Aurelia Butler

WASHINGTON (Reuters) – Donald Trump came to Washington eight years ago vowing to rewrite U.S. trade relationships, shrink a massive goods trade deficit and rebuild America’s industrial base with new tariffs.The president-elect is about to embark on an even more aggressive effort in his second term, pledging to impose 10% duties on all U.S. imports and 60% on goods from China. Just how that will play out is unclear, but data from his first run at upending the trade landscape show it did shift U.S. imports away from China to other countries, especially Mexico and Vietnam. Still, the U.S. trade deficit continued to grow, topping $1 trillion over the last four years, and factory employment has flatlined amid an overall jobs boom since the COVID-19 pandemic.STEEL SLIDESteel producers in the U.S. benefited the most from Trump’s tariffs, winning a 25% global duty while aluminum producers saw a 10% duty. Those were somewhat diminished after Trump’s first administration negotiated quota deals with Mexico and Canada and the Biden administration followed up with quota deals for the European Union, Britain and Japan.Meanwhile, China’s dominance of these sectors globally has kept prices low, contributing to lower capacity use rates.Some plants initially revived by the duties, including a U.S. Steel mill in Granite City, Illinois, visited by Trump in 2018 to herald the industry’s resurgence, have shut down blast furnaces. A Missouri aluminum smelter revived by the tariffs also was idled last year by Magnitude 7 Metals.  Trump’s biggest first-term trade impact was to shatter decades of political consensus favoring ever-lower trade barriers that had allowed China to become the world’s largest goods producer. Indeed, when Trump left office in 2021, the theme was taken up and amplified by President Joe Biden. “Waking the world up to the economic threat from China was one of the top accomplishments of Trump’s first-term trade agenda, as was the renegotiation of some of our major trading relationships,” including a North American free trade deal, said Kelly Ann Shaw, a trade adviser during Trump’s first term.”We’re now having a healthy debate in America about what industries we want to keep, which supply chains are critical and where we should focus our trading relationships,” said Shaw, a trade lawyer at law firm Hogan Lovells in Washington.Trump’s tariffs of 25% on $370 billion of Chinese imports helped reduce the U.S. trade deficit with China from $418 billion in 2018 to $279 billion in 2023. But as companies shifted production elsewhere, new winners emerged: Mexico and Vietnam. The growth of their U.S. trade surpluses more than made up for China’s decline.RETALIATION, PRICING COSTSThis shift came at considerable cost. China hit back with retaliatory tariffs of 25% on U.S. soybean exports and largely shifted aircraft purchases away from Boeing (NYSE:BA) to rival Airbus for years.U.S. whiskey distillers were hit by EU retaliation over metals tariffs, but exports rebounded when those tariffs came off, said Chris Swonger, CEO of the Distilled Spirits Council of the United States.  In the 2020 “Phase 1” trade deal that ended the U.S.-China trade war, Beijing pledged to boost its purchases of U.S. goods and services by $200 billion over two years, but failed to do so as COVID-19 hit.China’s promised increases in U.S. soybean volumes instead went to Brazil and Argentina. Scott Gerlt, the chief economist for the American Soybean Association, said that’s a permanent shift. “We never recovered the volume of China soybean exports since that trade war,” Gerlt said. “A lot of land came into production in Brazil. Brazil surpassed us in exports to China.”   The shift could help China weather a new trade war, but the crop remains the top U.S. export to China.Commercial aircraft once held the top spot but have been slow to recover, while motor vehicle shipments to China also declined as China’s electric vehicle industry has surged. Displacing them is crude oil, going from zero a decade ago to $13 billion in 2023.   The U.S. remains highly dependent on China for technology imports, including smartphones, laptop computers and video game consoles. Many of these products were spared Trump’s first-term tariffs, but duties of 60% or more would raise costs considerably.     China’s vast scale and efficiencies in sectors such as electronics and toys cannot be easily replicated elsewhere, creating difficult choices for companies facing steep tariffs, said Mary Lovely, a trade economist who is a senior fellow at the Peterson Institute for International Economics. “These are enormous enterprises. How do you recreate that in another country that’s a tenth of the size of China? You don’t,” Lovely added.Trump’s first-term tariffs did not cause a spike in consumer price inflation, but they were limited in scope and caused only one-time price increases, said Doug Irwin, an economics professor at Dartmouth College who specializes in trade.”Tariffs are just a tax, and so they lead to a one-off level increase in the price of those goods,” Irwin said. “They’re not this continuous rise in the general price level, which is inflation.”The price impact from further tariffs also depends on factors such as U.S. fiscal and monetary policy that may lift the dollar’s value, trade retaliation that could lower other domestic goods prices, and whether or not importers or exporting firms absorb some of the tariff costs.TARIFF REVENUETrump also has pledged to pay down U.S. debt with tariff revenues. On Tuesday, he promised to create an “External Revenue Service” to collect tariffs, duties and all revenue from foreign sources. Collections from his punitive duties since 2018 suggest a vast increase would be needed to make a dent in U.S. deficits now approaching $2 trillion a year before an expected extension of expiring tax cuts, estimated to add more than $4 trillion in new debt over a decade. Total (EPA:TTEF) collections from the China, steel, aluminum and solar panel tariffs have totaled $257 billion over seven years, a rounding error amid cumulative deficits of $12.57 trillion during that time. The conservative-leaning Tax Foundation estimates that a 10% universal Trump tariff would raise about $1.7 trillion over 10 years, including accounting for a negative impact on economic growth. More

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldIt’s only around 96 hours until Donald Trump’s inauguration day, and still the excitingly random tales about his prospective trade policy keep coming. This week’s was a Bloomberg story quoting his advisers contemplating a plan of gradually increasing import tariffs by between 2 and 5 per cent a month, presumably slowly turning the thumbscrew to extort concessions from trading partners.It’s not the worst idea that’s been floated — using coercive tariffs to annex Greenland and the Panama Canal is comfortably ahead — but it’s still a bad one. It features a problem we’re likely to see recurring: trade policies that fail to account for the global macroeconomy and specifically the currency markets having lives of their own.A standard side-effect of import taxes is to appreciate the exchange rate, thus undoing some or all of their effects. (To be fair, this is understood by some of Trump’s more economics-adjacent advisers, certainly by Scott Bessent, his nominee as Treasury secretary.) Thus, the tariff plans run directly counter to Trump’s intermittent desire to manage the dollar lower for competitive reasons and to close the trade deficit. Last week, the Chinese renminbi hit a 16-month low against the dollar, apparently reacting to tariff talk.If anything, gradualism will worsen the tariff effect. Currency markets are forward-looking. It’s quite possible Trump will get the currency offset when his policy is announced but before the effect of the tariffs themselves.In any case, the hope that the administration can sustainably manage the dollar lower is improbable. The standard reference is usually to the 1985 Plaza Accord, which sought to weaken the US currency. But not only does Plaza routinely get more credit than is due, the necessary macroeconomic adjustments will almost certainly be absent.The mythology of Plaza — and the subsequent 1987 Louvre Accord to stabilise the dollar — often overstates its importance. As economics textbooks would predict, the dollar had rocketed higher in the early 1980s because of Ronald Reagan’s loose fiscal and the Fed’s tight monetary policy. But by 1985 it had clearly overshot and was already starting to fall. The Plaza announcement essentially gave it an extra push downwards.Bessent contends that the 1980s and 1990s saw fiscal and monetary co-ordination to manage currencies. This is, shall we say, exceedingly hard to see in the data. The US promised to tighten fiscal policy at Plaza to help soften the dollar, but its tendency to run chronic deficits did not change.The situation is in any case different now. President Joe Biden’s spending plus relatively high US interest rates have again led to appreciation, but the dollar is not hugely overvalued as it was in 1985. The IMF prudently gives a wide range to its estimates of fair value for exchange rates to avoid being dragged into currency disputes, but the midpoint of that spread has the dollar overvalued by 5.8 per cent relative to its estimated real equilibrium rate, not a dramatic misalignment.Relative to 1985, the dollar has also been quite stable. Managing it would mean pushing from a standing start, not helping it on its way. The US bullying China into appreciating the renminbi might produce a one-off shift, but perhaps with dangerous consequences for financial stability. In recent years China has had to intervene in markets to strengthen as well as weaken its currency, last week being one example. It’s certainly not persistently holding it down for competitive reasons as in the 2000s.Currencies are not trained spaniels which overcome their natural exuberance and obey ministers who shout “Down!” or “Stay!” They react to economic fundamentals much more than to official exhortations, or even official foreign exchange market intervention.In this context, even without tariffs, Trump (with a Republican Congress) is highly unlikely to become the first fiscally conservative Republican president since Dwight Eisenhower and deliver a tighter-fiscal-looser-monetary policy mix. He wants to extend expiring tax cuts from his first administration and add more.The non-partisan Tax Foundation research organisation says that, even factoring in tariff revenue from a massive 20 per cent tariff on all imports plus a hike of 50 per cent on those from China, these cuts will cost around $3tn over 10 years — that’s just over 10 per cent of one year’s GDP.Supposedly offsetting or even outweighing those cuts is a streamlining programme by the Doge (Department of Government Efficiency) project co-run by Elon Musk. But if you expect feasible and sustainable spending control from a rabble of ignorant tech bros crashing round the federal bureaucracy, I’ve got a cryptocurrency-financed artificial intelligence-designed bridge from Mar-a-Lago to Greenland to sell you.Musk’s men are less likely to engineer a smoothly purring Rolls-Royce of a federal government than build a rusty Cybertruck with a flat battery. Before Doge has even started, Musk has already cut its annual target savings in half, from a delusional $2tn to having a “good shot” at a merely quixotic $1tn. Successfully steering a currency’s value through the maelstrom of the modern foreign exchange markets is fiendishly hard. Two of Trump’s signature policies — tariffs and tax cuts — are pushing in the opposite direction. If the currency slides under Trump it will more likely be reflecting weakening confidence in US institutions and growth prospects. That will not be a Plaza Accord for our times. It will be evidence of the wrong-headed trade and macroeconomic policy for which investors and governments around the world are bracing.alan.beattie@ft.com More

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldThis article is an on-site version of the Free Lunch newsletter. Premium subscribers can sign up here to get the newsletter delivered every Thursday and Sunday. Standard subscribers can upgrade to Premium here, or explore all FT newslettersLast week I listed several policy areas that I think will be fiercely contested between the “populist” and the “mainstream” or “oligarchic” (depending on your sympathies) flanks of both US political parties. As several of you made sure to remind me, I neglected to discuss immigration beyond mentioning it in passing. As is obvious to all, the wide rift within the Trump coalition on this issue is now clearly exposed. One reader replied to last week’s newsletter predicting that “the oligarchs lose on immigration and tariffs and win on everything else”. Personally, I’m not so sure — on immigration at least it looks like Donald Trump doesn’t mind selling out his Maga supporters to the asks of the Big Tech companies hurrying to kiss his ring.The Republicans will of course rule the roost for the foreseeable future, and the contest between Maga populists and tech bro oligarchs will continue to play out in the headlines, or rather the social media feeds, as well as behind closed doors in the White House and at Mar-a-Lago. But I think it’s also important to think about where the Democratic party goes from here. It’s a fitting topic for this last Free Lunch column of the Biden era — Ed Luce’s elegy of which you should definitely read.Timothy Snyder recently wrote a blog post calling for Democratic politicians to form a “shadow cabinet” along the lines of the UK model — in a follow-up he warmed to the label “people’s cabinet” — to hold Trump’s actual government to account. If an effective opposition is to be achieved, it matters which alternative policies it chooses to propose. Hence the question of where Democrats go from here on the economy.I have been asking influential Democratic economists about this and I think the jury is still out and will stay out for some time. It is clear that the outgoing Biden team is not going to take any lectures from those in its own party who criticised them along the way. Here is Treasury secretary Janet Yellen in her valedictory speech last night:. . . the US economy has done remarkably well in the aftermath of the pandemic. This fact becomes even more apparent when the recovery is placed in the proper context, namely by comparing US economic outcomes to those in other advanced economies, to performance in past recessions, and to what economists forecasted. US outperformance becomes clearer still if one considers an important counterfactual: what likely would have happened under an alternative approach that focused only on inflation and not on unemployment . . . This is a big intra-Democratic debate: whether the fiscal largesse of the Biden administration was excessive (in terms of good policy, and in terms of causing electorally fatal inflation). Yellen is unrepentant: An important ‘what-if’ exercise would ask: how much more unemployment would have resulted from a fiscal contraction sufficient to keep inflation at the Fed’s 2 per cent target? The answer is ‘a lot’ . . . Estimates from representative models find that the unemployment rate would have had to rise to 10 to 14 per cent to keep inflation at 2 per cent throughout 2021 and 2022. That would have meant an additional 9mn to 15mn people out of work.Jared Bernstein, the outgoing chair of the White House Council of Economic Advisers (CEA), is clear about how the emphasis on restoring full employment set this administration apart from earlier Democratic presidencies. “We learned the lessons about insufficient fiscal support leading to recoveries that became jobless or wageless,” he told me. “The president, in his first big economic speech in February 2021, talked about the urgency to get back to full employment as soon as possible — he used that phrase five times.”But that judgment remains contested. “‘Big fiscal’ will face a huge headwind inside the Democratic party, probably larger than it deserves to face,” says Jason Furman, a predecessor of Bernstein’s in the Obama White House CEA. “I’m worried that next time we do too little instead of too much, as a reaction to what I think was too much” under Biden, he told me. (Bernstein, meanwhile, insists that the fiscal impulse was negligible once the initial pandemic recovery spending package wore off, as I also referred to last week.)The question of whether Democrats will “overcorrect” is clearly important. There are signs of something similar in the immigration debate, where some House Democrats have just supported a Republican bill. But it seems wide open as to where Democrats will end up on the economy. There is “broader agreement on the direction of travel on immigration and cultural issues than in economics”, Furman thinks. So “it is easy to predict” that the next Democratic presidential candidate will have course-corrected on trans issues or immigration, say, but Furman says that “on trade and labour markets, I don’t know”.The Biden team expresses confidence that some of its tenets of economic policy are here to stay — “I don’t think there is any swan song at all,” Bernstein told me. He lists “the idea of a worker-oriented trade policy — that workers are not just consumers but also producers”, sustaining employment through shocks without a recession, and industrial policy as potential lasting legacies.Yellen, too, clearly wants to retain the focus on  . . . the adverse structural trends that make it difficult for so many families to achieve or maintain a middle-class life. Traditional supply-side approaches wrongly assume that policies such as deregulation and tax cuts for the rich will fuel broader economic growth and prosperity. Modern supply-side economics, in contrast, rejects this trickle-down approach. Instead, it aims to expand our economy’s capacity to produce in a manner that is both inclusive and environmentally sound. It seeks to reverse decades-long under-investment in infrastructure, the labour force, and research and development that have held back productivity growth.Will the next Democratic leadership and future presidential hopefuls hew to this line, let alone the unabashedly populist perspective Biden himself has sometimes embraced? (The slogan was “grow from the bottom up and from the middle out rather than trickle down”, remember, and Biden was keen to be seen as a union man.) It will depend, in part, on how much Bidenomics is seen among Democrats at least as an economic if not electoral success as time passes.That’s hardly guaranteed. Furman remarks that Bidenomics delivered “good GDP growth, good employment, but high inflation — and supporters would say the good things came because of the policies and the bad things were exogenous, while opponents would say the opposite”. I think he also speaks for a good chunk of the Democratic economics establishment — the chunk that was left without that much influence in the Biden years — in asserting that Bidenomics was more political than technocratically evidence-based, compared with previous big Democratic policy achievements such as Obama’s healthcare reform. At the same time, he accepts that, in plain electoral terms, it’s not crazy to think that Biden didn’t do enough in a populist direction. So a lot will depend on what we learn about the electoral factors behind November’s result as more knowledge comes in. In the end, the most important influence on Democratic economic thinking may therefore well be what Republicans do and how that plays for them. Some of Bidenomics’ ideological shifts — if not its style, let alone its beneficiaries — will see continuity in the Trump administration. If that is politically successful, preferences for a more inward-looking and protectionist economy with a more dirigiste government may triumph in both parties. If it goes badly, Democrats will be wise to run on a strong reaction to Trumpism — and jettison big parts of Bidenomics at the same time.Other readablesRecommended newsletters for youChris Giles on Central Banks — Your essential guide to money, interest rates, inflation and what central banks are thinking. Sign up hereIndia Business Briefing — The Indian professional’s must-read on business and policy in the world’s fastest-growing large economy. Sign up here More

This article is an on-site version of our FirstFT newsletter. Subscribers can sign up to our Asia, Europe/Africa or Americas edition to get the newsletter delivered every weekday morning. Explore all of our newsletters hereGood morning and welcome back. Today we are covering: Israel-Hamas agreement delays US stocks’ best day since Trump’s election victory Citi’s £1bn refit of its London headquarters And the impact of New York’s congestion charge Israel’s Prime Minister Benjamin Netanyahu has accused Hamas of reneging on parts of the Gaza ceasefire and hostage release deal and delayed a cabinet meeting intended to endorse the agreement.US President Joe Biden, president-elect Donald Trump and the prime minister of Qatar last night announced that Hamas and Israel had agreed a multi-phase deal that would halt the 15-month war in Gaza and free the 98 hostages still in captivity. The ceasefire is supposed to come into effect and the first hostages released on Sunday.But Netanyahu’s government, which relies on the support of two far-right parties bitterly opposed to any deal, this morning said the deal’s final details had not been resolved and added that Hamas had backtracked by seeking to dictate which Palestinian prisoners should be released in exchange for Israeli hostages.Finance minister Bezalel Smotrich, who is a member of the far-right Religious Zionist party, branded the deal “bad and dangerous” last night and a member of his party this morning said that “in all likelihood” the party would resign from Netanyahu’s government if it agreed to the deal.The agreement is the closest Israel and Hamas have come so far to agreeing an end to the brutal war which has become the deadliest chapter in the decades-long history of the Israeli-Palestinian conflict. James Shotter in Jerusalem has the latest. Here’s what else we’ll be watching today:Earnings: Bank of America and Morgan Stanley are the latest major US banks to report earnings, following yesterday’s bumper profits from JPMorgan and Goldman Sachs, among others.Economic data: The US commerce department’s Census Bureau is due to publish retail sales figures for December, and the labour department will release initial jobless claims for the week ending January 11. Congress: Hedge fund manager and Donald Trump’s nominee as Treasury secretary, Scott Bessent, will appear before senators for the latest confirmation hearing. Starmer in Kyiv: Sir Keir Starmer will sign a symbolic “100-year partnership” treaty with Ukraine in his first visit to the country as UK prime minister.Five more top stories1. Joe Biden has warned that an “oligarchy is taking shape in America” that risks damaging democracy. Five days before he hands power to Donald Trump, the outgoing US president blasted an emerging “tech industrial complex” in a veiled attack on his successor’s allies, including Elon Musk. Here’s more from Biden’s farewell address.2. Blue Origin’s New Glenn rocket has reached orbit on its maiden flight, five years later than originally planned and roughly an hour into its launch window. But it boosts the ambitions of Jeff Bezos to challenge the hold of Elon Musk’s SpaceX on the satellite launch market and paves the way for a new era in space flight. 3. Trump could use the approval of cross-border deals to press foreign governments into aligning with US policy priorities, dealmakers and investors have warned. One European banker said: “The people in this administration have no compunction about using every lever at their disposal to achieve their aims.”Nippon Steel: An anti-Japan tirade by the head of US steelmaker Cleveland-Cliffs is symptomatic of the abrasive environment brewing in the Trump era, writes Leo Lewis.4. Pension funds are dipping their toes into buying bitcoin, in a sign that even typically staid corners of finance are finding it hard to ignore the potential outsized returns from cryptocurrencies. Pension schemes for the states of Wisconsin and Michigan are among the main holders of US stock market funds devoted to crypto. Here are more examples of institutions diving into digital currencies. 5. Citigroup is on course to spend more than £1bn on the overhaul of its 25-year-old Canary Wharf tower in east London. When the bank launched the refit in 2022, it was reported the cost would be more than £100mn. But people close to the project said that figure had never been realistic.The Big Read© Hu Xiaofei/VCG/Reuters Foreign oil has underpinned China’s economic rise, as the country built the world’s largest car industry from scratch, new railways and air travel networks, and thousands of skyscrapers. But China’s thirst for crude may be reaching a peak sooner than expected, a development that has sent shockwaves through the oil market.We’re also reading . . . LA fires: The damage — and the insurance crunch that will follow — would not have been as enormous were it not for a series of misguided state policies.🎧M&A: The head of Lex discusses the outlook for dealmaking over the next four years and the surprising similarities it could share with Biden’s administration.Scholz’s legacy: We trace the German chancellor’s shortlived government in charts, including its failure to stop the nation’s economic decline.Chart of the dayNew Yorkers are cruising much faster along Manhattan’s bridges and through its tunnels since the city implemented its long-debated congestion pricing plan this month, according to newly available traffic data. In one route from New Jersey, morning rush-hour speed has almost doubled.Some content could not load. Check your internet connection or browser settings.Take a break from the news . . . Asia’s rapidly growing economies have bolstered, and at times rescued, the global art market since the financial crisis of 2008. In recent years, though, demand from China has waned. But, fortunately for the art market, countries such as South Korea, Taiwan and Japan are among those now on the commercial cultural map. Here’s what Asia’s top art collectors are buying as collectors prepare to gather in Singapore for Art SG.Visitors to Art SG 2024 in Singapore More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Washington has blacklisted Zhipu, China’s most prominent start-up developing large language models for artificial intelligence, as the Biden administration looks to consolidate its legacy of getting tough on Chinese tech.The Beijing-based company was singled out among China’s leading LLM start-ups as it was added on Wednesday to the entity list, a compilation of companies deemed to be of national security concern and subject to trade restrictions.Washington alleged that Zhipu was advancing Chinese military capabilities through the integration of AI research. The start-up said it “strongly disagreed” with the US move, which it said “lacked factual basis”.Zhipu, founded by Tsinghua computer science professor Tang Jie, has developed LLMs similar to the ones that power OpenAI’s ChatGPT. It has been working with local governments to deploy services, including chatbots for residents to ask administrative questions about rubbish collection and parking times.The start-up has also worked with Chinese and foreign companies with operations in China to deploy their LLMs for products such as tailored AI assistants.The addition of Zhipu and several affiliated companies to the list in effect bars them from purchasing most US technology.“These rules will further target and strengthen our controls to help ensure that [China] and others who seek to circumvent our laws and undermine US national security fail in their efforts,” said commerce secretary Gina Raimondo.Beijing hit back on Thursday, with the commerce ministry opening an anti-dumping investigation into US semiconductors after local industry pointed out that the Biden administration had given the chip industry “huge subsidies”.It also announced a preliminary finding that American clothing maker PVH had engaged in anti-Xinjiang region behaviour, demanding that its representatives come in for further questioning.One Zhipu investor said the US move “should not impact Zhipu’s existing operations, and most of its core tech is in-house and has little business overseas”. The investor added that Zhipu being singled out by Washington could conversely “strengthen their positioning within China”, as the government would have a stronger incentive to support its growth.Chinese state groups have stepped in with funding for companies under US sanctions, including AI start-up SenseTime and national champion Huawei.   Zhipu is already backed by the state-run National Social Security Fund, Tencent, Alibaba Cloud, the venture capital groups HongShan and Hillhouse and Saudi Arabian fund P7. It received $400mn during a funding round in December.While many of China’s LLM start-ups want to expand overseas, the investor said Zhipu could consolidate its lead by focusing solely on the domestic market.Washington’s latest action also broadened the range of advanced chips that require licences in order to be shipped to China and introduced export controls on some scientific instruments used by drug developers, such as spectral flow cytometers and some liquid chromatography mass spectrometers.Chinese companies have already been banned from buying Nvidia’s highest-end AI chips critical for model training and deployment, and the US this week introduced new geographical restrictions on the processors in an attempt to stem the black market flow of Nvidia chips to China.Also added to the entity list on Wednesday was Chinese chip designer Sophgo, under scrutiny last year for possibly supplying Huawei with processors made by Taiwan Semiconductor Manufacturing Co, circumventing US sanctions.Washington alleged the company was “acting at the behest of Beijing to further [China’s] goals of indigenous advanced chip production”. More

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldTop dealmakers and investors have warned that the incoming Trump administration could use the approval of cross-border deals to pressure foreign governments into aligning with US policy priorities, such as increased defence spending.Several advisers who have been in discussions with people close to the president-elect said Donald Trump was determined to use all government agencies to push other countries to support his agenda, including by withholding deal approvals for their companies. “Certainly we are preparing for this,” said one European merger and acquisitions banker. “The people in this administration have no compunction about using every lever at their disposal to achieve their aims.”Trump is expected to put pressure on European countries to increase their defence spending to as much as 5 per cent of GDP and push for more favourable terms from trading partners. He has threatened to levy tariffs on imports into the US from Europe and other allies. Inbound deals are overseen by the Committee on Foreign Investment in the US, or Cfius, which screens transactions for national security risks to the US. The inter-agency panel is chaired by the Treasury secretary and includes officials from foreign and domestic intelligence agencies as well as top economic advisers and representatives from major government ministries. If a deal is deemed to have unresolved security risks, Cfius can recommend that the president block or place conditions on the transaction.The approvals process, once largely bureaucratic, has become increasingly politicised under the first Trump and now the Biden administrations, according to several people who spoke to the Financial Times. In practice, the committee has broad purview to determine what constitutes a national security risk, creating room for political manoeuvring. “Cfius [has] wide discretion to do what they want, as long as there is some national security nexus,” said one cross-border deals lawyer. “There are some deals [in the pipeline] right now — let’s see what happens when they go through the Cfius process.”Bill Reinsch, chair in international business at the Center for Strategic and International Studies, said the Cfius analysis of Nippon Steel’s planned purchase of US Steel was more political than it should have been. Joe Biden’s rejection of the deal represented the first time a US president had intervened to stop a transaction involving a non-Chinese company acquiring a target that has no US military contracts. That rejection is now the subject of a lawsuit. “The president early on announced his opposition to the deal, and that poisoned the well and sent a strong message about what the bureaucrats should do,” said Reinsch. “[Trump’s] tendency is to view these things from a personal point of view, and what he thinks are in his interests. It will be political under him, too.”A spokesperson for the Treasury declined to comment about Cfius becoming politicised under Biden. The Trump transition team did not respond to a request for comment. During his first term, Trump sought to restrict social media platform TikTok, which is owned by Chinese parent company ByteDance, in part through a Cfius review. He also blocked Singapore-registered chipmaker Broadcom’s attempted $142bn hostile takeover of rival Qualcomm in 2018, based on Cfius recommendations. “The first Trump president was an amateur,” said another lawyer focused on foreign investment. “This time around he will know how to press the levers of power and he won’t just use Cfius, he’ll use antitrust agencies, the Fed and much more . . . it will all be highly unpredictable.”   More