them from not only China and Russia, but also the US. In areas like acceptance of the dollar as the reserve currency and reliance on the US-controlled SWIFT payments system, Trump 2.0 has surely set afoot efforts even among allies to diversify away from the control of the US. Similarly, efforts to create harmonised global regimes on areas like data localisation, AI, taxation of multinational corporations, green transition, and so on, are likely to further isolate the US from its allies. In simple terms, for the vast majority of countries, Trump 2.0 may have pushed the US into the group of antagonists currently populated by China and Russia. 

This mistrust of the US will get amplified as Trump expands his agenda beyond reshoring jobs and cutting trade deficits, to interfering in the domestic political issues of countries, like those happening with South Africa (supporting white settlers), Brazil (opposing the judicial process against Jair Bolsonaro), and Canada (opposing its moves to recognise Palestinian statehood). He has shown an increasing appetite to use the instrument of tariffs to meet not only economic goals but geopolitical and diplomative interests. 

A test case will be the outcome of the scheduled Trump talks with Putin in Alaska later this week, which threatens to divide Ukraine without its consent. In his vanity to claim credit for stopping the war, Trump may well agree to Putin’s demands that the US recognise the cession of Crimea and the Eastern Donbas region, and freeze the current battle lines as permanent boundaries. If something like this happens, Ukraine is unlikely to agree, and it may well be a defining moment in the US-EU relations. Indeed, the European Commission, France, Italy, the UK, Poland, and Finland have already issued a strongly worded statement that opposed any backroom deal done without Ukrainian representation that compromised Ukraine’s territorial integrity. 

The joint statement from the European Commission, France, Italy, the UK, Poland and Finland also said “the path to peace in Ukraine cannot be decided without Ukraine” ahead of a meeting next week between Trump and Russian President Vladimir Putin… Late on Saturday, the European leaders released a joint statement calling for “robust and credible security guarantees that enable Ukraine to effectively defend its sovereignty and territorial integrity”. It added that “we remain committed to the principle that international borders must not be changed by force”… There is particular anxiety that Trump could seek a quick resolution to the war by offering Putin territorial concessions, legitimising its illegal annexation of Crimea and occupation of huge parts of four mainland regions of Ukraine: Donetsk, Luhansk, Kherson and Zaporizhzhia.

The biggest surprise in Trump 2.0 to date has been his actions on China. What started with the big bang tariffs on China(amounting to the highest reciprocal tariffs) is now giving way to perplexing about-turns. For a person prone to instant provocation, he has been inexplicably considerate with the Chinese. He condoned China’s tit-for-tat retaliation on his tariffs and agreed to an interim deal that marked a sharp climb down in lowering the tariffs on China from 145% to 55% and allowing China to retain a 33% tariff on US exports. It’s almost like Xi Jinping is doing to Trump what he’s doing to all others!

It says something about the reversal of Trump’s initial aggression on China that the Trump administration has imposed higher tariffs on close allies like Canada, India, Taiwan and Switzerland than on China. 

More importantly, the interim trade deal ended up allowing the Chinese to link the relaxation of their newly introduced export restrictions on rare earth elements with those on Biden-era US export restrictions on Nvidia chips, instead of being confined to negotiating on lowering the succession of prohibitive tariffs. In simple terms, the Chinese got both lower tariffs and, more importantly, relaxation of export of Nvidia chips. Trump 2.0 and its scattershot tariff policies have taken the foot off the pedal in the Biden administration's strategy of progressively tightening access to strategically important technologies for China. 

There’s now the real danger that, in his desperation to clinch a high-profile trade deal with China, Trump may relax Biden’s 2024 ban on exports of high-bandwidth memory (HBM) chips. The Chinese appear to consider this more important than even the H20 chips since they seriously constrain the ability of their companies, like Huawei, to develop their own chips. Memory chips are a critical part of AI chips which package together memory and logic chip components. In order to avoid hurting trade talks, the Commerce Department has already been directed to freeze further technology export controls to China. He now appears to be veering towards allowing the sales of Nvidia’s advanced Blackwell chips, and all that for a 15% share of the revenue from their sales.

The refusal to allow Taiwanese President Lai Ching-te to transit through New York en route to Latin America to pre-empt the issue from becoming an impediment to any trade deal is a massive strategic concession that undermines deterrence in the Taiwan Straits and signals a desperation that would have pleasantly surprised and gladdened the Chinese. What does it say about Trump’s strategic priorities when he extends the tariff deadline for China, apparently America’s primary geopolitical rival, even as he slaps India, one of America’s main ally in Asia, with two successive 25% tariffs, which take the total tariffs on India to nearly double that on China (30%)?

Now, even as Trump has harshly penalised India for buying Russian oil, he seems to be turning a blind eye to China, despite it being the single largest buyer of Russian oil since the Ukraine invasion and the second largest current buyer. More inexplicably, if punishing Russia is his objective, Trump appears not to be even concerned about the fact that China does far, far more to prop up the Putin regime than anything anybody else may be doing. 

For all these reasons and more, I agree with Edward Luce, who has described Trump as the “last China dove in Washington”. 

In the final analysis, I think there are only two bulwarks against Trump 2.0. The strongest bulwark is still the financial markets, especially the bond markets. The bond vigilantes can pile pressure on the dollar and, more importantly, drive up borrowing costs for the US government, and its corporates and households. As we have already seen, a poor response to a Treasury Bond auction can spook the markets as a whole and force hard choices on even Donald Trump. As an example, the bond market reaction to Treasury auctions was an important contributor to Trump pausing his exorbitant reciprocal tariffs in April 2025. The equity markets don’t have a similar restraining effect on Trump. 

The other restraining force is that of the elites in corporate America. It’s no surprise that even amidst all the tariff increases, the likes of Apple and Nvidia have managed to obtain carve-outs, sparing them not only from the worst of the tariffs but even carry out business as usual. This is a good description of how lobbying to protect Nvidia’s commercial interests trumped even strong opposition on concerns about compromising national interests. 

The H20 has become the focus of a debate between security officials who say allowing China to buy the H20 will help its military. But Nvidia argues that blocking US technology exports forces China to accelerate innovation. The Financial Times reported last week that 20 security experts, including Matt Pottinger, deputy national security adviser in the first Trump administration, and David Feith, who served at the National Security Council earlier this year, wrote to commerce secretary Howard Lutnick to urge him not to allow H20 sales to China. In the letter, the security officials said the move would be a “strategic mis-step that endangers the United States’ economic and military edge in artificial intelligence”.

Nvidia countered that the criticism was “misguided” and rejected the argument that China could use the H20 to enhance its military capabilities. Nvidia took a $4.5bn hit in the July quarter, as well as an additional $2.5bn in missed sales, after the White House introduced the original licence requirement… It was viewed as a ban that would kill the legal sale of Nvidia’s AI chips in China, cutting the company off from a market that Huang has said will hit $50bn in the next two to three years. The company had forecast an $8bn loss in China revenue for the July quarter.

Trump policies on deregulation, taxation, and economic diplomacy have promoted the interests of Big Tech and Big Finance. All talk of draining the swamp and clearing powerful entrenched interests in Washington has gone out of the window. While they may be willing to concede on secondary issues, when their core interests are threatened, it’s most likely that elite corporate interests will lock arms and resist. Besides, Trump himself, being a member of the elite corporate interests, would not go beyond a certain line in draining the swamp.

Among all countries, the difference between the expectations (at least in India) and reality from Trump 2.0 to date may well be the greatest for India. It was expected that Trump 2.0 would help cement the anti-China alliance between India and the US, and India would enjoy the collateral benefits from the US squeeze on China. Besides, it was believed that the natural affinities and other factors would help forge a tight relationship between the two countries. Unfortunately, for whatever reason, things have gone astray. 

While the tariffs are very high and doubtless economically damaging for India, I’m inclined to feel that it is likely that their effects are being overestimated. For a start, there are several carve-outs, and they will most likely only increase over time as interest groups emerge in the US and start lobbying, and the tariffs themselves will most likely get renegotiated downwards. For example, a Trump-Putin deal later this week can eliminate the 25% punitive tariff. As to the other 25%, the supply chains will recalibrate to absorb some of the tariffs, reroute exports to the US through other countries, and figure out alternative markets. At worst, the Indian economy will slow down by about a percentage point for a year or two. But it may also be the much-needed kick up the butt to double down on domestic manufacturing. 

Instead, the more damaging problem for India from Trump tariffs is likely to be its impact on the foreign investment climate. At a time when the trend of decoupling from China is at its peak, multinational corporations are evaluating choices to diversify their supply chains. Given its large economy and potential for scale manufacturing, India would be among the frontrunners for most corporations looking to relocate from China. But the very high tariffs will undoubtedly be a significant dampener on the preference for India. 

For example, if the uncertainty persists, would Apple go full hog (as it appears inclined now) with making India its alternative to China as the preferred manufacturing base? It is more likely that it’ll forego a share of its unreasonably high profits and reshore significant parts of the iPhone supply chain to the US and neighbouring countries like Mexico. Further, at higher tariffs, countries like Vietnam, Bangladesh, Mexico, and Indonesia become more attractive for companies relocating out of China. 

An even bigger threat for India will be if Trump turns his gaze on the services sector. One of the original grievances of the MAGA base is that of foreign migrants and services outsourcing taking away Americans’ jobs in the IT industry. India is especially vulnerable on this issue and to any punitive actions in these directions. 

Already, Republican Congresswoman and Trump supporter, Marjorie Taylor Greene has called for ending H1B visas to Indians to punish India for buying Russian oil. The MAGA originals, led by Steve Bannon, have already made their opposition to H1B visas very clear, and they have also opposed US technology firms offshoring services to countries like India. In fact, this view may even have bipartisan consensus among populists on the right and the left. Given how far Trump has shown willingness to go with his protect American jobs agenda, it’s most likely that at some time during the next few months, there will be something that will trigger a backlash against not only H1B visas but the outsourcing of IT services sector jobs to India in the form of Global Capability Centres (GCCs). 

Any actions on this front by Trump will have a strong adverse impact on India. India must work the backdoors quietly with the US Big Tech firms, whose interests would be hurt by these measures, to avoid these scenarios. Like Tim Cookand Jensen Huang, it must create the conditions for quiet lobbying by the technology firms to prevent any such eventuality. In the early days of the Trump 2.0 administration, a public dog-fight on this issue was staved off because influential voices on the elite corporate side in the US stepped in to counter the MAGA originalists. This issue can erupt anytime, and a Trump who’s antagonised with India may well flip to the other side this time. 

In this backdrop, India would do well to adopt Deng Xiaoping’s famous aphorism that China follow the principle of “bide your time, hide your strength” (tāo guāng yǎng huì) during its growth phase. While always a prudent thing to do for a rising power, this approach assumes even greater relevance in times of Donald Trump and rising trade protectionism. National interests, especially when involving populist concerns, are best protected quietly. In any case, foreign policy is best conducted discreetly and away from the glare of media attention, much less the hyper-sensationalising modern social media. 

Instead of being caught up excessively with speculations centering exclusively around ego slights, India would also do well to pay close attention to the purely transactional nature of Trump’s foreign policy actions. 

For example, as David Woo has argued, there’s a compelling argument that the punitive tariff on India for importing Russian oil is part of the larger effort to force Russia to the negotiating table on Ukraine. Though Trump had prioritised the ending of “Biden’s war” in Ukraine, Putin’s intransigence had made the deal elusive. Woo argues that the EU may have agreed to the 15% trade deal also in return for the US pressuring Putin to end the war, and accordingly, in its aftermath, Trump shortened the deadline for Russia from 50 days to 10 days (August 8). Knowing that squeezing oil revenues is the “cheapest and easiest way to weaken Russia”, and that pressuring China was off the table, India (its Russian oil imports) may have become an easy soft target to pressure Russia into ending the war. India may well be collateral damage in Trump’s illusion of stitching together a grand bargain and claiming credit for ending the Ukraine war. Woo also says that given the certainty of a significant knock-on effect on global oil prices from India even looking to replace the 1.6-1.8 million barrels it imports from Russia, there’s a strong likelihood of a TACO round the corner. 

The same transactional approach may be behind his sudden warming up to Pakistan. The trigger may well have been Iran, where Pakistan appears to have positioned itself as a partner to advance America’s interests. It has also offered the prospect of being a bitcoin mining hub, a source of rare earths, opening to US oil companies for oil exploration, and perhaps even being an intermediary between the US and China. All these, coupled with the support for a Nobel Peace Prize for Donald Trump and smart tactical positioning, appear to have swung Trump to strike a deal that lowered its tariffs from the interim rate of 29% to 19%.

The worrying thing for allies like India is the extent to which Trump is willing to take his transactionality approach in foreign policy. Despite being strategic allies, India and the US have had disagreements on one another’s relationships with third countries. Just as the US is displeased with India’s closeness to Russia, India has even greater reasons to be worried about America’s engagements with China and Pakistan. But both, including during Trump 1.0, have consciously agreed to live with these disagreements and avoid letting their serious differences come in the way of the deepening strategic relationship. As Evan Feigenbaum has said, Trump’s recent actions may have definitively destroyed that trust. 

It’s a universal truth that with bullies, one must stand the ground or be bullied. Conceding to Trump’s demands and actions will certainly be seen as a sign of weakness and risks further entrenching the already existing belief in him that, in his games involving the big powers, India, being the softest target, can be compromised. This does not mean standing up to him loudly and aggressively through public posturing and tit-for-tat responses, as appears to be the strategy adopted by both Brazil and China, but being quietly firm in its actions and diplomatic communications. It should be supplemented with subtly delivered signals on policies and decisions on procurements and investments that are a reminder of the economic levers available to India. 

The, by now, self-evident flippancy and whimsical nature of Trump’s policies should be a reminder to all those who thought that Trump would be favourable to India’s interests. A late 2024 poll by the European Council on Foreign Relations found that 84% of Indians believed Trump was beneficial for India, the highest percentage among 24 countries. This expectation was formed by narratives that had little evidence base. 

In fact, even a cursory reading of the totality of his actions should have been proof enough that Trump has no ideology, and nobody can count Donald Trump as a friend. Trump’s America First and trade deficit focus, the transactional nature of his actions, and his preference to conduct foreign policy through Truth Social and media briefings must have been sufficient to point to the strong possibility of difficulties surfacing in the relationship. In conclusion, Trump is purely transactional, and it’s only one news story or ego bruise for Trump to reverse course from seeing a country as a friend to making it a villain. 

Robert Zoellick, the former USTR and World Bank President, says it best;

“Trump is not fundamentally about policy. He’s about dealmaking and transactionalism and he has recognised that the United States has tremendous economic power and that tariffs are leverage and a way of showing dominance.”

Even worse, he does not mind the selective application of tariffs to certain countries on the same thing (punish Canada with 35% tariffs for moving to recognise Palestine, while ignoring France and UK; or punish India with 25% tariffs for purchasing Russian oil, while ignoring China’s greater purchases). Or, he may not be bound by any of his own deals and appears willing to tear them down if some new rationale or expediency emerges! The Tariff Man is the Transaction Man!