Weekend reading links

1. Case study of US toy maker, Learning Resources, on the challenge of diversifying away from China.

While you can move your manufacturing out of China, it’s much harder to move China out of your manufacturing.

Some snippets highlighting the point above. 

The toymaker offers about 2,000 products; a few years ago more than 80% of them were produced in China by companies that tapped into the country’s countless vendors of plastic resins, paint pigments, computer boards and other materials... China has about 10,000 toy manufacturers, versus roughly 100 factories in Vietnam skilled enough to produce for export... This lack of scale means less competition to bring down prices, crucial for toys, where margins typically stand in the single digits. Learning Resources is moving batches of about two dozen products at a time to Vietnam, a time-consuming and costly process. Each toy requires as many as a half-dozen heavy steel molds, which are mostly made in China. Ruffman estimates it will cost about $5,000 to move each mold to Vietnam—adding millions of dollars in expenses that contribute nothing to the bottom line... Vietnam’s output per employee is as much as 40% lower. That’s because Chinese factories have invested heavily in automation and can rely on an experienced workforce... China’s combination of expertise and infrastructure “doesn’t exist anywhere else”.

2. Avocado farming comes to India. It can generate annual income of about Rs 4 lakh per acre, net of all expenses. 

Currently, demand within India is met largely by imports which are doubling every year. In FY24, India imported 5,040 tonnes which climbed to nearly 12,000 tonnes in FY25. This year, the imports are likely to cross 20,000 tonnes (the imports during the first quarter of FY26 was nearly 7,400 tonnes). Come to think of it, a few years back, in FY21, imports were a mere 234 tonnes... Despite the growing popularity of avocados among farmers, it’s only the well-off who are getting into it. The reason is simple: for orchards to yield a remunerative return, it takes 4-5 years from planting. The costs range from ₹4-5 lakh per acre (apart from the land cost). Just one sapling of avocado can cost anywhere between ₹800 to ₹2,500 (about 150 saplings can be planted in an acre) depending on the variety and rootstock... As per a June 2025 estimate from Rabobank, the global avocado market is around $20.5 billion. The report estimated that global avocado exports are likely to touch 3 million tonnes by 2026-27, from one million tonnes in 2012-13. Today, India imports about 90% of the avocados it consumes from Tanzania (as the produce is duty free), with smaller volumes coming from Australia and Kenya, among others.

3. For all the talk of China competing with the US on AI, the latter dominates VC funding in the field.

And AI computing power too is concentrated in the US

4. FT has a graphic which shows that Germany, the centre of capital goods manufacturing, has now become a net capital goods importer from China!

For about two decades up to the pandemic, Chinese demand for German engineering goods and cars was seemingly insatiable, fuelling the Merkel-era growth in corporate profits, employment and economic activity. Since the pandemic, however, China is “increasingly beating Germany at its own game”, says Spyros Andreopoulos, founder of Frankfurt-based consulting firm Thin Ice Macroeconomics. On average, Chinese capital goods are 30 per cent cheaper than those of Europeans. Crucially, manufacturers in the Asian superpower have also closed the quality gap. Since the start of 2025, Germany is now running a trade deficit in capital goods with China over a rolling 12-month period. That is a first since records began in 2008. Chinese machinery exports to Europe roughly doubled to around €40bn in over six years and may reach €50bn this year, according to industry association VDMA. While German premium car brands like Audi, Porsche and Mercedes-Benz were the first to feel the pain, capital goods makers have started to get similarly pounded... 

Goods coming out of China are no longer cheaply made, lower-quality knock-offs, if they ever were... When it comes to speed, they have surpassed Western rivals by a mile, needing half the time to turn a new idea into a finished product. Shorter product cycles mean quicker learning... Philipp Bayat, chair of Munich-based compressor maker Bauer Kompressoren Group, gives a striking example. He needs a new wire-processing machine for one of Bauer’s European plants. A quote from a Swiss-based European company stands at €130,000, compared with one from a firm based in China’s Zhejiang province for less than €28,000.

4. Sander Tordoir makes the case for Buy European policy to counter the rising imports of Chinese automobiles that threaten to destroy Europe's automotive industry.

Europe’s car industry employs more than 10 million people and accounts for a larger share of private R&D spending than any other industry... Thanks to widespread subsidisation and genuine innovation, China’s global car exports are exploding, and European exports are being squeezed out of global export markets, starting with China. EU car exports to the United States (US) almost doubled between 2019 and 2024, but President Trump’s 15 per cent tariffs and his rollback of EV subsidies will deal another blow. EU domestic demand, meanwhile, is weak... Rather than tampering with regulations, EU policy-makers should ensure that demand from Europe’s huge single market, with 450 million consumers and a vast corporate sector, spurs European production. That primarily means supporting demand through consumer subsidies, with a buy-European clause co-ordinated across member-states... 

To align demand-support schemes across the EU, the Union should Europeanise the French eco-bonus. The French model, with its carbon-based scoring system, is the most practical template to adopt across member-states. It effectively steers demand toward European-made EVs and filters out Chinese production, because it limits subsidy to EV models produced in low-emission supply chains... To support its car sector, Germany has just committed to reintroducing EV subsidies. Equipping them with the eco-bonus would align Germany with France and support a buy-European policy. Italy and Spain, which are reviewing their subsidies next year, could then follow suit... 

Household EV purchases backed by subsidies would cover only 40 per cent of the total European car market. Over 60 per cent of EU new registrations are company cars which already benefit from sizeable subsidies. Support schemes for corporate EVs should also be conditional on European content requirements. Ensuring that buy-European subsidies apply to both markets would also allow Germany to secure demand for premium models, common in corporate car fleets, while France, Spain and Italy gain scale in the smaller cars which are more common in the household market... because buy-European clauses would be open to producers across the EU, the policy would not require policy-makers to pick ‘winners’. German tax incentives would also help French producers, and vice versa. A harmonised EU framework could avoid subsidy fragmentation, foster competition in the European market, and level the playing field with China, which excludes foreign vehicles from its own subsidy schemes.

5. Top Chinese companies are training their AI models overseas to skirt the US ban on the sale of Nvidia chips.

Alibaba and ByteDance are among the tech groups training their latest large language models in data centres across south-east Asia... there had been a steady increase in training in offshore locations after the Trump administration moved in April to restrict sales of the H20, Nvidia’s China-only semiconductors... Over the past year, Alibaba’s Qwen and ByteDance’s Doubao models have become among the top-performing LLMs worldwide. Qwen has also become widely adopted outside China by developers as it is a freely available “open” model.Data centre clusters have boomed in Singapore and Malaysia, fuelled by Chinese demand. Many of these data centres are equipped with high-end Nvidia products, similar to those used by US Big Tech groups to train LLMs. According to those familiar with the practice, Chinese companies typically sign a lease agreement to use overseas data centres owned and operated by non-Chinese entities. This is compliant with US export controls as the Biden-era “diffusion rule” designed to close this loophole was scrapped by US President Donald Trump earlier this year.

6. This is important for China to remember as tensions between it and Japan rise. 

“The more pressure China exerts on Japan, the more Japan feels compelled to prepare, recognizing the growing danger — Prime Minister Takaichi’s approval ratings are rising, and the Japanese people’s sense of crisis is also increasing,” said Ichiro Korogi, a professor of international studies at Kanda University of International Studies.

7. Is there anything China wants to import from rest of the world?

There is nothing that China wants to import, nothing it does not believe it can make better and cheaper, nothing for which it wants to rely on foreigners a single day longer than it has to. For now, to be sure, China is still a customer for semiconductors, software, commercial aircraft and the most sophisticated kinds of production machinery. But it is a customer like a resident doctor is a student. China is developing all of these goods. Soon it will make them, and export them, itself. “Well, how can you blame us,” the conversation usually continued, after agreeing on China’s desire for self-sufficiency, “when you see how the US uses export controls as a weapon to contain us and keep us down? You need to understand the deep sense of insecurity that China feels.” That is reasonable enough and blame does not come into it. But it leads to the following point, which I put to my interlocutors and put to you now: if China does not want to buy anything from us in trade, then how can we trade with China?

In the circumstances, what can China do?

Beijing could take action to overcome deflation in its own economy, to remove structural barriers to domestic consumption, to let its exchange rate appreciate and to halt the billions in subsidies and loans it directs towards industry. That would be good for the Chinese people, too, whose living standards are sacrificed to make the country more competitive.

8. Europe's CBAM makes India's steel less competitive compared to China's.

Over one-third of India’s 6.4mn metric tonnes of annual steel exports go to Europe, which will implement its divisive carbon border adjustment mechanism (CBAM) on January 1, a tax on polluting overseas producers aimed at protecting EU industry from being undercut by cheaper but dirtier imports. India’s European exports are expected to be disproportionately affected by the new rules, with Chinese steel imports subjected to an average tariff of 7.75 per cent compared with India’s 16 per cent levy, according to the Net Zero Industrial Policy Lab at Johns Hopkins University... India is “less efficient” compared with other major steel-producing nations, with an emissions intensity of 2.5 tonnes of CO₂ per tonne of crude steel compared with the global average of 1.9 tonnes.

9. The rise of psychiatric disorders in the US is disturbing. 

A diagnosis of attention deficit hyperactivity disorder is practically a rite of passage in American boyhood, with nearly one in four 17-year-old boys bearing the diagnosis. The numbers have only gone up, and vertiginously: One million more children were diagnosed with A.D.H.D. in 2022 than in 2016. The numbers on autism are so shocking that they are worth repeating. In the early 1980s, one in 2,500 children had an autism diagnosis. That figure is now one in 31. Nearly 32 percent of adolescents have been diagnosed at some point with anxiety; the median age of “onset” is 6 years old. More than one in 10 adolescents have experienced a major depressive disorder, according to some estimates.

10. Alan Beattie calls peak Trump tariffs, even as affordability and cost of living become a rising issue in US politics. 

The meeting in October with Chinese President Xi Jinping, in which Trump backed down after threatening a massive escalation of tariffs, now looks a lot like an inflection point. Last week, having remained composed in the face of Trumpian invective against the criminal prosecution of his coup-fomenting predecessor, Brazil’s President Luiz Inácio Lula da Silva, was rewarded with massive cuts in US tariffs on food. Fellow Central and South American countries Argentina, Ecuador, Guatemala and El Salvador got similar relief, and so probably will the EU. Canada has yet to be clobbered with the additional 10 per cent tariffs Trump threatened for the heinous crime of accurately quoting Ronald Reagan in a TV ad. Reports suggest he will soften or shelve forthcoming tariffs on semiconductors.

Gillian Tett writes

Four months ago, US President Donald Trump announced 40 per cent additional tariffs on Brazilian imports (creating 50 per cent total levies), because he was furious about the country’s legal investigation into Jair Bolsonaro, its former president, and its clampdown on US Big Tech. But President Luiz Inácio Lula da Silva defiantly hit back at the bullying — boosting his domestic popularity — and defended the courts. A Brazilian judge has now sent Bolsonaro to jail. And those tariffs? Last week, Trump declared that “certain agricultural imports from Brazil should no longer be subject to the additional [40 per cent surcharge]”. In plain English: Lula won.

India remains the only country to have not benefited from the Trump retreat.

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.

Process knowledge to build manufacturing capabilities

China may be the best modern illustration of Joel Mokyr’s argument that growth and development happen when propositional knowledge is translated into prescriptive knowledge through dense networks. Without explicitly articulating using this framework, the narratives described in Patrick McGee’s Apple in China (see this and this) and Dan Wang’s Breakneck demonstrate the essence of Mokyr’s argument.

The fundamental point is that both Apple (through iPhone) and Western multinational corporations in general helped China by transferring useful knowledge (what Wang calls ‘process knowledge’) and creating rich industrial ecosystems seeped with technical expertise acquired iteratively over several years. It helped that China, like the pre-Industrial Revolution England, had a culture that gave primacy to the acquisition of useful knowledge over theoretical propositional knowledge. 

I just completed Dan Wang’s book, Breakneck. The big premise of the book, the reason why the US is lagging behind China in making things is because the former is ruled by lawyers and the latter by engineers, is too simplistic and questionable. Jonathon Sine has an excellent critique. 

However, the book has a compelling explanation for how and why China built up its manufacturing prowess. It echoes the description by McGee of how Apple’s intense and long-drawn engagement in the co-creation of Foxconn’s iPhone manufacturing capabilities played a critical role in the development of China’s world-beating manufacturing ecosystem of designers, tooling engineers, component suppliers, managers, and assembly-line workers. This is a good description of the emergence of the ecosystem.

The smartphone components were getting better every year, part of a trend that Chris Anderson, former editor of Wired, called “the peace dividend of the smartphone wars.” The hundreds of billions of dollars invested in the smartphone supply chain have caused the cost of electronic components – cameras, sensors, batteries, modems – to plummet. That’s why we are able to carry around sensors in our pockets that used to be available to only a select few military powers.

Many companies have grown around this peace dividend. Indeed, Shenzhen is the headquarters of many of China’s most dynamic companies, including BYD, the world’s largest EV maker; DJL, the world’s largest consumer drone maker; and Huawei, the beleaguered company that is the world’s largest telecommunications equipment maker. Electric vehicles are full of electronic components borrowed from smartphones; the consumer drone is roughly a reassembly of a smartphone camera and sensor with propellers for flight. The magic of Shenzhen in the combination of the world’s most creative hardware engineers sitting in a sea of components that improve every year amid a labour force of millions who know how to put together electronics. This buzzing ecosystem has produced many other products that follow in Apple’s wake, like hoverboards, electric scooters, virtual reality headsets, and who knows what’s next?

Wang highlights the importance of three aspects of technology in production, specifically the last aspect of process knowledge. 

First, technology means tools. These are the pots, pans, knives, and ovens required to prepare a dish. Second, technology means explicit instruction. These are the recipes, the blueprints, the patents that can be written down. Third and most important, technology is process knowledge. That is the proficiency gained from practical experience, which isn’t easily communicated. Ask someone who has never cooked before to do something as simple as fry an egg. Give him a beautiful kitchen and the most exquisitely detailed recipe, and he might still make a mess…

Process knowledge is hard to measure because it exists mostly in people’s heads and the pattern of their relationships to other technical workers. We tend to refer to these intangibles as know-how, institutional memory, or tacit knowledge. They are embodied by an experienced workforce like Shenzhen’s. There, someone might work at an iPhone plant one year, for a rival phone maker the next, and then start a drone company. If an engineer in Shenzhen has an idea for a new product, it’s easy to tap into an eager network of investors. Shenzhen is a community of engineering practice where factory owners, skilled engineers, entrepreneurs, investors, and researchers mix with the world’s most experienced workforce at producing high-end electronics.

Silicon Valley used to be like this too, but now it lacks a critical link in the chain – the manufacturing workforce. The value of these communities of engineering practice is greater than any single company or engineer. Rather, they have to be understood as ecosystems of technology. The American imagination has been too focused on the creation of tooling and blueprints. Andy Grove, the legendary former CEO of Intel, said it best in 2010: that the US needs to focus less on “the mythical moment of creation” and more on the “scaling up” of products. Grove saw Silicon Valley transition from doing both invention and production to specialising only in the former. And he understood quite well that technology ecosystems would rust if the research and development no longer had a learning loop from the production process…

American manufacturers spent the better part of the last three decades unwinding its stock of process knowledge when it opened so many factories in China. Every US factory closure represents a likely permanent loss of production skill and knowledge. Line workers, machinists, and product designers are thrown out of work; then their suppliers and technical advisers struggle as well. Entire American communities of engineering practice have dissolved, leaving behind a region known as the Rust Belt. Some mayors and governors tried to step this receding tide. But they were continuously scorned by economists and executives, who sought low-wage production in the name of globalisation. Still today, many American economists doubt there is anything special about manufacturing and put their faith in the inevitable march to a service economy…

It became part of the elite consensus that the US could lose manufacturing. This consensus portrayed union bosses, as well as the handful of heterodox economists, as sentimentalists for resisting offshoring. Neither the Clinton nor the George W Bush administration restrained American firms from moving manufacturing operations to China. Now, it’s more obvious that the departure of manufacturing has created economic and political ruination for the US. We are still only beginning to understand how much it set the country back technologically…

If we think about technology ecosystems as communities of engineering practice, it makes sense that factory closures accelerated as process knowledge dissolved, prompting production problems and more job losses. And it also makes sense that Chinese workers went from merely assembling iPhones to producing some of their most valuable components as well. As one country lost its process knowledge, the other gained whole industries.

He describes how Tesla contributed to the development of China’s emerging dominance of EV car manufacturing.

Beijing did something unprecedented for Tesla in 2018: it allowed the company to fully own its plant in Shanghai. Previously, any automaker that wanted to produce in China had to partner with a domestic company. So Japanese, German, and American companies dutifully partnered with state-owned enterprises in order to access the enormous market. The state had hoped that these domestic companies would learn from the likes of Toyota and Mercedes-Benz and match their quality. In reality, Chinese automakers were sluggish from their research dependence on their foreign friends.

Tesla’s presence jolted China’s EV market. China’s business community began using the term “catfishing” for what Tesla was doing in China. The idea was that introducing a powerful new creature into the domestic environment would make Chinese firms swim faster. That’s exactly what they did to raise their game. When Tesla vehicles started rolling out of the Shanghai Gigafactory in 2019, BYD saw its sales decline by 11%, while profits fell by 42%. But Tesla would eventually do the whole market a favour. As in the US, the company’s audacious branding stimulated consumers to think of EVs as more than high-powered golf carts. And Tesla made investments in China’s tooling ecosystem that other automakers exploited to produce better cars. BYD benefited as well, reporting record profits in 2023 and becoming the world’s largest EV maker. And even the Communist Party’s main newspaper praised how Tesla produced the “catfish effect” for Chinese firms.

As Grace Wang, founder of Shenzhen-based Luxshare poetically expressed, “Flying with phoenixes will nurture outstanding birds.” It is another lesson that capitalist Shenzhen has taught the Communist Party: Market competition tends to lower prices and raise quality. 

Apple and Tesla have made a huge effort to train its Chinese workers to manufacture their products – and earned fabulous sums of money by doing so. These stories are replicated in varying degrees across China’s other communities of engineering practice, production hubs for shoes and garments in the eastern city of Wenzhou, medical equipment in Wuxi and Suzhou, and, most wonderfully of all, guitars in the mountains of Guizhou’s Zheng’an County. Overall, China’s manufacturing workforce employs more than a hundred million people, around eight times that of the US (13 million in 2025)… 

American companies have spent two decades building communities of engineering practice in China, made up of people who roll up their sleeves to figure out how to overcome their daily bottlenecks.

At the heart of this narrative about economic growth is the importance of persistent and boring implementation, over the Aha! moment of inspiration presented by ideas and inventions. This is a good summary:

Americans expect innovations from scientists working at NASA, in universities, or in research labs. They celebrate the moment of invention: the first solar cell, the first personal computer, first in flight. In China, on the other hand, tech innovation emerges from the factory floor, when a new product is scaled up into mass production. At the heart of China’s ascendancy in advanced technology is its spectacular capacity for learning by doing and consistently improving things… The US likes to celebrate the light-bulb moment of genius innovators. But there is, I submit, more glory in having big firms making a product rather than a science lab claiming its invention… Every day, millions of workers in factories to build up technological process knowledge. That is the basis of China’s tech power. China has become a tech superpower by exalting process knowledge and the communities of engineering practice that keep it alive.

There are a few observations that are of relevance for India as it charts its journey of building a globally competitive manufacturing base. 

1. Mokyr points out that the Industrial Revolution happened in England and not continental Europe, and attributes this to its culture of tinkering and refining, and interest in material progress. This required useful knowledge that the fabricants could use, as against the more theoretical and esoteric knowledge that savants created. 

Similarly, China had a culture of pursuing process knowledge. When faced with competition from Apple and Tesla, instead of folding up and retreating, these companies leveraged the ecosystems of process knowledge and engineering practice created by Apple and Tesla. They fought back to build their own products and compete (and outcompete) the foreigners. Huawei, Oppo, Xiaomi, Vivo, BYD, Geely, SAIC, Nio, Xpeng, and so on are the outcomes of this. 

Do Indian manufacturers and startups have the culture to embrace process knowledge, iterate diligently, build ecosystems of engineering practice, and move up the value chain? What are examples from India of such technology or industrial ecosystems that stand at the cutting-edge of their sectors?

2. The conventional wisdom on industrial progress, especially in technology-intensive sectors, is that of academia and industry working together to co-create products by transferring research into development at an industrial scale. While this is the approach that the US and other Western economies followed, China appears to have taken a different direction. Instead of spending time on the generation of propositional knowledge in its research institutions, it borrowed (or copied) this knowledge from wherever available and focused on the prescriptive knowledge required to scale up manufacturing. This is the classic industrial tinkering model.

Chinese firms rely on academia more in terms of getting skilled manpower to work in their factories. With the government’s guidance, Chinese colleges and universities have been running courses on niche areas like battery chemistry and rare earth processing for several years. They have kept flowing a continuous supply of high quality skilled workforce. 

This is of particular relevance for India, where academia-industry collaboration is limited, but also where industrial R&D is abysmally low (0.7% of GDP compared to China’s above 2.5% of GDP). Indian firms must necessarily multiply their R&D expenses manifold if they are to create the vibrant and high-productivity industrial ecosystems like those in China. They must invest in nurturing a culture of engineering excellence that seeks to constantly innovate and aspire to the global frontier of quality and technology. 

3. Another feature of Mokyr’s arguments and China’s success is the importance of clusters in producing things. A manufacturing base does not emerge in isolation from the production of individual firms. It requires the creation of ecosystems of engineering practice, where skills and expertise are transferred through learning by doing, and knowledge and technology spillovers. Clusters enable the diffusion and spread of process knowledge among businesses and their suppliers, and among competing firms. 

Massive industrial clusters have been central to the development of China’s manufacturing prowess. China has more than 500 towns that specialise in specific products for the global market, with some being responsible for 63% of world’s shoes, 70% of its spectacles, and 90% of its energy-saving lamps. Sample this from Wang,

Every year, as new models emerge, Apple needs new components or processes that a new design requires, like a certain type of adhesive or a screw of a slightly different size. Therefore, Apple constantly had to scramble to find suppliers on short notice. “Almost always, “the engineer continued, “we found someone in Shenzhen by asking a guy who knows a guy whose cousin might be able to produce a few hundred thousand new screws.” Virtually everything one needs to produce any electronic product can be found in a short drive around Shenzhen. Proximity creates efficiency. When it’s time to do stuff, a company can collapse coordination that usually takes weeks into a business meeting lasting hours by convening all the relevant suppliers in one room the next morning. And if something goes wrong, there are a lot of friendly neighbouring factories to call.

Unfortunately, India’s efforts in this direction, primarily in the form of SEZs, have been constrained by the size of these clusters. I blogged here on how the lack of clusters has been a constraint to the emergence of scale manufacturing in India. 

4. The creation of globally competitive ecosystems of engineering practice that value process knowledge for continuous improvement invariably sets in motion something like the Red Queen Effect. Companies must adapt and evolve continuously to even maintain the relative status quo in the highly competitive and dynamic global marketplace. 

Only firms exposed to global competition have the incentive to pursue this strategy. The incentives of firms in a closed market, or those happy with serving a large segment of their domestic market, will be only to minimise costs. They are likely to discount quality and technology. In simple terms, Indian firms must necessarily Make in India for the World.

There’s the real risk that Indian firms will remain entrapped in the bad equilibrium of making less than competitive products for India’s large price-sensitive consumer base. 

5. The example of how Chinese companies responded to the competition from Tesla is a testament to the aspirations of Chinese companies. In a short period of time, BYD and Co. were able to turn the tables on Tesla and emerge as undisputed global leaders in EVs. They first copied the engineering excellence of Tesla and continuously improved on it to then gradually surpass it. Underpinning this was the communities of engineering practice created by Tesla. 

In contrast, as I have blogged on numerous occasions, Indian companies, across sectors, have struggled to innovate and become globally competitive. 

The Ken has an article about how the garment makers of Tirrupur, who contribute over half of all India’s knitwear exports, failed to innovate and are now fighting to survive the loss of the US market. They remained stuck with the commoditised and lower value-added bulk supplies of cotton garments to the large US retail clients, with their low margins and large volumes, but stable and assured demand. They missed the opportunity to shift to man-made fabrics earlier and to blended fabrics in recent years, and did not venture into the higher value-added and higher margin mid-sized European who are much more demanding on fashion trends and quality. 

It will be extremely challenging for Indian companies to match the resolve and ambition shown by the Chinese EV manufacturers, nurture communities of engineering excellence, and become globally competitive. 

In conclusion, stripped of all the jargon and in simple terms, Mokyr’s work and the success of China is a big shout-out to the strategy of progress through continuous problem-solving and iterative adaptation, one which has relevance far beyond mere building of manufacturing capabilities to many things in life in general.

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.

Weekend reading links

1. India might need to look for a Tom Barrack equivalent to open informal doors with Donald Trump. Barrack, a private equity magnate and long-time confidant of Trump, has swung the rapprochement between Erdogan and Trump. People like Barrack, Steve Witkoff, Joshua Kushner etc., seem to have an outsized influence in engaging with the Trump administration. 

2. In the meantime, Pakistan is throwing a series of goodies at Trump to entice deeper engagement with it. The latest is a proposal to construct a port at Pasni for $1.2 billion with Pakistani federal government and US-backed development finance, linked to a new railway to transport critical minerals from the country's interior. Pasni is just 100 miles from Iran and 70 miles from the Pakistani city of Gwadar, which has a China-backed port.

3. John Burn-Murdoch points to peak social media.

Time spent on social media peaked in 2022 and has since gone into steady decline, according to an analysis of the online habits of 250,000 adults in more than 50 countries carried out for the FT by the digital audience insights company GWI. And this is not just the unwinding of a bump in screen time during pandemic lockdowns — usage has traced a smooth curve up and down over the past decade-plus. Across the developed world, adults aged 16 and older spent an average of two hours and 20 minutes per day on social platforms at the end of 2024, down by almost 10 per cent since 2022. Notably, the decline is most pronounced among the erstwhile heaviest users — teens and 20-somethings... The shares of people who report using social platforms to stay in touch with their friends, express themselves or meet new people have fallen by more than a quarter since 2014. Meanwhile, reflexively opening the apps to fill up spare time has risen, reflecting a broader pernicious shift from mindful to mindless browsing.

The trend appears not to be the case with North America where it's still rising.

4. Hyper-charged technology diffusion!

Fixed-line telephony, the very cornerstone of 20th-century communication, took a staggering 25 years to reach 1 million users in the United States. Pagers took a decade, and the mobile phone slightly less. The internet, a seismic shift in itself, took about five years, and Facebook less than a year. But the most breathtaking leap came with ChatGPT — the world’s current favourite generative AI tool. It took a mere five days to cross the one million user threshold globally.

5. Palantir could be the makings of the 'mother of all bubbles'! (HT: Adam Tooze)

Once more for the record … Palantir is not some world-bestriding titan of reactionary capitalism that merits inclusion alongside the true giants of big tech. Palantir is a medium-sized business, enormously pleased with itself if it generates as much as $1 billion in revenue per quarter, 55 percent of which comes from modestly sized government contracts.

6. Fascinating profile of Bari Weiss, the former NYT journalist who quit in protest at lack of freedom to express there and founder The Free Press as an independent media outlet. Paramount has announced her appointment as the new editor in chief of the CBS News and acquisition of her startup The Free Press for $150 million.

6. Ruchir Sharma describes the US economy, and especially the equity markets, as one giant bet on AI.

The hundreds of billions of dollars companies are investing in AI now account for an astonishing 40 per cent share of US GDP growth this year... AI companies have accounted for 80 per cent of the gains in US stocks so far in 2025. That is helping to fund and drive US growth, as the AI-driven stock market draws in money from all over the world, and feeds a boom in consumer spending by the rich. Since the wealthiest 10 per cent of the population own 85 per cent of US stocks, they enjoy the largest wealth effect when they go up. Little wonder then that the latest data shows America’s consumer economy rests largely on spending by the wealthy. The top 10 per cent of earners account for half of consumer spending, the highest share on record since the data begins. 

No nation has seen an immigration boom-bust cycle near the scale of the one roiling America. Net immigration nearly quadrupled after 2020 to peak at well over 3mn in 2023, but the backlash led by President Donald Trump sent that figure into freefall. This year only around 400,000 net new arrivals are expected, and that could be the trend in the coming years. This labour force squeeze alone will reduce America’s growth potential by more than a fifth, Goldman Sachs analysis suggests.

This is an interesting snippet about the US equity markets. 

Foreigners poured a record $290bn into US stocks in the second quarter and now own about 30 per cent of the market — the highest share in post-second world war history. Europeans and Canadians have been boycotting American goods but continue buying US stocks in bulk — especially the tech giants. In a way, then, America has become one big bet on AI. Outside of the AI plays, even European stock markets have been outperforming the US this decade, and now that gap is starting to spread. So far in 2025, every major sector from utilities and industrials to healthcare and banks has fared better in the rest of the world than in the US.

7. China seeks to expand its influence in South Asia.

FT research shows Chinese officials have held at least seven high-profile meetings with Bangladeshi politicians in the 14 months since the interim government of Muhammad Yunus, a former social finance entrepreneur, took office. This compares with eight meetings in the last five-year term of Bangladesh’s long-standing autocrat, Sheikh Hasina. Beijing officials, meanwhile, have held 22 high-profile meetings this year with counterparts from Pakistan — on track to match last year’s 30. Among the smaller countries surrounding India, Beijing has conducted at least six high-profile meetings with Nepali officials this year and at least five in Sri Lanka.

8. French sovereign bond yields shoot up following the collapse of another government. 

The yield on the benchmark 10-year French OAT is now trading above its Italian counterpart (BTP) — a once unthinkable inversion. This financial penalty places the Eurozone’s second-largest economy behind a market sometimes characterised in the past as one of the bloc’s “peripheral” economies. This is more than a metric of fiscal imbalance; it is a loss of confidence in the French political system’s ability to govern decisively. Meanwhile, the sovereign spread between the 10-year French OAT and the benchmark German Bund has widened dramatically, pushing it to more 0.85 percentage points... The widening spread between French and German bonds threatens the ECB’s ability to ensure its single monetary policy is transmitted well across the bloc. When dispersion in yields increases, it risks the type of market fragmentation and stress that could become a systemic threat... The bond markets are losing patience with political paralysis.

9. OpenAI has signed up for 20GW for computing capacity.

OpenAI has signed about $1tn in deals this year for computing power to run its artificial intelligence models, commitments that dwarf its revenue and raise questions about how it can fund them. Monday’s deal with chipmaker AMD follows similar agreements with Nvidia, Oracle and CoreWeave, as OpenAI races to find the computing power it thinks it will need to run services such as ChatGPT. The deals would give OpenAI access to more than 20 gigawatts of computing capacity, roughly equivalent to the power from 20 nuclear reactors, over the next decade. Each 1GW of AI computing capacity costs about $50bn to deploy in today’s prices, according to estimates by OpenAI executives, making the total cost about $1tn... OpenAI is burning through cash on infrastructure, chips and talent, with nowhere near the capital required to fund these grand plans. The deals also involve circular arrangements between the world’s most valuable start-up and its partners, as well as complex financing terms that have in most cases yet to be agreed...

OpenAI’s deals with Nvidia and AMD could cost up to $500bn and $300bn respectively, according to Financial Times calculations, although both include incentives that could also help OpenAI pay for the chips it buys. Oracle’s deal will cost OpenAI another $300bn, while data centre group CoreWeave has disclosed computing deals with OpenAI worth more than $22bn. OpenAI also launched an initiative with SoftBank, Oracle and others in January known as Stargate that pledged to invest up to $500bn in US infrastructure for OpenAI. It is not clear how the Nvidia and AMD deal will fit into the Stargate plans. The ChatGPT maker has not disclosed whether it will buy chips directly or through its cloud computing partners, and is expected to lease some Nvidia chips.

This is an intriguing financing arrangement

AMD will give OpenAI warrants entitling it to buy up to 10 per cent of the company for just a cent a share, depending on their project hitting certain targets, including some linked to AMD’s share price. AMD shares were worth nearly $204 when markets closed on Monday. If they keep rising, OpenAI could sell its stock to fund its spending on AMD’s chips.

10. Leo Lewis points to Japan's demographic problem of labour shortages, which he describes as 'enshortification'!

Take carpenters — essential in a country where a great deal of construction uses wood. Their numbers have more than halved since 2020, while more than 43 per cent of those still working are over 65. Many projects, large and small, are being delayed. A shortage of bus drivers has caused operators in Tokyo to cut over 200 services. The military cannot get close to its recruitment targets. The Foreign Ministry revealed earlier this year that it cannot hire enough Japanese chefs for its embassies. In some parts of the countryside, home deliveries of certain goods are undertaken by scooter riders in their mid-80s. There are genuine concerns across industry that companies are going to run into trouble because Japan no longer has enough tax accountants.  

11. Ahead of the meeting between US and Chinese Presidents in Seoul later this month, China announces sweeping export controls on rare earths and related technologies, where China controls 70% of mining, 90% of separation and processing, and 93% of magnet manufacturing. 

Under the new rules, foreign companies will need Beijing’s approval to export magnets that contain even trace amounts of Chinese-sourced rare earth materials, or that were produced using the country’s extraction methods, refining or magnet-making technology. The restrictions announced on Thursday by China’s commerce ministry will for the first time create a Chinese version of the US foreign direct product rule, a measure Washington has used to block semiconductor-related exports to China from third countries. The rules give Beijing more leverage to exert control over the global rare-earth supply chain. Rare earth minerals and magnets are critical to technologies from smartphones to electric vehicles and fighter jets.

It has drawn a predictably strong reaction from President Trump, who has now threatened to cancel the meeting and raise massive tariffs on China. He has announced the imposition of 100% tariffs on all products from China and export controls on critical software. 

It's hard not to come away with the feeling that China has made a significant miscalculation with this decision. After having won Round One, it now risks squandering those early gains. 

12. Declining birth rates (18 million births in 2016 to 9 million in 2023) and a preference for inshoring (Nestle has won approval for a factory in Suzhou in eastern China to make and sell a similar product) have led to the shutdown of a Nestle factory producing formula for Chinese newborn babies and employing 540 workers in Askeaton, a small town in the Irish county of Limerick with a population of 1100. 

13. William Buiter on the rise and rise of gold.

Of the total 216,265 tonnes of above-ground stock of gold at the end of 2024, jewellery accounted for 97,149 tonnes (45 per cent). I believe that much of this “consumer demand” — indeed most of it — is in fact investment demand. Only gold coins and bars (including exchange traded funds) are counted as investment demand. At the end of 2024, this accounted for 22 per cent of the total stock. Central bank holdings were 17 per cent. Gold’s use in technology accounts for part of the 15 per cent of the global stock, classified as “other”... The flow supply of new gold in 2024 was 4,975 tonnes... Gold, extracted underground at material cost, was turned into gold bars and then put back underground at additional cost. Globally, gold reserves (ore deposits that can be economically extracted) are estimated at 54,770 tonnes and gold resources (ore deposits where the profitable extraction is more doubtful) at 132,110 tonnes. The only gold production strategy that makes socio-economic sense is to leave it all in the ground... At the end of 2024, gold holdings accounted for 20 per cent of central bank reserves, more than euro reserves (around 16 per cent). Gold’s price surge since would have pushed its relative share higher.

14. John Burn-Murdoch questions the narrative of the great graduate unemployment crunch, where new graduate entrants to the labour market are being squeezed by the rise of AI among other trends.