Philippa Kaur

CHINA AND India are not on the friendliest of terms. In 2020 their soldiers clashed along their disputed border in the deadliest confrontation between the two since 1967—then clashed again in 2021 and 2022. That has made trade between the Asian giants a tense affair. Tense but, especially for India, still indispensable. Indian consumers rely on cheap Chinese goods, and Indian companies rely on cheap Chinese inputs, particularly in industries of the future. Whereas India sells China the products of the old economy—crustaceans, cotton, granite, diamonds, petrol—China sends India memory chips, integrated circuits and pharmaceutical ingredients. As a result, trade is becoming ever more lopsided. Of the $117bn in goods that flowed between the two countries in 2022, 87% came from China (see chart). India’s prime minister, Narendra Modi, wants to reduce this Sino-dependence. One reason is strategic—relying on a mercurial adversary for critical imports carries risks. Another is commercial—Mr Modi is trying to replicate China’s nationalistic, export-oriented growth model, which means seizing some business from China. In recent months his government’s efforts to decouple parts of the Indian economy from its larger neighbour’s have intensified. On August 3rd India announced new licensing restrictions for imported laptops and personal computers—devices that come primarily from China. A week later it was reported that similar measures were being considered for cameras and printers.Officially, India is open to Chinese business, as long as this conforms with Indian laws. In practice, India’s government uses a number of tools to make Chinese firms’ life in India difficult or impossible. The bluntest of these is outright prohibitions on Chinese products, often on grounds related to national security. In the aftermath of the border hostilities in 2020, for example, the government banned 118 Chinese apps, including TikTok (a short-video sensation), WeChat (a super-app), Shein (a fast-fashion retailer) and just about any other service that captured data about Indian users. Hundreds more apps were banned for similar reasons throughout 2022 and this year. Makers of telecoms gear, such as Huawei and ZTE, have received the same treatment, out of fear that their hardware could let Chinese spooks eavesdrop on Indian citizens.Tariffs are another popular tactic. In 2018, in an effort to reverse the demise of Indian mobile-phone assembly at the hands of Chinese rivals, the government imposed a 20% levy on imported devices. In 2020 it tripled tariffs on toy imports, most of which come from China, to 60% then, at the start of this year, raised them to 70%. India’s toy imports have since declined by three-quarters.Sometimes the Indian government eschews official actions such as bans and tariffs in favour of more subtle ones. A common tactic is to introduce bureaucratic friction. India’s red tape makes it easy for officials to find fault with disfavoured businesses. Non-compliance with tax rules, so impenetrable that it is almost impossible to abide by them all, are a favourite accusation. Two smartphone makers, Xiaomi and BBK Electronics (which owns three popular brands, Oppo/OnePlus, Realme and Vivo), are under investigation for allegedly shortchanging the Indian taxman a combined $1.1bn. On August 2nd news outlets cited anonymous government officials saying that the Indian arm of BYD, a Chinese carmaker, was under investigation over allegations that it paid $9m less than it owed in tariffs for parts imported from abroad. MG Motor, a subsidiary of SAIC, another Chinese car firm, faces investment restrictions and a tax probe. A convoluted licensing regime gives Indian authorities more ways to stymie Chinese business. In April 2020 India declared that investments from countries sharing a border with it must receive special approvals. No specific neighbour was named but the target was clearly China. Since then India has approved less than a quarter of the 435 applications for foreign direct investment from the country. According to Business Today, a local outlet, only three received the thumbs-up in India’s last fiscal year, which ended in March. Last month reports surfaced that a proposed joint venture between BYD and Megha Engineering, an Indian industrial firm, to build electric vehicles and batteries failed to win approval over security reasons. Luxshare, a big Chinese manufacturer of devices for, among others, Apple, has yet to open a factory in Tamil Nadu, despite signing an agreement with the state in 2021. The reason for the delay is believed to be an unspoken blanket ban from the central government in Delhi on new facilities owned by Chinese companies. In early August the often slow-moving Indian parliament whisked through a new law easing the approval process for new lithium mines after a potentially large deposit of the metal, used in batteries, was unearthed earlier this year. Miners are welcome to submit applications, but Chinese bidders are expected to be viewed unfavourably.In parallel to its blocking efforts, India is using policy to dislodge China as a leader in various markets. India’s $33bn programme of “production-linked incentives” (cash payments tied to sales, investment and output) has identified 14 areas of interest, many of which are currently dominated by Chinese companies. One example is pharmaceutical ingredients, which Indian drugmakers have for years mostly procured from China. In February the Indian government started doling out handouts worth $2bn over six years to companies that agree to manufacture 41 of these substances domestically. Big pharmaceutical firms such as Aurobindo, Biocon, Dr Reddy’s and Strides are participating. Another is electronics. Contract manufacturers of Apple’s iPhones, such as Foxconn and Pegatron of Taiwan and Tata, an Indian conglomerate, are allowed to purchase Chinese-made components for assembly in India provided they make efforts to nurture local suppliers, too. A similar arrangement has apparently been offered to Tesla, which is looking for new locations to make its electric cars.Some Chinese firms, tired of jumping through all these hoops, are calling it quits. In July 2022, after two years of efforts that included a promise to invest $1bn in India, Great Wall Motors closed its Indian carmaking operation, unable to secure local approvals. Others are trying to adapt. Xiaomi has said it will localise all its production and expand exports from India which, so far, go only to neighbouring countries, to Western markets. Shein will re-enter the Indian market through a joint venture with Reliance, India’s most valuable listed company, renowned for its ability to navigate Indian bureaucracy and politics. ZTE is reportedly attempting to arrange a licensing deal with a domestic manufacturer to make its networking equipment. So far it has found no takers. Given India’s growing suspicions of China, it may be a while before it does. ■ More

IT HAS BEEN a bumpy journey for investors in Uber, the world’s biggest ride-hailing company, since it was listed in 2019. In its first six months as a public company Uber’s share price plunged by a quarter as doubts swirled over whether the perennial lossmaker would ever turn a profit. Thereafter it has seesawed, soaring amid the pandemic-era craze for tech stocks, then diving back down as rising interest rates spoiled investors’ appetite for businesses reliant on cheap funding.Since its nadir in July last year signs of greater financial discipline have pushed the price of Uber’s shares back to where they first traded in 2019. Costs have come down; fares are up. This month the company reported an operating profit of $326m for the second quarter of the year, its first time in the black. Uber’s glee was heightened on August 8th when Lyft, its domestic arch-rival, reported yet another operating loss, of $159m. Lyft’s market value remains in the doldrums, down by 85% from the level at which its shares began trading publicly in 2019, six weeks before Uber’s.Still, for Uber, breaking even is a low bar for success. Even adding in the latest profit, the company has clocked up $31bn of net losses since its first available results in 2014. Investors now have $21bn of invested capital tied up in the company. Annualising its most recent quarterly operating profit implies a return on that capital of roughly 5% after tax. That is less than half the company’s current cost of capital, suggesting that investors’ money could be more fruitfully deployed elsewhere.The hope, of course, is that Uber’s profits, having broken above ground, will now soar into the stratosphere. Hold your horses. In the past five years over 60% of the firm’s revenue growth has come from businesses other than ride-hailing. Most important has been food delivery, which surged during the pandemic. Uber’s profit margin—before interest, tax, depreciation and amortisation—when ferrying meals is less than half that when ferrying people. Uber promises that the business will continue becoming more lucrative as it matures. Yet margins for DoorDash, which generates nearly three times Uber’s food-delivery sales in America, are barely better. In freight, Uber’s third line of business, the company is losing money as it fights for space in a crowded industry in the throes of a downturn.A further concern is Uber’s focus on expansion beyond America, where it is now scarcely growing. Although it does not split out profits by geography, its margins are probably best in America, where it captures nearly three-quarters of sales in the ride-hailing market. Elsewhere, it faces stiff competition from local rivals: Bolt and FREENOW in Europe, Gojek and Grab in South-East Asia, and Ola in India. That will keep a tight lid on margins.Investors’ bet on Uber was predicated on the idea that ride-hailing is a winner-takes-all business. That justified torching billions of dollars in a race for market share, which Uber is, seeing Lyft’s woes, indeed winning—at least at home. Whether taking it all turns Uber into the colossal cash machine investors once hoped for is another question. ■To stay on top of the biggest stories in business and technology, sign up to the Bottom Line, our weekly subscriber-only newsletter. More

Your columnist has just had the bittersweet pleasure of driving along America’s Pacific coast, wind blowing through what is left of his hair, in a new Fisker Ocean electric SUV. Sweet, because he was in “California mode”—a neat feature that with the touch of a button lowers all windows, including the back windscreen, pulls back the solar-panelled roof, and turns the car into the next best thing to an all-electric convertible. Bitter, because once he had returned the trial vehicle, he had to drive home in his Kia Niro EV, which is smaller, shorter range and has no open roof—call it “rainy Britain mode”. The consolation was that it is about a tonne lighter, and if you drive an EV, as Schumpeter does, to virtue-signal your low-carbon street cred, being featherweight rather than heavyweight should count. Except it doesn’t. Just look at the future line-up that Fisker, an EV startup, unveiled on August 3rd. It included: a souped-up, off-road version of the Ocean, which Henrik Fisker, the carmaker’s Danish co-founder, said would be suitable for a monster-truck rally; a “supercar” with a 1,000km (600-mile) range, and a pickup truck straight out of “Yellowstone”—complete with cowboy-hat holder. Granted, there was also an affordable six-seater called Pear. But though Fisker says sustainability is one of its founding principles, it is indulging in a trait almost universal among car firms: building bigger, burlier cars, even when they are electric. There are two reasons for this. The first is profit. As with conventional cars, bigger EVs generate higher margins. The second is consumer preference. For decades, drivers have been opting for SUVs and pickup trucks rather than smaller cars, and this now applies to battery-charged ones. EV drivers, who fret about the availability of charging infrastructure, want more range, hence bigger batteries. BNEF, a consultancy, says the result is that average battery sizes increased by 10% a year globally from 2018 to 2022. That may help make for a more reassuring ride. But eventually the supersizing trend will prove to be unsustainable and unsafe. Already it is verging on the ludicrous. General Motors’ Hummer EV weighs in at over 4,000kg, nearly a Kia Niro more than its non-electric counterpart. Its battery alone is as heavy as a Honda Civic. General Motors also recently unveiled a 3,800kg Chevrolet Silverado electric pickup, which can tow a tractor and has a range of up to 720km. This year Tesla plans to start production of its electric “Cybertruck”, described by Elon Musk, its boss, as a “badass, futuristic armoured personnel carrier”. Such muscle trucks may be the price to pay to convince hidebound pickup drivers to go electric. Yet size matters to suburbanites, too. The International Energy Agency, an official forecaster, calculates that last year more than half the electric cars sold around the world were SUVs. For now, carmakers can argue that however big the electric rigs, they have a positive impact on the planet. Though manufacturing EVs—including sourcing the metals and minerals that go into them—generates more greenhouse gases than a conventional car, they quickly compensate for that through the absence of tailpipe emissions. Lucien Mathieu of Transport and Environment, a European NGO, says that even the biggest EVs have lower lifetime carbon emissions than the average conventional car. That is true even in places with plenty of coal-fired electricity, such as China. But in the long run the trend for bigger batteries may backfire, for economic and environmental reasons. First, the bigger the battery, the more pressure there will be on the supply chain. If battery sizes increase there are likely to be looming scarcities of lithium and nickel. That will push up the cost of lithium-ion batteries, undermining carmakers’ profitability. Second, to charge bigger batteries in a carbon-neutral way requires more low-carbon electricity. That may create bottlenecks on the grid. Third, the more pressure on scarce resources vital for EV production, the harder it will be to make affordable electric cars critical for electrifying the mass market. That will slow the overall decarbonisation of transport. Finally, there is safety. Not only is a battle tank that does zero to 100 kilometres per hour in the blink of an eye a liability for anyone that happens to be in its way. Tyres, brakes and wear and tear on the road also produce dangerous pollutants, which get worse the heavier vehicles are. Governments have ways to encourage EVs to shrink. The most important is to support the expansion of charging infrastructure, which would reduce range anxiety and promote smaller cars. Taxes could penalise heavier vehicles and subsidies could promote lighter ones. At the local level, congestion and parking charges could have similar effects. At a minimum, carmakers could be required to label the energy and material efficiency of their vehicles, as makers of appliances do in the European Union. Derange anxiety Ultimately, the industry is almost sure to realise the folly of pursuing size for its own sake. The penny is starting to drop. Ford’s CEO, Jim Farley, recently said carmakers could not make money with the longest-range batteries. His opposite number at General Motors, Mary Barra, has taken the unexpected step of reversing a plan to retire the affordable Chevy Bolt EV. In Europe, carmakers like Volkswagen are building smaller, cheaper EVs. Tesla is said to be planning a compact model made in Mexico. The pressure is partly coming from competition. Felipe Munoz of Jato Dynamics, a car consultancy, says China prizes battery efficiency above bigness and is hoping to muscle in on overseas markets with lighter, cheaper brands, such as BYD. Innovation in batteries based on solid-state or sodium-ion chemistry may also make EVs more efficient. For the time being, drivers with money to splurge will no doubt relish flaunting their low-carbon credentials from the vantage point of a large SUV or monster truck. And so they should—until they realise that they may be making electrification less accessible to the rest of humanity. ■Read more from Schumpeter, our columnist on global business:Meet America’s most profitable law firm (Aug 2nd)Why Walmart is trouncing Amazon in the grocery wars (Jul 24th)Hollywood’s blockbuster strike may become a flop (Jul 19th)Also: If you want to write directly to Schumpeter, email him at [email protected]. And here is an explanation of how the Schumpeter column got its name. More

ON AUGUST 6TH Yellow, one of America’s biggest trucking firms, declared bankruptcy and announced it would wind down operations after 99 years in business. It collapsed under the weight of falling sales and a mountain of debt. That is a heavy blow for its owners and 30,000 staff. It is also emblematic of a sharp reversal taking place in the American logistics industry.Beginning in 2020 lavish stimulus cheques, combined with a lockdown-induced squeeze on services spending, led American consumers to splurge on goods. Appliances, cars and furniture clogged up ports, warehouses and truck depots. Online deliveries surged as shoppers shunned stores, adding to demand. As consumers groaned over lengthy delays, revenues in the logistics industry soared, increasing by roughly a third between the start of 2020 and mid-2022, according to America’s Census Bureau. Firms in the industry hired 1m workers and built 1.8bn square feet (nearly three Manhattans) of new storage space on hopes that the frothiness would continue.Now, as the forces that fuelled its rise fizzle out, America’s logistics boom is turning to bust. Consumers are trading the material for the experiential, opting to splash out on holidays and hospitality rather than Hoovers. Goods spending, adjusted for inflation, has stagnated, leaving retailers with excess inventories. Consumers are also returning to physical stores, reducing the number of miles their goodies need to travel to reach them. Revenues in the logistics industry have now clocked up three consecutive quarter-on-quarter declines (see chart). The Cass Freight Index, a measure of rail and truck activity, is down by 5% over the past year. The volume of goods flowing through American ports in July was 14% lower than in the same month last year, according to Descartes, a supply-chain-technology company.As demand has slumped, so, too, have prices. The cost of “dry van” shipping—the most common way to transport non-perishable goods on the road—is 21% lower than in early 2022, according to DAT Freight & Analytics, a logistics-data provider. That, in turn, is squeezing margins and putting less competitive firms out of business. Some 20,000 truck operators, nearly 3% of the national total, have ceased activity since mid-2022, says ACT Research, another data provider.Those that have survived are shedding staff. American parcel-delivery firms have jettisoned 38,700 workers since October last year when employment in the sector peaked, based on data from the Bureau of Labour Statistics. Warehouse operators have cut 60,800. More retrenchments are likely to come, given the frenzied hiring of the past few years. Lay-offs in the industry have thus far fallen short of what one might expect given the stagnation in consumer spending, argues Aaron Terrazas, chief economist of Glassdoor, an employment portal. Having long suffered from labour shortages, many firms have been reluctant to lay off workers, reckons Tim Denoyer of ACT Research. Investments are being slashed, too. The number of warehouses under construction in America has fallen by 40% from a year ago, observes Prologis, a warehousing giant. Amazon, America’s biggest online retailer, doubled its warehouse footprint in the country during the pandemic. In the past year the e-empire has either postponed investments in, scrapped plans for or closed 116 properties, reckons MWPVL, a logistics consultancy. Troubles with unions are adding to the industry’s headache. Earlier this year dockworkers at several west-coast ports went on strikes linked to pay negotiations. UPS and FedEx, America’s two largest parcel-delivery businesses, have also faced unrest. Yellow’s management blames its collapse on the Teamsters union, which blocked a restructuring plan.Optimists hope the sector will start moving again in the second half of the year, once retailers finish clearing their excess inventories and start restocking their shelves. Analysts expect UPS, whose revenues have shrunk year on year for the past three quarters, to return to growth before the end of 2023. FedEx is expected to be growing again by next year. That may well come to pass, provided the American economy continues to be surprisingly strong. But it will be cold comfort for the businesses that will have gone bust along the way. ■To stay on top of the biggest stories in business and technology, sign up to the Bottom Line, our weekly subscriber-only newsletter. More

AMERICAN CHIPMAKERS account for a third of global semiconductor revenues. They design the world’s most sophisticated microprocessors, which power most smartphones, data centres and, increasingly, artificial-intelligence (AI) models. But neither the American firms nor their Asian contract manufacturers produce any such leading-edge chips in America. Given chips’ centrality to modern economies—and, in the age of AI, to warfighting—that worries policymakers in Washington. Their answer was the CHIPS Act, a $50bn package of subsidies, tax credits and other sweeteners to bring advanced chip manufacturing back to America, which President Joe Biden signed into law on August 9th 2022. On the surface, the law appears to be having an impact. Since 2020, when it was first floated, chipmakers have announced more than $200bn-worth of investments in America. If all goes to plan, by 2025 American chip factories (fabs, in the lingo) will be churning out 18% of the world’s leading-edge chips (see chart 1). TSMC, a Taiwanese manufacturing behemoth, is splurging $40bn on two fabs in Arizona. Samsung of South Korea is investing $17bn in Texas. Intel, America’s chipmaking champion, will spend $40bn on four fabs in Arizona and Ohio. As the CHIPS Act celebrates its first birthday, and as the administration prepares to start doling out the money, both Democrats and Republicans, who agree on little else these days, regard it as a bipartisan triumph.Any triumphalism may, however, be premature. Leading-edge fabs being built in America are slower to erect, costlier to run and smaller than those in Asia. Complicating matters further, the chipmakers’ American investment binge comes at a time when demand for their wares appears to be cooling, at least in the short term. That could have consequences for the industry’s long-term profitability.The Centre for Security and Emerging Technology, a think-tank, estimates that in China and Taiwan, companies put up a new plant in about 650 days. In America, manufacturers must navigate a thicket of federal, state and local-government regulations, stretching average construction time to 900 days. Construction, which makes up around half the capital spending on a new fab, can cost 40% more in America than it does in Asia. Some of that extra cost can be defrayed by the CHIPS Act’s handouts. But that still leaves annual operating expenses, which are 30% higher in America than in Asia, in part owing to higher wages for American workers. If those workers can be found at all: in July TSMC delayed the launch of its first fab in Arizona by one year to 2025 because it could not find enough workers with semiconductor industry experience.The planned American projects’ smallish size further undermines the economics. The more chips a fab makes, the lower the unit cost. In Arizona, TSMC plans to make 50,000 wafers a month—equivalent to two “mega-fabs”, as the company calls them. Back home in Taiwan, TSMC operates four “giga-fabs”, each producing at least 100,000 wafers a month (in addition to numerous mega-fabs). Morris Chang, TSMC’s founder, has warned that chips made in America will be more expensive. C.C. Wei, the current chief executive of TSMC, has hinted that the company will absorb these higher costs. He can afford to do this because TSMC will continue to make the lion’s share of its chips more cheaply in Taiwan, not in America. The same is true of Samsung, which will spend nearly 90% of its capital budget at home. Even Intel is investing more in foreign fabs than in American ones (see chart 2). As a result, if all the planned investments materialise, America will produce enough cutting-edge chips to meet barely a third of domestic demand for these. Apple will keep sourcing high-end processors for its iPhones from Taiwan. So, in all likelihood, will America’s nascent AI-industrial complex.The law may have unintended consequences, too. Chip firms which accept state aid are barred from expanding manufacturing capacity in China. Besides crimping the desire of firms like TSmc and Samsung, which have plenty of Chinese customers, to invest more in American fabs, such rules are prompting Chinese chipmakers to invest in producing less fancy semiconductors. The hope is that lots of older-generation chips can do at least some of what fewer fancier ones are capable of.According to SEMI, an industry research group, in 2019 China made about a fifth of “trailing-edge” chips, which go into everything from washing machines to cars and aircraft. By 2025 it will produce more than a third. In July NXP Semiconductor, a Dutch maker of trailing-edge chips, warned that excessive supply from Chinese firms is putting downward pressure on prices. In the long run, this could hurt higher-cost Western producers—or even drive some of them out of business. In July Gina Raimondo, America’s commerce secretary, acknowledged that China’s focus on the trailing edge “is a problem that we need to be thinking about”.Hardest to predict is the CHIPS Act’s effect on the semiconductor industry’s notorious boom-and-bust cycle. Usually chipmakers would be boosting capacity at a time of rising demand. Right now the opposite is true. Pandemic-era chip shortages have been replaced by a glut, now that consumers’ insatiable appetite for all things digital appears, after all, to be sated. TSMC’s sales declined by 10% in the second quarter, year on year, and the company now expects a similar drop for the whole of 2023. Intel’s revenue was down by 15% in the three months to June, compared with a year earlier. Samsung blamed a chips glut for its falling revenues and profits. Intel’s share price is half what it was at its recent peak in early 2021. Chip executives point out that prospects for their industry remain rosy. They are probably right that demand is bound to revive at some point. Yet “inventory adjustments” (reducing oversupply, in plain English) are taking longer than expected. And when inventories finally adjust, the business that emerges may be less lucrative. Since early 2021 Intel, Samsung and TSMC have lost a third of their combined market value, or nearly half a trillion dollars. A few more anniversaries may be needed before the CHIPS Act’s impact on American economic security can be properly evaluated. Investors are already making up their minds. ■ More

TEN MONTHS ago the spectre of recession was haunting corporate America. Inflation was rampant, earnings were depressed and the Federal Reserve was rapidly tightening the screws. Instead, inflation has moderated, the jobs market remains tight and recession is no longer a certainty. The prospect of an elusive “soft landing” has combined with hype over the productivity-boosting promise of artificial intelligence (AI) to give investors a fillip. This year the S&P 500 index of big American firms is up by nearly a fifth. Markets are especially bullish about a handful of tech firms and carmakers. These are among the s&p 500’s most ai-obsessed members, according to our early-adopters index (which takes into account factors such as ai-related patents, investments and hiring). And they have done well in the here and now, too: all reported respectable second-quarter results in the latest earnings season. But what about the health of the broad swathes of the American economy that are less affected by the tech hype? Here the picture is more complex, but ultimately reassuring. Start with the bad news. Some of the businesses least prepared for an AI future are suffering in the present, too. Health-care companies look sickly: UBS, a bank, estimates that their profits slumped by nearly 30% compared with last year (see chart). CVS Health, a chain of chemists (ranked 218th in our AI index), is slashing 5,000 jobs after its earnings sank by 37%. Energy firms made half as much money in the second quarter of 2023 as they did a year earlier, when Russia’s invasion of Ukraine pushed up oil and gas prices. With other commodity prices also down, in part owing to lacklustre appetite from a sluggishly growing China, materials firms’ profits are down by 30%. As a consequence, overall earnings for S&P 500 firms are estimated to have slid by 5% in the second quarter, year on year, according to FactSet, a data provider. That is the biggest decline since early in the pandemic. But the pain has mostly been concentrated in a few sectors. Dig into the numbers, and much of the non-AI economy looks surprisingly robust. Capital-goods manufacturers, such as Caterpillar and Raytheon (which come in 204th and 341st in our ranking), are reckoned to have collectively increased their revenues by more than 8% in the second quarter, and their profits by twice as much—perhaps thanks in part to President Joe Biden’s taste for industrial policy. Even the oil-and-gas giants are doing better than the headline numbers suggest. The largest of them, ExxonMobil (ranked 236th), made nearly $8bn in net profit. That is down by 56% year on year but, bar that record-breaking result in 2022, still ExxonMobil’s highest second-quarter figure in nearly a decade.The resilience is perhaps most obvious for businesses with fortunes tied to the condition of the American consumer, who remains in rude health. Pedlars of consumer staples, such as foodstuffs and household goods, saw their profits rise by 5%, year on year, according to UBS. For purveyors of non-staple consumer goods, earnings shot up by 40%. On August 1st Starbucks, a coffee-shop colossus (ranked 116th in our AI index), reported a quarterly operating profit of $1.6bn, up by 22%. The next day Kraft Heinz, a seller of ketchup and baked beans (ranked 253rd), said it made $1.4bn in operating profit, two and a half times what it eked out a year ago. Consumer-goods companies have managed to maintain pricing power. Confectioners, for example, are charging 11% more for chocolates than they did last year, according to the Bureau of Labour Statistics. Hershey (332nd) has offset the rising cost of cocoa—and then some. Its operating profit rose by 23%, to $561m. PepsiCo (245th) lifted prices of its soft drinks and snacks by 15% in the second quarter alone. Its operating profit bubbled up by three-quarters, to $3.7bn. It now expects to increase sales by 10% and net profit by 12% this year, up from an earlier forecast of 8% and 9%, respectively.Americans aren’t just spending on sweets and cola. Air travel is recovering rapidly, particularly for international trips. American Airlines (266th in our AI index), Delta Air Lines (193rd) and United Airlines (183rd) collectively reported net profits of $4.2bn last quarter, the most since 2015. Hotels, inundated with leisure and business travellers, enjoy strong pricing power. Hilton, a chain (ranked a lowly 421st), said that its revenue per available room, a preferred industry measure, was up by 12%, year on year.How long can the bonanza last? Shoppers are gradually drawing down the savings they accumulated during the pandemic, when they received stimulus cheques from the government but lacked ways to spend them. Between August 2021 and May this year, households spent over $1.5trn of these savings, according to the Federal Reserve Bank of San Francisco. At that rate they will burn through the $500bn or so they still have before the end of the year. Although unemployment remains near historic lows, at 3.5% in July, wage growth has slowed. The resumption of student-loan repayments in October, after the Supreme Court struck down Mr Biden’s plan to cancel some student debts altogether, could see consumer spending fall by as much as $9bn a month, according to Oxford Economics, a consultancy. If rising interest rates eventually curb demand, firms will find it harder to continue raising prices, leaving margins more vulnerable. Higher rates will also knock companies with weak balance-sheets. In the first half of this year 340 companies covered by S&P Global, a credit-rating agency, declared bankruptcy, the highest number since 2010. More could suffer a similar fate, especially if a recession does hit. That is not completely out of the question. Goldman Sachs, a bank, thinks there is a 20% chance of a recession in America in the next 12 months. Citigroup, another lender, expects a downturn at the start of 2024. If that happens, not even the AI-friendliest of firms will emerge completely unscathed. ■To stay on top of the biggest stories in business and technology, sign up to the Bottom Line, our weekly subscriber-only newsletter. More

The covid-19 pandemic has, thanks to Zoom, killed off many work trips. But not all of them. Some in-person meetings far afield are coming back. And so is business flying. Plenty of obvious edicts of air-travel etiquette are effortlessly acquired, along with air miles, merely by flying frequently. As a sophisticated traveller, you probably know the drill by heart. Still, air-rage incidents are up markedly compared with pre-pandemic times—by 50% in America and a whopping 200% in Britain. Some people could do with a refresher.Many rules of aeroplane decorum apply to all travel. But as a business traveller, you represent not just yourself but also your employer, whose logo you may well be sporting on your jacket or laptop bag. So hewing to them is critical. They begin to apply before you board the aircraft. Arrive at the gate early and in style—do not run for your life only to be panting embarrassingly or even worse, hold the plane and make 200 people wait for you while you are browsing gadgets at Duty Free. Queue-cutters and pushers have their own place in hell.Once on board, remember the basics. Do not keep your headphones on when spoken to, make a fuss when you are told that chicken tikka is finished or, heaven forbid, perform any personal grooming in public. Bare feet on the seat or bulkhead are a no-no. Aggressive typing on your laptop is, too. Manspreading and “galley yoga” in the flight attendants’ work area are to be avoided. Be wary of booze. Alcohol’s effects are more pronounced 30,000 feet above ground, even in a pressurised cabin, because of lower oxygen levels. If you tend to feel nauseous when cabin pressure changes during take-off and landing, avoid the vodka during the flight. Unruly, entitled passengers tend to be boozing passengers—and vice versa. You don’t want to become a TikTok sensation, and nor does your employer. Cabin crew, trained to be courteous and professional, should be matched in tone. Economy class is the trickiest. As airlines are packing more seats on planes in coach, legroom is scarce and your own meal tray is encroaching on your space. This does not excuse putting your feet up on tray tables, slamming back your seat when you recline or handing the flight attendants rubbish while they are distributing food. Overhead bins are meant to be shared. So are armrests. You have no control over who sits next to you but you have agency. If you find yourself elbow to elbow with Chatty Cathy, it is alright to say “excuse me” and slip on your noise-cancelling headphones. You should probably avoid working on anything remotely sensitive. As your company’s chief of security no doubt regularly reminds you, some people are nosy. Even those who aren’t may inadvertently sneak a peek at your spreadsheet. Take the time to think about strategy or read that management book you have been meaning to for months. Corporate dress codes may have relaxed but opt for transatlantic athleisure only if you have time to change before heading to your meeting after you land. Boarding the red-eye in pyjama bottoms is not OK. Elasticated waistbands are acceptable. Yoga pants and flip-flops are not; they clash with the spirit of work—especially if colleagues and clients might be on the same flight. And you never know whom you might run into at the luggage carousel.For those lucky enough to work for firms with fat travel budgets, business class helps attenuate these problems. You can work more freely and never need to kick the seat in front of you to let the passenger in the row ahead know they are reclining too comfortably (which, incidentally, you shouldn’t do in economy either). Even so, remember you are not alone. Do not violate other passengers’ personal space with your body, voice (just because you are a senior vice-president at Goldman Sachs does not mean others want to listen to your phone conversation while you board) or odour (splash on your hypnotic sandalwood cologne in moderation).Most of these challenges are eliminated if you fly first class. You get a personal suite, à la carte dining, vintage champagne and, on some flights, doorstep baggage pick-up, check-in and drop-off by airline employees (though even that probably doesn’t excuse flip-flops). Or so this guest Bartleby is told. When she suggested corroborating it herself for the purposes of research, her request was regrettably denied. You will have to work this part out on your own. Fasten your seatbelt, and enjoy the flight. ■ More

THREE YEARS AGO, as lockdowns forced consumers to move much of their spending online, a golden age for e-commerce appeared to be dawning. Optimistic investors, convinced that shoppers would keep buying on the internet, lifted valuations of e-merchants to frothy heights. Retailers old and new raced to expand delivery networks.Today those heady days look like a distant memory. On August 3rd Amazon, the world’s largest online retailer, reported 11% year-on-year growth for the second quarter of the year, excluding its cloud-computing division. That was better than expected—and provoked a roughly 10% jump in the company’s share price. Yet it was a fraction of the 42% sales growth that Amazon reported for the same quarter in 2020, and slower than the giant’s pre-pandemic trend. The same day Wayfair, an online purveyor of furniture that surged amid covid-19, reported its ninth consecutive quarter of declining sales.A slowing economy is only partly to blame for the reversal. After spiking in early 2020, the online share of retail spending in America has remained stagnant at around 15%, roughly what it would have been had the pre-pandemic trend continued uninterrupted (see chart). The story is much the same in Britain, France and Germany, according to figures from Euromonitor, a market-research firm.In certain categories, including clothing and furniture, e-commerce penetration in America has tumbled from its pandemic peak, according to TD Cowen, an investment bank. Consumers have flocked back to physical stores to inspect their dresses and dressers in person. The share of American grocery shopping online, which jumped from 4% in 2019 to 7% in 2020, is still edging up—but at a statelier pace. Last year it reached 9%. Many shoppers, it seems, still cherish the human interaction of the till or the butcher’s counter. Few appreciate the squashed or under-ripe produce that arrives in the delivery van, or luck-of-the-draw substitutes for ordered fare that was out of stock. Retailers, for their part, struggle with the tricky economics of selling groceries online. Grocery is a business with wafer-thin operating margins of between 2% and 4%, according to Bain, a consultancy. Adding the cost of personnel picking products from store shelves and drivers ferrying them to customers quickly turns it into a loss-making endeavour. Relying on automated fulfilment centres instead of stores helps only a little; Ocado, a British online grocer following that strategy, oscillates between losses and the slimmest of profits.One solution, notes Stephen Caine of Bain, is to boost margins by selling advertising; plenty of advertisers are happy to pay to show off their wares to e-shoppers. Last year Amazon generated $38bn of sales that way, some 9% of its total, excluding cloud computing. Yet most retailers, Amazon included, rely on added delivery fees to make online grocery delivery stack up. That, in turn, slows adoption. Fully 47% of Americans would do more of their grocery shopping online if delivery fees were lower, according to one survey by McKinsey, another consultancy.For now, much of the growth in online grocery shopping will be in kerbside pickup, reckons Mr Caine, with customers collecting pre-picked goodies from stores to save on delivery fees. Amazon’s $14bn acquisition of Whole Foods, a posh supermarket, in 2017 was an admission that physical stores would remain central to the grocery business for the foreseeable future. Brick-and-mortar retailers, with their vast store networks, continue to dominate the category. Walmart, the mightiest of them all, sells 17% of Americans’ groceries, according to GlobalData, a research firm. Amazon’s share is less than 2%.Meanwhile, competition in more mature areas of e-commerce is heating up. Shein, a Chinese online fast-fashion retailer popular with Gen Z shoppers in the West, is expanding into things like electronics and furniture. This year it launched a marketplace for third-party sellers. Its mobile app already has a third as many monthly active users in America as Amazon’s. Temu, a tendril of Pinduoduo, a rising e-commerce star in China, has also grown rapidly since launching in America last year.Another challenge comes from TikTok, a Chinese-owned short-video app beloved of youngsters. To monetise its users’ hours of scrolling, TikTok lets businesses squeeze ads and live demonstrations into their feeds, with links to purchase products without leaving the app. This model of “shoppable entertainment”, as TikTok calls it, has fuelled the success of Douyin, its sister app in China. Douyin now sells more clothes and accessories than Tmall, the Chinese e-commerce platform operated by Alibaba, a local tech champion.TikTok harbours similar ambitions in the West. Last October it was reported to be readying its own fulfilment network in America. Rumours are swirling that it will soon begin purchasing products from China and selling them to consumers itself; an experiment is already under way in Britain. TikTok’s aspirations would be thwarted if the American government bans it outright on national-security grounds, which many politicians are calling for. In that event, Reels, a TikTok lookalike offered by Meta, a homespun tech giant, could perhaps take the place of the disruptor.A final challenge to the West’s e-commerce incumbents is brands’ growing appetite for selling directly to consumers. Euromonitor reckons that direct-to-consumer sales now account for 16% of e-commerce, a share that has quadrupled over the past eight years. More access to shoppers’ data helps brands to speed up innovation, notes Michelle Evans of Euromonitor. By cutting out the middleman, it also often improves margins. Shopify, a Canadian e-commerce platform, has built a booming business selling tools to make it easy for companies to build online shops. On August 2nd the firm reported an Amazon-trouncing 31% year-on-year growth for the second quarter. Well-known brands like Nike, a sportswear heavyweight, are among those to have embraced the trend. Direct-to-consumer sales have risen from 17% to 42% of its total revenue over the past decade, with more than half of those sales generated online. Upstart brands such as Allbirds and Casper, makers of shoes and mattresses, respectively, have also shunned traditional wholesale arrangements, harnessing the web to sell to customers directly. More recently, though, the newcomers have been opening physical outposts for consumers to touch and feel products. The digitally native brands, too, may be preparing for a world without much more e-commerce. ■ More