Aurelia Butler

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.In the 1980s, Japanese carmakers were accused of gutting the US car industry. In response, the Reagan administration negotiated voluntary export restraints — politely worded, but unmistakably coercive, pressuring them to make more cars in the US to maintain market access. As the Trump administration imposes a new round of tariffs on foreign-made cars and components, it is tempting to draw parallels to the past.Once again, Asian carmakers, now including South Korean groups Hyundai and Kia, find themselves at the centre of US trade policy. But this time, the consequences run deeper and are more destabilising — not because protectionism is new, but because the auto industry has fundamentally changed.Back then, a car was mostly steel, rubber and mechanical simplicity. Today, the average vehicle contains more than 30,000 parts. In the early 1990s, electronics made up just a tenth of a car’s total cost. Today, it is up to about 50 per cent, driven by the growing use of sensors, electronics and chips in modern cars, as well as the higher number of components overall. That complexity has resulted in sprawling, globally integrated supply chains, finely tuned over decades for just-in-time delivery and multi-region sourcing. Today’s cars are no longer single origin products, but the sum of countless cross-border transactions. Yet that interdependence becomes a liability when trade actions shift focus from finished cars to the components that make them possible.Trump has dismissed concerns about rising prices, saying he “couldn’t care less” if automakers raise prices because Americans would simply start buying American-made cars. But what exactly is an American-made car? A 2021 Tesla Model X, assembled in California, sources nearly half its parts from outside North America. A car built in Alabama might still rely on chips from Taiwan, sensors from Japan, transmissions from Germany and batteries from China. Increasingly, a “Made in the USA” badge is less a reflection of origin than of branding.Asian automakers are in a particularly precarious position. For decades, they have invested billions in US manufacturing, from vehicle assembly to battery and steel production. Hyundai recently announced a $21bn investment, including a $5.8bn steel plant in Louisiana. Toyota announced new investments of more than $18bn since 2021 to expand its US manufacturing base. In theory, such moves would afford a buffer against trade volatility. In practice, however, these investments unfold over years. Building a new production facility can take up to five years. Localising a supply base, requalifying vendors under US regulations and scaling domestic capacity for parts historically sourced abroad are decade-long efforts.Tariffs, on the other hand, can be imposed overnight. Trump’s first term was marked by abrupt reversals: steel tariff exemptions granted, then revoked; tariffs on Mexican cars proposed, then withdrawn; and sweeping tariffs on $300bn worth of Chinese goods including iPhones as well as French exports such as wine and handbags, threatened then reversed. Unsurprisingly, automotive executives named geopolitical risk as one of their top planning concerns in a 2023 Deloitte survey.Unlike Europe, South Korea and Japan have fewer levers to pull in response. When Trump imposed steel and aluminium tariffs in 2018, the EU retaliated with precision — targeting bourbon whiskey, blue jeans and Harley-Davidson motorcycles, products tied to politically sensitive and Trump-aligned US states. Japan and Korea by contrast do not import enough US goods to make retaliation effective — the US runs a trade deficit with both — and their close defence ties with Washington limit escalation. That leaves Asian carmakers in a tough bind: invest billions to expand US operations under rules that could vanish with the next administration, or hold back and risk falling behind in a key market. Neither path offers real stability. In an industry that invests on decade-long cycles, policy built on a four-year election window is not just inconvenient, it is existential.Protectionist measures can have a place, when they are part of a broader, long-term industrial strategy. But without that foundation, automakers are left making billion-dollar bets in the face of unpredictable politics. The greatest threat is not the tariffs themselves — it is the uncertainty they inject into a capital-intensive, globally dependent industry. In the end, that volatility may prove to be the most damaging tariff of all.june.yoon@ft.com More

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 newslettersOver the past week, numerous news organisations reported that Donald Trump has not yet decided on his trade policy. So, on the eve of tariff day — the day when US citizens will be subjugated to self-imposed trade barriers — I cannot explain the new tariff landscape, but I can examine the effects of the US president’s policies so far. I am not going to exaggerate or take a deliberately contrarian view and I am fully aware that when the UK voted for Brexit, early economic signals were false friends. But it is hard to avoid the distinct stagflationary whiff coming out of the US. It is faint, but unpleasant. It was not there before the US election in November and has grown stronger since Trump’s inauguration in January. If the trends continue, Federal Reserve chair Jay Powell will not be able to say the US economy is “strong” for much longer. Soft dataThe first place to look are the surveys of economic activity and inflation, which have often proved useful leading indicators. Starting with consumer confidence, the two long-running sources are compiled by the University of Michigan and the Conference Board think-tank. As shown in the chart below, which normalises the two measures so they can be included in one diagram, both have slumped since January. The Michigan survey is distorted by highly partisan biases, and the divergence of the two indicators since the 2021-22 inflation is notable, so the trends need to be treated with some caution. But an increase in pessimism is evident. The question is whether these surveys will translate into spending caution among consumers. On this, Powell is sceptical, repeating that “the relationship between survey data and actual economic activity hasn’t been very tight”. Some content could not load. Check your internet connection or browser settings.It is not just consumer confidence surveys that show a decline in economic sentiment. The Fed’s Beige Book in March recorded weaker activity than in January and stronger price pressures across much of the US. The Dallas Fed energy survey showed greater pessimism in the oil business, with executives saying that the administration’s chaotic policy process dimmed the outlook. The inflationary part of stagflation is evident also in the University of Michigan consumer survey and in the New York Fed one-year ahead survey, but not its five-year ahead figures. Some content could not load. Check your internet connection or browser settings.Hard dataHard data arrives with a delay but is much more accurate. So far, the best evidence came last Friday from personal consumption expenditure data for February. Expenditure ticked up since a fall in January, while incomes grew strongly and markets were spooked. But let’s not go over the top. There have been similar dips in expenditure before, as is clear from the chart below. The latest indication of consumer caution might be the start of something new, or just another wiggle in a line that is often volatile around a clear upward trend. Some content could not load. Check your internet connection or browser settings.If the expenditure data is inconclusive, the inflation data is showing definitive signs of stickiness above the Fed’s 2 per cent target. While there might be some seasonal adjustment problems distorting the three-month and six-month rates, they are nevertheless rising. So is the FT core measure, which aggregates other underlying measures of inflationary pressure in a statistically optimal way. As Powell said last month: “Inflation has started to move up now, we think partly in response to tariffs and there may be a delay in further progress over the course of this year.”Some content could not load. Check your internet connection or browser settings.One article of faith for the Trump administration is that those outside the US pay the costs of tariffs by reducing prices of goods as they land in the country. Even though that belief runs counter to most of the evidence from 2018, officials such as Peter Navarro, White House senior counsellor for manufacturing and trade, keep repeating it (5:40 from an interview on Sunday).Being a stuck record on a topic does not mean you are right, however. That data is far from reassuring from a US administration perspective. A 10 per cent tariff increase on Chinese goods went into effect on February 4. Recent official figures show import prices from China before tariffs are applied rose 0.5 per cent in February alone, half of their whole rise since December 2023. If anything, the early evidence is that Chinese suppliers are using tariffs as an opportunity to disguise their own price increases in the spirit of Isabella Weber’s “sellers’ inflation” idea. That is not a good sign for the US. The tariffs might get absorbed in the American supply chain, but there is no evidence so far that any other country pays. Market dataInformation can also be derived from financial markets on output and inflation. Stock market declines this year suggest there are emerging concerns about output, while financial market data on inflation expectations are mixed. These have risen for the coming five and 20 years. But there has been little movement in expectations for the five years between 2030 and 2035. It is fair to say the movements, in the chart below, are not huge, although they are upwards. Some content could not load. Check your internet connection or browser settings.The Fed’s responseAs highlighted in the FT Monetary Policy Radar collection of Fed officials’ comments, Federal Open Market Committee members have become much less sanguine about inflation. Austan Goolsbee, president of the Chicago Fed, said the trends so far had not been 1970s-style stagflation, but it is a time to “wait and see” on rates. Mary Daly, president of the San Francisco Fed, said the lack of progress on inflation made her uncomfortable about “starting any kind of rate path declines right now”. Thomas Barkin of the Richmond Fed worried that the anchor on inflationary expectations was looser than it was, as did Alberto Musalem, president of the St Louis Fed. Susan Collins at the Boston Fed worried that tariffs might have more of an inflationary impact than she previously thought, while Raphael Bostic of the Atlanta Fed said inflation was going to be “bumpy and not move dramatically and in a clear way to the 2 per cent target”.That whiff of stagflation is real.What I’ve been reading and watchingOn Friday, the Washington DC Court of Appeals allowed the sacking of National Labor Relation’s Board member Gwynne Wilcox to stand on a two-to-one decision. The judgment airs the arguments on both sides that will ultimately go to the Supreme Court. Remember, if Wilcox loses, the Fed’s board is unlikely to be protected any longer against summary dismissal It seems as though Trump’s response to auto executives’ warnings about price rises was to threaten price controls. Even economist Arthur Laffer is worriedWriting in the FT, Italy’s central bank governor Fabio Panetta warns that estimates of neutral interest rates are only helpful when policy is far from this level. Given the uncertainties, he calls for an end at the European Central Bank to using words such as “restrictive” when officials really have no ideaHopefully, this video with Stephen Miran, chair of the US Council of Economic Advisers, is the end of talk of a Mar-a-Lago Accord. The interview is also notable for asserting that exporters to the US have “no alternative” to selling in America in another example of the administration’s hubrisA chart that mattersDelivering a fascinating Mais Lecture last week, ECB executive board member Isabel Schnabel examined the importance of financial literacy for decision-making for both people and central bankers. There is little doubt that those who understand basic financial concepts make better decisions, she said. This provides the rationale for the FT’s financial inclusion and literacy campaign, currently being evaluated by King’s College London.Schnabel went further and showed with a series of charts that — to the extent that financial literacy matters more than just income or education with which it is correlated — households perceptions of inflation linger more among those with low financial literacy. Monetary policy is therefore more effective if people are better informed. 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 here More

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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 the first day of April. Today’s agenda includes: Markets worst quarter in almost three yearsOpenAI’s $40bn fundraisingThe White House’s Harvard review And Argentina’s pizza exportWall Street stocks posted their worst quarter in almost three years on fears that Donald Trump’s tariffs will usher in a period of stagflation in the world’s biggest economy.The sharp pullback in the first quarter comes as Wall Street banks and investors fret that Trump’s levies on trading partners will slow economic growth while also increasing prices.When will the selling stop? Sharon Bell, senior equities strategist at Goldman Sachs, said: “I don’t necessarily see the floor quite yet [in stock prices].” The S&P 500 fell 4.6 per cent in the first three months of the year, the worst performance since the third quarter of 2022, according to FactSet data. Big Tech stocks, which dominated stock markets in recent years, fell most heavily during the quarter. Shares in Nvidia, which makes high-end chips that are widely used by AI groups to train their models, fell almost a fifth in the first quarter and electric-car maker Tesla plunged 36 per cent. Apple and Microsoft both lost 10 per cent and the Nasdaq Composite fell 10.4 per cent.What’s the outlook for stocks? Very uncertain. Trump’s looming tariffs are hanging over the global economy and dampening business and consumer sentiment. The US president is expected to announce fresh tariffs later today or tomorrow on top of existing levies on imports of goods such as steel and aluminium. Trump has called tomorrow the US’s “liberation day”. Goldman said at the weekend it now put the chance of a US recession this year at 35 per cent, up from a previous prediction of 20 per cent. Global stock markets are calmer today ahead of the White House’s tariff announcement. Here’s more on the tariff-fuelled uncertainty weighing on markets.And here’s what else we’re keeping tabs on today:Economic data: The US Institute for Supply Management publishes its March manufacturing index and the S&P Global Canada Manufacturing Purchasing Managers’ Index is updated for last month.Central banks: Federal Reserve Bank of Richmond president Thomas Barkin participates in a fireside chat at an event hosted by the Council on Foreign Relations, in New York. The Bank of Mexico releases the results of its prior month poll of private sector analysts, with updated annual forecasts for Mexico’s GDP growth, inflation, exchange rate and benchmark interest rate as the economy slides towards recession.Congress: The Senate Armed Services Committee holds a hearing for Dan Caine, President Donald Trump’s nominee to be the next chairman of the joint chiefs of staff.Five more top stories1. Eurozone inflation fell for the second month in a row in March to 2.2 per cent, as ECB rate-setters consider whether to slow the pace of interest rate reductions. The bank has signalled that it may slow the pace of its rate cuts because of the inflationary risks posed by the looming trade war sparked by US President Donald Trump. Follow this developing story. 2. Donald Trump’s administration has launched a review into measures to tackle alleged antisemitism at Harvard University, which could freeze up to $9bn in federal funding to the institution. The departments of education and health and human services, as well as the General Services Administration are all reviewing their federal contracts and grants to Harvard despite pre-emptive moves by the university to avoid the measures.3. OpenAI has raised $40bn in new funding from SoftBank and other investors, valuing the ChatGPT maker at $300bn as it becomes one of the best-funded private start-ups in the world. SoftBank is providing 75 per cent of the funding and the other 25 per cent is coming from a collection of investors, according to one person familiar with the fundraising. Read more on what OpenAI plans to do with the new capital. 4. Intel’s new chief executive has promised a major “culture change” at the US semiconductor group, saying he will prioritise attracting talent, building relationships with customers and slashing bureaucracy. Lip-Bu Tan also said Donald Trump’s administration is prepared to help Intel as the federal government seeks to maintain US semiconductor leadership. Here’s more on the Las Vegas speech.5. Denmark’s foreign minister Lars Løkke Rasmussen is set to meet US secretary of state Marco Rubio this week in the first in-person, high-level diplomatic talks between the two countries since Trump’s re-election and the US president’s vow to “take control” of Greenland. Here’s what we know about the planned meeting.Today’s big readFrance’s far-right leader Marine Le Pen predicted for months that judges would not dare to immediately ban her from running for office if she was convicted for embezzling EU funds. On Monday, they did just that, dramatically changing France’s political landscape ahead of the 2027 presidential election which she was favourite to win. What are her legal options now and how will it affect the race to succeed Emmanuel Macron?We’re also reading and listening to . . . Chart of the dayGlobal energy demand rose faster than usual last year, according to new data published by the International Energy Agency, as record temperatures across the world meant more power was used for cooling in the self-perpetuating loop between climate change and energy use. Some content could not load. Check your internet connection or browser settings.Take a break from the news . . . In the hierarchy of best-loved pizzas there is the Napolitana and the Romana, maybe even the New York slice and Chicago deep dish. What is not on the list is the Argentine. But pizzerías outnumber grill houses in Buenos Aires and now Argentines want the world to acknowledge their doughy creation.A fusion of local tastes and the country’s Italian ancestry More

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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Eurozone inflation fell for the second month in a row to 2.2 per cent, strengthening the case for the ECB to cut interest rates this month.Tuesday’s figure for March was below February’s reading of 2.3 per cent and in line with the expectations of economists polled by Reuters. The annual inflation figure is still higher than the ECB’s medium-term target of 2 per cent. But rate-setters at the central bank believe that an increase in headline inflation since the autumn was temporary.Annual services inflation — a closely watched metric that has concerned the ECB — fell from 3.7 per cent in February to 3.4 per cent, the lowest level in almost three years.The ECB has previously signalled that it may slow the pace of its rate cuts because of the inflationary risks posed by the looming trade war sparked by US President Donald Trump, as well as increased spending on defence and infrastructure. The central bank last month cut rates for the sixth time since last summer to 2.5 per cent. But it stressed that “monetary policy is becoming meaningfully less restrictive”, wording that suggested a more hawkish stance.However, Riccardo Marcelli Fabiani, an analyst at Oxford Economics, wrote in a note to clients on Tuesday that March’s “favourable” inflation data “will lead the ECB to cut rates at this month’s meeting”.Some content could not load. Check your internet connection or browser settings.After the data release, financial markets continued to price in a probability of roughly 75 per cent of another quarter-point cut at the April 17 meeting, according to levels implied by swaps markets.Pooja Kumra, a rates strategist at TD Securities, said the services inflation number “argues for the April cut to still be in play”.But she added that a trade war could change the picture, with “Trump-led inflation ticking up not only for US but also for Europe”.The euro was flat after the publication of the data at $1.082 against the dollar.Core inflation, which excludes highly volatile prices for food and energy, fell from 2.6 in February to 2.4 per cent, the lowest level since the start of 2022. According to separate data released on Tuesday, the Eurozone unemployment rate fell to a record low of 6.1 per cent in February, down from 6.2 per cent a month earlier.Melanie Debono, an economist at Pantheon Macroeconomics, said the figure indicated a “resilient labour market in the Eurozone”. More

This article is an on-site version of our Unhedged newsletter. Premium subscribers can sign up here to get the newsletter delivered every weekday. Standard subscribers can upgrade to Premium here, or explore all FT newslettersGood morning. Stocks, especially tech stocks, had an ugly morning yesterday but rallied in the afternoon. Biotech stocks, particularly Moderna, Charles River Labs and other vaccine makers, were hit hardest, after a top Food and Drug Administration vaccine official resigned over the weekend. Email us: robert.armstrong@ft.com and aiden.reiter@ft.com.  Liberation dayTomorrow is President Trump’s “liberation day”: the moment, we are told, he will announce the substance of his trade policy, especially on reciprocal tariffs. Reams of Wall Street research on the topic has washed up in Unhedged’s inbox, and despite a lot of talk of uncertainty, a fairly clear set of consensus expectations emerges from it. There are four points of broad but hardly universal agreement (note that much of the research was written before Trump’s weekend comment that “essentially all” US trade partners would be hit with tariffs):  The tariff programme that Trump announces will leave average levies on US trading partners at between 10-20 per cent, with most commentators placing the number in the lower half of that range. There are lots of charts floating around comparing these figures to historical levels. This one comes from David Seif at Nomura:Immediate or near-immediate tariffs will be announced on the group of countries with the largest trade imbalances with the US (China, the EU, Mexico, Vietnam, Ireland, Germany, Taiwan, Japan, South Korea, Canada, India, Thailand, Italy, Switzerland and Malaysia). These will be imposed using some or other form of executive privilege. Implementation of sectoral tariffs, besides the automotive tariffs, will be pushed off to a later date, pending further study by the administration. But sectoral tariffs on semiconductors, pharmaceuticals, lumber and copper are all expected eventually.Many on Wall Street expect signalling of a potential softening of the tariffs on Mexico and Canada, perhaps coming in the form of confirmation that goods that are “compliant” under the USMCA trade agreement between the three countries will remain tariff free. On the other hand, Wall Street doesn’t know what to think about two essential points. It remains unclear which tariffs will “stack” on top of one another, and where only the highest tariff will apply. And the severity of treatment of non-tariff barriers (quotas, license restrictions, other taxes etc), real or imagined, is all but unknown. As far as the market implications of tariffs, the consensus is very clear that it is negative for equities (it will diminish earnings) and positive for the dollar (the “relief valve” for big changes in relative prices). Many also view it as positive for bond prices. Here is Michael Zezas, head of US policy research at Morgan Stanley, summing things up yesterday:The outcome that would be most beneficial for fixed income relative to equities is the one where investors receive high clarity on substantial tariff hikes. This could look like tariff increases that go beyond tariff differentials, to account for foreign consumption taxes and non-tariff barriers, as well as a clear indication that the bar is high for negotiation with trading partners to mitigate the new actions. Here, per our economists, there’s clear downside to our already below-consensus US growth expectations.Is all this priced in already? Most analysts say “no”. The crucial issue is that no one seems to quite believe what Trump says, but at some point he will actually do something and keep doing it, at which point the market will be forced to price it in.Trump likes uncertainty, because it gives him negotiating leverage by keeping his opponents off-balance and keeping the attention on himself. This is not going to change soon. If we do get a reduction of policy uncertainty on Wednesday, Unhedged expects it to prove temporary. Wealthy consumersThe rich are the engine of US consumption. Households in the top 10 per cent of the income distribution accounted for half of consumer spending last year, according to Moody’s Analytics — a big increase from a few years ago, says Mark Zandi, its chief US economist:Their share of spending was steadily rising over the years, but it took off significantly after the pandemic, because of the surge in stock values and house values. [Expensive] homes and stocks are disproportionately owned by the well-to-do. That has led to a powerful wealth effect: if people see [the value of] what they own rising relative to what they owe — in other words, wealth — they tend to be more aggressive spenders.If asset inflation drove the post-pandemic consumption boom, couldn’t weaker markets cause a slump? If the rich pull back, might a downturn become a recession?We have received some soft indicators that the wealthy might ease off on their spending. The University of Michigan consumer sentiment survey showed it sinking among the top third of earners faster than other cohorts:Wealthier households are also more exposed to the stock market — and, as such, the recent correction. According to Q4 data from the Federal Reserve, the top 10 per cent of households by wealth in the US account for 87 per cent of all the equities owned. The top 0.1 per cent alone own 23 per cent. Since the week of Donald Trump’s election in November, the top 10 per cent of the wealthiest US households have seen $2.7tn of their wealth wiped out in the market, as compared with $656bn for the bottom 90 per cent. Yesterday, we noted that the most recent PCE data showed an uptick in the personal savings rate and softer than expected consumption. Wealthier households could explain much of that.But the impact should not be overstated. While the correction crunched the brokerage accounts of the well-to-do, it only destroyed a comparatively small portion of their overall assets: 2.4 per cent for the top 10 per cent, and 3 per cent for the top 0.1 per cent. And that is after several years of runaway stock market returns and house price appreciation. According to Samuel Tombs, chief US economist at Pantheon Macroeconomics, even after the correction the highest 20 per cent of earners still have plenty of liquid assets, as compared to previous slowdowns and the lower earning cohorts (chart from Tombs):We have not seen downturns in the restaurant and hotel sectors, two areas of consumption carried by the rich. And, historically, big stock market falls have not always caused the highest income consumers to pull back, according to Tombs:The top 20 per cent of households by income kept increasing their spending in 2001 and 2002, despite [a] sharp fall in the total return index for the S&P 500 of 12 per cent and 22 per cent, respectively, as well as more recently in 2022 (-18 per cent).Wealthier households have lower price elasticity of demand, too, and may be able to look through any inflation from Trump’s tariffs, as they did during the 2022 inflationary surge. They are also less likely to be employed in the sectors that could be most affected by tariffs: manufacturing, homebuilding and consumer electronics.A pullback by wealthy consumers would be very concerning for the economy. That may happen if the market takes another big leg down. But for now, the rich look set to keep spending.(Reiter)CorrectionIn yesterday’s letter, we said core PCE rose 4 per cent month on month. That was an error — it was 0.4 per cent, which is still the highest monthly rise since January 2024. We apologise.One good readOpenAI, less-than-open communication.FT Unhedged podcastCan’t get enough of Unhedged? Listen to our new podcast, for a 15-minute dive into the latest markets news and financial headlines, twice a week. Catch up on past editions of the newsletter here.Recommended newsletters for youDue Diligence — Top stories from the world of corporate finance. Sign up hereFree Lunch — Your guide to the global economic policy debate. Sign up here More

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