Aurelia Butler

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Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldDonald Trump’s administration has backtracked further from its threat to impose sweeping 25 per cent tariffs on Mexico and Canada, in a major climbdown from its aggressive trade agenda.In the second U-turn in two days, the US president signed an executive order on Thursday saying that all goods that met the rules of a 2020 free trade deal with the US’s neighbours would be granted a one-month reprieve from the duties.The move caps a tumultuous week that has roiled markets and frayed diplomatic relations between the US and its largest trading partners. On Wednesday, Trump had said that just carmakers compliant with the USMCA would be granted a month-long carve-out.Thursday’s executive order grants the reprieve from tariffs until April 2. However White House officials signalled that Canada and Mexico could be granted relief beyond that date if they succeeded in cracking down on trafficking of the deadly opioid fentanyl.The abrupt policy shift came after Trump doubled down on his tariffs plan in his address to Congress this week, saying: “There will be a little disturbance, but we’re OK with that.”Show video infoThe levies’ imposition on Tuesday prompted a turbulent market reaction after Canada and Mexico announced plans to retaliate. All the S&P 500’s post-election gains have been erased following further declines on Thursday.Howard Lutnick, Trump’s commerce secretary, said on Thursday that movements in the stock market would not drive US trade policy. “The fact that the stock market goes up or down a half per cent on any given day is not the driving force of our outcome,” he said.The Trump administration’s shift is the latest in a chaotic policy rollout that has shaken America’s trade partners. According to the US trade representative, US goods and services trade under the USMCA totalled about $1.8tn in 2022.Washington’s latest move came hours after data showed the US trade deficit swelled in January to a record $131.4bn, from a $98.1bn deficit in December. Economists said the increase was partly because of companies rushing to stockpile goods before the imposition of tariffs.US car manufacturers, which have highly integrated supply chains across all three countries, have lobbied hard against steep tariffs being imposed.Some content could not load. Check your internet connection or browser settings.Thursday’s executive order notes that automotive production is “integral to United States economic and national security”, adding that the pause on tariffs will “minimise disruption” to the US car industry.According to analysis by Kyle Handley, an economist at the University of California San Diego, only about 9 per cent of the $60bn of car-related imports to the US from Canada did not comply with USMCA in 2023.Handley found that about a quarter of car-related imports from Mexico were not compliant.To qualify for the exemption from Trump’s tariffs, cars manufactured in Canada and Mexico must source between 65 per cent and 75 per cent of their parts from the region.Automakers are also likely to be affected by planned US tariffs of 25 per cent on steel and aluminium, which are set to come into force next Wednesday.Trump has said he plans to impose so-called reciprocal tariffs on trading partners from April 2 to retaliate against taxes, levies, regulations and subsidies that Washington considers unfair.Lutnick said on Thursday that if Canada and Mexico made progress on fentanyl trafficking, the White House would “move just to the reciprocal tariff conversation”.The Trump administration’s reversal on tariffs sparked gains in the Canadian and Mexican currencies on Thursday. Canada’s dollar rose 0.3 per cent against the dollar, while Mexico’s peso rallied 0.7 per cent.US stocks were volatile, with the S&P 500 trading down 1.8 per cent and the tech-heavy Nasdaq Composite trading 2.6 per cent lower.The executive order also lowered the duty on potash imports from Canada that do not comply with the USMCA to 10 per cent, providing relief to American farmers, who import around 80 per cent of the fertiliser from Canada. More

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Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldIn his first address to Congress since beginning a tumultuous second term, US President Donald Trump proudly claimed on Tuesday night that he was “just getting started”. That is a bad omen for the world’s largest economy. The optimism among companies and investors that came with the businessman’s election victory is rapidly waning. After the president confirmed tariffs on Mexico, Canada and China on Monday night, the S&P 500 initially erased all the gains it had made since the November polls. Consumer confidence has plunged. Manufacturers are reporting steep declines in new orders and employment, and bearish investor sentiment has shot well above its historic average.Uncertainty is clouding the data and forecasts. Still, it is clear that the president has squandered what was a decent economic inheritance. Not long ago price pressures were fading, the US Federal Reserve was on the cusp of a steady rate-cutting cycle into a resilient economy, and the S&P 500 was gliding upwards. This is no longer true.The depressing turnaround is a product of the administration’s pursuit of on-and-off import duties, and a chaotic policy agenda. The White House may believe it has a plan but America’s economic exceptionalism, from its relentless consumer spending and booming stock market to its reputation for dependable economic governance, is the collateral damage.Personal expenditure — a bulwark of recent US growth — fell in January, by its most in nearly four years. With pandemic-era inflation not yet fully extinguished, and the reality of Trump’s price-raising tariff plans now dawning, consumers’ expectations for inflation in the year ahead have surged. The Fed has so far responded to forthcoming price pressures by putting rate cuts on hold, leaving borrowers facing a higher cost of credit. Elon Musk’s planned clear-out of public sector employees is also set to raise joblessness in an already cooling labour market.Animal spirits are under pressure too. Perhaps naively, many businesses and investors expected import duties to be merely a negotiating tool. But Trump also believes tariffs are about “protecting American jobs”. After the latest salvo towards North American neighbours, the president offered a one-month reprieve for automakers on Wednesday, and was moving to broaden it on Thursday. The unpredictability of tariff carve-outs, reversals and steps against other trading partners makes it impossible for businesses to plan. Retaliatory measures will also hurt exporters. The broader deluge of policy announcements — some of which have had significant geopolitical ramifications — adds to the decision-making paralysis facing boardrooms and traders. Faith in US economic and financial institutions is also being tested. Trump has filled regulatory bodies with his chums. The Fed’s independence is an ongoing concern. Then there are zany economic ideas, from building a cryptocurrency reserve to a rumoured “Mar-a-Lago accord” to devalue the dollar. Some analysts note that the dollar’s recent weakness amid economic turmoil suggests financial markets may be beginning to question the safe haven status of the currency.It is true that the administration’s tax cuts and deregulation efforts are yet to get started. But since they are likely to be paired with tariffs on more trading partners, rash policymaking and a clampdown on undocumented immigrants — which make up an estimated 5 per cent of workers — optimism around near-term US economic growth feels increasingly like blind hope. The contours of Trump’s economic agenda have sharpened. It is already worse than everyone thought, and he is just six weeks in. More

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldUK business secretary Jonathan Reynolds has vowed to “stand up” for the British steel industry and warned Washington that retaliatory measures “already exist”, as the reimposition of US sanctions loom.Reynolds said he was due to speak to US commerce secretary Howard Lutnick on Thursday night in a bid to seek a carve-out from a 25 per cent levy set to be imposed globally on steel and aluminium imports to the US from Wednesday. In an interview with the Financial Times, the business secretary said he wanted to keep the conversation with Lutnick “constructive” but signalled that tit-for-tat measures remained an option.Asked about possible retaliatory measures, Reynolds noted the UK had measures on the shelf that the country had used in response to steel and aluminium tariffs President Donald Trump imposed in his first term in office.They “already exist, because obviously there were the tariffs in place [previously under Trump] and the set of retaliatory measures in the UK . . . It’s not so much about drawing up contingencies, because we know what was there in the past,” he said on a trip to Tokyo.The tariffs between the UK and the US were suspended under a deal agreed in March 2022 between the then-Conservative government in London and then-president Joe Biden.Reynolds stressed no decisions had been made on retaliation. However, British officials said they were aware that Indian and other investors in UK steel were watching to see Britain’s response to Trump’s threatened tariffs. Failing to retaliate if the tariffs were imposed could chill inward investment, the officials said.The UK steel industry is dominated by Indian-owned Tata Steel and Chinese-owned British Steel, which still employ the majority of workers. Smaller players include Liberty Steel and UK state-owned Sheffield Forgemasters.“We’re proud of the inward investment that we have received over the years. The British steel industry has foreign ownership in it, but that has brought at times expertise, capital that we’d be seeking to defend,” Reynolds said, vowing to “stand up for the whole of the sector”.Trump in 2018 imposed tariffs of 25 per cent on steel and 10 per cent on aluminium from most countries, citing national security grounds. The EU, which at the time included the UK, responded by imposing tariffs on a range of US imports, including steel but also iconic US products such as bourbon whiskey. Since returning to office in January, Trump has again unsettled global markets with tariff threats as investors in exposed industries fret over whether he will follow through or grant exemptions. Trump last month signalled the UK could yet escape any tariff action, telling reporters he was working on a trade deal with Britain after a White House meeting with Prime Minister Sir Keir Starmer.Describing Starmer as a “very tough negotiator”, Trump said the two countries could “very well end up with a real trade deal where the tariffs wouldn’t be necessary”. Reynolds said a UK exemption to the steel and aluminium tariffs was “very strongly in the US’s interests”, pointing to “the supply of steel to the US Navy for the submarine programme”.UK business secretary Jonathan Reynolds More

When Donald Trump rang the opening bell at the New York Stock Exchange on December 12, the chants of “USA” from the trading floor epitomised the investor exuberance that had greeted the president-elect’s victory and powered US stocks to a series of record highs.But just a few months later, investors betting that the new president’s America First agenda would boost US equities and the dollar, while hitting the currencies and stocks of its trading partners, have been confounded. Investors now worry that his much-vaunted policy of trade tariffs will hurt domestic growth. Meanwhile, the US’s foreign policy has galvanised Europe’s politicians into promising a defence spending boom that has lifted the region’s assets. “You’d be hard pressed to find another period where the disparate trends across the Atlantic have switched gears like this so profoundly,” said Robert Tipp, head of global bonds at PGIM Fixed Income.The US had hit a “saturation point” where headlines on tariffs and lay-offs had created a “budding economic pessimism” that had sent investors rushing for haven assets, he added. “Right at that moment, Europe has switched to stimulus.”Donald Trump rings the opening bell on the trading floor of the New York Stock Exchange in December More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Show video infoThe European Central Bank has signalled a possible slowdown in cuts to borrowing costs, as rate-setters reduced their benchmark interest rate by a quarter point to 2.5 per cent. Thursday’s widely expected move was the sixth reduction in the ECB’s deposit rate since the central bank started its rate-cutting cycle last June, when the benchmark stood at a record high of 4 per cent to counter surging inflation. In a change of tone that signalled a more hawkish stance, the ECB said that “monetary policy is becoming meaningfully less restrictive”.The language suggested a possible slowdown or pause in future interest rate cuts, since it compared with the ECB’s previous wording that “monetary policy remains restrictive”. Christine Lagarde, ECB president, said the shift in wording was “not an innocuous little change”. Lagarde raised the prospect of pausing the ECB’s run of rate cuts, saying rate-setters would be led by what “the data indicates”.Lagarde also said there was no opposition to the decision to cut rates — though one rate-setter, Austria’s hawkish central bank governor Robert Holzmann, abstained. In the aftermath of the decision, traders trimmed their bets on future rate reductions. While they continued to fully price in one further quarter-point cut this year, according to levels implied by swaps markets, the chance of a second cut in 2025 fell from about 85 per cent to roughly 70 per cent by late afternoon.The euro rose against the dollar after the ECB decision, before later giving up some of the gains, up 0.1 per cent at $1.080. Frederik Ducrozet, head of macroeconomic research at Pictet Wealth Management, said the ECB was “no longer on autopilot” and had made a “meaningful, albeit conditional, hawkish shift”.Some content could not load. Check your internet connection or browser settings.Inflation has fallen from a peak of 10.6 per cent in October 2022 to 2.4 per cent in February and the deposit rate is now at its lowest since February 2023.The prospects for the Eurozone economy could also be affected by moves by Friedrich Merz, Germany’s chancellor-in-waiting, to unleash hundreds of billions of euros in borrowing to boost defence spending and overhaul his country’s infrastructure.Merz’s fiscal bazooka had prompted traders to reduce their expectations for ECB rate cuts even before Thursday’s decision. Some analysts forecast that a quick implementation of the plans could double Germany’s expected growth next year to 2 per cent.In projections that did not take into account the German plan, the ECB cut its growth forecast for 2025 — its sixth successive downgrade for the year — as well as for 2026 and 2027.It now expects Euro area GDP to increase by only 0.9 per cent this year, compared with its December projection of 1.1 per cent. “High uncertainty, both at home and abroad, is holding back investment and competitiveness challenges are weighing on exports,” Lagarde said on Thursday afternoon, adding that rate-setters were facing an acutely uncertain environment. Growth last year was a sluggish 0.7 per cent.But Lagarde added that “an increase in defence and infrastructure spending could also add to growth” and “could also raise inflation through its effects on aggregate demand”.Ahead of the ECB decision, Goldman Sachs economists wrote in a note to clients that Germany’s debt-funded push for much higher defence spending and infrastructure investment “clearly lowers the pressure” for the ECB to cut interest rates below 2 per cent.The ECB also raised its forecast for inflation this year from its December estimate of 2.1 per cent to 2.3 per cent on the back of higher energy prices.It added that “most measures of underlying inflation” suggested that it remained on track to meet its 2 per cent target.Pooja Kumra, a rates strategist at TD Securities, said the ECB was “certainly more cautious” on future cuts, as she alluded to US President Donald Trump’s threatened tariffs on the EU.“With uncertainty around fiscal [policy] and tariffs, they cannot commit to any path,” she said.“We think if inflation and growth data come in line with expectations over the coming months, the ECB is likely to cut one more time to 2.25 per cent in April, before pausing in June when the fiscal and tariff impact becomes clearer,” said Neil Mehta, portfolio manager at RBC BlueBay Asset Management. More