Weekend reading links

1. As grocery prices rise and popularity ratings dive, President Trump rolls back tariffs on certain agricultural products where import reliance is high. 

Trump issued an executive order on Friday afternoon saying that imports of certain goods that were generally not grown or produced in the US would no longer be subject to “reciprocal tariffs” — the high levies he set based on emergency powers starting in April. The president’s order said the tariff exemptions would apply to common and tropical fruits including oranges, tomatoes and bananas — as well as cocoa, coffee and tea. Beef imports were also included in the list, as well as spices and some fertilisers, according to a factsheet provided by the White House.

Beef prices have surged in the US, with the average price of a pound of ground beef rising 13% in a year, while uncooked steaks rose 11%, leading to steakhouses raising prices or trimming portions or both.

The exorbitant tariffs of 50% on Brazil, the world's largest beef exporter, have been a major contributor. 

Before the Trump administration levied a sweeping 50 per cent tariff on Brazil in July, the US had been steadily increasing imports from Brazil in order to keep up with domestic demand. In the first five months of 2025, the US imported some 215,000 tonnes, more than double during the same period in 2024. After July, the effective rate for out-of-quota Brazilian beef rose to more than 76 per cent. Exports to the US, Brazil’s second-largest beef market year-to-date, fell 41 per cent in September to $102.9mn.

2. Continuing on the tariff front, Switzerland has reached an agreement with the US to lower tariffs from 39% to 15%, the same rate as EU exports to the US. In return for the deal, Swiss companies have promised to invest $200 billion in the US by the end of 2028. White House has said at least $67 of the investment would occur in 2026, and Swiss businesses would set up apprenticeships and training programs in the US. 

This also follows trade deals with Argentina, Guatemala, El Salavador, and Ecuador over the week. 

3. Good news on the South African economy, as S&P upgrades sovereign ratings for the first time in two decades to BB, two notches below investment grade, on the back of reforms and fiscal revenues. 

The rolling blackouts that hamstrung the economy have largely been avoided this year and Eskom, the state power company, returned to profit after eight years of losses and reliance on government bailouts... S&P said the upgrade reflected South Africa’s recent record of budget surpluses, excluding interest payments, and less financial pressure from Eskom... After a decade in which GDP expansion remained below 1 per cent, there have been other positive developments. The country was recently removed from the Financial Action Task Force’s grey list while the survival of the government of national unity has improved investor confidence. This week, the government cut its inflation target for the first time this century to 3 per cent, bolstering a rand rally...

S&P said it expected South Africa’s GDP growth to pick up to 1.1 per cent this year, from 0.5 per cent in 2024. South African assets have stood out this year even in the midst of a rally in other emerging markets, while the rand is up about a tenth against the dollar in spot terms. The Johannesburg all-share index has risen about a third this year, or nearly 50 per cent in dollar terms. The yield on South Africa’s 10-year rand government debt has fallen from 11 per cent in April to about 8.7 per cent.

3. The latest in rent-seeking by the Trump family is a report that the Trump Organisation is in talks to bring a Trump-branded property to a $63 billion government-owned project that is set to transform the historic Saudi town of Diriyah into a luxury destination with hotels, retail shops, and office space. The Organisation is also talking to bring Trum branded property to other developments in Saud Arabia. 

The negotiations are the latest example of Mr. Trump blending governance and family business, particularly in Persian Gulf countries. Since returning to office, the president’s family and businesses have announced new ventures abroad involving billions of dollars, made hundreds of millions from cryptocurrency, and sold tickets to a private dinner hosted by Mr. Trump... In Saudi Arabia, a Trump tower is planned for Jeddah, and two projects have been announced in Riyadh. A Trump hotel and tower has moved forward in Dubai, the largest city in the United Arab Emirates. And a golf course deal in Qatar has put the Trump family in business with a government-owned real estate firm there... Each venture generates licensing fees for using the Trump name... Licensing deals can be lucrative, particularly if a development does well. Often, a company is paid for the use of its name and is not required to invest any money in the project itself. The Trump Organization’s licensing agreements are not public, making it impossible to know the terms.

4. Sustainable high growth rates in India is not possible without broad-basing aggregate demand. More here. 

5. Corporate India's R&D problem in a graphic.

And global comparison.

And it does not seem to be improving.

Most of the top six sectors saw a dip in their share in the R&D expenditure by Nifty 100 companies during FY23-25.

6.  Retail is an illustration of the deeply price-sensitive and low-margin nature of Indian market. 

Foreign brands including West Elm, Pottery Barn and Superdry have stores in Reliance’s shopping malls in upmarket Mumbai. However, those joint ventures have largely struggled to gain traction with shoppers in India, where the per capita income remains less than $3,000. The conglomerate’s foreign brands business housing these joint ventures lost Rs2.7bn ($30mn) in the financial year through March 2025, according to the latest available accounts... Reliance’s high-profile partnership with fast-fashion retailer Shein has also been underwhelming... Shein’s app has been downloaded just 11mn times so far, according to market intelligence firm Sensor Tower. Its discount prices are largely matched, if not undercut, by many Indian ecommerce and fashion retailers, say analysts... Blinkit, Swiggy and Zepto, which together control more than 90 per cent of the quick commerce delivery market and compete with Amazon and Walmart-owned Flipkart. None of the companies are profitable.

7. Arvind Datar has a good explainer of the telecommunications adjusted gross revenue issue that the Supreme Court has just allowed for reconsideration (after having created the problem in the first place).

8. Even as Delhi grapples with toxic air pollution levels, here's something from England.

In my home country of England, levels of PM2.5 — fine particulate matter which is widely seen as the most damaging pollutant to human health — have plummeted. A report by the Institute for Fiscal Studies describes “remarkable progress” over the past two decades. Between 2003 and 2023, the average level of PM2.5 roughly halved in every region of England, and almost everywhere is now already below the target the UK government set for England for 2040.

Also India's VC industry facts

The country has created more than 120 unicorns, start-ups valued at more than $1bn, according to Tracxn — the third highest number after the US and China. Indian and international venture capital firms have invested $96bn over the past five years, according to consultants Bain, in around 8,000 funding rounds. Most of this has come from foreign investors but the domestic long-term capital base is developing fast, from family offices to insurance companies and pension funds.

9. The remarkable precision of Chinese economic forecasts raises red flags.

10. The spectacular reduction in the cost of renewable energy.

Since 1976, the price of solar modules has fallen by 99.6 per cent. With each doubling of installed capacity, the price fell by 20 per cent.

11. Janan Ganesh may well be spot on with his assessment of Rachel Reeves, the British Chancellor of Exchequer,

Rachel Reeves: one of life’s triers, but never cut out for this particular office at this particular time. At next week’s Budget, she will announce a second round of tax rises, which she said would never come. She has spent 2025 fanning and then dousing speculation about certain levies, such as higher income tax, with predictable effects on confidence. (A Tory who behaved like this would be called a vandal.) Most workplaces, including newspapers, contain staff who are out of their depth but survive because the boss is too embarrassed to fire them. They just tend not to be the second-highest person in the organisation.

And on her boss, the Prime Minister, Keir Starmer.

There were warnings about Starmer’s character in opposition. He let others stand up to Jeremy Corbyn, whom he served in shadow cabinet. He let others fight woke dogma, until the tide turned against it. Even now, he makes liberal use of human shields. Notice that every crisis for Starmer quickly becomes a conversation about his underlings. His then chief of staff Sue Gray used to be the problem. Now it is her successor Morgan McSweeney. What rotten luck the prime minister has with recruitment. The British are having to relearn a lesson that Theresa May should have fixed in their minds forever. Don’t assume that uncharismatic people have hidden depths. Being boring does not make someone a “technocrat”. One can be dull and inept.

12. Britain has the biggest difference between the bottom and top tax slabs. 

According to the latest figures from the OECD, 45 per cent of top earners’ salaries goes on taxes and social contributions, compared with 29 per cent for the average worker, for a top-to-middle gap of 16 percentage points. Scandinavian gaps come in at about 12 points. Northern Europe’s social democracies tax everyone from bottom to top at a moderately high rate. In Britain, taxes at the top are comparable to Denmark and Norway but the average Briton is taxed less than the average American.

13. John Martinis, Professor of Physics at the University of California, Santa Barbara, and the winner of 2025 Nobel Prize in Physics, poses a manufacturing challenge to realise quantum computing.

Anyone who has looked inside a modern quantum system can see the truth of this. Look at the diagrams or pictures of devices and what do you see? A jungle of wires and discrete components, all designed to cool and control a single, small chip hidden at the bottom of the cryostat. We have reached a stage where the complexity of the plumbing completely overwhelms the quantum device itself. My vision is that the entire, spaghetti-like control system must be replaced by a single, integrated chip. Think of it as the transition from the room-sized mainframe computers of the 1960s to the microchips of the 1970s and beyond. That transition wasn’t an innovation in abstract mathematics; it was an industrial engineering marvel. We need cryogenic integrated circuits to operate at the very low temperatures required for superconducting qubits. Using this approach, we can put not hundreds but 20,000 high-fidelity qubits on a single, clean wafer, and then achieve the target of millions of qubits per system by interconnecting those wafers. Quantum computing must adopt state-of-the-art chip manufacturing — the same technology that builds billions of transistors into every modern smartphone. This means getting rid of outdated, inefficient methods, such as the 60-year-old lift-off fabrication process used in the development of quantum computing chips, which simply is not clean or scalable enough.

He sees this as an industrial engineering challenge for the US and wonders whether the modern culture distracts from its realisation.

When the classical semiconductor industry offshored much of its fabrication capacity, it shifted technological leadership overseas. I do not wish my scientific legacy to simply mint a few more billionaires... I wonder whether modern culture, with its focus on the latest result and aggressive marketing, makes the necessary, difficult and frankly less glamorous work of deep industrial engineering harder to justify and fund. But the path to scalable quantum computers is paved with high-tech fabrication equipment, not just high-impact papers. It is time for the superconducting qubit community to shift its focus from chasing the next algorithmic demonstration to tackling the immense manufacturing and engineering challenge that lies ahead. The moment for foundational scientific discovery needs to give way to the era of industrial manufacturing.

Weekend reading links

1. The F-35, the Joint Strike Fighter, the backbone of the western air forces, and developed by Lockheed Martin in collaboration with several companies from the western alliance, is facing uncertainty arising from concerns that the Trump administration could kill the program. 

It's already deployed by several governments and has large order book.

2. The US statistical system faces uncertainties due to DOGE cuts.

3. Indians are second only to the Chinese in purchases of gold.

4. India IT services off-shoring facts of the day

As of 2024, there were about 1,800 offshore corporate offices in India, owned by hundreds of foreign-based multinational companies — most of them American. There are 1.9 million people in India working for foreign companies, with 600,000 to 900,000 more expected to join them by 2030. Together, the offshore business centers in India earned about $65 billion last year, more than the value of American imports to India. By 2030, they are expected to earn $100 billion or more... Across India, these foreign-owned offices are now the primary driver of commercial real estate. An estimated 50 new ones were established over the past year. The expectation is that 100 more will join them during 2025... these offshore subsidiaries are no longer providing only low-value services. They are full-fledged branches of American headquarters, not just outposts, let alone temporary offices that provide outsourcing for information technology services. In fact, that sector announced a reduction of 64,000 jobs in 2024... 

While salaries have gone up over the years, they are still about a quarter to a third of their dollar-adjusted equivalent in the United States. Managers of these offices, known as global capability centers, acknowledged the savings, but they said multinational companies were just as drawn to the quality and abundance of potential Indian workers. “Where else can you scale up with 2,000 engineers, or marketing professionals, within a year?” exclaimed one executive, who asked not to be named because he was not authorized to speak publicly.

5. Automobile trade with the US

For Japan and South Korea, automobiles are the top export to the United States. Mexico, in addition to cars, produces tens of billions of dollars worth of automobile parts each year that are exported to its northern neighbor. In Canada, auto manufacturing and auto parts are the country’s second-biggest export by value... In recent years, Japanese and South Korean automakers, as well as European brands — which account for 18 percent of U.S. car imports — have become increasingly reliant on the American market. That is in part because of stagnant demand in their home countries, but also because they are facing heightened competition from local competitors in the world’s biggest car market, China... Japanese brands shipped 1.37 million vehicles to the United States last year, while South Korean automakers exported 1.43 million. In addition, 821,000 light vehicles sold in the United States last year were assembled in the European Union, according to JATO, a research firm. Conversely, U.S. automakers have a minimal presence in Japan, South Korea and Germany — a reality that has vexed Mr. Trump since his first term as president.

6. In six years, China's trade surplus has nearly tripled!

President XI Jinping recently hosted 40 global business leaders in the Great Hall of People in Beijing and made an impassioned plea in defence of the global trading system. He decried some countries "weaponising" trade and "forcing companies to take sides and make choices that go against economic principles". He said, "We must jointly maintain the multilateral trading system, jointly maintain the stability of the global industrial chain."

China's defence of the world trading system is purely borne out of self-interest. It's acutely dependent on exports for growth.

As their consorting with President Xi shows, the Western business leaders have clearly not learnt anything from the countless recent incidents of high-handedness by Chinese authorities and experiences of difficulties of doing business in China.  

7. Grim assessment of the development aid scenario

Not only has the US shut down USAID and the UK slashed development aid, but there have also been cuts to the French, Belgian and Dutch budgets. The latest warnings come from Berlin, where the new coalition has put the development budget on the chopping block. In a worst-case scenario, global aid budgets could be slashed by a staggering $74bn in 2025 alone. That would be 30 per cent or so of total overseas development assistance, or ODA.

8. Gautam Mukunda makes a very good case for freedom on expression in academic campuses. 

But why can’t universities innovate while getting rid of that irritating tendency to annoy and even offend... They provide a home for people too contrarian, difficult or just downright odd to function in the rest of society. Colleges welcome people who reject the mainstream consensus. They’ve even created structures like tenure to protect and encourage those people. There’s good reason to do so. The most important discoveries are the ones that tell us that something important that we thought we knew is wrong. Most research is what the great philosopher of science Thomas Kuhn called “normal science.” It works within established paradigms. That’s valuable work. Doing it well is rewarded with the esteem of your peers. Revolutionary research, in contrast, overturns old paradigms. It destroys accepted consensus. That’s hard. People, even scientists, tend to react poorly when someone tells them they’re wrong, and they often reject the ones who do it.

9. The length of tasks AI is doing is doubling every seven months.

John Burn-Murdoch summarises the paper's findings

It finds that LLMs’ ability to perform a given task is a function not so much of how intellectually challenging the same job would be for you or me, nor of the level of specialist skill required, but of how long it would take a human and how “messy” or unstructured the workflow. So carrying out the duties of an executive assistant, travel agent or bookkeeping clerk — all computer-based jobs requiring entry-level skills — is still beyond the capabilities of even cutting-edge AIs. They struggle to keep track of multiple streams of information, respond to a dynamic environment, work with unclear or changing goals and multitask. These unstructured workflows are a far cry from coding tests and essay questions.

10. Amidst all the credentially and virtue signalling on climate change, America continues its commitment to fossil fuels. In the last few years, it has not only emerged as the largest oil producer, but now has become the largest LNG exporter. 

It's estimated that by the end of the decade, almost 1 in every three tankers carrying the super-chilled fuel will originate in the US. This is a good summary of the transformation of fortunes of the US gas industry.

Twenty years ago, the idea that natural gas would play an even more important role than crude oil in US diplomatic calculations would have been preposterous. At the turn of the millennium, the US was short of gas. It generated less than 15% of the country’s power, outflanked by nuclear and coal, and Federal Reserve Chairman Alan Greenspan called for a major expansion of imports to address the shortfall in domestic supply. Horizontal drilling and hydraulic fracturing, or fracking, which picked up in the early aughts, changed all that. The two techniques unlocked previously inaccessible oil and gas reserves from North Dakota to New Mexico. The US more than doubled its natural gas production, to more than 100 billion cubic feet per day, and it now fuels 41% of the country’s electricity... US natural gas prices have averaged $3.55 per million British thermal units over the past five years, about 70% lower than the European average, providing the economy with a major competitive advantage and helping to underpin both Biden and Trump’s policies to bring US manufacturing back from overseas.

11. Affordable housing crisis in Spain.

Since 2015, nearly one-tenth of the country’s housing stock has been plucked by investors or converted to tourist rentals. The scarcity has helped drive up prices much faster than wages, making affordable homes out of reach for many... The problem is complex, perhaps no more so than in Barcelona, which has become ground zero for Spain’s housing dilemma — and a crucible for the challenges of trying to fix it... Barcelona’s woes mirror the pain lashing European cities: Residential real estate has increasingly been turned into financial assets by investors. A surge in global tourism and workers crossing borders has landlords favoring short-term rentals over protected long-term tenants... 

The affordability problem has become one of the biggest drivers of inequality in Europe. Rents in the European Union rose 20 percent in 10 years, and house prices have surged by half, according to Eurostat. In 2023, one in 10 Europeans spent 40 percent or more of his or her income on housing... But rental prices have increased 57 percent in the country since 2015 and home prices 47 percent, while household income has grown just 33 percent, according to PwC. In Barcelona alone, rents surged 68 percent in a decade... Barcelona will become the first European city to end licenses for Airbnb homes, requiring owners by 2028 to offer them as long-term lodging at capped rents or put them up for sale.

12. India trade facts

India’s exports of merchandise and services from $465.9 billion in 2013-14... to be around $780 billion and their share in global exports around 2.8 per cent. In 11 years, that is a compounded aggregate growth rate of 4.79 per cent... The merchandise exports in 2019-20 were lower at $313.361 billion compared to $314.405 billion in 2013-14... This financial year merchandise exports are likely to be around $435 billion, which means a CAGR of 3.1 per cent in 11 years. Our share in global merchandise exports remains around 1.8 per cent... The services exports grew from $167 billion in 2013-14 to only around $206 billion in 2020-21, a CAGR of 3.04 per cent. Thereafter... the services exports have grown smartly and in FY25, it is expected to be around $380 billion, a CAGR of about 7.76 per cent over 11 years. Our share in global exports of services has also gone up to about 4.3 per cent. In 2013-14, our goods imports were about $450 billion. This financial year, total imports are likely to be around $855 billion, a CAGR of about 6.01 per cent over 11 years. Since 2014, our average industrial tariffs have gone up from about 13 per cent to about 18 per cent.

13. Long read on Tamil Nadu's success with attracting non-leather footwear contract manufacturers to invest in the state. Today all the major global contract manufacturers - Feng Tay, Pou Chan, Hong Fu, Shoe Town, and Dean Shoes (all Taiwanese) - have established factories in the state. 

Feng Tay Enterprises, one of the largest contract manufacturers for Nike, which had entered Tamil Nadu in 2006 with a factory at Cheyyar (northern Tamil Nadu), has recently expanded its operations by setting up factories at Bargur in Krishnagiri district and at Tindivanam (northern Tamil Nadu). Feng Tay employs over 37,000 workers and is estimated to produce about 25 million pairs of footwear annually.

Proactive engagement by the TN government in wooing these manufacturers, the state's track record in manufacturing, and the abundance of cheap and skilled labour have been important contributors. 

14. The supply-driven solar contracting by SECI is engendering perverse incentives.

India issued a record 73 GW of renewable energy (RE) tenders in 2024, far exceeding its annual target of 50 GW. But, 8.5 GW of capacity was under-subscribed, five times higher than the previous year, said a report from the Institute of Energy Economics and Financial Analysis (IEEFA), released earlier this month. Worryingly, the cumulative unsigned power sale agreement (PSA) capacity now exceeds 40 GW. This means while companies are willing to set up renewable energy (RE) projects, there aren’t enough buyers. Another report by the Delhi-based Centre for Science and Environment (CSE), released in January, underlined the sluggish pace of commissioning of RE projects. For 34.5 GW of solar, wind, and hybrid projects, power purchase agreements (PPA) have been signed but projects are yet to be commissioned. PPA’s are signed between project developers, or companies which produce solar power, and agencies which issue tenders like the Solar Energy Corporation of India (SECI). This implies a lack of interest from state-owned discoms to purchase renewable power. 

As I have written earlier, it may be time to wind down SECI, or at the least restrict it from solar and focus on green hydrogen and the likes.  

15. DMart is the most efficient grocery retailer in the world!

16. Finally, some facts on India's recent struggles with increasing its textile and apparel exports.

India’s textile and apparel (T&A) exports have grown steadily from $11.5 billion in FY2001 to $34.8 billion in FY24, accounting for only a 4 per cent share in global exports of $774.4 billion... The apparel segment (HSN codes 61 and 62) within overall T&A exports comprises about 42 per cent. It rose from $5.5 billion in FY2001 to $14.5 billion in FY24. Its share in global apparel exports has remained stubbornly around 3 per cent over this entire period. Meanwhile, competitors like Bangladesh and Vietnam have surged ahead. Bangladesh’s global share has grown from 2.2 per cent to 9.6 per cent, while Vietnam’s share jumped from 1 per cent to 5.8 per cent between 2000 and 2023 (see infographics). A significant portion of this shift occurred post-2010 when China’s global market share slipped from 34.8 per cent to 29.8 per cent, partly due to its trade war with the US.

Here are some striking facts about its declining cotton production and how India became a net cotton importer. 

Between 2002-03 and 2013-14, India’s cotton production almost trebled from 13.6 million to 39.8 million bales (mb; 1 bale=170 kg). During the three marketing years (October-September) ended 2002-03, its average imports of 2.2 mb exceeded exports of not even 0.1 mb. That completely changed in the three years ended 2013-14, with imports halving to 1.1 mb and exports surging well over hundredfold to 11.6 mb. Cut to 2024-25, when India’s output is projected at 29.5 mb, the lowest since the 29 mb of 2008-09. Also, imports at 3 mb would surpass exports of 1.7 mb. In short, we are back to being a net importer of the natural fibre. A country that had turned the world’s no 1 producer in 2015-16 and a close second biggest exporter to the US by 2011-12 has today been “inundated” by American, Australian, Egyptian and Brazilian cottons... India’s cotton production has been on a downward slope from the peaks scaled in 2013-14, falling to an average of 33.8 mb during the last five years and below 30 mb in 2024-25. National lint yields, too, have plunged to sub-450 kg per hectare.

The reason is the reluctance of successive governments to adopt genetically modified cotton.  

Weekend reading links

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

6. Peak population?

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

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

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

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

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

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

8. Concerns about India's economic growth.

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

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

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

9. RBI's impossible challenge?

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

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

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

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

Similarly on rule of law.

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

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

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

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

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

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

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

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

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

Weekend reading links

1. Disturbing facts about India's PSUs.

From a capital outlay of Rs 3.32 trillion in 2013-14 (the last year of the Manmohan Singh regime), PSUs saw their total investment jump to Rs 8.52 trillion in 2019-20. In terms of its share in GDP, PSUs’ capital outlay rose from 2.9 per cent to 4.2 per cent in the same period. This rise was driven as much by trebling the government’s equity infusion as by the PSUs’ ability to generate more internal resources and raise more borrowing... In the five years following the pandemic, the PSU story has changed significantly. Indeed, by the end of 2021-22, capital outlay by PSUs fell almost by a fifth. The decline could be largely attributed to the PSUs’ inability to raise internal resources or even mobilise higher borrowing. The fall would have been sharper but for the government propping up the public sector with increased equity infusion, a trend that has continued since then. The capital outlay situation in the last two years has got better. At Rs 8.4 trillion in 2023-24, the declining trend has been reversed, but as a percentage of GDP (2.84 per cent) this is still lower than what prevailed 10 years ago (2.9 per cent in 2013-14)... infusing additional equity, which in any case is largely restricted to a handful of entities like Bharat Sanchar Nigam Limited, National Highways Authority of India, and Indian Railways, accounting for about 87-90 per cent of the total equity outlay announced in the last couple of years.

2. Some facts about food prices inflation index in India from the latest HCES report

Over the period from 2011-12 to 2022-23, the share of food in monthly per capita consumption expenditure (MPCE) declined from 52.90 to 46.38 per cent in rural and from 42.62 to 39.17 per cent in urban India. In rural India, the share of cereal declined from 10.69 to 4.89 per cent and pulses and pulse products from 2.76 to 1.77 per cent over this period. In urban India, the share of cereal declined from 6.61 to 3.62 per cent and pulses and pulse products from 1.93 to 1.21 per cent in the same period. Because households got free rice, wheat and coarse grains from the public distribution system (PDS), the decline in value share was more pronounced than the decline in quantity consumed. In 2022-23, a person consumed 9.6 kg and 8.0 kg of cereals in rural and urban India, respectively, in a month, compared to 11.2 and 9.3 kg in 2011-12. Given that the share of items consumed free from PDS in the index is 0.80 in rural India and 0.25 in urban India, there is no reason to expect that consumption from the PDS would have any effect on inflation per se. It is equally important to focus on other components of the food basket. The importance of beverages and processed food has crept up steadily over time. In 2022-23, its share in the overall rural and urban MPCE was 9.62 and 10.64, respectively, compared to 7.4 and 8.03 per cent in 2009-10. Hence, accurate measurement of the price of cooked meals and snacks purchased is now extremely important.

3. FT points to Hendrik Bessembinder's analysis of the best performing stocks of all time over their lifespans. Altria, formerly Philip Morris, is the best-performing stock of all time in absolute terms.

If we consider annualised returns of stocks which are older than 20 years a different list emerges.

The paper writes

This report describes compound return outcomes for the 29,078 publicly-listed common stocks contained in the CRSP database from December 1925 to December 2023. The majority (51.6%) of these stocks had negative cumulative returns. However, the investment performance of some stocks was remarkable. Seventeen stocks delivered cumulative returns greater than five million percent (or $50,000 per dollar initially invested), with the highest cumulative return of 265 million percent (or $2.65 million per dollar initially invested) accruing to long-term investors in Altria Group. Annualized compound returns to these top performers relatively were modest, averaging 13.47% across the top seventeen stocks, thereby affirming the importance of "time in the market." The highest annualized compound return for any stock with at least 20 years of return data was 33.38%, earned by Nvidia shareholders.

And FT writes

One pretty obvious factor stands out in Bessembinder’s list of superstonks: They’re all old companies that have been or were around for a very long time, and few (none?) are in what would now be considered glamorous industries. This hammers home the power of longevity and steady returns over racier stocks. Of the nearly 30,000 US stocks that appear in the CRSP database, the median lifespan is just 6.8 years. Only 31 companies are present across the 98 years it spans. Of the 30 greatest compounders compiled by Bessembinder almost all have over 90 years of stock market history under their belt. The youngest is Northrop Grumman, which went public in 1951. While the mean outcome over that near-century of data is a 22,840 per cent gain, the median outcome is a loss of 7.4 per cent, because over half of all the common stocks registered by CRSP have incinerated money.

4. As they emerge as among the biggest incremental consumers of energy with their energy-guzzling AI algorithms and data centres that host them, the Big Tech firms have embarked on a behind-the-scene mission to rewrite the accounting principles of measuring pollution from energy consumption in a manner that burnish their green credentials. This must count as the mother of all greenwashing!

Sample the numbers on the accounting miracle of net zero emissions achievement claimed by Big Tech firms.

Social media group Meta, for instance, says it has already hit “net zero” emissions in its energy usage. But FT analysis of its 2023 sustainability report shows that its real-world CO₂ emissions from power consumption the prior year were 3.9mn tonnes, compared to the 273 net tonnes cited in the report.

This is a description of the current accounting method and its problems.

Companies including Amazon, Meta and Google have funded and lobbied the Greenhouse Gas Protocol, the carbon accounting oversight body, and financed research that helps back up their positions... Each time a wind, solar or hydroelectric facility generates a unit of clean power, its owner can issue an energy attribute certificate, typically known in the US as a renewable energy certificate, or REC... Companies can purchase RECs “to buy-down their environmental impact”... Doing so helps buyers demonstrate the action they are taking to finance clean power and directs investment towards green energy development... Matthew Brander, a professor at the University of Edinburgh, says the system is akin to buying the right from a fitter colleague to say you have cycled to work, even though you arrived by a car that runs on petrol... At present, the certificates must come from the same defined geographic region as the pollution they are offsetting, such as Europe and North America, but not the same grid and not at the same time. That means the clean energy that offsets the emissions could be generated in a different country, at a different time of day — or even in the past...

But both timing and location matter in terms of real-world emissions. For example, one potential buyer hooked up to a coal-dependent grid and another on a much cleaner grid could buy the same certificate to offset one megawatt hour of power use — even though the emissions stemming from that usage will differ in each grid. The certificates are also very cheap. The average forward price of a single US renewable energy certificate to be bought in the next calendar year has been under $5 since at least 2022... Experts have questioned whether this is really enough to help incentivise the development of a new clean power project. Academics and experts... have shown that buying certificates typically did not drive either a new supply of renewables or a fall in emissions... Using certificates from one area while operating in another could allow buyers to understate their reliance on fossil-based electricity.

And this about the reform proposals proposed by the Big Tech companies

Google’s proposed solution is to only match energy consumption with clean energy and certificates from the grids where power is consumed, and to take the time of day of its electricity use into account... The company also argues that its approach incentivises engagement with local policymakers about how best to green their electricity grid and investments in a range of solutions, such as batteries... A rival perspective, spearheaded by Amazon, Meta and other members of the Emissions First Partnership lobby group, says that companies should be able to use certificates in a more flexible way with no restrictions at all on geographical origin.

Amazon and Meta thinks this same unit of power could be offset by certificates tied to renewable energy produced during the day in Norway, for example... also wants companies to get more credit for buying clean energy certificates from a dirty grid like India than a cleaner one like Norway’s, to reflect the carbon emissions that may have been displaced, or avoided, by the use of wind power... Academics say a crucial metric that neither approach addresses is ‘additionality’ — or checks that the clean power would not have been produced anyway without extra money from the sale of the certificates.

The stakes are very high

Large technology groups are already “by far” the biggest corporate buyers of RECs... They are also some of the “biggest players” in renewable power deals globally... Microsoft and asset manager Brookfield have teamed up to develop 10.5 gigawatts of generating capacity, enough to power the equivalent of about 1.8mn homes. The cost of adding 1GW of new capacity is around $1bn. Amazon, the largest corporate buyer of renewable energy, is also pouring money into wind and solar projects in countries, including India. It said “the majority” of its 100 per cent renewable energy goal was met in 2023 by investing in clean energy projects. It uses unbundled certificates to “bridge the gap” until some renewable schemes come online, but its use of them would “decrease over time”, it added. Meta said most of its power use was matched with renewable energy investments, including RECs, in the same grids as its data centres. It has invested in more than 8GW of operational renewable energy... 

Globally, the International Energy Agency has estimated that the electricity consumed by data centres will more than double by 2026 to an amount roughly equivalent to Japan’s current annual consumption. That expansion threatens the viability of Big Tech’s net zero targets. Microsoft’s emissions rose by 30 per cent between 2020 and 2023, while Google’s jumped by almost half between 2019 and 2023, increases that both companies blamed in part on the need for new data centres.

This is a serious smoking gun

The Bezos Earth Fund, Amazon founder Jeff Bezos’ philanthropic group, donated $9.25mn to the protocol last year and is also a major funder of the non-profit WRI, which co-administers the accounting oversight body.

5. FT reports that PwC China is about to be hit with a six-month business ban for its role in the audit lapses on collapsed property developer, Evergrande. The action comes after the country's securities regulator said Evergande had inflated its mainland revenues by almost $80 bn in the two years before its default in 2021 despite the audit certified by PwC which gave a clean chit to the company. It's expected that there would be fines in addition. 

6. Fascinating article about how TSMC is struggling to get American workers acclimatised to its intense work culture in its under-construction facility at Phoenix, Arizona. 

7. Matt Stoller has an article on abusive practices by the executives of Albertsons and Kroger, which are in the process of a controversial merger that's being litigated in courts. 

Kroger and Albertsons are both monsters, and the two of them combining would create the second largest chain in the country, after Walmart, with 15% of the national grocery business. Kroger/Albertsons would employ over 700,000 people, have over $200 billion in revenue and more than 40,000 private label brands, and own and operate brands such as Safeway, Ralphs, Smith’s, Harris Teeter, Dillons, Fred Meyer, Vons, Kings, Haggen, Tom Thumb, Star Market, Jewel-Osco, and Shaw’s.

8. Rental housing market intervention by the Labour government in the UK in an effort to encourage the building of affordable homes.

UK chancellor Rachel Reeves intends to introduce a 10-year formula in October’s Budget that will increase annual rents in England by the CPI measure of inflation — currently 2.2 per cent — plus an additional 1 per cent, according to government insiders. The move is aimed at encouraging the building of more affordable homes by providing certainty over cash flows to housing associations and councils — which are grappling with heavy debt burdens and large maintenance backlogs. In recent years local authorities have almost stopped building homes, leaving housing associations — not-for-profit organisations — to build most new social housing in the UK. The government sets rent levels in subsidised social housing using a national formula. Guaranteeing higher rents will delight housing associations but could worsen the cost of living for millions of tenants and could land the government with a much higher benefits bill... The previous Conservative government made a similar promise in the early 2010s but ministers subsequently ripped it up on several occasions. David Cameron’s coalition set a 10-year annual rent settlement in 2012 based on the retail price index, plus 0.5 per cent. But then-chancellor George Osborne reneged on the agreement in 2015 with four years of below-inflation increases in order to reduce housing benefit costs for the Treasury. More recently, the Conservative government announced a five-year settlement of CPI plus 1 per cent in 2020, but was then forced to cap rent increases at 7 per cent following a jump in inflation to more than 11 per cent in 2022. It extended the settlement for one further year this April.

9. Farm subsidies world over are cornered by the richer farmers.

But between 1995 and 2023, some 27 per cent of subsidies to farmers in the US went to the richest 1 per cent of recipients, according to NGO the Environmental Working Group. In the EU, 80 per cent of the cash handed out under the CAP goes to just 20 per cent of farms.

10. Interesting facts about US manufacturing jobs.

The US was once the world’s manufacturing powerhouse, producing more steel, automobiles and consumer goods than any other nation. Employment in the sector peaked at 19.55mn in 1979 when manufacturing jobs accounted for one in five American workers. But decades of outsourcing to lower cost economies in Asia and elsewhere have cost millions of jobs, particularly in rustbelt states such as Illinois, Indiana, Michigan, Missouri, New York, Ohio, Pennsylvania, West Virginia, and Wisconsin. As of May, there were 12.96mn people working in manufacturing jobs, less than 10 per cent of the US workforce and slightly up from 12.81mn in 2019, according to the Bureau of Labor Statistics. China overtook the US as the world’s biggest manufacturer in 2010.

And solar industry competitiveness of the US and China

Multiple firms estimate China produces more than double global demand for panels, and BloombergNEF has warned that rapid innovation in south-east Asia, where the US sources the bulk of its solar panels and cells, means US factories risk being uncompetitive by the time production comes online... The panels made overseas are far cheaper than domestic ones. US-made crystalline silicon panels generate energy at an average cost of 29.5 cents per watt, according to BloombergNEF. A panel sourced in south-east Asia, meanwhile, can cost under 16 cents per watt, and in China, it is 10 cents per watt.

11. Finally, amidst a takeover threat from a Canadian retailer, NYT has a good article on why 7-eleven stores are a national institution in Japan.

7-Eleven is “one of the best brick-and-mortar retail businesses in the world,” said Hiroaki Watanabe, an independent retail analyst. Selling 7-Eleven to Couche-Tard would be, for Japan, “equivalent to Toyota becoming a foreign company,” he said. In fact, 7-Eleven started out an American convenience store chain, operated by Southland Corporation, in Dallas in 1927. It opened its first store in Japan in 1974, featuring popular American items like hamburgers. It was an instant success in Japan and within two years had expanded to 100 stores. In 1991, a Japanese supermarket operator, Ito-Yokado, and 7-Eleven Japan acquired 70 percent of Southland’s shares. In 2005, 7-Eleven became wholly Japanese-owned through a holding company, Seven & i. Today, Seven & i has more than 21,000 7-Eleven stores in Japan and operates in 20 countries and territories. In the United States, Seven & i has been exploring ways to replicate the much-coveted Japanese convenience store experience... Today, Seven & i has more than 21,000 7-Eleven stores in Japan and operates in 20 countries and territories. In the United States, Seven & i has been exploring ways to replicate the much-coveted Japanese convenience store experience.