Weekend reading links

 1. Profile of Wang Chuangfu, founder of BYD

Born in 1966 in the eastern province of Anhui, Wang is part of a generation of Chinese entrepreneurs who escaped poverty to join the nation’s newly minted billionaire class... Wang’s obsession with batteries led to a pivot to vehicles in the early 2000s. Cracking the five-minute charge this week builds on his pioneering “cell-to-body” technology — sandwiching a battery cell inside a vehicle’s structure... The company’s stock rally has also taken Wang’s personal net worth, according to Bloomberg data, to just shy of $30bn, making him one of China’s richest men. Despite that he remains a workaholic who lives humbly. His house is walking distance from BYD’s main factories and he dispatches lieutenants to public-facing events unless his attendance is absolutely necessary. Underlings have long described Wang as a restrained, highly detail-orientated micromanager. His approval was once sought for a business unit to distribute fruit to team members. But his passion for batteries has revealed a performative flare. To demonstrate to an investor just how safe his battery cells are, he has drunk battery electrolyte fluid. He has reused cells after trucks drove over them and frequently shows visitors batteries being penetrated by nails.

BYD plans to manufacture in India with a JV partner.  

2. Interesting insights from a survey of over 30,000 GenZ professionals and 700 HR leaders. 

Unstop, the community engagement and hiring platform for students and graduates, said that 83% of engineering school (E-school) graduates and 46% of business school (B-school) graduates remain without a job or internship offer in its report ‘Unstop Talent Report 2025’. A significant 51% of GenZ professionals seek multiple income streams through freelancing and side hustle, with the number rising to 59% among B-school students. The report also delves into the glaring gender pay gaps. Two in three female arts & science graduates earn below ₹6 LPA, while their male counterparts largely surpass this mark. However, B-schools and E-schools demonstrate pay parity, ensuring fair compensation irrespective of gender.

3. Borders and proximity is what matters on defence spending in Europe.

There is an inverse relationship between the two, with the well-protected south of Europe skimping, and the exposed north-east spending well above the Nato mark of 2 per cent of GDP. What compounds this problem are the respective populations. Portugal, one of the lowest spenders, has more people than all three Baltic states combined. Spain is bigger than Poland.

4. Striking graphics on the rise of solar and wind generation globally since 2017.

China has built more than 120,000 wind turbines, nearly a third of the world total, and 1.5 million acres of utility-scale solar.

5. Africa's poor progress in electrification should count as one of the biggest failures of international development. 

Nearly half the continent's 1.2 billion people are without electricity.

6. The history of free speech shows that it's a more recent phenomenon.

For millennia, people thought differently about words, actions and liberty. Instead of valuing liberty of expression, their main preoccupation was to limit it. Because they were acutely aware of the power of words and the danger of lies, slanders and other kinds of harmful speech, the public policing of such things was a central feature of every premodern society across the globe. “Free” speech, by contrast, was an exceptional mode, which took different forms — divine prophecy, frank advice to a ruler, religious disputation or the exchange of ideas within the scholarly Republic of Letters. Only around 1700 did our modern notion of it, as a general right to speak out on matters of public concern, begin to emerge... 

In 1695, amid political and religious disagreements, the English parliament failed to renew a law mandating the pre-publication licensing of books. The result was an explosion of novel kinds of print, and a growing international fascination with “liberty of the press” as an engine of enlightenment. The two competing models of free speech that we’ve inherited were created in this new media world. The first approach contrasted press “liberty” (which was beneficial) with “licentiousness” (which was harmful) — responsible vs irresponsible speech, rights vs duties. That balancing attitude remains, globally, the norm... The alternative, absolutist model of free speech was invented in London in 1721 by two partisan journalists, John Trenchard and Thomas Gordon. As I discovered, they were mainly writing to defend their own corrupt practices, and their theory was full of holes. Nonetheless, the slogans of their hit column, “Cato’s Letters”, which proclaimed that free speech was the foundation of all liberty and should never be curtailed, were soon taken up across the world, including by the rebel colonists of North America, who enshrined its clumsy formulations in their First Amendment — “Congress shall make no law . . . abridging the freedom of speech, or of the press”. No ifs, buts or qualifications. 

In no other country have speech laws ever taken that absolutist form. The subsequent history of American attitudes is full of unappreciated ironies. Even before the First Amendment was ratified in 1791, Americans abandoned its approach in favour of the balancing model popularised by the 1789 French Declaration of the Rights of Man. Until the 1910s the First Amendment remained a dead letter; it was only the radical, now forgotten arguments of US socialists and communists that subsequently resurrected it. Early theorists of free speech mainly conceived of it in terms of public opinion, assuming that liberty of expression would eventually lead to consensus about everything...

But from the 1960s, as part of the cold war backlash against collectivist ideologies, interpretation of the First Amendment swung instead towards its current, libertarian outlook. This produced an American jurisprudence obsessed with clear and abstract rules — which was gradually achieved by ignoring libel, falsehood, civic harm, the responsibilities of the media and all the most difficult problems of how communication actually works in the world. Its simple, anti-governmental interpretation has also been increasingly hijacked to invalidate laws regulating businesses, restricting money in politics or otherwise attempting to uphold the common good. Legally, corporations are persons, and the First Amendment trumps everything.

The author makes an important distinction between free speech and its amplification.

It is a mistake, when grappling with freedom of expression, to focus too much on speakers. Especially in our age of 24/7 viral media, the critical issue is not speech per se but the responsibility for its amplification. It’s entirely reasonable to require the private media (whether printed, broadcast or online) through which most “public” speech is actually circulated and consumed to be transparent in their practices, and accountable to the society in which they operate. That means at a safe distance from direct governmental control, but more than just the fig leaf of “self-regulation”.

7. A frontline of the new Cold War, in central Africa.

Zambia and Tanzania are negotiating with a consortium led by the state-owned China Civil Engineering Construction Corporation for a $1bn concession to rehabilitate and run the iconic... Tazara railway that links copper-rich, landlocked Zambia to Tanzania on Africa’s east coast... reviving the strategic export route to Beijing... Tazara showcases an attempt to use more equity investment by Chinese state companies after Beijing’s Belt and Road Initiative was marred by defaults in borrower countries, including Zambia... Started in 1970, the Tazara railway was designed to help copper-rich Zambia access overseas markets after white-controlled neighbouring Rhodesia, today Zimbabwe, shut its borders in opposition to the country gaining independence from Britain... 

Under Mao, Beijing forked out Rmb1bn in interest-free loans to build the Tazara, with thousands of Chinese labourers working alongside locals. At its peak, it ferried more than 1mn tonnes of copper, consumer goods and passengers annually. “The Tazara to this day is still the biggest Chinese aid project implemented in Africa,” said Tim Zajontz, a lecturer at the University of Freiburg. “It continues to be a symbol of the Chinese-African all-weather friendship, as many officials on both sides often refer to  it”...A rival US-backed project is under way to upgrade the colonial-era Lobito Corridor and ferry Zambia’s resources westward through Angola instead. Agreed under former president Joe Biden through the US International Development Finance Corporation, Washington is lending $553mn to the railway in a model that brought in private investors such as Trafigura and Mota-Engil.

8. While the tech stocks and US stock markets appear to be in a bubble, there are historical precedents. The US has been the leader throughout most of the last century, except a brief interregnum when Japan took over.

Big Tech's 37.4% of the market capitalisation in 2025 pales before the 62.8% capitalisation of Railways in 1900. 

9. Starlink and Space X are now the most valuable assets for Musk.

Roughly half of Musk’s $314bn net worth is now tied to SpaceX — which was valued at $350bn in a recent private tender offer — while his 20 per cent stake in Tesla has dwindled to $100bn. Morgan Stanley estimates Starlink will generate $16.3bn in revenue this year, up 74 per cent from an estimated $9.3bn in 2024, with subscribers almost doubling to 7.8mn from 4.65mn, according to a January report. By comparison, SpaceX’s rocket launch business is forecast to make $5.8bn in 2025 revenue, up 20 per cent from $4.9bn last year... Starlink has said its more than 7,000 low-orbit satellites provide service to 118 countries and territories, with Niger the latest to be connected last week... It has won contracts with major airlines including state-backed carriers Qatar Airways and Air France, shipping groups including MSC and Maersk, and cruise operators Cunard and Carnival. About a quarter of the company’s revenues come from government contracts, however. According to US filings, SpaceX has already secured 39 different Starlink contracts across the US government worth around $3.5bn, including multiple military contracts with the Department of Defense.

10. Even as he takes the chainsaw to the US federal government, it emerges that Elon Musk's companies have received $38 bn in government contracts, loans, subsidies, and tax credits in the US over 20 years, with nearly two-thirds coming in the last five years. 

“Not every entrepreneur at this scale has been this dependent on federal money — certainly not Nvidia, not Microsoft, nor Amazon, nor Meta,” said Jeffrey Sonnenfeld, professor at the Yale School of Management, who noted that much of the funding has come during Democratic administrations. “With DOGE, there does seem to be a paradox there. He has been a big beneficiary of national industrial policy, especially Democrat industrial policy, through government funding.” Government funding also provided key early infusions to Musk’s ventures. NASA and the Defense Department nurtured SpaceX in its earliest years with contracts that helped it build infrastructure, while the agency tolerated the company’s failure to meet required milestones on time, according to congressional investigators. The $465 million Energy Department loan, which arrived in 2010, helped fuel Tesla’s meteoric rise: With that money, the company engineered and assembled its luxury electric sedan — the Model S — and bought a factory in Fremont, California, according to the agency. Tesla went public six months later... Since its 2003 Silicon Valley founding, Tesla has benefited from billions in rebates and tax credits from California. The state’s governor, Gavin Newsom (D), has claimed that “there was no Tesla without California’s regulatory bodies, and regulation.”... About a third of Tesla’s $35 billion in profits since 2014 has come from selling federal and state regulatory credits to other automakers... Tesla is the largest seller of these credits to automakers that don’t meet the standards and want to avoid paying a fine.

And that of Space X

11. Big Tech and job creation graphic of the day, Nvidia edition. (HT: Adam Tooze).

Even as its revenues doubled in 2024 from $61 bn to $130 bn, its headcount went up by just 20%!

12. The rise of Chinese e-commerce giants, Shein and Temu, has become a lightning rod for the backlash against cheap imports. President Trump ordered a halt in February to the so-called de minimis shipments, duty-free entry without inspections of parcels worth up to $800. 

The number of duty-free shipments to the United States has risen more than tenfold since 2016, to four million parcels per day last year. Similar shipments to the European Union have climbed even faster, reaching 12 million parcels a day last year. Duty-free shipments to developing countries like Thailand and South Africa have also surged… Last summer, South Africa imposed 45 percent tariffs on even the smallest imports of clothing. Thailand ended its exemption of low-value imported parcels from sales taxes, although it continues to allow tariff-free entry of parcels up to 1,500 Thai baht ($44). And the European Commission, the executive arm of the European Union, proposed this month to end the 27-nation bloc’s duty-free treatment of packages worth up to 150 euros ($156)…

Guangzhou has emerged as the global hub of de minimis shipments… Shein and Temu, competing Chinese e-commerce giants that together hold at least a third of the de minimis industry, coordinate much of their supply chains from large offices in Guangzhou… Yiwu, a city 600 miles northeast of Guangzhou with a vast wholesale market, has become another hub. It coordinates de minimis exports of toys, hats and other small items from towns scattered across the Yangtze River delta.

13. Mihir Sharma hits the nail on its head in his diagnosis of the ongoing trade wars

The fundamental flaw at the heart of how international trade in the era of the World Trade Organization (WTO) functions is the polite assumption that all economies are similarly structured. In other words, that costs, subsidies, and protections are transparent. Unfortunately, the biggest trading power in the world does not meet these criteria. If the People’s Republic of China violates this assumption, then the entire trading system is built on a lie. It is to this baseline problem that US actions, and those of others from the European Union to India, are responding. China’s accession to the WTO was premised on the assumption that its economy was, or eventually would be, comparable to the market economies that designed the system. The fact that it was not then; nor has it tried hard enough since to become one. As a consequence, it has built up imbalances domestically — and, thanks to its sheer size, those imbalances have expanded and mutated till they cover the entire world...

Hidden subsidies to power, land, and capital mean that competing with Chinese manufacturing has become very difficult for more transparently-run economies. By some estimates, China has the lowest average electricity price for industrial users among major economies. It is about 60 per cent of the equivalent in India, and about a quarter that of Germany’s. Meanwhile, it has increased and is still increasing the use of targeted tax subsidies in export-oriented sectors such as electric cars, batteries, and solar panels. There is no recourse within the WTO system for China’s trading partners if they want to correct this issue. It is not entirely surprising that both parties in the US have lost faith in WTO dispute settlement.

14. Africa's India rice dependency

Africa is typically a large market for broken rice — accounting for more than 80 per cent of India’s exports over 2018-20, according to data from the International Food Policy Research Institute. In 2022, Indian rice accounted for more than 60 per cent of rice imports for 17 African countries and more than 80 per cent in nine, including Somalia.

15. Trump bump has raised the flagging prospects of political leaders in many allied countries. 

16. In so far as it brought together the Bannonite nationalists, the MAGA populists, and plutocrats under one umbrella, the Trump coalition was one of opportunism. And its internal contradictions are now starting to show on the back of the DoGE cuts on welfare spending and associated departments. 

Over the next few months, he will have to find a way to balance the interests of both the fiscal hawks and billionaire allies, who want to radically downsize the federal government, and his working-class Maga base, which has become heavily reliant on government support... a growing section of voters has come to rely on government transfers, the result of an ageing society and rising inequality. These include Medicaid for poorer families and Medicare and Social Security for retirees. In 2000, according to the Economic Innovation Group, a think-tank, just 10.4 per cent of counties in the US derived a quarter or more of their total personal income from transfers. But by 2022, that had risen to 53 per cent of counties in the US. Many of those counties are in the sort of rural areas where Trump is hugely popular. 

“As much as Republicans like to rail against big government, [their voters are] often its biggest beneficiaries,” says John Mark Hansen, professor of political science at the University of Chicago. Or as Steve Bannon, one of the architects of Trump’s initial rise to power, put it in a recent podcast: “Medicaid’s going to be a complicated one . . . a lot of Maga’s on Medicaid.”... Income from government transfers was the fastest-growing major component of Americans’ personal income, according to the EIG report last year. It said they made up 18 per cent of all personal income in the US in 2022 — a total of $3.8tn — with the share more than doubling since 1970. Transfers, which include state pensions and state health insurance, as well as veterans’ benefits, food stamps, unemployment insurance and other benefits, were now the third largest source of Americans’ personal income, after income from work and investments, EIG said. The main driver of this trend, EIG said, was the ageing of the US population. Because the largest transfer programmes — Social Security and Medicare — are aimed at people of retirement age, transfer payments expand as the elderly population grows... 

The trend is not confined to a few poor pockets of the country. The report says that “most US counties depend on a level of government transfer income that was once reserved only for the most distressed places”. It said the transfer share runs highest in parts of the country that are “rural, old and poor”. Some of these, Appalachia and the rural South, are firmly Republican... A report by the Center for Children and Families at Georgetown University in January found that there are 15 states where at least one-fifth or more of non-elderly adults in small towns and rural areas are covered by Medicaid. Of these, eight voted for Trump in November.

Weekend reading links

1. Two graphics that capture the difference between Trump 1 and Trump 2. First on the stock market performance.

Second on market volatility.

2. Scott Galloway points to a graphic that highlights how important US government spending on R&D has been to US leadership in technology sectors.

3. Stock market corrections (more than 10% declines) and bear markets (more than 20% declines) in the US.

4. As the Trump administration mounts pressure on restricting imports from China, its officials are worried about the possibility of tariff increases by the likes of Mexico. A loophole in the WTO rules allows developing countries which were erstwhile members of GATT to legally raise tariffs steeply and suddenly on Chinese goods while Beijing would have no right to retaliate. 

Mexico is also one of several dozen developing countries that were members of the General Agreement on Tariffs and Trade, which preceded the creation of the W.T.O. These countries reached a special deal at the founding of the W.T.O., making very few binding commitments to reduce their tariffs. They were instead encouraged to gradually lower tariffs voluntarily... W.T.O. rules bar countries from raising tariffs against a single country... But the W.T.O. does allow countries to raise tariffs to their highest bound ceilings provided that the increase applies to all imports of the targeted product from around the world. China exports almost all of the world’s supply in many categories of manufactured goods. That makes it possible for developing countries to raise their applied tariffs in these categories and hit almost exclusively goods from China... Mexico is not one of the 27 countries that has signed a free-trade agreement with China, so the Mexican government can raise tariffs on Chinese goods... Mexico has reduced its average tariff to 7 percent, according to the W.T.O. But Mexico’s average “bound” tariff — which it could start charging immediately by simply sending a notification to the W.T.O. — is 36 percent.

5. Thread on the failed security and economic promise of Pakistan's Gawdar port.

6. Drone warfare in Ukraine

The latest battlefield reports from Kherson, the frontline city liberated in late 2022 after months of Russian occupation, reinforce his depiction of a high-tech war. Oleksandr Prokudin, head of the Kherson regional military administration, says the number of drone attacks on the city is intensifying, most recently to about 1,700 a week. The Russians, he adds, are now using a new type of drone operated via fibre optic cables rather than radio signals, which are harder to detect and jam. Ukrainian forces are trying to respond by using nets to tangle the cables. It is like a scene out of Star Wars, Prokudin says. Ukraine drone production has soared and is due to reach 2.5mn to 3mn units this year. Oleksandr Yakovenko, the chief executive of TAF Drones, is one of the leading manufacturers in the nascent drone industry. Last year his company manufactured 400,000 drones. This “will be the year of the land drones” or robots with wheels, which are used to evacuate the wounded or deliver supplies, he predicts.

7. John Burn-Murdoch has a great set of graphics that illustrate how Maga America of Donald Trump is closer in political and internationalist values to China and Russia than it's to even the right-wing parties in Europe. 

The US Republicans of 20 years ago were no keener on autocracy than the average Canadian or western European — and just as supportive of international co-operation... But the breadth and depth of the divide today means dialogue between Trump and Sir Keir Starmer or Emmanuel Macron is akin to the first meeting between two previously isolated civilisations. Goals, strategies and tactics that are a given across the rest of the west seem anathema to Trump and Vance. This disconnect explains why the UK’s prime minister could have what was by all accounts a successful meeting with the US president, only to be blindsided on a fundamental issue hours later. While the Maga movement had already begun this value divergence in 2016, the bulk of Trump’s most norm-breaking inclinations were kept in check by those around him in his first term. But those moderating influences have since been replaced by cheerleaders and powerful lieutenants. In this sense, the US government now embodies the values behind Trump’s and his supporters for the first time, and is rapidly showing them to be misaligned even with most western conservatives.

8. South Korean cram schools

According to a first-of-its-kind government survey released on Thursday, 47.6 per cent of South Koreans under the age of six are enrolled in cram schools known as hagwon, for-profit private education centres that come on top of regular schooling. The survey also showed that a quarter of children under two are in cram schools. Families’ monthly tuition cost for preschoolers averaged Won332,000 ($228), with children attending private classes for an average of 5.6 hours a week. The average monthly tuition for kindergartens specialised in teaching English — popular in wealthy districts of Seoul — reached Won1.5mn. Cram schools, which offer lessons in subjects such as English, maths, science and essay writing, have grown into a big industry in South Korea. Parents turn to them to give their children a leg up in the intense competition for places at top universities and well-paying jobs at the country’s handeducful of conglomerates... This competition, in turn, has put a significant burden on family finances, driving up household debt and depressing domestic consumption. Total family spending on private education rose 7.7 per cent last year to a record Won29.2tn, even as the number of students fell 1.5 per cent, according to the statistics office.

9. French wines are threatened with 200% tariff by President Trump.

Épernay sits in the heart of a region that produces the world’s finest bubbly. The United States is its biggest foreign market, with 27 million bottles shipped there in 2023, valued at around 810 million euros ($885 million). Chardonnay, pinot noir and meunier grapes blanket the rolling hills and deep valleys of Champagne, which covers more than 130 square miles, from the city of Reims to the Aube river. The area is under France’s strict Appellation d’Origine system, which ensures that only the sparkling wine made here, using specific methods, can legally be called Champagne. With more than 4,000 independent winemakers and 360 Champagne houses, the region produces around 300 million bottles annually, with one billion more resting in cellars. The biggest houses — including Dom Pérignon, Veuve Clicquot and Moët & Chandon, owned by the luxury conglomerate LVMH Moët Hennessy Louis Vuitton — dominate production and exports and account for a third of total sales.

10. Good set of suggestions on GST rate rationalisation. 

There is now some consensus that the key to boosting employment lies in the growth of four labour-intensive manufacturing industries, namely textiles (from yarn to fabrics of both cotton and man-made fibre), leather and footwear, food processing, and toys. Therefore, as a starting point in the rate-rationalisation process, we should bring all these four product categories under the merit rate of 5 per cent, which must now be raised to at least 8 per cent to allow for input tax credits to flow seamlessly without accumulation. This should be combined with imposing zero rate on all single-use inputs and intermediates used in these four sectors. This import duty regime should be allowed for imports from all countries under the Most Favoured Nation (MFN) arrangement. This will give a boost to these labour-intensive industries and also encourage foreign direct investment in these sectors, which has not yet happened.

11. Europe strikes back!

Arms companies from the US, UK and Turkey will be excluded from a new €150bn EU defence funding push unless their home countries sign defence and security pacts with Brussels. The planned fund for capitals to spend on weapons would only be open to EU defence companies and those from third countries that have signed defence agreements with the bloc, according to a European Commission proposal put forward on Wednesday. It would also exclude any advanced weapons systems upon which a third country had “design authority” — restrictions on its construction or use of particular components — or control over its eventual use... The policy is a victory for France and other countries that have demanded a “Buy European” approach to the continent’s defence investment push, amid fears over the long-term dependability of the US as a defence partner and supplier triggered by President Donald Trump.

In a landmark vote, the German parliament approved with more than two-third majority the constitutional changes required for relaxing the country's strict debt, thereby endorsing Friedrich Merz's plans to inject up to €1tn in military and infrastructure. 

The Christian Democrat is seeking to increase defence spending and create a €500bn, 12-year fund to modernise hospitals, schools, roads and energy networks. Economists have estimated that the country’s armed forces need more than €400bn in coming years, funding likely to be unleashed by Merz’s reform, which will also loosen borrowing rules for the country’s 16 federal states... The key move sought by the incoming chancellor is to exempt most defence spending from the “debt brake” enshrined in the constitution in 2009.

12. Gillian Tett points to the possibility of the Trump administration forcing the sale of Danish company Novo Nordisk (maker of weight-loss drugs Ozempic and Wegovy) to an American firm as part of negotiations on Greenland! 

One colourful idea floating around the Trump ecosystem is that the drugs could be a bargaining chip in future negotiations with Denmark, perhaps by pushing for a US acquisition. After all, many American “voters care about Ozempic,” as one observer tells me, noting that another possible tactic would be for the US to demand a krone revaluation, to keep Denmark linked to dollar-based finance.

She also writes about how the normal rules of diplomacy and business are being upended by the Trump regime. 

Investors parsing the world should pay attention to four practical points. First: as Elon Musk noted this week, the so-called “Overton Window” — or frame for policy ideas — is widening fast; nothing can be ruled out. Second, Trump’s team want to expand their negotiating leverage by mixing economic, financial, trade, tech and national security issues in a manner alien to anyone trained in a 20th-century MBA programme — or, for that matter, economics. Third, some of Trump’s advisers have a mental vision of great power rivalry that feels uncannily familiar to students of Central Asian history. Nuuk, Greenland’s capital, is the 21st-century version of Samarkand or Kabul — and Ozempic akin to saffron. This explains why Trump has focused on the frozen north, with its minerals, future transit routes and long borders with Russia and China. So, too, his ambivalence about Nato... a fourth point: institutions such as Nato, and smaller countries, suddenly look vulnerable. Just consider the recent ritual humiliation of Volodymyr Zelenskyy, Ukraine’s president, in the Oval Office. This may be a template for how bullying gets ratcheted up.

13. An important red flag for the US economy, its housing development market. 

In an era of higher-for-longer interest rates, many homeowners have held off big-ticket projects that require financing. With mortgage rates hanging above 6.5 per cent, homeowners who locked in cheaper loans have been less likely to move, slowing the pace of housing turnover that historically prompted renovations... Existing-home sales fell 1.2 per cent in February from a year before to a seasonally adjusted annual rate of 4.26mn, according to data released on Thursday.

14. Are we at peak-booze?

In the US, the sector’s most important market, alcohol consumption per person fell 3 per cent last year in the biggest drop since the prohibition era a century ago, according to research by Bernstein. Drinking is now languishing at its lowest level since 1962, down 20 per cent on its 1980s peak. The World Health Organization said last month that drinks should carry prominent labels warning consumers of the link between alcohol and cancer, something Ireland will become the first country to do in May next year... The warnings come as declining alcohol consumption, growing health awareness and the effects of weight-loss drugs on drinking habits cement a negative narrative around the industry... alcohol’s decline has been more gradual, with consumption in developed markets steadily falling since the 1960s, according to the WHO, a steeper drop-off over the past three years has sounded alarm bells for investors. Global drink stocks have sunk almost 8 per cent in the 12 months to February. Alcohol shares now trade at a significant discount to the rest of the consumer goods... Studies show that weight-loss and diabetes drugs, such as Wegovy and Ozempic, could cut opioid and alcohol abuse up to half.

The return of Japan, Germany and Europe?

Amidst all the turmoil from the Trump shock, two regions widely perceived as perpetual laggards and accused of free-riding on the US security blanket - Europe and Japan - deserve greater attention. For a long time, both have been overshadowed by the dynamism and growth of the US economy. That might be changing, both due to America’s self-inflicted problems and them getting their acts together. 

Europe gets a lot of bad press, especially compared to the US. Its fractured political union and tortuous decision-making process are matters of constant ridicule among commentators and media. I have always thought that it’s an unfair characterisation.

As a counterfactual, imagine making the same decisions in a federal country where both political and economic union is deeply institutionalised. In the absence of the kind of institutional powers that the governments of these countries enjoy, they would have found it very difficult to mobilise consensus among the warring political parties and federal constituents. 

Further, notwithstanding their squabbles, the strong unity of purpose and rapid mobilisation of resources in the aftermath of the Russian invasion of Ukraine shows that Europe tends to get its act together when it matters. Finally, the comparison with the US is unfair not only because the US is a sovereign country but also because of the US’s unmatched economic dynamism and exceptionalism. 

True, there are aspects of European politics and economics that are matters of debate. The European economy could do with more dynamism and entrepreneurship. It could deregulate and prune down its excessively generous welfare state. It could invest more in its defence and project its soft and hard power to play an active role as a global hegemon. It could avoid free-riding on Russian energy sources and the Chinese market and their manufacturers while oblivious to and externalising their strategic costs. It could also calibrate towards a more balanced trajectory on immigration and climate change. 

But these European trends also have had their merits. European governments have been the undoubted trendsetters on climate change mitigation, and at an ambitious pace at that. European regulators have taken the lead on competition and anti-trust with several bold and path-breaking decisions. The conservatism or perceived lack of dynamism among European firms and financial institutions also reflects a reluctance for the unqualified embrace of the short-sighted shareholder wealth and efficiency maximising American corporate culture. Europeans must retain all these desirable features while striving for a balance in their policies. 

In any case, the important development is that, caught on the wrong foot from the decisions in Washington, Europe appears to be coming together and responding in one voice. President Trump has shocked and awed the Europeans with his whimsical tariffs, embrace of Russia, support for far-right parties, and withdrawal of the post-war security blanket. 

America’s embrace of Russia has also led to a remarkable about-face between the UK and EU as they started talks to set up a Europe-wide shared defence funding structure. The new-found leadership of the British Prime Minister in rapproachment with Europe and standing up to Russia has been praised as Winston Starmer! 

The external threat, perhaps even existential, appears to have been the right stimulus for Europeans to galvanise and bite the bullet on several long-delayed reforms. Gideon Rachman has even written that “Trump is making Europe great again”. 

A poll last week showed that 78 per cent of British people regard Trump as a threat to the UK. Some 74 per cent of Germans and 69 per cent of the French agree. In another poll, France was rated as a “reliable partner” by 85 per cent of Germans and Britain scored 78 per cent — the US is down at 16 per cent… The Europeans can see how much trouble the Ukrainians are in after the Trump administration’s decision to cut off flows of intelligence and weaponry. So they are pursuing a two-track policy. They need to delay the severance of American military support to Europe for as long as possible, while preparing for that moment as fast as possible.

A landmark reform may be the dissolution of the last resistance to the issuance of common European debt. The first blow in this direction came in the aftermath of the pandemic to issue common debt to fund the post-pandemic recovery. But that was considered an exception in response to an extraordinary event. The latest decision to allow the European Commission to raise €150 bn to spend on the EU defence industry may be a more seminal shift. As Rachman writes, it has implications that go beyond raising money for defence. 

It also offers the chance to build up the euro as an alternative to the dollar as a global reserve currency. The capriciousness of the Trump administration means that there is a considerable global appetite for an alternative to US Treasuries as a safe asset…Trump’s final favour to Europe is to hasten the post-Brexit rapprochement between the EU and the UK. Sir Keir Starmer and Emmanuel Macron, the British and French leaders, have worked together closely on Ukraine. They could form a powerful triumvirate with Merz… The prospect of repairing some of the damage done by Brexit underlines that this is not just a moment of threat for Europe. It is also a moment of opportunity. Europe can now plausibly offer a more stable business environment than Trump’s America — which may already be reflected in the relative performance of stock markets in the US and Europe. As the Trump administration increases its assault on US universities, there is also a chance to attract leading researchers to Europe. The gap in salaries and research money between North America and Europe is large. But the overall sums of money involved are small, when compared with the amounts being thrown around for defence. 

He also points to lessons from history about Europe’s resilience when faced with adversities. 

There will be plenty of disagreements and setbacks on the way to greater European unity. France and Germany are already clashing over how the new EU defence fund will spend its money. Every clash like that will feed the scepticism of those who say that Europe will never get its act together. There were similar doubts and setbacks on the often bumpy road to setting up the original European coal and steel community in the 1950s and the single currency in the 1990s. But European leaders got there in the end because the political imperative to agree was so overwhelming. All of the great leaps forward for European unity have been caused by geopolitical shocks — first the end of the second world war; then the end of the cold war. Now, courtesy of Trump, we are looking at the end of the transatlantic alliance. Europe responded with strength and inventiveness to the last two great challenges. It can do so again.

Martin Wolf echoes Rachman

Since the 1970s the US has suffered a moral collapse from which it is unlikely to recover. We see this daily in what this administration is being allowed to do to US commitments, to allies, to the weak, to the press and to the law… Maga attitudes are close to those of today’s Russians: power will not be yielded easily. This is a truly historic catastrophe. But if the US is no longer a proponent and defender of liberal democracy, the only force potentially strong enough to fill the gap is Europe. If Europeans are to succeed with this heavy task, they must begin by securing their home. Their ability to do so will depend in turn on resources, time, will and cohesion.

Wolf also points to the challenge of a sharp and rapid break from the US in its security and defence strategies. 

Its economic potential cannot be turned into strategic independence from the US overnight. As the London-based International Institute for Strategic Studies shows, European weaponry is too dependent on US products and technology for that to be possible. It will need a second and scarcer ingredient — time. This creates a vulnerability shown, most recently, by the feared impact of the cessation of US military support for Ukraine. Europe will struggle to supply what will be missing.

Europeans must scale down their excessive public spending and redirect some of it towards defence. 

Fortunately, lower fiscal deficits and net debt-to-GDP ratios compared to the US mean that Europeans have the fiscal space to substantially increase their defence spending from its current low level of 1.9% of GDP. 

Another example of the European shift is in climate change. There has been a subtle shift away from rapid decarbonization towards a more prudent strategy to prevent deindustrialisation. The clean industrial deal to support some of Europe’s biggest polluters while sticking to the EU’s green targets and the dilution of new emission rules for internal combustion engine cars are examples. 

Scott Galloway has a very good blog where he argues passionately for Europeans to get their act together and take the lead in defending liberal democracy. Fortunately, the timely Draghi Report that looked at the challenges of competitiveness and dynamism faced by European companies has clear diagnosis and concrete recommendations on restoring Europe’s economic prospects. 

Nowhere in Europe has the Trump shock found stronger introspection than in Germany. The incoming coalition there under Friedrich Merz has stressed “independence” from the US and signalled its resolve to move ahead economically and militarily without the US. He has sought a paradigm redefining shift from Germany’s traditionally tight fiscal conservatism and committed to do “whatever it takes” to invest in infrastructure and defence and stimulate the economy. 

The proposed scheme is reminiscent of the efforts after reunification and allows for potentially unlimited borrowing for defence spending and the creation of a €500bn 10-year fund to drive infrastructure investments. The plan is expected to provide up to €1tn of additional borrowing over the next decade, more than a fifth of the country’s output. The plan requires a two-third supermajority support for the relaxation of the “debt brake” written into the German constitution in 2009 that limited the government’s incremental borrowing to a very stringent 0.35% of GDP. It would do this by enabling the exclusion of everything over 1% of GDP spent on defence. 

Goldman Sachs anticipates that the plan could drive German defence spending to as much as 3.5 per cent of GDP by 2027 — up from 2.1 per cent in 2024 and a mere 1.5 per cent in earlier years, according to Nato numbers. The FT calculationsof the €1.9tn in fiscal space assume that German nominal GDP will increase by 2 per cent per year from €4.3tn to €5.4tn by 2035. This estimate is likely to be conservative, as it does not account for any real GDP growth, should inflation match the European Central Bank’s 2 per cent target. Others too have estimated an atleast 2 per cent growth trend with the stimulus spending. 

The markets reacted to the announcement with the yield on the 10-year Bund surging 0.31 percentage points to 2.79 per cent, its biggest one-day move since 1997. Fortunately, instead of being alarmed, this should be seen as a strong signal of endorsement of the decision from the markets and a vote of confidence in Germany’s economic prospects. Accordingly, the Dax surged, and the shares of German defence and infrastructure companies have been rising. 

The country’s debt-to-GDP is expected to rise from 63% to 84%, far lower than the levels in other major developed economies. Further, this mirrors the post-reunification rise in borrowing, when the debt share of GDP doubled in two decades, and from 41% to 60% in just five years. 

Some infrastructure projects, such as a €53bn investment plan for Germany’s creaking railway infrastructure between 2025 and 2027 that was fleshed out late last year, are largely “shovel-ready”, providing the potential to more or less immediately lift growth.

Underlining the growing promise about Europe’s economy, its stock markets have been the standout performers in 2025. German Dax has led the way. 

This brings us to the second region where things are looking up. The Japanese economy is often held out as a portend on many macroeconomic problems - stock market stagnation, zero interest rates, deflation, weak currency, high debt, declining workforce, zombie companies etc. There are signs that the country has managed to overcome all these and may be becoming a more normal economy. 

The FT has an excellent graphic that captures the country’s economic trajectory since 1980, in particular pointing to a possible “lost decade” since 2010. 

For a long time, Japan did everything possible, including an extended period of BoJ keeping rates below the zero bound, to bring back inflation. Finally, inflation is back. It's a different matter that while it has got inflation, its consumers don't appear to be liking it! BoJ's policy rate, which has never gone beyond 0.5%, looks set to rise.

In January, core inflation reached 3.2%, well past the BoJ's target rate of 2%, and nominal wages have been rising (also due to a shrinking workforce), and headline pay rise hit a multidecade high last year. 

Japan’s great inflection is happening under an extraordinary confluence of pressures. Geopolitics have pushed up prices of energy as well as food, both of which Japan imports in abundance. The yen, partly because of the Japanese corporate and institutional tendency to invest abroad, has been weak for an extended period. And the rate of population shrinkage in the country is approaching an average of two people every minute, reordering the way business thinks long term about labour supply and a historic duty to keep unemployment low... More broadly, the consequences of a Trump-induced global tariff war, potential episodes of severe currency volatility and the threat of economic downturn in the US are adding uncertainty.

But amidst all these headwinds, the return of inflation offers tantalising possibilities for a country where massive amounts of household savings are sub-optimally kept in low-return fixed-income assets. In most contexts, rising inflation and interest rates come with concerns of weakening economic growth and recession. But in the case of Japan and Germany, they might be different and even welcome. 

Even if late, the BoJ may have to be credited with a successful strategy to transition expectations from a deflationary era. 

The impact on Japanese households is of keen concern to everyone, notably the government and central bank — and here again there are complexities... In preparing for normalisation... the BoJ purposefully positioned itself behind the curve. It allowed two full years for both headline and core inflation to approach its target before taking action, in the hope that households would have time to adjust. There are some indications that the policy has worked. Although price rises have forced many companies to raise wages, there was a delay during which households were unable to save as much as they did during deflation. And just as people realised they needed greater returns on their savings to survive, asset values — including domestic and US stocks — were rising. “That helped reintroduce the concept of a time value of money,” says Fink, highlighting not only the loss of purchasing power from holding zero-interest rate savings, but also the opportunity cost of failing to take advantage of positive yields. Online banks are vying to poach customers from traditional banks by plastering adverts for savings accounts with 0.4 per cent everywhere — tiny compared to many other countries, but a huge change for Japanese people. 

Given the massive amounts of household savings sub-optimally kept in low return fixed-income assets, the rise of interest rates bodes well for the financial markets. 

Meanwhile, the asset management industry is licking its lips at the prospect that at least some of Japan’s roughly $7.4tn stash of cash savings will be funnelled towards mutual funds and other investment products. In January 2024, with superbly judged timing, the Japanese government dramatically expanded the allowable limit of the Nisa tax-protected saving scheme, which is modelled on the UK’s individual savings account (Isa). Japan’s household asset weightings to equities and investment trusts now stand at 20 per cent, according to BoJ data. Though still distant from the 50 per cent in US and 30 per cent in Europe, this level is roughly double what it was a decade ago. Net purchases of Japanese equities by households and domestic investment trusts since the Nisa expansion have exceeded ¥1tn ($6.8bn), according to Nomura.

And there are promising signs that corporate Japan in general may be waking up from its long slumber and shedding its zombies. 

After the Abenomics years, when companies were comfortable with their balance sheets and the corporate sector was a net saver, many companies are now in the process of jettisoning non-core assets such as huge real estate portfolios, businesses that have no real link with their main operations and vanity projects like art galleries. The government is clearly supportive of consolidation, and is not standing in the way of shareholder pressure for reform. After a spate of mergers, delistings and take-privates, 2024 was the first year that the number of listed companies on the main Tokyo exchange fell slightly — a modest contraction, but one that analysts predict will now unleash a much faster corporate metabolism. Bankruptcies are picking up; zombie companies are now more vulnerable to collapse. There is a genuine possibility, say analysts, that Japan’s squeamishness about creative destruction will become a thing of the past... In an attempt to deploy their capital more effectively, companies in the retail, hospitality and manufacturing industries are investing to raise productivity, particularly in long-overdue IT upgrades.

It may be a mistake to equate Japan’s three-decade-long period of low GDP growth rate with an erosion of economic competitiveness. As Adam Posen has written, while Japan had the lowest average per capita GDP growth rate among G7 economies in 1990-2002, in the period from 2003-19 it had the third highest per capita GDP growth rate and the second highest productivity growth rate. 

Japan may well have the last laugh

Japan may in the end come out back on top in its economic peer group for the next decade, having done a better job on public health management than the EU or US, and having seen the smallest decline in its productivity growth rate since 2003.