Aurelia Butler

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Nine years after the Brexit referendum, the howls of “surrender” from Britain’s political right over the Labour government’s reset with the EU shows how divisive, and cloaked in misinformation, the issue remains. The agreement is not a massive sellout. Neither is it, in sum, a massive deal. It is, though — like the UK’s recent trade pacts with India and the US — a worthwhile step. Its importance is above all symbolic: the first big UK-wide agreement with the EU since Brexit is a recognition that it is in both sides’ interests to work more closely together. Given the clout of Britain’s military and its defence industry, the centrepiece is rightly a security and defence pact that will formalise co-operation in military training and mobility, cyber and space security, resilience of infrastructure and countering hybrid threats. Subject to signing a third-country agreement, the pact paves the way for the UK to take part in the EU’s €150bn Security Action for Europe procurement fund — an important prize for both sides.The pressure on Sir Keir Starmer’s government to cut net immigration means it has only reluctantly agreed to work towards a youth mobility scheme enabling 18- to 30-year-olds to travel and work in each others’ countries. Rebadged as a “youth experience” scheme, this would be time-limited and capped in numbers. It is a desirable goal, however, that would reopen important opportunities for young Britons.The economic component of the reset is more limited. But an agreement to work towards a veterinary deal allowing most UK agrifood exports to the EU to happen without cumbersome border checks and paperwork delivers a Labour manifesto commitment. Combined with linking the two sides’ emissions trading systems, the government estimates this will boost Britain’s economy by nearly £9bn by 2040, even if this offsets only a tiny fraction of the overall hit to the economy from Brexit.There are, though, notable trade-offs. Britain is accepting “dynamic alignment”, or automatically following evolving EU rules on plant and animal products, with the European Court of Justice acting as final arbiter here on points of EU law. It is giving EU fishing boats access to UK waters for 12 more years — more than double its original offer. Rightwing opposition parties say Britain is thus becoming a rule-taker, betraying key parts of its post-Brexit “independence” and selling out its fishing industry. Yet the vaunted benefits of regulatory divergence from the EU have mostly proved illusory, and the veterinary deal was worth doing. While fishing looms large in the national psyche, it constitutes, on 2021 figures, a mere 0.03 per cent of national output.When Europe is having to shoulder much more of its own defensive burden even as Russia poses an ominous threat, it is regrettable that several EU countries chose to make progress in weightier areas such as defence contingent on UK concessions in such a small industry. But the reality is that as soon as it left the EU, especially via Boris Johnson’s bare-bones Brexit deal, Britain became a demandeur in any future attempt to improve its terms. Contrary to Brexiters’ claims, the smaller party in any trade negotiation always needs the bigger one more than vice versa. Labour arguably wasted some of the post-election goodwill it enjoyed last year in Brussels, through the paucity of its own ambition and its manifesto red lines insisting on no return to the EU single market, customs union or freedom of movement. Its new reset at least attempts to push up to the limits of some of those red lines. Starmer’s government must now use it as the basis for a more ambitious realignment, over time, with what is still Britain’s most important trade and security partner. More

Unlock the White House Watch newsletter for freeYour guide to what Trump’s second term means for Washington, business and the worldEric Trump, son of the US president, is expected in Vietnam this week for discussions on a proposed new Trump Tower that come just as the south-east Asian nation rushes to avoid punitive US trade tariffs.The official Vietnam News Agency reported on Monday that the Trump Organization was considering expanding its investment in Vietnam by building the tower in the southern financial centre of Ho Chi Minh City.Eric Trump was expected to hold discussions with city officials on Thursday on possible locations and other details of the tower project, the agency said. President Donald Trump’s sons manage the Trump Organization, but some analysts and business executives have said the company’s growing interest in Vietnam could be positive for the country as it tries to strike a tariffs deal with Washington.Eric Trump’s visit will come just days after Vietnam approved a $1.5bn Trump Organization project consisting of a golf course, hotels and luxury residences. The project, a joint venture with Vietnamese company KinhBac City Development Holding, is expected to kick off construction this year and be completed by 2029.The US president hit Vietnam with a “reciprocal” tariff rate of 46 per cent in April, though he later granted the country and other trading partners a 90-day reprieve.The 46 per cent rate would be a huge blow to Vietnam, which has emerged as a manufacturing powerhouse in recent years as production has shifted from China. It is now a critical link in global supply chains and counts Apple, Samsung and Nike as key investors.Vietnam’s economy, one of the fastest growing in the world, is heavily dependent on exports, a third of which go to the US alone.  Hanoi now faces tough negotiations with Washington to agree lower tariffs after Trump’s pause on the implementation of most of them ends in July.Trump administration officials have repeatedly criticised Vietnam for its massive trade surplus with the US — the third largest after China and Mexico. They have also accused Vietnam of acting as a conduit for Chinese companies looking to avoid tariffs by shipping to the US via a third country.Vietnam trade and industry minister Nguyen Hong Dien met US trade representative Jamieson Greer in South Korea last week.Hanoi has promised to buy more American goods, including Boeing aircraft and agricultural products, to remove non-tariff barriers and to intensify a crackdown on trans-shipment of exports to the US from other countries.  KinhBac City did not respond to a request for comment. A spokesperson for the Trump Organization did not immediately reply to a request for comment.Additional reporting by Alex Rogers in Washington More

This article is an on-site version of our Swamp Notes newsletter. Premium subscribers can sign up here to get the newsletter delivered every Monday and Friday. Standard subscribers can upgrade to Premium here, or explore all FT newslettersYou are in for a treat today, Swampians, because my respondent is the brilliant Princeton historian Harold James. I spoke to him for my column this week and wanted to expand upon some of the themes we touched on in today’s note.James is a scholar of globalisation and de-globalisation and believes, as I do, that we are at an important pivot point right now. In past columns, I’ve posited that we would see a shift away from neoliberalism and towards de-globalisation, with more regionalisation and even the emergence of a tripolar world in which the US, Europe and Asia, led by China, moved into significantly separate economic spheres.In the wake of Donald Trump’s US-China deal on tariffs, markets are making the opposite bet now. Stocks are up, gold is somewhat down, and many are arguing that better days are ahead. The administration says it’s on the verge of a new deal with India, and Trump is pursuing a fresh foreign policy in the Gulf, where he has secured a big Saudi commitment to invest in the US. Some are likening this to Richard Nixon’s famous deal to recycle excess oil money into US Treasury bills, which of course set the stage for both growth and financialisation of the US economy. (I wrote about the latter point in my first book, Makers and Takers.)I’m still sceptical that we’ve seen the end of trade-related volatility in Trump’s second term. But more than that, I’m interested in how the seismic forces that have now been set in motion will reshape the global economy. I was fascinated by a presentation that James did recently at the Hoover Institution in which he laid out some of the large shocks of the past 150 years or so that shifted the direction of globalisation — things like the great famine in the 1840s, the 1873 financial crisis, the first world war and the great power competition around it, the Great Depression, the end of the fixed dollar in the 1970s, the Great Recession, Covid-19, the war in Ukraine and now Trump’s efforts to end the neoliberal system and rebalance trade between the US and surplus nations such as China.Professor James, you’ve pointed out that supply shocks (like the famine of the 1840s) tend to increase globalisation, while demand shocks (including the 1929 market crash and the ensuing Great Depression) tend to push the world apart. This time around, we are in a situation where we may get both at once — a trade supply shock and a recessionary demand shock. What does history tell us about what happens in such situations? And what will it mean for the US and the world?Recommended readingCatholics in America may be surprised to see how Pope Leo XIV does and doesn’t share their worldview, as Sam Sawyer explains in The New York Times. At the very least, he’ll be a fascinating counterpoint to Trump — Leo is a pro-immigrant globalist who cares about the poor. Also, for more on the politics of faith and how it will define the midterms and the 2028 presidential election, have a look at this panel I did on the topic at the FT Weekend Festival.This Economist piece on how the Maga economy is performing relative to its blue state counterpart is fascinating. Red and blue states not only see the country differently, but they also are buying different products, hiring and investing in different ways, and so on. Maga areas represent only a third of the country’s wealth, but Maga companies seem to outperform.Li Yuan’s piece in The New York Times on the two Chinas is a must read. It cuts through the binary way in which people tend to think of China’s future prospects.And finally, my colleague Martin Wolf’s piece on the challenge of excess global savings raises important questions about the difficulty we are going to have in rebalancing the global economy.Harold James respondsGreat to be talking with you, Rana. Indeed, I think there are many indications that globalisation is at inflection point, though not necessarily in the throes of a radical de-globalisation. The dramatic shift of the US administration has increased the likelihood that the US will become marginalised. The history of demand and supply shocks shows how negative supply shocks prompt more rather than less globalisation, dramatically so in the mid-19th century and in the 1970s. What Trump’s tariff measures did was to create a negative large supply shock for the US, and a demand shock for the rest of the world. The supply shocks affect consumers in the US, and they will focus on ordinary products that become more expensive, or scarce or even unavailable. The impact on high technology will be even greater and more devastating: particular supply constraints, for instance, of the metallic element dysprosium, will restrict high-tech developments — in data centres, supercomputing and AI, but also in the key technology of nuclear fusion. Cuts in research funding will also reduce the capacity for long-term scientific innovation. If the Trump administration maintains this course, the 21st-century American experience will appear as a repetition of the long decline of imperial Spain, or of 20th-century Britain. The good news for everyone else is that globalisation will still work for most countries, and that new drivers of globalisation will emerge, big emerging market countries but also many smaller dynamic countries. Even Ukraine, for instance, may develop as a result of its martyrdom as a leader in military technology, notably the rapidly changing area of drone warfare.Perhaps the US will come to a realisation that the tariff regime is shooting oneself in the foot, or maybe rather in the head (because it is stupid) and the heart (because it is cruel, especially to smaller African and Asian economies). It may even be that the tariff pause is the beginning of such a reorientation. For most other countries, a new technology-driven globalisation holds many opportunities and chances.Your feedbackWe’d love to hear from you. You can email the team on [email protected], contact Rana on [email protected], and follow her on X at @RanaForoohar. We may feature an excerpt of your response in the next newsletterRecommended newsletters for youTrade Secrets — A must-read on the changing face of international trade and globalisation. Sign up hereUnhedged — Robert Armstrong dissects the most important market trends and discusses how Wall Street’s best minds respond to them. Sign up here More

This article is an on-site version of our Trade Secrets newsletter. Premium subscribers can sign up here to get the newsletter delivered every Monday. Standard subscribers can upgrade to Premium here, or explore all FT newslettersHello and welcome to Trade Secrets. Future generations of game theorists are going to find rich pickings in governments’ manoeuvrings around Donald Trump’s wrongly named “reciprocal tariffs”, which were imposed on April 2 and a week later suspended supposedly for 90 days pending negotiations. The UK and China have so far made deals that might generously be described as preliminary sketches, improbably assuming they do indeed ever turn into finished works of legally binding art. Below I look at how other governments are reacting now, and readers’ responses to my question from last week of whether the UK and China did the right thing. Charted Waters, where we look at the data behind world trade, is on the EU trade surplus with Ukraine. Incidentally, if you want a discussion of the issues below in audio form, here I am on last week’s Unhedged podcast with the great Katie Martin, of which the transcript is here.Get in touch. Email me at [email protected] tricky tactics of tackling TrumpOn the face of it, Trump unleashed a bombshell with his assertion last week that he would impose “reciprocal tariffs” on a bunch of countries in the next few weeks without negotiation or consultation. In reality, it didn’t gain much attention from the trade community or financial markets. Why? No one is really sure whether Trump is serious about anything these days, nor indeed whether he even understands what he’s saying.If you think about it, it’s kind of incredible that the president of the United States of America threatens potentially massive tariffs on dozens of trading partners and the general reaction is “whatever”. In the meantime, he contented himself with wandering around the Middle East, making obviously bogus announcements about signing deals worth a grillionty bazillion dollars and being given a plane to take home, like a party bag at an over-catered child’s birthday celebration.So what can we conclude so far about governments’ dealings with Trump? For one, we can now rule out there being a concerted effort to deal with him collectively, whether because of different interests and positions or a prisoner’s-dilemma lack of trust. Nor are governments rushing to build alternative networks or strengthening those already there. Ministers from the Asia-Pacific countries in the CPTPP agreement last week vaguely talked about “working towards dialogues” with the Association of Southeast Asian Nations (Asean) and the EU, just about the most milk-and-water promise you could imagine.Nor, certainly in the case of the UK, is there strict adherence to multilateral rules. The UK accepted a deal that violated the “most-favoured nation” principle, and has vaguely agreed to gang up on China if called upon to do so. The big trading powers have taken a dim view of these acts of self-preservation. EU ministers were cross about the thinness of the UK deal, which they have sworn not to replicate, and Beijing warned London not to take sides in a US-China trade war.In practice, it’s entirely possible the US will neither be focused nor determined enough to undermine the MFN principle systematically with big trading partners, nor force the UK to stick up trade barriers against China and ban Chinese investment. After all, the first Trump administration did introduce a poison pill in the US-Mexico-Canada (USMCA) trade agreement by constraining signatories from making deals with non-market economies (that is, China). But that hasn’t noticeably affected Mexico and Canada’s calculations since.The EU and UK are having a summit today, where apparently the usual last-minute deal has managed to reach some sort of agreement on a bunch of contentious issues that the UK has mishandled in its usual clodhopping way (youth mobility) and the EU has been typically short-sighted and petty about (fisheries). But Britain’s deal with China isn’t hanging like a forbidding black cloud over the meeting or disrupting the sides’ ability to make a politically feasible agreement.As for the EU’s dealings with the US, Brussels has made a pretty good fist of refusing to be rushed to the negotiating table and insisting it won’t accept the 10 per cent baseline “reciprocal tariff” without retaliation — though that latter principle might well bend under pressure. The FT reported last week that Brussels and Washington had begun the early stages of talks. But it seems unlikely the EU will be sprinting to sign a fast deal. Mind you, I said that about China as well.In other negotiations news, Australia said it’s keen to get a deal with the US, but not at the cost of joining an anti-China posse (which, given the massive skew of its exports towards China, is not surprising). Japan is less eager to signal it wants a quick agreement, partly for domestic political reasons.Where do we go from here? Many sages (I think correctly) reckon financial markets have underpriced the costs of the tariffs, especially those that remain in place between the US and China, perhaps because they think we’re on an inevitable path back towards normality. But that looks pretty complacent if normality is defined as a 10 per cent baseline tariff on all other countries; sectoral duties on steel, cars, pharmaceuticals and so on; and — critically — an eccentric policymaking regime under which tariffs could shoot up again at any time. If Trump really does start announcing a whole array of fresh unilateral duties, I can see investors taking fright again pretty quickly.What readers thought about tackling TrumpWhile we’re on the subject, I asked you what you thought about the UK and China deals with the US and whether London and Beijing were right to sign them. I wondered if I’d been a bit too negative about the UK deal in particular. But in fact, if anything, you were more sceptical than me.There was not one expression of enthusiasm as such. Responses ranged from a straight “No” to a more detailed explanation that the UK should have aligned itself with the EU, while China had much better cards than the US and could have extracted more. Indeed, several of you said the US was as or more fortunate than China in getting the deal it did. I had no idea my readers were so hawkish. Maybe I should up the aggression quotient in future newsletters.Charted watersThe EU is running an increasing trade surplus with Ukraine but nonetheless (see links below) wants to restrict imports from the country further to help its farmers.Some content could not load. Check your internet connection or browser settings.Trade linksTrump wrote on Saturday that the giant retailer Walmart, instead of raising prices, should “eat the tariffs” that he previously said Chinese exporters would eat. The smart money remains on consumers eating them, or rather eating less because of them.The EU is dismaying Kyiv by preparing to raise tariffs sharply on imports of agricultural products from Ukraine within weeks, following a campaign led by Poland on behalf of its farmers.Last week, the US Court of International Trade heard oral arguments against Trump’s use of the International Emergency Economic Powers Act (IEEPA). Here is an account by Ilya Somin, an academic who helped bring the case. If you have nearly two hours to spare and much more patience than me, you can listen to proceedings here. I previously wrote about how most scholars think courts are unlikely to stop Trump.The FT examines how Chinese restrictions on rare earth sales could hit global supply chains. (I will come back to this at some point.)The National Public Radio podcast Planet Money looks at how US farmers suffered from Chinese retaliation against Trump’s tariffs before. The transcript is here.The FT looks in depth at how governments around the world are dealing with Trump. Trade Secrets is edited by Harvey NriapiaRecommended newsletters for youChris Giles on Central Banks — Vital news and views on what central banks are thinking, inflation, interest rates and money. Sign up hereFT Swamp Notes — Expert insight on the intersection of money and power in US politics. Sign up here More

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Donald Trump’s swaggering tour of the Middle East ended with a sobering dose of domestic reality on Friday as the president headed home to a credit rating downgrade, gloomy data on consumer sentiment and challenges to his flagship tax bill. Over the past two weeks, Trump has seen his approval ratings improve and equity markets bounce back strongly after pausing some of the more aggressive import tariffs he announced in early April. Labour market and inflation data has also been encouraging, defusing fears that a sharp slowdown or even a recession could be imminent. But while the president was aboard Air Force One en route to Washington from Abu Dhabi, Moody’s stripped the US of its top-notch triple-a credit rating on concerns about rising levels of government debt.“For those looking for a signpost to tell us when to stop adding to our national debt, they should look no further than Moody’s downgrade,” said Michael Peterson, chief executive of the Peter G Peterson Foundation. “It’s unacceptable for a great country like America to harm its own credit rating.”Earlier in the day, the University of Michigan’s closely watched survey of consumer sentiment showed confidence had dropped to its second-lowest level on record, as people’s expectations of inflation soared. And shortly afterwards, Trump suffered a setback on Capitol Hill when conservative hardliners on the US House budget committee voted against his biggest domestic legislative goal: a sweeping bill to extend tax cuts he enacted in 2017 and enact deep government spending cuts. The tricky politics are a comedown from the multibillion dollar economic partnership pacts and investment deals signed during the president’s tour of Saudi Arabia, Qatar and the United Arab Emirates this week.Accompanied by phalanx of business leaders led by Elon Musk as well as top cabinet officials including Scott Bessent, the US Treasury secretary, and Howard Lutnick, the commerce secretary, a buoyant Trump saw the lucrative agreements as a vote of confidence in the American economy. “It’s the new industrial revolution, and it’s driven by Donald Trump and it’s going to be amazing jobs for Americans,” Lutnick told Fox News in an interview from the UAE. Back in Washington, Trump is counting on passage of what he calls the “big beautiful bill” to ease some of the hit to households and businesses from the president’s new tariffs — and restore confidence in his stewardship of the economy.The fate of the tax bill is increasingly taking centre stage in Washington as Trump and Republican leaders in the lower chamber of Congress rally their slim majority to approve the legislation. But on Friday there was a big setback to its progress when it failed to advance in the House budget committee. South Carolina Republican Ralph Norman, who was one of the group that opposed the bill, said: “If we’re going to continue to have . . . able-bodied Americans getting checks, illegals getting checks, subsidies that go to corporations that shouldn’t get them — I’m out.” Soon after the vote, Trump posted on X: “Republicans MUST UNITE behind, ‘THE ONE, BIG BEAUTIFUL BILL!’“. “We don’t need ‘GRANDSTANDERS’ in the Republican Party. STOP TALKING, AND GET IT DONE!”.Meanwhile, moderate Republicans in battleground districts are insisting on more generous tax deductions for state and local tax payments, know as “Salt”, another sticking point that the president will have to find a way through. Even if the deadlock is broken on Capitol Hill, fiscal hawks have warned that the implications for US public finances could be disturbing. The Committee for a Responsible Federal Budget, a bipartisan group, warned on Friday that the legislation would add $3.3tn to US debt over a decade, and risks spooking bond investors in a similar way to the UK budget crisis of 2022. “The US’ current fiscal situation is worse than the United Kingdom’s was, and the deficit impact of the package currently under consideration is even larger than the Truss package. The markets may not take too kindly to this,” the CRFB said in a post. Friday’s dire consumer sentiment data did not reflect the impact of the agreement by the US and China in Switzerland at the beginning of the week to de-escalate their trade war and bring down the tit-for-tat tariffs they had slapped on each other since early April. But Walmart, the world’s largest retailer, warned this week that it would have to raise prices in its stores despite the US-China détente, and economists said the faltering consumer sentiment was an additional sign that anxiety about Trump’s trade policies remains high. A polling average by RealClearPolitics this week found that 50.1 per cent of Americans disapprove of Trump’s performance as president, while 46.1 per cent approve.While the 4 percentage point deficit is narrower than the 7.1 point deficit in approval he had at the end of April, it’s a big drop from the 6 percentage point advantage he posted in January at the start of his second term. “Fears over the inflationary impacts of tariffs remained the largest source of pessimism for consumers, even as recent talks to roll back some tariffs led to a substantial recovery for equity markets,” Oxford Economics wrote in a note on Friday. It added: “Consumers have also become more worried about their personal finances and are expecting a weakening in income growth.”Additional reporting by George Steer More

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