Aurelia Butler

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 to FirstFT Asia. On today’s agenda: US and Vietnam strike a trade dealThe Dalai Lama defies BeijingIs Trump’s “big, beautiful bill” a political curse?Donald Trump said the US had struck a trade agreement with Vietnam in a deal that would lower Washington’s “reciprocal tariff” on exports from the Asian country to 20 per cent. Here’s what you need to know.The deal: The new tariff level represents a more than halving of the 46 per cent levy Trump initially imposed on Vietnam during his “liberation day” tariff blitz on April 2. But it is higher than the 10 per cent rate it was lowered to as trade talks took place. The US will also charge Vietnam a 40 per cent tariff on “trans-shipping” as Washington seeks to crack down on businesses sending products made in China through other countries to avoid high levies on Chinese goods.Go deeper: Vietnam’s exports to the US have risen in recent years as manufacturers have moved production out of China to avoid US tariffs, with the south-east Asian country hosting the likes of Apple, Samsung and Nike. Trans-shipment had become a critical issue in Hanoi’s negotiations with Washington, as the Trump administration accused Vietnam of being a conduit for Chinese exporters. Read more about the deal, which makes Hanoi one of the few capitals to reach a trade agreement with Washington in the past three months. Here’s what else we’re keeping tabs on today:Five more top stories1. The Dalai Lama has said that the Tibetan Buddhist community he leads has the “sole authority” to recognise his future incarnation, asserting control over a succession process contested by China. The spiritual leader, who will turn 90 on Sunday, said he expected the role he occupies to continue after his death. 2. Sir Keir Starmer has said Rachel Reeves will be chancellor for “a very long time to come” as the prime minister moved to stem speculation over her future. UK government bonds and the pound fell sharply yesterday afternoon after Starmer declined to back a tearful Reeves in the House of Commons following Labour’s dramatic gutting of its welfare bill.3. Goldman Sachs stood to lose just $300mn in an economic shock under the Federal Reserve’s stress test scenario this year, vastly less than the $18bn forecast a year earlier — and a big reason for the bank’s outsized shareholder payouts. Here’s how the Wall Street bank won the Fed’s stress test.4. A jury has acquitted rapper-entrepreneur Sean “Diddy” Combs of sex trafficking and racketeering, but convicted him of prostitution-related charges, in a widely watched New York federal court case. The case of Combs, a Grammy award-winning artist, is among the most high-profile reckonings with sexual misconduct in the music business. Read the full story.5. Shares of New World Development, the heavily indebted Hong Kong property group, jumped yesterday as investors welcomed the end of its refinancing talks with banks and the resignation of the founder’s grandson from his remaining board roles. New World has been hit by a market downturn following a period of debt-fuelled expansion.News in-depth© FT montage; Reuters/Getty ImagesTrump has narrowly passed his “big, beautiful bill” through the US Senate. But the legislation still faces hurdles, including the House, where several of his fellow Republicans have threatened to vote against it. But even if the president is able to get them in line, he faces a big task in defending the legislation before an American public that already seems to be souring on it. We’re also reading . . . Chart of the day Drinking has become more prevalent among Gen Z as baby boomers cut back their alcohol consumption, according to an extensive study by market research company IWSR. The findings call into question the assumption that Gen Z has turned its back on drinking en masse.Take a break from the newsThe recent heatwaves in Europe and the US have made travelling to the office unbearable at times. Becky Malinsky, a New York-based personal stylist, gives advice on how to dress for work in hot weather.Fashion influencer Laura Schulte in short-sleeve top, loose-fit trousers and flip flops in Copenhagen last August More

Unlock the White House Watch newsletter for freeYour guide to what Trump’s second term means for Washington, business and the worldDonald Trump said the US had struck a trade agreement with Vietnam in a deal that would lower Washington’s “reciprocal tariff” on exports from the Asian country to 20 per cent.The new tariff level represents a more than halving of the 46 per cent levy Trump initially imposed on Vietnam during his “liberation day” tariff blitz on April 2, but is higher than the 10 per cent rate it was lowered to for 90 days as trade talks took place.The deal makes Hanoi one of the few capitals to reach a trade agreement with Washington in the past three months. But the steepness of the tariffs remaining in place could unnerve countries still hoping to secure significant relief from the levies announced in April, which triggered a financial market sell-off at the time and upended global trade.Describing the deal as “something that they have never done”, Trump said in a Truth Social post on Wednesday detailing the agreement that Vietnam would give the US “TOTAL ACCESS” to its market and that “we will be able to sell our product into Vietnam at ZERO Tariff”.The US will also charge Vietnam a 40 per cent tariff on “trans-shipping” as Washington seeks to crack down on businesses sending products made in China through other countries to avoid high levies on Chinese goods.Vietnam’s official state media reported that Vietnam’s Communist party chief To Lam held a phone call with Trump on Tuesday and the two sides reached a consensus on a “fair and balanced reciprocal trade agreement framework”.During the call, Trump “affirmed that the US will significantly reduce reciprocal tariffs on many Vietnamese exports”, state media reported, without referring to any specific tariff rates.“The 20 per cent baseline tariff for Vietnamese imports is higher than expected, undoubtedly causing angst among other trading partners trying to finalise deals,” said Wendy Cutler, a former US trade official who now serves as vice-president at the Asia Society Policy Institute.Hanoi, though, had a “strong interest” in reaching a deal with Washington, given almost 30 per cent of Vietnam’s exports are destined for the US, Cutler said.The south-east Asian country’s exports to the US have risen in recent years as manufacturers have moved production out of China to avoid US tariffs, with Vietnam hosting the likes of Apple, Samsung and Nike. In 2024, the US exported $13.1bn in goods to Vietnam, according to US government figures, but imported $136.6bn over the same period.The Trump administration has accused Vietnam of being a conduit for Chinese exporters trying to avoid punitively high US tariffs on Beijing. The practice, known as trans-shipment, had become a critical issue in Hanoi’s negotiations with Washington.Many companies assemble components manufactured in China in other countries. including Vietnam and its south-east Asian peers, or add enough value to the products to legally change their place of origin. However, some merely relabel their products without any added value, a practice that is illegal but difficult to trace.Markets broadly took the announcement in their stride. The dollar was down less than 0.1 per cent, extending a recent slide, while the S&P 500 climbed steadily through the day to finish at a record high.Shares of several companies with significant manufacturing operations in Vietnam rose. On Wall Street, Nike climbed 4.1 per cent and toymakers Mattel and Hasbro each gained 1.6 per cent, while Adidas rose 1 per cent in Frankfurt.The lower levies may offer some relief for Vietnam, but it is unclear how the two-tier tariff system announced by Trump would work. It is also unclear how Hanoi can trace trans-shipment and what percentage of its exports would be hit with the higher 40 per cent rate.Alicia García-Herrero, chief Asia-Pacific economist at French investment bank Natixis, said the 20 per cent flat tariff was “not too bad” for Vietnam so long as US tariffs on China remained relatively higher.“The question is whether there is any fine print — for example, Vietnam imposing tariffs on products and inputs imported from China which are vital to its manufacturing economy,” she said. The deal with Vietnam comes a day after Trump threatened to increase levies on Japan, casting doubt that Washington would reach a deal with Tokyo. Additional reporting by Peter Foster in London More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.When the US imposed a 25 per cent tariff on imported Japanese cars, the expectation had been higher sticker prices for US consumers and falling sales. The assumption was that the added costs to exporters would inevitably be passed down the line. Yet, months into the policy, the outcome has proven far less dramatic.Japanese automakers’ US sales have shown surprising resilience. Toyota, for example, hit a global sales record in May, with North America sales up more than a tenth. Part of that is thanks to their local US production. Behind the stable sales figures, export data tells a more troubling story. In May, the number of vehicles shipped to the US declined by just 3.9 per cent, according to official data. When export value is divided by the number of units sold, the average price per vehicle drops to about ¥3.5mn, or $24,000, roughly a fifth less than the previous year. By total value, Japan’s vehicle exports to the US fell by nearly a quarter. If the cost of the tariffs had been passed on to consumers by raising prices, export volumes would probably have declined. But export value would have held steady, reflecting the higher per unit cost. Instead, both volume and value have fallen. That suggests carmakers are absorbing a large chunk of the tariff burden themselves. This may be an effective short-term strategy. The US remains the most lucrative market for Japanese automakers. Even modest price increases risk undermining market share, as the companies face aggressive competition from American and South Korean rivals. For companies such as Toyota, Honda and Nissan, keeping prices stable could protect their long-term positioning in the country.But trade negotiations have dragged on, with last week marking the seventh round of talks and little sign of resolution. If, as trade data suggests, companies are indeed absorbing the bulk of the tariff burden, their margins will be coming under growing pressure. That will squeeze even financially resilient groups such as Toyota, which has consistently reported operating margins above 10 per cent since 2023.In choosing not to raise prices to fully offset tariffs, carmakers have delayed disruption, while gambling that politicians will come to an agreement before profit runs dry. But as Japan’s chief trade negotiator Ryosei Akazawa has noted, some local automaker executives now estimate losses of up to $1mn per hour under the current tariff structure.Japan will need to act before losses reach the point where exports are no longer viable. That could mean buying more US energy or agricultural goods, or making market access concessions in areas such as food safety and pharmaceuticals. Discipline from its carmakers has bought time, but their resilience will soon be put to the [email protected] More

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Unlock the White House Watch newsletter for freeYour guide to what Trump’s second term means for Washington, business and the worldContainer ships are some of the biggest and heaviest vessels on the sea. But piloting a container shipping line recently has been akin to being on a fishing boat in the roughest of weather.The squalls have included US President Donald Trump’s on-off tariffs, port congestion, the Israel-Iran war, and the Houthi rebels in Yemen threatening to close off the Red Sea, not to mention the lasting effects of the disruption caused by Covid-19. Simon Heaney, senior manager for container research at maritime consultancy Drewry, says: “Supply chains are meant to be boring and predictable.”The latest deadline for Trump’s tariffs falls on July 9 but few in the container shipping industry — which serves as a proxy for both trade and globalisation due to the sheer volume of goods carried by ocean — believe it will be the final word.One senior container shipping executive says the uncertainty around tariffs is making it difficult for customers. “They are going to order as much as possible now because they just don’t know what will happen in the rest of the year. It’s injecting a whole extra layer of complexity in supply chains.”Both freight rates and share prices of listed container lines such as Denmark’s AP Møller-Maersk and Germany’s Hapag-Lloyd have been on a similar rollercoaster ride in recent months and years as fears of too much supply or demand have ebbed and flowed.But now questions are being raised about whether the industry has become too reliant on shocks to keep it profitable, storing up problems for when conditions eventually normalise. Lurking in the background is a more philosophical question — how does an industry that built and benefits from globalisation survive when its main cheerleader turns on it?Container shipping lines enjoyed extraordinary profits in the aftermath of the first wave of Covid. Drewry calculated that from 2020 until 2022, the industry made more money than in its previous 60 years combined. Much of that was ploughed back into buying new ships, particularly by the industry’s new number one player, Mediterranean Shipping Company. Regular warnings of impending oversupply have surfaced ever since, but events have kept conspiring to put off judgment day. Heaney says a record amount of capacity in terms of containers is currently on order — about 30 per cent of the current active fleet — but that lines are not generally getting rid of their “clunkers” when new vessels arrive.“The order book is a massive risk for the industry. They seem to be relying on the fact that there’s constant disruption. If and when the market normalises, they will be in massive trouble. They will have way too much capacity on their hands,” he adds.Some in the shipping industry may be banking on Trump causing more disruption. After his first term, many companies responded to the threat of a trade war with China by diversifying their supply chains into south-east Asian countries such as Vietnam, Cambodia and Thailand. But this could be hit by the president’s swingeing tariffs. “It’s hard to make any big supply chain decisions just now,” explains one of Europe’s largest manufacturers.Heaney says of the current mood: “There’s a level of exhaustion or fatigue over tariffs. There’s no sense of permanence to any decision. We’ve been strung along from one pause to another.”Equally, however, shipping bosses feel somewhat protected from Trump’s broader assault on globalisation and his desire to bring back manufacturing to the US by just how entrenched many supply chains are. Vincent Clerc, Maersk’s chief executive, told the Financial Times in May that it would take Trump “a decade or two of persistent effort” to redraw global trade routes. Many also believe that China and India will power a new era of globalisation. “It could be globalisation 2.0, at the same time as we are de-risking globalisation 1.0,” says the container executive.For now, despite all the disruption and the criticism of container shipping lines for elevated freight rates and profitability, there are signs of the system working. Rates between China and the US are falling at record pace after lines upped capacity in the wake of surging demand sparked by Trump’s so-called liberation day. “It’s a good sign that the industry is reactive, that there’s competition,” says Heaney.Still, other potentially bigger problems loom. Container shipping is likely to keep sailing on stormy seas for some [email protected] More

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