Category: Current Affairs
Latin America and the Great Trade realignment
Citi sees Latin America as one of the main winners of the “great trade realignment”
A new Citi report positions Latin America as one of the main winners of what it calls the “great trade realignment”, as global supply chains shift toward a more multipolar structure driven by tariff volatility, AI adoption and nearshoring trends.
Trade flows from Latin America to ASEAN countries surged 82% between 2019 and 2024, while exports from China to the region grew 59% over the same period.
Latin America’s exports to North America also rose 43% in the same period.
Citi highlights the region’s growing role as a vital supplier of critical minerals to Asia’s electronics industry, an agricultural alternative to the United States for products like soybeans, and an increasingly attractive destination for foreign direct investment, which grew 12% in the first half of 2025 against a negative trend in other developed economies.
Here is the link.
Iran/Venezuela facts of the day
Iran was once one of the key oil suppliers to the world. No longer. Its exports, constrained by sanctions, amount to less than 2 per cent of global supplies, most of which go to China at discounted prices.
A similar change has taken place in Venezuela. Once a star of world oil and one of the founding members of Opec, today it can hardly even be called a petrostate. It produces less oil than the US state of North Dakota and a quarter as much as neighbouring Brazil.
Here is more from Daniel Yergin at the FT.
The Hidden Cost of Hard-to-Fire Labor Laws: Why European Firms Don’t Take Risks
In our textbook, Modern Principles, Tyler and I write:
Imagine how difficult it would be to get a date if every date required marriage? In the same way, it’s more difficult to find a job when every job requires a long-term commitment from the employer.
In two new excellent pieces, Brian Albrecht and Pieter Garicano extend this partial equilibrium aphorism with some general equilibrium reasoning. Here’s Albrecht:
[I]magine there is a surge for Siemens products. Do you hire a ton of workers to fill that demand? No, you’re worried about having to fire them in the future but being stuck until they retire.
But it’s even worse than that…..[suppose Siemens does want to hire] where is Siemens getting those workers from?…Not only is it a problem for Siemens that they won’t be able to fire people down the road, the fact that BMW doesn’t fire anyone means you can’t hire people.
Garicano has an excellent piece, Why Europe doesn’t have a Tesla, with lots of detail on European labor law:
Under the [German] Protection Against Dismissal Act, the Kündigungsschutzgesetz, redundancies over ten employees must pass a social selection test (Sozialauswahl). Employers cannot choose who leaves: they must rank employees by age, years of service, family maintenance obligations, and degree of disability, and then prioritize dismissing those with the weakest social claim to the job. If someone is dismissed for operational reasons but the company posts a similar job elsewhere, the dismissal is usually invalid.
Disabled employees can be dismissed only with the approval of the Integration Office (Integrationsamt), a public body. The office will weigh the employer’s reasons, whether they have taken sufficient steps to integrate the employee, and whether they could be redeployed elsewhere in the organization. Workers who also become caregivers cannot be dismissed at all for up to two full years after they tell their bosses they fulfill that role.
As a company becomes larger and tries to let more workers go at once these difficulties increase. In many European countries, companies with more than a certain number of workers – 50 in the Netherlands, 5 in Germany – are obliged to create a works council, which represents employees and, in some countries, must give its approval to decisions the employer wants to make regarding its employees, including layoffs or pay rises or cuts.
…Companies that are allowed to fire someone and can afford to pay the severance costs have to wait and pay additional fees. Collective dismissal procedures in Germany start after 30 departures within a month; once triggered they require further negotiations with the works council, a waiting period, and the creation of a ‘social plan’ with more compensation for departing workers. When Opel shut down its Bochum factory in Germany, it reached a deal with the works council to spend €552 million on severance for the 3,300 affected employees. This included individual payments of up to €250,000 and a €60 million plan to help workers find new jobs.
Now what is the effect of regulations like this? Well obviously the partial equilibrium effect is to reduce hiring but in addition Garicano notes that it changes what sorts of firms are created in the first place. If you are worried about being burdened by expensive dismissal procedures, build a regulated utility with captive government contracts, not a radical startup with a high probability of failure.
Rather than reduce hiring in response to more expensive firing, companies in Europe have shifted activity away from areas where layoffs are likely. European workers are for sure, solid work only. This works well in periods of little innovation, or when innovation is gradual. The continent, however, is poorly equipped for moments of great experimentation.
…Europe’s companies have immense, specialized knowledge [due to retained workforces, AT]. The problems happen when radical innovation is needed, as in the shift from gasoline to electric vehicles. The great makers of electric cars have either been new entrants, like Tesla and BYD, or old ones who have had their insides stripped, like MG.
..If Europe wants a Tesla, or whatever the Tesla of the next decade will turn out to be, it will need a new approach to hiring and firing.
Democracy continues
Here is a link.
A simple model of AI governance
I trust private companies with strong AI more than I trust the government, regardless of which administration is in power. Yet if the federal government feels it has no say or no control, it will lunge and take over the whole thing. We thus want sustainble methods of perpetual interference that a) are actually somewhat useful from a safety perspective, and b) give governments some control, and the feeling of control, but not too much control.
You should judge AI-related events within this framework.
Banned in California
California cannot permit the construction of a smartphone factory, an electric car plant, or a Navy destroyer shipyard. Not won’t — can’t. The regulatory environment makes it effectively impossible to build new semiconductor fabs, automotive paint shops, battery gigafactories, or steel foundries.
Tesla didn’t put its Gigafactory in Nevada out of affection for Reno. General Dynamics NASSCO in San Diego can build destroyers only because it’s been grandfathered in since 1960. If it closed tomorrow, it could not be rebuilt.
I get tired at all the discussion of tariffs and industrial policy and manufacturing. All of it is BS in comparison to the basics. We have the met the enemy and the enemy is us. Our future is in our hands. Is that optimistic or pessimistic? Either way complaining about China won’t fix our problems.
Brazil is underrated
Numerous nations in the Middle East are being pulled into the current conflict and have received missile attacks from Iran. I believe the proper Bayesian update is that Brazil is underrated.
The country has plenty of water, and lots of capacity to grow its own food. It is an agricultural powerhouse. It is developing more and more fossil fuels. No neighbor or near neighbor dares threaten it. You cannot imagine conquering it, because even the government of Brazil has not conquered its own country.
It is big enough that even the United States can push it around to only a limited degree.
Crime rates are high, but on the up side that gives the place a certain resiliency. People are used to bad events, and society is structured accordingly. You cannot write of “Brazil falling into dystopia” without generating a laugh.
If immigration bothers you (not my view), Brazil and Brazilian culture is not going to be swamped by people coming from somewhere else. For better or worse.
Brazil has “stayed Brazil” through both democracy and autocracy.
Worth a ponder. Here is an FT piece on “Brazil’s Dubai.”
One view of Iranian strategy
Some observations and comments on Trump and Israel’s war on Iran:
1. Tehran is not looking for a ceasefire and has rejected outreach from Trump. The reason is that they believe they committed a mistake by agreeing to the ceasefire in June – it only enabled the US and Israel to restock and remobilize to launch war again. If they agree to a ceasefire now, they will only be attacked again in a few months.
2. For a ceasefire to be acceptable, it appears difficult for Tehran to agree to it until the cost to the US has become much higher than it currently is. Otherwise, the US will restart the war at a later point, the calculation reads.
3. Accordingly, Iran has shifted its strategy. It is striking Israel, but very differently from the June war. There is a constant level of attack throughout the day rather than a salvo of 50 missiles at once. Damage will be less, but that isn’t a problem because Tehran has concluded that Israel’s pain tolerance is very high – as long as the US stays in the war. So the focus shifts to the US.
4. From the outset, and perhaps surprisingly, Iran has been targeting US bases in the region, including against friendly states. Tehran calculates that the war can only end durably if the cost for the US rises dramatically, including American casualties. After the assassination of Ayatollah Khamenei, Iran says it has no red lines left and will go all out in seeking the destruction of these bases and high American casualties.
5. Iran understands that many in the American security establishment had been convinced that Iran’s past restraint reflected weakness and an inability or unwillingness to face the US in a direct war. Tehran is now doing everything it can to demonstrate the opposite – despite the massive cost it itself will pay. Ironically, the assassination of Khamenei facilitated this shift.
6. One aspect of this is that Iran has now also struck bases in Cyprus, which have been used for attacks against Iran. Iran is well aware that this is an attack on a EU state. But that seems to be the point. Tehran appears intent on not only expanding the war into Persian Gulf states but also into Europe. Note the attack on the French base in the UAE. For the war to be able to end, Europe too has to pay a cost, the reasoning appears to be.
7. There appears to be only limited concern about the internal situation. The announcement of Khamenei’s death opened a window for people to pour onto the streets and seek to overthrow the regime. Though expressions of joy were widespread, no real mobilization was seen. That window is now closing, as the theocratic system closes ranks and establishes new formal leadership.
Again: The question “How will this end?” should have been asked before this war was triggered. It wasn’t.
That is from Trita Parsi, via B. Note that some people consider Parsi a biased source (not sufficiently anti-Iran?), in any case it is worth pondering how other parties may view the current situation.
Stand with free speech and the Constitution
A landmark law that limits children under the age of 16 to one hour per day on social media apps has been blocked by a US court, in a blow to child safety campaigners seeking to limit exposure to sites such as Instagram and YouTube.
In an opinion released on Friday, a federal judge in Virginia halted the enforcement of a bill passed by the state last year, under which social media companies could be fined $7,500 per violation.
The state “does not have the legal authority to block minors’ access to constitutionally protected speech until their parents give their consent by overriding a government-imposed default limit”, Judge Patricia Tolliver Giles wrote of the measure, implementing a preliminary injunction.
Giles concluded the law was “over-inclusive”. Under it, “a minor would be barred from watching an online church service if it exceeded an hour on YouTube . . . yet, that same minor is allowed to watch provider-selected religious programming exceeding an hour in length on a streaming platform,” she wrote. “This treats functionally equivalent speech differently.”
Here is more from the FT.
The war
You may comment here if you wish…
Jason Furman on AI contestability
This ease of switching has forced companies to pass the gains from innovation on to users. Free tiers now offer capabilities that recently would have seemed almost unimaginable. OpenAI pioneered a $20-per-month subscription three years ago, a price point many competitors matched. That price has not changed, even as features and performance have improved substantially.
One recent analysis found that “GPT-4-equivalent performance now costs $0.40/million tokens versus $20 in late 2022.” That is the equivalent of a 70 percent annual deflation rate — remarkable by any standard, especially in a time when affordability has become a dominant public concern.
And this is only the foundational model layer. On top of it sits a sprawling ecosystem of consumer applications, enterprise tools, device integrations and start-ups aiming to serve niches as specific as gyms and hair salons.
Users aren’t the only ones switching. The people who work at these companies move from one to another, a sharp contrast to work in Silicon Valley during the era of do-not-poach agreements.
The entire NYT piece is very good.
The Software Upgrade in Chinese Civic Behaviour
I have not been to China recently enough to judge these claims:
Behaviour is notoriously harder to engineer than buildings. A recent trip to the Fragrant Hills in western Beijing on a newly constructed metro line, had me marveling at the improved crowd-management. Despite massive groups of domestic tourists from around the country thronging the area, in what would not-so-long-ago have been a scenario for a potential stampede, the crowds moved in relative order. The park environs were spick and span with no litter in sight; not a single old codger sneaking a cigarette.
There was some amount of strident rule-announcing on loudspeakers: stay on the designated tracks, no smoking etc., but overall, it was possible to enjoy the natural beauty, notwithstanding the hordes of day-trippers. The toilets were not fragrant, despite the nomenclature of the spot itself, but they were clean, and the seats were free of the tell-tale footprints that indicate squatting rather than sitting. Barely anyone gave me, an obvious foreigner, a second glance. In contrast, there was a time in 2002 when a cyclist fell off his bike in his shock at having spotted dark-skinned me walking along a road in the outskirts of Beijing.
So how had the Chinese been pacified/disciplined/habituated to ways of behaviour that went so against their until-very-recent, loophole-finding, chaos-shuffling, phlegm-expectorating deportment in public spaces?
The answer, as answers to sociological questions invariably are, is multipronged.
Some of it is more money.
Here is more by Pallavi Aiyar. Via Malinga Fernando.
Peru’s new President taps Hernando de Soto to be prime minister
Here is the Bloomberg article. Here is previous MR coverage of de Soto. Here is Wikipedia on de Soto.
Daniel Litt on AI and Math
Daniel Litt is a professor of mathematics at the University of Toronto. He has been active in evaluating AI models for many years and is generally seen as a skeptic pushing back at hype. He has a very interesting statement updating his thoughts:
In March 2025 I made a bet with Tamay Besiroglu, cofounder of RL environment company Mechanize, that AI tools would not be able to autonomously produce papers I judge to be at a level comparable to that of the best few papers published in 2025, at comparable cost to human experts, by 2030. I gave him 3:1 odds at the time; I now expect to lose this bet.
Much of what I’ll say here is not factually very different from what I’ve written before. I’ve slowly updated my timelines over the past year, but if one wants to speculate about the long-term future of math research, a difference of a few years is not so important. My trigger for writing this post is that, despite all of the above, I think I was not correctly calibrated as to the capabilities of existing models, let alone near-future models. This was more apparent in the mood of my comments than their content, which was largely cautious.
To be sure, the models are not yet as original or creative as the very best human mathematicians (who is?) but:
Can an LLM invent the notion of a scheme, or of a perfectoid space, or whatever your favorite mathematical object is? (Could I? Could you? Obviously this is a high bar, and not necessary for usefulness.) Can it come up with a new technique? Execute an argument that isn’t “routine for the right expert”? Make an interesting new definition? Ask the right question?
…I am skeptical that there is any mystical aspect of mathematics research intrinsically inaccessible to models, but it is true that human mathematics research relies on discovering analogies and philosophies, and performing other non-rigorous tasks where model performance is as yet unclear.
Podcast with Jake Sullivan and Jon Finer
Mostly about geopolitics, plenty of fresh content. And here is the transcript. Excerpt:
Jon Finer:
Should the United States be willing to take military action to defend Taiwan? It’s a thorny question for politicians to answer, but we’d be interested in your view.
Tyler Cowen:
Well, this is what economists would call a mixed strategy. Ex-ante, we should have strategic ambiguity, and not just say, we’re not going to defend Taiwan. And when Joe Biden said, “Well, we are going to defend Taiwan,” I was quite happy.
Jon Finer:
Four times. Four times.
Tyler Cowen:
Four times, yes. I know there’s different versions of how it was talked back and the like, but it should be unclear. That said, when push comes to shove, if China has made its move, you have to look at what are the terms of the deal? What are they going to do with TSMC to our best knowledge? What’s the domestic quality chip production in the United States? How do we feel about Japan and maybe South Korea getting nuclear weapons? Can South Korea remain an autonomous nation? Those are a lot of balls to juggle and they’re all hard to judge at this moment. But I think ex-ante, we should definitely create some risk that we will go to war over Taiwan, but then make the best decision ex-post. But China knows that too, right? They’re not fools. They’ve studied game theory.
Jake Sullivan:
Tyler, I’m going to put you down as that being Tyler Cowen’s version of strategic ambiguity.
Tyler Cowen:
It may not be that different from your version.
Jake Sullivan:
Exactly.
Recommended, and I also talk about my secret, unpublished China book, still pending at Tsinghua, almost certainly forever. And we cover UAPs and curling as well.