intermediate goods rose by 27%. With time, however, more of those inputs may be sourced from nearer by. Meanwhile, China’s logistics firms are helping its manufacturers to link their newly sprawling supply chains. These now operate or have invested in at least 132 foreign ports, from Greece to Sri Lanka, along with airports and rail lines, including one from Budapest to Belgrade completed earlier this year. China Inc’s overseas investment binge has focused heavily on a handful of strategic industries. In order to satisfy rising demand for electricity, countries in the global south in particular have become eager buyers of China’s clean- energy technology. The vast solar farms being built in Egypt’s deserts rely largely on Chinese equipment, a growing share of which is produced locally. Chinese EVs, now a common sight in cities from Rio de Janeiro to London, are increasingly being made in regional hubs nearer to customers. The equipment required for artificial-intelligence data centres has been another focus. Thailand, for example, has emerged as a manufacturing centre for Chinese makers of high-speed optical components, such as Zhongji InnoLight, whose products are used by America’s cloud-computing giants around the world. Chinese firms hoping to invest abroad have found they have the field to themselves, as Western rivals concentrate their factory-building in America to appease its protectionist government. An Egyptian official adds that, when Chinese businesses decide to build, they do so quickly. Their foreign expansion is not without obstacles. The volatile tariffs imposed by America have resulted in some projects being cancelled or cut back. On August 13th the White House published a report titled “The Great Transshipment Scam” that called for sweeping restrictions on imports with even a whiff of Chinese involvement. At the same time governments in places such as Brazil and Turkey have been imposing local-content requirements, which result in more of the value being added in their countries but make manufacturing there less attractive. Currency fluctuations and high borrowing costs in emerging markets complicate matters further.
China’s government has also been making life hard for the country’s globe- trotting businesses. Last month a new package of outbound-investment regulations came into effect which, among other things, restrict the transfer of technology and data abroad and introduce a national-security review process. So far the overall share of global manufacturing taking place in China has shown no indication of decline. Yet with ever more of its companies investing abroad, that may soon change. Even then, however, the world will continue to rely on Chinese goods—wherever they are made. ■ This article was downloaded by zlibrary from https://www.economist.com/interactive/business/2026/08/19/chinese-firms-are- wrapping-their-supply-chains-around-the-globe
America Inc has a tight grip on allied governments Companies from Palantir to Lockheed account for a small share of spending, but are hard to shake Aug 20th 2026 “Imiss nothing,” says Dirk Schrödter, the digitisation minister for the German state of Schleswig-Holstein. Over a video-call using OpenTalk, a German alternative to Microsoft’s Teams, he explains how in the past two years he has moved some 30,000 of the state’s civil servants from the American company’s collaboration and productivity tools to open-source alternatives. He has now begun the process of shifting staff from Windows to Linux, an open-source operating system. The move has attracted the attention of public officials elsewhere who are also keen to cut ties with America’s tech giants. “Every week we have questions from other states, other cities and governments inside and outside of Europe,” he says.
The growing interest in open-source software reflects a new geopolitical reality. America has long used its commercial prowess to hurt enemies, as when imposing sanctions on Iran and Russia. But now even allies worry that it could cut off their access to critical technologies—or at least threaten to during, say, a trade negotiation. Governments abroad are examining the extent to which their ability to operate depends on American suppliers. Fears were stoked last May when Karim Khan, then the International Criminal Court’s chief prosecutor, lost access to his Microsoft email account after President Donald Trump brought sanctions against the court over its issuing of an arrest warrant for Binyamin Netanyahu, Israel’s prime minister. (Microsoft says it did not cut its service.) Another jolt came this June when Mr Trump forced Anthropic, an artificial- intelligence lab, to temporarily cut off access to its latest models in foreign countries. America’s allies also took note when it twice paused its supply of weapons to Ukraine last year. American firms win a small share of the overall contracts tendered by governments abroad. But their products and services often underpin critical government functions. Various efforts are thus under way to reduce reliance on American suppliers and nurture domestic alternatives. In many cases, however, doing so will be enormously difficult. Europe in particular has emerged as a centre for efforts to flush America Inc out of government supply chains. France’s national government is planning to ditch Teams and wants to move some computers to Linux. Local governments, including the cities of Reus in Spain and Aarhus in Denmark, have turned to European cloud providers such as Nextcloud and Hetzner, both from Germany. In June the European Commission unveiled a plan to boost the continent’s “technological sovereignty” that, among other things, aims to shift the processing of sensitive government data to such providers. Last year Spain cancelled an order for F-35 fighter jets, supplied by America’s Lockheed Martin. British politicians are urging the prime minister to implement a break clause in a contract between Palantir, an American technology firm, and the National Health Service. The Economist’s estimates suggest that, at an aggregate level, American companies account for a modest share of public spending abroad. We
calculate that, of the $25trn in sales generated last year by listed American companies, perhaps $500bn (or 2%) came from foreign governments. That is equivalent to roughly 7% of government procurement in OECD countries other than America, which account for an overwhelming majority of the spending. Some countries are more dependent than others. Measured by the number of government contracts won by American firms last year, Australia (6% of contracts) and Britain (4%) are more reliant than France (2%) and Germany (1%), according to figures from TenderAlpha, a data provider (see chart). Yet American firms play an outsize role in critical areas of government. We estimate that roughly two-fifths of the business that American companies generate from foreign governments is in information technology and defence. (Pharmaceuticals and medical equipment, purchased by public health systems around the world, make up another large chunk.) Often that is because there are few alternatives. Alphabet, Amazon and Microsoft control two-thirds of the global cloud-computing market, according to Synergy Research, a firm of analysts. Forrester, another research group, reckons that American providers account for between seven and nine of the ten largest vendors for most segments of enterprise software.
Those substitutes that do exist are frequently inferior. Sometimes the loss is negligible: on OpenTalk users cannot send emojis flying across the screen. But other shortcomings are more serious. LibreOffice, the open-source productivity-software package for which many governments are opting, lacks the AI features offered by Microsoft—a weakness that will only become more pronounced as the technology advances. OVHcloud, a French cloud-computing provider that is Europe’s biggest such firm, generates about one-hundredth the revenue of Amazon Web Services, making it difficult to compete on price or keep up on innovation. Similarly, governments that want the most advanced air-defence system must turn to Lockheed and RTX, another American armsmaker, which together produce the Patriot. Switching costs can be hefty, too. Lockheed supplies F-35s to governments from Norway to Belgium. Those countries could instead opt for a European jet, such as the Rafale or Typhoon, even if they are less advanced. But that would require a vast operational overhaul, including retraining pilots and support crews and replacing weapons inventories—a tough sell when huge sums have already been spent on Lockheed jets. Or consider patient-record systems in hospitals. The hefty cost of swapping to a new vendor is partly why Norway’s parliament voted in June to keep using Epic, an American provider of health-care databases, despite dissatisfaction with the software among doctors. The dependence of local companies on American suppliers further complicates matters. Roy Illsley of Omdia, another research firm, points out that much of the software OVHcloud runs on comes from VMware, which is owned by Broadcom, an American company. Governments that do shun America’s suppliers risk irritating its tempestuous president, which could make the superpower an even less dependable ally. Pieter Wezeman of SIPRI, a think-tank, notes that in July Denmark plumped for maritime-patrol aircraft made by Boeing, an American aerospace giant, over European alternatives, which he reads as a signal that the country does not want to alienate America despite clashes over Greenland.
For consolation, America’s allies should remember that there are plenty of dependencies in the other direction. Much of America’s federal government runs on software provided by Germany’s SAP. And American firms selling to foreign governments often depend on global supply chains. The rear fuselage of every F-35 is built by BAE Systems, a British weapons manufacturer, in Lancashire. The most advanced chips used in cloud computing are made in facilities operated by TSMC, a Taiwanese manufacturer, using gear from ASML, a Dutch one. America’s allies might usefully focus on making themselves even more indispensable. ■ This article was downloaded by zlibrary from https://www.economist.com/business/2026/08/16/america-inc-has-a-tight-grip-on- allied-governments
How to measure returns on AI From tokenmaxxing to something more normal Aug 20th 2026 In the beginning there was AI, and bosses everywhere lost their minds and said you must all use this technology no matter whether it is useful and no matter how much it costs. And they introduced AI leaderboards and came up with stupid words like “toxenmaxxing”. And lo, usage did indeed rise. And then the bosses remembered some very basic concepts like “budgets” and realised that this might not be such a great idea after all. And then a different question rang through the boardrooms, and this question was about returns, and it was harder to answer. This potted Genesis of AI adoption is not entirely fair. As long as organisations are trying to encourage usage, it can still make sense to look at things like employees’ token consumption. “I would expect software