Aurelia Butler

Unlock the White House Watch newsletter for freeYour guide to what Trump’s second term means for Washington, business and the worldThe writer is chief Asia economist at Morgan StanleyBy now, it is abundantly clear that US-China trade has collapsed, as tariff rates are too prohibitive. The recognition of the extent of the disruption to bilateral trade could be an initial gateway towards starting negotiations. As talks progress, there could be room for a mutual agreement to gradually remove the tit-for-tat tariffs — the ones that were put in place by the US after China had retaliated against the imposition of reciprocal tariffs.But average weighted tariff rates will still end the year 34 percentage points higher than they were at the start of the year (which were then at an 11 per cent level imposed after the first round of trade tensions in 2018-19). Investors should accept that fixing the issues underpinning trade tensions is not going to be quick and easy, for the following reasons.First, the Trump administration has imposed tariffs because it thinks that will significantly reduce the US trade deficit and promote onshore production, especially for critical goods. But both of these issues are not likely to be resolved quickly by the imposition of tariffs or the completion of trade deals with numerous trade partners. The sizeable trade deficit reflects a deeper issue about the behaviour of US consumer spending (high) and saving (low). Increasing manufacturing capacity in the US would take time. It is not just about setting up manufacturing plants but rather building a supply chain that is US-centric. At the starting point, US participation in global manufacturing value chains is just 13 per cent, while China is more than three times higher at 41 per cent.Second, in China, there is a very clear policy preference for generating growth via investment, even more so during a downturn. Policymakers prefer to stimulate investment because they believe it creates tangible assets and boosts productivity rather than using it for consumption, which would only mean a rise in debt levels for future generations. Moreover, from a geopolitical standpoint, China aspires to be on the technological frontier and retain its cutting edge when it comes to high-end manufacturing.Against this backdrop, a sustainable turnaround in the bilateral trade balance between the US and China would require fundamental lasting changes to the growth model of these two economies — a tall order. Even if policymakers force the issue by requiring China to step up its active purchases from the US via a trade agreement, implementing it will still be fraught with challenges. The US may not have a ready sizeable supply of goods to export to China and strategic competitive considerations may yet be a hindrance. The US is unlikely to be unwilling to sell high-tech and defence equipment to China, and China will not want to rely on the US as a key supplier of food and energy, preferring to diversify its sources.Finally, from a negotiating standpoint, we believe that both the US and China will want a comprehensive deal, but given the multiple issues involved, these discussions are likely to be complex and will take time to complete.At the moment, investors appear to be taking comfort in the pause in reciprocal tariffs and the fact that trade outside of US-China is on the mend. But we are less confident about the growth outlook. Uncertainty persists and there has already been damage done to the cycle. For China, it is difficult to envisage a scenario in which tariffs return quickly to January 2025 levels. For Asia outside China, trade agreements may be reached but we are unsure if tariffs will go below 10 per cent on the signing of a deal and whether all these agreements will be accomplished before the expiry of the pause.Elevated uncertainty weighs on the business cycle and causes the corporate sector to wait and see if it relates to their investment and hiring decisions. The ensuing slowdown in capital expenditure and trade will be the dominant channel through which tariff policy exerts the biggest growth drag on Asia. We therefore expect China’s GDP year-on-year growth to slow from 5.4 per cent in the first quarter of this year to 3.7 per cent in the fourth quarter, while the rest of Asia will face downward pressures on growth to varying degrees, depending on how exposed they are to trade. The more trade-oriented economies (ie those with a high ratio of goods exports to GDP and that enjoy a stronger contribution to GDP from net exports) will face greater growth damage, just as in 2018-19 when the Chinese economy cooled significantly. We are headed towards a sharp, synchronous slowdown unless we see a quick lifting of tariff-related uncertainty. 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 Asia. In today’s newsletter:OpenAI abandons plan to convert to for-profit business Taiwan’s currency surges over trade deal fearsVatican-Beijing pact looms over papal frontrunnerOpenAI will remain under the control of the group’s non-profit arm, with the ChatGPT maker reversing course after intense criticism from Elon Musk over plans to convert into a for-profit company.What’s happening: The artificial intelligence company, which recently raised funds at a $260bn valuation, said it would convert its existing for-profit subsidiary into a public benefit corporation, lifting its current cap on returns that investors can receive, but would leave the non-profit with ultimate control. The non-profit will also receive a large stake in the public benefit company. Musk’s pressure campaign: The decision comes after a backlash to OpenAI’s proposed restructuring to a for-profit company, including a lawsuit from co-founder and tech entrepreneur Musk. The plan also faced widespread criticism from former employees and academics who study AI. OpenAI has been pursuing a simplified corporate structure in order to unlock greater investment. But critics argued that without the non-profit retaining control, it would not have an overarching responsibility to its founding mission: to ensure AI benefits humanity.Altman said yesterday that the decision to keep the non-profit in control was not motivated by outside pressure. “We’re all obsessed with our mission. You’re all obsessed with Elon.” Read more about OpenAI’s reversal.Here’s what else we’re keeping tabs on today:Economic data: Vietnam publishes April CPI inflation data, industrial output and trade balance figures. Thailand and the Philippines also report April CPI. US-Canada relations: Mark Carney will meet Donald Trump in Washington in an effort to revive a crucial trading relationship.Germany: Friedrich Merz will take office as chancellor.How should central banks navigate the new world order? Pose your questions about monetary policy to Chris Giles and other FT experts, and have them answered in a live Q&A on Wednesday.Five more top stories1. Taiwan’s currency has recorded its largest two-day jump in decades, as life insurers moved to hedge their exposed US portfolios and markets fretted that a trade deal with Trump might include the exchange rate. Taiwan’s President Lai Ching-te yesterday tried to quell speculation that the US had asked for the currency to appreciate. Here’s how the sudden currency movement could harm the island’s economy.2. Donald Trump’s threat to impose 100 per cent tariffs on films made abroad would be “devastating” for major Hollywood production hubs in countries including the UK, Canada, Australia and New Zealand, executives warned. But industry insiders also questioned how any tariff could work in practice, given films are not a physical good that passes a border when shown in US cinemas.Tariff fallout: US carmaker Ford said it expects a $1.5bn hit to this year’s operating profits because of Trump’s tariffs. Meanwhile toymaker Mattel is suspending financial guidance to investors and warning of higher prices for American consumers.US business vs tariffs: Trump’s damaging trade war sparked a lobbying campaign by the world’s most powerful business leaders. Did it work? 3. Israeli warplanes yesterday struck targets in Yemen, a day after a ballistic missile fired by Houthi rebels exploded near Israel’s main international airport. The Israel Defense Forces said the planes targeted the Hodeida port complex on the Red Sea, as well as a nearby concrete factory, which the IDF claimed were important sources of income for the Iran-backed Yemeni militant group. Here are more details.Gaza: The Israeli government has approved plans to escalate its offensive in the Palestinian enclave, including the possible full reoccupation of the territory.4. Brussels has proposed to make it easier for UK professionals to work in the EU through recognition of their qualifications. The plan, which is part of a new EU single market strategy due to be published this month, would accede to a key demand by London and help underpin a post-Brexit reset of relations between the two sides. 5. Private equity is past its peak and faces a huge challenge in selling off trillions of dollars in assets, Egyptian industrialist Nassef Sawiris has told the FT. The billionaire investor also took aim at the industry’s use of “continuation funds” to recycle capital, calling it “the biggest scam ever”.News in-depthPietro Parolin, centre, may struggle to gain the two-thirds majority of the 133 votes required to secure the papacy More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Ford said it expects a $1.5bn hit to this year’s operating profits due to Donald Trump’s tariffs, as the car industry continues to grapple with the implications of the US president’s trade policy.The Michigan carmaker, citing the uncertainty tied to the levies, on Monday also pulled the financial guidance it issued three months ago. Ford originally said it expected to earn an operating profit of between $7bn-$8.5bn for 2025.Ford said supply chain havoc from tariffs has the potential to cause industry-wide disruption in vehicle production. It also cited increased tariffs, changes in how they are implemented and the possibility other countries will retaliate as additional threats.“These are substantial industry risks, which could have significant impacts on financial results, and that make updating full-year guidance challenging right now given the potential range of outcomes,” it said.The global car industry is struggling to determine the impact of tariffs on vehicles and parts imported to the US, as for months the White House has changed policies and pushed out deadlines. Trump last week said parts imported from China would be exempted, as well as sparing carmakers from levies on steel and aluminium.Despite that reprieve, General Motors still lowered its guidance last week, citing tariffs. It said it expects adjusted operating earnings to fall between $10bn and $12.5bn, which places the midpoint of the guidance 23 per cent lower than the previous range.Ford is better positioned on tariffs than its crosstown rival as it manufactures a greater percentage of vehicles in the US, but it remains exposed. The company said it expected a hit to adjusted earnings of $1.5bn in 2025 due to the levies.Chief financial officer Sherry House said Ford had reduced the cost of tariffs during the first quarter by nearly 35 per cent through changes such as shipping vehicles and parts from Mexico to Canada on bonded trucks, which do not need to pay custom duties at the border.But Ford reported that first-quarter net income declined 64 per cent from a year ago to $471mn, while adjusted operating earnings fell to $1bn.Revenue fell 5 per cent to just under $41bn due to planned downtime at several plants worldwide, including the critical Kentucky Truck Plant that makes Ford’s Super Duty trucks.Ford shares were down 2.6 per cent in after-hours trading on Monday. More

Brussels has proposed to make it easier for UK professionals to work in the EU through recognition of their qualifications, in a move that would accede to a key demand by London and help underpin a post-Brexit reset of relations between the two sides.The European Commission will propose “legislation to establish common rules for the recognition and validation of qualifications and skills of third country nationals” next year, according to a draft document by the EU executive arm obtained by the Financial Times.The plan is contained in a new EU single market strategy due to be published this month and comes as the two sides thrash out how to improve relations ahead of a summit on May 19.British professionals have pushed since Brexit for the ability to work in the EU and UK chancellor Rachel Reeves has raised the matter in talks with her counterparts in the bloc.UK lawyers, bankers, engineers and other skilled workers will be among those hoping to benefit from the European Commission’s proposal for EU recognition of British professional qualifications. They would still need to secure visas from the EU member states they want to work in.The draft EU single market strategy document, drawn up by French internal market commissioner Stéphane Séjourné, could change before publication — and any legislation requires the approval of a weighted majority of the bloc’s member states and the European parliament.  Reeves has identified dismantling trade barriers thrown up after the UK left the EU in 2020 as a key priority to boost Britain’s sluggish economic growth.Reeves said last month the UK’s trading relationship with Europe was “arguably even more important” than that with the US. “It is so important that we rebuild those trading relationships with our nearest neighbours in Europe, and we’re going to do that in a way that is good for British jobs and British consumers,” she said.Sir Keir Starmer’s government is currently in talks with Donald Trump’s administration about a UK-US trade deal that could minimise American tariffs on British exports.At the UK-EU summit in London later this month, Starmer is expected to sign a defence and security pact with the bloc’s leaders, and the two sides are also due to adopt a declaration on shared values and foreign policy goals. The UK and the EU are also set to approve accelerated talks to improve the economic relationship.This could lead to a veterinary deal — another key demand by Starmer’s government — that would reduce EU checks on British agricultural products exported to the bloc, such as beef and cheese.Maroš Šefčovič, the EU trade commissioner responsible for UK relations, said on Monday “further work” was needed to secure a veterinary agreement. The EU wants to tie the length of such a deal to how long the UK agrees to preserve the bloc’s access to British fishing waters, which would otherwise end in June next year. And it is keen on a pact to allow EU nationals aged under 30 to live and work in the UK for up to three years, and vice versa. But London is wary of adding more immigrants to the UK’s official figures, even temporarily.The Commission said it did not comment on “leaked documents”. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Mattel, the toymaker behind Barbie dolls and Uno card games, is suspending financial guidance to investors and warning of higher prices for American consumers as it confronts costs from US President Donald Trump’s tariffs.California-based Mattel on Monday said that the “volatile macroeconomic environment and evolving US tariff situation” had made it difficult to predict consumer spending and sales up to and including the crucial holiday season this year, prompting the pause in guidance. The $42bn US toy market has been caught in the middle of Trump’s trade war with China, whose exports to the country are subject to 145 per cent tariffs. Last week the president appeared to dismiss concerns over the potential impacts, saying that “maybe the children will have two dolls instead of 30 dolls . . . and maybe the two dolls will cost a couple of bucks more than they would normally”.Mattel said it was quickening efforts to diversify production away from China, make changes to its product sourcing and mix, and will look at raising prices for US customers.“We are accelerating plans to reduce China-sourced product in the US as part of our response to tariffs,” Ynon Kreiz, chief executive, said in an interview. “Pricing, in the actions that we’re taking, is the third in priority.” Kreiz declined to address Trump’s “two dolls” comments, which have sparked controversy.“We all know the importance of quality product and trusted brands in the industry and the importance of toys and play in children’s lives and children’s development,” Kreiz said. “So we are very committed to the uninterrupted supply of quality products at a wide range of affordable price points to children and families worldwide.”China accounts for 80 per cent of toys sold in the US, according to the Toy Association, a trade group. The 145 per cent tariff has led to anxiety and warnings of empty shelves from some manufacturers. Hasbro, the maker of Play-Doh modelling clay and Monopoly boardgames, has disclosed tariffs could raise costs by as much as $300mn this year, or about a fifth of its annual cost of goods.“Ultimately, tariffs translate into higher consumer prices, potential job losses as we adjust to absorb increased costs and reduced profits for our shareholders,” Chris Cocks, Hasbro’s chief executive, told analysts last month.Mattel has said that less than 40 per cent of its production was in China. Kreiz said Mattel would have one factory left there by the end of the year, down from four several years ago, and that he expected to strengthen the company’s competitive position as it manages around the tariffs.Mattel’s earlier guidance for 2 to 3 per cent net sales growth this year had taken into account Trump’s tariffs on Mexico, Canada and China announced in February, but not new tariffs imposed in April, which include the higher duties on China. Mattel said the tariffs had no effect on its performance in the first quarter. Net revenue defied Wall Street expectations for a decline by rising 2 per cent to $827mn.The company reported a net loss of $40mn, $2mn more than expectations and wider than the $28mn loss a year before, due to rising selling and administrative expenses. Mattel commonly reports a loss in the seasonally weak first quarter, but it has been profitable on an annual basis. More

Donald Trump’s threat to impose 100 per cent tariffs on films made abroad would be “devastating” for major Hollywood production hubs in countries including the UK, Canada, Australia and New Zealand, executives warned.The US film industry and cinema chains would also be hit hard, with studios likely to have to swallow much higher costs, and consumers could face higher ticket prices, executives and analysts said. Trump, the American president, said on Sunday night that he wanted to introduce a “100% tariff” on any movies coming into the US because “the Movie Industry in America is DYING a very fast death”, while other countries were using “incentives to draw our filmmakers and studios away”. Shares in Netflix fell 2 per cent on Monday, reflecting fears of higher costs, even though media executives questioned how the tariffs would work in practice.Claire Enders, a London-based media analyst, described the potential tariffs impact as “beyond devastating” for key production hubs, including the UK. “These are key services for the UK,” Enders said. “We have been making movies in tandem with the US for 100 years.”Enders added that this was one of the first times that Trump had targeted services through his tariff plans, which would raise fresh worries for services-led economies such as the UK. Matthew Deaner, chief executive of Screen Producers Australia (SPA), said tariffs would “send shockwaves” through the film industry worldwide.But executives also questioned how any tariff could work in practice, given films are often now distributed globally on streaming platforms and are not a physical good that passes a border when shown in US cinemas.“In what sense can you put a tariff on a Netflix show made in the UK and distributed worldwide over the internet?” said Peter Bazalgette, former chair of British broadcaster ITV and an adviser on the creative industries to the UK government.Actor Robert Downey Jr at the 2024 Comic-Con International in San Diego, California. The US state has its own financial offers to lure filmmakers 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 newslettersRecently I’ve begun to think perhaps I’m too much of a gloom and doomer about the US economy and its place in the world. I was struck recently by a couple of pieces, one by Joel Kotkin on UnHerd, arguing that we shouldn’t conflate American government with American people, or America, the place. The former may be wildly dysfunctional now, but it hasn’t stopped the dynamism of US businesses, entrepreneurial zeal in America (still much higher than in Europe), or the fact that the checks and balances of the US system (which are admittedly being tested right now) remain the best alternative to Chinese authoritarianism.I would agree with this (unless Europe gets its act together, launches eurobonds, and really integrates and becomes a political entity capable of anchoring the global economy and defending liberal democracy). I was struck at an investor conference I attended last week at how, despite the political turmoil in the US, American business is just getting on with things: reassessing risk, rejiggering supply chains, and realising that Donald Trump is temporary (barring a true constitututional crisis in which he refuses to leave after his second term). Of course, there were huge worries about tariff uncertainties and the rule of law and the general economic and political uncertainty created by the US president. But there was also the can-do attitude that has always made the US the most dynamic country in the world, a place where you can still strive, fail, fall, dust yourself off, get up and try again tomorrow with the belief that things will get better. The conference I attended was in Florida by the way, and people didn’t seem nearly as pessimistic there as they are in New York. I am planning to devote more time this summer to getting out and talking to Main Street businesses and real people in red state America about how they see the current moment.I was also struck by Andy Haldane’s piece in the FT last week entitled “The rise of the panicans”, which posits that we’ve all become too hysterically negative about the state of the world, and the US in particular. Haldane, who I would put right up there as one of the smartest economists in the world, rightly points out that many of us in the media and in financial circles have become “24/7 catastrophisers”. It’s a point that came home to me this past Friday, with the new US employment numbers coming in much stronger than expected. Now, we know jobs are a backward-looking indicator. And we also know that the real effects of tariffs, including inflation and supply shortages, won’t really hit for a few weeks (the last pre-tariff ships are sailing into port right now). Finally, China is looking more open to trade talks, which buoyed markets late last week.I’m lucky to have my colleague Ed Luce back in the seat as my respondent today (don’t get too excited, this is a one-off!). So, Ed, my question to you is this: do you think predictions of a dismal summer in which inflation spikes and the economy falls into recession may turn out to be flat-out wrong? I know you, like me, have been down on Trump for a long time, but are we giving him too little credit here? Could we see him pull a positive rabbit out of the hat over the next few months? Or is this entire column just a desperate effort on my part to say something contrarian?Recommended readingDespite my questions above, it’s worth reading Andrew Marantz’ piece in The New Yorker about whether the US is slipping towards autocracy. Marantz interviews people in Hungary and elsewhere who are closer to the question and compares their responses to what’s happening in America.Also on the cautionary side of things, our colleague Gillian Tett explores the coming corporate liquidity crunch. Caveat: it really does depend on how tariffs play out.If you are in Washington next week, make sure to go to the FTWeekend Festival! I’ll be there (along with Ed and many others), talking about trade, the rise of the Catholic right, where Democrats go from here, and much else. In preparation, check out our insider tips for what to do and where to go in the Beltway.In the meantime, I’m looking forward to the Metropolitan Museum’s new fashion exhibition on the history of the Black male dandy. See the FT’s review of it, here.Edward Luce respondsRana, I don’t remotely think it’s a desperate effort at contrarianism on your part. I also admired Andy Haldane’s characteristically thoughtful piece. What I drew from it was the positive role of panicked markets and indeed gloom-filled commentators in persuading Trump to pause his declaration of economic war on the world. In that sense, panicans are playing a constructive role. As Haldane put it: “The irresistible force of self-importance helped cause the US tariff spike, but the immovable object of self-preservation will be its undoing.” Clearly the markets are betting that Trump’s climbdown is real and will endure.I’m a lot more sceptical than market sentiment. My problem is not necessarily with the theory of rebalancing but with the person in charge of it. Put simply, Trump is a chaos agent. He believes that lightning strikes and unpredictability increases his negotiating leverage. That core part of Trump’s psychology is never likely to change. Which means that even if market optimism proves correct, and he retreats with a bunch of face-saving kabuki trade “deals”, nobody will trust him to stick to them. In the short term America’s trading partners will throw Trump a couple of symbolic bones — an LNG purchase deal here, restored orders for Boeing there, and lots of improbable US investment numbers from Japan and the Gulf. But in the medium term they will look for other deals and other markets.I have no idea whether the US will have a dire summer because that involves peering into Trump’s mind. But recession can easily be avoided if he climbs down.Your feedbackWe’d love to hear from you. You can email the team on [email protected], contact Ed on [email protected] and Rana on [email protected], and follow them on X at @RanaForoohar and @EdwardGLuce. 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

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