Aurelia Butler

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.It is not often that habitual complacency makes you an astute judge of world events, particularly those involving geopolitical conflict. But for decades a shrug has been the best response to the perennial panics over shortages of critical raw materials for the green transition. The causes have ranged from China threatening to cut off exports of rare earths and other minerals to the soaring global prices of metals such as nickel and lithium. In practice, the routine operation of market forces, plus some support from diplomatic and legal efforts, ensured they had only passing impact.The latest iteration is the most threatening yet, with China imposing licensing requirements on the export of seven rare earth elements on April 4, apparently to retaliate against President Donald Trump’s tariffs. The burden of proof about serious shortages remains on the pessimists, but if conflict over global mineral trade does arrive the US remains hugely unprepared.Scarce minerals have, as it were, cried wolf many times. Policymakers worry about bottlenecks — the EU is currently on its fifth list of critical raw materials — but it’s very hard to point at any manufacturing industry in a major economy where a shortage has caused serious damage.The issue became prominent after China’s threat in 2010 to cut off sales of rare earth elements to Japan, though it’s not clear Beijing actually stopped exports. Spot prices of the more widely traded “light” rare earths duly surged. But the controls were undercut by smuggling out of China — mining-rich provinces were notably lax at enforcing restrictions — plus increased supply from places such as Australia and a World Trade Organization ruling against China in 2014. China relearnt the old commodity market wisdom that the best cure for high prices is high prices, and that manipulating supply for political leverage risks losing control of market dominance.Similarly, during panics over lithium and nickel supplies in the early 2020s, producers such as Chile and Indonesia were courted (or taken to the WTO) by big users like China, the US and the EU. In the event, surges in supply meant prices for the two metals collapsed. China’s threat in 2023 and 2024 to cut off the US and Europe from supplies of the minerals gallium and germanium, used in semiconductors and electronics, were undercut by exports from Vietnam and the possibility of new supply from the end users themselves.The rare earth restrictions announced on April 4 are much more serious. Rather than raw materials in bulk they involve finished articles, particularly magnets, made by only a few Chinese companies and traceable through the supply chain. Unlike previous export controls, they are executed via end-user licensing requirements for materials with dual military and civilian use, which restricts foreign companies selling them on. If China really does maintain and enforce a ban on sales to the US, it could affect the manufacture of F-35 fighter jets as well as electric vehicles.The materials involved are so-called medium and heavy rare earths, which are harder to extract and process. Industry experts say that increasing supply from elsewhere is likely to take years, as is retooling EV or other supply chains to use other technologies. Prices of heavy rare earths such as dysprosium shot higher after the controls were announced.Whether China really wants to target the US is anyone’s guess. As the FT has reported, the licensing requirements threaten production networks worldwide, suggesting the Chinese authorities have over-reached. Some of the first licences have been granted to suppliers of the German company Volkswagen, which makes cars in China and which opposed the EU imposing anti-subsidy duties on Chinese exports of EVs to Europe. “It will probably be easier to get a licence if you’re a country, perhaps in Europe, with closer political links with China or companies owned by China,” David Merriman, research director at Project Blue, a critical materials consultancy, told me. “In the US, there is a pretty elevated risk of supply-chain disruption.”China’s stop-gap deal with Trump on May 12 to roll back some of the tariffs may have reduced the immediate incentive to cut the US off. But America remains vulnerable. It has made only modest attempts to increase domestic rare earth production and processing. It has minimal stockpiles of critical minerals. Trump has risked a geoeconomic war with China without any discernible attempt to prepare or even assess the dangers.Precedent suggests the current episode of export restrictions will pass without catastrophe as China loosens supply. But it’s also clear that Beijing has developed sharper and more precise weapons if it does choose to fight a conflict over critical raw materials. The case for complacency remains arguable, but it becomes ever weaker as time goes [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 worldUS government bonds and stocks fell after a weak Treasury auction highlighted investor unease over the country’s rising debt burden, as Donald Trump attempts to push sweeping tax cuts through Congress.The 30-year Treasury yield was up 0.11 percentage points to 5.096 per cent in evening trading in New York, the highest level since late 2023, as the price of the bonds fell. Wednesday’s move added to a multi-day rise in longer-dated Treasuries. The S&P 500 share index fell 1.6 per cent.The fresh bout of selling came as Republican leadership in Congress held intense talks to advance the US president’s tax legislation to a vote in the House. Trump’s proposal, which he has dubbed a “big, beautiful bill”, would extend many tax cuts made during his first term in 2017 and is forecast by independent analysts to add at least $3tn to US debt over the next decade.House Speaker Mike Johnson said early on Wednesday that he was hopeful he could bring the bill to a vote in the chamber after striking an agreement with party holdouts over state tax deductions. But the deal drew a backlash from fiscal conservatives, who have lobbied for steeper cuts to spending on healthcare programmes and clean-energy tax credits.The White House invited the far-right Freedom Caucus to hear their concerns on Wednesday afternoon and dispatched National Economic Council director Kevin Hassett to meet with other Republicans at the Capitol.“The meeting was productive and moved the ball in the right direction,” press secretary Karoline Leavitt said.The talks come just days after Moody’s stripped the US of its pristine triple-A credit rating on concerns over rising debt and deficits.The US sold the debt on its $16bn auction on 20-year Treasuries with a 5 per cent coupon, the highest interest rate for 20-year bonds at auction since the maturity was reintroduced in 2020.Primary dealers — banks that are obliged to sop up any bonds not absorbed by other investors — purchased 16.9 per cent of the offering, compared with an average of 15.1 per cent, according to BMO Capital Markets. “We had a soft 20-year auction and when combined with the focus on the budget deficit, the market has a bias towards higher yields,” said Ian Lyngen, head of US rates strategy at BMO Capital Markets.“Markets really have no appetite for duration here,” added Pooja Kumra, a rates strategist at TD Securities, referring to longer-dated securities. “Especially in the case of the US, we expect all long-end auctions to be highly scrutinised by markets,” Kumra said, citing the budget bill.Jay Barry, head of global rates strategy at JPMorgan, noted that “the equity market is finally starting to wake up to the fiscal issues facing the Treasury market”.More than 95 per cent of the S&P 500’s member stocks were negative on the day. The financials, real estate and healthcare sectors were the benchmark index’s worst performers.Compounding the decline was a sell-off in Big Tech stocks, after ChatGPT maker OpenAI said it had agreed to buy former Apple design chief Sir Jony Ive’s hardware start-up io for $6.4bn. The acquisition extends OpenAI’s bet on alternatives to smartphones.News of the deal emerged around the same time as the results of the weak Treasury auction. Shares in Apple were down 2.3 per cent. Amazon, Nvidia and Microsoft all fell more than 1 per cent. The tech-heavy Nasdaq Composite was down 1.4 per cent.The dollar index, tracking the US currency against a basket of peers, was down 0.6 per cent. More

Unlock the White House Watch newsletter for freeYour guide to what Trump’s second term means for Washington, business and the worldLVMH boss Bernard Arnault has criticised the EU’s efforts to strike a deal with the US to reduce Donald Trump’s tariffs, saying the bloc’s negotiations with Washington had got off to a “bad start”.The chief executive of the French luxury company, one of Europe’s largest businesses by market capitalisation, urged the EU to engage “constructively” in negotiations with the Trump administration as he highlighted how the UK had quickly struck a trade deal with Washington.“The United States is the world’s largest market, and it is very important to reach an agreement with the US for Europe,” Arnault told a French parliamentary hearing on Wednesday. “So far, things seem to me to be off to a relatively bad start.”Trump and British Prime Minister Sir Keir Starmer unveiled the UK-US trade deal earlier this month, about five weeks after the president first announced “reciprocal” tariffs that hit many of America’s major trading partners, including Britain.By contrast, it transpired last week the EU had only just started detailed talks with the US about a deal after a period of deadlock.Trump’s 20 per cent “reciprocal” tariff on EU goods exported to the US has been halved until July 8 to allow for negotiations between the two sides.Arnault said: “The negotiations must be conducted constructively . . . and therefore with reciprocal concessions. You saw what the British did, who negotiated very well. I hope to be able to convince Europe, with my limited resources and contacts, to take a similarly constructive stance.”The US is LVMH’s biggest market, and tariffs threaten to further dent the luxury industry’s sales at a time when the sector was already contending with a slowdown due to weaker Chinese demand, among other things.The majority of luxury goods are made in Europe, with little prospect of shifting the industry’s production en masse to the US, although Arnault said earlier this year that LVMH was looking at options to expand its limited manufacturing footprint there. Arnault has built a personal relationship with Trump, whom he has known for decades, and attended the president’s inauguration in January.So far, only the UK has finalised any relief from Trump’s trade war through a deal, by securing a tariff-free quota for its steel exports to the US and a lower levy of 10 per cent for 100,000 cars bound for America.The US and China agreed a ceasefire in their trade war this month, slashing tariffs on each other’s goods for at least 90 days, to allow for negotiations. Trump has paused reciprocal tariffs on most of America’s trading partners, but maintained a baseline levy of 10 per cent on imports.The talks between the US and EU have been progressing slowly, with the bloc saying it has struggled to clarify what Washington wanted until last week, when the Trump administration sent a letter listing its demands.Sabine Weyand, the European Commission’s top trade official, told EU member state ambassadors in a briefing note that the bloc should not succumb to the US desire for “quick wins”.But Arnault said a US-EU agreement was critical for industries like France’s cognac sector, which employs some 80,000 people.LVMH owns Hennessy cognac, which has already been hit by falling sales in the US and China, where an anti-dumping probe in response to EU restrictions on Chinese electric vehicle sales is under way. In the worst-case scenario where both the Chinese and US markets become closed to cognac, it would be “catastrophic” for the European economy, leading to job losses, Arnault said.“We must do everything with Europe to prevent this . . . because the day it happens it will be too late,” he added. More

Unlock the White House Watch newsletter for freeYour guide to what Trump’s second term means for Washington, business and the worldThe writer is the author of ‘Chip War’Donald Trump’s dealmaking tour of the Middle East last week saw the sales of Boeing aircraft, the signing of defence contracts and the announcement of oil investments. But the most significant decision may be to allow hundreds of thousands of AI chips to flow to the region. The US will now allow Nvidia to sell 500,000 AI chips per year to the UAE, according to media reports, while at least 18,000 will be transferred to Saudi Arabia. By comparison, Elon Musk’s world-leading Colossus data centre in Tennessee currently has 200,000 high-end chips on site. If the UAE imports half a million high-end chips annually, by the end of the decade its capacity might outstrip the US-based Stargate project, the joint venture between OpenAI and SoftBank, according to Rand Corporation AI expert Lennart Heim.The decision to let Middle Eastern countries acquire top-notch computing clusters is a major reversal. The US government previously saw Saudi Arabia and especially the UAE as AI rivals and friends of China. Yet before leaving for the Middle East, Trump repealed the rule that had limited chip transfers to the region in favour of a new policy of bilateral dealmaking.In Washington there were three risks cited to justify limiting chip sales to the Middle East: that the region’s autocrats would use AI to violate human rights; that computing capacity would be diverted to China; and that generously subsidised data centres in the Middle East would crowd out investment in America’s own AI infrastructure. Trump declared in Riyadh that “we are not here to lecture”. Either way, the link between AI infrastructure and human rights was never very clear. The region’s autocrats have plenty of experience locking up dissidents and repressing minorities even in the absence of high-tech tools.More complex are ties to China. Both Saudi Arabia and the UAE have previously said they will cut ties with China to obtain better access to American tech. Yet both countries have every incentive to play Beijing and Washington off one another. It was less than a year ago that the UAE air force conducted joint military exercises with the PLA in Xinjiang, the epicentre of the Chinese government’s efforts to harness technology for repression. Saudi officials reportedly requested in negotiations this month to deploy Huawei equipment in data centres with US AI chips.Much therefore hinges on the efficacy of US monitoring mechanisms. Eighty per cent of the chips deployed in the UAE will be in data centres operated by American companies, according to media reports. The US has a shaky record of export control enforcement, illustrated by reports this year that a Huawei shell company illicitly procured millions of chips from Taiwanese chipmaker TSMC.Despite these risks, Trump has highlighted the ways his dealmaking is good for business. It certainly benefits semiconductor companies like Nvidia, which will sell more chips, and US cloud computing companies, which will get capital, land and power to build AI clusters across the region. In exchange, Middle Eastern money is supposed to flow into America’s AI sector. Some already has. Emirati investment vehicle MGX has been a big investor in OpenAI, for example.Yet Trump and Middle Eastern leaders now promise vastly more. The White House says the UAE, Qatar and Saudi Arabia will invest $1.4tn, $1.2tn and $600bn respectively across sectors including technology. These are huge numbers with sparse details. Even a fraction of these sums could be transformative. But the impact of Trump’s dealmaking will depend on whether his Gulf partners actually invest billions in America’s AI infrastructure, or whether they focus their spending on building their own data centres and tech companies instead. 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 worldAfter much debate, US House Republicans have reached an agreement over Donald Trump’s multitrillion-dollar legislative plan to cut taxes. On Tuesday, the US president urged his party to approve his “big, beautiful bill” in a rare visit to the US Capitol. It now awaits approval from the House of Representatives. If passed, it will go on to the Senate. Lawmakers ought to think twice. Trump gets the bill’s branding only partly right. It is, indeed, enormous. It could raise US debt by more than $3.3tn over the next decade. Yet, in its current form, the economic consequences risk being far uglier than the president portrays. Concerns over America’s growing debt pile predate Trump’s second term. But, his administration’s erratic approach to policymaking has raised further alarm. Last week, Moody’s downgraded the US from its top-notch triple-A sovereign credit rating, becoming the last of the big three credit rating agencies to do so. That pushed US long-term borrowing costs even higher. Over recent months, the White House’s stop-start tariff agenda has also raised questions over the safe haven status of American assets, which has put upward pressure on Treasury yields. Trump’s fiscal plans add insult to injury. The bill would push the US debt-to-GDP ratio up around 25 percentage points to a record 125 per cent by the end of 2034, according to projections from the Committee for a Responsible Federal Budget. The annual deficit as a share of the economy is expected to rise to 6.9 per cent, from around 6.4 per cent. This raises the risk of a sharper and disorderly rise in US borrowing costs, as fears over US debt sustainability grow.The package delivers on some of the president’s key campaign pledges. It extends tax cuts passed in his first term, while slashing taxes on tips and overtime pay. Spending is set aside for defence and border security. Elsewhere, the bill is more generous, boosting child tax credit and the standard income tax deduction. There are also stronger-than-anticipated investment incentives for manufacturing facilities. The GOP has put sunset clauses on some of the largesse, to make it appear more palatable. But many of the tax cuts will be hard to reverse.Any boost to households and companies will be curbed by the bill’s slapdash efforts to offset the outlays. For instance, there are significant cuts to Medicaid entitlements, which could leave millions of vulnerable Americans without health insurance cover. The bill gives the biggest bump to the top quintile of earners, while the bottom 40 per cent are worse off by 2026, according to the Penn Wharton Budget Model. A slashing of green tax credits under the Inflation Reduction Act also reduces the overall gains for businesses.In all, the bill is expected to raise US GDP by only 0.5 per cent over the next decade. The White House argues that forecasters are ignoring the effects of its broader policy agenda. This is possibly fair. Though tariff rates are uncertain, customs revenues could help fund the additional spending. That said, the hit to economic growth from Trump’s import duties will more than offset the boost from his fiscal package, according to Goldman Sachs. A higher growth rate is essential to get America’s debt trajectory on to a more sustainable footing. The bill’s passage isn’t guaranteed. The Republicans only have a narrow majority in both the House and Senate, and Trump’s agenda has created a schism between its fiscal hawks and those concerned about the impact of cutbacks on poorer voters. It may evolve. But ultimately, the bond market will have the final say. Without serious attempts to rein in US spending, investors’ reaction won’t be pretty. 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. Today I’ll be covering:Nvidia’s condemnation of US chip export controlsPlans to open up US retirement funds to private equityThe “death camp” uncovered by a search group in MexicoAnd why Rome is frustrating Italian AmericansGood morning. Nvidia’s chief executive Jensen Huang has called US export controls on chips a “failure” that has turbocharged rivals in China to develop their own competitive artificial intelligence hardware.What did Huang say? “Chinese AI researchers will use their own chips,” Huang said at a news conference in Taipei. “They will use the second best. Local companies are very determined, and export controls gave them the spirit, and government support accelerated their development.”Why it matters: In a move to curb the global spread of Chinese technology, the Biden and Trump administrations have put in place rules to restrict the flow of advanced chips from the US to China. Huang’s comments suggest the attempts have backfired. Instead they have spurred Chinese rivals to speed up development of their own products. We have more details on how the chipmaker is grappling with competition from Beijing here.Here’s what else we’re keeping tabs on today:US Steel: A national security review of Nippon Steel’s bid is about to be concluded. The Japanese group has quadrupled its investment pledge in the American steelmaker in a push to gain approval.EU-Africa ties: Foreign ministers from the bloc and the African Union meet in Brussels.Results: Lowe’s, Target, Canada Goose, TJX and Baidu report earnings.The FT’s Climate & Impact Summit starts today. Hear from chief executives, politicians and other industry leaders as they discuss innovation and investment in global sustainability. Register now.Five more top stories1. Joe Biden’s cancer diagnosis has sparked attacks from some Republicans, who have used it to scrutinise the former president’s fitness for office. His diagnosis has generated some bipartisan sympathy but has also led to accusations that the Democrats were complicit in a cover-up while he was in power.2. Exclusive: Trump is weighing whether to open the nearly $9tn US retirement market to private equity through an executive order. Sources familiar with the talks said the order would instruct government agencies to study the feasibility of opening 401k plans, a primary vehicle for US retirement savings, to the private funds.3. IMF official Gita Gopinath has urged the US to tackle its “ever-increasing” debt burden, amid concerns about the Trump administration’s tax cut plans. The comments come days after Moody’s stripped the US of its triple A credit rating because of concerns about the fiscal deficit.4. Marco Rubio, US secretary of state, has said Russia will face fresh sanctions if there is no progress on a peace deal with Ukraine. He denied that Washington was tempering its military support for Kyiv. Rubio, speaking in the Senate, defended Trump’s phone call with Vladimir Putin, saying Russia’s leader “hasn’t got a single concession”.Ukraine talks: European capitals have launched a flurry of diplomatic efforts to convince the Trump administration to resume a ceasefire push.The FT View: If the US president is walking away from Ukraine, other allies must step up, writes our editorial board.5. A search group has found a ‘death camp’ run by a drug cartel in Mexico. Authorities said corpses were still burning. The discovery has renewed pressure on President Claudia Sheinbaum to tackle a 20-year battle with the country’s prolific narcotics cartels that has left 120,000 people missing.News in-depth© FT montage/Getty ImagesA market in the Feiyang Times building, a tower in southern China, sells second-hand smartphones from Europe and the US. But it also sits at a location that Apple community message boards, social media commenters and victims of phone theft have identified as China’s “stolen iPhone building”. The Financial Times tracks the roaring trade of mobiles snatched in London and New York then sold in a single district in Shenzhen.We’re also reading . . . Animal speech: If they could talk, would we listen? A prize aimed at cracking inter-species communication could change our views about the welfare of other creatures, writes Anjana Ahuja.Chart of the dayThe dominance of the dollar, the leading currency for a century, is coming into question. Yet those who wish to diversify away lack a compelling alternative, writes Martin Wolf. So what, if anything, might replace its hegemony?Take a break from the newsWhat distinguishes the finest airport lounges? Frequent flyer Andrew Jones has criss-crossed the world to find the answer. Sweeping architecture, shoeshines and “a sense of the journey that awaits you” are some of the things to look out for. For the rest, you’ll have to read his trusty guide.Modernistic seating at Charles de Gaulle/Roissy Airport in 1985 More