Aurelia Butler

This article is an onsite version of our Trade Secrets newsletter. Premium subscribers can sign up here to get the newsletter delivered every Monday. Standard subscribers can upgrade to Premium here, or explore all FT newslettersHello. It’s me back again after Aime Williams superbly stood in last week. Her take on the World Bank in the run-up to its spring meetings is here if you missed it. This week’s newsletter is on some signs of what might happen after two elections coming up this year: in the US, a plan for a more coherent plan on trade and climate; in the UK, trade realignment with the EU. Charted waters is on the disturbingly weak yen.Get in touch. Email me at [email protected] talk from the White HouseThere was a speech last week that maybe didn’t get the attention it deserved. John Podesta, veteran of the Bill Clinton and Barack Obama administrations, who took over from John Kerry as President Joe Biden’s chief climate diplomat in January, laid out the administration’s plans for decarbonising trade. There was nothing massively new in the substance, but the tone and the framing, including launching a White House Climate and Trade Task Force (initial caps throughout to show they mean business) were notable.Hitherto, pushing the Biden administration’s green policies through Congress has been shaped by the need to get everything past Joe Manchin of West Virginia, the fossil fuel-loving swing voter in the Senate. But Manchin (and self-publicising habitual obstructionist Kyrsten Sinema) are retiring after November’s elections. With some grown-up conversations taking place on Capitol Hill and even a reasonable chance of the Democrats retaining the Senate and taking the House, suddenly there might be an environmentally minded Congress with which the administration can do more constructive business.Elevating the articulation of the issue from the unfortunately largely ineffectual leadership at the US trade representative’s office to a White House heavy-hitter is certainly helpful.So is the commitment to work with trading partners to create standard methodologies for measuring carbon emissions. This is not before time. Rupert Schlegelmilch, until recently the European Commission’s director for US trade issues, rather drily tweeted after Podesta’s speech that “this is indeed progress”, in the sense that the EU had repeatedly asked the US for these kind of discussions in vain.You can see Schlegelmilch’s point. It was last summer when the administration asked the independent US International Trade Commission agency to investigate how to measure greenhouse gas emissions from manufacturing steel and aluminium (aluminum, whatever). Ten months later and the ITC is still running seminars for companies on how to fill in the forms. (There’s one tomorrow on Webex if you’re interested.)In any case, the general tone of international collaboration sounds good, especially compared with the US’s clumsy failed attempts so far to bully and bounce the EU into backing its green steel and aluminium club.But here’s the big problem. The rhetoric on aligning emissions standards and carbon taxes sounds all very multilateralist. But the various proposals for said taxes that have been floating around Capitol Hill, certainly on the Republican side, are generally heavy on border charges but light or absent on domestic pricing.That’s just not going to get the EU on board. Essentially it’s just the old green steel club in a new wrapping. Any arrangement without a domestic tax doesn’t do much to promote decarbonisation at home, is very likely WTO-illegal and to much of the rest of the world will look like yet another way the US has found to protect its steel industry. It’s hard to see the US getting many other countries to sign up to this. Meanwhile, the EU’s CBAM is not exactly universally popular but is stimulating conversations and starting alignment about carbon pricing worldwide.It’s good the administration is communicating on this; it’s good that Podesta is in charge; it’s good that it’s thinking about the next Congress. But sooner or later there will be a reckoning. A climate and trade policy that imposes a carbon border tax without a domestic counterpart isn’t the solution the planet needs.The EU’s gravitational pull for UK goods tradeSo last week we learned just how toxic the mention of freedom of movement (FOM) with the EU is to UK’s Labour opposition. The party rather absurdly rejected out of hand a suggestion by the commission to agree the kind of EU-wide youth mobility deal that Rishi Sunak’s government was keen to do with a bunch of EU member states.Obviously, there won’t be any sanity on that subject from Labour until after an election: let’s hope it’s the election in 2024 and not in 2029. But in the meantime there are some interesting dynamics on the goods rather than the services/FOM side. Labour have also ruled out a customs union agreement with the EU, but in some ways economic gravity is going to pull the UK closer to EU rules on goods unless they’re insanely self-destructive.Our old friend CBAM is one. (I might just rename this newsletter CBAM Secrets and have done with it.) Sunak’s government may bleat on about designing a CBAM for the UK’s specific needs, but divergence with the EU version won’t survive threats such as high-emissions steel from India that’s been excluded from the EU market washing up in the UK and destroying steel production in Port Talbot. As my FT colleagues have described, there’s also a serious problem with carbon border taxes on electricity generation. Realistically, the only choice Labour will have to make is whether they actually rejoin the EU’s emissions trading scheme (ETS) and CBAM like Norway or concoct a shadow version like Switzerland, which still leaves British companies with a tonne of paperwork to submit. Similarly, the UK is likely to have to match the EU’s antisubsidy duties on Chinese electric vehicles unless it wants to be inundated with cars that can’t get into the EU market. Generous rules of origin on EVs in the EU-UK trade agreement may have been extended until the end of 2026, but as that deadline approaches the costs of divergence from the EU’s customs regime will also start to loom. And if British companies want to export to the EU anything that uses the commodities covered by the EU’s deforestation regulation, the UK will probably just copy-paste that regulation itself rather than its current light-touch version. Labour won’t say so now, obviously, but in a bunch of areas the costs of divergence on trade in goods is becoming clear and will push the UK towards more alignment with the EU. A customs union is a more immediate and politically palatable vehicle than the single market and FOM for the UK to tack back towards rules set in Brussels. Charted watersInterest rate differentials have put upwards pressure on the dollar that is widely regarded inside and outside the US as a bad thing. The US, Japan and South Korea issued an unusual joint statement last week as Tokyo and Seoul signalled they were concerned about the weakness of the yen and the won.Trade linksEuropean companies are facing fierce competition from Chinese businesses in the Chinese market . . . . . . while the Chinese car manufacturer Chery is launching production in Europe, using a former Nissan factory in Spain . . . . . . and China is hitting back at suggestions it is dumping goods on the world market from building excess capacity.A really intriguing story as the US UAW labour union files charges against Mercedes-Benz for opposing a unionisation drive at its plant in Alabama. The case relies on Germany’s newish supply chain law, which aims to protect labour standards in German companies’ operations and suppliers overseas.US and European pharmaceutical manufacturers are concerned about supply shortages because a Chinese anti-espionage law is deterring them from sending inspectors to certify Chinese production facilities.The development guru Charles Kenny writes for the Cato Institute on how globalisation can help combat climate change.Trade Secrets is edited by Jonathan MoulesRecommended newsletters for youBritain after Brexit — Keep up to date with the latest developments as the UK economy adjusts to life outside the EU. Sign up hereFree Lunch — Your guide to the global economic policy debate. Sign up here More

BUENOS AIRES (Reuters) – Mexico’s economy is set to grow steadily after June’s presidential election, in line with a decent performance in the United States, while the fiscal front will become more challenging for the new government, a Reuters poll showed.President Andres Manuel Lopez Obrador’s administration has been pushing up spending in anticipation of the vote, raising concerns among some central bank policymakers worried about the impact on inflation.Leading the electoral race is ruling party candidate Claudia Sheinbaum, who has touted hikes to the minimum wage and vowed to support state-owned energy companies. At the same time, she also promised fiscal discipline, but has yet to offer detailed plans.Gross domestic product (GDP) is expected to rise 2.2% this year and 1.9% in 2025, according to median estimates of 34 analysts polled April 8-18. The consensus view for next year was downgraded from a forecast of 2.1% in a January poll.The main driver should be a continuation of good macro results in the U.S. that would power Mexican exports as well as more remittance flows from the world’s biggest economy, which last year hit a record at $63.3 billion.”Risks around forecasts are balanced,” said Alberto Ramos, head of Latin America economic research at Goldman Sachs, noting a number of external and domestic uncertainties, compounded by a recent volatility surge in the local currency market.”But the fiscal picture is going to be less comfortable than the one Lopez Obrador had to manage, and that needs to be fixed through tax reform or expenditure reviews,” Ramos added, also citing Mexico’s heavy set of regulations that limit investments.The odds are looking low, though. A key advisor of Sheinbaum said this month she would not carry out fiscal reforms in the first years of her mandate if elected, focusing instead on improving labor conditions and adopting renewable energies.Mexico’s overall fiscal deficit is set to end 2024 at 5.9% of GDP, according to figures by the International Monetary Fund, the highest for the country in IMF public finances data series starting in 2015.Then it would be cut by almost half to 3.0% in 2025 if goals by the current economic team – that Sheinbaum wants to keep – are met as the IMF expects, implying the biggest adjustment among all emerging market and middle income economies tracked by the Fund.It remains to be seen if and how this effort would include payments to cover losses and debt of state oil company Pemex that rose during Lopez Obrador’s administration, prioritizing it over renewables that are in Sheinbaum’s platform.Fiscal doubts, persistently elevated inflation, and the U.S. Federal Reserve’s switch to a more vigilant stance on the start of an easing cycle, have led some members of the central bank -known as Banxico – to call for a “cautious” policy ahead.The Mexican benchmark rate was cut in March by just 25 basis points to 11.0% from a peak of 11.25%. Median estimates in the poll saw a series of 50 basis points reductions in each quarter this year, ending 2024 at 9.50% and 2025 at 7.50%.”Banxico’s policy rate is highly correlated with the U.S. Fed rate. Fewer cuts by the Fed limit Banxico’s room to cut. However, we still expect Banxico to keep cutting rates this year,” BofA analysts wrote in a report.(For other stories from the Reuters global economic poll:) More

TOKYO (Reuters) – The Bank of Japan is expected to project inflation will stay around its 2% target for the next three years in new forecasts due on Friday, signalling its readiness to raise interest rates again this year from current near-zero levels.But governor Kazuo Ueda will probably stress the BOJ’s resolve to tread carefully and take a data-dependent approach in deciding the next rate hike given uncertainties on whether wage hikes will broaden and drive up prices in the services sector.”We will proceed cautiously, initially assessing the impact of our recent policy changes on the economy and inflation, then considering further adjustment as deemed appropriate,” Ueda told a seminar in Washington last week.Having made a landmark exit from its radical stimulus just last month, the BOJ is widely expected to keep its short-term interest target unchanged in a range of 0-0.1% after a two-day meeting that ends on Friday.It is also not expected to change its plans to buy government bonds at the current pace of roughly 6 trillion yen ($38.8 billion) per month as a precaution to avoiding sharp rises in bond yields.In fresh quarterly projections due after the meeting, the nine-member board is likely to cut its economic growth forecast for the current year that began in April due to weak output and consumption, five sources familiar with its thinking said.But the board may slightly raise its forecasts for inflation, as measured by an index excluding the effect of fresh food and fuel costs, to around 2% in fiscal 2024 and 2025 due to the prospect of sustained wage hikes, they said.The BOJ is expected to project inflation will stay around 2% in fiscal 2026, the sources said. Under current forecasts, the BOJ expects inflation to hit 1.9% in both fiscal 2024 and 2025. It will announce estimates for 2026 for the first time on Friday.The central bank ended eight years of negative rates and other remnants of its unorthodox policy last month, making a historic shift away from its focus on reflating the economy with decades of massive monetary stimulus.Markets are looking for clues on how soon the BOJ will hike rates again. Many economists expect it to happen either in the third or fourth quarter, after Ueda’s recent comments signalling the chance of another hike around summer or autumn this year.While the projected upgrade in inflation forecasts would keep alive market expectations of a near-term rate hike, the timing of such a move would be swayed more by data on whether prospects of wage hikes could push up prices particularly for services, analysts say.The strength of consumption, which remains weak as rising living costs hurt households, is also key to how soon the BOJ could raise rates.The weak yen complicates the BOJ’s policy path with some market players betting the central bank could come under pressure to hike rates sooner than it wants to slow the currency’s decline.While Ueda has ruled out directly targeting yen moves in guiding policy, he said a weakening currency could push up trend inflation by boosting import prices.”If the impact becomes too big to ignore, it might lead to a change in monetary policy,” he told a press conference last week, signalling the possibility of another rate hike.Many analysts expect the BOJ to spend at least a few more months to gauge whether trend inflation will steadily accelerate toward its target, and durably stay there, as it projects.While an expected revival of consumption will give the BOJ room to increase rates, it should tread cautiously given various risks surrounding the outlook, Nada Choueiri, the International Monetary Fund’s Japan mission chief, told Reuters.”I think gradualism is really important,” because the risks to growth and inflation are equally balanced, Choueiri said last week.($1 = 154.7000 yen) More

This article is an on-site version of our Moral Money newsletter. Premium subscribers can sign up here to get the newsletter delivered three times a week. Standard subscribers can upgrade to Premium here, or explore all FT newsletters.Visit our Moral Money hub for all the latest ESG news, opinion and analysis from around the FT French-American professor Esther Duflo has been one of the world’s most prominent economists in recent years — particularly after she won the Nobel Prize for economics in 2019, alongside her research partner and husband Abhijit Banerjee and their collaborator Michael Kremer.Duflo’s research has focused largely on poverty alleviation, notably through her work as co-founder of the Abdul Latif Jameel Poverty Action Lab at the Massachusetts Institute of Technology. That’s forced her to grapple with the economic implications of climate change, which is having increasingly heavy effects on many of the world’s poor.In Washington last week, during the spring meetings of the World Bank and IMF, Duflo unveiled a new proposal to use targeted taxes on companies and the ultra-rich to fund climate-related assistance for low-income nations and individuals.Have a read of my discussion with Duflo below, and let us know what you make of it: as always, you can reach us at [email protected] Duflo plan for climate financeThis interview transcript has been edited for length and clarity.Simon Mundy: What exactly is the proposal you’re making?Esther Duflo: The point I’m making is very simple. I’m trying to put a number for the moral debt that rich people of the world — particularly people in rich countries — have towards the poor people of the world related to our consumption choices, and thereby our carbon emissions.And how do I compute this number? I focus on mortality: on the greatest cost of all, which is losing your life.Poor people face a double jeopardy vis-à-vis climate change. The first problem is that they tend to live in places that are already hot. And therefore, as the planet warms, there’ll be more and more days above 35C, particularly in those countries. And then the second problem they have is, of course, they’re poor. And poverty is a big impediment to adapt to climate change. We can see that people are much more likely to die with a particular number of days above 35C in poor countries, even if they are used to heat. So if you put these two things together, you get this really remarkable map that was made by the Global Impact Lab, which shows there is going to be massive damage: about 6mn extra deaths a year until 2100. And this damage will be concentrated in poor countries outside the OECD [group of developed economies].The second part of the argument, of course, is that the majority of the damage is still done by us [in rich countries]. So if we take into account consumption, the carbon footprint of the 10 per cent richest Americans is 122 times larger than that of the median African.Every tonne of carbon we put into the atmosphere imposes a cost. And we can focus on the mortality cost, because that’s the most striking. You combine the effect of one tonne of carbon on global warming, multiplied by the effect of temperature on mortality, multiplied by a value that you put on one year of life — the number that our governments keep using, which is the “value of a statistical life”. Duflo and her research partner and husband Abhijit Banerjee won the Nobel Prize for economics in 2019 More

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Small and medium-sized importers of food and plants from the EU will face punitive monthly charges running into tens of thousands of pounds when post-Brexit border checks come into force at the end of this month, industry bodies have warned.Fees on EU goods arriving at Dover and Eurotunnel, which handle the bulk of UK food imports, have been capped at £145 per product type, but trade groups said in practice the charges would quickly add up, leaving smaller operators facing crippling cost levels.The groups, including the British Chambers of Commerce, the Cold Chain Federation and the Horticultural Trades Association have urged the government to either delay the introduction of the charges on April 30, or do more to reduce the impact on small businesses.They said the government had failed to take on board industry concerns when consulting over the operation of the new border. The Financial Times reported last week that a range of technical problems will mean many of the checks will not be turned on as planned to avoid possible disruption, but businesses will still be charged. William Bain, the head of trade policy at the BCC, warned that owners of corner shops, cafés and local delis would face an “explosion in costs” with some businesses paying “tens of thousands of pounds” extra each month.  “Every day closer to the introduction of the new charges, it is becoming clearer it will have an unfair effect upon small and medium-sized businesses. The loser in this will be British consumers, facing higher prices for everyday foods and reduced choice,” he said.A sign at the entrance to the Sevington Inland Border facility near Ashford, Kent. The UK government says the new border is essential to protect biosecurity and level the playing field for British businesses More