Aurelia Butler

Unlock the White House Watch newsletter for freeYour guide to what Trump’s second term means for Washington, business and the worldUS Treasury secretary Scott Bessent has cautioned that any de-escalation in the US-China trade war would have to be mutual, denying suggestions that President Donald Trump would unilaterally cut levies on Chinese goods.Speaking to reporters on Wednesday, Bessent said “there would have to be a de-escalation by both sides”, echoing comments he made to a JPMorgan conference on Tuesday, where he warned that the US-China trade war was “not sustainable”.Bessent said the high level of tariffs the US and China had imposed on each other was “the equivalent of an embargo”. Trump has imposed a 145 per cent levy on Chinese goods and Beijing has retaliated with a duty of 125 per cent.“A break between the two countries on trade does not suit anybody’s interests,” Bessent said.When asked if the US would make a unilateral offer to de-escalate trade tensions with China, Bessent responded: “Not at all.”His remarks came after The Wall Street Journal on Wednesday said Trump was considering unilaterally cutting tariffs on China.When asked later on Wednesday how soon the US could cut tariffs on China, Trump told reporters “that depends on them”. Responding to a question on whether he was worried about the impact that his 145 per cent tariff on Chinese goods was having on American small businesses, Trump replied: “No”.“It’s a high tariff, but I haven’t brought it down,” he said. “It basically means China’s not doing any business with us . . . because it’s a very high number.”Trump added that the US and China were in direct contact “every day”. Officials have had working-level engagements over the past few months, but there have been no negotiations about trade.The Chinese foreign ministry on Thursday said reports that China and the US were nearing a deal were “fake news”.“There have been no consultations or negotiations between China and the United States regarding tariffs, let alone reaching an agreement,” said spokesperson Guo Jiakun. “This tariff war was initiated by the US, and China’s stance has always been clear: if you want to fight, China will fight to the end; if you want to talk, the door is open,” he added.US stocks gave back some of their earlier gains on the back of Bessent’s comments, with the blue-chip S&P 500 ending the day 1.7 per cent higher in New York. The tech-heavy Nasdaq Composite gained 2.5 per cent.Both indices had sold off heavily on Monday on concerns that Trump was considering firing US Federal Reserve chair Jay Powell. On Tuesday, the president reassured markets by saying he had “no intention” of sacking him.“Uncertainty and inconsistency are economic poison,” said Steven Grey, chief investment officer at Grey Value Management. “By endlessly reversing itself and reneging on earlier commitments, this White House has permanently conditioned everyone to take its statements with a grain of salt.”Bessent cautioned that the two countries had not held any trade talks. Sources familiar with the discussions in Washington and Beijing have said that China had made clear that it viewed Trump’s tariffs as a form of economic bullying and will not capitulate.“Both sides are waiting to speak to the other,” said Bessent, who would not be drawn on the timing of any talks.Asked about China’s stance that the US was using the tariffs as a form of bullying, Trump said: “China has been charging us massive tariffs for many years . . . now we’re reversing it.”Bessent told investors at the JPMorgan conference that based on data from two weeks ago, maritime container bookings from China to the US had fallen by 64 per cent.“It’s both a blessing and a curse that the strongest relationship is at the very top,” he said. “So it’s between President Xi [Jinping] and President Trump, and obviously, in any de-escalation, the talks would not begin at the very top, so I don’t have a timeframe.”Trump has said he wants to negotiate with Xi, but China has made clear that it would not consider a phone call, let alone a summit, until officials from both sides had hammered out the contours of a possible trade deal.One person familiar with the situation said the chief executives of Walmart and Target had delivered a stark warning to Trump about the impact that the tariffs were having on trade in a White House meeting on Monday.A New York investor stressed that it was very hard to interpret the comments from Bessent and Trump. “Who the heck knows what weight you assign to [Bessent’s comments on China and Trump’s pivot on Powell],” the person said. “The market is a perpetual yo-yo.”Additional reporting by Joe Leahy in Beijing More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The writer is chief economist at Goldman SachsI admit it: I often dodge questions about the dollar. A large body of academic literature and my own experience as an economic forecaster have taught me that predicting exchange rates is even harder than predicting growth, inflation and interest rates.But with all due humility, I believe that the recent dollar depreciation of 5 per cent on a broad trade-weighted basis has considerably further to go.Federal Reserve data shows that the real value of the dollar still stands nearly two standard deviations above its average since the start of the floating exchange rate era in 1973. The only two historical periods with similar valuation levels were the mid-1980s and the early 2000s. Both set the stage for depreciations of 25-30 per cent.Combined with the ongoing portfolio flows into US assets and the outperformance of the country’s stocks, dollar appreciation has sharply boosted the share of the US in global investor portfolios. The IMF estimates that non-US investors now hold $22tn in US assets. This perhaps accounts for one-third of their combined portfolios — and half of this is in equities, which are often not currency hedged. A decision by non-US investors to reduce their US exposure would thus almost certainly result in significant dollar depreciation.In fact, even reluctance by non-US investors to add to their US portfolios will probably weigh on the dollar. This is because balance of payments accounting implies that the US current account deficit of $1.1tn must be financed via a net capital inflow of $1.1tn per year. In theory, this could come via foreign purchases of US portfolio assets, foreign direct investment in the US, or US sales of foreign assets. In practice, however, most swings in the US current account balance correspond to swings in foreign purchases of US portfolio assets. If non-US investors don’t want to buy more US assets at their current prices, those prices must fall, the dollar must weaken, or (most likely) both.These observations would not matter as much if the US economy were set to continue outperforming its peers, as it has for most of the past two decades. But this seems unlikely, at least for the next couple of years. At Goldman Sachs, we have recently cut our growth forecasts in all major economies on the back of the tariff shock, but nowhere more than for the US. We lowered our estimate of US growth in GDP from the fourth-quarter of 2024 to the same period this year to 0.5 per cent from 1 per cent. With GDP and corporate profits growing slowly at best, a sharp rise in measures of US policy uncertainty and questions about Fed independence, we expect non-US investors to curb their appetite for US assets.Some content could not load. Check your internet connection or browser settings.Dollar depreciation should not be confused with loss of the dollar’s status as the world’s dominant currency. Barring extreme shocks, we think the dollar’s advantages as a global medium of exchange and store of value are too entrenched for other currencies to overcome. We have had large exchange rate moves without loss of the dollar’s dominant status in the past, and our baseline expectation is that the current move will be no different.What are the economic consequences of a weaker dollar? First, it will exacerbate the tariff-related upward pressure on consumer prices. Tariffs alone are likely to push up core inflation — as measured by the Personal Consumption Expenditures Price Index — from 2.75 per cent now to 3.5 per cent later this year, and we estimate that dollar depreciation could add another 0.25 percentage point or so. While this is modest, dollar depreciation reinforces our view that the “incidence” of higher US tariffs will fall predominantly on American consumers, not foreign producers.Second, a weaker dollar not only raises import and consumer prices but also lowers export prices (measured in foreign currency). In the medium term, this relative price shift should help shrink the US trade deficit, one of the Trump administration’s goals. US policymakers are therefore unlikely to stand in the way of dollar depreciation, even without any type of “Mar-a-Lago accord”.Third, a weaker dollar could, in principle, ease financial conditions and help keep the US economy out of recession. But the drivers of the depreciation matter. Reduced appetite for US assets, including Treasury securities, could offset the impact of a weaker currency on financial conditions.In any case, the most important determinant of whether the US enters a recession is not the dollar. A decision to implement additional “reciprocal” tariffs following the current 90-day pause, an ongoing US-China trade war, or aggressive further goods-specific tariffs could make recession inevitable, no matter where the dollar goes. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Corporate America is counting the cost of Donald Trump’s trade war, with executives warning of escalating expenditures, gummed-up supply chains and a hit to the world’s largest economy. While company leaders have generally avoided public criticism of the US president, they have been forced to confront his tariffs — which include levies of 145 per cent against export powerhouse China — on quarterly earnings calls with analysts this month.Transport, energy, telecommunications and homebuilding companies were among those to discuss the tariffs with Wall Street. In their comments, executives raised the alarm about the consequences of Trump’s sweeping duties, echoing economists’ warnings of recession. “CEOs are a really unhappy bunch at the moment,” said Steven Purdy, head of credit research at fund manager TCW.Trump was warned of the impact his tariffs were having on trade by the chief executives of Walmart and Target in a meeting at the White House on Monday, according to one person familiar with the situation.While fewer than a fifth of the blue-chip stocks in the S&P 500 index had held first-quarter earnings calls by Tuesday, tariffs were cited on more than 90 per cent of them, according to FactSet. The term “recession” was mentioned on 44 per cent of calls, compared with less than 3 per cent on those covering the fourth quarter of 2024.Norfolk Southern, a big US freight railroad group, on Wednesday said tariffs could slow down shipments of cars and intermodal containers, while coal production might cool “amid significant uncertainty around export trade”. Boeing also said on Wednesday that the US trade war with China would force it to find alternative buyers for some of its aircraft.Tariffs will drive up the cost of gas-fired power generators, just as US electricity demand grows at a rate “unlike anything we’ve ever seen since the end of World War II”, John Ketchum, chief executive of NextEra Energy, owner of the largest US power utility, said on Wednesday. Gas turbine manufacturer GE Vernova said its costs could rise as much as $400mn this year, while oilfield services groups Halliburton and Baker Hughes warned that Trump’s trade war could dent earnings, disrupt supply chains and push down oil prices, causing a pullback in drilling.Baker Hughes’ shares fell 6.4 per cent on Wednesday after it said tariffs could cost the company up to $200mn in earnings before interest, tax, depreciation and amortisation this year, a hit of about 4 per cent.AT&T and Verizon, two of the biggest US telecoms groups, warned that tariffs could raise the price of phone handsets and wireless routers. “If the tariff is going to be as high as they say on the handsets, we are not planning to cover that in our work. That’s just not going to be possible,” Verizon’s chief executive Hans Vestberg told analysts this week. Boston Scientific said tariffs would cost the medical-device maker about $200mn this year, even as it raised its profit guidance. Johnson & Johnson last week maintained its annual earnings forecast but noted $400mn in costs related mainly to tariffs on medical devices.At 3M, chief executive William Brown said “tariffs are going to be a headwind this year”. The manufacturer of Scotch tape and Post-it notes said it would try to soften the blow by moving production and inventory around its network of 110 factories and 88 distribution centres, by cutting costs and by raising prices. “We’re trying to be pretty smart, strategic and surgical about this,” Brown said.At builder PulteGroup, chief executive Ryan Marshall said tariffs would add about $5,000 on average to the sale price of new homes. “Whether it’s the volatility in the stock market, concerns about tariff-induced inflation, the fluctuation in interest rates or the growing talk of recession, demand in April has been more volatile and less predictable day-to-day,” Marshall told analysts.Aerospace and defence company RTX said it could suffer an $850mn hit to pre-tax operating profit from Trump’s tariffs if they remained in place to the end of the year. GE Aerospace said it would raise prices to help offset roughly $500mn in extra costs.Executives have been responding to fast-changing US trade policy. Trump in early April suspended so-called reciprocal tariffs against most countries for 90 days hours after they took effect, while raising tariffs on China. He plans to spare carmakers from some tariffs, the Financial Times reported on Wednesday.TCW’s Purdy said chief executives were stuck in a kind of suspended animation as trade policy changes. “They don’t know if they’re going to wake up in six months into an entirely new world order, or if this is going to feel like a really bad dream,” Purdy said. Reporting by Gregory Meyer, George Steer, Jamie Smyth, Peter Wells, Zehra Munir, Will Schmitt and Demetri Sevastopulo More

Stay informed with free updatesSimply sign up to the More

Stay informed with free updatesSimply sign up to the More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Chipmaker SK Hynix’s quarterly operating profit has more than doubled on strong sales of advanced memory chips used in artificial intelligence products, amid stockpiling ahead of looming US tariffs.Analysts said SK Hynix toppled arch-rival Samsung Electronics as the world’s biggest dynamic random-access memory (Dram) chipmaker for the first time during the first quarter.Operating profit rose 158 per cent to Won7.44tn ($5.2bn) in the first three months of this year, much higher than the Won6.6tn forecast by analysts polled by Bloomberg. Sales increased 42 per cent year on year to Won17.6tn. The strong earnings were driven by robust sales of high bandwidth memory (HBM) chips used in AI hardware.But the chipmaker warned of possible demand volatility in the second half due to macroeconomic uncertainties while stressing that HBM demand will be less affected by potential US tariffs on semiconductors.  “Demand uncertainty will increase because of tariff policy changes and other restrictions, but this is expediting demand for IT consumer goods as some consumers rush to buy products before prices rise,” Kyu Hyun Kim, head of Dram marketing, told analysts on Thursday.SK Hynix, a main HBM supplier to Nvidia, captured 36 per cent of the Dram market in the January-March period, followed by Samsung at 34 per cent, according to Counterpoint Research. Dram is the most widely used memory chip in PCs and servers to help process data. HBMs are made by stacking Dram chips.“The changed dynamics will probably continue for the time being as Samsung finds it difficult to catch up with SK Hynix in HBM,” said Daniel Kim, an analyst at Macquarie. “AI and HBM are fast-changing markets. It is not easy for Samsung to catch up as a latecomer.”SK Hynix widened its lead in HBM, with a 70 per cent market share in the first quarter, Counterpoint Research said. Its HBM market share will remain above 50 per cent this year, with Samsung’s share falling to below 30 per cent and US rival Micron Technology’s share rising to almost 20 per cent, according to market researcher TrendForce.The company expects Big Tech to maintain its spending on server chips to compete in AI, while new AI features in smartphones will fuel replacement demand, increasing sales of high-performance mobile Dram chips. SK Hynix still expects HBM demand to double this year.Its shares fell 0.8 per cent on Thursday morning as short selling of its stock surged to a record high of Won1.5tn so far this month, according to Bloomberg data, with the industry facing increasing uncertainties from looming US tariffs and Washington’s tougher export controls on China, as well as growing global recession fears.Foreign investors sold a net Won2.8tn of the company’s shares this month, after the stock price more than doubled over the past two years, driven by the AI boom. The shares have fallen about a fifth from a January high.“Earnings season won’t matter with larger forces at work,” Morgan Stanley analysts said in a research note. “The real tariff impact on memory resembles an iceberg, with more danger unseen below the surface and still approaching.”President Donald Trump has said tariffs on chip imports would begin “very soon”. The US has also imposed special licensing requirements on Nvidia selling its H20 chips to Chinese customers, with the US chipmaker recording a $5.5bn earnings hit this month as a result.“This can affect Hynix’s earnings, but the impact will probably be limited, given the supply shortage of high-end HBM chips,” said Macquarie’s Kim. “Positive momentum is expected for the company this year and next unless the global economy slips into recession.” More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.South Korea’s economy contracted in the first quarter, with political turmoil hitting consumer sentiment in Asia’s fourth-largest economy while business concerns grew over President Donald Trump’s tariffs on exports to the US.South Korean GDP fell 0.2 per cent quarter on quarter in the first three months of this year, according to data released by the Bank of Korea on Thursday, hours before senior ministers were set to launch trade talks with the Trump administration. The economy contracted 0.1 per cent from a year earlier. The contraction came as worries intensified about US tariffs and the Trump administration’s imposition in mid-March of a 25 per cent duty on steel imports from South Korea.The data showed domestic consumption fell 0.1 per cent in the quarter as consumers cut back on spending amid a political crisis sparked by President Yoon Suk Yeol’s shortlived attempt to impose martial law in December.Yoon was dismissed from office this month, forcing a new presidential election scheduled for June 3.  Construction and facility investment fell 3.2 per cent and 2.1 per cent, respectively, while exports declined 1.1 per cent. “The government has failed to actively respond to the slowing economy because of the leadership vacuum,” said Kim Jin-wook, an economist at Citigroup. “Korea is one of the countries hit hardest by the US-China trade war because of its big exposure to trade with both countries.”The US and China are South Korea’s two biggest trade partners. South Korea’s growth prospects have dimmed since Trump this month imposed 25 per cent tariffs on cars and vehicle parts, which together account for about a third of the country’s exports to the US. The BoK warned last week that the economy faced considerable downside risks from Trump’s trade policy. The IMF this week cut South Korea’s growth outlook to 1 per cent, down from its January forecast of 2 per cent. As well as the duties on cars, the US has introduced a blanket 10 per cent tariff on imports from South Korea.Finance minister Choi Sang-mok and industry minister Ahn Duk-geun were scheduled to meet their US counterparts in Washington later on Thursday for negotiations over tariffs. Ahn has said he will seek to reach a speedy agreement on the lifting or reduction of the vehicle duties.Acting president Han Duck-soo told the Financial Times last week that South Korea would “not fight back” against Trump’s tariffs, citing the country’s historical debt to Washington.Han said Seoul would instead seek “solutions which are more win-win for both”.South Korean customs data issued on Monday suggested the US duties were already having an impact, with exports down 5.2 per cent from a year earlier in the first 20 days of April. US-bound shipments fell 14.3 per cent and those to China dropped 3.4 per cent.While US tariffs as high as 145 per cent on Chinese goods could offer an opportunity for South Korean exporters, its trade with China could also be affected by a slowing Chinese economy, analysts warned.   “We are at the beginning of an economic crisis because of the looming global recession,” said Citigroup’s Kim. “Even if the Korea-US negotiations go well, there is no answer to the slowing economy if the US-China tariff war continues.”Seoul is preparing a Won12tn ($8.4bn) extra budget to cope with the tariffs, but economists have said it will not be enough to fully cushion the blow.The BoK, which held its base interest rate unchanged at 2.75 per cent last week, has hinted it will cut rates in the coming quarters to support slowing growth. The South Korean currency fell to a 16-year low against the dollar this month, while high household debt has also weighed on domestic consumption.“More policy support is needed to shore up the economy, but the BoK won’t be able to hit the accelerator because of the [exchange rate and household debt] barriers,” said Park Jeong-woo, an analyst at Nomura. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Jane Street’s trading revenues almost doubled last year and boomed during the tariff-induced turmoil of the first quarter of 2025, as it generated profits rivalling those of Goldman Sachs and Morgan Stanley. The group, which operates in equity, option and fixed-income markets, generated $20.5bn of net trading revenues in 2024, up 94 per cent from 2023, according to people familiar with the matter. Trading levels at Jane Street surged further in the first quarter, as US President Donald Trump’s tariff proposals unleashed chaos in markets. The results come as Jane Street looks to bolster its balance sheet by borrowing $1.35bn through high-yield debt markets on Wednesday, according to people familiar with the matter. The firm’s ability to thrive during market turbulence is helping its debt gain traction with investors. “With Trump in office, they’re going to benefit from his policy volatility,” said one investor who planned to participate in the deal. Jane Street expects to report net trading revenues of about $7.2bn in the first quarter, up more than 60 per cent from the same period a year ago. That would exceed the $6.7bn in first-quarter trading revenues reported this month by Morgan Stanley and brings Jane Street within striking distance of the $8.6bn earned by Goldman. JPMorgan Chase has the highest trading revenues of any bank, generating $9.7bn in the first three months of 2025. Some content could not load. Check your internet connection or browser settings.The results show Jane Street’s growing power in global markets, as it elbows into a business once dominated by traditional Wall Street heavyweights. The company earned $12.96bn of net profit last year, up from $5.9bn in 2023. Its strong financials have set up the company to be one of very few to test the “junk” bond market since Trump’s April 2 “liberation day” tariff announcement. Although Trump has walked back some of the levies, the volatility and uncertainty about trade policy has all but frozen new deals to issue risky debt.Jane Street’s new eight-year bonds priced with a coupon of 6.75 per cent, which is about 2.45 percentage points higher than the yield offered by a similarly maturing Treasury note. The difference, or “spread”, reflects the premium investors demand for taking the risk to lend to a company such as Jane Street, compared with the federal government. One investor said the timing of Jane Street’s debt offering was good, given the market-making group’s record of success in times of volatility, such as during the Covid-19 pandemic. “They’re just making massive amounts of money,” another investor said. Fitch Ratings on Wednesday assigned Jane Street’s new bonds an expected rating of “BB+”, the highest grade the agency gives to speculative debt. Fitch analysts said Jane Street’s “growth has provided a more meaningful buffer against potential operational losses”. Jane Street has borrowed in traditional US corporate debt markets to fund its expansion before. Rating agency Moody’s said it expected the company to use the new money it planned to raise on Wednesday to bolster its trading capital. Firms such as Jane Street and its rival Citadel Securities have used the electronification of financial markets to capture market share from incumbent banks that had historically relied on voice trading. Banks have also found their ability to take risk hamstrung by regulation since the 2008 financial crisis. Jane Street’s role intermediating trades and market making — particularly in the world of exchange traded funds, where it is a dominant player — has bolstered its profitability. One person familiar with the company’s financials said it was growing across all of its major business lines, including trading in equities, currencies and ETFs, with the group benefiting from “heightened volumes” in the fourth quarter.Jane Street has spent heavily to recruit technology specialists to push its business ahead of rivals. It said it expected to spend $1.4bn on compensation in the first quarter. The company expects net income to jump to roughly $4.6bn in the first quarter of 2025. Jane Street declined to comment. More