Finance

Rafael Henrique | Lightrocket | Getty Images

Check out the companies making headlines in midday trading.
Roblox — Shares tanked 22% after the online gaming platform fell short of second-quarter estimates. Roblox reported a loss of 46 cents per share, versus the 45 cent loss expected by analysts polled by Refinitiv. Revenue came in at $781 million, shy of the $785 million anticipated. The revenue figure is referred to as bookings by Roblox.

Penn Entertainment, DraftKings — Shares of sports betting company Penn Entertainment surged 9.1% a day after the firm said it is partnering with Disney-owned ESPN to rebrand and relaunch its sportsbook as ESPN Bet in a 10-year deal. It’s the first time ESPN’s brand will be on a sports betting platform. Penn rival DraftKings saw shares dropping 10.9% following the news.
Upstart — Shares plunged more than 34% on disappointing guidance. Upstart, a consumer lending platform, said it expects third-quarter adjusted EBITDA and revenue to come in around $5 million and $140 million, respectively. Analysts estimated $155 million in revenue and $9.6 million in adjusted EBITDA, per StreetAccount. Despite the stock move, the company reported second-quarter results that topped estimates, including a surprise adjusted profit of 6 cents a share.
Lyft — The ride-sharing company’s shares tumbled 10% following its second-quarter earnings announcement after the bell Tuesday. Lyft posted revenue of $1.02 billion, which came in line with analysts’ estimates, according to Refinitiv. The company’s adjusted earnings came in at 16 cents per share, beating estimates of a loss of 1 cent per share. However, the company’s revenue per active user declined following the company’s efforts to reduce ride fares to compete with Uber.
Rivian — Shares of the electric vehicle maker slipped 9.9% a day after it reported a smaller-than-expected loss. Rivian posted an adjusted loss per share of $1.08 in the second quarter, while the Street anticipated a loss of $1.41 per share, per Refinitiv. Analysts, however, noted that headwinds remain for the company, which could indicate a “long path to profitability,” including steeper competition and a depletion of free cash flow.
Carvana — The online car retailer’s stock slipped nearly 6%. Carvana shared better-than-expected guidance for the third quarter, saying it expects EBITDA above $75 million. Analysts polled by FactSet called for EBITDA to come in a little over $46 million.

Twilio — Twilio added 2.2% a day after topping second-quarter earnings expectations. The company reported earnings, excluding items, of 54 cents a share on $1.04 billion in revenue. That came in ahead of the EPS of 30 cents and revenue of $986 million expected by analysts, according to Refinitiv.
Celsius Holdings — Celsius Holdings soared 20.5% after the beverage company known for its line of energy drinks beat analysts’ expectations in its second quarter. Late Tuesday, the company posted earnings of 52 cents per share, exceeding the 28 cents per share estimate from analysts polled by Refinitiv. Revenue came in at $326 million, far better than the anticipated $276 million.
Toast — The restaurant management software stock gained 14.6%. On Tuesday, Toast reported $978 million in revenue for the second quarter, beating analysts’ estimates of $942 million, per Refinitiv. The company also issued rosy guidance for third quarter and full year.
Super Micro Computer — The information technology company and beneficiary of the latest artificial intelligence craze cratered more than 23%. On Tuesday, Super Micro Computer reported adjusted earnings of $3.51 per share on revenue of $2.18 billion. Analysts surveyed by Refinitiv anticipated earnings of $2.96 per share on revenue of $2.08 billion. The company also offered guidance with a midpoint slightly above expectations.
Bumble — Dating platform Bumble slid more than 7%. On Tuesday, the company offered weak expectations for adjusted EBITDA in the current quarter when compared with a consensus estimate compiled by FactSet. The company anticipates adjusted EBITDA of $71 million to $73 million, compared with estimates of $74.8 million.
Akamai Technologies — Shares of Akamai Technologies jumped 8.5%. The software provider posted stronger-than-expected quarterly results Tuesday. The company reported earnings of $1.49 per share, excluding items, on revenue of $935.7 million, ahead of the $1.41 per share and $930.4 million anticipated by analysts, per FactSet.
Axon Enterprise — Shares of the taser maker popped 14% on strong quarterly results that topped Wall Street’s expectations. On Tuesday, Axon Enterprise posted adjusted earnings of $1.11 per share on revenue totaling $374.6 million. Analysts anticipated 62 cents in earnings per share and revenue of $350.5 million, per FactSet. The company also boosted its full-year guidance.
IAC — Shares of the media and internet company sank more than 16% on disappointing quarterly results. On Tuesday, IAC posted a larger-than-expected loss of $1.07 per share, ahead of an 82 cent loss expected by analysts, according to Refinitiv. Revenue came in at $1.11 billion, slightly behind the $1.12 billion expected.
Marqeta — Shares of the payments platform company surged about 12% a day after Marqeta announced it had struck a deal to continue servicing Block’s CashApp through June 2027. The company also reported a mixed second quarter. Marqeta lost 11 cents per share on $231 million of revenue. Analysts surveyed by Refinitiv were expecting a loss of 9 cents per share on $219 million of revenue.
— CNBC’s Hakyung Kim, Pia Singh, Brian Evans, Jesse Pound, Alex Harring, Yun Li and Sarah Min contributed reporting. More

A new issue highlighted by Moody’s may cast a pall over banks: They’ve been forced to pay customers more for deposits at a pace that outstrips growth in what they earn from loans.
The boost from higher rates was fleeting, evaporating in the first quarter of this year, when bank failures jolted depositors out of their complacency and growth in net interest margin turned negative.
In company-specific reports, Moody’s said it had place U.S. Bank under review for a downgrade for reasons including its “rising deposit costs and increased use of wholesale funding.”

Bloomberg/Getty Images

The Moody’s ratings downgrades and outlook warnings on a swath of U.S. banks this week show that the industry still faces pressure after the collapse of Silicon Valley Bank.
Concern over the sector had waned after second-quarter results showed most banks stabilized deposit levels following steeper losses during the March regional banking crisis. But a new issue may cast a pall over small and midsized banks: They’ve been forced to pay customers more for deposits at a pace that outstrips growth in what they earn from loans.

“Banks kept their deposits, but they did so at a cost,” said Ana Arsov, global co-head of banking at Moody’s Investors Service and a co-author of the downgrade report. “They’ve had to replace it with funding that’s more expensive. It’s a profitability concern as deposits continue to leave the system.”
Banks are usually expected to thrive when interest rates rise. While they immediately charge higher rates for credit card loans and other products, they typically move more slowly in increasing how much they pay depositors. That boosts their lending margins, making their core activity more profitable.

This time around, the boost from higher rates was especially fleeting. It evaporated in the first quarter of this year, when bank failures jolted depositors out of their complacency and growth in net interest margin turned negative.
“Bank profitability has peaked for the time being,” Arsov said. “One of the strongest factors for U.S. banks, which is above-average profitability to other systems, won’t be there because of weak loan growth and less of an ability to make the spread.”
Shrinking profit margins, along with relatively lower capital levels compared with peers at some regional banks and concern about commercial real estate defaults, were key reasons Moody’s reassessed its ratings on banks after earlier actions.

In March, Moody’s placed six banks, including First Republic, under review for downgrades and cut its outlook for the industry to negative from stable.

Falling margins affected several banks’ credit considerations. In company-specific reports this week, Moody’s said it had placed U.S. Bank under review for a downgrade for reasons including its “rising deposit costs and increased use of wholesale funding.”
It also lowered its outlook on Fifth Third to negative from stable for similar reasons, citing higher deposit costs.
The banks didn’t immediately return requests for comment.
The analyst stressed that the U.S. banking system was still strong overall and that even the banks it cut were rated investment grade, indicating a low risk of default.
“We aren’t warning that the banking system is broken, we are saying that in the next 12 months to 2 years, profitability is under pressure, regulation is rising, credit costs are rising,” Arsov said. More

Rick Smith, CEO of Axon Enterprises.
Adam Jeffery | CNBC

Check out the companies making headlines before the bell Wednesday.
WeWork — The stock plunged 25.7% after WeWork said in an SEC filing that there’s doubt about the company’s ability to keep operating amid weaker-than-expected membership rates. WeWork warned of measures such as a potential bankruptcy or restructuring or refinancing its debt. Its share price, which was below $1 since early this year, dropped to $0.05 in premarket trading.

Carvana — Online used-car retailer Carvana added 7.4% before the bell. Carvana expects adjusted EBITDA for the third quarter to be above $75 million, which is higher than its prior guidance and analysts’ expectations of $46.4 million, according to StreetAccount. The company, which announced a debt restructuring agreement in July, has seen its stock price soar more than 850% so far this year buoyed by short sellers rushing to cover their bets.
Lyft — Shares lost almost 6% premarket after the ride-hailing company announced its second-quarter earnings. Lyft posted revenue of $1.02 billion, in line analyst estimates, according to Refinitiv. Meanwhile, adjusted per share earnings came in at 16 cents, beating estimates of a loss of 1 cent per share.
Penn Entertainment — Shares of the entertainment and casino company gained more than 15% in early morning trading after Disney’s ESPN announced a 10-year deal with Penn to create ESPN Bet, a sports betting site. As part of the deal, Penn will pay ESPN $1.5 billion in cash. Disney’s stock price gained more than 1.8% on news of the deal.
Axon Enterprise — Shares of the military technology developer advanced 13.8% in premarket trading after reporting a beat on earnings and revenue for the second quarter. Axon posted earnings per share of $1.11, flying past analysts’ expectations of 62 cents, according to StreetAccount. Revenue came out at $374.6 million, while analysts expected $350.5 million. JPMorgan upgraded the stock to outperform and assigned a $235 price target, which suggests 34% upside.
Bumble — Dating platform Bumble slid 2.8% even after the company beat expectations for its second quarter on both lines. But Bumble offered weak expectations for adjusted EBITDA in the current quarter. 

DraftKings — The sports betting company saw its shares fall about 4.6% after Disney-owned ESPN announced a partnership with its rival Penn Entertainment on a gambling sportsbook.
Toast — Shares of the restaurant management software platform popped 14% after the company posted second-quarter earnings that topped expectations. Earnings per share of 19 cents surpassed a Street Account estimate of 1 cent per share. Toast reported $978 million in revenue, also exceeding expectations of $943.1 million.
Marqeta — Shares of the payments platform company jumped nearly 19% after Marqeta announced it struck a four-year deal to continue servicing Block’s CashApp. The company also reported a mixed second quarter. Marqeta lost 11 cents per share on $231 million of revenue. Analysts surveyed by Refinitiv were expecting a loss of 9 cents per share on $219 million of revenue.
Akamai Technologies — The cybersecurity company gained 6.4% in premarket trading after it raised its full-year guidance and reported earnings for the second quarter that surpassed Wall Street’s expectations.
— CNBC’s Hakyung Kim, Yun Li, Alex Harring and Jesse Pound contributed reporting. More

China reported a 0.3% drop in consumer prices in July from a year ago, and a 4.4% year-on-year drop in producer prices in July, according to the National Bureau of Statistics Wednesday.
Excluding food and energy prices, China’s so-called core CPI rose by 0.8% from a year ago, the highest since January, according to official data accessed via Wind Information.
Second-quarter data prompted several economists to warn of growing risk of deflation — a persistent decrease in prices over time.

Customers at a fresh food market in Shanghai, China, on Monday, Aug. 7, 2023.
Bloomberg | Bloomberg | Getty Images

BEIJING — China reported inflation data for July that pointed to a modest improvement from June.
The consumer price index fell by 0.3% in July from a year ago, but was up by 0.2% when compared with June, according to the National Bureau of Statistics Wednesday.

The year-on-year CPI print for July was slightly better than expectations for a 0.4% decline, according to analysts polled by Reuters. It was still the first year-on-year decline since early 2021, according to official data accessed via Wind Information.
The producer price index fell by 4.4% in July from a year ago, better than the 5.4% decline in June, the data showed.
However, the year-on-year PPI read was worse than the 4.1% forecast by a Reuters poll.

“Both CPI and PPI are in deflation territory,” said Zhiwei Zhang, president and chief economist of Pinpoint Asset Management, in a note following the data release. “The economic momentum continues to weaken due to lacklustre domestic demand.”
“The CPI deflation may put more pressure on the government to consider additional fiscal stimulus to mitigate the challenge,” he added.

A 26% year-on-year drop in pork prices, a staple food in China, contributed to the overall decline in the CPI in July. Tourism prices rose by 13.1% from a year ago.

Core CPI, which excludes food and energy prices, rose by 0.8% from a year ago — the highest since January, according to official data accessed via Wind Information.
Producer prices will likely turn higher on a year-on-year basis before the consumer price index does, said Bruce Pang, chief economist and head of research for Greater China at JLL.
He expects consumer prices will still be dragged down in the coming months by falling pork prices and a high base effect, while core CPI may gradually rise.

Sluggish consumer demand

Read more about China from CNBC Pro

Oxford Economics expects China’s consumer price index to grow by 0.5% this year and the producer price index to fall by 3.5%.
“China’s weak demand follow-through in Q2 can be attributed to its relatively contained demand-side stimulus during Covid, years of regulatory tightening, and an ongoing housing correction,” Louise Loo, lead economist at Oxford Economics, said in a note Tuesday.
It’s a “positive development” that authorities are choosing targeted easing, rather than large-scale stimulus, Loo said.
China reported trade data Tuesday that showed a sharp plunge in both overseas and domestic demand.

Exports fell by 14.5% in July from a year ago, while imports dropped by 12.4% in U.S. dollar terms — both worse than analysts had expected.
The sharp decline in the imports figure was partly due to commodity price declines, but Loo’s estimates indicate imports declined in real volume terms by around 0.4%.
China is set on Aug. 15 to release retail sales, industrial production and other data for July.
Correction: This article has been updated to accurately reflect that Oxford Economics expects China’s producer price index to fall 3.5% this year. An earlier version of the story misstated it. More

People walk by electric truck maker Rivian’s newly opened storefront in the Meatpacking District of Manhattan, New York City, June 23, 2023.
Spencer Platt | Getty Images

Check out the companies making headlines after hours.
Rivian Automotive — Rivian Automotive dipped about 2.5% in extended trading. The decline comes even after the electric automaker beat second-quarter expectations on the top and bottom lines. Rivian reported an adjusted loss of $1.08 per share on revenue of $1.12 billion. Analysts polled by Refinitiv had expected a loss per share of $1.41 on revenue of $1.0 billion.

Super Micro Computer — Super Micro Computer tumbled 12% in extended trading even after reporting an earnings beat. The information technology company reported fiscal fourth-quarter adjusted earnings of $3.51 per share on revenue of $2.18 billion. Analysts polled by Refinitiv expected per share earnings of $2.96 on revenue of $2.08 billion. It also issued first-quarter guidance, the midpoint of which was slightly above estimates.
Axon Enterprise — Axon Enterprise advanced 10% after the weapons maker behind the Taser and other products beat top and bottom line expectations in its latest earnings results. Axon reported second-quarter adjusted earnings of $1.11 per share, exceeding the 62 cents per share consensus estimate from FactSet. It posted revenue of $374.6 million, higher than the $350.5 million forecast by analysts.
Penn Entertainment — Penn Entertainment surged 22% after the entertainment and casino company said it’s launching an online sportsbook with ESPN, called ESPN Bet, this fall.
Take-Two Interactive Software — Take-Two Interactive Software popped 3.4% in extended trading after reaffirming full-year bookings guidance. However, the video game company reported revenue of $1.20 billion in its first quarter, lower than the consensus estimate of $1.21 billion, according to Refinitiv. Take-Two also issued second-quarter bookings guidance of 1.40 billion to 1.45 billion, compared with estimates for 1.45 billion.
Twilio — Shares gained 10% after Twilio reported a beat on the top and bottom lines in its latest earnings results. Twilio reported second-quarter adjusted earnings of 54 cents per share on revenue of $1.04 billion. Analysts polled by Refinitiv had anticipated per share earnings of 30 cents on revenue of $986 million.

Bumble — Bumble shares dipped 3.5% in extended trading. The online dating company posted second-quarter earnings of 5 cents per share on revenue of $260 million. Analysts had expected per share earnings of 3 cents on revenue of $257 million, according to Refinitiv.
Lyft — Lyft shares were 6% lower in extended trading after initially popping more than 12% following the release of the ride-hailing company’s second-quarter results. Lyft posted revenue of $1.02 billion, in line with the estimate from analysts polled by Refinitiv. Meanwhile, adjusted per share earnings came in at 16 cents, beating the expectation of a loss of 1 cent per share. More

Getty Images

PNC Financial, Citizens Financial, M&T Bank — Regional bank stocks were broadly under pressure Tuesday after Moody’s downgraded the credit in several smaller institutions. The ratings agency also said some larger banks were under review for a downgrade. Shares of M&T Bank and Webster Financial, which had their credit rating downgraded, fell on Tuesday. Citizens and PNC fell more than 1.5% each after their ratings were put on review for a downgrade. Larger bank stocks, such as Goldman Sachs and JPMorgan Chase, were also lower to close the day.
Organon — The stock advanced just above 9% on better-than-expected earnings for the second quarter. The health-care company reported earnings per share of $1.31. Analysts surveyed by StreetAccount expected 97 cents per share. Organon posted $1.61 billion in revenue, beating analysts’ expectations of $1.57 billion.

Beyond Meat — The plant-based meat company fell 14.3% after missing on second-quarter revenue, citing weak U.S. demand. Beyond Meat posted an adjusted loss of 83 cents per share on $102.1 million in revenue, while Refinitiv forecast 86 cents and $108.4 million.
Chegg — The education technology stock added more than 4.5%. Chegg reported second-quarter revenue of $183 million, topping the $177 million expected by analysts, per Refinitiv. The company also highlighted some artificial intelligence-focused plans, alleviating some fears of the technology’s rising threat to Chegg’s business model.
Novo Nordisk — Shares of the pharmaceutical company rallied 17.4% after new trial data showed Novo Nordisk’s weight loss drug Wegovy cut the risk of major cardiovascular events by 20%.
EchoStar, Dish — Dish shares rallied 9.6% after billionaire Charlie Ergen announced he would consolidate his telecommunications empire, about 15 years after EchoStar was spun off. EchoStar shares gained about 1%.
Datadog — Shares tanked 17.2% after the software company cut its full-year guidance. The company said it now expects revenue to range between $2.05 billion and $2.06 billion, versus a previous range of $2.08 billion to $2.10 billion.

Eli Lilly — Shares jumped 14.9% after Eli Lilly reported better-than-expected earnings in the second quarter. The company posted an adjusted $2.11 per share on revenue of $8.31 billion, while analysts polled by Refinitiv forecast earnings per share of $1.98 and $7.58 billion in revenue. Eli Lilly also raised its full-year guidance on strong sales from its diabetes treatment Mounjaro and other drugs. Additionally, Eli Lilly got a lift on Novo Nordisk’s cardiovascular study showing its obesity drug was highly effective. The study could cause insurers to cover weight-loss drugs.
Palantir Technologies — The data analytics company slid 5.3% after posting its second-quarter results. Palantir reported earnings of 5 cents per share on revenue of $533 million, which came out in line with expectations from analysts polled by Refinitiv.
Fox Corp. — The media giant gained 5.6% after reporting revenue that was in line with the Street’s expectations. Fox’s revenue was $3.03 billion for the second quarter, matching expectations from analysts surveyed by FactSet. The company also raised its semiannual dividend for Class A and Class B shares.
International Flavors & Fragrances — The stock declined more than 19.4% on second-quarter results that missed analysts’ expectations. The fragrance and cosmetics company reported revenue of $2.93 billion, falling shorter than analysts’ estimates of $3.07 billion, according to StreetAccount. The company also lowered its guidance for the upcoming quarter, citing higher manufacturing absorption costs and lower volume driven by customer destocking.
See Corp. — Shares of the packaging company lost 9.5% after See missed revenue expectations for the second quarter. Sealed Air reported $1.38 billion in revenue, citing weakness in its end markets, while analysts surveyed from FactSet expected $1.41 billion. The company also lowered its earnings and revenue guidance.
— CNBC’s Samantha Subin, Jesse Pound, Alex Harring and Hakyung Kim contributed reporting. More

John Rogers, who joined Goldman Sachs in 1994 and served as chief of staff to four of the bank’s CEOs, is giving up that role next month, CEO David Solomon said Tuesday in an employee memo.
For decades, Rogers wielded outsized influence at Goldman.
While Rogers is ceding his chief of staff responsibilities to Russell Horwitz, a former deputy of his who was most recently global affairs chief of Citadel, he is retaining other roles.

John Rogers speaks during an interview at the Securities Industry and Financial Markets Association annual meeting in Washington, D.C., Oct. 24, 2017.
Andrew Harrer | Bloomberg | Getty Images

A key Goldman Sachs executive known as a power broker internally and in political circles is stepping back from some of his responsibilities, according to a memo Tuesday from CEO David Solomon.
John Rogers, who joined Goldman in 1994 and served as chief of staff to four of the bank’s CEOs, is giving up that role next month, Solomon said in the employee memo.

For decades, Rogers, 67, wielded outsized influence at Goldman, an institution sometimes called “Government Sachs” because former executives have gone on to presidential administration roles. In fact, Rogers helped former CEO Hank Paulson become Treasury secretary in 2006, according to The New York Times, which first reported Rogers’ announcement.
While Rogers is ceding his chief of staff responsibilities to Russell Horwitz, a former deputy of his who was most recently global affairs chief of Citadel, he is retaining other roles. Rogers remains a management committee member, chairman of several philanthropic efforts and involved in regulatory and corporate governance projects, Solomon said.
As incoming chief of staff, Horwitz, who spent 16 years at Goldman before departing in 2020, will oversee corporate communications and government and regulatory affairs. Horwitz is rejoining Goldman at the coveted partner rank. He will also be a management committee member reporting to Solomon.
“Please join me in thanking John for his long and impactful tenure as chief of staff, as well as his continued commitment to Goldman Sachs in his other firmwide responsibilities, and in welcoming Russell back to Goldman Sachs,” Solomon said.
The move comes at a key time for Goldman’s CEO. Solomon has endured criticism from some partners and investors over an ill-fated consumer banking effort, his high-profile DJ hobby and other missteps. More

WHEN IT COMES to tracing the geography of global supply chains, few companies provide a better map than Foxconn, the world’s largest contract manufacturer. This year the Taiwanese giant has built or expanded factories in India, Mexico, Thailand and Vietnam. The Chinese production sites once beloved by Western companies are firmly out of fashion. Souring relations between the governments in Washington and Beijing have made businesses increasingly fretful about geopolitical risks. As a consequence, in the first half of the year, Mexico and Canada traded more with America than China for the first time in almost two decades. The map of global trade is being redrawn.At first glance, this is almost exactly what is desired by America’s policymakers. Under first Donald Trump and then Joe Biden, officials have put in place an astonishing array of tariffs, rules and subsidies—an executive order introducing outbound investment screening, the latest sally, is expected soon. The aim is to weaken China’s grip on sensitive industries and, in a motivation that mostly goes unspoken, prepare for a possible invasion of Taiwan. This attempt to “de-risk” trade with China is the cornerstone of the White House’s foreign policy. Yet despite extensive efforts, and the reshaping of trade seemingly evident in headline statistics, much of the apparent de-risking is not what it appears.Instead of being slashed, trade links between America and China are enduring—just in more tangled forms. The American government’s preferred trading partners include countries such as India, Mexico, Taiwan and Vietnam, in which it hopes to spur the “friendshoring” of production to replace imports that previously would have come from China. And trade with these allies is rising fast: just 51% American imports from “low-cost” Asian countries came from China last year, down from 66% when the Trump administration’s first tariffs were introduced five years ago, according to Kearney, a consultancy. The problem is that trade between America’s allies and China is also rising, suggesting that they are often acting as packaging hubs for what, in effect, remain Chinese goods. This flow of products means that, although America may not be buying as much directly from China as before, the two countries’ economies still rely on each other.For evidence, look at the countries that benefit from reduced direct Chinese trade with America. Research by Caroline Freund of the University of California, San Diego and co-authors investigates this dynamic. It finds that countries which had the strongest trade relationships with China in a given industry have been the greatest beneficiaries of the redirection of trade, suggesting that deep Chinese supply chains still matter enormously to America. This is even truer in categories that include the advanced-manufacturing products where American officials are keenest to limit China’s presence. When it comes to these goods, China’s share of American imports declined by 14 percentage points between 2017 and 2022, whereas those from Taiwan and Vietnam—countries that import heavily from China—gained the greatest market share. In short, Chinese activity is still vital to the production of even the most sensitive products.Exactly how the re-routing works in practice differs across countries and industries. A few products can be sourced only in China. These include some processed rare earths and metals where Chinese companies dominate entire industries, such as the gallium used in chip production and the lithium processed for electric-vehicle batteries. Sometimes exports to America and the rest of the West from their allies are nothing more than Chinese products that have been repackaged to avoid tariffs. Most often, though, inputs are simply mechanical or electrical parts that could be found elsewhere at greater cost by an assiduous importer, but are cheaper and more plentiful in China. Pass the parcelAll three types of phony decoupling can be found in China’s backyard. The latest official data, published in 2018, concerning exports by the Association of Southeast Asian Nations (ASEAN), a regional club, show that 7% by value were actually attributable to some form of production in China—a figure that is probably an underestimate given how difficult it is to disentangle trade. Fresher data suggest that China has only grown in importance since then. The country has increased its share of exports to the bloc in 69 of 97 product categories monitored by ASEAN. Electronic exports, the largest category, which covers everything from batteries and industrial furnaces to hair clippers, have exploded. In the first six months of the year Chinese sales of these goods in Indonesia, Malaysia, Thailand, the Philippines and Vietnam rose to $49bn, up by 80% compared with five years ago. There is a similar pattern in foreign direct investment, where Chinese spending in crucial South-East Asian countries has overtaken America’s.Factories farther afield are also humming with Chinese activity, perhaps most notably in the car industry. In Mexico the National Association of Autopart Makers, a lobby group, has reported that last year 40% of nearshoring investment came from sites moving to the country from China. A rich supply of intermediate goods is duly following. In the past year Chinese companies exported $300m a month in parts to Mexico, more than twice the amount they managed five years ago. In central and eastern Europe, where the car industry has boomed in recent years, phony decoupling is even more conspicuous. In 2018 China provided just 3% of automotive parts brought into the Czech Republic, Hungary, Poland, Slovakia, Slovenia and Romania. Since then, Chinese imports have surged, thanks to the rapid adoption of electric vehicles, of which the country increasingly dominates production. China now provides 10% of all car parts imported into central and eastern Europe, more than any other country outside the eu.Tighter trade links between America’s allies and China are the paradoxical result of America’s desire for weaker ones. Companies panicked by worsening relations across the Pacific are pursuing “China plus one” strategies, keeping some production in the world’s second-largest economy, while moving the rest to countries, such as Vietnam, that are friendlier to Uncle Sam. Yet American demand for final products from allies also tends to boost demand for Chinese intermediate inputs, and produces incentives for Chinese firms to operate and export from alternative locations. Although Apple, the world’s largest company by market capitalisation, has moved production outside China in recent years, this comes with a caveat: much of the production still relies on Chinese companies. The tech giant lists 25 producers in Vietnam on its official suppliers list. Nine are from mainland China.How concerning should this state of affairs be to American policymakers? In the worst case—a war in which supplies of goods between China and America are almost completely severed—dealing only indirectly with China or with Chinese firms on the soil of third countries is probably an improvement on Chinese production. Moreover, companies are adapting to security rules so as to reduce costs for consumers. But that carries its own risks: a belief that decoupling is under way may obscure just how critical Chinese production remains to American supply chains.The fact that so much production in Asia, Mexico and parts of Europe ultimately relies on imports and investment from China helps explain why so many governments, particularly in Asia, are at best fair-weather friends to America, at least when it comes to shifting supply chains. After all, if forced to choose sides once and for all, exporters would suffer mightily. A recent study by researchers at the IMF models a scenario in which countries must pick between America and China, with their decision on which of the two superpowers to side with decided by recent voting patterns at the UN. Such a scenario, the researchers calculate, would reduce GDP by as much as 4.7% for the worst-affected countries. Those in South-East Asia would be struck particularly hard.FrenemiesGiven that most countries are desperate for the investment and employment that trade brings, America has been unable to convince its allies to reduce China’s role in their supply chains. Many are content to play both sides—receiving Chinese investment and intermediate goods, and exporting finished products to America and the rest of the West. Ironically, then, the process driving America and China apart in trade and investment may actually be forging stronger financial and commercial connections between China and America’s allies. Needless to say, that is not what President Biden had in mind. ■ More