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    For Turkey, Erdogan Victory Brings More Risky Economic Policy

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    The Turkish lira has hit a new low, and analysts see few improvements ahead as re-elected President Erdogan pursues unconventional economic policies.Since winning re-election, President Recep Tayyip Erdogan of Turkey has publicly doubled down on his idiosyncratic economic policies.“If anyone can do this, I can do it,” he declared in a victory speech last Sunday, referring to his ability to solve the country’s calamitous economic problems.His brash confidence is not widely shared by most analysts and economists.The Turkish lira dropped to a record low against the dollar this week, and foreign investors have been disheartened by the president’s refusal to stray from what is widely considered to be an eccentric economic course.Instead of combating dizzying inflation by raising interest rates and making borrowing more expensive — as most economists recommend — Mr. Erdogan has repeatedly lowered rates. He argues that cheap credit will boost manufacturing and exports.But his strategy is also fueling inflation, now running at an annual rate of 44 percent, and eroding the value of the Turkish lira. Attempts by the government to prop up the faltering currency have drained the dwindling pool of foreign reserves.As the lira’s value drops, the price of imported goods — like medicine, energy, fertilizer and automobile parts — rises, making it more expensive for consumers to afford daily costs. And it raises the size of debt payments for businesses and households that have borrowed money from foreign lenders.The national budget is also coming under increasing strains. The destructive earthquakes in February that ripped up swaths of southern Turkey are estimated to have caused more than a billion dollars in damage, roughly 9 percent of the country’s annual economic output.At the same time, Mr. Erdogan went on a pre-election spending spree to attract voters, increasing salaries for public sector workers and payouts for retirees and offering households a month of free natural gas. The expenditures pushed up growth, but economists fear that such outlays will feed inflation.President Erdogan in Istanbul last month. Foreign investors have been disheartened by his refusal to stray from what is widely considered to be an eccentric economic course.Sergey Ponomarev for The New York TimesAn effort to encourage Turks to keep their savings in lira by guaranteeing their balances against currency depreciations further adds to the government’s potential liabilities.Critics of the president’s economic approach were somewhat heartened by reports that Mr. Erdogan is expected this weekend to appoint Mehmet Simsek, a former finance minister and deputy prime minister, to the cabinet. Mr. Simsek is well thought of in financial circles and has previously supported a tighter monetary policy.“What Turkey really needs now is more exports and more foreign direct investment, and for that you have to send a signal,” said Henri Barkey, an international relations professor at Lehigh University. One signal could be Mr. Simsek’s appointment, he said.Mr. Barkey argues that Mr. Erdogan will have no choice but to make a U-turn on policy by winter, when energy import costs rise and some debt payments are due.Others are more skeptical that Mr. Erdogan will back down from his insistence that high interest rates fuel inflation. Kadri Tastan, a senior fellow at the German Marshall Fund, a public policy think tank based in Brussels, said that regardless of the cabinet’s makeup, he didn’t believe a policy turnaround was imminent.“I’m quite pessimistic about an enormous change, of course,” he said.To deal with the large external deficit and depleted central bank reserves, Mr. Erdogan has been relying on allies like Russia, Qatar and Saudi Arabia to help bolster its reserves by depositing dollars with the central bank or extending payment deadlines and discounts for imported goods like natural gas.In a note to investors this week, Capital Economics wrote that any optimism about a policy shift is likely to be short-lived: “While policymakers like Simsek would probably pursue more restrained fiscal policy than we had envisaged, we doubt Erdogan would give the central bank license to hike policy rates to restore balance to the economy.”Turkey’s more than $900 billion economy makes it the eighth largest in Europe. And Mr. Erdogan’s efforts to position himself as a power broker between Russia and the European allies since the war in Ukraine began has further underscored Turkey’s geopolitical influence.Mr. Erdogan, who has been in power for two decades, built his electoral success on growth-oriented policies that lifted millions of Turks into the middle class. But the pumped-up expansion wasn’t sustainable.As the lira’s value drops, the price of imported goods rises.Sergey Ponomarev for The New York TimesThe borrowing frenzy drove up prices, spurring a cost-of-living crisis. Still, Mr. Erdogan persisted in lowering interest rates and fired central bank chiefs who disagreed with him. The pandemic exacerbated problems by reducing demand for Turkish exports and limiting tourism, a large source of income.Mr. Erdogan is likely to keep up his expansionary policies until the next local elections take place next year. Until then, Hakan Kara, the former chief economist of the Central Bank of Turkey, said the country would probably just “muddle through.”“Turkish authorities will have to make tough decisions after the local elections, as something has to give in eventually,” Mr. Kara said. “Turkey has to either switch back to conventional policies, or further deviate from the free market economy where the central authority manages the economy through micro-control measures.”“In either case,” he added, “the adjustment is likely to be painful.” More

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    Biden Officials Announce Indo-Pacific Trade Deal, Clashing With Industry Groups

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    The United States announced a deal to coordinate supply chains with allies, but prominent business groups said the deal fell short on reducing tariffs and other trade barriers.The Biden administration announced Saturday that it had reached an agreement with 13 other countries in the Indo-Pacific region to coordinate supply chains, in an effort to lessen the countries’ dependence on China for critical products and allow them to better weather crises like wars, pandemics and climate change.The supply chain agreement is the first result of the administration’s trade initiative in the region, called the Indo-Pacific Economic Framework. Negotiations are continuing for the other three pillars of the agreement, which focus on facilitating trade and improving conditions for workers, expanding the use of clean energy, and reforming tax structures and fighting corruption.Gina Raimondo, the secretary of commerce, said the supply chain agreement would deepen America’s economic cooperation with partners in the Indo-Pacific region, helping American companies do business there and making the United States more competitive globally.“Bottom line is, this is about increasing the U.S. economic presence in the region,” she said in a call with reporters Thursday.But prominent business groups expressed reservations about the Indo-Pacific deal, and on Friday, more than 30 of them sent a public letter to the administration saying the negotiations were leaving out traditional U.S. trade priorities that could help American exporters. That included lowering tariffs charged on their goods but also limiting other regulatory barriers to trade and establishing stronger intellectual property protections.The Biden administration says that past trade deals with those provisions have encouraged outsourcing and hurt American workers. Business leaders are arguing that without them, the Indo-Pacific deal will ultimately have little impact on the way these countries do business.Regulatory barriers to trade undermine efforts to strengthen supply chains, potentially sapping the effectiveness of the administration’s new agreement, the business groups’ letter said. It also expressed concern that the administration was not pushing for digital trade rules.“We are growing increasingly concerned that the content and direction of the administration’s proposals for the talks risk not only failing to deliver meaningful strategic and commercial outcomes but also endangering U.S. trade and economic interests in the Indo-Pacific region and beyond,” said the letter, which was signed by the U.S. Chamber of Commerce, the National Association of Manufacturers, Business Roundtable and other groups.In remarks Saturday in Detroit, where she was meeting with trade ministers from the participating countries, Ms. Raimondo said the group’s characterization of the deal was “flatly wrong and just reflects a misunderstanding of what the I.P.E.F. is and what it isn’t.”The United States began negotiations for a more traditional trade deal in the Pacific during the Obama administration, called the Trans-Pacific Partnership. The deal was designed to strengthen America’s commercial ties in the Pacific, as a bulwark to China’s growing influence over the region. It cut tariffs on auto parts and agricultural products and established stronger intellectual property protections for pharmaceuticals, among many other changes.But the Trans-Pacific Partnership created deep divisions among both Republicans and Democrats, with some politicians in both parties arguing it would hollow out American industry. Former President Donald J. Trump withdrew the United States from that deal, and Japan, Australia and other members put the agreement into effect without the United States.The Indo-Pacific Framework includes some of the same countries as the Pacific deal, as well as India, Indonesia, Korea, the Philippines and Thailand. But the Biden administration argues that the agreement is designed to better protect American workers and the environment.“The I.P.E.F. is not a traditional trade deal,” Katherine Tai, the U.S. trade representative, said Saturday in Detroit. “It is our vision, our new vision for how our economies can collaborate to deliver real opportunities for our people.”“We’re not just trying to maximize the efficiencies of globalization,” Ms. Tai added. “We’re trying to promote sustainability, resilience and inclusiveness.”Ed Gresser, the director for trade and global markets at the Progressive Policy Institute, said allies like Japan were participating in the new deal but still trying to convince the United States to rejoin the Trans-Pacific Partnership.There is good will internationally toward the Biden administration, Mr. Gresser added, but also confusion about what a trade agreement would mean without market access.Countries have a long history of creating trade and investment frameworks that fall short of traditional trade deals, he said, but “they’re generally not seen as very ambitious things.” More

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    U.S.-Made Technology Is Flowing to Sanctioned Russian Airlines

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    Russian customs data shows that millions of dollars of aircraft parts made by Boeing, Airbus and others were sent to Russia last year despite sanctions.Last August, Oleg Patsulya, a Russian citizen living near Miami, emailed a Russian airline that had been cut off from Western technology and materials with a tempting offer.He could help circumvent the global sanctions imposed on Rossiya Airlines after Russia’s invasion of Ukraine by shuffling the aircraft parts and electronics that it so desperately needed through a network of companies based in Florida, Turkey and Russia.“In light of the sanctions imposed against the Russian Federation, we have been successfully solving challenges at hand,” Mr. Patsulya wrote, according to a criminal complaint filed Friday with the U.S. District Court in Arizona.Mr. Patsulya and his business partner were arrested Thursday on charges of violating U.S. export controls and international money laundering in a case that illustrates the global networks that are trying to help Russia bypass the most expansive technological controls in history.Since the Russian invasion of Ukraine, the United States has acted in partnership with nearly 40 other governments to impose sanctions on Russia, including limits on Moscow’s access to weapons, computer chips, aircraft parts and other products needed to fuel its economy and its war. The sanctions also applied to Russian airlines including Aeroflot, its subsidiary Rossiya and others.But despite these far-reaching sanctions, thousands of shipments of aircraft parts were successfully sent into Russia last year, according to a trove of Russian customs data obtained by The New York Times.The data, which was compiled and analyzed by Import Genius, a U.S.-based trade data aggregator, shows that tens of millions of dollars of aircraft parts were sent to Russian airlines explicitly sanctioned by the Biden administration, including to Rossiya Airlines, Aeroflot, Ural Airlines, S7 Airlines, Utair Aviation and Pobeda Airlines.Those shipments were made possible by illicit networks like Mr. Patsulya’s, which have sprung up to try to bypass the restrictions by shuffling goods through a series of straw buyers, often in the Middle East and Asia.For instance, dozens of shipments of copper wires, bolts, graphite and other parts marked as made in the United States by Boeing slipped into the warehouses of Aeroflot last year. They traversed obscure trading companies, free-trade zones and industrial parks in the United Arab Emirates and China, and then traveled into Russia, to help patch up Aeroflot’s dilapidated fleet.The data captures more than 5,000 individual shipments of aircraft parts into Russia over a period of eight months in 2022, from simple screws to a Honeywell-branded aircraft engine starter valued at $290,000.In all, it shows that $14.4 million of U.S.-made aircraft parts were sent into Russia during the eight months, including $8.9 million of parts that are described as being manufactured or trademarked by the U.S. plane maker Boeing and sold into Russia via third parties.Boeing said it had fully complied with U.S. sanctions and had suspended providing parts, maintenance and technical support for customers in Russia in early 2022. Experts in the aviation supply chain said the parts probably came from a variety of sources, such as existing overseas stocks from airlines and repair facilities or resellers who trade in scrapped parts.A Boeing plant in Renton, Wash. Millions of dollars of parts described as being manufactured or trademarked by the U.S. plane maker were sold into Russia via third parties.Grant Hindsley for The New York TimesMost of the products were routed through countries like the United Arab Emirates, Turkey, China and the Maldives, according to the data. But a handful of shipments — including to Rossiya — were sent directly from the United States or Europe.The shipments also increased over the course of last year as Russia recruited global businesses to help it bypass the sanctions. The trend suggests that “networks for evading sanctions took time to establish during the immediate post-export-control scramble but are now in a position to help Russian airlines source some key parts,” said William George, the director of research at Import Genius.The Russian nationals taken into custody on Thursday began setting up their scheme last May to send aircraft parts from the United States to Russia in violation of export regulations, according to the criminal complaint.The men are accused of fielding requests for parts, including expensive brake systems for a Boeing 737, from at least three Russian airlines, including two that had been strictly barred from purchasing U.S.-made products through a so-called temporary denial order issued by the Commerce Department. F.B.I. agents raided a condo owned by the men’s company in the Trump Towers in Sunny Isles Beach, Fla., on Thursday, The Miami Herald reported.Lawyers for the men did not immediately respond to a request for comment.Despite the level of sanctions evasion, airplane shipments into Russia remain significantly lower than before the war. U.S. officials say Russian airlines have been forced to cannibalize planes, breaking them down for spare parts to keep others in operation, as well as turning to Iran for maintenance and parts.Russia’s imports of aircraft and aircraft parts fell from $3.45 billion annually before the invasion to only about $286 million afterward, according to The Observatory of Economic Complexity, a data visualization platform that explores global trade dynamics.According to Silverado Policy Accelerator, a Washington nonprofit, China has been the leading overall exporter of parts for aircraft, spacecraft and drones to Russia since the invasion, accounting for about half of all shipments, followed by India. The number of single-aisle planes in use in Russia fell about 16 percent from the summer of 2021 to the summer of 2022, after the invasion, according to Cirium, an aviation data provider. The number of larger twin-aisle planes, often used on international routes, was down about 40 percent.Aviation experts say it will become more challenging for Russian airlines to continue flying planes without access to Western suppliers and help from Boeing and Airbus. The manufacturers regularly consult with airlines to assess any damage and strictly control access to technical documentation used by mechanics.But for now, Russian airlines have been kept alive with the help of international shipments and the use of hundreds of foreign jets that were stranded there after the war began.Tens of thousands of flights are expected to crisscross Russia this month, according to schedules published by Cirium. More than 21,000 flights — over half of them operated by Russian airlines — are expected to carry passengers to and from countries in Central Asia, as well as Turkey, the United Arab Emirates, Egypt, China and Thailand.Half a dozen export control lawyers and former government officials consulted by The New York Times said that many of the shipments in the Import Genius data likely violated sanctions, but that plane makers like Boeing or Airbus were not necessarily at fault. The aviation supply chain is complex and global, and the parts could have come from a variety of sources.“There is pretty clearly a violation,” said William Reinsch, a trade expert at the Center for Strategic and International Studies who oversaw export controls during the Clinton administration. “Less clear is the guilty party.”Aircraft parts originating in the European Union, including those marked as being manufactured or trademarked by Airbus, were also shipped into Russia last year, according to the data.Working on an Airbus A320 plane at a hangar in Haikou, China, in May. Airbus parts were also shipped into Russia last year.Zhang Liyun/Xinhua, via Getty ImagesJustin Dubon, a spokesman for Airbus, said that the company keeps track of genuine parts and documentation provided to its customers and conducts due diligence on all parties requesting spare parts. Restrictions in the United States and Europe mean that “there is no legal way that genuine aircraft parts, documentation and services can get to Russian carriers,” he said.U.S. restrictions technically allow companies to apply for a special license to continue sending products to Russian carriers for “safety of flight” reasons, but both Boeing and Airbus said that they had neither sought nor received such a license. In addition, Airbus said that E.U. laws prevent it from shipping such goods to Russia, regardless of U.S. licensing.Current and former U.S. officials say that some shipments into Russia are to be expected. Kevin Wolf, a partner at the law firm Akin Gump who oversaw export controls during the Obama administration, said the restrictions “can never block everything,” but that the rules were still significantly degrading Russia’s capabilities.He added that the scope of the new rules still exceed current methods of tracking and enforcement in other allied countries. Until the invasion of Ukraine, trade in aircraft parts was mostly unrestricted by the United States and other countries, except to Iran, Cuba, North Korea and Syria.“It’s improving,” Mr. Wolf said, “but it’s still way, way behind.”Compared with other countries that mostly limit their scrutiny to goods crossing their own borders, the United States is unparalleled in its attempt to police commerce around the world.In the past three years, the United States has imposed new technology restrictions for Russia, China and Iran that apply extraterritorially: Products made in the United States, or in foreign countries with the help of American components or technology, are subject to U.S. rules even when changing hands on the other side of the world.Both the United States and the European Union have been ramping up penalties for companies that violate sanctions, and dispatching officials to countries like Kazakhstan to try to persuade them to clamp down on shipments to Russia through their territory. The U.S. government has nine export control officers stationed in Istanbul, Beijing and other locations to trace shipments of sensitive products, and it is setting up three more offices.But providing parts can be a lucrative business. James Disalvatore, an associate director at Kharon, a data and analytics firm that has been monitoring Russia’s efforts to bypass sanctions, said the value of some aircraft parts imported by Russian airlines since the invasion had risen fourfold or more.“I don’t think there’s any secret what’s going on,” said Gary Stanley, a trade compliance expert who advises businesses in aerospace and other industries. “How long have we had Cuban sanctions? How long have we had North Korean sanctions? How long have we had Iranian sanctions? It never seems to put these folks out of business.” More

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    U.S. Solar Makers Criticize Biden’s Tax Credits as Too Lax on China

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    U.S.-based manufacturers of solar products say rules issued by the Biden administration on Friday will “cement China’s dominance” over the solar industryBiden administration rules released on Friday that will determine which companies and manufacturers can benefit from new solar industry tax credits are being criticized by U.S.-based makers of solar products, who say the guidelines do not go far enough to try to lure manufacturing back from China.The rules stem from President Biden’s sweeping clean energy bill, which offers a mix of tax credits and other incentives to try and spur the construction of more solar factories in the United States and reduce the country’s reliance on China for clean energy goods needed to mitigate climate change.The Treasury Department, in guidance issued on Friday, said it would offer a 10 percent additional tax credit for facilities assembling solar panels in the United States, even if they import the silicon wafers used to make those panels from foreign countries. Under the Biden administration’s new climate legislation, solar and wind farms can apply for a 30 percent tax credit on the costs of their facilities.Senior administration officials told reporters on Thursday that they were trying to take a balanced approach, one that leaned toward forcing supply chains to return to the United States. But China’s dominance of the global solar industry has created a tricky calculus for the Biden administration, which wants to promote U.S. manufacturing of solar products but also ensure a plentiful supply of low-cost solar panels to reduce carbon emissions.The officials said that the Biden administration would have the leeway to change the rules when American supply chains become stronger.“The domestic content bonus under the Inflation Reduction Act will boost American manufacturing, including in iron and steel, so America’s workers and companies continue to benefit from President Biden’s Investing in America agenda,” Treasury Secretary Janet L. Yellen said in a statement. “These tax credits are key to driving investment and ensuring all Americans share in the growth of the clean energy economy.”Critics said the new rules would not go far enough to give companies incentives to move the solar supply chain out of China.Mike Carr, the executive director of the Solar Energy Manufacturers for America Coalition, which includes solar companies with U.S. operations like Hemlock Semiconductor, Wacker Chemie, Qcells and First Solar, called the move “a missed opportunity to build a domestic solar manufacturing supply chain.”“The simple fact is today’s announcement will likely result in the scaling back of planned investments in the critical areas of solar wafer, ingot, and polysilicon production,” he said in a statement. “China is producing 97 percent of the world’s solar wafers — giving them substantial control over both polysilicon and cell production. We fear that this guidance will cement their dominance over these critical pieces of the solar supply chain.”A four-acre solar rooftop in Los Angeles. The Biden administration wants 100 percent of the nation’s electricity to come from carbon-free energy sources by 2035.Mario Tama/Getty ImagesThe Biden administration has set an ambitious goal of generating 100 percent of the nation’s electricity from carbon-free energy sources by 2035, a goal that may require more than doubling the annual pace of solar installations.The United States still relies heavily on Chinese manufacturers for low-cost solar modules, although many Chinese-owned factories now make these goods in Vietnam, Malaysia and Thailand.China also supplies many of the key components in solar panels, including more than 80 percent of the world’s polysilicon, which most solar panels use to absorb energy from sunlight. And a significant portion of Chinese polysilicon comes from the Xinjiang region, where the U.S. government has banned imports because of concerns over forced labor.Other companies in the solar supply chain, which rely on imported components, were more positive about the Treasury Department’s guidance.Abigail Ross Hopper, the chief executive of the Solar Energy Industries Association, said the guidance was an important step forward that would “spark a flood of investment in American-made clean energy equipment and components.”“The U.S. solar and storage industry strongly supports onshoring a domestic clean energy supply chain, and today’s guidance will supplement the manufacturing renaissance that began when the historic Inflation Reduction Act passed last summer,” she said.Congressional Republicans have already targeted the Biden administration’s climate legislation, saying that it fails to set tough guidelines against manufacturing in China and that it may funnel federal dollars to Chinese-owned companies that have set up in the United States.The Biden administration is also dispensing funding to build up the semiconductor and electric vehicle battery industries. Guidelines for that money include limits on access to so-called foreign entities of concern, like Chinese-owned companies. But the Inflation Reduction Act does not contain guardrails against federal dollars going to the U.S. operations of Chinese solar companies.In a congressional hearing on April 25, Representative Jason Smith, chairman of the House Ways and Means Committee, pointed to the Florida facilities of JinkoSolar, a Chinese-owned manufacturer, as being eligible for federal tax credits.“Work at the plant involves robots placing strings of solar cells — which are largely sourced from China — onto a solar panel base,” a fact sheet released by Mr. Smith said.Mr. Biden has also clashed with domestic solar manufacturers over a separate trade case that would see tariffs imposed on solar products imported from Chinese companies based in Southeast Asia.Mr. Biden’s decision to waive the tariffs for two years angered Republicans and some Democrats in Congress, who said U.S.-based manufacturers deserved more protection. In recent weeks, the House and Senate approved a measure to reverse the president’s decision, which Mr. Biden is expected to veto. More

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    After Pandemic Rebound, U.S. Manufacturing Droops

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    The pandemic had a bright silver lining for Elkhart, Ind.The city, renowned as the capital of recreational vehicle production, had a surge in demand as cooped-up families took to the highways and avoided hotels. The cluster of manufacturers enjoyed record profits, and workers benefited as well: The metropolitan area’s unemployment rate sank to 1 percent in late 2021, and average weekly wages jumped 35 percent from their level in early 2020.That frenzy, however, has turned to a chill. Dealers, who stocked up on as many trailers and vans as they could, have been discounting them to clear their lots — and new orders have dried up. The area has lost nearly 7,000 manufacturing jobs over the past year, and unemployment is now above the national average. Thor Industries, which owns a wide portfolio of RV brands, saw its sales tumble 39.4 percent from the quarter a year ago.“In 2022, manufacturers overproduced, and you’re seeing some of the impact of that from the staffing standpoint,” said Chris Stager, chief executive of the Economic Development Corporation of Elkhart County. He foresees new projects propelled by recent federal energy and infrastructure legislation, but rising interest rates are taking a toll in the meantime.“It’s not bad, but it’s not what it was,” Mr. Stager said.That’s manufacturing in America in 2023.Factory construction is proceeding more rapidly than at any time in recent memory, heralding what may be a resurgence in domestic production powered by a move away from long, fragile supply chains and by the infusion of billions of dollars in public investment.At the same time, after an extraordinary boom fed by cooped-up consumers, manufacturing is suffering something of a hangover as retailers burn through bloated inventories. Inflation-fighting efforts by the Federal Reserve, which is expected to announce another interest-rate increase on Wednesday, have squelched big-ticket purchases. New orders have been declining since last summer, and a widely followed index of purchasing activity has been downbeat for six months.Working on sponge rubber automotive HVAC drain seals at Colonial.Whitten Sabbatini for The New York TimesManufacturing employment bounced back quickly after the pandemic — which is unusual for recessions — but has contracted for two months. While layoffs in the industry remain low, job openings and hires have sunk from recent highs.“It’s not one of these really concerning plunges, where we’re shedding a bunch of manufacturing jobs, but it seems kind of stalled,” said Scott Paul, president of the Alliance for American Manufacturing. “And I think the longer that lasts, the harder it’s going to be to rev things up.”A bigger question for the American economy is whether this heralds a broader downturn, since cooling demand for goods usually signifies that consumers are feeling financially strained. “Manufacturing is always at the forefront of the recession,” notes Barbara Denham, a senior economist at Oxford Economics.To understand the current slump, it’s important to dissect the manufacturing moment from which America is emerging.For example: Those new manufacturing jobs weren’t all for people making steel coils and oak cabinets. The production of consumable items — including food, beverages, and pharmaceuticals — represented an outsize portion of the job growth from 2020 through 2022. But it tends to pay less well, requires less training and has fewer unions than heavy manufacturing in airplanes and automobiles. And it can disappear more quickly as demand returns to normal.Factory employment bounced back, but is now leveling off Number of manufacturing jobs as a percentage of the total in February 2020

    Source: Bureau of Labor StatisticsBy The New York TimesThe pandemic-era manufacturing boom also didn’t happen equally in all places. States like Nevada, Arizona, Florida and Texas surged far above their prepandemic baselines, while longtime manufacturing centers — Michigan, Illinois, New York and Ohio — have not fully bounced back. That imbalance reflects recent migration trends, as people have moved out of urban areas for more space, more sunshine and a lower cost of living.The factory construction underway is poised to further reshape the geography of American manufacturing, with the largest increases in investment happening in the Mountain West.LaDon Byars, who runs Colonial Diversified Polymer Products, said reinforcing domestic supply chains would be worth the effort.Whitten Sabbatini for The New York TimesAll that new building is propelled by several factors. Former President Donald J. Trump’s trade war raised the cost of importing from China and other countries, while the pandemic snarled ports and idled suppliers, hurting manufacturers who depended on far-flung sourcing networks.In recent months, the war in Ukraine — for which the United States has furnished more than $36 billion in weaponry — has generated more long-term contracts for defense manufacturers, mostly restricted to domestic production.Steve Macias, a co-owner of a small machine shop in Phoenix, said orders from the semiconductor industry have slowed as the demand for home electronics crested. But in the past few weeks, he has been busy serving military clients — because the Defense Department has been getting planes and ships back into fighting shape, as well as refilling empty stores of munitions.“There was a lot of deferred maintenance,” Mr. Macias said. “So you’ve got two things going on — this kind of catch-up, and this war that broke out that nobody was really anticipating.”Finally, over the last two years the passage of three major bills — the Infrastructure Investment and Jobs Act, the Bipartisan Infrastructure Law and the CHIPS and Science Act — made available hundreds of billions of dollars for the production of items like semiconductors, solar panels, wind turbines and bridge spans. Private funders have rushed to capitalize on the opportunity, even if much of it is still in the planning stages.“A lot of manufacturers are reacting to what they see as a lot of long-term structural factors in their industry,” said Adam Ozimek, chief economist at the Economic Innovation Group, an entrepreneurship-focused think tank. “They’re seeing more demand for domestic production long term. That’s a bet on the future. It’s going to take a while to really translate to employment.”Even when it does, however, that investment might not yield as many jobs as factories with similar levels of output did in the past.Freshly built production lines tend to be more automated and more efficient than those designed in the 1950s and ’60s — which they need to be, to compete with the lower cost of labor overseas. And some companies are adding robots to their plants, given the difficulty of attracting and retaining enough skilled workers to replace those retiring. The median age of workers in manufacturing is two years older than the national median.“These facilities are desperate to try to get the work force,” said Mark Farris, chief executive of the Greenville Area Development Corporation in Greenville, S.C. “And instead, I think they’re convincing the officers of the company, ‘Let’s think about robotics, let’s think about 3-D printing, the technology investment that would take the place of those workers we cannot find.’”Employers’ ferocious need for factory workers is easingManufacturing job openings surged in 2021, but have receded.

    Bureau of Labor StatisticsBy The New York TimesFor businesses that depend on industries related to fossil fuels, the ramp-up in federal investment may just be enough to keep them afloat even as demand shifts to clean energy.Automobile manufacturers are important clients, and Ms. Byars is encouraged as federally funded projects are required to find their parts and raw materials in the United States.Whitten Sabbatini for The New York TimesLaDon Byars runs Colonial Diversified Polymer Products, which employs about 75 people in western Tennessee. The company has survived many cycles of outsourcing and offshoring, making molded rubber products like gaskets and mats for a variety of customers. Automobile manufacturers are important clients, and Ms. Byars knows that demand for parts that go into cars with internal combustion engines will start to wane.She has been encouraged, however, by the number of solicitations she has received as a result of rules that require federally funded projects to find their parts and raw materials in the United States, rather than overseas. It may be difficult and impede progress at first, but she thinks reinforcing domestic supply chains will work out better in the end, just like building new roads.“It takes a while before they get that intersection through — it’s a mess and traffic is backed up,” Ms. Byars said. “And then when they finally open it up, everything works so much smoother and better, and you don’t have the long delays. We might not even see the impact of not being dependent on other countries, and not having the supply chain disruptions, but I do think that’s what the long-term best interest for the American people is.” More

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    Why China’s Shrinking Population Is a Problem for Everyone

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    China struggled for years to curtail its rapid population growth. Now that its population is declining, economists and others fear serious implications for China and countries around the world.Despite the rollback of China’s one-child policy, and even after more recent incentives urging families to have more children, China’s population is steadily shrinking — a momentous shift that will soon leave India as the world’s most populous nation and have broad rippling effects both domestically and globally.The change puts China on the same course of both aging and shrinking as many of its neighbors in Asia, but its path will have outsize effects not just on the regional economy, but on the world at large as well.Here’s why economists and others are alarmed by the developments.China’s shrinking work force could hobble the global economy.For years, China’s massive working-age population powered the global economic engine, supplying the factory workers whose cheap labor produced goods that were exported around the world.In the long run, a shortage of factory workers in China — driven by a better-educated work force and a shrinking population of young people — could raise costs for consumers outside China, potentially exacerbating inflation in countries like the United States that rely heavily on imported Chinese products. Facing rising labor costs in China, many companies have already begun shifting their manufacturing operations to lower-paying countries like Vietnam and Mexico.A shrinking population could also mean a decline in spending by Chinese consumers, threatening global brands dependent on sales of products to China, from Apple smartphones to Nike sneakers.A factory in Guangzhou. In the long run, a shortage of factory workers could raise costs for consumers outside of China.Gilles Sabrie for The New York TimesThe data is bad news for China’s crucial housing market.In the short term, a plunging birthrate poses a major threat to China’s real estate sector, which accounts for roughly a quarter of the country’s economic output. Population growth is a key driver of housing demand, and homeownership is the most important asset for many Chinese people. During widespread pandemic lockdowns that dampened consumer spending and export growth, China’s economy became even more dependent on the ailing housing sector.The government recently intervened to help distressed real estate developers, in an attempt to stem the fallout from its housing crisis.A housing development in Shanghai. Population growth is a key driver of housing demand, and a plunging birthrate poses a major threat to China’s real estate sector.Qilai Shen for The New York TimesChina’s shrinking work force may not be able to support its growing, aging population.With fewer working-age people in the long run, the government could struggle to sustain an enormous population that is growing older and living longer. A 2019 report by the Chinese Academy of Social Sciences predicted that the country’s main pension fund would run out of money by 2035, in part because of the shrinking work force.Economists have compared China’s demographic crisis to the one that stalled Japan’s economic boom in the 1990s.But China does not have the same resources as a country like Japan to provide a safety net for its aging population. Its households live on much lower incomes on average than in the U.S. and elsewhere. Many older Chinese residents rely on state pension payments as a key source of income during retirement.China also has some of the lowest retirement ages in the world, with most workers retiring by 60. The situation has put a tremendous strain not only on state pension funds, but also on the country’s hospital system.Older Chinese citizens exercising at a park in Beijing. With fewer working-age people, the government could struggle to sustain an enormous population that is both growing older and living longer.Gilles Sabrie for The New York TimesThe crisis has been decades in the making.China introduced the one-child policy in the late 1970s, arguing that it was necessary to keep population growth from reaching unsustainable levels. The government imposed onerous fines on most couples who had more than one child, and compelled hundreds of millions of Chinese women to have abortions. Many families favored boys over girls, often aborting baby girls or abandoning them at birth, resulting in a huge surplus of single men in the Chinese population.China announced the relaxing of the family size restrictions in 2013, but many demographic experts said the change had come too late to change the country’s population trajectory.The government’s efforts to incentivize a baby boom to solve the demographic crisis have failed to stabilize falling birthrates.Gilles Sabrie for The New York TimesThere are no easy fixes.The government’s efforts to start a baby boom to solve the demographic crisis — including offering cash handouts and easing the one-child policy to allow for three — have failed to stabilize falling birthrates. Educated Chinese women are increasingly delaying marriage and choosing not to have children, deterred by the high costs of housing and education.China has also been unwilling to loosen immigration rules to boost the population, and has historically issued relatively few green cards to replenish its shrinking work force.To address the labor shortage, China has been outsourcing low-skilled production to other countries in Asia, and adding more automation to its factories, hoping to rely more on artificial intelligence and technology sectors for future growth. More

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    Russia Is Importing Western Weapons Technology, Bypassing Sanctions

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    Western technology goods are winding up in Russian missiles, raising questions about the efficacy of sanctions.Late last month, American and European Union officials traded information on millions of dollars’ worth of banned technology that was slipping through the cracks of their defenses and into Russian territory.Senior tax and trade officials noted a surge in chips and other electronic components being sold to Russia through Armenia, Kazakhstan and other countries, according to slides from the March 24 meeting obtained by The New York Times. And they shared information on the flow of eight particularly sensitive categories of chips and other electronic devices that they have deemed as critical to the development of weapons, including Russian cruise missiles that have struck Ukraine.As Ukraine tries to repel Russia from its territory, the United States and its allies have been fighting a parallel battle to keep the chips needed for weapons systems, drones and tanks out of Russian hands.But denying Russia access to chips has been a challenge, and the United States and Europe have not made a clear victory. While Russia’s ability to manufacture weaponry has been diminished because of Western sanctions adopted more than a year ago, the country is still gaining circuitous access to many electronic components.The result is devastating: As the United States and the European Union rally to furnish Ukrainians with weapons to keep fighting against Russia, their own technology is being used by Russia to fight back.American officials argue that the sweeping sanctions they have imposed in partnership with 38 other governments have severely damaged Russia’s military capacity, and raised the cost to Russia to procure the parts it needs.“My view is that we’ve been very effective in impeding Russia’s ability to sustain and reconstitute a military force,” said Alan Estevez, who oversees U.S. export controls at the Bureau of Industry and Security at the Commerce Department, in an interview in March.“We recognize that this is hard, hard work,” Mr. Estevez added. “They’re adapting. We’re adapting to their adaptations.”There is no doubt that the trade restrictions are making it significantly harder for Russia to obtain technology that can be used on the battlefield, much of which is designed by firms in the United States and allied countries.Direct sales of chips to Russia from the United States and its allies have plummeted to zero. U.S. officials say Russia has already blown through much of its supply of its most accurate weapons and has been forced to substitute lower-quality or counterfeit parts that make its weaponry less accurate.But trade data shows that other countries have stepped in to provide Russia with some of what it needs. After dropping off sharply immediately after the Ukrainian invasion, Russia’s chip imports crept back up, particularly from China. Imports between October and January were 50 percent or more of median prewar levels each month, according to tracking by Silverado Policy Accelerator, a think tank.Sarah V. Stewart, Silverado’s chief executive, said the export controls imposed on Russia had disrupted pre-existing supply chains, calling that “a really positive thing.” But she said Russia was “still continuing to get quite a substantial amount” of chips.“It’s really a supply chain network that is very, very large and very complex and not necessarily transparent,” Ms. Stewart said. “Chips are truly ubiquitous.”A Ukrainian serviceman holding an electronic unit of an unmanned aerial vehicle used by Russia against Ukraine, during a media briefing of the Security and Defense Forces of Ukraine in Kyiv last week.STR/NurPhoto, via Getty ImagesAs Russia has tried to get around restrictions, U.S. officials have steadily ratcheted up their rules, including adding sanctions on dozens of companies and organizations in Russia, Iran, China, Canada and elsewhere. The United States has also expanded its trade restrictions to include toasters, hair dryers and microwaves, all of which contain chips, and set up a “disruptive technology strike force” to investigate and prosecute illicit actors trying to acquire sensitive technology.But the illicit trade in chips is proving hard to police given the ubiquity of semiconductors. Companies shipped 1.15 trillion chips to customers globally in 2021, adding to a huge worldwide stockpile. China, which is not part of the sanctions regime, is pumping out increasingly sophisticated chips.The Semiconductor Industry Association, which represents major chip companies, said that it was engaging with the U.S. government and other parties to combat the illicit trade in semiconductors, but that controlling their flow was extremely difficult.“We have rigorous protocols to remove bad actors from our supply chains, but with about one trillion chips sold globally each year, it’s not as simple as flipping a switch,” the association said in a statement.So far, the Russian military appears to have been relying on a large stockpile of electronics and weaponry it accumulated before the invasion. But that supply may be drying up, making it more urgent for Russia to obtain new shipments.A report issued Tuesday by Conflict Armament Research, an independent group that examines Russian weaponry recovered from the battlefield, revealed the first known example of Russia’s making weapons with chips manufactured after the invasion began.Three identical chips, made by a U.S. company in an offshore factory, were found in Lancet drones recovered from several sites in Ukraine this past February and March, according to Damien Spleeters, who led the investigation for C.A.R.Mr. Spleeters said his group was not revealing the chip’s manufacturer while it worked with the company to trace how the product ended up in Russia.These chips were not necessarily an example of an export control violation, Mr. Spleeters said, since the United States did not issue restrictions on this specific type of chip until September. The chips were manufactured in August and may have been shipped out soon thereafter, he said.But he saw their presence as evidence that Russia’s big prewar stockpile of electronics was finally running out. “Now we are going to start seeing whether controls and sanctions will be effective,” Mr. Spleeters said.The parent company of the firm that designed the drone, the Kalashnikov Group, a major Russian weapons manufacturer, has publicly challenged the West’s technology restrictions.“It is impossible to isolate Russia from the entire global electronic component base,” Alan Lushnikov, the group’s president, said in a Russian-language interview last year, according to a translation in a report from the Center for Strategic and International Studies, a think tank. “It’s a fantasy to think otherwise.”That quote included “some bluster,” Gregory Allen, one of the report’s authors, said at an event in December. But he added: “Russia is going to try and do whatever it takes to get around these export controls. Because for them, the stakes are incredibly, incredibly high.”As the documents from the March meeting show, U.S. and European officials have become increasingly concerned that Russia is obtaining American and European goods by rerouting them through Armenia, Kazakhstan and other Central Asian countries.One document marked with the seal of the U.S. Bureau of Industry and Security said that in 2022, Armenia imported 515 percent more chips and processors from the United States and 212 percent more from the European Union than in 2021. Armenia then exported 97 percent of those same products to Russia, the document said.In another document, the Bureau of Industry and Security identified eight categories of chips and components deemed critical to Russian weapons development, including one called a field programmable gate array, which had been found in one model of Russian cruise missile, the KH-101.The intelligence sharing between the United States and Europe is part of a nascent but intensifying effort to minimize the leakage of such items to Russia. While the United States has deeper experience with enforcing sanctions, the European Union lacks centralized intelligence, customs and law enforcement abilities.The United States and the European Union have both recently dispatched officials to countries that were shipping more to Russia, to try to cut down that trade. Mr. Estevez said a recent visit to Turkey had persuaded that government to halt transshipments to Russia through their free trade zone, as well the servicing of Russian and Belarusian airplanes in Turkish airports.Biden administration officials say shipments to Russia and Belarus of the electronic equipment they have targeted fell 41 percent between 2021 and 2022, as the United States and its allies expanded their restrictions globally.Matthew S. Axelrod, the assistant secretary for export enforcement at the Bureau of Industry and Security, said the picture was one of a “broad decrease.”“But still there are certain areas of the world that are being used to get these items to Russia,” he said. “That’s a problem that we are laser-focused on.”John Ismay More

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    IMF Lowers Growth Outlook Amid Financial System Tremors

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    The International Monetary Fund says a painful slowdown, which could include a recession, has become a bigger risk for the global economy.WASHINGTON — The world economy faces the increasing risk of a painful slowdown amid worries about the global banking system and concerns that rising interest rates could force banks to curtail lending, the International Monetary Fund said on Tuesday.The warning follows weeks of turmoil in the global banking sector, which included two bank failures in the United States and UBS’s takeover of Credit Suisse, brokered by the Swiss government. Fears that bank runs would ripple through the financial system have abated in recent weeks, but concerns that additional bank failures and tightening lending standards could slow economic output around the world remain.In its latest World Economic Outlook report, the I.M.F. made a slight reduction to its growth forecast for 2023, lowering it to 2.8 percent, from 2.9 percent in January. Growth for the year is expected to be much slower than the I.M.F. predicted a year ago, when it projected output of 3.4 percent.Growth projections for Japan, Germany and India were all lowered since the start of the year, when the I.M.F. said a global recession would most likely be avoided.The I.M.F. and the World Bank have both raised alarms in recent weeks that the global economy is facing a period of extended stagnation. The I.M.F. expects growth to hover around 3 percent for the next five years, which is its weakest medium-term growth forecast since 1990.On Tuesday, the I.M.F. expressed optimism that a financial crisis could be averted, but it lamented that inflation was still elevated and that the global economy remained fragile, facing a “rocky” road ahead. It suggested that a so-called hard landing, which could entail economies around the world tipping into recession, was increasingly plausible.“A hard landing — particularly for advanced economies — has become a much larger risk,” the I.M.F. report said, adding, “The fog around the world economic outlook has thickened.”Pierre-Olivier Gourinchas, the I.M.F.’s chief economist, said hopes for stronger growth hinged partly on China’s reopening after strict Covid-19 regulations.How Hwee Young/EPA, via ShutterstockThe dimmer forecast comes as top economic officials from around the world are convening in Washington this week for the spring meetings of the I.M.F. and World Bank. The gathering is taking place at a moment of high uncertainty, with Russia’s war in Ukraine grinding on, prices around the world remaining stubbornly high and debt burdens in developing countries raising unease about the possibility of defaults.Treasury Secretary Janet L. Yellen is expected to meet with other international regulators this week to assess the state of the global financial system. On Tuesday, she expressed confidence in the U.S. banking system and the health of the economy, explaining that she continues to believe that the outlook is brighter than what many economists predicted last fall.“Here at home, the U.S. banking system remains sound, with strong capital and liquidity positions,” Ms. Yellen said during a news conference. “The global financial system also remains resilient due to the significant reforms that nations took after the financial crisis.”Ms. Yellen said she remained “vigilant” to the risks facing the economy, pointing to recent pressures on banking systems in the United States and Europe and the potential for more fallout from Russia’s war in Ukraine. She is not currently seeing evidence that credit is contracting, she added, but acknowledged that it was a possibility.“I’m not anticipating a downturn in the economy, although, of course, that remains a risk,” Ms. Yellen said.Treasury Secretary Janet Yellen expressed confidence on Tuesday in the strength of the U.S. economy but acknowledged that a downturn remained possible.Yuri Gripas for The New York TimesThe I.M.F. made a small upgrade to its projection for U.S. output, which is now expected to be 1.6 percent for 2023.Economists are still working to assess what effects the bank failures might have on the broader U.S. economy. Analysts at Goldman Sachs wrote in a research note this week that bank stress could reduce lending by as much as six percentage points and that small businesses, which rely heavily on small and midsize banks, could bear the brunt of tighter lending.The I.M.F. attributed the strain on the financial sector to banks with business models that relied heavily on a continuation of low interest rates and failed to adjust to the rapid pace of increases in the last year. Although it appears that the turbulence in the banking sector might be contained, the I.M.F. noted that investors and depositors remained highly sensitive to developments in the banking sector.Unrealized losses at banks could lead to a “plausible scenario” of additional shocks that could have a “potentially significant impact on the global economy” if credit conditions tighten further and businesses and households have an even harder time borrowing.“The risks are again heavily weighted to the downside and in large part because of the financial turmoil of the last month and a half,” Pierre-Olivier Gourinchas, the I.M.F.’s chief economist, said at a briefing ahead of the report’s release.In the most severe scenario, in which global credit conditions tighten sharply, the I.M.F. projected that global growth could slow to 1 percent this year.Mr. Gourinchas noted that the financial system was not the only cloud hanging over the global economy. Hopes for stronger growth have been hinging on China’s reopening after strict pandemic regulations, and changes to that policy could slow output and disrupt international commerce, he said. At the same time, Russia’s war in Ukraine continues to threaten the reliability of food and energy supply chains.Last month, the I.M.F. approved a $15.6 billion loan package for Ukraine, the first such financing program for a country involved in a major war.Emile Ducke for The New York TimesThe I.M.F. has been playing a leading role in trying to stabilize the Ukrainian economy, and last month it approved a $15.6 billion loan package for Ukraine, the first such financing program for a country involved in a major war. But despite the efforts by Western nations to buttress Ukraine and weaken Russia, the I.M.F. raised its outlook for the Russian economy, projecting it will grow 0.7 percent this year and 1.3 percent in 2024.The I.M.F. noted that Russia’s energy exports continued to be robust, allowing it to support its economy through government spending. The impact of efforts by the United States and Europe to cap the price of Russian oil at $60 a barrel remains unclear because global oil prices have been falling amid recession fears. I.M.F. officials said that because of lower oil prices, Russian oil was no longer trading at as much of a discount and that Russia had been successful at finding ways to circumvent the price cap.Even as it underscored the risks facing the global economy, the I.M.F. urged central banks to maintain their efforts to contain prices while standing ready to stabilize the financial system, noting that inflation is still too elevated relative to their targets.Despite the I.M.F.’s warnings about a hard landing, Ms. Yellen sought to open this week’s meetings with a note of optimism. She pointed to signs that inflation is diminishing and the resilience of the financial system as reasons for hope.“I wouldn’t overdo the negativism about the global economy,” Ms. Yellen said. “I think we should be more positive.”She added: “I think the outlook is reasonably bright.” More