Aurelia Butler

The Paris School of Economics sits on the drab grounds of what was once the École Normale Superieure for girls, tucked away on the city’s unspectacular bottom edge. The PSE was only founded in 2006. It only teaches graduate students. It can’t match Harvard’s $53bn endowment. Yet it’s a remarkably influential place.The school’s president, Esther Duflo, is a Nobel laureate in economics recently returned to her hometown from Harvard. The PSE’s co-founder, Thomas Piketty, did more than anyone else to put inequality on his profession’s agenda. Two decades ago, he also supervised the masters thesis of the school’s current star, Gabriel Zucman, on whether high taxes prompt rich people to emigrate. Today Zucman, a boyish-looking 38, winner of the John Bates Clark Medal for young economists that often precedes a Nobel, is leading a drive to impose a global wealth tax on the super-rich.The EU Tax Observatory, which Zucman runs, hosted a conference in April at the PSE for the small but global community that has clustered around this tax. Besides economists, there were delegates from the IMF, the Brazilian government, Belgium’s workers’ party and an OECD official attending in her private capacity as a “tax nerd”. PSE’s more profit-maximising students snuck in for free helpings of the Parisian-quality lunch buffet. The message of the conference: the super-rich pay lower tax rates than ordinary people, but Zucman and his followers intend to change that.Economist Gabriel Zucman runs the EU Tax Observatory More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Chinese investment in Europe rose for the first time in seven years in 2024, driven by a surge in electric vehicle and battery projects in Hungary, even as Chinese firms increasingly shunned the UK, Germany and France.Total Chinese foreign direct investment in the EU and UK climbed 47 per cent to €10bn last year, according to data from the Berlin-based Mercator Institute for China Studies and consultancy Rhodium Group. While the rebound marked a break in the downward trend, total FDI was just a fifth of the 2016 peak and was heavily concentrated among a small group of firms, including battery makers CATL and Envision, tech group Tencent and carmaker Geely.“The EU remains attractive for Chinese investment,” said Max Zenglein, chief economist at Merics. But he warned that Beijing could increasingly deploy corporate investment as “a tool for strategic influence”.Facing mounting political scrutiny and trade tensions, Chinese companies have pivoted from mergers and acquisitions to greenfield investments. CATL’s €7.5bn battery facility in Debrecen and BYD’s planned €5bn electric vehicle plant in Szeged — both in Hungary — are emblematic of the shift.Hungary accounted for 31 per cent of all Chinese investment in Europe in 2024, retaining its position as the top destination for a second consecutive year. In contrast, the combined share of the UK, Germany and France fell to just 20 per cent, down from an average of 52 per cent over the previous five years.Prime Minister Viktor Orbán, widely seen as China’s closest supporter within the EU, sees Chinese capital as providing a vital pillar to the economy amid weak domestic growth.China’s carmakers are under pressure to expand abroad as they grapple with overcapacity and faltering demand at home. The EU’s decision last October to impose tariffs of up to 45 per cent on Chinese car imports has further incentivised local production within the bloc.Nevertheless, the study noted a sharp drop in new investment announcements by Chinese electric-vehicle manufacturers — down 79 per cent last year compared with 2022—2023 levels. Battery-maker Svolt, for instance, abandoned plans for two plants in Germany worth €4.2bn, while a European Commission preliminary foreign subsidy investigation into BYD’s Hungary plant could further dampen momentum, it said.The decline was partially offset by a modest uptick in M&A. Tencent acquired Polish video game developer Techland for €1.5bn, though such dealmaking activity is expected to remain subdued. The traditional motivation for M&A — access to Western technology — has waned as China builds its own R&D capabilities.Chinese investment in strategic sectors such as renewable energy is also drawing heightened scrutiny across Europe. Yet the authors of the study saw scope for a short-term easing in tensions, as some EU member states sought to avoid simultaneous trade conflicts with both Beijing and Washington, while China renewed a charm offensive aimed at Brussels. 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 worldIs the dominance of the dollar about to fade away? Donald Trump insists that “if we lost the dollar as the world currency . . . that would be the equivalent of losing a war”. Yet he himself could be the cause of such a loss. Reliance on a foreign currency depends on trust in its own soundness and liquidity. Trust in the dollar has been slowly eroding for a while. Now, under Trump, the US has become erratic, indifferent and even hostile: why would one trust a country that has launched a trade war on allies?Yet, while outsiders might wish to diversify away from the dollar, they lack a compelling alternative. So, what, if anything, might replace its hegemony?The dollar has been the world’s leading currency for a century. Yet the dollar itself replaced the pound sterling after the first world war, as the UK’s power and wealth declined. Objectively, the US is not declining as the UK was at that time: according to the IMF, its share in nominal global GDP was 26 per cent in 2024, against 25 per cent in 1980. Given the rise of China’s economy during that period, this is remarkable. The US also remains at the frontier of world technological development and the foremost military power. Its financial markets are still much the deepest and most liquid. Moreover, in the fourth quarter of last year, 58 per cent of global reserves were in dollars, down from 71 per cent in the first quarter of 1999, but far ahead of the euro’s 20 per cent. According to MacroMicro, 81 per cent of trade finance, 48 per cent of international bonds and 47 per cent of cross-border banking claims are still in dollars.So what could go wrong? In his work on the international system, Charles Kindleberger argued that the stability of an open world economy depended on the existence of a hegemonic power willing and able to provide essential public goods: open markets for trade; a stable money; and a lender of last resort in a crisis. The British provided all three up to 1914. The US was to do so after 1945. But in that intervening period the UK could not — and the US would not — provide these goods. The result was calamitous.The era of dollar hegemony has seen many shocks. The postwar recovery of Europe and Japan undermined the fixed exchange rate system agreed at Bretton Woods in 1944. In 1971, Richard Nixon, the president most similar to Trump, devalued the dollar. This, in turn, led to high inflation, which ended only in the 1980s. It also led to floating exchange rates and creation of the European exchange rate mechanism and then the euro. While economists tended to think that currency reserves would cease to be important in a world of floating rates, a plethora of financial and currency crises, above all the Asian crisis of the late 1990s, showed the opposite. Loans from the Federal Reserve also proved of continuing importance, notably in the financial crisis of 2008-09.The Kindleberger conditions are, in short, still relevant. Also relevant is the broader point that network externalities support the emergence and sustainability of dominant global currencies, since all users benefit from using the same currency as others and will continue to do so, if they can. But what if the hegemon uses every economic stick it can, including financial sanctions, to get its way? What if the hegemon threatens invasions of friendly countries and encourages invasions of friendly countries by despots? What if the hegemon undermines its own fiscal and monetary stability and the institutional foundations of its economic success? What if its leader is an unprincipled bully?Some content could not load. Check your internet connection or browser settings.Then both countries and individuals will consider alternatives. The difficulty is that, however unsatisfactory the hegemon might be, the alternatives look worse. The renminbi might be the best currency to use in trading with China. But China has capital controls and illiquid domestic capital markets. These, moreover, reflect the strategic priority of the Chinese Communist party, which is control, both economic and political. China seems quite likely to use economic coercion, too. So, China cannot offer the liquid and safe assets that the US has historically provided.Some content could not load. Check your internet connection or browser settings.The euro does not suffer from these handicaps of the renminbi. So, might it not replace the dollar, at least in part, as Hélène Rey of the London Business School argues? Yes, it might. But it too suffers from defects. The Eurozone is fragmented, because it is not a political union, but rather a club of sovereign states. This political fragmentation also shows in financial and economic fragmentation, which constrains innovation and growth. Above all, the EU is not a hegemonic power. Its appeal may surpass that of the US at its current worst, but it is no match for the US at its best.We are left then with a competition between three alternatives, with some other options — a global currency or a crypto-based world — surely inconceivable. The first option would be transformation of China or the Eurozone and so the emergence of one of them as issuer of a hegemonic currency. The second would be a world with two or three competing currencies, each dominant in different regions. But network effects would create unstable equilibria in such a world, as people rush from one currency to another. This would be more like the 1920s and 1930s than anything since then. The third would be continued domination by the dollar.What sort of dollar hegemony might this be? Ideally, a trustworthy US would re-emerge. But this is ever more unlikely, given the damage now being done at home and abroad. In the kingdom of the blind, the one-eyed man is king. Similarly, even a defective incumbent currency might continue to rule the monetary world, given the lack of high-quality substitutes. Trump would like this world. Most of the rest of us would [email protected] Martin Wolf with myFT and on X More

This is an on-site version of the White House Watch newsletter. You can read the previous edition here. Sign up for free here to get it on Tuesdays and Thursdays. Email us at [email protected] morning and welcome to White House Watch! Let’s dive right into:Donald Trump has left Kyiv and Europe feeling abandoned after making clear the US wants to disentangle itself from negotiations between Russia and Ukraine, and let the warring nations duke out peace for themselves.Trump said he’d end the conflict on his first day in office, but now he has appeared to wash his hands of the peace effort, leaving Ukraine vulnerable at the negotiating table.For observers, this is a turning point that confirms Europeans’ worst fears: seduced by Vladimir Putin’s flattery, Trump is prepared to sell out Kyiv in favour of Moscow. Trump and Putin spoke for more than two hours yesterday in a conversation so friendly that the Russians said neither leader wanted to hang up first. After the call, the US president said that negotiations for a ceasefire would start “immediately”, but that “the conditions for that will be negotiated between the two parties, as it can only be, because they know details of a negotiation that nobody else would be aware of”, seemingly abdicating Washington’s role as peace broker. And who could take its place? Pope Leo XIV. “The Vatican . . . has stated that it would be very interested in hosting negotiations,” Trump said.Just over a week ago, Trump joined other western leaders in promising to impose new punitive measures on Russia if it didn’t implement an immediate ceasefire.But after speaking with Putin yesterday, Trump told European leaders that he did not intend to apply additional pressure on Moscow while bilateral talks between Russia and Ukraine are ongoing, according to two people briefed on the conversation. The Europeans are now racing to convince Trump to stay involved. “It was never realistic to think the US could strike a peace deal between Russia and Ukraine,” said Andrew Weiss, vice-president at the Carnegie Endowment for International Peace. “The goal now seems to be to agree to disagree with Russia and allow the Europeans and Ukrainians to work something out.”Ukrainian President Volodymyr Zelenskyy — who also spoke to Trump yesterday — had a stark warning: “It is crucial for all of us that the United States does not distance itself from the talks and the pursuit of peace, because the only one who benefits from that is Putin.”The latest headlinesWhat we’re hearingWhile the stock market has come roaring back since Trump’s so-called liberation day tariffs brought chaos and steep losses, the pain is set to endure for Main Street as confidence in the US economy takes a hit.“The market has overbought the deal,” said Steve Hanke, a Johns Hopkins University economist who worked as an adviser to Ronald Reagan. “Trump still thinks he’s running Trump Enterprises, not the US economy,” he told the FT’s Claire Jones. While Trump’s climbdown on tariffs — and the détente with China in particular — have cut the chances of a serious recession, his handling of the trade war looms large over the US economy.It could unwind years of exceptional US growth and trigger stagflation that would leave the Federal Reserve’s policymakers in a bind.Some content could not load. Check your internet connection or browser settings.And the trade tensions aren’t gone — they’re just on pause. When the current 90-day deadline for talks expires in July, tariffs could surge again, adding to a climate of uncertainty.The US-China deal “undid a decent amount of the damage”, Jason Furman, economist at Harvard University who worked in Barack Obama’s Council of Economic Advisers, told Claire. “But we’re still going to get a bunch of inflation, we’re still going to get slower growth. And we still don’t know how this play is going to end.”And the anxiety is strangling every economy tied to the US. EU economics commissioner Valdis Dombrovskis told the FT’s Sam Fleming that the global trade war has had “quite a sizeable negative impact” on the bloc’s own forecasts, generating a sharp downgrade to the global growth outlook. It “creates negative confidence effects which affect first and foremost investment decisions”.ViewpointsThe budget fight on Capitol Hill has highlighted Trumpism’s growing split between plutocrats and Steve Bannon’s economic populists, says Edward Luce.Russia and Ukraine are playing along with Trump’s demands to talk about peace, but they each hope the other will get the blame when the efforts founder, writes Gideon Rachman.Rana Foroohar thinks the markets are declaring tariff victory too soon, and that we’re still in for a lot more volatility over the next few years.After Trump announced his cash incentives for undocumented immigrants to “self-deport”, Patti Waldmeir found no takers — just disgust and laughter — in one of Chicago’s immigrant neighbourhoods.Despite the term “woke right” seeming like culture war clickbait, Jemima Kelly thinks there might be something to it.Recommended newsletters for youFT Exclusive — Be the first to see exclusive FT scoops, features, analysis and investigations. 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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 newslettersThe past week saw US inflation moderate in April, but everyone ignored the figures. Instead, attention was on signs that inflation is coming to the US. Whether asked by business leaders, importers, academics or officials, the question is: who will pay for Trump’s tariffs? This is both a theoretical and practical question, so let’s look at the initial evidence.Business Ultimately, economists can have all their fancy models and theories, but companies will be the players changing prices. So it is good to ask them. Doug McMillon, chief executive of the world’s largest retailer Walmart, spoke out last week, saying there was no way of getting around the effects of higher tariffs. “We will do our best to keep our prices as low as possible, but given the magnitude of the tariffs, even at the reduced levels announced this week, we aren’t able to absorb all the pressure . . . The higher tariffs will result in higher prices,” he said. The comments threw Trump into one of his frequent rages on social media. The president told Walmart to “STOP trying to blame tariffs for raising prices”, and instructed it to “EAT THE TARIFFS”, adding ominously that “I’ll be watching”. Trying to soothe tensions on Sunday, Treasury secretary Scott Bessent moderated the president’s language, saying McMillon had assured him the retail group would “eat some of the tariffs”. Notice how hard the word “some” is working in this reformulation. Moving away from single company anecdotes to data, the Philadelphia Fed released its latest survey in the past week on its district’s corporate pricing intentions. The results, shown below, suggest that most companies think they are being charged more for supplies, and are themselves setting higher prices. It is not a comforting chart.Some content could not load. Check your internet connection or browser settings.Exporters to the US are not eating the tariffsAfter Trump’s Walmart outburst, he suggested the US supply chain should absorb the tariff increases. This is new from the president. Previously he claimed that exporters to the US would lower their prices in response to higher tariffs, so the real incidence of the levies would be on foreigners. Evidence suggests otherwise. On Friday, the latest data on US import prices was published by the Bureau of Labor Statistics, showing a slight rise in the prices of goods arriving at US ports in April. These prices exclude tariffs, so should be falling significantly if the burden of duties falls on those outside the US. The chart below suggests the tariffs will get passed into the domestic supply chain at the very least. Some content could not load. Check your internet connection or browser settings.The eagle-eyed will notice something of a fall in the price of Chinese goods landing at US ports in April, where the tariff increase has been greatest. The price reductions are not unusual for goods imported from China and not large enough to offset the tariff increases. But there might be some effect at work. Breaking down the Chinese import prices by product type, there is no particular pattern. The one exception is a 5 per cent fall in prices of communications equipment over the past three months, a category that often sees price reductions. Of course, this product type was one of those exempted from “reciprocal” tariffs on April 12, so it is very difficult to make the argument that foreigners are taking the pain. Some content could not load. Check your internet connection or browser settings.AcademicsThe academic work from the 2018 tariffs suggested that the US paid, but much of the costs were borne within the US supply chain. Below I will point to new research carried out at the Fed that disputes the claim that consumers did not pay. First, the researchers who produced much of the academic evidence from 2018 are now publishing an almost real-time indicator of the tariff effect on prices charged using data scraped from retailers’ websites. In the research, Alberto Cavallo, Paola Llamas and Franco Vazquez take the prices of products, use artificial intelligence to determine the country of origin and compare this with the tariff rates. It is early days, but you can see announcement effects of tariffs in the data. The authors are correct to say there have been “rapid but still relatively modest” consumer price effects. Perhaps that is to be expected, given the extensive front-running of tariffs we saw in first-quarter import data. Unsurprisingly, costs of goods from China are rising the fastest and, as suspected in 2018, the price rises extend beyond products that face tariffs. It seems that retailers like to spread the pain.Some content could not load. Check your internet connection or browser settings.Officials For Trump, further unhelpful evidence on whether the US supply chain would eat the tariffs has come this month from the Fed. In a staff note, which does not reflect Fed policy, economists Robbie Minton and Mariano Somale undertook a theoretical exercise to predict where in the inflation figures the 2018 duties on China would show up, assuming full pass-through of prices. The research is heavy on the use of input-output data, tracing the tariff effect through the supply chain. The theoretical predictions suggested that musical instruments would rise in price the most due to their heavy tariffed import content, for example. And that there would be little price effect on pharmaceutical products. They found a good relationship between their predictions and actual price changes, with one big discrepancy. As the chart below shows, the actual price changes in each category ended up being twice the level of the theoretical predictions.The US supply chain had not eaten the tariffs, but had used them to add a bit of extra profit. This shows the opposite of the 2018 research led by Cavallo. The Fed officials think their data and techniques are more comprehensive and, not being based only on web-scraped data, “more representative of the US economy”. Some content could not load. Check your internet connection or browser settings.The researchers then turned their attention to the 2025 tariffs. It is still early days, but again their predictions on where tariffs on China will show up in US inflation are proving quite accurate. With data up to March they find that, in contrast to 2018, the pass-through is running at 54 per cent. So US supply chains have initially eaten up some of the tariffs. Before Trump jumps up and down with glee, they note the results are preliminary, with tariffed goods not yet in the inflation figures. They also note that their input-output data is out of date and Chinese imports have fallen sharply. So it would be unwise to say the duties are likely to be absorbed. The results will develop over time. So far, this Fed study suggests 0.1 per cent of the rise in US core PCE prices has come from tariffs. Not a lot, but it is early days. So, who pays for the tariffs?Trump likes to claim that foreigners or greedy business leaders will pay. The evidence suggests he is wrong about them hitting foreigners. As far as the domestic burden, I’ve compiled views about who pays in the table below. What I’ve been reading and watchingThe Fed is anxious to be seen as a “responsible steward of public resources”, so is planning to cut staff levels by 10 per cent in a scoop by Claire Jones.Still on the Fed, it held a conference last week to examine its monetary policy strategy. Chair Jay Powell’s speech confirmed that flexible average inflation targeting was likely to go. The rest of the papers can be read here.We need to take US consumer confidence data with a pinch of salt, but it is still falling.A former hawkish member of the ECB governing council, Belgium’s central bank governor Pierre Wunsch turns dovish in an interview with the FT.A chart that mattersHave you ever wondered whether the sentiment in the FT’s reporting and commentary accurately reflects what is happening in the world? Of course you haven’t, because you know that the FT is the world’s best business newspaper.But over at the FT’s Monetary Policy Radar, we have undertaken a systematic analysis of the FT’s coverage, using its archive, a large language model, and rather clever filtering and embedding techniques to ensure we do not confuse an effusive restaurant review for commentary on the global economy.The “macro mood” in the FT’s output does indeed reflect what is happening in the world (phew). We think it might also have some predictive power, though that needs further work.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

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 to FirstFT. Here’s what’s on today’s news agenda:China’s battery leader CATL surges on debut after biggest listing of 2025Donald Trump’s “big, beautiful” tax bill heightens concerns over US debtPoland’s stock market emerges as one of the world’s top-performing bourses The market value of Chinese battery maker CATL, already the world’s largest listing of the year so far, just got a lot bigger as shares soared more than 16 per cent on their first trading day in Hong Kong. What happened: The secondary offering raised at least $4.6bn, with the amount set to rise to $5.3bn if an option allowing underwriters to sell more shares than planned is exercised. It is among the largest offerings in Hong Kong by Chinese companies already listed on the mainland in recent years, with CATL also quoted in Shenzhen. CATL founder Robin Zeng, who banged a gong to celebrate the start of trading at the Hong Kong stock exchange, said the company was not satisfied with being “just a battery component manufacturer” and was poised to be the “pioneer” of the zero-carbon economy.Why it matters: CATL accounts for about 37 per cent of the world’s EV and energy storage battery markets. A supplier to Tesla, BMW and Volkswagen, the cash-rich company had sought an offshore listing to raise non-renminbi funding for its overseas expansion, notably a $7.3bn factory in Hungary. The listing had the support of American banks, while a US asset management firm was a key investor, despite the geopolitical tensions swirling around the deal. In January, the battery maker was added to a Pentagon blacklist of companies believed to have ties to the Chinese military, although it has denied any such links.Here’s what else we’re keeping tabs on today:Economic data: Germany issues April producer price index inflation rate data while Canada gives its monthly cost of living update using the consumer price index measure.High-level meetings: G7 finance ministers and central bankers are in Canada for a three-day gathering. In Brussels, Kaja Kallas, the EU high representative for foreign affairs and security policy, chairs a meeting with the bloc’s foreign and defence ministers.Companies: Google holds its annual developer event in California, where it is expected to unveil new products. Shell holds its annual meeting and Home Depot reports first-quarter numbers. See our Week Ahead newsletter for the full list.Join us for a subscriber-only webinar on May 28 for insights into the most consequential geopolitical rivalry of our time: the US-China showdown. Register now and put questions to our panel.Five more top stories1. Donald Trump leaves Russia and Ukraine to settle war in talks The US president has claimed that Russia and Ukraine will “immediately” begin negotiations on preparations for peace talks, but signalled that he was leaving Moscow and Kyiv to find a deal without the US as a broker.2. Poland’s stock market has emerged as one of the world’s top-performing bourses this year, up more than 28 per cent year to date. The rally has been helped by the country’s relatively insulated position from the global trade war and an expected boost from neighbouring Germany’s fiscal “bazooka”. Here’s what analysts are saying. 3. The value of French grocer Casino’s debt has slumped to deeply distressed levels, with traders now quoting a €1.4bn secured loan at 61 cents on the euro. The deep discount to face value suggests lenders are braced for the prospect of steep losses as fears grow that continued weak earnings could trigger a breach of its loan covenants next year.4. Donald Trump’s “big, beautiful” tax bill heightens concerns over US public debt, sparking alarm among investors and fuelling questions over how long the world will finance Washington’s largesse.5. Benjamin Netanyahu said Israel planned to take over all of Gaza as the country escalated its offensive in the war-torn enclave. The Israeli military yesterday told all residents of the southern city of Khan Younis to leave, demanding they move west to the so-called Al-Mawasi “humanitarian zone” ahead of what it called an “unprecedented attack” on the city.Visual story© FT montage/PAA rapidly ageing population and growing numbers of patients with chronic illnesses are placing ever greater demands on an already overstretched NHS. The UK government’s promised 10-year health plan aims to fix this, with ministers arguing that the answer lies in better use of technology and data in the world’s largest publicly funded health service. We’re also reading . . . Chart of the dayWhile markets cheered Donald Trump’s deal with China, big US retailers are warning of higher prices later this year across a spectrum of goods, and small business owners say sales are already down as the chaos of “liberation day” creates a “ripple effect”. Will the US president’s tariff climbdown save the US from recession?Some content could not load. Check your internet connection or browser settings.Take a break from the newsToday’s recommended read poses an important question: do you let your dog sleep on your bed? For Hannah Shuckburgh, the answer is yes, and she explores why dogs make such wonderful bedfellows.A dog belonging to interior designer Flora Soames, who said: ‘Sleeping alongside dogs offers deep comfort. It’s all I’ve ever known.’ Additional contributions by Camille De Guzman and Benjamin Wilhelm More

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