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    G7 Countries Borrow China’s Economic Strategy

    Wealthy democracies rev up an effort to spend trillions on a new climate-friendly energy economy, while stealing away some of China’s manufacturing power.Midway through his face-to-face meeting with President Biden in Indonesia last fall, the Chinese leader, Xi Jinping, offered an unsolicited warning.Mr. Biden had in the preceding months signed a series of laws aimed at supercharging America’s industrial capacity and imposed new limits on the export of technology to China, in hopes of dominating the race for advanced energy technologies that could help fight climate change. For months, he and his aides had worked to recruit allied countries to impose their own restrictions on sending technology to China.The effort echoed the sort of industrial policy that China had employed to become the world’s manufacturing leader. In Bali, Mr. Xi urged Mr. Biden to abandon it.The president was not persuaded. Mr. Xi’s protests only further convinced Mr. Biden that America’s new industrial approach was the right one, according to a person familiar with the exchange.As Mr. Biden and fellow leaders of the Group of 7 nations meet this weekend in Hiroshima, Japan, a centerpiece of their discussions will be how to rapidly accelerate what has become an internationally coordinated round of vast public investment. For these wealthy democracies, the goal is both to reduce their reliance on Chinese manufacturing and to help their own companies compete in a new energy economy.Mr. Biden’s legislative agenda, including bills focused on semiconductors, infrastructure and low-emission energy sources, has begun to spur what could be trillions of dollars in government and private investment in American industrial capacity. That includes subsidies for electric vehicles, batteries, wind farms, solar plants and much more.The spending — the United States’ most significant intervention in industrial policy in decades — has galvanized many of America’s top allies in Europe and Asia, including key leaders of the Group of 7. European nations, South Korea, Japan, Canada and others are pushing for increased access to America’s clean-energy subsidies, while launching companion efforts of their own.“This clean-tech race is an opportunity to go faster and further, together,” Ursula von der Leyen, the president of the European Commission, said after an economy-themed meeting at the Group of 7 summit on Friday.“Now that the G7 are in this race together, our competition should create additional manufacturing capacity and not come at each other’s expense,” she said.Mr. Biden touring a semiconductor manufacturer in Durham, N.C., in March.Al Drago for The New York TimesMr. Biden and his Group of 7 counterparts have embarked on a project with two ambitious goals: to accelerate demand, even by decades, for the technologies needed to reduce emissions and fight climate change, and to give workers in the United States and in allied countries an advantage over Chinese workers in meeting that demand.Much of that project has roared to life since the G7 leaders met last year in the German Alps. The wave of recent Group of 7 actions on supply chains, semiconductors and other measures to counter China is based on “economic security, national security and energy security,” Rahm Emanuel, the U.S. ambassador to Japan, told reporters this week in Tokyo.He added: “This is an inflection point for a new and more relevant G7.”Mr. Emanuel said the effort reflected a growing impatience among Group of 7 leaders with what they call Beijing’s use of economic measures to punish and deter behavior by foreign governments and companies that China’s officials do not like.But more than anything, the shift has been fueled by urgency over climate action and by two laws Mr. Biden signed last summer: a bipartisan bill to shower the semiconductor industry with tens of billions of dollars in government subsidies, and the climate provisions of the so-called Inflation Reduction Act, which companies have jumped to cash in on.Those bills have spurred a wave of newly announced battery plants, solar panel factories and other projects. They have also set off an international subsidy race, which has evolved after being deeply contentious in the immediate aftermath of the signing of the climate law.The lucrative U.S. supports for clean energy and semiconductors — along with stricter requirements for companies and government agencies to buy U.S.-made steel, vehicles and equipment — have put unwelcome pressure on competing industries in allied countries.Workers at a solar energy parts and batteries factory in Suqian, China, in February.Alex Plavevski/EPA, via ShutterstockSome of those concerns have been quelled in recent months. The United States signed a deal with Japan in March that will allow battery materials made in Japan to qualify for the benefits of the Inflation Reduction Act. The European Union is pursuing a similar agreement, and has proposed its own $270 billion program to subsidize green industries. Canada has passed its own version of the Biden climate law, and Britain, Indonesia and other countries are angling for their own critical mineral deals.Administration officials say once-rankled allies have bought into the potential benefits of a concerted wealthy-democracy industrial strategy.At the Group of 7 meeting, “you will see a degree of convergence on this that, from our perspective, can continue the conversion of the Inflation Reduction Act from a source of friction into a source of cooperation and strength between the United States and our G7 partners,” Jake Sullivan, the national security adviser, told reporters on Air Force One as Mr. Biden flew to Japan.Some Group of 7 officials say the alliance has much more work to do to ensure that fast-growing economies like India benefit from the increased investments in a new energy economy. “It is important that the acceleration that is going to be created by this doesn’t disincentivize investment around the world,” Kirsten Hillman, the Canadian ambassador to the United States, said in an interview.One country they don’t want to see benefit is China. The United States has issued sweeping restrictions on China’s ability to access American technology, namely advanced chips and the machinery used to make them. And it has leaned on its allies as it tries to enforce global restrictions on sharing technology with Russia, as well as China. All of those efforts are meant to hinder China’s continued development in advanced manufacturing.Biden officials have urged allied countries not to step in to supply China with chips and other products it can no longer get from the United States. The United States is also weighing further restrictions on certain kinds of Chinese chip technology, including a likely ban on venture capital investments that U.S. officials are expected to discuss with their counterparts in Hiroshima.Although many of the Group of 7 governments agree that China poses an increasing economic and security threat, there is little consensus about what to do about it.Mr. Biden with Xi Jinping, China’s leader, in Bali, Indonesia, in November.Doug Mills/The New York TimesJapanese officials have been relatively eager to discuss coordinated responses to economic coercion from China, following Beijing’s move to cut Japan off from a supply of rare earth minerals during a clash more than a decade ago.European officials, by contrast, have been more divided on whether to risk close and lucrative business ties with China. Some, like the French president, Emmanuel Macron, have pushed back on U.S. plans to decouple supply chains with China.Ms. von der Leyen, the European Commission president, has been pushing for a “de-risking” of relations with China that involves recognizing China’s growing economic and security ambitions while reducing, in targeted ways, European dependence on China for its industrial and defense base. European officials said in Hiroshima that they had been pleased to see American leaders moving more toward their approach, at least rhetorically.Still, the allies’ industrial policy push threatens to complicate already difficult relations with China. Consulting and advisory firms with foreign ties have been subject to raids, detainments and arrests in China in recent months. Chinese officials have made clear that they see export controls as a threat. Adopting the phase American officials use to criticize Beijing, the Chinese Embassy in Washington warned the Group of 7 this week against what it called “economic coercion.”Mr. Xi issued a similar rebuke to Mr. Biden in Bali last fall. He pointed to the late 1950s, when the Soviet Union withdrew support for the Chinese nuclear program.China’s nuclear research continued, Mr. Xi said, and four years later, it detonated its first atomic bomb. More

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    U.S. Semiconductor Boom Faces a Worker Shortage

    Strengthened by billions of federal dollars, semiconductor companies plan to create thousands of jobs. But officials say there might not be enough people to fill them.Maxon Wille, an 18-year-old in Surprise, Ariz., was driving toward Interstate 17 last year when he noticed a massive construction site: Taiwan Semiconductor Manufacturing Company at work on its new factory in Phoenix.A few weeks later, as he was watching YouTube, an advertisement popped up for a local community college’s 10-day program that trains people to become semiconductor technicians. He graduated from the course this month and now hopes to work at the plant once it opens.“I can see this being the next big thing,” Mr. Wille said.Semiconductor manufacturers say they will need to attract more workers like Mr. Wille to staff the plants that are being built across the United States. America is on the cusp of a semiconductor manufacturing boom, strengthened by billions of dollars that the federal government is funneling into the sector. President Biden had said the funding will create thousands of well-paying jobs, but one question looms large: Will there be enough workers to fill them?“My biggest fear is investing in all this infrastructure and not having the people to work there,” said Shari Liss, the executive director of the SEMI Foundation, a nonprofit arm of SEMI, an association that represents electronics manufacturing companies. “The impact could be really substantial if we don’t figure out how to create excitement and interest in this industry.”Lawmakers passed the 2022 CHIPS Act with lofty ambitions to remake the United States into a semiconductor powerhouse, in part to reduce America’s reliance on foreign nations for the tiny chips that power everything from dishwashers to computers to cars. The law included $39 billion to fund the construction of new and expanded semiconductor facilities, and manufacturers that want a slice of the subsidies have already announced expansions across the country.More than 50 new facility projects have been announced since the CHIPS Act was introduced, and private companies have pledged more than $210 billion in investments, according to the Semiconductor Industry Association.But that investment has run headfirst into the tightest labor market in years, with employers across the country struggling to find workers. Semiconductor manufacturers have long found it difficult to hire workers because of a lack of awareness of the industry and too few students entering relevant academic fields. Company officials say they expect it to become even more difficult to hire for a range of critical positions, including the construction workers building the plants, the technicians operating equipment and engineers designing chips.The U.S. semiconductor industry could face a shortage of about 70,000 to 90,000 workers over the next few years, according to a Deloitte report. McKinsey has also projected a shortfall of about 300,000 engineers and 90,000 skilled technicians in the United States by 2030.Semiconductor manufacturers have struggled to hire more employees, in part because, officials say, there are not enough skilled workers and they have to compete with big technology firms for engineers. Many students who graduate with advanced engineering degrees in the United States were born abroad, and immigration rules make it challenging to obtain visas to work in the country.Ronnie Chatterji, the White House’s CHIPS implementation coordinator, said that filling the new jobs would be a big challenge, but that he felt confident Americans would want them as they became more aware of the industry’s domestic expansion.“While it hasn’t been the sexiest job opportunity for folks compared to some of the other things that they’re graduating with, it also hasn’t been on the radar,” Mr. Chatterji said. He added that America would be less “prosperous” if companies could increase output but lacked the employees to do so.In an effort to meet the labor demand, the Biden administration said this month that it would create five initial “work force hubs” in cities like Phoenix and Columbus, Ohio, to help train more women, people of color and other underrepresented workers in industries like semiconductor manufacturing.Administration and company officials have also pushed for changes to better retain foreign-born STEM graduates, but immigration remains a controversial topic in Washington, and few are optimistic about reforms.Some industry leaders are looking to technology as an antidote, since automation and artificial intelligence can amplify the output of a single engineer, but companies are mostly putting their faith into training programs. Federal officials have backed that effort and pointed out that funding in the CHIPS Act could be used for work force development.Intel, which announced plans to spend $20 billion on two new chip factories in Arizona and more than $20 billion on a new chip manufacturing complex in Ohio, has invested millions in partnerships with community colleges and universities to train technicians and expand relevant curriculum.Gabriela Cruz Thompson, the director of university research collaboration at Intel Labs, said the company anticipated creating 6,700 jobs over the next five to 10 years. About 70 percent would be for technicians who typically have a two-year degree or certificate.A silicon wafer, a thin material essential for manufacturing semiconductors, at a chip-packaging facility in Santa Clara, Calif.Jim Wilson/The New York TimesShe said that the industry had faced staffing challenges for years, and that she was concerned about the number of “available and talented skilled workers” who could fill all of the new Intel positions.“I am confident,” she said. “But am I fully certain, 100 percent? No.”Micron, which pledged as much as $100 billion over the next two decades or more to build a huge chip factory complex in New York, has also deployed new work force programs, including ones that train veterans and teach middle and high school students about STEM careers through “chip camps.”Bo Machayo, the director of U.S. federal affairs at Micron, said the company anticipated needing roughly 9,000 employees after its full build-out in the region.“We understand that it’s a challenge, but we also look at it as an opportunity,” he said.To be considered for the federal subsidies, manufacturers must submit applications to the Commerce Department that include detailed plans about how they will recruit and retain workers. Firms requesting more than $150 million are expected to provide affordable, high-quality child care.“We don’t think that a company can just post a bunch of jobs online and hope that the right work force shows up,” said Kevin Gallagher, a senior adviser to the commerce secretary.The lack of interest in the industry has been evident at academic institutions. Karl Hirschman, the director of microelectronic engineering at the Rochester Institute of Technology, said the university was “nowhere close” to the maximum enrollment for its microelectronic engineering degree program, which sets up students for semiconductor-related careers. Enrollment averages about 20 new undergraduates each year, compared with more than 200 for the university’s mechanical engineering program.Although students graduating with more popular engineering degrees could work in the semiconductor industry, Mr. Hirschman said, many of them are more aware of and attracted to tech firms like Google and Facebook.“We do not have enough students to fill the need,” he said. “It’s only going to get more challenging.”Community colleges, universities and school districts are creating or expanding programs to attract more students to the industry.In Maricopa County, Ariz., three community colleges have teamed up with Intel to offer a “quick start” program to prepare students to become entry-level technicians in just 10 days. During the four-hour classes, students learn the basics of how chips are made, practice using hand tools and try on the head-to-toe gowns that technicians wear.More than 680 students have enrolled in the program since it began in July, said Leah Palmer, the executive director of the Arizona Advanced Manufacturing Institute at Mesa Community College. The program is free for in-state students who complete it and pass a certification test.In Oregon last year, the Hillsboro School District started a two-year advanced manufacturing apprenticeship program that allows 16- to 18-year-old students to earn high school credit and be paid to work on the manufacturing floors of companies in the semiconductor industry. Five students are participating, and officials hope to add at least three more to the next cohort, said Claudia Rizo, the district’s youth apprenticeship project manager.“Our hope is that students would have a job offer with the companies if they decide to stay full time, but also be open to the possibility of pursuing postsecondary education through college or university,” Ms. Rizo said.Universities are also expanding undergraduate and graduate engineering programs. Purdue started a semiconductor degree program last year, and Syracuse, which has worked with Micron and 20 other institutions to enhance related curriculum, plans to increase its engineering enrollment 50 percent over the next three to five years.Students participated in an event hosted by Micron at Onondaga Community College in Syracuse, N.Y.Benjamin Cleeton for The New York TimesAt Onondaga Community College, near Micron’s build-out in New York, officials will offer a new two-year degree and one-year certificate in electromechanical technology starting this fall. The programs were already underway before Micron’s announcement to build the chip factory complex but would help students gain the qualifications needed to work there, said Timothy Stedman, the college’s dean of natural and applied sciences.Although he felt optimistic, he said interest could be lower than officials hoped. Enrollment in the college’s electrical and mechanical technology programs has noticeably declined from two decades ago because more students have started to view four-year college degrees as the default path.“We’re starting to see the pendulum swing a little bit as people have realized that these are well-paying jobs,” Mr. Stedman said. “But I think there still needs to be a fair amount of work done.”Ana Swanson More

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    How the G7 Oil Price Cap Has Helped Choke Revenue to Russia

    Group of 7 leaders are prepared to celebrate the results of a novel effort to stabilize global oil markets and punish Moscow.In early June, at the behest of the Biden administration, German leaders assembled top economic officials from the Group of 7 nations for a video conference with the goal of striking a major financial blow to Russia.The Americans had been trying, in a series of one-off conversations last year, to sound out their counterparts in Europe, Canada and Japan on an unusual and untested idea. Administration officials wanted to try to cap the price that Moscow could command for every barrel of oil it sold on the world market. Treasury Secretary Janet L. Yellen had floated the plan a few weeks earlier at a meeting of finance ministers in Bonn, Germany.The reception had been mixed, in part because other countries were not sure how serious the administration was about proceeding. But the call in early June left no doubt: American officials said they were committed to the oil price cap idea and urged everyone else to get on board. At the end of the month, the Group of 7 leaders signed on to the concept.As the Group of 7 prepares to meet again in this week in Hiroshima, Japan, official and market data suggest the untried idea has helped achieve its twin initial goals since the price cap took effect in December. The cap appears to be forcing Russia to sell its oil for less than other major producers, when crude prices are down significantly from their levels immediately after Russia’s invasion of Ukraine.Data from Russia and international agencies suggest Moscow’s revenues have dropped, forcing budget choices that administration officials say could be starting to hamper its war effort. Drivers in America and elsewhere are paying far less at the gasoline pump than some analysts feared.Russia’s oil revenues in March were down 43 percent from a year earlier, the International Energy Agency reported last month, even though its total export sales volume had grown. This week, the agency reported that Russian revenues had rebounded slightly but were still down 27 percent from a year ago. The government’s tax receipts from the oil and gas sectors were down by nearly two-thirds from a year ago.Russian officials have been forced to change how they tax oil production in an apparent bid to make up for some of the lost revenues. They also appear to be spending government money to try to start building their own network of ships, insurance companies and other essentials of the oil trade, an effort that European and American officials say is a clear sign of success.“The Russian price cap is working, and working extremely well,” Wally Adeyemo, the deputy Treasury secretary, said in an interview. “The money that they’re spending on building up this ecosystem to support their energy trade is money they can’t spend on building missiles or buying tanks. And what we’re going to continue to do is force Russia to have these types of hard choices.”Some analysts doubt the plan is working nearly as well as administration officials claim, at least when it comes to revenues. They say the most frequently cited data on the prices that Russia receives for its exported oil is unreliable. And they say other data, like customs reports from India, suggests Russian officials may be employing elaborate deception measures to evade the cap and sell crude at prices well above its limit.“I’m concerned the Biden administration’s desperation to claim victory with the price cap is preventing them from actually acknowledging what isn’t working and taking the steps that might actually help them win,” said Steve Cicala, an energy economist at Tufts University who has written about potential evasion under the cap.The price cap was invented as an escape hatch to the financial penalties that the United States, Europe and others announced on Russian oil exports in the immediate aftermath of the invasion. Those penalties included bans preventing wealthy democracies from buying Russian oil on the world market. But early in the war, they essentially backfired. They drove up the cost of all oil globally, regardless of where it was produced. The higher prices delivered record exports revenues to Moscow, while driving American gasoline prices above $5 a gallon and contributing to President Biden’s sagging approval rating.A new round of European sanctions was set to hit Russian oil hard in December. Economists on Wall Street and in the Biden administration warned those penalties could knock oil off the market, sending prices soaring again. So administration officials decided to try to leverage the West’s dominance of the oil shipping trade — including how it is transported and financed — and force a hard bargain on Russia.Oil tankers near the port city of Nakhodka, Russia. Many analysts were concerned that a price cap might prompt Russia to restrict how much oil it pumped and sold. But the country has mostly kept producing at about the same levels it did when the war began.Tatiana Meel/ReutersUnder the plan, Russia could keep selling oil, but if it wanted access to the West’s shipping infrastructure, it had to sell at a sharp discount. In December, European leaders agreed to set the cap at $60 a barrel. They followed with other caps for different types of petroleum products, like diesel.Many analysts were skeptical it could work. A cap that was too punitive had the potential to encourage Russia to severely restrict how much oil it pumps and sells. Such a move could drive crude prices skyward. Alternatively, a cap that was too permissive might have failed to affect Russian oil sales and revenues at all.Neither scenario has happened. Russia announced a modest production cut this spring but has mostly kept producing at about the same levels it did when the war began.Fatih Birol, the executive director of the International Energy Agency, has called the price cap an important “safety valve” and a crucial policy that has forced Russia to sell oil for far less than international benchmark prices. Russian oil now trades for $25 to $35 a barrel less than other oil on the global market, Treasury Department officials estimate.“Russia played the energy card, and it didn’t win,” Mr. Birol wrote in a February report. “Given that energy is the backbone of Russia’s economy, it’s not surprising that its difficulties in this area are leading to wider problems. Its budget deficit is skyrocketing as military spending and subsidies to its population largely exceed its export income.”Biden administration officials say that there is no evidence of widespread evasion by Russia, and that Mr. Cicala’s analysis of Indian customs reports does not account for the rising cost of transporting Russian oil to India, which is embedded in the customs data. A White House official told reporters traveling with Mr. Biden in Hiroshima on Thursday that the Group of 7 leaders would adopt new measures meant to counter price-cap evasion in their meeting this weekend.There is no dispute that the world has avoided what was privately the largest concern for Biden officials last summer: another round of skyrocketing oil prices.American drivers were paying about $3.54 a gallon on average for gasoline on Monday. That was down nearly $1 from a year ago, and it is nowhere near the $7 a gallon some administration officials feared if the cap had failed to prevent a second oil shock from the Russian invasion. Gas prices are a mild source of relief for Mr. Biden as high inflation continues to hamper his approval among voters.After rising sharply in the months surrounding the Russian invasion, global oil prices have fallen back to late-2021 levels. The plunge is partly driven by economic cooling around the world, and it has persisted even as large producers like Saudi Arabia have curtailed production.Falling global prices have contributed to Russia’s falling revenues, but they are not the whole story. Reported sales prices for exported Russian oil, known as Urals, have dropped by twice as much as the global price for Brent crude.The Group of 7 leaders meeting in Japan this week will probably not spend much time on the cap, instead turning to other collective efforts to constrict Russia’s economy and revenues. And the biggest winners from the cap decision will not be at the summit.“The direct beneficiaries are mostly emerging market and lower-income countries that import oil from Russia,” Treasury officials noted in a recent report.The officials were referring to a handful of countries outside the Group of 7 — particularly India and China — that have used the cap as leverage to pay a discount for Russian oil. Neither India nor China joined the formal cap effort, but it is their oil consumers who are seeing the lowest prices from it. More

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    When Will the U.S. Run Out of Cash? The Answer Is Complicated.

    The federal government is essentially living paycheck to paycheck, making the X-date hard to pin down.In letters to Congress and warnings to business leaders about the catastrophic consequences if the United States defaults on its debt, Treasury Secretary Janet L. Yellen has repeatedly offered an important caveat.She cannot give the exact date when the federal government will run out of cash.The United States reached its statutory $31.4 trillion debt limit on Jan. 19, forcing the Treasury Department — which borrows huge sums of money to pay nation’s bills — to begin using accounting maneuvers known as extraordinary measures to conserve cash and avoid breaching the cap.On Monday, Ms. Yellen reiterated previous warnings that the Treasury Department could deplete its cash reserves by June 1. Still, the exact day when the United States will reach the so-called X-date is nearly impossible to determine.“These estimates are based on currently available data, and federal receipts, outlays and debt could vary from these estimates,” Ms. Yellen has told lawmakers in her letters. “The actual date Treasury exhausts extraordinary measures could be a number of days or weeks later than these estimates.”While Treasury has the most sophisticated cash management system in the world and employs teams of highly trained economists, its coffers are a blur of payments going out and tax revenues coming in. When its cash balance runs painfully low — as was the case on Wednesday, when the Treasury General Account started the day with less than $100 billion — pinpointing the X-date becomes even harder to predict. In many respects, that is because the moment that a default would occur is a moving target.Big bills are coming due.Ms. Yellen has been eyeing early June as a pivotal month since her first warnings to Congress about the debt limit in January. The reason: The federal government spends a lot of money in a short period of time around June 1, and it is impossible to predict exactly how much revenue is going to be coming in and when.In a report published on Thursday, the Bipartisan Policy Center, a think tank that carefully tracks federal spending, estimated that the government would spend $101 billion on June 1. Most of that money — $47 billion — will go toward Medicare, while the rest will be directed to veterans’ benefits, military pay and retirement, civil service retirement and supplemental security income. On June 2, the government has to pay $25 billion in Social Security benefits and another $2 billion for Medicaid.During those two days, the government is projected to spend about $140 billion and bring in only $44 billion in tax revenue, leaving the nation’s coffers operating on fumes.Revenues sputter as refunds flow.One big problem this year is that tax revenues have been coming in at a more tepid pace than anticipated.Severe storms, flooding and mudslides in California, Alabama and Georgia this year prompted the Internal Revenue Service to push the April 18 tax-filing deadlines in dozens of counties to October.Another surprising reason that cash is running lower than some budget experts projected is that the I.R.S. is starting to operate more efficiently. As a result of the $80 billion that the agency received as part of the Inflation Reduction Act last year, it has been able to ramp up hiring and chip away at the backlog of unprocessed tax returns.Because the I.R.S. has been processing returns more quickly, it is also paying out refunds more quickly and draining the amount of available cash.June 15 is a critical day.If Ms. Yellen can find enough coins in Treasury’s couch to pay the bills until June 15, the United States could find itself with a bit of breathing room.That is because June 15 is when third-quarter payments are due from corporations and people who are required to pay their tax bills throughout the year or choose to make payments every three months to avoid having large bills due in April.The Congressional Budget Office said in a report last week that an expected influx of quarterly tax receipts on June 15 and the availability of additional extraordinary measures would probably allow the government to continue financing operations through at least the end of July.The government could receive approximately $80 billion in tax revenue that day. The Bipartisan Policy Center estimates that those funds could be sufficient to keep the federal government afloat until June 30. At that time, Ms. Yellen would also have some additional extraordinary measures at her disposal — a suspension of investments into retirement funds for federal workers — that would allow her to unlock an additional $145 billion and potentially delay a default until well into July.It’s too close to call.The lack of clarity about the X-date has made it difficult for lawmakers to know how much pressure they are under to strike a deal. The government may not know how quickly cash is running out until right before the country faces default.But pressure is still mounting. Congress is likely to take days — if not weeks — to pass legislation to raise the debt ceiling. And even if President Biden and Speaker Kevin McCarthy strike an agreement, there is no guarantee that the House and Senate will easily pass the legislation.The legislative calendar gets increasingly complicated as summer approaches.Mr. McCarthy and Senator Chuck Schumer, Democrat of New York and the majority leader, would need to navigate legislation reflecting that agreement through their respective chambers, and the days left to do so are rapidly dwindling. The House is scheduled to be in session for only six days before the end of the month. The Senate is set for just five and is scheduled to be out of Washington beginning on Monday before the Memorial Day weekend.Mindful that lawmakers are loathe to reschedule their recesses, analysts have been watching the legislative schedule closely as they try to read the debt limit tea leaves. If no deal is signed into law by Memorial Day and Ms. Yellen does not announce that the X-date is delayed, that could raise the likelihood of a short-term suspension of the borrowing cap to give Congress more time to act.“The congressional calendar is king and will dictate urgency and passage dates for a bill, as has historically been the case,” Henrietta Treyz, the director of economic policy at Veda Partners, said in a note to clients this month. More

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    36 Hours in Buenos Aires: Things to Do and See

    12:30 p.m.
    Follow the grill smoke to the river
    Puerto Madero, a redeveloped dockside neighborhood about a 10-minute walk from San Telmo, has become one of the busiest tourist destinations in the city, thanks to landmarks like Puente de la Mujer, a sleek pedestrian bridge designed by the renowned architect Santiago Calatrava, and the ARA Presidente Sarmiento, a museum ship that bobs on the Rio Darsena Sur river next to a long line of loud, packed restaurants. Less than half a mile farther along the river, away from the crowd, is Estilo Campo, a fantastic parrilla (an Argentine steakhouse, which literally means open grill) with river views and waiters wearing kerchiefs and belts in the style of gauchos, to the delight of tourists. But the expertly prepared chorizo, crispy sweetbreads and juicy skirt steak leave no doubt that you are in an authentic Argentine parrilla, and the wine list is expansive. Lunch for two, about 18,000 pesos. More

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    Bank of England governor says the UK is facing a wage-price spiral

    Bank of England Governor Andrew Bailey said in a Wednesday speech that U.K. inflation was being fueled by “second-round effects” that would prove sticky.
    He noted that the central bank’s monetary policy committee was paying close attention to “indicators of inflation persistence, including labour market tightness and wage growth, and services price inflation.”
    The BoE will continue to adjust its bank rate “as necessary” to reach its 2% inflation target, he added.

    A sign displays the price in pound sterling of food goods, including cucumbers, at a a fruit and vegetable market in stall east London on March 31, 2023.
    Susannah Ireland | Afp | Getty Images

    LONDON — After more than a year of warnings, Bank of England Governor Andrew Bailey says the U.K. is now experiencing a wage-price spiral despite 12 consecutive central bank interest rate hikes.
    “Some of the strength in core inflation [in the U.K.] reflects the indirect effects of higher energy prices,” Bailey said in a Wednesday speech. “But it also reflects second-round effects as the external shocks we have seen interact with the state of the domestic economy.”

    “As headline inflation falls, these second-round effects are unlikely to go away as quickly as they appeared.”
    These areas of persistence, he continued, include domestic wage growth and price setting.
    This situation risks a wage-price spiral — a theory that says that workers bargain for wage increase as inflation rises, fueling higher demand and pushing companies to raise prices to compensate for steeper expenses. This in turn leaves workers requiring higher wages to afford goods and services — perpetuating so-called “second-round effects.”
    The U.K. inflation rate surprised economists by holding above 10% in March. Core inflation, excluding food, energy, alcohol and tobacco, was steady on the previous month at 5.7%.

    Bailey said that the loosening of the labor market, as vacancies begin to fall, is happening more slowly than the central bank previously anticipated.

    He noted that nominal wage growth — not adjusted for inflation — and services price inflation had occurred in line with the bank’s forecasts. The Bank of England sees signs of a slowdown in wage growth, but observes that services inflation remains elevated, Bailey added.
    The bank’s monetary policy committee “continues to judge that the risks to inflation are skewed significantly to the upside,” he said, and would keep adjusting its main bank rate “as necessary” to reach its 2% inflation target.

    Unique risks

    Bailey incurred backlash in February last year, when he said that businesses should show “restraint” in pay negotiations, and that “broadly” workers should not ask for big pay rises. His comments were at the time slammed as out of touch, as the public faced a growing cost-of-living crisis, with inflation creating sharp falls in wage growth in real terms.

    Economists and policymakers in the EU and U.S. have said in recent months that they no longer see significant risks of a wage-price spiral in those economies, with salaries having room to rise to catch up with inflation and historic stagnation.
    Many also say there are signs that companies have been raising prices above their input price inflation, which has protected corporate profit margins.
    Alberto Gallo, chief investment officer at Andromeda Capital Management, previously told CNBC that the U.K. was the developed economy most at risk from a wage-price spiral because of factors including weakness in the British pound, reliance on food and energy imports and a tight labor market constrained by post-Brexit rules.
    Huw Pill, Bank of England chief economist, sparked a similar furore last month, when he said on a podcast that there was a reluctance in Britain to accept that “we’re all worse off, we all have to take our share,” and that workers and companies needed to stop passing price rises on to each other.
    “If what you’re buying has gone up a lot relative to what you’re selling, you’re going to be worse off,” Pill said.
    “So somehow in the U.K., someone needs to accept that they’re worse off and stop trying to maintain their real spending power by bidding up prices, whether higher wages or passing energy costs through on to customers.”
    Addressing the backlash, Pill said in comments quoted by Reuters earlier this week that he would “probably use somewhat different words.”
    Nevertheless, he continued, “I appreciate this is a little bit of a tough message, but … having to pay more for what we’re buying from the rest of the world relative to what we’re selling to the world is a squeeze on our spending power.” More

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    For Biden, Debt Limit Crisis Complicates Trip to Asia

    Volatility has become the new norm in Washington as the president heads to Japan, where he will reassure world leaders that the debt ceiling showdown will not upend the global economy.President Biden left for Japan on Wednesday for a meeting of the leaders of seven major industrial democracies who get together each year to try to keep the world economy stable.But as it turns out, the major potential threat to global economic stability this year is the United States.When Mr. Biden lands in Hiroshima for the annual Group of 7 summit meeting on Thursday, the United States will be two weeks from a possible default that would jolt not only its own economy but those of the other countries at the table. It will fall to Mr. Biden to reassure his counterparts that he will find a way to avoid that, but they understand it is not solely in his control.The showdown with Republicans over raising the federal debt ceiling has already upended the president’s international diplomacy by forcing a last-minute cancellation of two stops he had planned to make after Japan: Papua New Guinea and Australia. Rather than being the unchallenged commander of the most powerful superpower striding across the world stage, Mr. Biden will be an embattled leader forced to rush home to avert a catastrophe of America’s own making.He was at least bolstered before leaving Washington by signs of progress as both sides emerged from a White House meeting on Tuesday expressing optimism that an agreement was possible. In the preparations leading up to the G7 meeting, officials from the other participating countries have not struck U.S. officials as all that alarmed about the possibility of default, perhaps because they trust Mr. Biden, know that the moment of truth is still a couple weeks away and assume that Washington will get its act together in time.Mr. Biden is set to depart on Wednesday for the G7 meeting in Hiroshima, Japan.How Hwee Young/EPA, via ShutterstockBut that simply underscores how much volatility has become the new norm in Washington. After generations of counting on the United States as the most important stabilizing force in world affairs, allies in recent years have increasingly come to expect a certain level of dysfunction instead. Extended government shutdowns, banking crises, debt ceiling fights and even political violence would once have been unthinkable but have prompted foreign leaders to factor American unpredictability into their calculations.“I think our biggest threat is us,” said Jane Harman, a former Democratic representative from California who later served as the president of the Woodrow Wilson International Center for Scholars. “Our leadership in the world is being eroded by our internal dysfunction. The markets are still betting against our defaulting, and that’s a decent bet. But if we only manage to eke out a short-term extension and the price is onerous budget caps — including on defense — we will be hobbled when Ukraine needs us most and China is building beachheads everywhere.”The White House warned that a default would only embolden America’s adversaries, using the argument against Republicans, whom they blame for playing with fire.“There’s countries like Russia and China that would love nothing more than for us to default so they could point the finger and say, ‘You see, the United States is not a stable, reliable partner,’” said John F. Kirby, a spokesman for the National Security Council.But he sought to play down the effects of the dispute on the G7 meeting, saying that he doubted it would “dominate the discussion” and maintaining that other leaders “don’t need to worry about that part of it.” The president’s counterparts would understand his need to cut short his trip, he said.“They know that our ability to pay our debts is a key part of U.S. credibility and leadership around the world,” Mr. Kirby said. “And so they understand that the president also has to focus on making sure that we don’t default and on having these conversations with congressional leaders.”Even if they understand, though, they see consequences. Mr. Biden’s decision to head home early reinforces questions about American commitment to the Asia-Pacific region and leaves a vacuum that China may exploit, according to analysts. A presidential visit to places like Papua New Guinea, where no U.S. leader has gone before, speaks loudly about diplomatic priorities — as does the failure to follow through.This is not the first time an American president has scrubbed a foreign trip to deal with domestic concerns. President George H.W. Bush canceled a two-week trip to Asia in 1991 to show he was focused on a lagging economy at home, while President Bill Clinton scrapped a trip to Japan during a government shutdown in 1995. President Barack Obama delayed a trip to Indonesia and Australia in 2010 to focus on health care legislation, then skipped an Asia-Pacific summit meeting in 2013 during a government shutdown of his own.The perpetual culture of crisis in Washington, however, has grown only more intense since the arrival of President Donald J. Trump, who threatened to unravel bedrock alliances and embraced longstanding adversaries abroad while disrupting democratic norms and economic conventions at home.Speaker Kevin McCarthy said it was possible that a deal regarding the debt ceiling could materialize in days.Haiyun Jiang/The New York TimesThe debt ceiling showdown between Mr. Biden and Speaker Kevin McCarthy has underscored to the president’s peers that however much he may seek to restore normalcy, U.S. politics has not returned to the steady state of the past — not least because Mr. Trump seeks to reclaim office in next year’s election.World leaders took notice last week during Mr. Trump’s CNN town hall-style interview in which he refused to back Ukraine in its war against Russian invasion and casually endorsed the idea of a default, saying it would not be that damaging and indeed “could be maybe nothing.”That is not how most policymakers and analysts see it.Treasury Secretary Janet L. Yellen said at a meeting of G7 finance ministers and central bankers in Japan last week that a default “would spark a global downturn” and “risk undermining U.S. global economic leadership and raise questions about our ability to defend our national security interests.”Mr. Biden, a veteran of half a century in high office in Washington, has regularly remarked on the uncertainty surrounding America’s place in the world that he discovered when he took office after Mr. Trump’s disruptive four years. “America is back,” he said he would tell foreign counterparts, only to hear, “But for how long?”By contrast to his predecessor, Mr. Biden has conducted a far more conventional foreign policy familiar to world leaders, and foreign officials see him as a more traditional U.S. president. But they also understand that he is presiding over a country whose democracy has been tested and found to be fragile. And they see a fractious politics in Washington that values confrontation over compromise, even at the risk of something that would have once been unimaginable, like a default.“For sure, the U.S. debt ceiling issue will be a topic of conversation and concern at the G7 summit,” Matthew P. Goodman, a senior vice president for economics at the Center for Strategic and International Studies in Washington, said at a briefing about the meeting last week. “I’m sure the other leaders will ask, you know, how serious this risk is. And I assume President Biden will say he’s working on it and doing everything he can to avoid it.”By this point, U.S. partners have become oddly accustomed to the culture that dominates Washington. They have watched the brewing debt ceiling fight with little evident fear.“I don’t think many European governments are very concerned, presumably because these crises come round quite often but never end in disaster,” said Charles Grant, the director of the Centre for European Reform in London. “Cutting short the trip is a bad signal, but there is such good will to Biden in most capitals that they are prepared to cut him some slack.” More

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    Robert E. Lucas Jr., Nobel-Winning Conservative Economist, Dies at 85

    Challenging the theories of John Maynard Keynes, he questioned the idea that government intervention could help steer the economy.Robert E. Lucas Jr., a contrarian Nobel laureate in economics who undergirded conservative arguments that government intervention in fiscal policy is often self-defeating, died on Monday in Chicago. He was 85.His death was announced by the University of Chicago, where he began teaching as a professor in 1975 and remained a professor emeritus until his death. The announcement did not cite a cause.In awarding the Nobel Memorial Prize in Economic Sciences in 1995 to Professor Lucas, the fifth winner in economics from the University of Chicago in six years, the Swedish Royal Academy of Sciences described him as “the economist who has had the greatest influence on macroeconomic research since 1970.”While he propounded a number of groundbreaking if sometimes controversial theories, Professor Lucas was best known for his hypothesis of “rational expectations,” advanced in the early 1970s in a critique of macroeconomics.In that critique, he challenged John Maynard Keynes’s long-established doctrine that government could manipulate the economy to achieve certain outcomes through reflexive interventionist policies, such as changing interest rates or taking other steps to increase or curb inflation or reduce unemployment.In the real world, Professor Lucas maintained, consumers and businesses make their decisions on the basis of rational expectations drawn from their own past experiences.“His idea was that macroeconomic models grounded in lots of equations are based primarily on past behavior,” said David R. Henderson, a research fellow with Stanford University’s Hoover Institution in California and an economics professor at the Naval Postgraduate School in Monterey. “But if people learn from what government does” and respond accordingly in their own self-interest, “those models will poorly predict future behavior.”As a result, Professor Lucas said, government economic policies can be self-defeating by failing to achieve their intended outcomes.As the economics columnist Leonard Silk wrote in The New York Times in 1983, “If people understand and anticipate what government is doing — for instance, in trying to accelerate economic growth by speeding up the increase in the money supply — workers will increase their wage demands and businesses will raise prices, to protect themselves against future inflation, thus negating the government’s intention of increasing real growth.”In an agenda with conservative implications for economic policy, Professor Lucas maintained that government spending that supplants private investment is counterproductive; that the money supply is what matters most; and that policies to reduce inequality by redistributing income, though “seductive,” are “in my opinion the most poisonous” to sound economics.He also favored eliminating taxes on capital gains, or on any income derived from capital. And he embraced supply-side economics, which calls for increasing the supply of goods and services while cutting taxes to promote job creation, business expansion and entrepreneurial activity.“The supply-side economists,” he said in a 1993 interview, “have delivered the largest genuinely free lunch that I have seen in 25 years of this business, and I believe we would be a better society if we followed their advice.”In 1995, not long after eight years under President Ronald Reagan, a champion of supply-side, and four under another Republican, George H.W. Bush, Professor Lucas concluded that “the U.S. economy is in excellent shape,” in part because “the government is not trying to do things with economic policy that it isn’t capable of doing.”And, he said, the same principles that encouraged economic growth in rich countries could be applied to economic development in poorer ones.In a 1988 lecture titled “What Economists Do,” Professor Lucas explained: “We economists have to be storytellers. We do not find that the realm of imagination and ideas is an alternative to, or a retreat from, practical reality. On the contrary, it is the only way we have found to think seriously about reality.”Professor Lucas, right, with three other Nobel laureates in economics from the University of Chicago, from left: James Heckman, Roger Myerson and Gary Becker. Kamil Krzaczynski/European Pressphoto AgencyRobert Emerson Lucas Jr. was born in Yakima, Wash., on Sept. 15, 1937. His mother, Jane (Templeton) Lucas, was a fashion artist. His father ran an ice-cream parlor that went broke during the Depression, after which the family moved to Seattle, where Robert Sr. became a steamfitter in the shipyards and then, after World War II, a welder in a commercial refrigerator company. Years later, though lacking a college degree or any training in engineering, he rose to become the company’s president.Before his father’s fortunes changed, however, Robert Jr., hoping to become an engineer, needed a scholarship to attend college and was offered one by the University of Chicago, though it didn’t have an engineering school. Lacking the nerve to study physics, he said, he became a history major. He graduated in 1959.He then enrolled in a graduate program in economics at the University of California, Berkeley. But, again needing financial support, he returned to the University of Chicago, where he studied under the conservative economist Milton Friedman, who would receive the Nobel in economics in 1976. Professor Lucas earned his doctorate in economics in 1964.He taught at what is now Carnegie Mellon University from 1963 to 1974, then returned to the University of Chicago as a professor in 1975.In 1959 he married Rita Cohen, a fellow student at Chicago. They separated in 1982 and divorced several years later. Among his survivors are their sons, Stephen and Joseph; his partner, Prof. Nancy L. Stokey, with whom he collaborated on some of his research at the University of Chicago; a sister, Jenepher Spurr; a brother, Peter; and five grandchildren.Six years before Professor Lucas won his Nobel, his estranged wife expressed great faith in his future. Her lawyer inserted a clause in their divorce agreement stipulating that she would receive half of any Nobel money he might receive if the honor was awarded before Oct. 31, 1995. He received the prize barely three weeks before that deadline.Professor Lucas was philosophical about collecting $300,000 instead of the full $600,000. He might have balked during the divorce negotiations, he said, if he had had a greater rational expectation that he would become a Nobel laureate.“A deal is a deal,” he said at the time. “She got the whole house. Getting half of the prize was better than nothing.” More