Weekend reading links

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

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

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

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

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

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

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

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

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

4. The world of Trump in a graphic!

Adam Posen says

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

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

5. Robots are largely born in Asia. 

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

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

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

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

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

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

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

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

9. Manufacturing trends

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

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

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

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

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

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

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

12. India healthcare facts of the day.

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

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

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

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

14. FT graphics on 100 days of Trump. 

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

15. World trade facts of the day

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

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

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

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

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

Weekend reading links

1. On US Treasuries Basis Trades.

The basis trade focuses on the price difference between Treasury bonds and futures contracts tied to those same bonds. Sometimes the price of a bond futures contract rises above the underlying bond price because of heavy futures purchasing by pension funds, insurance companies and other institutional investors. These asset managers often prefer to buy bond futures instead of the bonds themselves because futures require less cash upfront. To take advantage of the price discrepancy, a hedge fund will sell Treasury futures and simultaneously buy the corresponding lower-price bonds. By buying cheaper bonds in one market and selling expensive ones in the other, traders can profit from the small price differences, whether bond prices go up or down. 

The profit from these price differences is so tiny — as little as a small fraction of a penny — that traders typically borrow a lot of cash to multiply their bets. What makes this strategy risky is the combination of hedge funds’ heavy borrowing to execute the trades — as much as $50 borrowed for every $1 of their own capital that they’re investing — and a heavy reliance on short-term borrowing in particular. US Treasury bonds are normally considered low-risk investments because they are backed by the full faith and credit of the US government. But a sudden disruption to financial markets could cause short-term borrowing costs to skyrocket. When that happens, hedge funds are forced to repay the loans and dump Treasuries to unwind the basis trade. That could cause Treasury markets to seize up, and the resulting higher bond yields could ripple through the financial markets, raising the cost of everything from corporate borrowing to home mortgages.

2. Three graphics that capture the challenges that the US will face in rapid decoupling from China. This shows the US dependency on imports from China.

This shows the high level of dependency on China for electronics.

Finally, this shows the product category-wise contribution of China and that of rest of the world to US imports. 

Abrupt decoupling will be painful.

3. China has responded to the Trump tariffs with its tit-for-tat retaliatory tariffs. Apart from this, it has also opened the door on exchange rate response, allowing the renminbi to weaken against the dollar. The offshore renminbi has hit a 18-year low. The onshore renminbi is subjected to a band that restricts moves beyond 2% per day. 

4. Meanwhile, Stephen Miran has expanded on his proposal for an accord with trade partners where they agree to pay for the US security umbrella and access to the large US domestic market. He has outlined five options available with other countries for burden sharing. 

First, other countries can accept tariffs on their exports to the United States without retaliation, providing revenue to the U.S. Treasury to finance public goods provision. Critically, retaliation will exacerbate rather than improve the distribution of burdens and make it even more difficult for us to finance global public goods.

Second, they can stop unfair and harmful trading practices by opening their markets and buying more from America;

Third, they can boost defense spending and procurement from the U.S., buying more U.S.-made goods, and taking strain off our servicemembers and creating jobs here;

Fourth, they can invest in and install factories in America. They won’t face tariffs if they make their stuff in this country;

Fifth, they could simply write checks to Treasury that help us finance global public goods.

5. Michael Moritz makes some important points on the basis of China's manufacturing prowess.

Since the 1970s, China and countries in south-east Asia have perfected a formidable triple axle comprised of the command of raw materials, mastery of component manufacturing and packaging, and now — by dint of drive, creativity and a formidably well-educated cadre of scientists and engineers — an array of products that put the west to shame. Just look at the manufacturing knowhow of Foxconn and TSMC and the product line-up of companies such as Huawei, BYD and Xiaomi — the last of which is only 15 years old. They are enough to make Americans weep. And that’s before you calculate the size of their workforces or contemplate that about 450,000 cars were built in China in 1987 compared with 31mn in 2024.

6. Italian cheese facts of the day

The US imported €7.8bn worth of Italian cheese, olive oil, wines and other delicacies last year... parmesan cheese... is produced in regulated quantities in Italy’s Emilia-Romagna region. Producers there must adhere to 17-pages of strict rules that even dictate what cows can eat — and where their fodder is grown. The Parmigiano-Reggiano consortium allocates coveted cheese quotas to local dairies, polices the process and has to certify cheese as genuine and up to standard.

7. Important graphic on Indian middle class incomes.

8. India's manufacturing is a very big outlier in declining as the economy grows. 

9. Wall Street is also worried because the Trump trade wars may deal a fatal blow to the march of American financial institutions. 

For the past 15 years, the big US banks and money managers have been on the march... Goldman Sachs, JPMorgan, Morgan Stanley and Bank of America each captured at least 5 per cent of last year’s global investment banking fees. The top European bank, Barclays, pulled in just 3.3 per cent... In some quarters, BlackRock has recorded more inflows than the entire European asset management industry combined. Americans also dominate the custody market, holding four of the top five slots. All of them benefited from a vibrant US economy, deep capital markets, and the fundamental appeal of American equities and bonds to international buyers... 

But just when American finance was looking unstoppable, Trump pulled out the rug. His aggressive “liberation day” tariffs, followed by a partial 90-day pause, sent the markets into a tizzy. Other belligerent policies, including threats by his advisers to weaponise finance, are forcing overseas companies and governments to question their dependence on US financial institutions and their use of Treasuries as a standard risk-free asset. Foreign firms are reconsidering their US ties, looking for local service providers and making contingency plans to issue debt in home currencies rather than the now-less stable dollar. Governments are shedding their laissez-faire attitude to US dominance in technology and banking... The lack of European alternatives to Google, Microsoft and the like make it hard to reduce dependence on US technology, but financial services are a different story. European banks are not as big or as globally feared as the Wall Street beasts, but their top employees are experts at raising funds and closing mergers. Even before Trump set world markets on fire, Swiss lawmakers had raised concerns about the wisdom of using a US bank as custodian for SFr46bn in social security funds.

10. One more article on how the US is more dependent on China than the other way round, harping on the substitutability of US agricultural exports compared to the Chinese technology exports.

While the exposures may be so, there's so little discussion on the  job losses for the 10-20 million Chinese workers who are exposed to US-bound exports, whose re-routing will be extremely challenging in this hostile environment of protectionism globally. 

The one thing that the Chinese have a clear upper hand is in that the trade wars will most likely galvanise the country into becoming united despite the suffering to fight the US, a sentiment that's unlikely with the US.

11. The first quarter of 2025 economic data from China has some interesting insights. The headline growth of 5.4% has a good share of front-loaded exports to beat the Trump tariffs. This is reflected in the 12.4% rise in exports in Match. Disturbingly, industrial production and fixed investment rose sharply in March reflecting the continued expansion of manufacturing capacity, even as imports fell 4.3% for the the month. 

12. As we rail at China, it's an opportune moment for everyone to reflect on how they have been complicit in allowing China to become so dominant in manufacturing, none more so than the US.

China shook the world in 2010 when it imposed an embargo on exports of crucial rare earth metals to Japan... The embargo, prompted by a territorial dispute, lasted only seven weeks... When the embargo was over, China took forceful control of its mineral bounty... and consolidated the industry under state control... The mines were later nationalized and consolidated into a single state-run company, China Rare Earth Group... The world was put on notice, especially Japan and the United States, two of China’s biggest customers for rare earth metals used in everything from cars to smartphones to missiles. Governments from both countries drafted detailed plans for how to mitigate their dependence on China. Japan has largely followed through on its plans and today can source the minerals from Australia. Not the United States. Even after 15 years, the country is still almost entirely reliant on China for the processing of rare earth metals. As a result, American automakers, aerospace companies and defense contractors have been left vulnerable.

Angry about President Trump’s tariffs, China has suspended all exports of certain rare earths, as well as the even more valuable magnets made from them. These small yet powerful magnets — no bigger than a ring for a person’s finger, yet with 15 times the force of a conventional iron magnet — are an inexpensive and often overlooked component of electric motors. They are used in electric and gasoline-powered cars as well as robots, drones, offshore wind turbines, missiles, fighter jets and many other products... China now produces 90 percent of the world’s magnets. Further construction was underway at two of Ganzhou’s largest magnet factories last week...

China’s top leader, Xi Jinping, said in a speech in 2020 that it was important for China’s national security that the West’s supply chains remain dependent on his country. “We must build up our strengths and consolidate our international lead in industries where we have an advantage,” he said a few months after visiting Ganzhou’s most advanced magnet factory. He called for “intensifying the dependence of international industrial supply chains on China, forming a powerful capacity to counter and deter deliberate supply cutoffs by foreigners.”

More on rare earths and China's dominance

China dominates the mining and processing of rare earths, a collection of 17 elements that are essential to the auto, semiconductor, aerospace and defense industries. While abundant in the Earth’s crust, they are difficult to extract and separate, and the United States and other Western nations have largely left the work to China. For some critical “heavy” rare earths — named because they have higher atomic numbers on the periodic table — China is essentially the only country that can separate and process them. Rare earths have become so coveted because they help make the powerful magnets needed for new cars, missiles and drones. While “light” rare earths make up far more of those magnets, heavy rare earths are also needed to keep the magnets from weakening or being destroyed at high temperatures. Heavy rare earths have overwhelmingly come from mines in China and Myanmar, which has sold its output to its powerful neighbor, because those countries have natural clay deposits rich in the elements.

Japan has been alert to the dependence on China for critical minerals and has responded strategically. In response to export controls imposed by Beijing in 2010, Japanese companies and government agencies stockpiled these minerals and developed alternative sources, cutting their dependency on China from 90% to 58%. 

13. Talk of cutting the branch on which you are sitting, the case of Trump tariffs on Lesotho.

Lesotho is the largest African garments exporter to the US and a rare success story born out of Washington’s 25-year-old African Growth and Opportunity Act (Agoa), introduced under then-president Bill Clinton to offer tariff-free access to the world’s poorest continent. All that is now at stake... the US president has threatened to impose on Lesotho, one of the highest rates on any country. At $240mn of exports, Lesotho accounts for less than 0.02 per cent of the US’s trade deficit. Yet even without Trump’s higher “reciprocal” tariffs, which have now been paused for 90 days, executives and officials say the new blanket tariff rate of 10 per cent could still destroy an industry built on razor-thin margins and the US’s own decades-old trade policy. The duties “make a mockery of Agoa, which was intended to help developing economies grow”, said Nkopane Monyane, a businessman and former ambassador who for years ran a major garment factory... 

Faced with catastrophic economic consequences, Lesotho has been forced to join the queue of countries seeking to appease Trump with economic concessions... Lesotho this week granted Trump adviser Elon Musk’s Starlink a 10-year operating licence... foreign minister Lejone Mpotjoane also offered to greenlight the construction of a Marriott hotel and consider importing corn and wheat from the US. Lesotho is also considering accepting third country national deportees from the US and deploying soldiers to protect US companies in mineral-rich DR Congo...

In 2002, following Agoa’s implementation, more Asian investors saw an opportunity to use their knowhow and global garment connections to tap the pact’s benefits. Taiwanese multinational Nien Hsing, which also runs operations in Mexico and Vietnam, built its largest operation in Lesotho, where it makes some 600,000 units of clothing monthly for brands including Levi’s. A fifth of its exports go to neighbouring South Africa, while the rest is US-bound. The apparel sector is the southern African country’s biggest private sector employer, with 30,000 direct jobs and tens of thousands more people working indirectly, according to the country’s main business chamber. The reams of cotton being stretched, cut and sewn at Nien Hsing’s factory are a testament to the global nature of the business: cotton sourced from Egypt and West Africa is spun into denim, which then travels to South African ports before landing in the US.

14. Importance of the dollar, or the "burden of being the reserve currency" as per the Trump administration. 

Nowadays, the US only accounts for about a quarter of the global economy, but more than 57 per cent of the world’s official foreign currency reserves are in dollars, according to the IMF... There are many other pots of sovereign and quasi-sovereign money that are not captured by the IMF’s data on foreign exchange reserves, and whether you are a bank in Mongolia, a pension plan in Chile, a European insurance group or a Singaporean hedge fund, dollars are the ultimate reserve asset. The dollar is equally central in trade, with 54 per cent of all export invoices denominated in dollars, according to the Atlantic Council. In finance, its dominance is even more total. About 60 per cent of all international loans and deposits are denominated in dollars, and 70 per cent of international bond issuance. In foreign exchange, 88 per cent of all transactions involve the dollar. Even physical US bank notes are widely held abroad, thanks to the dollar’s broad acceptance. In fact, about half of the more than $2tn worth of US bank notes in issue are held by foreigners, according to the Federal Reserve. This enormous international demand for dollars translates into an embedded premium to US assets and means that the US borrows more cheaply than it would otherwise do — what France’s former president, Valéry Giscard d’Estaing, once famously referred to as America’s “exorbitant privilege”. It also gives the US the power to sabotage another country’s financial system through sanctions.

The effect of the Trump tariffs

Last week the DXY dollar index — which measures the strength of the currency against a basket of its biggest peers — fell 2.8 per cent. This was its seventh-worst week in the past three decades. It has kept dipping this week, extending its 2025 decline to 8.2 per cent... Most notably, the dollar has been particularly weak against other “haven” currencies that typically strengthen when markets are turbulent, such as the Swiss franc and the Japanese yen, and against gold. That the greenback is seemingly being excluded from this select club of currencies is a shocking development to many analysts and investors.

But there are no alternative to the dollar and it's still far from its lows. Despite the April declines, the DXY dollar index is 12% higher than it was its lows in 2020 and 40% over its lowest in early 2008. 

15. Alan Beatie points to the incentive distortions facing US car manufacturers. The US production of light-trucks, including poc

The EU import duty on standard cars such as hatchbacks and minivans is indeed 10 per cent versus the US’s 2.5 per cent. But the US production of light trucks, including pick-ups, has long sheltered behind a 25 per cent tariff wall. The duty is known as the “chicken tax” after Lyndon B Johnson imposed it in 1964 in retaliation for European levies on American poultry. Industry experts say the Big Three car companies in Detroit — Ford, General Motors and Chrysler (now part of the Stellantis group) — have accordingly increasingly focused their innovation on making pick-up trucks and used the same platforms and components to develop gas-guzzling large sport utility vehicles (SUVs). Felipe Munoz, senior analyst at the market intelligence company Jato Dynamics, told me that while pick-ups and heavy SUVs were only 17 per cent of US light vehicle sales, “it’s where the Big Three US manufacturers make most of their money in the American market”. The rest of the world, however, tends to have narrower roads and higher fuel taxes than the US. “The protection has made the US car manufacturers less competitive globally,” Munoz told me. Japanese companies make family cars popular around the world: Detroit does not... It’s not EU protectionism that hurts American carmakers abroad. The European Commission has long had an open offer to the US to cut all industrial goods tariffs including cars to nil, which the US has failed to take up.

16. OpenAI facts of the day

No other company has ever built a consumer internet empire so fast. It took Google 13 years to reach 1bn users, while Facebook reached the same milestone in eight. Thanks to the viral success of ChatGPT, OpenAI looks on track to get there in three... chief executive Sam Altman said last week that its audience had doubled in a matter of weeks and now comprises a tenth of the world’s population. This is mind-boggling — ChatGPT only passed 200mn weekly visitors last August. Rapid growth has left the company little time to address some of the most fundamental questions for any consumer internet company.

17. Semiconductor chip supply chain 

Those supply chains cross so many borders that “no one [country] is self sufficient — not even close,” Chris Miller, a Tufts professor, added, noting that while Japan dominates the wafer business (with a 56 per cent market share), the US has a 96 per cent share in electronic design automation software and Taiwan controls more than 95 per cent of advanced chipmaking. Meanwhile, China processes more than 90 per cent of many critical minerals and magnets needed to make digital goods.  

Weekend reading links

1. Good NYT oped about Mexico's President Claudia Sheinbaum, perhaps the most popular leader currently among all electoral democracies. 

2. Starbucks runs into rough weather in its India growth plans. The same story of the large consumption class not turning out as expected.

Starbucks has sharply slowed its ambitious expansion in India as hard-pressed middle-class consumers cut spending at the coffee chain’s stores. The US company announced in January last year it would nearly triple its Indian outlets to 1,000 by 2028, but in the last three months of 2024, it opened just over half the 30 targeted for the quarter... Starbucks, which currently has 473 outlets in 74 Indian cities, opened only a net 16 stores in the three months through December, down from a post-pandemic peak and quarterly record of 29 in the January-March period last year.

3. Trump's irreversible destruction of trust in America.

One of the great advantages that the US has over China or Russia is that it has a global network of allies, created over the long term. Countries like Japan, Germany, Australia, Canada and Britain have often had doubts about the wisdom of particular US policies. But they have stuck with America because they believed, in the last resort, that their alliances were based on a firm bedrock of shared interests and values. The tariff war launched by the US — combined with the often hostile language of the Trump administration — has shaken that trust to the core. Mark Carney, the new prime minister of Canada, says that the US is “no longer a reliable partner”. Friedrich Merz, the next chancellor of Germany, has called for Europe to “achieve independence” from America. Anthony Albanese, the Australian prime minister, says the Trump administration’s tariffs on Australia are “not the act of a friend”.

4. Gideon Rachman compares Trump's approach to global markets as that of a "mob boss". 

There is a distinct whiff of Don Corleone in Donald Trump’s approach to trade and diplomacy. Like a movie mob boss, Trump knows how to switch between menace and magnanimity. Treat him with respect and he might invite you to his house, where you can mingle with his family. But the menace never disappears. As Trump once explained to Bob Woodward, he believes that “real power is — I don’t even want to use the word — fear.” Back in the Oval Office, Trump has employed fear and threats as a tactic for shaking down some of America’s top law firms and Ivy League universities. Like respectable members of the professional classes, unexpectedly threatened by the mob, Trump’s targets paid up quickly in the hope that all the unpleasantness would swiftly go away. Law firms like Paul Weiss and Skadden Arps agreed to do pro bono work for the administration to avoid being targeted by Trump’s executive orders.

He argues that this approach has limitations when faced with tariffs and sovereign countries. 

Trump’s assumption seems to have been that if he punched America’s trade partners hard enough, they would have no option but to make a deal. His son, Eric, urged targeted countries to see sense and to quickly buy off his dad. “I wouldn’t want to be the last country that tries to negotiate a trade deal with @realDonaldTrump,” he wrote. “The first to negotiate will win — the last will absolutely lose,” he continued. “I have seen this movie my entire life.” But the real world and the global economy turn out to be much more complex than the movies that Eric Trump was brought up on. The White House has started a trade war with every major trading nation simultaneously. It has also taken an axe to the supply chains of many of the world’s leading multinationals. There are simply too many actors involved for Trump’s mob boss tactics to work. There are all the investors who have rushed to sell their shares, causing stock markets to tank. There are the manufacturers who simply cannot do business under the conditions created by Trump — and who are shutting down production lines. And, as for Chinese President Xi Jinping’s mob, they have decided to fire back rather than buckle. This is getting extremely messy... Trump’s approach to America’s allies is to treat them like errant members of a protection racket. Some of them have fallen behind on their payments to Nato? They better fix that fast or, says Trump, he will encourage Russia to do “whatever the hell they want”... 

Trump treats Russian leader Vladimir Putin and Xi Jinping as if they are the heads of rival mafia families. There will be times when the families clash. Some foot soldiers and bystanders might get hurt. But, in the end, the goal is to reach a deal so that everybody can go back to making money. Geopolitical theorists might rationalise a carve-up like this as the division of the world into rival spheres of influence. But, it also resembles an agreement between different mafia families, to give each other a free hand on their own turf. The local godfather is then free to push around the smaller players in the neighbourhood — such as Taiwan, Ukraine or Canada — without comment from the rivals.

5. A peek into China's ultra-competitive and dynamic EV market.

From cars with roof-fitted drones to free self-driving software and five-minute battery charges, the rapid pace of electric vehicle innovation by China’s BYD is powering what some analysts believe is the most intense period of competition in the car industry... sales in China, the world’s biggest EV market, are forecast to rise about 20 per cent to 12.5mn cars this year. As EVs start to outsell cars with internal combustion engines, 78 per cent of those sales are being soaked up by just 10 companies, including 27 per cent solely by BYD, according to HSBC data. That leaves about 52 car brands fighting for the remaining 22 per cent of the Chinese market, including more than 30 marques that produce fewer than 30,000 cars a year and might soon face oblivion, according to Yuqian Ding, a Beijing-based analyst with HSBC. With a new car model released on average every two days in China, keeping pace with cutting-edge technology — such as assisted driving functions and the latest infotainment systems — has become crucial for survival as the market inevitably consolidates... Features such as automatic highway lane changing and automated parking were already becoming commonplace in China. But local carmakers are also increasingly developing more sophisticated autonomous driving software earlier than many analysts forecast, thanks to the help of AI-based large language models.

6. Tara Zahra writes about how globalisation and its consequences led to the World Wars. 

In 1913 the value of exported goods made up 14 percent of the world economy. By 1933, shattered by World War I and the Great Depression, it had slumped to 6 percent, and it did not recover until the 1970s. The backlash propelled the rise of right-wing authoritarian and fascist movements that promised to reverse or seize control of the forces of globalism. It ended in a catastrophic world war.

7. Challenges for iPhone manufacturing due to the Trump tariffs.

iPhone assembly is currently done in mainland China by companies such as Taiwan’s Foxconn and Pegatron and to a lesser extent in India, where Tata is building capacity as an Apple supplier. It is the final step in a vast chain of Apple suppliers, most of which are currently based in Asia. There are 387 individual parts involved in final assembly of an iPhone 16, according to market research group TechInsights, which include chips, circuit boards, batteries, wires, lenses, screens and metal and plastic parts. Apple’s most recent public supplier list, which covers the 2023 fiscal year, shows the 187 companies responsible for 98 per cent of the company’s direct spend that year. Of these companies, 169 had a manufacturing presence in mainland China and Taiwan.

Apple's efforts to relocate manufacturing to the US raises several questions. Given the reality of globalised supply chains, tariffs by the US on imports from Vietnam, Taiwan etc., not to mention China, would naturally make it impossible for US manufacturing to be competitive. Then there's the cost. 

It would probably cost Apple “several billions” of dollars to shift even a portion of its iPhone supply chain to the US, according to estimates by Morgan Stanley analysts. Wedbush analyst Dan Ives estimated it would take Apple three years and $30bn to move just 10 per cent of its supply chain from Asia to the US. “This is a company that has embedded itself in China and south-east Asia for decades, now seemingly looking at the prospect of being forced to change the entire way in which they think about building and pricing an iPhone,” says Erik Woodring, analyst at Morgan Stanley. The pressure comes despite Apple pledging in February to hire 20,000 staff as part of a $500bn US spending plan for the next four years that includes a new facility manufacturing servers for artificial intelligence in Texas. The fact that Apple does not currently run its own manufacturing facilities, but outsources them to Asia-based companies it has spent two decades and billions of dollars nurturing with specialist equipment, adds an additional layer of complexity.

8. This week saw the mother of all U-turns by President Trump on reciprocal tariffs, when he put them on hold for 90 days to negotiate deals with all trade partners except China (with who he ratcheted the tariffs to 125%) after having firmly ruled out any reversal on multiple occasions. 

Trump’s announcement, with the blue-chip S&P 500 closing up 9.5 per cent and the Nasdaq Composite surging more than 12 per cent. It was the best day for the S&P 500 since 2008 and the strongest for the Nasdaq since 2001. The massive rally in stocks added about $4.3tn to the market value of the S&P 500, according to Financial Times calculations based on FactSet data. The gains reversed some of the heavy losses for US stocks since Trump announced his wide-ranging tariffs a week ago.

The Bond markets did their bit to force the Trump reversal. While the stock markets unravelled in the face of tariffs, it was expected that the bond markets would in line with theory respond upwards. However, the opposite happened as the bond markets too tanked amidst signs of poor demand in a Treasury auction. A possible reason is the unwinding of "basis trades" (involving leveraged bets, often up to 100 times, so as to profit from the convergence between the futures price and the bond price) by hedge funds that had to exit US Treasuries in large volumes. 

Another factor driving the reversal was the push back from the plutocrats. Paul Krugman is spot on here. 

9. Elon Musk and DOGE conflicts of interest.

Job cuts at the US traffic safety regulator instigated by Elon Musk’s so-called Department of Government Efficiency disproportionately hit staff assessing self-driving risks, hampering oversight of technology on which the world’s richest man has staked the future of Tesla. Of roughly 30 National Highway Traffic Safety Administration workers dismissed in February as part of Musk’s campaign to shrink the federal workforce, many were in the “office of vehicle automation safety”... The NHTSA, which has been a thorn in Tesla’s side for years, has eight active investigations into the company after receiving — and publishing — more than 10,000 complaints from members of the public. Morale at the agency, which has ordered dozens of Tesla recalls and delayed the rollout of the group’s self-driving and driver-assistance software, has plunged following Doge’s opening salvo of job cuts, according to current and former NHTSA staff... 

Musk has promised customers and investors that Tesla will launch a driverless ride-hailing service in Austin, Texas by June and start production of a fleet of autonomous “cybercabs” next year. To do so, Tesla needs an exemption from the NHTSA to operate a non-standard driverless vehicle on American roads because Musk’s cybercabs have neither pedals nor a steering wheel... After a spate of incidents, the NHTSA in 2021 introduced a standing general order that requires carmakers to report within 24 hours any serious accidents involving vehicles equipped with advanced driver assistance or automated driving systems. Enforcing the order has been a vital tool for the agency to launch investigations into Tesla and other carmakers because there is no federal regulatory framework to govern cars not under human control. It was critical for a recall of 2mn Teslas in December 2023 for an update that would force drivers to pay attention when its autopilot assistance software was engaged.

10. Costs of Brexit

A variety of studies by the National Institute of Economic and Social Research, the Economics Observatory and the Centre for Economic Reform suggest that by 2022, business investment would have been 10-12.4 per cent higher but for Brexit. Former Bank of England Monetary Policy Committee member Jonathan Haskel said lost investment had already cost the UK £29bn. Other studies are less downbeat — the strength of UK service industries has softened the impact — but all point in one direction. The Office for Budget Responsibility continues to predict a 4 per cent permanent hit to UK productivity and a 15 per cent long-run fall in exports and imports. Even a more hopeful recent report by the LSE’s Centre for Economic Performance found that 16,400 businesses had simply stopped exporting to the EU after 2021.

11. Big Law deserves the Trump treatment. The decision by Paul Weiss, a storied US Law firm, to cut a deal with the US Government has saved it from an executive order by President Trump that in effect banned it from appearing in federal courts and cases over claims that its work on progressive causes undermined the judicial system. 

Paul Weiss is not the only firm to have been targeted by the Trump administration, and judges have since frozen critical parts of similar orders against Jenner & Block, WilmerHale and Perkins Coie for being illegal. But rather than litigate, Karp cut a deal with Trump that cancelled the executive order in exchange for concessions including $40mn worth of pro bono legal services on issues important to the president... Skadden Arps, an arch-rival to Paul Weiss for many of its corporate clients, reached a deal with Trump to offer $100mn worth of pro bono services to avoid being hit by an executive order. And this week, the deals kept apace. On Tuesday and Wednesday, Willkie Farr & Gallagher and Milbank, respectively, reached similar agreements to the one Skadden struck, meaning four major firms have now forged deals with the White House. In the Willkie and Milbank deals, the firms agreed to perform $100mn worth of pro bono legal services to Trump’s pet causes... some such as Perkins Coie, Jenner & Block and WilmerHale have resisted.... “No one is willing to go on the record because everyone’s concerned. I don’t want to pop my head up because you don’t know how it’s going to get smacked. But that’s very different from saying we don’t support what was done.” Another corporate adviser is more blunt: “It was a mafia-like shakedown . . . There was no choice. Do you have a choice whether to pay the mob?”

... While a large number of small and medium-sized firms are willing to support Perkins Coie in its legal effort to fight sanctions imposed by the Trump administration, the Financial Times revealed at the weekend that not one of the 20 top law firms in the US — most of which have large dealmaking businesses — has so far given their “unconditional support” to the effort... Shortly after Trump targeted Perkins Coie and Covington, Karp contacted the heads of several law firms to try to organise support for them. The response was almost non-existent, and also failed to materialise when the White House issued an executive order against Paul Weiss. “Disappointingly, far from support, we learned that certain other firms were seeking to exploit our vulnerabilities by aggressively soliciting our clients and recruiting our attorneys,” he wrote in the email to employees of the firm after he reached a deal with Trump... Some clients warned the firm’s partners that unless the matter was resolved swiftly, they would move their business elsewhere... During the meeting at the Oval Office, in a move that was not expected by Karp, the president patched in on speaker Robert Giuffra, the co-chair of rival firm Sullivan & Cromwell and a Trump donor, to help hammer out a truce. Karp swallowed his pride and agreed to the terms imposed by Trump...

Paul Weiss is one of a handful of firms that has created a thriving free-agent market for lawyers. Partners a decade ago would make perhaps $3mn or $4mn a year and would enjoy lifetime employment and generous pensions. With the growth of private equity firms, hard-knuckled hedge funds and a regular churn of multibillion-dollar corporate acquisitions, a small set of lawyers now command eight-figure pay packages and have no reluctance about jumping firms for the highest bidder... today’s lavishly paid top talent are less likely to display allegiance... One lawyer who has gone up against Paul Weiss put it more bluntly: “There’s too much fucking money. When a Big Law partnership is $2mn a year, people can have some principles because the fall isn’t so bad.” The calculation changes entirely, the person says, “when they are making $20mn a year”. Under Karp’s leadership, the firm has often been a ruthless advocate for the powerful. Its biggest clients include Apollo Global Management and Goldman Sachs, while it has also represented members of the Sackler family, who founded Purdue Pharma, the pharmaceutical behemoth that has been accused by prosecutors of stoking the US opioid crisis. Indeed, one of the considerations for the firm was its stable of private equity clients, many of whom are Republicans. As one partner puts it, if the firm only acted for clients whose ethics they agreed with then they would have no clients.

Arizona is experimenting with a reform to break the stranglehold of Big Law.

Since 2021, Arizona has been dishing out law licences under an “alternative business structure” programme that allows non-lawyers to own and run law firms. In February, the state’s Supreme Court issued a licence to global accounting firm KPMG, which plans to challenge major law firms for low-margin, high-volume work such as reviewing contracts. It’s a notable departure from previous practice, whereby state regulators restricted ownership of law firms to practising lawyers and strictly forbade non-lawyers from sharing in the fees or profits from legal work... The state has already granted over 100 other ABS permits to businesses that range from a unit of cut-price legal adviser Rocket Lawyer to Axiom, a nationwide staffing company that rents out lawyers on demand, like an Uber. Texas, Utah and Washington are considering similar systems. Together, these add up to a significant shifting of the ground underneath the feet of traditional law firms in the US, and the list will soon be swelled by more accounting and wealth management firms of national renown, according to advisers working on those applications. Arizona’s initiative follows liberalisation of law firm ownership in the UK and other countries, and is turbocharging innovation in the business of law across the US, with entrepreneurs and investors already testing the limits of existing state bar rules... the UK, which opened up its legal sector to outsiders in 2011. Law firms there are permitted to accept outside investment or float on the stock exchange, while non-law firms can also add legal practices to their offerings.

12. US corporate profits are at record highs.

13. Great graphical feature on China’s shipbuilding industry. 

Shipyards across the United States built just five large ocean-going merchant vessels in 2024, combining to a volume of 76,000 gross tons (GT). In the same year, just one Chinese shipbuilder, the state-owned China State Shipbuilding Corporation (CSSC), delivered over 250 ships, adding up to a staggering 14 million GT. That is more vessels by tonnage than the entire U.S. shipbuilding industry has produced since the end of World War II combined. When adding in the rest of China’s shipyards, the scale of the challenge before the United States and its allies becomes impossible to ignore… China’s rise in the global commercial shipbuilding industry has been extraordinary. The country’s market share surged from a mere 5 percent of the world total in 2000 to over 53 percent in 2024. South Korea and Japan, the only two other prominent players in the industry, have seen their combined share slip from 74 percent to 42 percent over the same period.

There’s an important strategic dimension to shipbuilding industry, especially the way China has structured its industry.

Many of the shipyards that support China’s commercial production also produce warships for the Chinese navy. The ability to leverage dual-use technologies, infrastructure, and materials for both commercial and naval shipbuilding provides cost savings and strategic benefits. In peacetime, orders for merchant ships sustain demand that keeps dual-use production lines humming, and during economic downturns naval ship orders can help offset downswings in commercial markets. In wartime, commercial production lines can be converted to naval production, rapidly scaling up the ability to churn out and repair warships.

The article describes how a tightly interlocked web of private and state-owned shipbuilders has enabled China to build this dual-use industrial complex. Foreign buyers have been central to building and sustaining this Chinese industry at such scale.

Foreign firms—many of which are based in countries with close defense relationships with the United States—are pouring billions of dollars of ship orders and transferring key technologies to China’s military industrial base. As a result, they are inadvertently bolstering China’s naval modernization… Between 2019 and 2024, foreign firms (outside of China and Hong Kong) purchased over 70 percent of all ships produced in China. Despite the visible ties between China’s Tier 1 shipyards and China’s navy, foreign buyers have ordered heavily from these yards. Between 2019 and 2024, foreign firms purchased 305 commercial vessels from Tier 1 shipyards alone, collectively bringing in tens of billions of dollars in revenue and pushing China’s naval yards further into the forefront of the global commercial shipbuilding market… Taken together, the hundreds of orders placed by foreign companies into Chinese shipyards have amounted to a massive injection of funds. According to China’s national shipbuilding industry association, the country’s commercial ship exports brought in a staggering $43 billion in 2024.

Weekend reading links

1. Shyam Saran points to two aspects of China's foreign policy of relevance to India.

The readout on the BRICS summit by the Indian and Chinese sides respectively point to sharp differences in their world views. While both countries talk about promoting multipolarity in the international order, India has reiterated that multipolarity in Asia must go hand in hand with global multipolarity. The Chinese readout omits that reference. This goes to the heart of the political dissonance between them. China has a hierarchical view of power and envisages an Asian order dominated by it. India does not accept this and is unlikely to do so in future. 

Mr Xi said that “development is currently the greatest common denominator between China and India.” This implies that economic and commercial relations between them should outweigh all other aspects of their relationship. Implicit in this is the expectation that the restrictive Indian approach to China trade and investment must give way to positive encouragement instead. Mr Xi has cleverly tapped into a strain of thinking among India’s leading corporate entities and some sections of the government’s economic establishment, that see limits on China trade and investment as inimical to India’s own development trajectory. There is a demand for a re-look at Press Note 3, which subjects China-related investment proposals to strict scrutiny, particularly from the security angle. With China one cannot divorce the political and security dimensions from the economic and commercial relationship. China consciously follows a strategy of asymmetric interdependence. Mr Xi has explicitly declared that China should make its economic partners more dependent on itself, while progressively reducing its own dependence on them. This is already apparent in India-China relations despite the limits imposed by the Indian government. Our industry depends on Chinese intermediates for the manufacture of pharmaceuticals. Chinese components have become indispensable for our electronics industry. For major infrastructure projects, such as ports, our companies wish to source cheaper Chinese equipment.

2. Nice profile of Frederic Vasseur, Scuderia Ferrari's Formula 1 team principal, who is trying to get the legendary team get back to winning ways. 

After finishing first and second at the US Grand Prix in Texas last weekend, Ferrari drivers Charles Leclerc and Carlos Sainz are pushing to catch Red Bull Racing and leaders McLaren Racing. The team’s resurgence has fuelled a three-way title race with just five races to go, confounding expectations of another year of Red Bull dominance, providing the legions of new fans attracted through social media and Netflix series Drive to Survive with a gripping end to the season.

3. I agree with Rana Faroohar in arguing that President Joe Biden's administration leaves a legacy that's far richer than that of several recent two-term administrations (notably that of Obama). 

Joe Biden may be a one-term president, but his administration has changed the global political economy in ways that will continue to resonate long after he is gone. In particular, his trade policy put an end to the era of laissez-faire globalisation, which tended to favour the unfettered interests of the largest corporations and state actors, and ushered in a post-neoliberal era in which labour, natural resources and the market-distorting effects of concentrated power are once again major concerns for policymakers... The great triumph of the Biden administration is that it has reawakened America and to a great extent the world to an understanding that power exists in the political economy, and all of the challenges of the day — from Chinese steel and aluminium dumping to Big Tech monopoly power to recurring financial crises, supply chain disruption and the evolution of AI — will require an approach that puts power, not just price, at the centre of market-making.

The one big negative is the government budget balance, which fell deeply into the red during the last four years. The most egregious example of government spending largesse was the $814 bn in stimulus cheques sent out in 2020 and 2021. 

4. Nice graphic on the bursting of China's real estate bubble, starting from 2016 before stabilising and again crashing in 2021.

Local governments in particular are increasingly struggling to pay their bills amid the property crisis, which deprived them of much-needed land sales. To recover the loss of their largest source of revenue, they have begun fining and taxing entrepreneurs.

5. Interesting snippet about Department stores (Neiman Marcus, Nordstorm, Macy's, Primark, TJMaxx etc) in the US

Back in the year 2000, US department store revenue was about $230bn a year. By the eve of the pandemic, the figure was $132bn... The industry... is growing weaker every passing year, as online retail and discounters such as TJ Maxx (no outpost at the King) take the low end and branded boutiques take the high. The department store is going the way of the small-town main street; it’s not totally clear what it is there for any more.

In the article Robert Armstrong point to four home truths about the paradox about the US economy - low unemployment and rising wages co-existing with widespread discontent about the economy. 

I’d bet that no one who works at the King of Prussia mall, or anywhere else, thinks they have their job because of a strong economy. Less so do they think that government policy got them their gig. An American’s job, when they have one, is a product of their own skill and initiative... Americans tend to associate deficit spending with the inefficiency of the public sector, not the productivity of the private sector. But, as it turns out, high government deficits and high corporate profits are often the very same thing. And corporate profits are strong right now... Which suggests a tidy, if not fully convincing, theory of why Americans think the economy is bad. They suspect that the prosperity they are experiencing is fake. At some point, global investors will refuse to buy expensive bonds from an increasingly indebted country, deficits will become impossible to maintain and the federal shopping spree will end... 

People just despise inflation. Pointing out that price increases are now close to a historically normal rate (which they are) is no good. Pointing out that wages rose right alongside inflation so buying power was maintained (which it was) is no good. Prices are a quarter higher, more or less, than they were five years ago. Any time anyone buys anything they are reminded of that fact, and that makes the world seem hostile and crazy every single time... Brands have even more power than we imagined. In the face of a frightening pandemic, shocking inflation, spiralling government deficits, Americans may have been unhappy, but they were not going to change their buying patterns. It isn’t just clothes. Mondelez, which makes Oreos — our national cookie, if not edged out by chocolate chip — raised US prices by one-quarter between 2021 and 2024. Did shocked consumers switch to cheaper alternatives? Of course not. Mondelez’s US sales held steady.

6. Peak population?

The UN’s latest central estimate forecasts that the global population will peak at 10.3bn in 2084. The IIASA puts the peak at 10.1bn in 2080, and IHME at 9.7bn in 2064.

The article points to the consistently lower actual birth rates than estimated across countries.

And the trend is same in parts of Middle East and Africa too.

Jesús Fernández-Villaverde, professor of economics at the University of Pennsylvania puts the true global peak at around 9bn in 2054, 30 years earlier than in the headline forecast.

Interesting that Mexico today has a lower birth rate than the US!

7. Toby Nangle has a very good primer on bonds. 

8. Concerns about India's economic growth.

In the auto sector, for instance, post-Covid, while the demand for passenger vehicles has recovered, sales of two-wheelers, often seen as an indicator of mass consumption and rural demand, have been sluggish. The number of two-wheelers sold in 2023-24 was about 15 per cent lower than the sales in 2018-19. The number of vehicles sold last financial year was also lower than that in 2018-19. 

Another concerning reading is the increase in the agricultural workforce. The basic understanding of development suggests that this number should go down as the economy grows and develops. The share of the workforce engaged in the agriculture sector has increased from 42.5 per cent in 2018-19 to 46.1 per cent in 2023-24. One explanation for these disconnects could be that recovery from the pandemic has largely been profit-driven, possibly with greater formalisation. Improvement in corporate profits has been reflected in the stock market rally over the past few years, though it may now be losing steam.

Also signs that urban demand has now become the problem in the place of the hitherto anemic rural demand. 

9. RBI's impossible challenge?

A bigger question is how far can the RBI really tame inflation, especially when it is driven by food, and within that, largely by vegetables. Vegetable inflation is 36 per cent and their overall contribution to CPI inflation is 42.8 per cent. The top 10 commodities that contributed most to CPI inflation in September are all vegetables. No wonder, vegetables have put RBI in a bind...

The outsize influence of CFPI on overall CPI inflation boils down to the outdated weights assigned to food and beverages in the CPI basket. Currently, they account for 45.9 per cent of the CPI, with food alone making up 39 per cent, based on a 2011-12 consumption survey. It is high time these weights are updated, based on the 2022-23 consumption survey... the greater the proportion of food in overall CPI, the harder it becomes for monetary policy alone to control inflation. So, replacing old food weights in CPI with new ones, which are likely to be about 5-6 percentage points less, should be a priority to reflect the reality better.

10. Indonesia bans the sale of iPhone 16 in the country because Apple failed to meet the country's 40% local content requirement in handsets and tablets. In 2019, Indonesia banned all nickel ore exports to boost domestic smelting and processing. Though the ban was in violation of WTO regulations, the country stuck to it, and it has now become an acclaimed example of successful industrial policy. Indonesia is now looking to downstream other such minerals. In the 2000s, Indonesia had also introduced a minimum export price for coal. 

11. Two interesting graphics that highlight the extent of political polarisation in the US. The first on climate change, note the degree of scepticism among Republicans.

Similarly on rule of law.

12. Good comparison of Samsung in Vietnam and Apple in India. 

Samsung has cumulatively invested a staggering over $22.4 billion in Vietnam... Samsung announced in May this year that it would invest $1 billion every year from now on in Vietnam. And to back up their manufacturing hub, they are setting up their largest R&D centre outside of South Korea with an investment of $220 million in Hanoi. The total investment that Apple’s three vendors had to commit for assembling phones in India under the PLI scheme was a mere Rs 3,000 crore... ICEA (India Cellular and Electronics Association) executives say that the three vendors have already put in more than Rs 10,000 crore. And if the ecosystem, which includes the Tata investment in mechanics and a brand new iPhone plant, is taken into consideration, the aggregate would be over Rs 25,000 crore ($2.97 billion)... Apple vendors have 15 factories to support them while Samsung has 28 factories of its own in Vietnam... the incentives of 4-6 per cent under the PLI scheme does not neutralize the cost disadvantage of making phones in India vis-a-vis Vietnam, which still remain 7-9 per cent. 

And one key reason is high tariffs on imported electronic components. The FTA weighted average tariffs of Vietnam is a mere 0.7 per cent compared to 6.2 per cent in India. And mind you, 80 per cent of Vietnam’s electronic imports are from countries with which it has an FTA compared to 25 per cent of India, according to an ICEA study for the government. Most firms that work in both countries point out that the ease of doing business in Vietnam is at a different level... Samsung’s other big success has been to integrate Vietnamese firms in their global supply chain. That clearly helps in improving efficiency, ensuring quality, saving costs, and increasing local value addition. For instance, the Koreans have been able to bring on board over 306 Vietnamese Tier-I and Tier-II suppliers and make them part of their global suppliers list. The number was 25 in 2014, and the increase has been 12-fold. And, according to estimates, there are now 52 Tier-I suppliers in the list compared to 4 in 2014. In contrast, Apple's global suppliers’ list has only 13 companies in India. Of them, only one is an Indian company — Tata Electronics — and six to seven are Chinese players, which, if the current FDI policy continues, will not be able to expand capacity... Bulk of the global suppliers for Apple are Chinese players that offer far attractive price and quality compared to other competing country sources. Yet, this road is not available to Apple in India. Apple has had to take the more difficult route... take time and build Indian vendors, or go for non-Chinese partners.

13. Big Tech companies' capital spending is set to surpass $200 bn this year and rise further in 2025, though there's little evidence of the returns driven by these AI-related investments. Capex at the four big companies - Microsoft, Meta, Amazon, and Alphabet - grew more than 62% and is expected to hit $209 bn, up 42% from 2023, with data centres accounting for about 80% of this total. 

14. India is the fifth best performing economy since the turn of the millennium!

15. John Burn-Murdoch on whether the rise of populism is here to stay or not.

Political scientists Matt Grossman and David Hopkins set out how the realignment of the political divide from class to education has formed strong new alliances that are likely to survive changes in political personnel. While arts and entertainment elites have long leaned leftward, academia has veered further to the left of the general population over recent decades. Conservatives have become a rare breed in journalism, and corporate bosses are increasingly aligned with the left...

Pockets of the business world remain bastions of conservatism but, as a general rule, the highest earners, the most influential individuals, and those who shape what is seen as cool vs uncool or correct vs incorrect now hold predominantly progressive views. This ties the right to anti-establishment politics in a way it never has been before... Portuguese researcher Vicente Valentim... argues that the rise of the populist right has been too rapid to have been caused by changes in people’s beliefs and values, and is better explained by the activation of reactionary views that were already beneath the surface.

The increasingly fragmented media landscape and rise of social platforms have probably played a part, both by showing individuals who have views previously seen as unpalatable that they are in good company, and by making it harder for elites to keep public discourse within certain guardrails. In a self-reinforcing loop, politicians now know there is a constituency for reactionary politics, and this part of the electorate knows its concerns have entered the “Overton window” of acceptability. Given the momentum behind these shifts, it is hard to see how the populist-right genie could be put back in the bottle.