Terms of Trade: The Four Horsemen of an imminent international winter

THe 2011 shoot perimeter call in, which enacts the events leading up to the 2008 worldwide financial crisis, has a shot where a board meeting is convened in an investment bank in the middle of the night. This happens after a junior company analyst unearths sub-prime assets in the books. The CEO delivers a dialogue which is a masterclass on business leadership. “Let me tell you something, Mr. Sullivan (the junior analyst). Do you care to know why I’m in this chair with you all? I mean, why I earn the big bucks…I’m here for one reason and one reason alone. I’m here to guess what the music might do a week, a month, a year from now. That’s it. Nothing more. And standing here tonight, I’m afraid that I don’t hear - a - thing. Just... Silence.”, he says.Countries are not companies. But national fortunes cannot be built unless leaders have a vision of what the ‘music’ might do years and decades from now.At least four developments – the Space X IPO and Elon Musk becoming the world’s first trillionaire, US government banning access of non-Americans to Anthropic’s critical AI tools, a deal between US and Iran to cease hostilities much to Israel’s dismay and the US’s blatant targeting of Indian sailors in the Strait of Hormuz, and riots targeting migrants in Belfast – in the past one week hold important lessons for India in this regard.Let us look at them one by one.Space X is the most extreme case of Star Wars-IncorporatedThe core business of Musk’s Space X is satellite-based internet in Starlink and space launches and travel via its cutting-edge rocket systems. Space X made losses last year. Musk’s targeted $135 per share listing meant a price-to-revenue multiple of 93.7, more than five times what it was Tesla, Reuters reported. For context, one of India’s most expensive large company stocks, Adani Green Energy trades at price-to-sales multiple of around 20. The number is less than half for most stocks on India’s benchmark index. This underlines the exuberance premium Musk enjoys at the moment.Now, one can argue that Musk is enjoying the proverbial techno-tulip tailwinds in the US equity markets and the bubble will burst one day. But what is also a fact is that more and more people (with money) believe that the future of profits is tied to cutting edge tech like never before. The dotcom bubble burst too, but the business of internet did not go anywhere except upwards.From a slightly long-term perspective, Musk’s net worth rocket flight underlines the private gains from the technological advance which has its origins in the US military industrial complex. It pioneered both rocket science and the internet at the peak of its rivalry with the Soviet Union. What we have now are a bunch of monopolies which have become too big to be even outcompeted. Those who are interested in a longer version of this argument would do well to read Chris Miller’s excellent book Chip Wars, from where this quote given below has been taken.“In the early 1960s, it had been possible to claim the Pentagon had created Silicon Valley. In the decade since, the tables had turned. The U.S. Military lost the war in Vietnam, but the chip industry won the peace that followed, binding the rest of Asia, from Singapore to Taiwan to Japan, more closely to the U.S. Via rapidly expanding investment links and supply chains…Unlike in the days of the Apollo program, by the 1980s over 90 percent of semi-conductors were bought by companies and consumers, not the military. It was hard for the Pentagon to shape the industry because the Defense Department was no longer Silicon Valley’s most important customer.”Now a handful of companies at this cutting-edge frontier are outside the US such as the chipmaker TSMC in Taiwan and photolithography systems maker ASML in Netherlands, but the overwhelming majority continues to be American. The only country which can even pretend to be competing with this technological edge of the US is China, which has made long-term investments to build such capabilities and companies. India does not even come close. This has serious implications for India’s future wealth creation or lack thereof on a global scale.AI will be the new geo-political apartheid“America’s closest allies are shellshocked”, is how The Economist described US government’s decision to block all non-foreigner access (including personnel in US companies) to Anthropic’s Mythos. To be sure, some negotiations seem to be happening between Anthropic and US government. Among other things, Mythos is an AI tool which can hack into most secure systems. The implications of this can only be compared to a country possessing an electromagnetic pulse (EMP) based weapons system capable of crippling the entire infrastructure of both economies and militaries. There is even a James Bond film about the EMP nightmare.Legalities and ethical debates aside – Anthropic and Trump administration do not really share the best relationship – The Economist rightly compares the latest ban with US embargoes on nuclear weapons technology and cryptography techniques even with its closest allies. An earlier version of it was already visible in bipartisan US efforts to restrict the availability of cutting-edge tech to US’s rival China in sectors such as chip making. Now, the shoe is on the other foot.The implications of the second, when read with the first, are clear. The US is not just reneging on its commitment to provide export markets or even capital to the rest of the world. It will also start rolling back its promise to share technology in sectors where it still has some advantage with others.It does not matter whether you are the US’s friend of even best friend. India has considered itself a friend of America for a long time and the two have been taking steps towards becoming best friends. The friendship will have less gives and more takes to US’s advantage.US’s allies are dispensable, their exposure to its mis-adventures, permanent Assuming that the US-Iran deal goes through – one never knows with Trump – the biggest loser in the region will turn out to be Israel. It has burnt immense political capital across the world thanks to its vastly disproportionate and grotesque military campaign in Gaza with massive humanitarian losses. It perhaps thought that a decisive victory over Iran in a military campaign involving the US will at least compensate in strategic terms what it lost in diplomatic capital. Trump was gullible but not for long.Once it became clear that Iran’s military capabilities had far from atrophied in the aftermath of its supreme leader’s assassination and it successfully closed the Strait of Hormuz, it was Israel not Iran which became the sitting duck in the ongoing the war unless the US committed to deploying ground troops. Trump is now walking away from the mess, leaving Israel and its other West Asian allies to pick up the pieces. The rest of the world, India included have paid huge costs thanks to the energy shock which followed the war.US’s behaviour towards its allies in West Asia – countries were attacked for having American military bases which they thought was the best insurance they could have against such attacks – makes its brazen acts of shooting an Iranian navy ship (not in combat) in Indian Ocean waters and then attacking a ship with Indian crew which killed three Indian sailors appear relatively benign.The joke is on strategic pundits who thought the Quad – a US led security alliance to contain China in the Indo-Pacific – was the desired path for India’s geostrategic ambitions. China will definitely be smiling. Even Pakistan, a failed state for all practical purposes has something to grandstand about thanks to its foot in the peace process door.Some of India’s most well-placed policy makers thought that Donald Trump’s second presidency was an unambiguous good for India when he assumed office in 2024. The world, unlike the virtuous posturing they now often make, is not going from unipolar to multi-polar. It increasingly resembles the law of the jungle: might is the only right and there are no permanent friendships.An anti-migrant riot in a quasi-tax haven with tech billionaires as agent provocateursBelfast is no stranger to violence and rioting. But what happened a few days ago was both similar and yet different. “Outside Belfast, mobs torched targets in Portadown, Dundonald and Newtownabbey. The fire service received 256 calls and attended 62 incidents. Similar scenes have played out in England, but Northern Ireland’s history echoed through the mayhem. In 1969, mobs burned Catholic families from some of the same streets, setting a precedent”, The Guardian said in its reporting on the anti-migrant riot which erupted in Ireland after a Sudanese refugee stabbed a white man. “To the rioters who burned homes and vehicles, including a Glider bus and a police car, it did, in fact, make perfect sense. Their social media feeds, elected representatives and far-right agitators, such as Elon Musk and Tommy Robinson, assured them it was all connected: immigrants and refugees were taking houses, imposing alien customs and committing crimes while the police did nothing, thus requiring community action”, The Guardian story adds.Ireland today, unlike its troubled past, is not a country of street fights and exploding bombs. It is a quasi-tax haven which offers among the lowest taxes to multi nationals and is a global leader in high-end services. What has happened in Belfast will not stay in Belfast.The multicultural, cosmopolitan experiment in the western world now stands on pillars which are giving way. Migrants make perfect economic sense for societies which are in demographic decline and have made huge gains from being recipients of both skilled and unskilled labour. But this zero-sum game in a rational world is increasingly being seen as non-zero sum in a world where the native underclass has been economically emaciated and has joined hands with the cultural and ethnic right to turn its ire against the parasitic outsider. The latent anger is being provided kinetic energy by new-age tech billionaires who are otherwise happy to ask for exceptions in policies such as the H1B visa programme.Now, one can say that Indians are mostly among the top income migrants in the west and will not be targeted as much as the average Arab or African. But it will also be delusional to think of some significant exceptionalism for India when the west turns anti-migrant in general and differentiates on the basis of colour of skin. The trend of Indians making a fortune for themselves while working in a West that was welcoming rather than hostile might already have peaked.What does it all mean?The ongoing euphemism about the changing world has been the demise of a rules-based order. Well, WTO et al mattered to an extent but they were far from perfect. What is happening today in the world is a fundamental resetting of the rules of accumulation, knowledge sharing, its weaponisaton and social attitudes in the western world.None of these changes resulted from actions taken by India. But almost all of them will make life significantly more difficult for India and Indians going forward. I started this column with a Hollywood dialogue. I could end it with a fairy tale where the grasshopper makes merry while the ants work for winter. “I was so busy making music that before I knew it the summer was gone”, the grasshopper admits when he is starving in winter. Indian public discourse and the discourse setters would do well to admit the winter that is coming.