Economy

Eighteen months ago, the online used car retailer Carvana had such great prospects that it was worth $80 billion. Now it is valued at less than $1.5 billion, a 98 percent plunge, and is struggling to survive.Many other tech companies are also seeing their fortunes reverse and their dreams dim. They are shedding employees, cutting back, watching their financial valuations shrivel — even as the larger economy chugs along with a low unemployment rate and a 3.2 percent annualized growth rate in the third quarter.One largely unacknowledged explanation: An unprecedented era of rock-bottom interest rates has abruptly ended. Money is no longer virtually free.For over a decade, investors desperate for returns sent their money to Silicon Valley, which pumped it into a wide range of start-ups that might not have received a nod in less heady times. Extreme valuations made it easy to issue stock or take on loans to expand aggressively or to offer sweet deals to potential customers that quickly boosted market share.It was a boom that seemed as if it would never end. Tech piled up victories, and its competitors wilted. Carvana built dozens of flashy car “vending machines” across the country, marketed itself relentlessly and offered very attractive prices for trade-ins.“The whole tech industry of the last 15 years was built by cheap money,” said Sam Abuelsamid, principal analyst with Guidehouse Insights. “Now they’re getting hit by a new reality, and they will pay the price.”Cheap money funded many of the acquisitions that substitute for organic growth in tech. Two years ago, as the pandemic raged and many office workers were confined to their homes, Salesforce bought the office communications tool Slack for $28 billion, a sum that some analysts thought was too high. Salesforce borrowed $10 billion to do the deal. This month, it said it was cutting 8,000 people, about 10 percent of its staff, many of them at Slack.Even the biggest tech companies are affected. Amazon was willing to lose money for years to acquire new customers. It is taking a different approach these days, laying off 18,000 office workers and shuttering operations that are not financially viable.Carvana, like many start-ups, pulled a page out of Amazon’s old playbook, trying to get big fast. Used cars, it believed, were a highly fragmented market ripe for reinvention, just the way taxis, bookstores and hotels had been. It strove to outdistance any competition.The company, based in Tempe, Ariz., wanted to replace traditional dealers with, Carvana said grandly, “technology and exceptional customer service.” In what seemed to symbolize the death of the old way of doing things, it paid $22 million for a six-acre site in Mission Valley, Calif., that a Mazda dealer had occupied since 1965.More on Big TechLayoffs: Some of the biggest tech companies, including Alphabet and Microsoft, have recently announced tens of thousands of job cuts. But even after the layoffs, their work forces are still behemoths.A Generational Divide: The industry’s recent job cuts have been eye-opening to young workers. But to older employees who experienced the dot-com bust, it has hardly been a shock.Supreme Court Cases: The justices are poised to reconsider two crucial tenets of online speech under which social media networks have long operated.In the Netherlands: Dutch government and educational organizations have spurred changes at Google, Microsoft and Zoom, using a European data protection law as a lever.Where traditional dealerships were literally flat, Carvana built multistory car vending machines that became memorable local landmarks. Customers picked up their cars at these towers, which now total 33. A corporate video of the building of one vending machine has over four million views on YouTube.In the third quarter of 2021, Carvana delivered 110,000 cars to customers, up 74 percent from 2020. The goal: two million cars a year, which would make it by far the largest used car retailer.An eye-catching Carvana car vending machine in Uniondale, N.Y.Tony Cenicola/The New York TimesThen, even more quickly than the company grew, it fell apart. When used car sales rose more than 25 percent in the first year of the pandemic, that created a supply problem: Carvana needed many more vehicles. It acquired a car auction company for $2.2 billion and took on even more debt at a premium interest rate. And it paid customers handsomely for cars.But as the pandemic waned and interest rates began to rise, sales slowed. Carvana, which declined to comment for this article, did a round of layoffs in May and another in November. Its chief executive, Ernie Garcia, blamed the higher cost of financing, saying, “We failed to accurately predict how all this will play out.”Some competitors are even worse off. Vroom, a Houston company, has seen its stock fall to $1 from $65 in mid-2020. Over the past year, it has dismissed half of its employees.“High rates are painful for almost everyone, but they are particularly painful for Silicon Valley,” said Kairong Xiao, an associate professor of finance at Columbia Business School. “I expect more layoffs and investment cuts unless the Fed reverses its tightening.”At the moment, there is little likelihood of that. The market expects two more rate increases by the Federal Reserve this year, to at least 5 percent.In real estate, that is trouble for anyone expecting a quick recovery. Low rates not only pushed up house prices but also made it irresistible for companies such as Zillow as well as Redfin, Opendoor Technologies and others, to get into a business that used to be considered slightly disreputable: flipping houses.In 2019, Zillow estimated it would soon have revenue of $20 billion from selling 5,000 houses a month. That thrilled investors, who pushed the publicly traded Seattle company to a $45 billion valuation and created a hiring boom that raised the number of employees to 8,000.Zillow’s notion was to use artificial intelligence software to make a chaotic real estate market more efficient, predictable and profitable. This was the sort of innovation that the venture capitalist Marc Andreessen talked about in 2011 when he said digital insurgents would take over entire industries. “Software is eating the world,” he wrote.In June 2021, Zillow owned 50 homes in California’s capital, Sacramento. Five months later, it had 400. One was an unremarkable four-bedroom, three-bath house in the northwest corner of the city. Built in 2001, it is convenient to several parks and the airport. Zillow paid $700,000 for it.Zillow put the house on the market for months, but no one wanted it, even at $625,000. Last fall, after it had unceremoniously exited the flipping market, Zillow unloaded the house for $355,000. Low rates had made it seem possible that Zillow could shoot for the moon, but even they could not make it a success.Ryan Lundquist, a Sacramento appraiser who followed the house’s history closely on his blog, said Zillow realized real estate was fragmented but perhaps did not quite appreciate that houses were labor-intensive, deeply personal, one-to-one transactions.“This idea of being able to come in and change the game completely — that’s really difficult to do, and most of the time you don’t,” he said.Zillow’s market value has now shrunk to $10 billion, and its employee count to around 5,500 after two rounds of layoffs. It declined to comment.The dream of market domination through software dies hard, however. Zillow recently made a deal with Opendoor, an online real estate company in San Francisco that buys and sells residential properties and has also been ravaged by the downturn. Under the agreement, sellers on Zillow’s platform can request to have Opendoor make offers on their homes. Zillow said sellers would “save themselves the stress and uncertainty of a traditional sale process.”That partnership might explain why the buyer of that four-bedroom Sacramento house, one of the last in Zillow’s portfolio, was none other than Opendoor. It made some modest improvements and put the house on the market for $632,000, nearly twice what it had paid. A deal is pending.“If it were really this easy, everyone would be a flipper,” Mr. Lundquist said.An Amazon bookstore in Seattle in 2016. The store is now permanently closed.Kyle Johnson for The New York TimesThe easy money era had been well established when Amazon decided it had mastered e-commerce enough to take on the physical world. Its plans to expand into bookstores was a rumor for years and finally happened in 2015. The media went wild. According to one well-circulated story, the retailer planned to open as many as 400 bookstores.The company’s idea was that the stores would function as extensions of its online operation. Reader reviews would guide the potential buyer. Titles were displayed face out, so there were only 6,000 of them. The stores were showrooms for Amazon’s electronics.Being a showroom for the internet is expensive. Amazon had to hire booksellers and lease storefronts in popular areas. And letting enthusiastic reviews be one of the selection criteria meant stocking self-published titles, some of which were pumped up with reviews by the authors’ friends. These were not books that readers wanted.Amazon likes to try new things, and that costs money. It took on another $10 billion of long-term debt in the first nine months of the year at a higher rate of interest than it was paying two years ago. This month, it said it was borrowing $8 billion more. Its stock market valuation has shrunk by about a trillion dollars.The retailer closed 68 stores last March, including not only bookstores but also pop-ups and so-called four-star stores. It continues to operate its Whole Foods grocery subsidiary, which has 500 U.S. locations, and other food stores. Amazon said in a statement that it was “committed to building great, long-term physical retail experiences and technologies.”Traditional book selling, where expectations are modest, may have an easier path now. Barnes & Noble, the bricks-and-mortar chain recently deemed all but dead, has moved into two former Amazon locations in Massachusetts, putting about 20,000 titles into each. The chain said the stores were doing “very well.” It is scouting other former Amazon locations.“Amazon did a very different bookstore than we’re doing,” said Janine Flanigan, Barnes & Noble’s director of store planning and design. “Our focus is books.” More

US Treasury secretary Janet Yellen called on China to agree to a rapid restructuring of loans to Zambia, saying Beijing was a “barrier” to ending the debt crisis in the southern African nation.Yellen, speaking in the Zambian capital Lusaka on Monday as part of her 10-day tour of Africa, said she hoped for progress from China on a deal that had “taken far too long already to resolve”.Africa’s second-largest copper producer defaulted on $17bn of debt in 2020. The attempts to restructure the debts will define how China, the biggest creditor to the developing world, responds to a wave of defaults.Zambian president Hakainde Hichilema’s government owes more than a third of the debt to Chinese creditors, but has heard little back from Beijing on specific terms for reducing the loans, despite an agreement in principle last year to provide relief alongside other lenders.“I know the Chinese have been a barrier to concluding the negotiations,” Yellen said, adding that she had “specifically raised the issue of Zambia and asked for [Chinese] co-operation in trying to reach a speedy resolution” when she met Liu He, Xi Jinping’s main economic tsar, last week. “Our talks were constructive,” she said.The former Federal Reserve chair has already visited Senegal and will next travel to South Africa, as the US seeks to rebuild economic and trade ties in the region in the wake of the inflationary fallout from Russia’s war in Ukraine and debt crises linked to Beijing’s lending.Without a restructuring Zambia in particular cannot access a $1.3bn bailout from the IMF needed to reboot its economy. Kristalina Georgieva, the fund’s managing director, was also in Lusaka, where she is pushing for a meeting of major creditors, including China, to tackle the slow progress in resolving defaults across the developing world.Zambia’s economy remains weakened by the 2020 default’s long legacy, providing a warning for countries such as Sri Lanka and Ghana that can no longer afford to pay back debts and owe a significant chunk of their borrowings to China.Zambia’s president said on Monday that he was hoping for a debt deal by the end of the first quarter of this year.Yellen’s visit is the first of several African tours by US officials this year that will highlight painful economic fallout from a surge in infrastructure lending that Beijing extended to the continent in the last decade.Analysts have said that Zambia’s restructuring has been held back by a lack of experience and co-ordination among the several Chinese state and development banks that lent to projects such as hydropower dams, highways and airports that then soured.A restructuring that will enable Zambia to emerge from default is a “top priority” for the US and “we will continue to press for all official bilateral and private sector creditors to meaningfully participate in debt relief for Zambia, especially China”, Yellen said. More

The UK energy regulator Ofgem is to investigate suppliers forcibly switching vulnerable customers to prepayment meters. Jonathan Brearley, chief executive of Ofgem, said on Monday that the regulator did not have legal powers to completely ban forced installations of prepayment meters but it would examine companies’ “checks and balances” and act against those who “do not take due care”.Most customers pay for their power after use but energy providers can force people on to more expensive prepaid meters when they fall behind with regular payments. The number of people who have been moved on to prepayment tariffs has risen sharply as they grapple with soaring energy bills and the cost of living crisis.Brearley’s comments came after Grant Shapps, the business secretary, told suppliers over the weekend that they should voluntarily end the practice of switching households to prepayment meters or face being “named and shamed”. Companies should be offering credit or debt advice, with pre-pay installations a last resort, he said.Speaking at an event held by the Institute for Government think-tank, Brearley also called for a “serious assessment” of a cheaper social tariff for low-income households, which would mean those that were least able to pay were charged a lower price for their power. Current rules require suppliers to explore the financial help on offer or carry out appropriate assessments before they can forcibly install prepayment meters or remotely switch a household’s smart meter to a pre-pay tariff.But Brearley said some people were being moved “without even knowing about it”. He cited an example of a customer in Glasgow who “left to go on holiday and returned to find he’d been switched to pre-pay without his knowledge and had no way to top up”. “Although there is good practice in many places, no company came through [in initial investigations] without needing to improve and all have been required to submit plans to meet the standards we set,” Brearley said.The government has introduced an energy price guarantee scheme aimed at restricting a typical household bill to about £2,500 a year until the end of March, and to about £3,000 until spring 2024.Although wholesale gas prices have been falling, Brearley said it was unlikely that prices would return to pre-pandemic levels and that new approaches were needed in Britain’s energy sector.Energy UK, which represents the industry, said: “Suppliers are already required to have exhausted all other options before installing a prepayment meter by warrant.”

The comments came as National Grid confirmed on Monday that it was planning to pay some households that use smart meters to use less power today and tomorrow in what will be the first time it has used a new scheme designed to help prevent power shortages.More than a million households and business are signed up to the Demand Flexibility Service, which rewards people, usually via money off their bills, for turning off appliances such as ovens and dishwashers during a specific period when electricity demand is high.The service is expected to run from 5pm to 6pm on Monday and between 4.30pm and 6pm on Tuesday. National Grid ESO said its announcement should not be interpreted as a sign that electricity supplies are at risk. A separate measure, calling on coal-fired power plants to fire up as back up power has been stood down for Monday evening, although one of them is on standby for Tuesday. More

The writer is a senior fellow at the Malcolm H Kerr Carnegie Middle East Center in BeirutAt first glance, the new loan agreement between the IMF and Egypt, announced on January 10, is as broad and ambitious as it is welcome. In addition to measures addressing the country’s worsening currency crisis and deepening debt, the government in Cairo promises a major restructuring of the shares of the public and private sectors in the economy. It still envisages retaining — and actually increasing — the state’s majority footprint in sectors that currently receive the lion’s share of investment, including real estate and transport. Nevertheless, were the government to make good on its promises, the effect would be greater than that of the privatisation process launched in 1991. Indeed, it could unleash the most significant transformation in Egypt since the “socialist decrees” that nationalised nearly the entire economy in 1961. The commitments made to the IMF draw on a new state ownership policy drawn up by the government last year. The document promises that the state will wholly exit up to 79 economic sectors and partially exit some 45 others within three years, and increase private sector participation in public investments from 30 to 65 per cent.Remarkably, a policy that could have far-reaching implications for the Egyptian economy apparently emerged from a mere three months of closed consultation between a limited number of government officials, members of parliament and private sector business leaders. Moreover, while the proposed changes promise real gains, they also pose a threat to powerful institutional actors and interest groups. Yet neither the government nor Egypt’s president, Abdel Fattah al-Sisi, have publicly prepared the ground to defuse the inevitable pushback or win over key constituencies. The fact Sisi has approved the new state ownership policy formally does not alter matters. His immediate purpose was clearly to clinch the agreement with the IMF in the hope that this would unlock an additional $14bn in credit from other international sources. But the president’s public pronouncements and formal decrees over the past few years reveal a fundamentally different purpose: to capitalise state-owned enterprises and assets such as infrastructure with injections of private funds, while leaving them in state hands. New legislation authorises state-owned providers of services and utilities to “monetise and trade their future revenues for sale to investors”, and allows the private sector to manage government-funded projects and public works. At the same time, the president is moving a growing list of state assets from government hands to the control of an expanding number of newly established bodies that answer directly to him. One of these is the sovereign wealth fund, which has emerged as Sisi’s preferred vehicle for attracting private capital, rather than floating state companies freely on the stock exchange. His endorsement of the state ownership policy is a misdirection, therefore, which he may nonetheless use to disguise his actual strategy. The discrepancy between promise and reality will become most apparent in relation to the large share of public goods and services provided by military companies and agencies. The Egyptian government has told the IMF it will subject these to the same regulatory framework as their civilian public sector counterparts. However, not only is the military in the midst of a multiyear expansion that shows no sign of abating, it has in fact continued expanding in sectors the state is supposed to be leaving. All this may seem to put the policy framework agreed with the IMF in doubt, but the fact is that both sides need an agreement that looks good even though neither has the will nor capacity to enforce it. That significant leakages will occur is virtually written in. And foremost among these will be the non-enforcement of provisions concerning the military. The military may not have to fight hard to preserve its economic stake this time: if the past is any guide, the government will prevaricate on its commitments to the IMF in any case. Whether other foreign partners, notably in the Gulf states, will be as forgiving is not as certain, however. For now, Sisi will not allow a serious rift with the military, in the hope that the government can be made to bear the burden of dealing with an increasingly unhappy Egyptian public and of pleading with foreign donors. But he cannot put off confronting them indefinitely. More

I was recently asked on BBC’s Radio Four whether American “protectionism” was bipartisan. I replied that while I understand why Europeans in particular see things like the Biden Administration’s Inflation Reduction Act as isolationist or self-interested (in the sense that the US is giving subsidies for Made in America goods), I don’t see efforts to rebuild the industrial commons in the US as protectionist. In fact, I see it as a crucial part of how the US can help allies by strengthening itself, economically and politically. Let’s put aside the fact that anything that gets the US to move more quickly towards clean energy (as the IRA does) should be applauded by Europeans. Rather, let’s focus on the fact that the subsidies are being given for greenfield technologies (like electric vehicles and their components) in which there is plenty of room for more production in both the US and Europe. That’s one of the reasons that I’m also in support of any European subsidies in areas like semiconductors, lithium batteries, etc. We need a LOT more of this stuff, in many more places, ASAP.What’s more, Europeans should understand that both sides of the aisle in the US are increasingly moving away from the neoliberal system and its laissez-faire approach. In fact, they are even finding common ground in doing so, as witnessed by the National Development Strategy and Coordination Act, put out by Florida’s Republican senator Marco Rubio and California’s Democratic congressman Ro Khanna late last year. While the legislation has been overshadowed by holiday travel debacles and now the debt ceiling, I think it’s a strong indicator of where both parties are going on industrial strategy. I’d be surprised if there wasn’t a larger bipartisan coalition supporting it in the next few months. The bill, which was crafted by Cornell law professor Robert Hockett, would force all cabinet level agencies to identify weaknesses in their supply chains, and also discuss industrial vulnerabilities in the US across agencies. This goes some way towards creating the sort of whole-of-government approach to supply chains that I’ve advocated for in past columns.That sort of approach gives government more power to decide what the nation actually needs to underwrite, which is something that progressives like myself and Hockett (who has worked for both senators Bernie Sanders and Elizabeth Warren) would like to see. But it’s also a clever way to offer conservatives a chance to get rid of bureaucratic waste. As Rubio’s office pointed out to me, “we have 118 credit facilities across multiple agencies” in the US. It’s possible that just as private sector supply chain analysis is lifting the scrim on corporate misbehaviour (a topic I wrote about here), you could see a top-down government analysis of supply chains and procurement financing be a smart, transparent way of eliminating waste. That’s something any self-respecting Republican can get behind.But how to convince allies that this effort is in everyone’s self interest? This gets to the heart of the transatlantic challenge. President Biden cares very deeply about two things — Made in America, and the US’s allies. Those things have been in tension. But they needn’t be. Indeed, historically, they haven’t been. Think about Alexander Hamilton, whose industrial policy was at the heart of the success of the early American republic. He was influenced, as Hockett points out, by European thinkers and leaders like Jean-Baptiste Colbert and his ideas about nation building. And Hamilton likewise influenced people like the German economist Georg Friedrich List.Development is an ongoing process, one that nations shape together. There’s no reason why the US and the EU can’t have a more constructive discussion about how to come together to support industrial policy for a post-neoliberal era in ways that are win-wins for all. I’d love to see continued discussion about a mutual price on carbon, for example, which would go a long way towards combating Chinese mercantilism — a risk for both regions. (Germany is at risk of making the same mistake with its own industrial commons that the US did 20 years ago.) Or a transatlantic tracking of critical supply chains across industries, which could help shape a mutually beneficial discussion about what really is crucial for states to support in terms of the technology sector, and what isn’t.Gideon, I know you’ve been quite sceptical of industrial policy in the past. But, do you see ways to bring the US and the EU (which certainly has plenty of its own policies) together on this issue? Recommended Reading This NYT deep dive on Hunter Biden is good, but it buries the lead (and in fact, the only thing you really need to know) on the bottom of the first column of the jump page (yep, I still read long form in print): “Despite their years of efforts — including Mr. Trump’s attempt to muscle Ukraine into helping him sully the Bidens, an escapade that led to his first impeachment — Republicans have yet to demonstrate that the senior Mr Biden was involved in his son’s business deals or took any action to benefit him or his foreign partners.”Nicholas Lemann’s piece in the Washington Monthly is spot on about the shifts in the American political economy. This Big Read by the FT’s Patrick McGee, on whether Apple can disentangle itself from China, is a wonderful analysis of the pickle that the US tech giant is in. For years, it has depended on China for both production and profit. Now, decoupling is totally upending its business model. My wise colleague Tim Harford, aka the Undercover Economist, tells us what economic models get wrong about personal finance. I’ll be thinking about this a lot as I try to plan out my next few years’ personal finance trajectory.And finally, read my wonderful colleague Martin Wolf’s Weekend FT essay, which is based on his new book coming out in February about the challenge facing democratic capitalism. We don’t agree on everything (like trade dynamics, which I think are quite different for small European countries versus big free markets like the US or state-run systems like China) but his concerns about the tensions between the market system and democracy are worthy and well-stated. I’ll be ordering and reading this book with great interest.To coincide with Martin Wolf’s new book, The Crisis of Democratic Capitalism, publication, join Martin and other thought leaders online for a subscriber-exclusive event on January 31. Register for free here.Gideon Rachman responds Rana, I certainly take your point about the growing bipartisan consensus around industrial policy in the US. In fact, I recently heard Jared Kushner make very similar arguments to the ones you’ve just made. Guess where that happened? Yes, Davos! But let’s not revisit that argument.You are right that I am sceptical about industrial policy. I think I may be an example of that old saying (but who said it, Swampians?) that if you want to understand somebody’s worldview, you have to know what was happening in the world when they were 20.I was 20 in 1983 — just as the Thatcherism was taking wing in Britain. The liberal policies that she was pushing (I think you would call them neoliberal?) were a reaction to decades of failed industrial policy. Britain had subsidised all manner of “strategic” industries — cars, shipbuilding, the railways, coal. The results had been almost universally dreadful. Far from being worldbeaters, British industries were decrepit and plagued by strikes.Thatcher decided to get the state out of the business of “picking winners”. She decided that market forces should decide which businesses flourished and who should receive investment. “Privatisation”, pioneered by Thatcher, became a global trend. Forty years later, I still think that the reasons that Thatcher ditched industrial policy are broadly correct. Government bureaucrats should not be picking winners. Not only do they waste taxpayers’ money, they also distort the economy. The key to success (at least initially) becomes your ability to attract government money, rather than to design a product that the market genuinely wants. Concentrating investment power in the hands of the government is also an invitation to corruption.And those are just the domestic effects. Internationally, the spread of industrial policy spells disaster for companies based in small countries that cannot match the financial and subsidy power of the US — or China for that matter. That is a major reason why the EU has cracked down on state-aid and subsidies within its 27-member Union. If they were allowed, it would mean that Germany and France could always crush competitors in smaller EU countries. And an EU-wide subsidy regime would immediately degenerate into a fight over which countries’ companies got the cash.So, to summarise, you ask is there a way for Europe and the US to co-operate on industrial policy? I don’t know. But I sincerely hope not.Your feedback  And now a word from our Swampians . . . In response to “Celebrity speed dating in Davos”:“I wonder if anyone has calculated the total cost of this huge gathering of who’s who in this world . . . In the case of firms/private individuals they would have to figure out whether this venture was worth the time and the cost. As far as country representatives are concerned this kind of scrutiny would be evaluated in less numerical terms and it would be difficult to find what these costs actually are. I doubt if anything concrete or binding is ever achieved. At most it is simply a tête-à-tête. So I get this feeling that it is nothing more than a huge party which you attend to boost your ego and most probably, at someone else’s expense.” — Ajay Doshi, Nairobi, KenyaEdward Luce is on book leave and will return in mid-February. More

Hello from Trade Secrets. I have no views on Leopard tanks or their deployment, so if you’re looking for respite from that particular debate, take a seat. In other transatlantic tensions news, much chatter at Davos last week over — what else? — the electric vehicle tax credits in Joe Biden’s Inflation Reduction Act. First up, bellwether senator Joe Manchin of West Virginia said he hadn’t been aware the EU didn’t have a trade deal with the US and hence wasn’t eligible for some of the credits. Expert opinion was divided on whether Manchin was saying this for effect or really hadn’t known. Second, the EU side sounded more emollient than before, at least in private, perhaps finally giving up on battering open the door to the tax credit and instead concentrating on sneaking through the window. Third, businesses seemed pretty keen on the IRA, no doubt in some cases as the potential recipients of largesse.In today’s main pieces, I look at how the World Trade Organization is ruling itself out as a forum to address the said subsidy row, but I will first address the weakness of corporate morality regarding divestment from Russia. Today’s Charted waters looks at how these disrupted times have failed to floor international trade.No one’s Russian for the exitsA thought-provoking and disturbing paper has emerged from the formidable duo of Simon Evenett and Niccolò Pisani, respectively of the St Gallen university and the IMD business school in Switzerland. You might remember a great flurry of activity (or at least of announcement) in the weeks after the invasion of Ukraine last year that image-conscious rich-world multinationals were leaving Russia in a May Day Parade-style display of moral righteousness.If only by observing their willingness to continue trading in other countries with unpleasant regimes, I was sceptical at the time that this was actually being done on principle. Volkswagen and McDonald’s, the latter of particular significance given its symbolic opening in Moscow after the fall of communism, both announced they were pulling out of Russia. But both continue to operate in Xinjiang, the province where China is holding more than a million Uyghurs in camps. Divestment would happen when it was compelled by sanctions, I thought, not by corporate ethics or consumer pressure. Since then, of course, we’ve had the Qatar World Cup: lots of talk about brand reputation being at risk but still a commercial success.Looks like that scepticism was justified. Evenett and Pisani found that fewer than 9 per cent of EU and G7 companies had divested from Russia, above the average from all countries (4.8 per cent) but still not exactly a stampeding exodus. Among the rich nations, US companies were more likely to have left than others, though still below 18 per cent.What do we conclude from this? Probably that we should rely on determined governments rather than corporate voluntarism to isolate repellent regimes. It can be done. Western Europe and particularly Germany’s sharp reduction in usage of Russian gas, for example, is a truly impressive feat, Leopards or no Leopards. It’s also worth about 100,000 pious business executives’ statements about social responsibility.WTO to litigants: go awayQuite the admission from Ngozi Okonjo-Iweala last week over the IRA row. The WTO director-general had a message that in earlier years, at least since the WTO’s binding dispute settlement scheme was created in 1995, would have been unusual. Sort this out on your own: don’t bring it to a WTO dispute panel.The sad thing is that this was probably an astute intervention. (If you find yourself questioning Okonjo-Iweala’s political instincts, you’d better double and triple-check you haven’t missed something.) The US has already deprived the WTO appellate body of judges and flatly said it isn’t going to comply with the ruling on steel tariffs that questioned America’s right to create its own national security loopholes in trade law. It’s as well not to poke the bear too forcefully by questioning its green investment plans as well.As it happens, the only obviously WTO-incompatible bits of the IRA are the local content requirements for electric vehicles. The rest of the subsidies are potentially vulnerable to anti-subsidy duties, but that depends on complainant countries showing a negative impact on their industries.Keeping the IRA away from the WTO leaves the organisation’s dispute settlement system fiddling around with issues such as antidumping duties on about €20mn-worth of frozen frites, the first case to come to the workaround appeals system created by the EU and others. Europe insisting everyone eat Belgian frites (to be fair, the best in the world — apologies to any French people reading) is nicely symbolic, but not exactly the subject that’s going to define the next century of globalisation. To be precise, this isn’t the first time a WTO DG has warned that dispute settlement isn’t the best forum to resolve a problem. Okonjo-Iweala’s predecessor Roberto Azevêdo said the same about those cases against the US using the national security loophole. The right thing to say on both occasions? Probably. But depressing nonetheless.As well as this newsletter, I write a Trade Secrets column for FT.com every Thursday. Click here to read the latest, and visit ft.com/trade-secrets to see all my columns and previous newsletters too.Charted watersThe Financial Times created the Disrupted Times newsletter because we live in what feels like a tumultuous moment in history. The global financial crisis, Covid-19, resurgent nationalism, war in Ukraine and the deteriorating US-China relationship have challenged the idea that globalisation is an unstoppable force. But capitalism, and international trade are resilient beasts.

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There has been a shift in perception from “dog trusts dog” to “dog eat dog”, but in practice this has not been that great a shift, according to FT chief economics commentator Martin Wolf. The above chart uses data from a report published by the McKinsey Global Institute in November.McKinsey found that global flows are now being led by intangibles, services and human skills and most of these flows have proved robust during the recent disruptions. (Jonathan Moules)Trade linksTrade ministers launched a climate coalition to try to tackle green issues by, among other things, addressing them in multilateral trade policy. The US is a member, which makes you wonder how far it will get. See above.The Netherlands, home of the world-class semiconductor machine company ASML, says it won’t automatically accept US export controls, which it has blamed for unfairly affecting its sales to China, but some kind of compromise seems likely nonetheless.Brazil and Argentina said they were looking at setting up a common currency: I’m confident I will be retired if not dead by the time it actually happens.My FT colleague Peter Foster in the excellent Britain after Brexit newsletter looks at the difficulty of micromanaging immigration after the end of free movement of labour from the EU. Nicolas Lamp at Queen’s University in Canada, building on his work with Anthea Roberts from the Australian National University about competing narratives of globalisation, looks at what that means for international trade co-operation.Trade Secrets is edited by Jonathan Moules More

LUSAKA (Reuters) -Two of the world’s most powerful finance officials are visiting Zambia this week, a reflection of the growing concern shared by Western officials about how China and other creditors are handling the African country’s debt.Zambia requested debt relief under the Group of 20 Common Framework nearly two years ago, but progress has been glacial at best, despite increasingly urgent appeals to China and private sector creditors to reach a deal.Frustrated by the delays, U.S. Treasury Secretary Janet Yellen and International Monetary Fund Managing Director Kristalina Georgieva arrived for separate visits in Zambia on Sunday. Both see a new sovereign debt roundtable – introduced late last year – as a way to make progress on long-stalled debt restructuring processes.While the overlap was coincidental, the two will meet informally while in Lusaka, a Treasury official said.Yellen told Reuters en route to Zambia she supported the roundtable as a forum for discussing general principles of debt relief.”I think that’s a helpful approach and hopefully the specific cases will be easier to deal with,” Yellen said.Georgieva and Yellen will both participate when the roundtable meets for the first time in India next month on the sidelines of the Group of 20 finance officials. The specific date and guest list are still being worked out.Georgieva, who helped initiate the roundtable along with World Bank President David Malpass, told reporters this month it aimed to resolve broader issues such as transparency, timing of treatments and how to set cutoff dates for loans, but was not intended to replace the existing Common Framework.“The roundtable is a good idea, but the expectations should be kept very modest,” Indermit Gill, World Bank chief economist, told Reuters. He said it could help build more trust among parties, especially Chinese officials, struggling to find a common approach among disparate lenders.Former senior Treasury official Mark Sobel said the roundtable could bring parties together for talks but it remained unclear if it would deliver results.”The leaders of the roundtable need to have a focused agenda with clear goals and timelines, build a collective spirit and then keep the pressure on all parties to deliver results,” he said, adding the Common Framework had been “a flop” so far but remained the “the only game in town.”URGENT NEED FOR DEBT RELIEFYellen told reporters she had underscored the urgent need to cut debts of heavily indebted countries when she met Chinese Vice Premier Liu He in Zurich on Tuesday, warning failure to do so would set back development in poor countries and could lead to more war, fragility and conflict. Restructuring Zambia’s debt was critically important, she said during a briefing in Lusaka. The delay in debt treatment is taking its toll on Zambia, according to the World Bank’s Gill: per capita income has slipped from middle-income to low-income status and about 60% of people now live in extreme poverty.”All the bad things that happen when a country declares default have happened to Zambia,” he said.Zambia’s President Hakainde Hichilema urged creditors on Monday to quickly agree the content of a debt restructuring and warned if no conclusion was found soon it may distort economic recovery efforts.Gill sees parallels with the late 1970s, when the Federal Reserve raised rates to curb inflation, sending the U.S. economy into the worst recession since the Great Depression during the early 1980s.High U.S. interest rates ushered in what was labelled the “Lost Decade” in Latin America, landing many countries in default. “To some extent a similar thing could happen now,” Gill said.Yellen, however, noted rates were nowhere near those seen under Volcker and inflation was not out of control.”We’re in a higher interest rate environment, and that’s something that’s linked to the strong dollar, and weaker currencies for many emerging markets, but also Japan and other countries,” Yellen said. More

LONDON (Reuters) – The Bank of England must decide next week how much higher it will raise borrowing costs as it tries to bear down on Britain’s double-digit inflation rate without adding too much stress to an economy already close to recession.BoE Governor Andrew Bailey said last week that inflation might have turned a corner after it fell in November and December, but at above 10% it is still more than five times the BoE’s 2% target.Bailey has also warned that a shortage of workers could make it harder to bring down inflation by fuelling strong wage growth and creating too much heat in the economy.INTEREST RATES SEEN CLOSE TO PEAKThe BoE was the world’s first major central bank to raise rates when it began pushing up borrowing costs in December 2021 and it is expected to announce its tenth hike in a row on Feb. 2. Investors are mostly betting on another half percentage-point increase to 4.0% and that Bank Rate will peak at 4.5% soon. GRAPHIC: Rate hike push expected to level off – https://www.reuters.com/graphics/BRITAIN-ECONOMY/myvmogwlgvr/chart.png INFLATION FALLING BUT WARNING SIGNS REMAINBritain’s main measure of inflation – the consumer prices index – hit a 41-year peak of 11.1% in October before edging down in November and December to stand at 10.5%.The BoE predicted in its last forecasts, published in November, that CPI would slow to about 5% by the end of this year. That forecast might be lowered in next week’s new projections after a sharp fall in gas prices.But the BoE may be worried by how core inflation – which excludes volatile items such as food and energy – has not fallen, and by faster price growth in the service sector, which could mean high inflation is getting embedded in the economy. GRAPHIC: Inflation mixed bag – https://www.reuters.com/graphics/BRITAIN-ECONOMY/jnvwywzdkvw/chart.png BRITONS REIN IN FUTURE INFLATION EXPECTATIONS Bailey and his colleagues can take some comfort from signs that public expectations about future inflation are falling, potentially easing demands for higher pay. The YouGov/Citi measure of inflation expectations in five to 10 years’ time – which the BoE watches closely – has fallen for four months in a row although it remains higher than before the pandemic. GRAPHIC: Is inflation peaking? – https://www.reuters.com/graphics/BRITAIN-ECONOMY/klpygzoyxpg/chart.png INFLATION HEAT BUILDS IN THE LABOUR MARKET For now, however, wages excluding bonuses are rising at their fastest pace on record, other than during the COVID-19 pandemic when the data was distorted by government support. Average weekly earnings, excluding bonuses, rose by an annual 6.4% in the three months to November. But that was still not enough to protect pay from the corrosive effect of inflation. GRAPHIC: Inflation heat in the labour market – https://www.reuters.com/graphics/BRITAIN-ECONOMY/lbpggodxepq/chart.png UK’S SHRUNKEN LABOUR MARKET WORRIES BOEThe BoE sees the shrinkage of the workforce as a worrying pointer for future pressure on pay. Other rich economies are also struggling with a lack of workers but Britain’s problem has been compounded by post-Brexit restrictions on migrant workers from the European Union. The inactivity rate has edged down in recent months as more people look for work but it remains above its pre-pandemic level. GRAPHIC: Strength in the labour market – https://www.reuters.com/graphics/BRITAIN-ECONOMY/gkplwxzowvb/chart.png UK ECONOMY – THE G7 LAGGARDBritain’s economy seems to have dodged a recession in the second half of 2022 but economists expect it will fall into one this year, further setting back its return to its pre-pandemic size. Britain is the only Group of Seven economy yet to get gross domestic product back above its level at the end of 2019. GRAPHIC: Low on confidence – https://www.reuters.com/graphics/BRITAIN-ECONOMY/dwpkdanwxvm/chart.png CONSUMERS STILL IN THE DUMPS Britain’s consumers are the key drivers of the economy and they seem to be in no mood to spend heavily as inflation keeps on making them poorer. The GfK index of consumer confidence fell back in January after rising for three months and was close to its lowest level since the survey began in 1974. GRAPHIC: Not out of the woods – https://www.reuters.com/graphics/BRITAIN-ECONOMY/akpeqarkjpr/chart.png More