Ian Welsh

The horizon is not so far as we can see, but as far as we can imagine

Author: Ian Welsh Page 5 of 422

2025 Fundraiser

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On September 29, 2025

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This blog runs on reader subscriptions and donations. Reading it is free, and always will be, but it does take money to run the site and keep myself fed and sheltered. Every year (except one time when I was sick and forgot) I do an annual fundraiser, and the funds raised are what make the blog viable.

Over the last few years I’ve been writing mostly about the hegemonic changeover from America to China. Long predicted, this is still a rare event, happening only every century or so, and it’s fascinating to be living thru it. I still plan on covering it, but I think regular readers get the point.

What I plan on writing more about is what the future looks like, and what it takes to run a “good” society. We don’t have a lot of those right now, and putting down the markers for what is required to create one is important. Equally, we need to understand how good societies fail. As an example FDR created a much better America for Americans, but he left open some “windows of wealth” like taxing capital gains at much less than income. It took a while for the rich to turn into oligarchs by driving a tank thru this opening, but they managed it.

China before Xi was in vast danger of turning into an oligarchy. Corruption was rampant, and China was minting billionaires, and they were using their wealth to buy influence and power. Xi shut that down, hard. China avoided a trap which would have turned its rise, at best, into a Chinese Gilded Age and might well have derailed it entirely.

Many such traps come along, and sometimes countries recover before the harm is insoluble.

Sometimes they don’t.

So I’ll be writing more about such issues, about the future effects of climate change on governance and general life and so on.

We have two new writers, Sean Paul Kelley and Nat Wilson Turner. They cover issues I only touch on, Sean Paul is a trained historian, and former institutional broker at Morgan Stanley who has visited more countries than not–65 and counting, and Nate is good at the “bloggy” stuff, as well as (though he hasn’t written about it yet for us) the principles of ideology and how it determines history.

We’ll also make some serious predictions. Most of the big picture events I predicted over the last twenty years have either come to pass, or are in process now, like the rise of China, the fall of America, the immiseration of Americans, the rise of authoritarianism, undeniable climate change, the fall of Crimea, the 2008 financial collapse and so on. We’re due for another financial collapse, and I’ll discuss why, how it will most likely play out, why it’ll be the last one which can be “papered over” and put it in the context of the US’s demotion to regional great power.

In terms of fundraising goals, for every two thousand dollars we raised, I’ll write a long article on one of the “Laws of Heaven”, the principles which create and sustain good societies, in Machiavelli style dictums.

One of these is the “Law of the Predator”.

Anyone who will take what they want from someone weaker than them cannot be allowed to have any power.

Rules such as these, and “keep the rich poor” are foundational. When we don’t follow them, usually without realizing we are, our societies inevitably rot and turn into something hellish for the majority of people.

Readership is up a fair bit this year, even after removing bots. People want to read what is written here. But to write, money is, alas, necessary. I hope you will subscribe or donate. The goal is $12,500, the same as last year. If you’re personally in financial trouble, if food or shelter is an issue, please don’t give. If not, and you value this blog, please do.

SUBSCRIBE OR DONATE TO IAN’S 2025 FUNDRAISER

(Afterword. If you had a subscription and think it’s still running, please check. When credit cards change, the subscription ends. I always let people know, but email messages don’t always get thru. If you can’t use paypal to donate, let me know. Snail mail still works or if you’re Canadian, an Interac transfer. (Most US cash apps do not work in Canada. You can reach me at admin-at-ianwelsh-dot-net, about this or anything else.)

Chinese Companies Compete For Market Share & That’s Why Starbucks Is Toast

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On September 27, 2025

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Starbucks sells expensive sugared drinks, and some of them have coffee in them. It’s been very profitable and despite some declines, remains so. The CEO was paid about $96 million last year. He was brought in to “turn Starbucks around”, and his main moves have been towards returning Starbucks to its roots as a “third place”, which is to say, somewhere other than work or home where people spend time.

That’s a good idea, actually, because if all Starbucks sells is expensive drinks, which most people pick up, then it’s a lousy value proposition for consumers, especially for the mass of consumers who are seeing a lot of inflation and effectively decreasing wages. The average drink at Starbucks probably comes in around $5 and it’s easy to spend $7, and that’s just on the drink.

Now here’s the issue: American companies are most interested in profits. They want to make large net profits and pay their executives well, which they do by giving them stock options and in most cases juicing share prices by spending massive amounts on stock buybacks.

 

 

American companies are in the business of making whoever controls them rich. Sometimes they’re willing to make a long play and compete for market share, but generally ONLY if they think there’s a possibility of achieving a monopoly or oligopoly position. So there was tons of money for Uber & Lyft, because investors knew that in the end, they’d be able to reap monopoly profits, which they now are.

But in markets where there doesn’t seem to be that possibility, corporations are much less willing to compete aggressively for market share by beating the competitor on price. They prefer to compete in other ways: the third place, for example, or a product that is perceived as better and effectively “price clump”. If an upstart tries to break into an established industry they may briefly drop prices to keep them out, but that’s as far as they’ll go.

Now here’s the problem, Chinese companies compete aggressively for market share based on price. Starbucks used to be the player in the Chinese coffee house market. Then they had their coffee drunk by an upstart named Luckin. Luckin is opening about 10x as many stores as Starbucks. It has 16,000 stores to Starbucks 7,000, and its drinks, which include fancy ones, are about 30% cheaper. Starbucks definitely makes more per store, but Luckin makes more gross. There’s no “third place” about Luckin, they’re kiosks, you order your drink, usually thru your phone (which offers constant discounts) and pick it up.

Because they have massive scale, their unit costs are low, and they benefit from the usual “no one can beat the Chinese at scale” advantage. (Though Starbucks could have done the same, they just wanted to be a more luxury brand and get the extra profits.)

Gadallion goes into this in detail, if you want the nitty gritty, but this chart shows the speed of Luckin’s growth.

 

Now Luckin has come to America. The drinks are cheaper and Starbucks does a lot of pick up business. If you’re just going to pick up a drink, why not go to the cheaper alternative, assuming the drinks are about as good? And unlike China, American consumers are squeezed big time. (China’s 2nd and 3rd tier city consumers are doing well, Beijing and Shanghai consumers are currently under pressure from the housing bubble being smashed, but should recover in the next year or two.)

For now Starbucks has more stores worldwide than Luckin. But their unit costs are higher even now. If Luckin keeps expanding, and especially expanding in the US and S.E. Asia, Luckin’s unit costs are likely to keep decreasing.

It’s hard to see how this doesn’t end badly for Starbucks, unless they get Congress or Trump to intervene. There’s momentum with Starbucks: people are used to going there and keep doing so. But if there’s something cheaper, that’s about as good?

If they compete on price, they lose a lot of their profit margins and investors are already squealing about the minor drops they’ve recently experienced. If they don’t compete on price, Americans who are price sensitive and don’t need “the third place” move to them, and they lose massive amounts of volume. There’s certainly a niche and a fairly large one for “buy a drink and stay at the coffee shop to enjoy it”, and I suspect it’s pretty profitable, but it’s smaller than what Starbucks is right now, and what’s to stop Luckin, after it wins the price sensitive customers from opening “Luckin Luxury Cafes” or somesuch, offering actual premium drinks and comfy chairs and tables and laptop charging, and using their unit cost advantage to out compete the “third place” Starbucks?

This is a specific case of a general rule: Chinese companies want scale and compete on price. They’re like American businesses in the 50s and 60s. They offer value and they aren’t trying to maximize profits by maximizing prices, because they’re used to an economy which has actual price competition.

I used to spend a lot of time in Starbucks, because they had stores in book shops, and I’d buy a coffee and read books for a few hours every day. I’d still be interested in that sort of thing and I have some emotional fondness for Starbucks because of what are, for me, good memories.

But it’s hard to be sanguine about their future. The third place stuff is fine, but if they want to survive, they’d better start competing on price while they still have a size advantage.

Most US companies are in a far worse situation: they’re already smaller than their Chinese equivalents. They can’t compete on price, it’s not possible, because they don’t have scale economies and can’t get them. As China catches up in quality and in many industries surpasses, they’re toast unless protected from Chinese competition, usually by law, geography or trade barriers. Businesses which aren’t, however, are about to experience what other countries experiences when Coke and McDonalds, in the 80s and 90s, came to town, or manufacturers experienced in the 50s and 60s before the rise of Japan.

Developing countries, with lower costs, have an ironic advantage when it comes to survival of many businesses. But high profit, high cost countries like America and most European ones?

Toast.

***

I appreciate everyone who donates or subscribes to keep this site (and Ian) running. Readership is up over 40% this year, and I’m very grateful. If you want to help the blog, please share the articles you like and if you can afford it, and like the content, please Subscribe or donate.

Open Thread

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On September 27, 2025

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Use to discuss topics unrelated to recent posts.

London & New York Are Toast

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On September 24, 2025

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Stumbled across this recently: 

  • China aims to become custodian of foreign sovereign gold reserves to strengthen its standing in the global bullion market, according to people familiar with the matter.
  • The People’s Bank of China is using the Shanghai Gold Exchange to court central banks in friendly countries to buy bullion and store it within the country’s borders.
  • The move would enhance Beijing’s role in the global financial system, furthering its goal of establishing a world that’s less dependent on the dollar and Western centers.

Remember when the US stole Venezuela’s gold? Remember when the West “froze” Russia’s reserves, including gold?

Actions have consequences. Since most countries do more trade with China than with the US, let alone the laughable UK, and since China appears a lot less likely to steal one’s reserves, this rather makes sense.

China does almost half of its trade now in Yuan, and the the remaining is often in local currencies. (The Russians pay in rubles, for example.)

When  you add in the trade flows, and bear in mind this is 5 years old and today China has overtaken in more countries…

Well, why exactly would you use US dollars for trade, or use New York or London as your primary foreign banking center? You’d be a fool if you did so, if you’re outside of the West+allies (Japan, South Korea, Taiwan.)’

The US stock market is also VASTLY over-valued. There hasn’t been a proper market correction which was allowed to stick in generations. The idea that US public companies are worth more than China’s public companies is ludicrous. As the actual world economy is now centered on China, not America, this will become unsustainable, because the US dollar is going to copy what happened to the UK pound over the 20th century, and the US will no longer have currency seignorage: if other countries don’t want it, the US can’t just print it without massive and crippling inflation.

This means the eternal rising market created by Greenspan and treated as sacred by every President and Federal Reserve Chairman is in its last gasp. No matter how much they will wish to prop it up, they won’t be able to without crippling side-effects beyond what can be papered over by printing more money and giving it to rich people. (All of this before the fact the stock market is currently an AI circle jerk, with companies buying NVidia chips for AI and NVidia then investing in those companies. When AI turns out to be an ordinary tech, useful for some things but not revolutionary, BOOM.)

Meanwhile:

This is a big deal. This is what GE and Siemens sell. Now there are Japanese and Korean and Chinese suppliers, but this a key technology. And Iran can make it now. GE has the largest installed base, followed by Siemens (German), but why court sanctions risk and repair parts being cut off?

When the Ukraine war started, Siemens withdrew from Russia, and refused to maintain already sold turbines.

Woops.

Again, core tech that used to be controlled by the “North” is spreading across the world. Hell, the Houthis are making their own farm combines!

And it’s China where the future is happening, including the Jetsons future:


The US isn’t even on this technology, let alone moving to scale. Let me remind you of the rule of Industrial dominance:

When there is a dominant industrial power (Britain to 1860, America from 1920 to 1965) you have to be ahead in tech to compete, because the dominant power can always scale cheaper than you.

This is an industry where the US and Europe aren’t even on the playfield. Worse (or better), it’s the sort of industry that, in wartime, can easily be converted to military production.

We’ll end with one more chart:

It’s over. It’s all over. The West is sinking into industrial and technological second place and it’s a second place that is long way behind first place. Further, massive US research cuts and a monomaniacal obsession with one tech (so called “AI”) indicate that the US isn’t serious about catching up, but has accepted its decline, whatever the political rhetoric may be.

This leads to the end of the American Empire, to vassals pulling away, and to a massive and sustained loss of standard of living, just as it did in the UK. Combined with ecological issues, I expect the American experiences of decline to be faster and worse.

***

I appreciate everyone who donates or subscribes to keep this site (and Ian) running. Readership is up over 40% this year, and I’m very grateful. If you want to help the blog, please share the articles you like and if you can afford it, and like the content, please Subscribe or donate.

Why Trump’s 100K H-1B Visa Fee Won’t Work & How To Make It Work

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On September 23, 2025

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So, I’ve long had issues with H-1B Visas, and all types of guest-worker visas. Not only do they take jobs from natives, in many cases (but not all), they create a class of workers with limited rights. Bosses don’t just want guest workers because they are cheaper and drive down wages, but because they can be mistreated. No job, no visa, and the time to find a new one is short: sixty days in the case of H1-Bs.

The idea behind Trump’s fee, I assume, is to make it so that companies will hire more Americans. Adding 100K makes it so that, in most cases, companies should only hire workers when they really can’t find a qualified America.

The problem is that big multi-nationals, the folks who use H1-B’s the most, mostly hire workers for jobs like IT and research which don’t have to be done in America. So, instead of hiring Americans, they’ll most likely just move the jobs and facilities to other countries.

The solution is an extraterritorial tax. (America does these all the time, it can be done.) Simply tax the firms no matter where the workers are, and crack down on foreign contracting companies by taxing companies which hire such contractors.

This is radical, to be sure, a lot of large companies don’t pay tax, after all, and you’d have to set it up so they can’t avoid these taxes, no matter how many offsets they have or where they hide their money.

This can be done. The idea that America can’t force offshore banks to give the IRS any information it wants is ludicrous. They broke Swiss banking secrecy, they can break Panama’s and Ireland’s. A few nasty threats, if sincere, would work. Heck, the US invaded Panama not so long ago and some simple bank sanctions would make it so that money can’t move out of banking havens.

This isn’t done, and won’t be done for the simple reason that the bipartisan consensus is that corporations, especially big ones, shouldn’t pay much tax and that it’s OK to let them get away with tax avoidance. The US is still their biggest market, they can’t leave it and the US can bring them to heel any time it wants. (Where are they going to go? Europe will do what it’s told and they don’t want to live in China or Russia.)

Implementation matters and even when Trump has a good idea, he doesn’t think it thru. It’s also true that in some fields (medicine, for example) the US just does not produce enough professionals. If you want to cut back on foreigners doing those jobs, you need to train more workers domestically.

Trump’s one of those executives where you mostly don’t want him implementing your ideas (tariffs) for example, because he’ll screw them up and discredit them. That’s what happens when you elect a corrupt, incompetent senile old man who doesn’t have competent advisors and enough sense to let them run the government.

***

I appreciate everyone who donates or subscribes to keep this site (and Ian) running. Readership is up over 40% this year, and I’m very grateful. If you want to help the blog, please share the articles you like and if you can afford it, and like the content, please Subscribe or donate.

 

Is Trump Taking Ownership Stakes In Companies Bad?

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On September 22, 2025

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So, Trump took a 10% stake in Intel, in exchange for releasing almost 9 billion dollars of subsidies without requiring Intel to meet various milestones.

Is this bad?

Let me tell you a story. Once upon a time the US government gave loans to both Solyndra and Tesla. Without those loans, neither company would have had a chance. Solyndra (solar panels) went bankrupt and people screamed that the US government shouldn’t have subsidized it. Tesla made bank and paid back the loan.

Loans or subsidies without an equity stake, mean that the government is exposed to the downside (loss of all the money loaned) without being exposed to the upside. Imagine if the US had taken a ten percent stake in Tesla? Even if it sold it off over time, it would have made huge bank. Just like being a VC, the government could take equity stakes in a lot of companies that are startups or trying for turnarounds. Even if most fail, if a few succeed big-time, then they will more than make their money back.

Now in the old days this wasn’t necessary. Why? Because there were high taxes on companies and rich people. If a company got rich because the government helped, the government was going to get its money back. But with effective corporate tax rates so low and so much legal tax avoidance, in many cases corporate tax rates are effectively zero. So if the government is going to help a firm directly, it needs another way to benefit from the upside and not just take on the downside risk.

So, for once, Trump has done the right thing and in a way that isn’t a complete fuck-up. This policy should be expanded. (Next we’ll discuss why the $100,000 B1 Visa scheme won’t work, and how it could be done right.)

***

I appreciate everyone who donates or subscribes to keep this site (and Ian) running. Readership is up over 40% this year, and I’m very grateful. If you want to help the blog, please share the articles you like and if you can afford it, and like the content, please Subscribe or donate.

Open Thread

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On September 20, 2025

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Use to discuss topics unrelated to recent posts.

American Billionaires Are Competing To Be King Shit of Turd Island

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On September 17, 2025

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You may have heard that Tesla’s board has proposed giving Elon Musk a one trillion dollar payday. Tesla is falling apart, and the ostensible theory is that only Musk can save it, as if he’s not the guy who ran it into the ground with his bad decision making.

Elon, of course, is currently “the world’s richest man” but his fortune is probably under 500 billion. So he wants to triple it.

This, as you may have figured out already, is not about saving Tesla, but looting it before it crashes out completely, which is what’s going to happen. Only 100% anti-china EV tariffs are keeping Tesla alive right now, but the problem is that non-Chinese companies are now producing cheaper, better cars and no, Tesla isn’t going to regain its lead.

Elon is just a rat trying to leave a sinking ship with a huge wheel of gold embossed brie, and the board (his cronies) are helping him.

Meanwhile:

(Every person who told you that the end of dollar hegemony was impossible was either an idiot or lying to you.)

Oh, and meanwhile China has banned all its tech companies from buying NVidia AI chips. Seems they figure their homegrown chips are now as good as the lobotomized versions NVidia is allowed to sell to Chinese companies.

In about three years, China’s chips will be as good as NVidia’s. In about six years they’ll be as good and a lot cheaper. Then every country outside the West will switch.

Meanwhile, as I’ve discussed before, every non-Western country will use Chinese Open Source AI, because using American or European AI is way too risky (if you don’t understand why, you’ve been a coma for the past 40 years.)

NVidia is driving something like 40% of American stock valuations and AI is the huge bet America is making. America can’t even make magnets.

So what happens when China can produce essentially everything the West can, at equal or better quality, and it costs less? Passenger jets, military tech, chips, AI, robots, drones, cars, consumer goods. Everything. (or a reasonable facsimile, well north of 90% within five to ten years, and it’s already north of 80%.)

Well, the oligarchs who have been competing to be the richest guy in America are going to find they have a whole bunch of US dollars that the most important economy in the world, China, won’t accept for anything meaningful. You won’t be able to buy Chinese companies with it. You won’t be able to buy Chinese tech secrets with it. Chinese scientists won’t want to work in the shithole that the US is turning into, especially given all the racism against Chinese.

American oligarchs will, as my father put it, find out that they were competing to be “King Shit of Turd Island.” Like being the world’s richest Indian in 1950. You’ll live a nice life, but you don’t matter.

Serious elites have three jobs, in order of importance.

  1. Keep their country powerful and advanced and important;
  2. Keep control of their country
  3. Compete among themselves.

American elites reversed the order of these tasks for generations. They’ll be lucky to avoid a civil war, is how badly they’ve fucked up. And the tech-bro “masters of the universe” are about to watch China roar past them and gain the tech lead in everything that matters. They can own America’s Tik-tok, but who cares, because America is a has-been nation, coasting on legacy fumes, and it’s only going to fall further and further behind.

Thiel and Musk and so on are just crabs in a bucket, competing for power in country going to Hell. May the best most ruthless crab be crowed King Shit of Turd Island.

***

If you’ve read this far, and you’ve read some of my articles and most if not all of Ian’s, then you might wish to Subscribe or donate. Ian has written over 3,500 posts, and the site, and Ian, need the money to keep the shop running. So please, consider it.

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