Weekend reading links

1. Are people overreacting to small struggles?

When asked if they would consider someone experiencing typical fluctuations in mood (described as broad happiness but occasional moments of worry, frustration or loss of confidence) as having a mental illness, more than half of young Americans say yes, up from just a fifth 15 years ago.

2. A picture of state finances.

3. The promise of quantum computing.

Quantum computers can transcend the limitations of the traditional binary computer bit, which can exist in two states, denoted by zero and one. By contrast, quantum bits, or “qubits”, can exist in both those states at once. This allows quantum machines to survey multiple potential solutions simultaneously, rather than dealing with them one by one like a conventional computer. One analogy is a maze. Where a quantum computer can examine the whole map to find a way through, a traditional machine will keep exploring dead ends until it finds the route. Quantum computers’ superior processing power should make them better able to generalise from small amounts of data and sift through multiple complex patterns...

But many companies are already experimenting with the technology because of its promised leap in capability, predicting early uses for the machines in areas such as chemistry and materials science. The idea is that because of their own workings and structure the computers will be better able to analyse and predict chemical behaviour determined by atomic and subatomic interactions governed by quantum rules. In a sense, they will be speaking the same language rather than translating an analysis into a string of ones and zeros as a traditional computer does. As a result, a sufficiently powerful quantum machine should in theory be adept at predicting the interactions between drugs and living cells that determine whether a new pharmaceutical will work. Such possibilities have already led tech companies to pair up with industrial groups.

4. India's trade account in a nutshell.

In 2025-26, its exports of services, at $421.3 billion, was close to the export of goods worth $446.1 billion. On the other hand, imports of goods ($783.4 billion) were way above the imports of services ($204.7 billion). Thus, while India recorded a merchandise trade deficit of $337.3 billion, it had a surplus of $216.6 billion on the services account.

5. Brilliant article by Simon Kuper on how football came to be dominated by Western Europe.

Western Europeans didn’t start by asking, “How can we win the World Cup?” Instead, they pursued a different goal: making amateur football cheap and widely available. The intended outputs were happiness, community and public health. Winning World Cups was a byproduct... I began playing football aged six, in 1976, after moving from London to Leiden in the Netherlands. Most Dutch boys I met belonged to a football club... The little Leiden region had dozens of football clubs. Some fielded 20 senior teams, seven teams of under-eights and so on. Many people built their identity and social life on being the right-back or linesman of the 14th team. The Netherlands in the 1970s reached two World Cup finals. Everyone played and understood how to play. Football is geometry — about creating space when you have the ball, and shrinking it when you don’t. That knowledge is all around you in western Europe, unlike in Asia, Africa, the US or Brazil... In 2017, the average Dutch person lived 1.6km from a football field. Neighbouring Germany’s football federation is the world’s largest sports association, with more than 7.7mn members...

As a father, I raised three footballers in Paris, now the game’s deepest talent pool. Almost all Parisian suburbs, or banlieues, have well-kept sports complexes, with artificial fields, used nonstop: at half-time of any amateur game, children storm on to the field for a kickaround. So structured is the system that my son had to earn a coaching diploma to train his little club’s under-eights. His own beloved coach, Mustapha Sangaré, who only joined a football club aged 15, now plays for Bulgaria’s Levski Sofia and Mali. He is far from an anomaly: almost 100 players across all squads in the current World Cup were born in France and just under 70 in the Netherlands.

In another article Tej Parikh looks at why China and India does so badly in football.

This is a striking statistic, pointing how globalised football has become and how the leading European clubs have become the feeding grounds for national teams. 

At this World Cup, more than 72 per cent of players appear for a club outside the country of their national team, and almost one in four are foreign born. (More than half of Cape Verde’s squad was born outside the nation and ply their trade in various European leagues.)

6. In what will prove to be a dramatic decision, DP World, which operates the Jebel Ali port that has been paralysed by the closure of the Strait of Hormuz, is reportedly planning to build a new port and a container terminal on the UAE's eastern coastal area of Fujairah. 

Shifting some of the port’s capacity outside Dubai marks a seismic change for the emirate, which has established itself as a global trade and finance hub partly off the back of Jebel Ali’s growth... But DP World’s plans align with a broader UAE government initiative to attempt to bulletproof its economy against future hostilities with Iran by reducing its dependence on the strait, where shipping has been disrupted by Iranian drones and missile strikes since the US-Israeli attack. The new project would deepen DP World’s presence on the Gulf of Oman, allowing containers to enter and leave the country without having to pass through the strait, before moving them on trucks overland to Dubai, Abu Dhabi and neighbouring Gulf countries. Since the war began at the end of February, Iran has fired nearly 3,000 drones or missiles at the UAE — more than any other country... DP World’s plans underline how the Iran war has forced governments and companies in the region to reconsider infrastructure and economic corridors developed on the premise that there would be uninterrupted passage through the strait.

7. Rote memorisation in schools is celebrated in China.

The guidelines to the gaokao, an exam for 18-year-olds and the world’s largest standardised test, describe memorisation as “the most basic level of ability”, placing it first among six traits that include comprehension, analysis and synthesis, appreciation and evaluation, expression and application, and inquiry. At the simplest level, the Chinese script itself, which operates at the level of the syllable and involves thousands of individually meaningful characters, requires years of memorisation... It is hard not to draw a contrast with the English-language west, where rote memorisation has taken on a faintly pejorative meaning. More than a century and a half ago, at the height of Britain’s industrial age, Charles Dickens was skewering the “facts alone are wanted in life” approach of fictional educator Gradgrind in the novel Hard Times.

8. Trump's makeover of the US State Department. 

Abandoning the precedent of the past 60 years, Trump has brushed aside the foreign service officers who have typically run at least two-thirds of embassies. Of the 101 nominations for ambassadorships in his second term, just nine were career diplomats. All this is against the backdrop of swingeing cuts to the department, whose workforce has shrunk by more than 3,000, over 20 per cent, since Trump resumed office.

9. China's remarkable success in reducing air pollution by 60% since 2013. 

10. Interesting that the IT sector explains half the difference in productivity growth between the US and EU.

Strikingly, even though the tech sector was only 9.2 per cent of US GDP, against 5.4 per cent of the EU’s, almost half of the difference in productivity growth between the two economies was explained by differences in the relative size of this one sector. Moreover, productivity growth in the EU’s (relatively small) tech sector was also measured as being lower than in the US one. So, overall, the tech sector alone accounts for well over half of the overall difference in growth of GDP per head.

This is important

Life expectancy for US men was 76.5 in 2024, against an average of 80.5 in comparable high-income countries. For women, it was 81.4 against 84.8. That is despite spending a far higher proportion of its GDP on health. The US homicide rate was 5.9 per 100,000 in 2023, against 1.3 in France and 0.9 in Germany. Its prison population was 542 per 100,000 in 2023, against 130 in France and 69 in Germany. Thus, if one takes a wider view of human welfare, the US is very far from superior.

11. China reports the lowest quarterly growth rate in decades at 4.3% for the second quarter of 2026. Industrial production and exports are propping up growth, even as consumption declines.

Retail sales added just 1 per cent in June from a year earlier, while fixed-asset investment was down 5.7 per cent year on year for the first half of the year, compared to 4.1 per cent in the first five months. Industrial production, one sign of strength, grew 5.3 per cent last month on a year earlier... Separate data on Tuesday showed exports soared 27 per cent year on year in June, adding to signs of reliance on trade to support economic activity... Julian Evans-Pritchard, head of China economics at Capital Economics, noted that the GDP data brought it “closer in line” with the consultancy’s alternative measure, which has been around 3 per cent.

Underlining the importance of exports, there was a surge in China's EV exports in June.

China’s monthly car exports rose to a record 1mn cars in June as part of an overall surge in trade that will heighten tensions with partners such as the EU. Shipments of cars rose 71.2 per cent from a year earlier to 1.06mn, putting the country on track to export more than 10mn cars this year, up from 7.1mn last year and more than double the 4.9mn in 2023. The surge in exports comes as domestic sales slow sharply following the phaseout of EV subsidies and a decline in demand for fuel-powered cars... The wave of Chinese exports has been driven by lower-cost cars boasting superior software, further threatening carmakers from Japan, South Korea, Europe and the US... China’s exports of rare earths in June fell 34 per cent year on year and 6.4 per cent in the first half, following tight export controls on the minerals, which are essential for high-technology products... The NBS’s Wang said China’s exports of green energy-related products such as lithium batteries and wind turbines increased 37.6 per cent and 35.6 per cent, respectively, during the first half.

And this highlights how production and exports have sustained growth.

Industrial production rose by 5.4 percent in the first six months of the year, versus the same period last year. High-tech manufacturing rose by more than 13 percent over that period. But fixed asset investment — which includes infrastructure, property construction and manufacturing — fell by 5.7 percent. Real estate development dropped 18 percent. The value of China’s exports surged by more than 20 percent in the first half. But consumer spending, which a Moody’s Analytics report said “remains the economy’s weakest link,” faltered. Retail sales of consumer goods increased by 1.3 percent over the first half of the year.

12. Ruchir Sharma holds that peak China was reached in 2021, and since then it has been a story of decline, papered over by exports and AI.

Since then, China’s share of global GDP has fallen in nominal terms from 18 to 16.5 per cent, while the US share has risen to 26 per cent. China’s growth rate has dropped below the rest of the world, including the US. In real terms, independent estimates now put China’s growth in real terms closer to zero than to the official target of 4.5 to 5 per cent... China’s population also peaked in 2021. Last year, births hit a record low, and deaths hit a record high. The working-age population is on pace to shrink by 75mn every decade this century... After adding little in the 2010s, net exports now account for about a third of the country’s growth, driven mainly by AI-related goods... And though every country now hopes for an AI-driven productivity miracle, the expected boost in China is about a third of a percentage point by 2030, hardly enough to halt its decline.

13. India agriculture statistics

If one looks at the growth areas in agriculture in the 12 years between 2011-12 and 2023-24, production of paddy and wheat rose by just 27 per cent. Fruit and vegetable production rose by 52 per cent, and milk production by 85 per cent, even though they did not receive any substantial support by way of subsidies or minimum support price procurement by the government. The true growth areas in agriculture are out of direct central government support and depend largely on producer enterprise... In 2023-24, the value of output of cereals (mainly paddy and wheat) was ₹8.5 trillion, while the value of the largely cooperative-controlled milk sector was ₹12.2 trillion.

14. Outbound corporate investments from India on the rise.

Indian companies have announced overseas equity investments worth more than $14bn in the first four months of the fiscal year that began on April 1, compared with $18.7bn in the previous 12 months. The outflows come as foreign investors flee India’s markets at the fastest pace ever this year, pulling out more than $23bn as of the end of June over a lack of AI champions.

15. Simon Kuper on Lionel Messi.

On the field, Messi sees everything. All his career, he ignored the ball for the first five minutes and instead walked around, memorising the position of each opponent and the spaces between them. But now he spends almost the entire game walking and scanning. When he breaks into a run, his teammates know he has seen an opening. They play to serve him. When he moved to the right wing against Egypt, seeing space there, the team remade itself around him. Argentina, two goals down after 78 minutes, won 3-2. Scaloni said afterwards: “We were not the ones who told him to go out to the right.” Messi moved right again against England and again Argentina came back to win.

16. The AI-boom is spilling over to energy sector.  

Initial public offerings for energy firms raised $12.6bn in the first half of this year, according to data firm Dealogic. That marks the highest half-year level since the peak of the dotcom bubble in late 1999 and the highest first-half figure on record. It is well above 2025’s full-year total of $4.3bn. The surge in fundraising comes as access to the vast amounts of energy needed to run data centres emerges as a bottleneck in a multi-trillion-dollar AI investment boom... US electricity demand is projected to increase 39 per cent between 2026 and 2035, according to consultancy ICF, in large part due to ballooning demand from data centres...

Companies that have been able to raise money on public markets include those involved in complex, capital-heavy projects such as nuclear and geothermal power plants, while investors have also been willing to back businesses trying to develop new technologies... “This is a moment in which speculative projects are being funded and underwritten,” said Julien Dumoulin-Smith, a Jefferies research analyst covering power, utilities and clean energy. “They’re not just limited to venture capital or private equity.”... Nearly two-thirds of the energy companies that floated this year and last are now trading below their offer price, according to Dealogic. That compares with less than 40 per cent of IPOs across all sectors that are underwater.

And Wall Street Banks are already AI trades. 

Four of the five big Wall Street banks reported yesterday: JPMorgan Chase, Bank of America, Citigroup and Goldman Sachs (Morgan Stanley chimes in today). The numbers were outstanding, as one would expect in a quarter when markets whipped around and big deals were done. In aggregate, equity and debt trading revenue at the four hit $38bn, up more than a third from a year ago and 60 per cent higher than two years ago. Investment banking fees, at $10bn on the quarter, have grown almost as much... It is AI that has markets churning and drives capital-raising. The banks are another example of the false “broadening” of the stock market that has also driven up industrial and utility stocks in the past few years. All these sectors have lived, and could die, with AI.

And their profits are not confined to the US, with even Asia becoming a major source.

Equities trading in Asia is helping power a record-breaking run from Wall Street’s banks, with the region on course to surpass Europe as the industry’s second-largest source of revenue behind the US. In the past 12 months, clients of large investment banks have ploughed into companies in Asia that provide critical infrastructure to the AI semiconductor industry, including South Korean SK Hynix, Taiwan’s TSMC and China’s Cambricon Technologies... In the most recent quarter, the largest investment banks collectively reported an unprecedented $25.7bn in earnings from equities trading and called out Asia as a crucial factor in the growth.

17. Even by the low standards of Trump 2.0, this is surely an outrageous example of private profiteering from public office. 

Donald Trump’s social media company has discussed charging traders and investors as much as $100,000 a month for faster access to the US president’s posts on his Truth Social platform. Trump Media & Technology Group (TMTG) has quoted the six-figure monthly sum in talks with prospective buyers of the “Truth API” data service, according to people familiar with the matter. Proprietary trading firms and hedge funds pay huge sums for ultrafast data feeds because every millisecond counts when reacting to market-moving news. Trump often makes major announcements on Truth Social that trigger huge fluctuations across global markets... TMTG, which is majority owned by the Trump family, controls Truth Social...

A pitch sheet circulated by TMTG to promote Truth API, seen by the FT, lists 10 “documented market-moving posts” from the president’s Truth Social account. On April 9 2025, for example, the document says Trump’s “THIS IS A GREAT TIME TO BUY!!!” post “restored” $4tn to the market capitalisation of the S&P 500. Trump’s post in early June that the US would hit Iran “very hard tonight” caused a 6 per cent intraday jump in oil prices, the document says. “When @realDonaldTrump Truths, the world reacts,” the document continues. “No comparable signal exists. No official API has ever been offered. Until now.” Trump has also touted specific stocks, complimenting companies such as Nvidia and Apple and fuelling rallies in their share prices. More recently after the outbreak of the war with Iran, Trump posted on March 23 that there had been “very good and productive conversations with Iran”, sending oil prices falling sharply.

Weekend reading links

1. Subsea cable is fast becoming a sector of strategic importance. Globally, there are four major companies - Japan's NEC, New Jersey-based SubCom, France's state-owned Alcatel Submarine Networks (ASN), and China's HMN Tech, a former Huawei subsidiary. The last three own cable-laying shipping fleets, while the first charters its vessels and is now set to receive government support to buy ships to put them on a par with their counterparts. A subsea cable-laying vessel could cost about $300 million. 

It currently relies on a subsea cable-laying vessel leased from a Norwegian group in 2022 on a four-year charter, partnerships with other companies and on renting the specialist ships on an ad hoc basis to meet surging demand for fibre-optic cabling in the Indo-Pacific. NEC dominates installations in Asia and has laid more than 400,000km of cables globally. It also specialises in armoured cables that can better withstand sabotage. Globally, there are 63 cable-laying ships, according to the International Cable Protection Committee. ASN owns seven, while SubCom and HMN Tech are believed to own seven and two, respectively, but did not reply to requests for confirmation. Japanese telecoms groups NTT and KDDI own cable-laying vessels, which are rented out to NEC, but they are not the larger kind of vessels required to lay transocean cables.

This is a description of the challenges being faced by the industry.

A shortage of ships is one of the major bottlenecks to achieving the 26 per cent rise per year predicted for global data transmission to 2031, driven by video streaming and artificial intelligence services led by Big Tech groups such as Meta and Google, according to the TeleGeography telecoms data service... Up to 200 cables are damaged annually, primarily due to fishing or anchors, but also through sabotage, as seen in the disruption caused to two cables in the Baltic Sea last year. Chartering for an accurate period has become increasingly difficult due to the unpredictable timelines for securing the cables’ passage. There is now a two-to-three-year wait to get permissions from countries whose waters the cables pass through, up from six months to a year about a decade ago.

2. Salaries in India have not kept pace, even with inflation in the FY16-24 period.

More here. 

From Diwali 2023 onwards, Indian companies’ earnings growth has decelerated at a rapid rate. Underpinning this deceleration is a sharp conk-off in consumption growth, long the mainstay of the Indian economy. Key drivers of this consumption downturn are a sharp deceleration in white collar job creation alongside a reduction in real wages for white collar workers over the past eight years.

And here

This should be a matter of deep concern.

The weak consumption demand will constrain India's sustained high growth ambitions. It will restrict private investment, limit job creation, squeeze salary growth, and increase household indebtedness. The only solution is broad-based, equitable economic growth. But that, in turn, requires conditions that are far from 

3. Rhodium Group has a report on the challenges faced by foreign car manufacturers in China. The German car makers and Tesla have the largest China exposure, while the Japanese and Korean car makers have far smaller engagement. 

It is important to note that while Tesla is likely even more dependent on China for profits than German OEMs, the sources of those profits are fundamentally different. German automakers still earn most of their China income—though at shrinking margins—by selling vehicles to Chinese consumers, whether locally produced or imported. Tesla, by contrast, likely earns the bulk of its China profits from two sources: the sale of regulatory credits—its CFO disclosed that three-quarters of Tesla’s global credit sales in 2024 (Q1–Q3) occurred in China—and a highly profitable export business built on China’s low production costs. In short, German OEMs depend on Chinese consumers, while Tesla depends on Chinese workers and credits... The experience of Toyota, Hyundai, and Kia shows, however, that success in China is not a prerequisite for global competitiveness. Toyota has become the world’s largest carmaker despite a relatively modest China footprint. Hyundai and Kia, for their part, have grown despite running loss-making China operations after the 2017 THAAD dispute triggered consumer boycotts that cratered sales.

4. The US Congress has become ideologically polarised since the turn of the millennium.

And immigration has been at the forefront of the polarisation.

5. A summary of the destructive chainsaw Trump has taken to the US Science establishment.

The proposed 2026 Budget outlines cuts of 34 per cent for basic research and 22 per cent for all research. It demands a 55.7 per cent cut for the National Science Foundation (NSF) — from $8.8 billion to $3.9 billion — and a 39.3 per cent cut for the National Institutes of Health (NIH) — from $46 billion to $27.9 billion. These two agencies are the primary sources for TRL 1-2 basic research. The story for TRL 3-6 applied research is also rough. The Department of Energy’s (DoE’s) Office of Science faces a 14 per cent cut, and Nasa’s science-research budget is slated for a 46.6 per cent reduction — from $7.3 billion to $3.9 billion... 

The Nazi government, which took charge in 1933, was a populist one, harnessing mass anger against the cosmopolitan elites. An estimated 25 per cent of all physicists in Germany, including 11 past or future Nobel laureates like Albert Einstein, Max Born, and Leo Szilard, fled Germany. The best research organisations of the world — like the University of Gottingen — were destroyed. It only took one year. In 1934, the great mathematician David Hilbert said to the Nazi education minister “mathematics in Gottingen? There is really no such thing any more”.

6. Comparing dotcom era telecom investments with AI investments today.

There were more than 80mn miles of fibre optic cable laid from the mid-1990s until the end of the dotcom boom, and much of that investment took years to pay off. US telecom companies spent $444bn in capital expenditure between 1996 and 2001. Still, compare this with the $342bn that will be spent this year alone in the US by the top investors in AI data centres and computing infrastructure, including Microsoft, Alphabet, Amazon and Meta. At the current rate of power consumption needed to fuel AI development, estimated investment will stretch to nearly $7tn by 2030.

7. Nvidia makes a $1 bn investment in Nokia to take a 2.9% stake in the Finnish telecom manufacturer, following which the shares in Nokia surged 21% and Nvidia by 5%. Nokia is seeking to diversify away from network infrastructure into AI and cloud services. 

This is part of the vendor-financing model of the emerging AI market. Is Ericsson next for Nvidia?

8. Two graphics that question the argument that we are in a bubble. One, the PE multiples of the Big Tech firms compared to those in earlier bubbles. 

The capex boom is largely (at least till now) being funded by free cash flows, unlike debt in earlier booms.

9. It's useful to keep in mind that much of the infrastructure in the West was built long ago.

In Britain we are using rail lines, bridges and sewers built by the Victorians, and even the Romans’ roads. It has taken over 150 years for London to need an expansion of the sewerage system begun by Joseph Bazalgette in 1859 (and largely finished within a decade). The US built its railroads in the 19th century, and interstate highways from the mid-1950s.

10. The reforms currently underway in the US to reverse safeguards in the banking sector in the name of deregulation may be an instance of bad deregulation. 

Last week, the Federal Reserve announced plans to overhaul its annual banking stress tests to make them less onerous. US banking watchdogs are widely expected to follow up with other changes to capital and leverage rules that could unlock $2.6tn in additional lending capacity, according to consultants Alvarez & Marsal. To backers, there is a logic to the Trump administration’s moves. Shackling banks with high capital requirements has not eliminated risky lending. Instead it has led to regulatory arbitrage that makes the danger harder to supervise, they say. As the IMF pointed out, banks now lend to private capital, which uses the funds to leverage investor money while making loans and buying securitised debt. In theory, the investors absorb the first losses, keeping bank deposits safe. In reality, layers of borrowing by companies like First Brands make it hard to tell who is on the hook and may lead to complacency. If banks lent directly, they say, they would do more due diligence and pick their borrowers more carefully... 

Another Trump administration initiative to allow ordinary investors to put their money in alternative assets, which have long been restricted to institutions and the super wealthy. Those changes are expected to channel floods of retail and retirement money to private capital groups, giving them bigger pots with which to make loans and buy asset-backed securities. These retail funds will be under particular pressure to deploy capital quickly because of the way they are structured... Bank of England governor Andrew Bailey said last week that “alarm bells” are going off around the rapid growth of structured products, and JPMorgan chief executive Jamie Dimon has proclaimed that the recent collapses of subprime auto lender Tricolor and car-parts maker First Brands are evidence of “cockroaches” in the credit market. The failures have uncovered complex webs of borrowing and allegations of fraud, leading Apollo chief Marc Rowan to warn that eroding lending standards are leading to “late-cycle accidents”.

11. Stock market concentration in the US is at all time high.

Eight of the 10 biggest stocks in the S&P 500 are tech stocks. Those eight companies account for 36 per cent of the entire US market’s value, 60 per cent of the gains in the index since the market bottomed in April and almost 80 per cent of the S&P 500’s net income growth in the last year... MSCI All World index, which comprises over 2,000 companies from more than 40 markets, currently has almost a quarter of its capitalisation in just eight US tech groups.

 On Tuesday afternoon, when US Stocks hit their latest highs, 397 stocks in the S&P 500 lost ground. In 35 years, the index never posted a gain on a day when do many of its components sold off. 

Since the launch of ChatGPT in November 2022, the US markets have been on a tear, underpinned by AI stocks.

This is an interesting snippet.

Since 1970, the total value of all publicly traded US stocks has averaged about 85 per cent of US GDP. Warren Buffett once described this as “probably the single best measure of where valuations stand at any given moment”. On Tuesday, the metric rose to a record 225 per cent.

12. More on the First Brands bankruptcy case in the US in this story of how a small Draper, Utah-based equipment finance specialist, Onset Financial, ended up with a $1.9 bn loan exposure to the Ohio-based automotive parts maker which borrowed close to $12 bn to finance acquisitions. 

First Brands’ reliance on Onset, which claims to eschew the “rigid” and “strict” approach of banks in favour of “speed” and “flexibility”, illustrates how unconventional corners of credit markets facilitated its borrowing binge, with many of the Ohio-based company’s lenders unaware of the true scale of its debts until it was too late... Onset’s corporate identity to date has been marked by promotional videos, a high-tempo sales culture and links to both prominent local investment firms and sports players. The fallout could ripple through the community in Utah, where Onset has built up an image of growth and glamour. Founded in the depths of the 2008 financial crisis in Draper, a small city 20 miles south of Utah’s state capital Salt Lake City, Onset’s triumph over stodgy rivals in a key area of business lending is a recurring theme of its corporate lore. Equipment leasing is a $1.3tn industry in the US that allows companies to rent machinery rather than sink large amounts of upfront capital into building or improving their facilities... People familiar with Onset’s operations describe a model fuelled by a direct and ambitious sales force. “What does our product do? We sell money, simple as that,” Taylor Weeks, Onset’s vice-president of sales, told a podcast in 2023. Weeks added that the company provides “rocket fuel” for “high-growth” businesses.

Equipment leasing is a $1.3 trillion industry!

13. FT writes about the rise of China's biotech firms, licensing technology and selling drugs outside the country. From having no biotech sector to speak of ten years back, in the first eight months of 2025, there have been 93 overseas licensing deals worth a total of $85 bn on drugs developed in China. 

China’s transformation from a copycat manufacturer of drugs developed overseas to a hub of homegrown research is exemplified by Jiangsu Hengrui. Founded in 1970, it spent the first two decades as a small-scale state-owned manufacturer of low-cost antiseptics. In the 1990s, it started developing generic anticancer drugs. It was privatised in 1997 and began investing in building its own research capabilities. Today, it has one of the most diversified pipelines in the country, spanning weight-loss therapies, oncology drugs and Alzheimer’s treatments...

Hengrui has struck licensing agreements with Merck, Braveheart Bio and Glenmark in the past year alone. In July, it agreed a deal with UK pharmaceutical company GSK to develop up to 12 medicines. “In China, you can scale and test medicines in human beings much faster than in the US or Europe,” said Loncar. “If you have an idea for a drug, you can get an answer about whether it works a year or two earlier in China.” For many Chinese biotechs, the surge in international partnerships has provided much-needed capital after a difficult few years marked by drug pricing reforms that squeezed profit margins on domestic sales... Hengrui’s international deals have highlighted a concern for Chinese pharma companies seeking to get international approval for new drugs. The US Food and Drug Administration has repeatedly rejected one of Hengrui’s cancer drugs, citing questions about quality control at its manufacturing sites.

US and European pharma companies are doing what their manufacturing counterparts elsewhere did by outsourcing to China, only to realise that they have been outmuscled by them over time. 

This also raises questions about where India's established pharmaceutical firms are. 

14. Finally, NYT has a good article on OpenAI's circular financing deals. 

Many of the deals OpenAI has struck — with chipmakers, cloud computing companies and others — are strangely circular. OpenAI receives billions from tech companies before sending those billions back to the same companies to pay for computing power and other services.

Weekend reading links

1. Lawrence Freedman has a good history of recent years of the Middle East.  

2. The US equity markets are a seven-trick pony.

See also this.

This is a good graphic of circular deals in the US AI ecosystem.

3. Greek PM Kyriakos Mitsotakis urges caution on the green transition.

The green transition cannot be an end in itself. For many years, Europe elevated decarbonisation above everything else. Other goals — employment, industrial production, strategic autonomy — these lost when they went up against decarbonisation. We cannot afford to stay on this path. Decarbonisation is vital but it is not the only objective. If we must accept some emissions for a bit longer to save our industries or to maintain social cohesion, so be it. We must have these debates honestly. We cannot begin with climate neutrality and hope everything else falls into place.

4. Friedrich Merz and Germany facts of the day

According to pollster Insa, two-thirds of Germans now say they are dissatisfied with the ruling coalition — a 20 point increase from June. Merz, never especially popular, is bearing the brunt: he has slipped to 18th place in Bild’s ranking of preferred politicians, trailing six of his coalition ministers and AfD co-leader Alice Weidel... Core German industries are shrinking, he laments. German steel output declined 12 per cent in the first half of this year compared with last year. And car manufacturing plants, which produced nearly 6mn vehicles in 2017, three-quarters of which were for export, now produce 4mn.

Germans don't seem to like Gerhard Schroeder and his acclaimed (outside the country) Harz reforms.

Schröder’s reputation has been tarnished by his Kremlin ties; he joined the board of Russian state-owned oil group Rosneft and lobbied for the building of Nord Stream’s second gas pipeline between Russia and Germany. Within the SPD, his so-called Hartz labour reforms, which spawned low-paid minijobs and triggered high-profile party defections that helped to create the leftist Die Linke party, remain a toxic legacy. “In DC at an IMF meeting, in Paris at the OECD or in Singapore you mention the ‘Hartz’ reforms, everyone applauds,” says a former SPD government official. “At any local SPD convention, the room temperature drops five degrees.” The SPD — which in February recorded its worst election result since the late 19th century, with a 16 per cent share of the vote — has spent the past two decades seeking to roll them back. These efforts led to a minimum wage in 2015 and culminated with the Bürgergeld, the latest version of a tax-funded basic income for the jobless or underemployed, introduced in 2023.

5, Tesla's third quarter profits fell by a quarter and operating margin dived from 10.8% to 5.8%. Similar trends in income from regulatory credits,

Income from regulatory credits trading plunged 44 per cent to $417mn in the quarter after the US government reduced fines for non-compliance on car emissions standards to zero, in effect killing the trading schemes. Tesla made $2.8bn in profit from trading programmes last year, with about three-quarters of that coming from the US.

6. Janan Ganesh is perhaps the most brilliant FT columnist. Highlighting the gushing and alarmist commentary about AI, he makes the point that history is made through politics and not technology.

Well, Earthlings, here are some entirely realistic scenarios in politics over a shorter time range. France elects a hard-right president who, without leaving the EU, impedes it from within until it ceases to function. Russia does something to a Nato member state that appears to constitute an “armed attack” under Articles 5 and 6 of the Treaty. The Sahel — where more than half politiof all terrorism-related deaths on Earth now take place, compared to hardly any in 2007 — becomes a base for attacks on the west. (Think turn-of-the-millennium Afghanistan, but much closer to Europe and America.) Britain or France or both suffer a bond crisis that triggers, at best, a necessary change in economic policy, and at worst civic unrest. These subjects don’t go undiscussed, of course, but the amount of oxygen they receive compared to tech talk is out of line. 

As a rule of thumb, be sceptical of any “futurologist” who doesn’t major overwhelmingly on politics. The grandest visions for AI — huge consumer surplus, huge job losses too — could happen. The departures of Xi Jinping (72) and Vladimir Putin (73) are going to happen, with implications for multitudes even outside their own two countries. The spread of possible outcomes is wide: from a détente between the west and the Eurasian autocracies under a new generation of leaders to an even higher pitch of conflict that is harrowing to think about. So, by all means, speculate about the potential of tech. But understand that one or two completely plausible political developments would drown out any effect that tech is likely to have on daily life. Even a modest trend, such as Europe’s projected increase in defence spending, has implications for taxes and therefore private consumption that it would take a major innovation to equal or cancel out. 

Consider the very recent past. Nothing has affected businesses and consumers since the pandemic as much as the surge of inflation. Whatever you choose to cite as the culprit — the Ukraine war, monetary looseness, lockdown-induced damage to supply chains — it was political. That experience should have reminded us of the primacy of the public realm. Instead, the fascination with technology as the shaper of realities has only increased over the period.

7. From a CAG performance audit report on the state of ULBs in 18 states of India.

According to the audit, on average, only 4 out of the 18 powers under the 12th schedule are fully under the autonomous control of ULBs, with most functions being performed with regular interference from the state government or parastatals, often without any representation from local bodies. In addition, ULBs are being deprived of making their own recruitment decisions, as the staff assessments are conducted by the state government, leading to frequent underestimation of personnel requirements... This lack of autonomy has not only resulted in fewer sanctioned positions but has also left one out of three posts vacant across the 18 states, depriving ULBs of the human resources necessary to carry out their functions properly... According to the report, 61 per cent, or 1,600 of the 2,625 ULBs in 17 states assessed, didn’t have an elected council, with only five states appointing a mayor through a direct election.

8. Amidst all the alarm about public debt, Martin Sandbu points out that borrowing costs are high only compared to the 15 years or so of after the GFC of very low interest rates. He points out that the US government now devotes the same share of GDP to interest paymens as it did in the late nineties, just under 4%.  

9. Kai Wu has the graphic that sums up the dilemma facing AI companies. 

10. China's scale of excess capacity is staggering.

China now makes 55 per cent of the world’s steel, 57 per cent of commercial vessels, 76 per cent of lithium-ion batteries, more than 60 per cent of EVs, and 80 per cent of photovoltaic products, despite chronic involution gripping these sectors... The country now has 58 satellite makers and 30 rocket companies and more than 60 humanoid robot manufacturers. Domestic commentators already warn of capacity outstripping demand and of companies needing to “go out” to foreign markets to survive. The pattern repeats itself: what begins as glut at home could end as supremacy abroad.

Chinese firms in these sectors with such levels of excess capacity must aggressively pursue export markets. They must also slash costs relentlessly and surive on razor-thin margins, or increasingly assume losses. But the limits to such export-led growth are now evident. 

11. As rare earths become one of the hottest commodities, Australia has emerged as the global leader in spending on the exploration of these minerals.

Interesting that India has the third largest reserves.

12. Edward Luce on Trump's America that is gripped by fear.

Revenge is one of Trump’s three recurring impulses. The others are making money and dominating the airwaves. Dissenters hinder each of these aims. Presidents of universities, chief executives of Fortune 500 companies, partners at law firms and senior military privately despair at Trump’s methods. But each has sound stakeholder reasons for keeping their concerns private. Universities stand to lose billions of dollars of federal research funds; chief executives and their workforces face regulatory reprisal; law firms end up on federal blacklists; soldiers are trained to uphold the chain of command... people are scared of crossing Trump this time. In researching this piece, I interviewed dozens of figures, including lawmakers, private sector executives, retired senior military figures and intelligence chiefs, current and former Trump officials, Washington lawyers and foreign government officials. Such is the fear of jail, bankruptcy or professional reprisal, that most of these people insisted on anonymity. This was in spite of the fact that many of the same people also wanted to emphasise that Trump would only be restrained by powerful voices opposing him publicly. At times, it has felt like trying to report on politics in Turkey or Hungary...

As a rule of thumb, the more an organisation has to lose, the likelier it is to submit to Trump’s demands... Under threat of being debarred from the federal government, and thus losing corporate clients, many big law firms have declined to hire or represent people on Trump’s enemies list. “It’s not a list but I think there will be others,” said Trump after Comey was indicted. The universe of lawyers who would represent his targets has shrunk dramatically. None of the team who worked for Jack Smith, Biden’s special counsel who indicted Trump for allegedly attempting to overthrow the 2020 election and hoarding classified documents in Mar-a-Lago, has since found a job. Family members are not spared. Maurene Comey, the former FBI chief’s daughter, was fired as a federal prosecutor in July. The pleas of staff to FBI director Kash Patel not to fire a senior official whose wife was dying of cancer fell on deaf ears.

The challenge facing liberals in the US

Donald Trump’s upending of long-held conventional wisdom in the polity and economy has shed light on the faultlines and failings of the US politics and society. 

It has dramatically exposed the limitations of the supposed bulwarks of institutional checks and balances in the US government. Apart from this, the Republican Party is captured, the Democratic Party is in shambles, corporate America has fallen in line without any murmur, and public intellectuals in the prestigious and normally vocal academic institutions and think tanks in the US have gone eerily quiet. In fact, when the history of Trump 2.0 is written, it’s most likely that the leaders and scholars of the hallowed Universities will be apportioned as much blame as the Supreme Court for their roles in compromising and allowing the government near-unimpeded pursuit of its goals. Even the civil society seems to be missing in action. 

This accommodation should not have come as a surprise. There’s a strong case that American liberalism was standing on weakening foundations. As an illustration, for a country with a per capita income of $85,000, America suffers from embarassingly high levels of deprivation and poverty, and struggles with the poorest human resource development outcomes among advanced countries. The extent of elite capture of rule-making processes and institutions is perhaps the greatest in the US democratic system. The opinion makers and experts among the liberals who have played important roles in fashioning the economic consensus over the last three decades and have facilitated these outcomes are as much to blame as the policies that have generated them. 

I have blogged on several occasions, highlighting how the public intellectuals in the US have let down liberal democracy and have largely become co-opted by Big Tech and Wall Street. Given that the intellectual establishments in the US (academia and think tanks) are dominated by liberals, it’s surprising that they have allowed the trends of widening inequality, business concentration, and the general political capture by Big Tech, Big Pharma, Wall Street, and other corporate interests to go largely unchecked. 

There are some possible explanations for the lack of even a fight on the face of the ongoing assault on liberal ideas. One argument is that of a society that has not faced any serious existential adversities for long and has been dulled off its collective will and resolve to push back. Since the War, the society has settled into a comfortable equilibrium where all the fundamental requirements of liberal democracy and capitalism - rule of law, free speech, free markets, restraints on untrammelled power, recourse to redressal of grievances, etc., - have come to be taken for granted. Generations have been brought up without having to even think about them, much less fight for them.

On the economy, the great recession in the aftermath of the global financial crisis turned a new page in monetary policy adventurism with a radical expansion of the tools that central banks and governments were willing to use to stabilise the economy. Zero interest rates, quantitative easing, purchases of Treasuries and even corporate bonds, forward guidance, and so on entered the lexicon of central banking. This allowed central banks to keep rates, pump liquidity, and backstop asset prices, thereby propping up both the financial markets and the real economy. Market expectations have been shaped by a giant central bank put, one arising from a belief that if things get out of hand, the central bank will step in as a buyer or lender of last resort. Just like American citizens, its markets too have come to overlook uncertainties and take for granted economic stability. 

Another plausible explanation for the Trumpian backlash could be that, over time, liberalism gravitated to extreme fringes on a variety of issues. On important issues like the traditional family and social values, race relations, immigration, LGBTQ, etc., the liberal positions came to be hijacked by those at the extremes. It’s one thing to accept people’s privately held views that deviate from social norms, but an altogether different matter to decry the social norms and elevate those deviant views as the new norm. The latter is a big social and political shift, and can happen only when the majority or a significantly large representative proportion of the population is willing to embrace it. In its absence, and especially if they are being sought to be imposed by a small progressive vanguard, there will be strong and often violent resistance. Noah Smith has a good blog post here describing how the liberals have lost the plot.

Yet another explanation may be the increasing ideological alienation of Democrats (and liberal parties elsewhere) from their left-of-centre views, given the general shift towards the centre in the post-communist era. I blogged earlier about this here.

Centre-left political parties like the Democrats in the US under Bill Clinton, the Labour Party in the UK under Blair, and the Socialist Party in France under Emmanuel Macron (he split the traditional left and right parties and created a new Renaissance Party of the centre) have sought to widen their electoral base by moving to the centre. From being a counter-point to their economically rightwing (capital-favouring) opponents (Republicans in the US, Conservatives in the UK, and The Republicans in France), these centrist parties sought to embrace the market while also retaining their core working class (labour) bases. From hindsight, this move to the centre appears to have been a fatal mistake. In the delicate reconciliation of the interests of labour and capital, the latter has become dominant. The leadership and the intellectual core of these parties have become captives to the interests of the capital. In the process, the new centrist avatars have alienated their core support base in the labour. The labour base has drifted to the populist camps.

The value of centrism as a mobilising ideology is questionable. Centre has its relevance only with respect to some reference points (the right or the left, liberal or conservative). In itself, moderation cannot be an ideology. On the contrary, it can become a cloak for opportunism and hypocrisy. Further, when faced with the power of capital, a strong ideological base may be essential for political mobilisation. Most worryingly, centrists groups often end up being captured or at least perceived as being captive of the opposite ideological group. As I blogged here, this is a greater risk to the liberals, whose courting of capital can end up with capture by the capitalists (and therefore alienation of its core working-class base). The Democratic Party in the US may be the best exhibit in this regard.

In this backdrop, I point to three articles that highlight some of these challenges. 

The first article goes to the heart of an important theme of the Trump populism - the demonisation of DEI initiatives and the stigmatisation of liberalism. In this context, Eugenia Cheng, a mathematician, makes a very bold and compelling case for DEI initiatives.

A metric is a way of measuring the distance between two points but not necessarily physical distance; it could be how much time it takes with traffic as a factor or how much energy will be expended, depending on whether you’re going uphill or downhill. A distance cannot be measured on the basis of the position of a single point. It requires the effort of measuring the distance between two points. This may sound redundant, but it’s an important clarification: Metrics can be measured only by taking into account the starting point and ending point, as well as relevant features of the journey — the whole story.

When we evaluate people, we could do the same. Instead of just looking at what they have achieved, we could also look at where they started and be clearer about how we are measuring the metaphorical distance they have come and whether we are taking into account the support they had or the obstructions they faced.

If we are selecting sprinters for a track team, we might look at their best times for the 100-meter dash. But if someone had, for some reason, only ever run races uphill or against the wind, it would make sense to take that into account and not compare that runner’s times to others’ directly. We would be treating those people differently but only because their paths were different; really we’d be evaluating their paths fairly relative to their contexts. 

Other forms of achievement are not as straightforward to measure, but the idea is analogous. If someone achieved a certain SAT score after months of tutoring and someone else earned the same score having never seen an SAT before, it would be reasonable to be more impressed with the latter result and think that the second test taker has more potential. We should think of D.E.I. efforts as the best versions of this and aim to design systems that can measure the fuller picture of someone’s professional journey, not just the current result… It shouldn’t be called sexist to help people overcome sexism, and it shouldn’t be called racist to help people overcome racism, but if we give this help too crudely, then we leave ourselves open to these criticisms. Math teaches us that D.E.I. initiatives should be about carefully defining the metrics we use to measure how far people have come and thus how far they have the potential to go. They should be about uncovering when some people are constantly running uphill or against the wind, which can inform us how to give everyone an equal tailwind and an equal opportunity to succeed.

On DEI, by taking it to absurd extremes, the liberals have allowed even the idea of diversity to become contentious. Cheng attempts to retrieve some of the lost ground by trying to anchor the debate in terms of measuring merit and achievement more accurately. 

Cheng’s op-ed is also a testament to the abdication by the liberal intelligentsia, those opinion makers occupying important positions of influence and authority, like in the reputed universities and think tanks. When faced with the assault from the right, the ideological and institutional defenders of liberalism appear to have gone missing. 

In the second article, Ruchir Sharma calls for caution in cutting interest rates given the prevailing conditions.

Financial conditions are very loose. The economy is still resilient. The basic Fed lending rate is not restrictive. Signs of job market weakness are minor compared with the evidence that inflation has become entrenched. And cutting rates with AI mania gripping US markets risks driving them to greater heights… Capital pouring into the US stock market has driven valuations close to historic highs. Venture capital is pouring into profitless tech firms. Credit growth is surging, particularly in private markets. Junk firms can borrow at rates only marginally higher than solid ones or even the government; the premium they pay over Treasuries is as low as at any point in the last half century… 

Trump aides want to stimulate an economy that doesn’t need help. Despite the tariff shock, GDP is on track to expand by more than 2 per cent this quarter. Regardless, juicing up growth is not the central bank’s job. Its mandate is to control inflation while maximising employment. And standard guidelines on how to achieve this, such as the Taylor rule, show that the Fed’s basic lending rate is not currently restrictive…the unemployment rate is still just 4.3 per cent, close to historic lows. Meanwhile, consumer price inflation has exceeded the Fed’s 2 per cent target for five years running and is expected to remain stuck at an elevated pace for the foreseeable future. It’s also a mistake to ignore prices for stocks, homes and other financial assets… 

By easing every time the markets falter — including as recently as last August — the Fed has been fuelling asset price inflation and wealth inequality. Now, it seems poised to go further, easing in a boom. Tech investment is following the path of past bubbles: at nearly 6 per cent of GDP, it roughly matches investment in tech at the 2000 peak as well as investment in real estate at its 2007 peak, and greatly exceeds investment in oil at the 2013 commodity boom peak. Speculators focusing on the least profitable and most expensive stocks are amped up on AI too. Their share of US trading is now approaching the dotcom era high. The “asymmetry” of Fed policy — always rescue but never restrain the markets — is tilting further towards promoting bubbles… What’s needed is a return to symmetry, including periods of restraint.

In this context, I’m reminded of the metaphor of forest fires and avalanches. It’s a well-known principle that allowing small fires and small avalanches is critical for avoiding big fires and avalanches. Small fires prevent the accumulation of large detritus that can lead to big fires. Small avalanches prevent the accumulation of large fault lines in snow mountains that contribute to large avalanches. 

The central bank's interventions are effectively preventing the kinds of smaller recessions that are required to weed out zombie companies and recalibrate expectations among investors about risks and uncertainties. It’s triggering moral hazard by making a generation of investors and market participants less vigilant about risks. 

A current example of how the dominance of Wall Street interests in financial market policy-making comes in the way of throwing sand on the wheels of financial engineering is the ongoing rise of private credit. With private equity having peaked and interest rates being high, private credit has become an attractive alternative to finance emerging areas like data centres. But it’s rapidly becoming clear that private credit is now spawning excesses, and given the increasing levels of exposure of public pension, insurance and endowment funds to private capital, could be a source for the next financial crisis. 

Finally, Edward Luce makes an important point that the Democratic Party should discover its agenda not by reacting to Trump but by imagining that Trump did not exist. It should emerge from a genuine introspection about where it has alienated its traditional support base of blue-collar workers, blacks, and Hispanics (who have increasingly gravitated to the Trump camp). He writes,

The practical difficulty is that the party is shaped by elite professions, particularly law, government, media and academia. Such types often have a hard time concealing their distaste for those who voted for Trump… They are the party of corporate America. No party in history could ever boast of so many expert fundraisers and humane philanthropists… If Trump did not exist, would Democrats want to reform the US administrative state? They should want to reinvent it but are now its militant defenders… If Trump is attacking something, it must be defended to the hilt.

As Luce writes, the Democratic Party is not alone in this struggle to reinvent. The Labour Party in the UK and the Social Democratic parties in continental Europe are sailing on the same boat. 

The challenge before the liberals is to tailor a coherent agenda that addresses the concerns of the vast majority of the population, who feel socially, economically, and politically marginalised and alienated, and mobilise a sufficiently broad and credible coalition. This would require making hard choices. For example, it might in turn require marginalising the currently vocal defenders of liberalism (or the woke vanguard). It’ll also require breaking free from the incestuous elite stranglehold on liberal thought leadership. Unfortunately, there’s little on the horizon that points to a possible regeneration. 

China and the US today are upending the grand narratives on the economy and polity

China and the US are now egregious exemplars that contradict the conventional wisdom on economic growth and liberal democracy. 

The orthodoxy on economic growth is that, in addition to capital (physical, financial, and human), countries should have an appropriate and predictable regulatory and facilitating environment to unleash private enterprise. The orthodoxy on liberal democracy is that strong institutions, by promoting the fairness and predictability of the rule of law, will act as checks against the unpredictability of rule by laws enacted by autocratic rulers. 

China, specifically under Xi Jinping, and the US, under Donald Trump 2.0, have comprehensively shattered these comforting orthodoxies that have come to underpin conventional wisdom and shape narratives on the polity and the economy. 

China is a standout paradox in how capitalism and the private sector have flourished over the last three decades, with little of the institutional requirements that orthodox theories mandate as essential to economic growth. Despite its communist political system, the private sector dominates the country’s economy.

The private sector contributes over half of tax revenues, more than 60 per cent of GDP, over 70 per cent of innovations, 80 per cent of urban jobs, and 90 per cent of registered companies.

This has been despite an environment and bureaucratic system that would have been considered outright hostile to private enterprise in any other country. 

Chinese entrepreneurs have always faced cycles of risk and reward, but now a single regulatory investigation, a shift in local political winds, or a liquidity squeeze can turn a challenging quarter into an existential threat… the lived reality for many entrepreneurs is one of precarious privilege. They may command wealth and influence now, but their long-term position is far from secure. The life cycle of a Chinese private firm is notoriously short, less than four years for SMEs, compared with eight in the US and more than twelve in Japan. And when a business fails, there is often no institutionalised way to shield the founder from total financial and reputational ruin… Laws on paper go only so far; in China, the political motives that guide bureaucrats ultimately decide enforcement. 

It’s striking that this advice is being given to a country that has experienced three decades of spectacular economic growth, driven by the private sector, to emerge as the factory of the world and its second-largest economy 

Entrepreneurs need tangible, enforceable protections: fair access to credit; and legal frameworks that allow businesses to fail without destroying their founders’ lives… it is about ensuring that risk-takers can survive to try again… The legal framework required is clear: establish a national personal bankruptcy regime that allows honest but insolvent business owners to discharge debts while retaining essential assets, enabling them to restart their careers; limit personal guarantees for corporate loans, particularly for SMEs, to prevent the automatic conflation of business and personal liability. Beijing must ensure transparent, predictable regulation, so enforcement actions are guided by clear rules rather than shifting political imperatives. It should strengthen due process protections for those under investigation, avoiding prolonged uncertainty that can be as damaging as a formal penalty… If those with influence and resources cannot secure a fair hearing, due process, or a dignified way to start again, what chance does the average citizen have?

Arguably, China’s most consequential (strategically important for other countries) economic achievements have all happened in the last decade, when Xi Jinping has pursued a brand of centralised capitalism punctuated with multiple rounds of unpredictable crackdowns. Its dominance in clean technologies, batteries, electric vehicles, and critical minerals, among others, has emerged over the last decade.  

Yuen Yuen Ang’s works, which I have blogged about on several occasions, highlight in detail how successive Chinese governments have discarded orthodoxy and pursued practical and heterodox strategies to drive the country’s economic growth.

In the field of politics, the second administration of Donald Trump has spectacularly demolished all theories about the supposed bulwarks offered by institutional checks and balances. Janan Ganesh brilliantly captures the moment and underlines the importance of politics and winning elections as the only true check,

Consider Congress. It is the least trusted institution in America. Its Republican members are so deep in Trump’s pocket that most voted not to ratify Joe Biden’s election win in 2020. At a rate his predecessors never did, Trump invokes emergency measures, without much resistance from the legislature. Or take the judiciary. Trump has appointed a third of the Supreme Court, which has gone on to construe his powers and privileges generously. As for the federal executive itself, Trump gets to appoint 4,000 or so people to it, not just the cabinet and their immediate deputies. You will notice that little or none of the above is illegal. Before he violates a single rule, Trump can bend the state to his whim. What does that say about the state?

…. Institutions outside government have proven no harder for him to master. Business has been an alternative locus of power in the past, especially in America, where individuals can amass such large fortunes as to be able to look the president in the eye. Now, though, billionaires genuflect before Trump to secure favours or avoid punishments in a patronage economy, as do law firms. (“Big Law continues to bend the knee to President Trump,” boasted the White House spokeswoman in April. Imagine saying that deliberately, as opposed to being caught by a stray mic.) That leaves the media. Well, we try. But this isn’t Walter Cronkite’s era. So much news is now consumed via social media platforms whose owners were seated in front of cabinet nominees at Trump’s inauguration…

It is an old liberal instinct to take things outside of politics: for example, to establish as incontestable “rights” that should be argued for in the democratic realm. Another version of this mental crutch is the hope that “institutions”, within and without the state, will counteract a rogue leader. It is a reasonable hope. The founding scripture of the republic sets out exactly that system. But the evidence of the past eight months, during which Trump has imposed himself on civilian and not just official life, isn’t encouraging. Institutions are made up of human beings, not magic dust, and the president can appoint them or indirectly grind them down with pressure. 

See also this. It’s said that the true mark of institutional strength is when it’s tested. It’s now amply clear that none of the American institutions has been able to resist the devastating intent of Trump 2.0. 

After the definitive ideological takeover of the Supreme Court in his first term, Donald Trump has now set his sights on the US Federal Reserve Board. 

Trump’s imprint is already present at the Fed. Two of its seven board members, Christopher Waller and Michelle Bowman, were selected by him during his first term in office. This month, Adriana Kugler, who was tapped to be governor by former president Joe Biden, announced she was stepping down before the end of her term next year, prompting Trump to pick Stephen Miran, one of his closest economic advisers, to succeed her. If Trump succeeds in ousting Cook, whose term runs to 2038, it would give his nominees control of the seven-member board of governors. Moreover, the presidents of the 12 regional Feds, all of whom serve five-year terms, will need to be renewed at the end of February 2026. The decision to renew their terms lies with the Fed’s board.

The rate-setting FOMC consists of the seven-member Board of Governors of the Federal Reserve, the president of the Federal Reserve Bank of New York, and four of the remaining eleven Reserve Bank presidents who serve on a one-year rotating basis. While the heads of the regional Feds are selected locally, they must be approved every five years by the Board of Governors. 

This raises the possibility of a complete capture of the Federal Reserve system, something that cannot be discounted given the political determination displayed so far. It also raises the possibility that we have now passed the peak of central independence ideology. 

In the realm of the economy, institutional safeguards, especially the informal ones from the corporate world and the markets in general, were supposed to be invincible bulwarks. But all of them have fallen aside, even as ideals of competition, macroeconomic stability and predictability, and free-market principles have been ground down. The most surprising have been the markets, both bond and equity markets, which appear to be betting that Trump will only take it that far and pull back just in time. Even as new redlines are being crossed, it appears increasingly likely that they may be excessively optimistic in miscalculating the motivations and the moods behind these actions. 

As I blogged here, the trade landscape of the world economy has been redrawn, mostly irreversibly, in just over six months. Alan Beattie writes about the unpredictability of Trump’s actions concerning the economy. 

It’s now commonplace to say Trump’s shakedowns of trading partners and corporations for tax revenue (even entirely leaving aside the issue of his personal wealth) resemble a mafia boss or a crony-capitalist dictator in a developing country. It’s actually worse than that. Good mafia bosses and efficient autocrats may be extractive, but they are predictable. Trump’s raids on companies and governments on behalf of the US Treasury are capricious — consider his reported demand that Switzerland buy off the US tariffs with investments and his sudden 15 per cent levy on the chip companies Nvidia and AMD’s semiconductor sales to China. They create uncertainty that weakens the entire basis of business and trade.

And even the trade deals are filled with unpredictability. 

The benefits that Trump offered in his tariff deals often fail to materialise or are disputed as soon as the deal is signed. The UK, one of the first countries to pay the US the equivalent of protection money in its agreement in May, is still waiting for some of the benefits in the form of zero tariffs for a portion of its steel exports. The Japan agreement in July headed straight into a fog of uncertainty over disputed provisions on investment and on import taxes. The EU kept complaining it didn’t know what Trump wanted — it’s a category error to assume he ever has coherent demands. 

One of the earliest attempts to analyse southern Italy’s mafia, by the sociologist Diego Gambetta, posited that organised crime fulfils a function in a society marked by profound distrust. Paying protection money provides security of contract and the settling of disputes in an otherwise chaotic business environment. But the mafia has to be competent and reliable. Dealing with Trump often means not just an offer you can’t refuse but an offer you can’t rely on — sometimes an offer you can’t understand. If the EU’s tariffs were protection money on behalf of Ukraine, Trump glaringly failed to deliver the quid pro quo. Perhaps he simply inferred from the concession that the EU was a weakling to be trampled underfoot.

So much so that The Times has described the US President as the “newest activist investor”

President Trump has inserted the government into U.S. companies in extraordinary ways, including taking a stake in U.S. Steel and pushing for a cut of Nvidia’s and Advanced Micro Devices’ revenue from China. Last month, the Pentagon said it was taking a 15 percent stake in MP Materials, a large American miner of rare earths. And on Friday, Intel agreed to allow the U.S. government to take a 10 per cent stake in its business, worth $8.9 billion. These developments could herald a shift from America’s vaunted free-market system to one that resembles, at least in some corners, a form of state-managed capitalism more frequently seen in Europe and, to a different degree, China and Russia, say lawyers, bankers and academics steeped in the history of hostile takeovers and international business.

When an ultra-powerful President becomes the “activist investor”, the whole economy becomes available for deal-making in the manner he deems useful or appropriate. 

In the US context, to the collapses of institutional checks and balances within the government, and that of the market restraints, one must add the breakdown of ideological bulwarks. It was thought that no matter what, the Republican and Democratic parties would always remain beholden to certain ideological strands. But the assault has demolished even this faith. In the context of the decision of the US government to take a stake in Intel, an FT article writes,

Trump has taken on that dealmaking role for himself, adopting a transactional approach to the presidency that has upended the US government’s treatment of private enterprise and shattered the Republican party’s free-market philosophy. On Friday, the president announced his latest deal: the US government would take a 10 per cent stake in struggling chipmaker Intel, using previously agreed federal grants to fund an $8.9bn equity investment. The move cuts directly across Republican orthodoxy, which touts the benefits of free-market capitalism and broadly objects to state interventions into corporate America.

The article describes these actions as part of the shift towards a form of “state-run capitalism”. In the circumstances, it may not be incorrect to argue that in the battle for global supremacy between the US and China, the Chinese model of capitalism with Chinese characteristics (essentially state-directed capitalism) appears to be winning, at least for now. 

And we are not even talking about how a new normal may have come to be established in political rent-seeking. David Kirkpatrick of The New Yorker has investigated and found that the Trump family may have benefited by $3.4 billion from the Presidency to date. 

For me, the examples of China and the US are good reminders about the tenuous foundations on which orthodox theories stand. It should serve as a powerful reminder about the limits to the great faith that we place in experts and expertise. Far from being expertise-driven, critical decisions on areas like liberalisation, outsourcing and off-shoring, immigration, technology adoption, etc., are prudent judgments that are essentially political choices. Technical expert advice is only one among the inputs that go into informing those political choices. 

For more on this, I blogged here on the problems with the argument on technical expertise and central banking and its independence. I also blogged here, here, here, and here, questioning the wisdom of blind or excessive faith in expertise and experts.

Amidst all these critiques and lamentations about the breakdown of orthodoxy, we should not become blind to several desirable trends. As I have blogged on several occasions (here, here, and here), capitalism, trade liberalisation, globalisation, outsourcing, immigration, woke liberalism, etc., all clearly went to excessive extremes. Now, a much-needed recalibration is happening with vengeance. And some parts of the Trumpian makeover of the US economy and polity are being met with approbation from even traditional critics and opponents. 

Mark Cuban, the billionaire investor and a supporter of Kamala Harris in the 2024 presidential race, said Trump’s decision to push Nvidia and AMD to pay a portion of their China-related revenues to the state was a good redistributive move that should have been supported by Democrats. “This is a ‘billionaire’s tax’ structured as a royalty or sales tax on semiconductors from the most valuable company in the world, sold to China,” Cuban said on X. “Will this make up for the explosion of the deficits we face? Not as it stands now. Not close. But give him credit for knowing how those CEOs approach problems and opportunities, and using his leverage to generate tax revenues,” Cuban added. “POTUS is more progressive when it comes to taxation than anyone in the progressive wing of the Dems has ever been.”… 

Bernie Sanders, the leftwing US senator, lauded Trump’s Intel deal, which mirrored a proposal he had made himself for the government to receive equity in return for subsidies granted under the 2022 Chips Act. “I am glad the Trump administration is in agreement with the amendment I offered three years ago,” said Sanders in a statement. “If microchip companies make a profit from the generous grants they receive from the federal government, the taxpayers of America have a right to a reasonable return on that investment.”

Two areas of particular interest are how Trump moves on Big Pharma and Big Tech. He has already committed to lowering US drug prices by up to 80%. In late July, he wrote to the 17 largest pharmaceutical companies, demanding binding commitments from them to lower drug prices by September 29. 

The letters asked the groups to apply “most favoured nation” drug pricing to Medicaid, the US health programme for low-income people. They also asked drugmakers to offer new medicines at the same price in the US as in other developed countries, and offer direct-to-consumer drug sales that would “cut out middlemen” such as pharmacy companies.

What will happen on September 29? It also remains to be seen what happens with the ongoing antitrust actions against Big Tech. Contrary to what was widely believed, the Biden-era antitrust actions have continued. Landmark decisions on Google and Meta are expected anytime, which could dramatically revise decades-long paradigms on antitrust and makeover the competition landscape in the digital technology sector. It’ll be interesting to see how far this will be allowed to go once the first verdicts come. For example, will Trump intervene with deals that break up Google and Meta?

Successive democratic administrations compromised on their ideals and allowed these excesses to build up. And it has now taken a right-wing populist backlash to tame and recalibrate these forces. Liberals and progressives should take note. 

Finally, the ongoing trends in China and the US are also a reminder about Marx’s famous quote in The Eighteenth Brumaire of Louis Bonaparte, “Men make their own history, but they do not make it as they please; they do not make it under self-selected circumstances, but under circumstances existing already, given and transmitted from the past”. While both Xi Jinping and Donald Trump are creatures that emerged by harnessing the political forces unleashed by the underlying economic, social, and cultural conditions, their individual personalities and contributions to seize the moment and shape it in their favour should not be overlooked.