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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The writer is chief executive of the CBI, the employers’ organisationAs the spectre of protectionism casts its shadow over the world economy, now is a moment to leave old arguments behind. Instead, we should take action. Leaders are currently preparing for the EU-UK summit next week. Markus Beyrer, director-general at BusinessEurope, and I, bolstered by the strength of the 25mn businesses we speak for across Europe, call on them to choose prosperity over politics. This is the first time that the CBI, the UK’s leading business voice, and BusinessEurope, representing over 40 European federations (of which we are one), have come together to publicly outline the business priorities for a refreshed EU-UK strategic partnership. In a formal letter to UK Prime Minister Sir Keir Starmer and president of the European Commission Ursula von der Leyen, we have set out the concrete steps needed to improve this crucial relationship.With war on our doorstep in Europe, co-ordinated and collaborative action on defence and industrial capabilities is a priority. However, uniting against common threats cannot be the ceiling of our ambition; renewing the UK-EU economic relationship must not be left to “any other business” on the agenda.Business has no desire to rehash the Brexit referendum, nor trample on the red lines negotiators have already outlined. Both sides bring baggage to the table. But we can’t afford the legacy of the past decade to determine the future of the next — this summit must deliver critical progress.The EU and the UK share the North Sea and have aligned their net zero ambitions. Energy co-operation between them could deliver both energy security and a resilient, low carbon economy. The EU-UK Trade and Cooperation Agreement committed to “giving serious consideration to linking respective carbon pricing systems”. But progress has been glacially slow. With both our emissions trading schemes phasing out free allowances, this is the moment to link them, to create a deeper, more liquid and effective market. A mutual exemption to our respective carbon border adjustment mechanisms would prevent new trade barriers hindering electricity imports and stalling joint grid projects in the North Sea. Neither the UK’s clean power target nor the EU’s vital electrification needs can be met without this.Mobility has become an overly politicised issue and risks trapping us in stagnation. But people travelling across borders is very different to permanent migration if they are doing so to deliver services, which represent 48 per cent of our total bilateral trade. Everyone wants our powerhouse services sector to thrive and grow. That’s not cakeism, it’s pragmatism. Both sides need to focus on making this happen, whether by enhancing short-term business travel or through mutual recognition of professional qualifications.The UK leaving the EU’s regulatory and customs regimes has left companies on both sides of the Channel with their own Brexit red tape to deal with. For those hit with the resulting higher costs, failing to make progress now would be a lost opportunity to create an environment where businesses thrive.  Reducing those costs doesn’t require re-entering the customs union. A sanitary and phytosanitary and a veterinary agreement would support agricultural and food products moving with less friction across borders but without compromising high standards of food safety and animal health. Such an agreement would also ease the flow of trade between mainland Britain and Northern Ireland. Recognising each others’ testing and certification would also reduce barriers to trade in goods. The EU already has such agreements with the US, Canada, and several other countries, so why not the UK?None of this would infringe on political red lines in London or Brussels. This is pragmatism to unlock prosperity — the sort of leadership and vision that businesses on both sides of the Channel want to see from the summit next week.   More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Walmart has warned Americans will pay higher prices because of Donald Trump’s trade war, despite this week’s deal between the US and China to slash punitive tariffs.The world’s biggest retailer is particularly exposed to the president’s sweeping global trade levies. A third of the goods it sells in the US come from other countries, with China one of its largest sources of imports. Washington and Beijing agreed this week to a cut in tariffs for 90 days, reducing US levies on Chinese imports to about 40 per cent, from as high as 145 per cent. Doug McMillon, Walmart’s chief executive, said the reprieve was not big enough to avert price rises for its hundreds of millions of customers. “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,” he said. “The higher tariffs will result in higher prices.” Walmart sells about a quarter of US groceries, and has long served as a benchmark for the lowest overall prices in the industry. McMillon was among the retail bosses to argue against tariffs at the White House last month, warning Trump of higher prices and empty store shelves. Trump pulled back from the trade war under pressure from business leaders and a market rout. He paused sweeping levies on dozens of trading partners in April after a week, and has promised a rush of new trade deals. The deal with China, which followed an agreement with the UK last week, marked Trump’s most significant climbdown. But McMillon said the retreat would not be enough to protect US consumers from price increases, threatening the economy and a resurgence of inflation. Walmart would try to keep a lid on food prices after years of grocery inflation, McMillon said. But he said there were new tariff pressures for products it needs to import, such as bananas from Costa Rica and coffee from Colombia. The warning from McMillon on Thursday came as Walmart reported a 4.5 per cent annual increase in comparable sales at its namesake US business in the three months to the end of April, surpassing the 3.7 per cent rise forecast by Wall Street analysts, according to Visible Alpha. The retailer maintained its financial guidance for the full year, which includes a projection of 3 to 4 per cent growth in net sales. However, it withheld guidance on profits in the second quarter, citing the uncertain trade picture. Shares fell less than 1 per cent. John David Rainey, chief financial officer, said it was difficult to predict how consumers would react to the tariffs, and what level of price rises would start to reduce demand. The heavy tariffs on China were already raising prices for products including electronic and toys, McMillon said. The Walmart boss said cost pressure began in April, and increased in May. He said price increases for goods other than groceries were likely to continue all year. Walmart will try to shift the sourcing of manufactured goods away from tariff-hit locations and change some product components, such as using fibreglass instead of aluminium, a metal subject to US duties. Mexico, Canada, Vietnam and India are major sources of Walmart’s imports, alongside China. Walmart is the first big-box retailer to report earnings since Trump’s April tariff announcements. Target and Home Depot will follow next week. Amazon this month warned tariffs and trade policies posed risks to earnings, but the company did not report any slackening of demand or any significant rise in average selling prices on its platform. Walmart reported that its ecommerce business — which includes sales from its own inventory and from third-party merchants using its platform — grew 22 per cent year on year and was profitable in both the US and globally for the first time. Trade war jitters prompted shoppers to speed up purchases of some items in an attempt to beat the tariffs, potentially distorting the picture of consumer demand. Walmart reported quarterly revenue of $165.6bn, up 2.5 per cent year on year and slightly below forecasts of $166bn, according to Visible Alpha. Net income fell 12.6 per cent to $4.6bn, marginally more than the consensus. More

Unlock the White House Watch newsletter for freeYour guide to what Trump’s second term means for Washington, business and the worldTo prosper, businesses need to take calculated risks. Relocations, hiring decisions and product launches are based, in part, on boardrooms making calls on how economic trends will play out. Yet, in Donald Trump’s America, it is difficult to have any conviction on where the economy will be next month, let alone next year. References to “uncertainty” and “tariffs” have dominated US companies’ earnings calls this season. Executives cannot commit to decisions when the range of outcomes stemming from the US president’s global trade war remains so vast. Numerous businesses including Ford, American Airlines and Mattel have even decided to curb guidance on their sales and profits.In the three months since Trump’s second-term inauguration, indices of US economic policy uncertainty — based on references in media articles — have shot up well beyond highs set during even the Covid-19 pandemic. The president embraces unpredictability. Last month, Treasury secretary Scott Bessent said that Trump created “strategic uncertainty” to gain leverage in trade negotiations. Stoking frenzied anticipation, more broadly, helps him garner attention. In the past, these tactics may have helped the real estate developer turned media personality to steamroller through deals or boost ratings. But when managing the world’s largest economy, they are deeply damaging.Trump’s open-ended approach to tariff negotiations, in particular, has sapped American businesses. Year-ahead investment expectations have plunged. Import duties on countries and sectors that could fluctuate by tens of percentage points, in the space of a month or so, make it impossible for executives with global supply chains to plan ahead. Duties are essential components in calculating profit margins and are among the most complex elements of compliance for international organisations.Trade agreements have a proven record of raising cross-border commerce and investment. But that is because they usually provide long-term confidence in stable and transparent trading terms. Trump is operating on months-long deadlines. Even if the president strikes further deals on his “reciprocal” tariffs, following recent settlements with the UK and China, faith that those duty rates will endure will be low. Trump is, after all, the self-anointed “tariff man”.As long as that uncertainty lingers, the president’s ambition to impel foreign manufacturers, with the threat of duties, to invest in America will not be fully realised. The volatility will also stymie US companies. Producers with domestic supply chains tend to welcome Trump’s tariffs, as they help to block cheap imported competition. But these organisations cannot make decisions to expand either unless they know where trade policy — and hence their competitors — will end up. Indeed, as the FT reported, this week’s ceasefire in the US-China trade war is already driving early Christmas stockpiling as US retailers try to beat the potential expiry of the truce.If businesses cannot plan, investors cannot accurately price equities or corporate bonds either. Policymakers are also perplexed. The US Federal Reserve’s April Beige Book mentioned the word “uncertainty” 80 times — more than during the Covid pandemic. In turn, financial stability risks from market volatility and mis-steps in monetary policy remain elevated.The most rational response for organisations is to “wait and see”. The largest companies and those with the president’s ear may still thrive. But for most, trying to operate in real time, by updating decisions and exposures with each social media post, and every twist and turn in trade policy, is a fool’s game. Only when policy stability returns can the American economy bounce back to its dynamic best. More

Unlock the White House Watch newsletter for freeYour guide to what Trump’s second term means for Washington, business and the worldDonald Trump’s trade war risks sparking capital flight from the US as the president’s unpredictable tariff policies cause “enormous” damage, hedge fund Elliott Management has warned. The activist firm, founded and co-led by Republican megadonor Paul Singer, said in a letter to investors seen by the Financial Times that the Trump administration’s economic programme could tarnish the appeal of the dollar and of doing business in the US. That would risk “capital flight” and a “significant” fall in value of the currency and US assets, Elliott said in a section of the late April letter titled “Bonfire of the American era?”Elliott declined to comment.The warning comes after Trump’s tariff blitz triggered weeks of turmoil in financial markets, and marks the latest criticism of the White House from the $73bn-in-assets hedge fund, which earlier this year said the president’s embrace of cryptocurrencies was fuelling a speculative mania.The tariffs contemplated by the administration were “likely more stringent than the ones that exacerbated the Great Depression in the 1930s”, Elliott wrote in the letter, which was sent to investors after Trump announced a 90-day pause to his sweeping “reciprocal” tariffs on US trading partners last month, but before this week’s US-China trade deal fuelled a further recovery in markets.“Such tariffs will generate a lengthy, complicated process of negotiation, retaliation and uncertainty for businesses around the globe” that could cause “enormous” damage, the firm added. Singer has been a major donor to Republicans in recent years, donating $56mn to the party’s candidates in the last election cycle, according to website OpenSecrets. A small group of top Wall Street figures have spoken out against Trump’s economic policies. Citadel founder Ken Griffin, another major Republican donor, said last year that the president’s tariff plans would put the US “on a slippery slope to crony capitalism”. Bill Ackman, a supporter of Trump in the 2024 presidential campaign, has described the tariffs as “a major policy error”, while billionaire investor Stanley Druckenmiller has said he does not support tariffs exceeding 10 per cent.Elliott also said in the letter that the sell-off that followed Trump’s “liberation day” tariff announcements caused “capital destruction on a large scale”. The S&P 500 index was down by as much as 15 per cent in 2025 in early April, but has since recovered all of those losses as trade tensions receded. Nevertheless, Elliott said the episode highlighted the “brittleness” of a “massively overvalued stock market”.The hedge fund was up about 2.5 per cent in the first quarter of the year, according to figures in the letter. The turmoil sparked by tariffs was likely to create greater opportunities for activist investing, as market stress “exposes weakness at companies in need of course correction”, the firm added. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Europe needs less regulation and a better industrial strategy to sustain car manufacturing in the face of the “very clear direction” set by Donald Trump’s administration and growing Chinese competition, the chiefs of Stellantis and Renault have warned.“Europe needs to decide what it wants to do in terms of its industrial policy,” Stellantis chair John Elkann told the FT’s Future of the Car summit on Thursday. “Does it want to be a [bloc] that builds cars or [one that] buys cars? That’s a decision that the political forces need to make.”In a joint interview with Renault chief executive Luca de Meo, Elkann added that the Trump administration had been more effective in setting out a policy to boost car manufacturing despite the chaotic implementation of his tariffs. “President Trump is very clear in what he wants to achieve for the car industry,” said Elkann. “The intentions are clear, but more importantly, the actions are being put in place that are going to make that possible.”De Meo said the car industry faced more than 100 regulations in the EU from now to 2030, raising the costs to meet them and making it harder to build small cars profitably. “We need to talk strategy rather than regulation,” he said. “We need to be able to cope with the new competition that is coming, not only from China but in general.”The comments come as Stellantis and other global carmakers have rushed to respond to Trump’s evolving tariff policy and disruptions to supply chains. Meanwhile, European companies face sluggish vehicle demand at home and the influx of more affordable Chinese vehicles into the continent. Shares in Stellantis, which is particularly exposed to potential new trade barriers between the US and Canada and Mexico have dropped 24 per cent this year on the back of tariff threats. But Elkann stressed that the objective of Trump’s policy to increase manufacturing in the US had been consistent.Europe aims to phase out new sales of combustion engines by 2035. But it has recently offered carmakers relief from stricter emissions targets due to come into force at the end of 2025.However, Elkann and De Meo called for a more supportive policy environment, especially for small cars. The pair have said that current legislation is focused on larger vehicles and adds requirements that make building smaller cars less profitable.Saying that the bloc should lower the legislative burden on companies and have a greater impact analysis of policies to phase out combustion engines, De Meo added: “We want packages of regulation so that they don’t come every three months because it’s keeping everybody busy.”Elkann added: “If we have less regulations, we can make sure that we build cars that are less expensive and so they’ll be more affordable.” More

Unlock the White House Watch newsletter for freeYour guide to what Trump’s second term means for Washington, business and the worldDonald Trump has hit out at Apple’s plans to produce more iPhones in India as a way of avoiding US tariffs on Chinese-made goods, as he continues to push the tech group to manufacture its best-selling device in America. Speaking in Qatar on the latest leg of his Middle East tour, the US president said he had “a little problem with Tim Cook yesterday” after the Apple chief executive confirmed last week that Indian factories would supply the “majority” of iPhones sold in the US in the coming months. The Financial Times previously reported that Apple planned to source from India all of the more than 60mn iPhones sold annually in the US by the end of next year. Trump criticised that idea on Thursday, saying he told Cook: “We are treating you really good, we put up with all the plants you built in China for years. We are not interested in you building in India.”He claimed that Apple would be “upping their production in the United States” following the conversation. Apple did not immediately respond to a request for comment. Trump’s comments are the latest sign of a cooling in the president’s relationship with Apple, one of America’s most valuable companies. Speaking at an event in Riyadh this week after announcing a multibillion-dollar deal to sell hundreds of thousands of Nvidia processors to a new Saudi artificial intelligence project, Trump lavished praise on the chipmaker’s chief Jensen Huang from the stage, saying: “Tim Cook isn’t here but you are.”Apple in February pledged to spend $500bn in the US during Trump’s four years in office, including producing chips and servers for AI. But the company faces huge challenges in replicating its vast Chinese supply chain and production facilities in the US, which rely on a skilled high-tech manufacturing workforce that is now overwhelmingly concentrated in Asia. Analysts estimate it would cost tens of billions of dollars and take years for Apple to increase iPhone manufacturing in the US, where it at present makes only a very limited number of products. US commerce secretary Howard Lutnick said last month that Cook had told him the US would need “robotic arms” to replicate the “scale and precision” of iPhone manufacturing in China. “He’s going to build it here,” Lutnick told CNBC. “And Americans are going to be the technicians who drive those factories. They’re not going to be the ones screwing it in.” Lutnick added that his previous comments that an “army of millions and millions of human beings screwing in little screws to make iPhones — that kind of thing is going to come to America” had been taken out of context. “Americans are going to work in factories just like this on great, high-paying jobs,” he added. For Narendra Modi’s government, the shift by some Apple suppliers into India is the highest-profile success of a drive to boost local manufacturing and attract companies seeking to diversify away from China. Mobile phones are now one of India’s top exports, with the country selling more than $7bn worth of them to the US in the 2024-25 financial year, up from $4.7bn the previous year. The majority of these were iPhones, which Apple’s suppliers Foxconn and Tata Electronics make at plants in southern India’s Tamil Nadu and Karnataka states. Modi and Trump are ideologically aligned and personally friendly, but India’s high tariffs are a point of friction and Washington has threatened to hit it with a 26 per cent tariff. India and the US — its biggest trading partner — are negotiating a bilateral trade agreement, the first tranche of which they say they will be agreed by autumn.“India’s one of the highest-tariff nations in the world, it’s very hard to sell into India,” Trump also said in Qatar on Thursday. “They’ve offered us a deal where basically they’re willing to literally charge us no tariff . . . they’re the highest and now they’re saying no tariff.” More

This article is an on-site version of Free Lunch newsletter. Premium subscribers can sign up here to get the newsletter delivered every Thursday and Sunday. Standard subscribers can upgrade to Premium here, or explore all FT newslettersI have had two takes on US President Donald Trump’s trade war in the past month. First, I pointed out that too many people accept the dubious claim that reducing the trade deficit will boost manufacturing, and explained why we should be sceptical. Second, I wrote about how a tax on imports hurts exports just as much (maybe more, as suggested by some modelling of Trump’s tariffs), so we shouldn’t expect it to reduce the trade deficit. I hope you will indulge me for a third go. Lost in all the commentary are the strong reasons why the US should actually want to maintain its trade deficit and why everyone else might treat it with benign neglect. So this week, Free Lunch rectifies that omission. Share your reactions at [email protected] is taken as axiomatic, way beyond Trumpian circles, that global financial “imbalances” are a bad thing. (Why the scare quotes? I don’t like the word “imbalance” because it seems to presuppose unsustainability: something out of balance can’t remain in that position for long. I prefer “asymmetries” as a more neutrally descriptive term.)But external surpluses and deficits reflect domestic saving and investment decisions. Economies that save more than they invest run external net surpluses (those extra goods they export over those they import pay for building up claims on capital abroad). Those that invest more than they save run external net deficits (those extra goods they import over those they export makes it possible to invest without cutting consumption as much, while building up liabilities to where the extra goods come from). This is the modern view of international economics: external “imbalances” are a function of macroeconomics, not of trade. Seen in a different light, net trade patterns are caused by financial flows and not the other way round. That’s another reason why, as I wrote last week, we shouldn’t expect trade policy to have much effect on net deficits or surplus. (Trade policy can and does affect gross bilateral trade flows, of course, as well as changing how trade affects specific sectors such as semiconductors.)Our default judgment about how appropriate those savings and investment decisions are should, I think, be neutral or positive. Countries make different decisions (through individual market action and public policy) about whether to be net savers or net borrowers. If a global financial and trade market makes all those desires compatible, that, in principle, gets every country what it wants, subject to making it compatible with what others want. The burden of proof is surely on those who want to criticise those domestic decisions.There are some obvious arguments that I’ll mention to put aside. One is that a government may make what we think of as bad choices. So a relatively poor country such as China could let its citizens consume more without investing less. Or it may not reflect our political or democratic sensibilities. So US elites did not for a long time have the interests of declining manufacturing areas at heart. These are valid critiques — of politically constrained domestic decisions. They are not valid critiques of the global financial and trading system.Such a critique would have to claim that there is something inherent to the system that makes it too difficult for a country to make the best choices for it. In the short run, there is a sensible Keynesian version of such an argument: a country that cuts domestic demand and hence imports, or acts to strongly expand exports and generate demand from other countries’ consumers, can cause slowdowns, recessions or unemployment in other countries which may not have the fiscal or other means to counteract it. Hence the label “beggar-thy-neighbour” policy. But to repeat: this can only be a short-term phenomenon. It is not an argument against long-term structural asymmetries, those that persist through the business cycle, including in times of full employment.And yet, there is a highly popular belief that China and other structural surplus economies force the US to run a structural deficit. When you pause to think about it, this is an odd view. Beijing’s policies no doubt aim to shape China’s net surplus. But why think of this as forcing Americans to do anything, rather than offering them a cheaper-than-otherwise opportunity to consume and invest more, if they want to? If Americans wanted to balance their external account, they could do so in many ways; most easily through a revenue-neutral tax reform that would provide an incentive to domestic business investment and reduce consumption. The fact that they choose not to do so suggests that they rather like the benefits that come with a structural trade deficit. And they are right, as we should be tempted to agree when we look at what those benefits are.An external deficit means you can invest more than you save; ie you don’t have to cut consumption as much. For the US, this “more” amounts to about $1tn a year of foreign-funded US investment, or just over 3 per cent of GDP. For comparison, total business investment is close to 14 per cent. As the chart below shows, EU businesses invest a solid 1 per cent of GDP less — and the bloc has a structural net surplus. What is more, 1 per cent of GDP is also how much more US businesses spend on research and development compared with their EU peers. And total US R&D spending has grown from about 2.8 per cent of GDP a decade ago to 3.6 per cent today, just while the external deficit expanded too. It is hard to avoid the conclusion that the US’s structural net inflow of capital is precisely what affords America its current innovative edge. For example, it allows the US to burn enormous amounts of cash to build data centres to train the large language models that have hit the world like a Sputnik flyover — without reducing consumption to fund those capital expenditures. Those amounts are set to exceed $300bn just this year. So that’s about a third of the current account deficit right there. For another example — this one to do with the semiconductor and green industry incentives of Bidenomics — construction spending on manufacturing facilities tripled (in nominal terms) to $240bn during the period of a widening trade deficit. Again, foreigners funded several hundred billion in hopefully productivity-enhancing investments, so that Americans did not need to sacrifice current consumption for future return.The point is that these — and many more investments — are things America is delighted to have. But without the external deficit, it would only be able to have them if it curtailed consumption. That is not an attractive alternative, judging from the recent slump in Trump’s popularity.What about the rest of the world? By running surpluses with the US, they are building up claims on the US economy. But more importantly, they are letting American businesses take the risk on the big investments that are not, as a result, being made in surplus economies. Whether that’s smart depends on your view of the risk. Massive capital spending to train LLMs will bring fortunes if the spenders can reap the return — but if they are just providing the early investments that everyone else can then just cheaply replicate, such as China’s DeepSeek, they will simply have subsidised the rest of the world. Something similar can be said for pharmaceutical research.So whether the rest of the world should be happy about the US sucking in investment funding depends on their assessment of the risks — but this is no systemic critique of “imbalances”, and there is a strong case for being grateful to America. Meanwhile, there are fewer ambiguities about how the deficit benefits the US. It’s like Trump’s old fever dream of building a big, beautiful wall and forcing Mexico to pay for it, except much more valuable and it’s Europe and China lending the money without having to be asked.Other readablesRecommended newsletters for youChris Giles on Central Banks — Your essential guide to money, interest rates, inflation and what central banks are thinking. Sign up hereIndia Business Briefing — The Indian professional’s must-read on business and policy in the world’s fastest-growing large economy. Sign up here More