Aurelia Butler

This article is an on-site version of our Swamp Notes newsletter. Sign up here to get the newsletter sent straight to your inbox every Monday and FridayTwo years ago, the US and EU agreed to lift Trump era tariffs on steel and aluminium, and US president Joe Biden and European Commission president Ursula von der Leyen promised to work on a longer term agreement about how trade of these strategically important goods should work.The deadline for that agreement was set for the end of this month. But last week, when von der Leyen met with Biden in Washington to discuss details, the deal deadline was pushed to the end of the year. How the steel and aluminium agreement evolves will be a strong indicator of future US-EU relations and the shape of a new global trade system. So, how to read the tea leaves around this delay, and what it might portend?For starters, the war in the Middle East has thrown a spanner into the timing of any major new deals in Washington. Everyone is distracted by whether this war will escalate, and what the ramifications will be for the world. (Bridgewater’s Ray Dalio is predicting a 50 per cent chance of a hot global conflict given we now have two major regional conflicts happening simultaneously).But beyond that, there is a major issue to be overcome in any new US-EU deal around steel and other high carbon intensity products: Europe’s carbon border adjustment mechanism, or CBAM. This is a very complicated, very data intensive method for calculating the carbon load of products produced outside the EU, and then subjecting those that don’t meet domestic standards to a tariff that takes into account the extra carbon load. In theory, I’m for a price on carbon — indeed we need to have one if we are going to fight low labour and environmental standards, and the mercantilism that tends to fuel them. But the more that I learn about CBAM, the less confident I am that it will actually provide a workable solution. For starters, the very complexity of the system opens it up to gaming by all sorts of corporate and state interests. Secondly, the fact that the EU has taken great pains to twist CBAM into something that meets the World Trade Organization’s technocratic and (I think) impractical rules, gives it institutional sheen without actually making it enforceable or palatable to many other nations.The White House, has, of course, taken a fundamentally different approach to the energy transition. Pretty early in the Biden campaign, it was decided that market mechanisms like carbon pricing actually wouldn’t get the country or the world to where it needed to be on climate. The neoliberal attempts to use such pricing mechanisms had failed for 40 years. As an alternative, the Biden campaign decided to think about global warming like war — a national emergency that called not for a market knows best approach, but blunt industrial strategy in the form of subsidies and fiscal stimulus for the clean transition.Looking at the past two years, I’d say that the US has done better on climate than Europe. The Inflation Reduction Act has created a manufacturing boom and sped up investment into climate change technology like EVs. It has also forced similar subsidies in Europe, which are much needed, given that we are still several trillion dollars short of the investments needed to meet the world’s climate goals. Indeed, a Rhodium study from July found that “for every ton of CO₂ reduced within the US, an additional 2.4-2.9 tons of CO₂ emissions reductions are achieved outside the US, thanks to IRA-driven cost reductions”.My hope is that the delay in finalising the US-EU agreement will leave time for von der Leyen (who leans towards the White House’s view of the situation) to pull more of the technocrats in Brussels along with her (it’s always 1995 — ie the era of peak neoliberalism — at DG Trade it seems). I’m hearing that most national governments, even the German government (though of course not their auto industry), increasingly want to move towards a shared steel agreement, as well as a mutual path forward on how to deal with Chinese dumping, as a starting point for a broader decarbonisation plan across all supply chains. I’m actually hopeful that this will happen, despite the buck passing right now. I think if Biden and von der Leyen are together on this, the rest will follow, however haltingly. Ed, how would you read the tea leaves here?PS In our Trade Secrets newsletter, Alan Beattie has more on how the US crusade for a steel and aluminium deal is faltering.Recommended readingThe weight loss drug Ozempic has become a phenomenon in the US, transforming waistlines, but also business models. Exercise companies and diet firms are worried about falling profits as more and more people — some who need it and many who don’t — go on the drug. While I’m for Ozempic for those whose health is at risk because of obesity, I thought this NYT op-ed had a thoughtful take on the wishful thinking behind such miracle drugs. They may help us shed pounds, but they won’t address the root problems that contribute to America’s fat problem — like car culture, suburban sprawl, food deserts and poor public healthcare.I was on a long flight to Asia this past week and took the opportunity to read Paolo Bacigalupi’s wonderful dystopian sci-fi novel The Windup Girl. It’s dark, brilliant and very much of our moment, with takes on artificial intelligence and its ability to both mimic humanity and dehumanise us, climate change and what it will do to our world, and the problems of corporate concentration, the global trading system, and the financialisation of food (see my column today, which touches on both those topics, here). I hope he writes a sequel, or that someone makes a movie of this one.And in the FT, I was fascinated by my colleague Peggy Hollinger’s Big Read on the race to tap solar power from space to fight climate change. Also, you have to love any feature Josh Chaffin writes, especially when it’s on New York City real estate. Edward Luce responds Rana, any EU-US trade talks nowadays are destined to fall victim to a dialogue of the deaf. They have very different approaches. The Biden administration wants to set up a western steel club that punishes China and does not particularly care what criteria it uses. The initial tariffs imposed by Donald Trump were based on national security (and remarkably included Canada and the EU). The Biden administration then fell back on environmental criteria. But the way it framed the new proposals broke World Trade Organization rules, which was met with EU objections. So now they are trying to shape another rule that would punish excess capacity countries (China) that dump steel on the global market. Whatever the ostensible ever-shifting principle, the goal is to target China. As our colleague Alan Beattie rightly points out “this is a show trial where the verdict and sentence are decreed in advance”. Unfortunately, the EU does not work this way. It still aims to stick to WTO rules. As you say, Brussels has devised a carbon border adjustment mechanism that is not simple. However, I don’t think that Washington is objecting to the CBAM’s complexity. Biden’s problem is that the mechanism would punish US steel and aluminium producers for their relatively high carbon intensity. So we are left with this mess. The US has postponed its “snapback” tariffs on EU steel and aluminium until January pending a resolution of this impasse. I suspect the EU will find a way of caving — especially if Ursula von der Leyen is in the driving seat. Overall, however, Washington’s approach to trade leaves a sour taste in the mouth. In the name of the rules-based order, America is making up whatever rules suit its purposes with “the sure footedness of a mountain goat (the redoubtable Alan, again)”. On the principle that might is right, I suspect the US will ultimately prevail. But it should stop pretending it is following any coherent principles. World trade is now the law of the jungle. Your feedback And now a word from our Swampians . . . In response to “The agonised American Jewish debate”: “There are some ironies here that point to the real issue. Progressive alignment with and support for Hamas is completely inconsistent with the values and interest groups normally associated with progressivism: LGBTQ; women’s rights among others. Hamas does not support those interest groups. The only explanation is ‘my enemy’s enemy is my friend’. That is the real issue.” — Neil Winward “I have been feeling this twinge recently from discussions, especially of my younger colleagues who are striking to protest the ‘US support of genocide by the Israeli government’ etc. I am also super afraid for Palestinians in Gaza and also wish there was some other way to address the problem. And I feel guilty when this little voice inside me says well, if the Hamas 10/7 slaughter hadn’t happened, we wouldn’t be here now . . . I also can’t imagine the trauma the Israelis living in border areas must be going through now. And Holocaust survivors for that matter. So thank you for giving voice to this internal whisper and making people like me, who support Palestinian rights and oppose Israeli policies towards them, feel validated and seen in this terrible moment.” — Dina Smeltz 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 Twitter at @RanaForoohar and @EdwardGLuce. We may feature an excerpt of your response in the next newsletterRecommended newsletters for youUnhedged — Robert Armstrong dissects the most important market trends and discusses how Wall Street’s best minds respond to them. Sign up hereThe Lex Newsletter — Lex is the FT’s incisive daily column on investment. Local and global trends from expert writers in four great financial centres. Sign up here More

China’s top legislators, the standing committee of the National People’s Congress (NPC), are set to approve the extra debt issuance on the last day of a meeting which has run from Oct. 20 to Oct. 24, said the sources, who declined to be named due to confidentiality constraints.Beijing is aiming to announce the plans as soon as late-Tuesday and begin issuing the debt, which is among the measures the Chinese government is taking to shore up the economy during down cycles, in November, two of the sources added.In a sign that recent policy measures may be helping to bolster a tentative recovery, China’s economy grew at a faster-than-expected rate in the third quarter, while consumption and industrial activity in September also surprised on the upside.The third-quarter expansion put the government’s annual growth target of around 5% for the world’s second-largest economy within reach, analysts said.Two of the sources, said that nearly half of the proceeds to be raised from the additional bond issuance would be spent on water conservancy and flood prevention projects, while the rest would be mainly used for post-disaster reconstruction and high-standard farmland construction.China, which has experienced an unusually wet summer this year with devastating flooding in its northern and northeastern provinces, has so far mainly relied on local government special bonds rather than sovereign debt to fund infrastructure needs.This prompted China’s top leadership and central government to pledge in August to strengthen water conservancy and other infrastructure in the north of the country and to improve its ability to prevent and respond to floods and droughts.The province of Hebei may spend two years on post-flood reconstruction, state media reported, after Typhoon Doksuri battered northern China in August, causing at least 29 deaths and 95.8 billion yuan of direct economic losses there alone.China’s State Council Information Office, which handles media queries on behalf of the government, did not immediately respond to a request for comment. The NPC and the Ministry of Finance also did not respond.The Chinese parliament is already due to approve this week a bill that will allow local governments to front load part of their 2024 bond quotas, according to state media.Chinese authorities have so far avoided aggressive fiscal stimulus to bolster the economy, although a property crisis and other headwinds continue to pose risks. Beijing has in recent weeks unveiled a raft of measures, including more public works spending, interest rate cuts, property easing and efforts to shore up the private sector, after China’s growth momentum dropped.But its ability to spur growth has been hamstrung by fears over debt risks and a fragile yuan. ($1 = 7.3171 Chinese yuan renminbi) More

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BUENOS AIRES (Reuters) – Argentina voted in a general election on Sunday, with Peronist Economy Minister Sergio Massa posting a surprisingly strong first-place finish despite a major economic crisis, ahead of the wild-haired pre-vote favorite, radical libertarian Javier Milei.Massa and Milei will go to a run-off vote on Nov. 19 to take the presidency from mid-December, replacing outgoing center-left Peronist President Alberto Fernandez. Massa ended the night with 36.7% of the vote versus Milei on around 30%.Conservative Patricia Bullrich, popular with the establishment and business circles, ended with some 24%.Here are some key takeaways:WINNERS AND LOSERSThe embattled ruling Peronist government is the big winner of the night, managing to pull off an escape act given it has overseen inflation near 140%, net foreign currency reserves dropping below zero and two-fifths of Argentines in poverty.Milei’s supporters will feel deflated after he did less well than some expected, but he still got nearly 8 million votes – more than he achieved in the primary and a huge haul for a relative newcomer who only got into politics in 2021. He remains in the race for the second round.The main conservative bloc’s candidate, Bullrich, was the big loser of the election. The Together for Change coalition had once been the favorite to win the presidency, but saw its vote diluted by the abrupt rise of Milei.LAST TWO STANDINGMilei is a 53-year-old economist running for the libertarian La Libertad Avanza bloc, who often wears leather jackets and has drawn comparisons with former U.S. President Donald Trump and Brazilian former leader Jair Bolsonaro for his abrasive style.Massa, the government’s wheeler-dealer 51-year-old economy chief, represents the ruling Union por la Patria (UP) coalition. He is seen as a pragmatist within the Peronist movement, which has helped him win over more moderate votes.TIGHT HEAD-TO-HEAD BATTLE LOOMSMassa goes into the second round with the momentum, but there’s plenty to play for. Milei could pick up more of conservative Bullrich’s 6.3 million voters, who are often highly critical of the big-government Peronist model.Given Bullrich was in the middle of the three politically, both may have to moderate their stance to win her votes over. Juan Schiaretti, who got a higher-than-expected vote share of nearly 7%, could also play an important king-maker role.There is likely to be a heated campaign over the next month as the two remaining candidates pitch opposing plans for the economy. Massa pledges to protect the country’s social safety net while Milei wants to “chainsaw” through a system that has left the country in its worst economic crisis in decades.POLLS CAN’T BE TRUSTEDOnce again the country’s pollsters and pundits were caught cold by the result. Almost all pre-election polls had shown Milei in first place ahead of Massa, though they did get right the under-performance of Bullrich.That comes after pollsters also failed to spot the rise of Milei in the August primaries, when he won a shock first place, and a major forecasting miss at the last election in 2019.WHAT’S AT STAKE?Argentina’s election race comes at a time of major uncertainty for the South American country facing its worst economic crisis in two decades. Milei wants to dollarize the economy and cut the size of government. Massa would stick with the peso and try to bolster the labor market and growth.Any incoming government will have to resuscitate an economy facing triple-digit inflation, negative net foreign exchange reserves, and a sliding currency. Meanwhile, a $44 billion loan program with the International Monetary Fund is creaking. More

Regulators will also conduct stress tests for the financial sector to ensure the sector remains healthy at a time of high market volatility, Sri Mulyani Indrawati told reporters after attending a meeting with President Joko Widodo, central bank chief Perry Warjiyo and other financial regulators.”We have conveyed to the president that we will take measures to safeguard the economy, keeping inflation in check and ensuring stability in the exchange rate and the financial system,” Sri Mulyani said.Measures to protect people’s purchasing power will be taken with regards to the impact of the El Nino weather pattern, she said, without providing further details.Much of Indonesia has experienced drought in recent months, affecting harvests, with this year’s dry season expected to be the most severe since 2019, partially due to the return of El Niño.Prices of foodstuffs like rice, chili and sugar are soaring, even though the country’s headline inflation has stayed low.Sri Mulyani’s comments came after the rupiah touched its lowest level since 2020 against the U.S. dollar of 15,965 earlier on Monday, before paring some losses. The currency has been steadily weakening for weeks as investors avoid risky assets amid U.S. monetary tightening and rising tensions in the Middle East.The Indonesian central bank last week unexpectedly raised interest rates to arrest the rupiah’s decline, with some economists noting further hikes are likely if the currency continues to fall.Sri Mulyani said she will “synchronise” fiscal and monetary policies to mitigate risks from global developments.Bank Indonesia (BI) head of monetary management Edi Susianto told Reuters earlier on Monday the bank has continued to intervene in the foreign exchange market to defend the rupiah. More