Aurelia Butler

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

China is expected to release economic data on Friday showing the world’s second-largest economy expanded at a brisk pace of about 5 per cent in 2024. Many Chinese are, to put it mildly, unconvinced.“I don’t know where this growth is supposed to be coming from,” said Hao, owner of a printing and advertising company in Beijing, who asked to be identified only by his surname.“The authorities can say whatever they want,” he said, suggesting the official data was “blind to reality”. “For me, 2024 has been the worst year in my 20-plus years of running this business.”Economists, and even senior officials, have long questioned the accuracy of China’s GDP numbers, which are released by the National Bureau of Statistics and almost always hit annual government targets with uncanny accuracy.While Beijing’s goal of expanding GDP by about 5 per cent year on year for the second year running was modest compared with past decades, such levels would thrill most large countries — particularly if, as in China, they were suffering a deep property sector crisis.But for most Chinese people, their experience does not match the growth figures. Many who work in sectors from banking and local government to restaurants and ride-hailing say current conditions feel more like a recession.“They said 5 per cent growth year after year, but do people feel this growth? For ordinary people, I’m telling you, it’s just about earning enough to get by and not starve,” said a driver for the ride-hailing company Didi in Beijing. “Forget about growth or development.”An economist at a Beijing university said many scholars believed the official GDP growth data was often inaccurate by up to plus or minus two percentage points, but in the past two years, the distortion had grown.He pointed to China’s consumer price inflation, which has been running at less than 1 per cent for months, and producer price growth, which has been negative for more than two years, as signalling weak demand.“Middle-class people are losing their jobs for the first time,” said the economist, who declined to be named. “In 45 years, this never happened.”Some content could not load. Check your internet connection or browser settings.Questioning official economic data and discussing negative economic trends has become increasingly sensitive in China. Gao Shanwen, chief economist at state-owned SDIC Securities, said last month that China’s economy might have grown at an average of only about 2 per cent in the past two to three years.The Wall Street Journal reported last week that Gao had been banned from public speaking for the comments. People familiar with the matter said Chinese financial authorities had launched an audit of Gao following the remarks.Many foreign economists also question the official figures. Analysts at US think-tank Rhodium Group said in a research note that growth last year was probably about half the official target, or 2.4-2.8 per cent.The collapse of China’s property sector had “sidelined” local government investment and consumption — two important economic engines — in 2024, leading Beijing to announce a series of urgent stimulus measures, they said.China’s official data probably exaggerated household and government consumption, as well as gross capital formation, or investment, which they estimated as negative last year compared with a year earlier, the analysts added. These areas have been hit by the property downturn.The picture chimes with the experiences of people working in China.A credit officer at a bank in central Anhui province said the value of the portfolio of outstanding loans he managed had fallen 20 per cent this year. On a recent trip to Hangzhou, capital of the wealthy neighbouring province Zhejiang, he found that a client’s factory, which a year earlier had employed 1,700 people, now had 1,100.“More people are repaying their loans in advance,” said the credit officer, adding that they found it “more cost-effective” to reduce debt than to invest. He and his wife had also cut back on their own “unnecessary” spending, such as dining out.Even state-owned companies are not immune. An employee at one state-owned group in southern Fujian province said authorities in Beijing had asked it to expand investment to support the economy in the fourth quarter. In response, the company brought forward spending on a 25-year project.But at the same time, it cut salaries — by more than 20 per cent compared with three years ago. “I got promoted at the beginning of ‘24 and my monthly income was still Rmb1,000 ($136) less than in ‘23,” said the employee.For many families, the lunar new year holiday this month might bring at least some short-term relief from the tough conditions, as relatives reunite in their hometowns, bringing gifts and red envelopes stuffed with money.But not for Hao, whose printing and advertising company suffered a 40 per cent decline in revenues last year and saw profits fall even more. He plans to skip this year’s festivities in his hometown in eastern Shandong province.“At my age, going back means giving red envelopes to the younger generation, and I simply don’t have the money to do that,” he said. More

Amin Nasser, the head of Saudi Aramco, the world’s largest oil company, has always had one special customer: China. In his 10 years in charge, Nasser has seen the value of Saudi oil exports to China more than triple, to a record $56bn in 2022, a year in which almost one in six barrels that Saudi Arabia pumped was shipped to Chinese refineries. 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. In 2022, 72 per cent of its total crude oil supply was imported, according to the International Energy Agency (IEA).“I have no doubt that elevating our relationship to undreamed-of heights would help turbo-charge China’s efforts to meet the hopes and dreams of its people,” said Nasser at last year’s China Development Forum in Beijing. But there are now signs that China’s thirst for crude is reaching a peak sooner than expected, a development that has sent shockwaves through the oil market. The end of the Chinese supercycleThis is the second of a two-part series on how Chinese demand for commodities, which transformed the mining and energy industries for two decades, is now beginning to weaken, in part because of the property crisisPart one: The China commodities supercycle is over. Will there be another?This week, China said its oil imports had fallen nearly 2 per cent, or 240,000 barrels a day, to just over 11mn b/d in 2024 compared with the year before, the first decline in two decades barring the disruption during the Covid pandemic. China’s stuttering economy is partly to blame. The country’s ongoing property crisis led to a slowdown in construction, which hit demand for diesel to run heavy machinery, as well as for the petrochemicals used in paint, pipes and insulation.But the decline stems from longer-term trends too. There was a boom in trucks switching from diesel to liquefied natural gas, and, most importantly, the rising number of electric vehicles helped to depress sales of petrol and diesel. Sales of both road fuels peaked in 2023, according to China National Petroleum Corp, and will now fall by 25-40 per cent over the next decade. In December, Sinopec, China’s biggest refiner, brought forward its forecast for crude oil consumption to reach a peak to 2027, compared with the range it previously gave of between 2026 and 2030. The implications of China hitting peak oil are enormous. If Chinese demand is reaching a plateau that would fulfil projections by the IEA of global oil demand peaking before 2030. The forecast sustains hope for the world to reach net zero carbon emissions by 2050.The milestone would also shake the global economy. Over the past three decades, China has accounted for half of all growth in the world’s oil demand — some 600,000 b/d. If that rate continues to level off, the $500bn that oil companies are spending every year on finding new sources of oil and gas may be far too high. “The jury is out on whether the demand will be there to absorb it or not,” says Martijn Rats, an analyst at Morgan Stanley. “The answer may be that it is not.”In December, Sinopec, China’s biggest refiner, brought forward its forecast for peak crude oil consumption to 2027, compared with the previous range of between 2026 and 2030 More