Aurelia Butler

You’ve heard of the Great Resignation right? Of shortages of truck drivers and restaurant workers in the US and Europe putting dampers on the Great Reopening and raising hawkish howls that we’re about to see wages spiral? Thought so. But have you heard of Lying Flat? If not (and we hadn’t till a few days ago), then you ought to. A big question for economists and markets right now is whether the current bout of high inflation is a temporary phenomenon or a harbinger of something more permanent. And to really know if price pressures will prove more durable, the single most important thing we need to understand is whether there’s been a fundamental change in the dynamic between labour and capital. Hawks warn that shortages augur a return to the dreaded wage-price spiral witnessed in the US and parts of Europe in the 1970s, where workers’ demands for higher wages triggered price rises, which in turn fed into further wage demands. Fed Chair Paul Volcker successfully (but painfully) killed this dynamic by hiking interest rates 10 percentage points, to north of 20 per cent, in the early 1980s.In the decades since, it has been plain sailing on the inflation front. Now, however, with post-pandemic inflation lingering, central bankers (and the financiers that follow them) are now watching labour market dynamics much more closely than they have been at any time since the Volcker era. The Bank of England, for instance, featured this chart in its latest Monetary Policy Report:

What’s garnering far less attention in Threadneedle Street and at the Fed than the Great Resignation, but may turn out to be far more important, is a phenomenon that’s emerged in China.It began back in April with a Baidu post by 26 year old Luo Huazhong, going by his username of Kind-Hearted Traveller, on why he has chosen to reject the rat race that has come to characterise the lives of many young Chinese. Translation below courtesy of Quartz: I haven’t been working for two years, I have just been hanging around and I don’t see anything wrong with this. Pressure mainly comes from comparisons with your peers and the values of the older generation. These pressures keep popping up . . . But, we don’t have to abide by these (norms). I can live like Diogenes and sleep inside a wooden bucket, enjoying sunshine. I can live like Heraclitus in a cave, thinking about the “logos.” Since this land has never had a school of thought that upholds human subjectivity, I can develop one on my own. Lying down is my philosophical movement. Only through lying flat can humans become the measure of all things.The post struck a chord and was shared tens of thousands of times across Chinese social media, creating a movement that has come to be known as Tang Ping, or Lying Flat. Lying Flat has now become popular enough that last month China’s president Xi Jinping condemned the movement in one of the CCP’s official journals.If a rebuke from Xi is not enough to stem the movement, then hiking wages might be. As Qui Liwen, a freelance writer, pointed out in an episode of her ‘Poking with Chopsticks’ podcast, the reason the movement has gained momentum is that millennials no longer believe they can earn enough money to provide security for themselves and their parents, who — as only children — they are largely responsible for: The mentality is that if I could earn more money, I would do it. You know, you acquire security and safety for your own family or for yourself. If they are paid more they still work their tails off without protesting because they still feel that they have a grip on their lives. This is very Chinese. In Europe, you cannot understand that because I see people in Europe who would rather have three months of holiday and give up a lot of salary. In China this is not the case. In China, you need the money to go to care for your parents. There is no functioning health insurance . . . . . . everybody wanted more money. So if their salary keeps on rising, people will still strive for it. But that is not the case. That’s why they lose direction.Qui also notes that, while the number of participants shouldn’t be exaggerated — there are many young people willing to remain on the “hamster wheel” — the movement does reflect a broader “dimming of hope”.Maybe Lying Flat will eventually fall flat in the face of clampdowns. We’re no experts in the social dynamics of Chinese society (and if you are, we’d welcome your thoughts in the comments section). But we think policymakers in the US and Europe ought to pay as much attention to China’s millennials as they are the worker shortages in their own labour markets. Since the mid-1980s, the country’s opening up and economic development has, together with globalisation, been one of the most important drivers of inflation dynamics the world over. It’s been a prime contributor to the Great Moderation that has enabled the central bankers that followed Volcker to keep a lid on price pressures with relative ease. And while cheap Chinese labour has been far from the only factor keeping a lid on Western workers’ wages, with more than 800m people of working age there, it is a factor in explaining why decades of low unemployment has failed to deliver pay growth. Wages in China have already risen fast over the past decade. Yet Lying Flat signals the pace we’ve seen is nowhere near fast enough to meet the wants and needs of younger people. Twenty to 40 year olds make up just shy of 30 per cent of China’s population of 1.4bn people, with their importance for the labour market set to grow substantially as the one-child policy triggers vast demographic change and shrinks the working age population in the coming decades.If those millennials succeed in getting the better terms and conditions they desire, Lying Flat, not the Great Resignation, may be the big thing that finally gets global wages — and prices — to rise in a more enduring fashion. More

The U.S. Justice Department said on Friday that Xu Yanjun had been convicted by a federal jury of plotting to steal trade secrets from several U.S. aviation and aerospace companies.”The allegation is pure fabrication,” Chinese Foreign Ministry spokesperson Wang Wenbin told reporters in Beijing.”We demand that the U.S. handle the case according to the law and in a just manner to ensure the rights and interests of the Chinese citizen.” Xu was convicted of two counts of conspiring and attempting to commit economic espionage, in addition to a count of conspiracy to commit trade secret theft and two counts of attempted theft of trade secrets.Xu faces a maximum 60 years in prison and fines totalling more than $5 million, according to a press release. He will be sentenced by a federal district court judge.Going back as far as 2013, Xu was accused of using multiple aliases to carry out economic espionage and steal trade secrets on behalf of China. Multiple U.S. aviation and aerospace companies, including GE Aviation, a unit of General Electric (NYSE:GE) Co, were his targets, the release said. (This story refiles to reinsert dropped word from headline) More

Investing.com — Elon Musk crowdsources his financial planning to Twitter and Tesla’s (NASDAQ:TSLA) stock falls in response. Joe Biden’s infrastructure bill finally passes the House of Representatives, putting selected companies in line for some juicy government contracts. China’s export sector is still humming as the Communist Party huddles to enshrine Xi Jinping as President-for-life, and Europe’s natural gas prices surge as an expected increase in shipments from Russia fails to materialize. Speeches from Jerome Powell and other Fed officials pepper the economic calendar, meanwhile. Here’s what’s you need to know in financial markets on Monday, 8th November.1. Tesla stock slumps as Musk moves to pay tax billTesla stock fell 5.3% in premarket trade after Elon Musk indicated he would sell 10% of his stake in the company. That would create a temporary stock overhang worth some $20 billion.The move would represent the biggest cash-out yet by the company’s CEO, who last week expressed puzzlement at how violently the stock had risen in response to an announcement of a bulk order from car rental firm Hertz Global (OTC:HTZZ). Musk said himself that no contract had been signed for any such deal yet.The last leg of the company’s extraordinary rally this year saw it add some $200 billion in market value. The value of the Hertz order would likely be between $4 and $5 billion in sales and considerably less than $1 billion in profit.Musk framed the poll as a response to the Democrats’ proposal to tax unrealized stock gains. He had previously acknowledged that he will trigger a hefty tax bill in any case by exercising stock options that are his chief source of income.2. Infrastructure bill finally passes HouseThe House of Representatives passed an infrastructure spending bill worth around $1 trillion on Friday night, in a desperately-needed boost to President Joe Biden’s fortunes after a week of stinging electoral reverses.The bill needed the support of a handful of Republican lawmakers to pass, having been snubbed by a similar number of Progressive Democrats.The bill provides for around $550 billion in extra federal spending on roads, bridges, broadband access and water systems, among other things. It also include provisions for rolling out charging infrastructure for electric vehicles.3. Stocks set to open higher; Fed speeches eyedU.S. stocks are set to open higher later, encouraged by the passage of the infrastructure bill that puts a good swath of companies in line for some government largesse in the coming years.By 6:20 AM ET (1120 GMT), Dow Jones futures were up 74 points, or 0.2%, while S&P 500 futures were up by less than 0.1% and Nasdaq 100 futures were down by 0.1%. The latter two products were suffering from the fall in Tesla stock.Coty (NYSE:COTY) leads a much-diminished earnings roster early, while PayPal (NASDAQ:PYPL), Tripadvisor and IFF report after the closing bell.There will also be a slew of Federal Reserve speeches, including one from Federal Reserve Chairman Jerome Powell at 10:30 AM ET.4. Xi may be the one they can’t forgetChina’s Communist Party started a meeting that analysts say may clear the path for Xi Jinping to rule as President for the rest of his life, breaking with five decades of precedent.The plenum, which will take place behind closed doors, brings together some 400 of the party’s top officials, and is scheduled to run through Thursday, is expected to feature a ‘resolution on history’ that will cement Xi’s place at the top.The meeting typically ushers in a season of political appointments across the country. That may be more volatile than usual, in the light of Xi’s shift in political priorities this year to rein in inequality, and the real estate crisis that has ripples throughout the economy. The country’s export sector, however remains in rude health: data on Sunday showed exports running at 27% ahead of last year’s levels in October. 5. Oil revives on Chinese trade data; Russia leaves Europe gasping for gas againCrude oil prices regained their mojo over the weekend, supported by China’s trade data and by reports that U.S. President Joe Biden may further tighten restrictions on U.S. oil pipelines, despite pressuring the world’s largest exporters to increase supply last week.By 6:30 AM ET, U.S. crude futures were up 1.6% at $82.56 a barrel, while Brent futures were up 1.4% at $83.86 a barrel.However, the main action in energy markets overnight was in Europe, where natural gas futures surged again in response to signs that Russia had not, after all, increased shipments to Europe through its main export pipelines, despite earlier rhetoric from President Vladimir Putin and gas monopoly Gazprom (MCX:GAZP) indicating that it would. More

The big event of the week, overshadowing all else in the global trading system, is the 2021 Trade Secrets summit on Thursday, this year again in virtual form. There’s a great programme of conversation and debate about the transatlantic relationship, business and supply chains, trade and climate and all sorts. I mean, we would say that, but really, there is. See the link above for sign-up. It features an interview between today’s Trade Secrets author and the European Commission’s trade chief, Valdis Dombrovskis, focusing on EU-US relations — which as it happens is the subject of today’s main newsletter piece.One other thing caught our eye in recent days: Joe Biden chiding journalists for not having explained supply chain issues sufficiently. Perhaps the president meant only the White House press corps, which may or may not be true. But elsewhere in the media? Try here, here, here, here and here and, you know what, browse the back catalogue here. We know Trade Secrets is behind a paywall, but surely the White House can spring for an FT subscription. Call it a stimulus or an infrastructure project or something. Treat yourself. Today’s Charted waters looks at another victim of the snags in global supply chains: the paint industry. The ad hoc appeal of a deal on steelTrade folk have had a week now to digest the news of the deal to end the EU-US row over the US’s Section 232 steel and aluminium (aluminum, whatever) national security tariffs. One conclusion on which everyone should agree: the tariff-rate quota solution they came up with is not a thing of beauty. A hugely complicated system of sub-quotas for dozens of separate products seems likely to create rather more security of employment for expensive trade lawyers and lobbyists — the next generation of Bob Lighthizers can start lining up visits to Porsche salesrooms — than for actual workers in the steel and aluminium industries on either side of the Atlantic.Two questions present themselves. One, is it nonetheless a good idea? And two, does it presage a new and constructive era in transatlantic trade relations? If we had to judge, we’d very reluctantly, mumbling in an embarrassed fashion and with a deep sense of shame and self-loathing, answer yes to the first. But we, or at least today’s author, remain sceptical about the latter.If you want the sermon on why the deal is economically silly and legally suspect, then the good people at the Cato Institute, keepers of the free-trade flame in the Washington think-tank world, have been thundering majestically from the pulpit as usual. We’d add that it’s not a good look for the credibility of the EU, which has always set its face against tariff-rate quotas and similar managed trade in this context, meekly to give in.But in practice there is unlikely to be litigation in Geneva against the deal, any more than there has been against similarly jury-rigged arrangements with Canada and Mexico. By suspending the EU’s case against the US at the World Trade Organization, the agreement also avoids the potentially explosive outcome of a dispute settlement panel ruling in the EU’s favour, thus second-guessing the US’s judgment of its own national security needs. (Similar cases from other complainants are still outstanding, of course.)And while Brussels might have had to swallow some pride on this occasion, one of this year’s other transatlantic patch-up deals, the agreement to suspend the long-running Airbus-Boeing litigation, was actually somewhat more advantageous to the EU. (The WTO dispute settlement system had authorised more firepower for Washington to retaliate with tariffs against Brussels than vice versa.)We really hate to admit this, but given the shakiness of the world trading system, even these messy makeshift deals are probably better than continuing with tariff wars and politically hazardous litigation. To fudge-fudge is better than to judge-judge, as former UK prime minister Harold Macmillan might have put it.It’s now become a common criticism that Biden’s trade policy is Donald Trump’s but without the hyperventilating rhetoric. In terms of his wrong-headed analysis of what trade does to the American economy and American workers, that’s a reasonable charge. But we’d contend that the difference in his political tactics is quite meaningful. Trump’s instincts (or rather one of his multiple competing instincts) was to start trade wars in all directions as an end in itself. The Biden administration will defuse trade conflicts with allies such as the EU by doing whatever one-off deals are possible (steel/aluminium, Airbus-Boeing, digital services taxes) within its assessment of what is domestically politically feasible.The problem is that said assessment doesn’t currently allow for much. It certainly doesn’t seem to cover reviving the WTO in any meaningful way. US trade representative Katherine Tai’s pronouncements on the issue have been a masterclass in avoiding substance, and while the incoming US ambassador to the WTO did say during her Senate confirmation hearing that she wanted to revive the organisation’s Appellate Body, that commitment was as usual made conditional on some major but ill-defined reform.Now, of course the steel and aluminium deal has a forward-looking and potentially constructive element: to create a carbon club of low-emissions steel producers. However, that rings loud alarm bells about WTO compatibility and whether in fact it will make any difference to emissions at all. (We’ll come back to this issue in due course.) And if the US thinks a steel carbon club is a substitute for the EU’s carbon border adjustment mechanism, which it fears will catch American exports to Europe, well, Rupert Schlegelmilch, one of the top officials working on relations with Washington at the European Commission’s trade directorate, has a fairly definitive answer.Similarly, the transatlantic Trade and Technology Council is a nice constructive-sounding thing to be doing. But as we’ve written before, the officials involved play down any chance of rapid convergence in anything but minor issues.So that’s how we read the transatlantic state of play right now. Biden is keen to sound co-operative with Europe, but his domestic political calculation gives him very limited space to do anything substantial beyond improvised fixes to problems as they loom up ahead. Watch out for a lot of performative but ultimately unproductive callisthenics ahead. Charted watersHarry Dempsey has a great piece on the woes of another industry suffering owing to global supply chain snags: paint. Before reading it, we had no idea just how complex the chains involved in producing a single tin of paint actually were. Like other industries, it has also suffered from a rise in costs for key materials. As the chart below shows, paint’s a gloomy picture indeed. Claire JonesTrade linksThe FT has a Big Read on how the travel industry is braced for the post-pandemic world. Vox.EU has a fine obituary of Ronald Findlay, one of the great theorists of the economics of trade. The latest episode of the podcast Trade Talks gives its take on the EU-US steel and aluminium deal. Diners in Asia looking forward to sukiyaki and hotpot as the weather grows colder may be disappointed as beef exporters in the US, Brazil and Australia battle disease outbreaks and labour shortages (Nikkei, $). China’s new data transfer rules would raise costs (Nikkei, $) significantly for foreign companies, conflicting with Beijing’s recent applications to join the CPTPP and digital economy partnership agreement. Alan Beattie, Francesca Regalado and Claire JonesTrade Secrets Summit — November 11 2021 More

TOKYO (Reuters) -Japanese Prime Minister Fumio Kishida vowed on Monday to establish an $88 billion university fund to promote Japan as a science and technology nation as part of a growth strategy needed to distribute wealth to the wider public.Some of the growth initiatives, like the university fund, will likely be featured in the planned stimulus package worth several tens of trillion yen that Kishida has pledged to compile around the middle of this month, government officials said.”We want to put new capitalism into gear by carrying out what needs to be tackled right away with an economic package,” Kishida said at the end of a ‘new capitalism’ panel meeting.”To promote Japan as a science and technology nation, we will realise a 10-trillion-yen university fund by this fiscal year-end. We will develop clean energy by backing domestic production of storage batteries and promoting electric vehicles.”The panel, in its recommendations, called for the establishment of a separate fund aimed at backing research and development over multiple years on digital transformation and green innovation as pillars of Japan’s new growth strategy.The panel’s proposals for Japan’s growth strategy, which was presented at its meeting on Monday, made no mention of the scale of the stimulus and extra budget to fund it.The proposals will lay the groundwork for Kishida’s economic policy mix of pro-growth policies of former premier Shinzo Abe’s “Abenomics” stimulus steps and will more directly shift wealth from companies to households.For wealth distribution, the panel urged revamping the tax system in a way that will make it favourable for companies, thus helping to raise pay for employees, through greater tax credit and other measures.The proposals come as Kishida’s government is considering an economic stimulus package worth more than 30 trillion yen ($265 billion) to ease the pain from the COVID-19 pandemic, a plan which would require the issuing of new bonds, Kyodo news reported.Kishida has also pledged to put economic security among his policy priorities, including boosting the domestic output of semiconductors.To this end, the panel called for the creation of a strong supply chain and construction of domestic chip factories with state support over the coming years.The government is likely to subsidise up to half of Taiwan’s TSMC’s estimated 1-trillion-yen ($8.82 billion) investment for building a chip plant in Kumamoto, southern Japan, the Nikkei has reported.($1 = 113.3500 yen) More