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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.We are living in the early stages of a revolution — the attempted conversion of the American republic into an arbitrary dictatorship. Whether Donald Trump will succeed in this attempt is, as yet, unclear. But what he wants to do seems self-evident. His way of governing — lawless, unpredictable, anti-intellectual, nationalist — will have the greatest impact on the US itself. But it is, inevitably, having a huge impact on the rest of the world, too, given the hegemonic role of the US since the second world war. No other country or group of countries can — or wants — to take its place. This revolution threatens chaos.It is far too early to know what the full consequences will be. But it is not too early to make informed guesses on some aspects, notably the unpredictability and consequent loss of confidence being created by Trump’s tariff war. This loss of confidence was the theme of a podcast I did recently with Paul Krugman. Without predictable policies, a market economy cannot function well. If the uncertainty comes from the hegemon, the world economy as a whole will not function well either.In its latest Global Economic Prospects, the World Bank has analysed just this. Its conclusions are inevitably provisional, but the direction of travel must be correct. It starts from the assumption that the tariffs in place in late May will remain over its forecast horizon. This might be too optimistic or too pessimistic. Nobody, perhaps not even Trump, knows. “In this context”, it judges, “global growth is projected to slow markedly to 2.3 per cent in 2025 [0.4 percentage points below the January 2025 forecast]— the slowest pace since 2008, aside from two years of outright global recession in 2009 and 2020. Over 2026-27, a pick-up in domestic demand is expected to lift global growth to a still subdued 2.5 per cent — far below the pre-pandemic decadal average of 3.1 per cent.”All this is bad enough. But risks seem overwhelmingly to the downside. Thus, the uncertainty created by Trump’s trade war could lead to far greater declines in trade and investment than projected. Certainly, it will be hard to trust in any supposed “deals” now announced. Again, lower growth will increase social, political and fiscal fragility, so raising perceptions of risk in markets. This might create a doom-loop, with higher costs of finance increasing risk and lowering growth. Weak borrowers, private and public, might be driven into default. Shocks from natural disasters or conflict would then be even more economically damaging.Upsides can be imagined. New trade deals might be reached, in which many might, courageously, trust. AI-fairy-dust might cause a surge in global productivity and investment. Also, everything might just calm down. A difficulty for this is that today’s Trump shock comes after almost two decades of shocks: global and Eurozone financial crises; pandemic; post-pandemic inflation; and Ukraine-Russia war. Animal spirits must have been impaired.Alas, as Indermit Gill, World Bank chief economist, stresses in his foreword, “the poorest countries will suffer the most”. “By 2027, the per capita GDP of high-income economies will be roughly where it had been expected to be before the Covid-19 pandemic. But developing economies would be worse off, with per capita GDP levels 6 per cent lower.” With the exception of China, it might take two decades for these countries to recoup their losses of the 2020s.Some content could not load. Check your internet connection or browser settings.This is not just a result of recent shocks. Thus, “Growth in developing economies has been ratcheting downward for three decades in a row — from an average of 5.9 per cent in the 2000s, to 5.1 per cent in the 2010s to 3.7 per cent in the 2020s.” This tracks the declining growth of world trade, from an average of 5.1 per cent in the 2000s to 4.6 per cent in the 2010s to 2.6 per cent in the 2020s. Meanwhile, debt is piling up. In the long run, it will not help that Trump insists climate change is a myth, too.So, what is to be done? First, liberalise trade. While developing countries have liberalised substantially in recent years, most of them still have far higher tariffs than high-income economies. Targeted infant-industry promotion can work. But if a country has little international leverage, the best policy remains one of free trade, coupled with the best possible policies for attracting investment, improving human capital and preserving economic stability. In a bad environment, as now, this is even more important than in a benign one.The choices for bigger powers — China, the EU, Japan, India, the UK and others — are more complex. First, they, too, need to improve their own policies to the greatest possible extent. They also need to co-operate in trying to sustain global rules among themselves, not least on trade. Some powers need to recognise that global imbalances are indeed a significant issue, though they are not about trade policy but rather global macroeconomic imbalances.This is far from all. As the US retreats from its historic role, others are having greatness thrust upon them. Continued progress on addressing the challenges of climate change and economic development depends on these powers. A better way to resolve excessive debts is necessary, for example. That requires going against today’s trend towards ever greater suspicion of one another.It is possible — even likely — that we are witnessing the withering away of a great effort to promote a more prosperous and co-operative world. Some people will say that such an ending would just signal healthy “realism”. But it would be a folly: we share one planet; and so our destinies are intertwined. Modern technology has made this inescapable. We are at a turning point: we must choose [email protected] Martin Wolf with myFT and on Twitter More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The US-driven global trade war will depress growth in almost two-thirds of developing economies this year, according to World Bank forecasts, as the lender warned the globalisation that drove an “economic miracle” in many countries had swung into reverse.Emerging and developing countries will see 3.8 per cent growth this year — down from 4.2 per cent in 2024, according to the World Bank’s latest economic outlook, pushing the pace of expansion more than a percentage point below the average rate in the 2010s.  Per capita income growth will be 2.9 per cent in developing countries this year, also more than a percentage point below the average between 2000 and 2019. Overall global growth will be the slowest since 2008, excluding recessions, according to the forecasts.The report underscores the damage wrought by the Trump-led assault on global trade for countries that have ranked among the biggest beneficiaries of greater global integration in recent decades. Global trade growth in goods and services is set to slow sharply in 2025 to 1.8 per cent compared with 3.4 per cent previously, the bank predicted.Per capita GDP in developing countries nearly quadrupled in the past half-century, lifting more than 1bn people out of extreme poverty. But that transformation is now in danger, as developing countries find themselves “on the frontline of a global trade conflict”, the bank said. “Outside of Asia, the developing world is becoming a development-free zone,” warned Indermit Gill, the World Bank’s chief economist. “Growth in developing economies has ratcheted down for three decades — from 6 per cent annually in the 2000s to 5 per cent in the 2010s to less than 4 per cent in the 2020s,” he added. Compounding the pressures is a halving of foreign direct investment inflows into emerging and developing countries compared with the peak in 2008. The bank warned that “downside risks” to the outlook predominate, among them a further escalation of trade barriers, persistent policy uncertainty and rising geopolitical tensions.The bank now thinks that the per capita GDP of high-income countries will be roughly where it was expected to be before the Covid-19 pandemic, whereas developing countries will be 6 per cent worse off. Leaving aside China, “it could take these economies about two decades to recoup the economic losses of the 2020s”, it said. “Global co-operation is needed to restore a more stable and transparent global trade environment and scale up support for vulnerable countries grappling with conflict, debt burdens and climate change,” the bank said. Last month the central bank of Mexico, an emerging market heavily geared to US economic conditions, slashed forecasts for growth this year to almost zero.The South African Reserve Bank also recently cautioned that expected growth of 1.2 per cent this year for Africa’s most industrial nation was at risk as the “combination of higher trade barriers, plus elevated uncertainty, is likely to weaken the world economy”.Gita Gopinath, the first managing director of the IMF, told the FT last month that emerging economies faced an even tougher policy challenge than during the Covid-19 crisis five years ago, given the unpredictable impact of tariffs on their economies and the risk of adverse capital flows. Despite the warnings, investors are reaping a rally in larger emerging markets this year in response to the weakening of the US dollar and bets that the worst of Trump’s tariffs will be repealed.The Brazilian real is up 11 per cent so far this year against the dollar, more than the Swiss franc or euro, while the Mexican peso and Taiwan dollar are both up almost 10 per cent.Local currency bonds and stocks of emerging markets have also rallied by about 10 per cent overall so far in 2025, behind only European stocks as the best-performing assets worldwide. ​​While many investors bet at the start of the year that emerging Asian economies in particular would be hit hard by US tariffs on their exports, their currencies have instead surged. Savers and insurers in these countries invested massively in US stocks and bonds in recent years but are now turning against dollar assets. “These dynamics explain the appreciation of trade-sensitive Asian currencies despite the looming growth hit,” JPMorgan analysts said on Tuesday.Despite the darkening global outlook many developing economies have also built up “strong fundamentals” after years of repairs to their finances since the oil price downturn of 2015 and other shocks, Alaa Bushehri, head of emerging market debt at BNP Paribas Asset Management, said.“We are looking at about a decade or so of improving traction across fundamentals in different emerging markets . . . on the basis of delivery of inflation targets, growth targets and other metrics” including better management of debt, Bushehri added. More

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This article is an on-site version of our Chris Giles on Central Banks newsletter. Premium subscribers can sign up here to get the newsletter delivered every Tuesday. Standard subscribers can upgrade to Premium here, or explore all FT newslettersAs it cut rates to 2 per cent last Thursday, the European Central Bank said it was in a “good position” to navigate the uncertain conditions facing it in the months ahead. Donald Trump later complained that the Federal Reserve was not as well placed to deal with whatever policy whims took his liking. The Fed will ignore his latest gripe. Much harder to cast aside has been the sharp rise in long bond yields in many advanced economies. Yields have risen to their highest levels in decades in Japan and the UK. The US and Japanese governments have at times struggled to sell long-term debt. And while US bond yields have been rising the dollar has declined, suggesting some element of investor resistance to US assets. Scary charts like the ones below can be found in numerous articles and analyst notes.Some content could not load. Check your internet connection or browser settings.Are these movements in government borrowing costs reflective of the amusingly named One Big Beautiful Bill Act that has passed in the US House of Representatives? Is it spooking investors as well as former government adviser Elon Musk? Is other countries’ debt being tainted by contagion risk from a US where fiscal policy is going off the rails? Is this all just a normalisation after an aberrant period of unusually low government bond yields? Gillian Tett, Sushil Wadhwani, Kenneth Rogoff and Martin Wolf respectively wrote these FT articles and they are all worth your time. No one can be confident yet about the answers. Reasoning from price changes is always dangerous. So, I am going to ask a simpler question: what should central bankers do about rising long bond yields, if anything?Go on then, what?The qualifier “if anything” is important because central banks’ main policy instrument is the short-term interest rate, which has waning influence as the time horizon extends. Of course, quantitative easing was designed to lower longer-term interest rates by creating money and adding to demand for longer-dated government bonds, so the net effects of central banks’ balance sheet policies matter. But the default thinking should be that investor demand governs the long end of the government bond yield curve, while monetary policy controls the short end. Movements in long bond yields tell us important things about investor sentiment, and we mess around with that at our peril unless we are in an economic crisis. There are, nevertheless, reasons an inflation-targeting central bank should get involved and worried by rises in long-dated government bond yields. The main one would be if investor reticence suggested a lack of confidence in central banks’ ability to control inflation. We can examine this by looking at the difference between nominal bond yields and inflation-linked bonds of the same duration, showing the market expectation of future inflation over different time horizons. The chart below shows these inflation break-evens for the US, UK, Germany, France and Japan, and there is clearly no problem. Investors are not currently concerned that inflation will be the default mechanism governments use to erode their debt. The expected inflation levels differ by country, but this is mostly the result of a gap between the price index used in inflation-linked bonds and the measure targeted by central banks. Happily, we can therefore disregard the argument that central banks have lost credibility as a reason for the recent change in yields. Some content could not load. Check your internet connection or browser settings.A second worry we can also probably put to bed is that long bond yields are rising as a result of contagion from the US. The correlations between bond yields in different countries is not that tight. Long-term German Bund yields, for example, rose in March as Friedrich Merz’s Christian Democratic Union declared victory in the federal election and investors anticipated big spending increases on defence and infrastructure. Japanese yields rose because life insurance companies stopped buying long-term bonds after meeting domestic solvency rules. (For more on this, read my colleague Andrew Whiffin’s article on FT Monetary Policy Radar.)As the chart below shows, the correlation of bond yield movements has been far from perfect at the short and long end. Since Trump’s inauguration, bond yields have been flat or falling in Europe and the US, up to the 10-year horizon, and have risen in Japan, mostly reflecting expected interest rate changes. They have risen at the 30-year horizon everywhere, but the moves are objectively small. If you click on the chart to look at the moves since “liberation day”, the US is a natural outlier, with rises in yields across all maturities. Eurozone 30-year yields have declined. No one should talk confidently about spillovers from the US. Central banks should not use that as justification for rate cuts.Some content could not load. Check your internet connection or browser settings.A third reason for central banks to act would be to ease financial conditions that might have become tighter with the rise in long bond yields. Be careful here. US financial conditions, measured by the Chicago Fed, did tighten after “liberation day” but have eased since. ECB President Christine Lagarde said last Thursday that they had similarly loosened in Europe, generating higher equity prices, lower corporate bond spreads and lower corporate interest rates. In the UK, Bank of England deputy governor for financial stability Sarah Breeden told parliament that the phenomenon of rising long bond rates “does not much matter from a monetary policy perspective” because “the rates that matter for businesses and households are at the shorter end”. She is absolutely correct. Although her view raises awkward questions about why the BoE risked and lost many billions of pounds buying huge long-dated bonds in its quantitative easing programme on something that “does not much matter” for the UK economy. In a speech last week, external Monetary Policy Committee member Catherine Mann warned that it was, in any case, very difficult for the BoE to surgically offset any rise in long-bond yields with cuts in short-term interest rates. Should central banks do nothing?As long as there are few concerns about financial stability, the answer is generally “yes”, they should do nothing. This is primarily a fiscal problem. Partly because long bonds are out of fashion, and partly because pension funds do not need as many new long-term assets as their schemes mature, demand for long bonds has fallen. Unfortunately for governments, it comes at a time when they want to issue a lot of new debt. Central banks might sensibly tweak their quantitative tightening programmes to sell a little less long-dated debt, but the BoE is the only central bank in this business and the numbers are small. Instead, if governments want to see lower borrowing costs for long-term debt, they will need to rein in fiscal deficits. They might also seek to issue less long-term debt in the meantime until there is more confidence in the public finances. The UK is doing just this, with the country’s Debt Management Office halving the quantity of long-dated bonds it issues in 2025-26 compared with the previous financial year. In Japan, the rise in yields has been softened by a government consultation on whether it should trim issuance. And in the US, Treasury secretary Scott Bessent has gone rather quiet on his previous insistence that US government debt was too short-term. These are temporary measures. The permanent fix of more resilient public finances is still some way off. What I’ve been reading and watchingLagarde gave short shrift to questions regarding her future at the ECB last week, saying “you’re not about to see the back of me” because “I’m determined to complete my term” (30 mins 40 secs).The Russian central bank has cut rates by one percentage point to 20 per cent as inflation dipped below 10 per cent. Its economy is losing momentum.St Louis Fed President Alberto Musalem told the FT there was a 50-50 chance that US tariffs would provoke persistent inflation. IMF deputy managing director Gita Gopinath said Trump’s trade wars posed a greater challenge to central banks in emerging economies than the pandemic.A chart that mattersThe ECB produced its own economic scenarios along with a central projection last Thursday. I have reverse engineered the published figures to present stylistic versions of its severe and mild trade scenarios for GDP growth, superimposed on the central bank’s main projection and its normal forecast errors. The scenarios do not diverge massively from the central forecast, but they do so more than those of the BoE in May. The predictions are plausible. The severe trade scenario involves an immediate mild recession before a recovery with permanent damage done. The mild trade outcome shows better growth outcomes are sustainable if trade barriers fall. I am still not sure what purpose these scenarios serve apart from saying that the world is worse with bad economic policy and better with good economic policy. We knew that.Some content could not load. Check your internet connection or browser settings.Recommended newsletters for you Free Lunch — Your guide to the global economic policy debate. Sign up hereThe Lex Newsletter — Lex, our investment column, breaks down the week’s key themes, with analysis by award-winning writers. Sign up hereCentral Banks is edited by Harvey Nriapia More

Javier Milei’s free-market reforms have put him on a collision course with Argentina’s icy, protectionist outpost near Antarctica, as the president rethinks a decades-old project to promote sovereignty in the south Atlantic through industry.Tierra del Fuego province, on an island at the southern tip of the Americas that is split between Argentina and Chile, is the biggest beneficiary of elaborate trade barriers and subsidies that Argentine governments have used to shield local industry.A special economic regime has drawn most of the country’s electronics manufacturing to the remote area, swelling its population from just 13,000 in the 1970s to 185,000.Leftwing supporters of those measures say the settlers bolster Argentina’s claim to the Antarctic Peninsula and the UK-controlled Falkland islands. Images of the Malvinas, as Argentines call them, are posted around Ushuaia, the sleet-covered provincial capital of 80,000.“We see industry as a tool for building sovereignty,” said Federico Greve, a legislator for the province’s left-leaning ruling party. “It’s one of the few Argentine public policies that has been sustained over time.”However, Milei’s vision for Argentina is very different. The libertarian economist is slashing import tariffs to reduce high consumer prices, and wants to pivot the economy from manufacturing towards mining, energy and tech. At the same time, he is tentatively restarting defence co-operation with London as he seeks a grand western alliance between “all countries who defend freedom”.In May, Milei announced the end of Argentina’s 16 per cent tariffs on imported mobile phones. Politicians in Tierra del Fuego say that directly threatens a quarter of the island’s 11,000 industrial jobs, and could trigger a vicious economic cycle given that manufacturing generates 35 per cent of provincial GDP.Martin Pérez, mayor of Rio Grande: ‘The measure is devastating for us, because without the tariffs it’s very difficult for us to compete’ 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 to FirstFT, your early morning business briefing from the FT. Today we’re covering: Donald Trump’s decision to deploy marines to LAThe first day of Apple’s developer conference in CaliforniaAn interview with the new Boeing CEO And new research on how our brains age Donald Trump’s administration plans to send hundreds of US marines amid protests that began at the weekend against raids on alleged illegal immigrants, a decision that escalates the clash between the federal government and the US’s most populous state.What’s happening: About 700 marines would be deployed to Los Angeles to protect “federal personnel and federal property”, the US Northern Command said yesterday. The Trump administration also authorised another 2,000 national guardsmen to be deployed to LA late last night, bringing the total to 4,000 despite opposition from California’s Democratic governor, Gavin Newsom, and local leaders. The Trump order followed Newsom’s decision to sue the president, calling his decision to deploy state troops an “unprecedented usurpation of state authority”. Why it matters: The mobilisation of marines will intensify the stand-off between the White House and state and local leaders over the use of troops. Military forces frequently assist in the US during natural disasters and other incidents, but it is rare that they are deployed to aid in domestic law enforcement, particularly without the support of the state’s governor. Read this story for the latest on protests and more below:FT View: Trump’s show of force in Los Angeles is a warning to states opposed to his immigration clampdown, the editorial board writes.Stephen Miller: The architect of Trump’s hardline immigration policy has a blueprint for implementing the president’s signature pledge.Here’s what else we’re keeping tabs on today:Companies: JPMorgan chief executive Jamie Dimon and Wells Fargo chief financial officer, Mike Santomassimo, will speak at the Morgan Stanley US Financials conference in New York. Jif peanut butter maker JM Smucker reports results.Economic data: Brazilian statistics agency IBGE publishes inflation figures relative to May. Mexico’s consumer price data for the same month is also expected.The FT’s annual securitisation market accelerator event Global ABS begins in Barcelona, running until Thursday. Register hereFive more top stories1. Apple will allow millions of app developers to access its artificial intelligence models for the first time, as the tech giant looks to capitalise on its vast hardware and software ecosystem to give it an edge over its competitors. Here’s more from the company’s flagship annual developer event.2. Kevin Hassett, director of the White House National Economic Council, said Donald Trump would ease restrictions on selling chips to China if Beijing agreed to accelerate the export of rare earths and magnets. Talks between the two countries began yesterday in London and are expected to continue through the week.3. Exclusive: The head of the Panama Canal’s operator has warned that a $23bn global ports deal between CK Hutchison and MSC, that includes two facilities in the Central American country, could put the waterway’s neutrality mandate at risk, adding that the concentration of ownership could disadvantage some shipping companies. 5. US health secretary Robert F Kennedy Jr has fired all members of the advisory committee for immunisation practices which makes recommendations about vaccine dosages for Americans and the age they should be administered. Kennedy, an outspoken vaccine sceptic, said he was remaking the panel to restore public trust in it. Senate minority leader Chuck Schumer, a Democrat, called the move “reckless”. 5. Prime Minister Mark Carney has announced the biggest boost to Canada’s defence spending since the second world war in response to criticism from Donald Trump. He pledged to reach Nato’s defence spending target several years ahead of the previous 2032 goal. Here’s what the money will be spent on. News in-depthIn 2020, the Financial Times exposed a €2bn fraud at Wirecard, a high-flying German fintech. Many thought that was the end of the story. But for FT reporter Sam Jones, it was just the beginning. Hot Money, the award-winning podcast series from the Financial Times and Pushkin Industries, returns for a third season.We’re also reading . . . Kelly Ortberg interview: The new Boeing chief talks to the Financial Times about leading the aircraft maker’s “multiyear” turnaround. OpenAI: The company behind ChatGPT expects subscription revenue to almost double to $10bn but remains lossmaking, as are its biggest rivals.More than a passing fad: The launch of Nintendo’s new Switch 2 console is not just an important moment in the life of the games industry, but also in the cultural and political life of the planet, argues Stephen Bush.Ageing: A new longitudinal study has painted a very different picture of what happens to people’s cognitive skills as they age, writes Sarah O’Connor. Chart of the day Since Time Warner and Discovery Communications merged in 2022, shares in the combined group, Warner Bros Discovery, have dropped 60 per cent — well behind streaming rivals such as Netflix. Yesterday, WBD announced it was splitting. Investment column Lex looks at the challenges facing the cleaned-up group (available to premium subscribers only).Take a break from the newsGreat family sagas can be timeless portraits of families adapting to change, at home or in exile, writes Nilanjana Roy. Authors today take a closer look at childhood bonds and fractures, breathing fresh life into a form as old as time.© Getty Images More