Aurelia Butler

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The writer is a faculty member at Yale, former chair of Morgan Stanley Asia, and author of ‘Accidental Conflict: America, China, and the Clash of False Narratives’Trade wars are political wars. The purpose of Donald Trump’s astonishing 145 per cent tariff on China is not a revival of the US economy of yesteryear but to bring Xi Jinping, his Chinese counterpart, to the table for the bluster of another Trumpian deal. That is not going to happen. Xi, despite his uncontested one-party elections, has a political equation of his own that will not allow him to bend.Xi’s political contract was sealed with a solemn pledge made to the Chinese people in November 2012, shortly after he was appointed General Secretary of the Chinese Communist party. On the steps of the National Museum of China, he espoused what has become known as the Chinese Dream: “Realising the great renewal of the Chinese nation is the greatest dream for the Chinese nation in modern history.”Framed around twin commitments to prosperity and rejuvenation, the Chinese Dream is no less a political anchor to modern China than Maga is to Trump. It was no accident that this messaging was orchestrated to reinforce a museum exhibition that featured China’s extraordinary rise following a “century of humiliation.” Xi’s statement spoke of a national renewal from which there can be no turning back. Modern China’s political calculus flows from this promise.Even if we in the west disagree with the principles and tactics of Chinese renewal, we need to take Xi’s commitment to this dream seriously. If anything, it has deepened over the years, spurring a nationalistic fervour that has important implications for China’s role in the world at large. In 2021, on the 100th anniversary of the founding of the Chinese Communist party, Xi Jinping essentially operationalised this political contract, warning that, “We will never allow any foreign force to bully, oppress, or subjugate us.”It is in this context that we need to interpret China’s latest promise to “fight to the end” in response to Trump’s tariffs. The sequencing of actions is important here. Trump struck first, even though US Treasury secretary Scott Bessent has tried to turn it around, claiming, “It was a big mistake, this Chinese escalation.” For China, Trump’s tariff attack falls well within the “bully, oppress, and subjugation” construct that Xi warned of.Ultimately, however, it’s not a question of who is right or wrong, or even who landed the first punch. Conflict arises out of a collision course between two very different political mindsets. In China a couple of weeks ago, I met with a cross-section of officials, academics, and businesspeople. Their views spanned the gamut, from party hardliners to market-oriented modern thinkers. But irrespective of where they sit on China’s political spectrum, there was no doubt of their collective conviction. As one of my most liberal thinking friends said, “China will most definitely retaliate to another tariff attack from Trump.” That’s exactly what happened.This argument can be taken one step further. The US has a president who acts out of anger and intimidation. China has a president who operates with strategic discipline. Unlike Trump, Xi doesn’t need to grandstand and personalise his pronouncements. China’s latest tariff response was buried on the website of its Ministry of Finance.This trade war pits emotional policy tantrums against more dispassionate calculation. As Trump continues to put pressure on China, China has been quick to retaliate in kind. Beijing has hinted that China’s next move won’t be another tariff action. As America’s third largest export market, the second largest foreign holder of Treasury securities, possessing a chokehold on strategically vital rare earths and a currency weapon of its own, China has many more options in its arsenal. This is a race to the bottom that no one can win. More

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldThe writer is the junior US senator for ConnecticutEconomists and pundits have spent the last two weeks frantically trying to decode what President Donald Trump’s ultimate aim is with tariffs. Last week’s spectacular flip-flop, in which he paused the majority of them for 90 days, came after the White House had spent days insisting the tariffs were not up for negotiation but were instead a long-term strategy to help revitalise the US industrial base and bring back jobs. However, there is a simple reason that Trump’s shortlived tariffs make little economic sense: they are not designed as economic policy but as a means to compel loyalty to the president. When combined with smart domestic industrial policy, tariffs can help to protect American jobs and goods. But these chaotically designed blanket global tariffs are not accomplishing anything other than threatening to send prices skyrocketing and destabilising the global economy. This makes sense because Trump’s goal seems to be to impose economic chaos, requiring the leads of industry to come running to him to plead for relief.According to reports, Trump has acknowledged that he does not mind if his policies cause a recession, so long as they do not lead to a depression. He must not remember the nearly 9mn jobs lost during the Great Recession of 2008 and the 10mn Americans who lost their homes to foreclosure. But these tariffs were never really about helping working people, bringing jobs back to the US or fixing our broken global trading system. The 90-day pause is proof of that. How many new manufacturing plants or jobs are being created to justify jeopardising Americans’ retirement plans? Which are the 75 countries Trump is negotiating with? Have they offered terms that would serve American workers and not just special interests? Or are these tariffs just about putting US companies in a chokehold until they surrender? Take Apple, for example. Commerce secretary Howard Lutnick fantasised about an “army of millions and millions of human beings screwing in little, little screws to make iPhones” that was “going to come to America”. A few days later, Apple was granted an exemption from Trump’s 145 per cent reciprocal tariff on smartphones, laptop computers, hard drives, computer processors, servers and memory chips from China. Tim Cook, who personally donated $1mn to Trump’s inaugural committee, has stayed in the president’s good graces. Lutnick later clarified that Apple was exempt from the “reciprocal” tariffs but not the soon-to-be-announced tariffs on semiconductors, guaranteeing that Apple will continue to lobby the administration.If you understand Trump’s actions as the use of executive power to bully into complicity the institutions that would otherwise stop a slide towards autocracy, then it is easy to see how tariffs fit into the plan. Some may not want to believe it, but Trump appears to be undertaking a systematic campaign to destroy any institution that might stand in his way.He has already attacked three key pillars of American democracy. He has threatened to cut off federal funding to universities, the centres of both academic research and youth protest; he is attacking top law firms by cutting them off from government contracts and stripping their lawyers of security clearances; and he is trying to silence journalists by denying them access to government facilities unless they use language preapproved by the White House.Now he is using tariffs to force companies and industries to come to the White House to beg for relief. Each company or industry will presumably be forced to make concessions in exchange for this relief. During the pause, we can expect to see one chief executive after another make the case for their company to be exempted from the tariffs. Maybe the concession is financial in nature, but more likely it is political. Most of these deals will be secret to the public.Once Trump has most law firms, universities, news organisations and private companies under his thumb, it will become almost impossible for any form of opposition to gain traction. His weaponised Department of Justice can arrest protesters and there will be fewer lawyers to defend them. University research and academic discussion of ideas that run counter to the Trump ideology will be threatened. Private companies will not object as the rule of law collapses. This is not some innovative new strategy — it is the global playbook for democratically elected leaders who want to stay in power forever. Switching tariffs on and off, and granting exemptions for your political allies, is not about trade policy. It is about bringing American industry to heel. Public outrage will be much more likely to stop Trump’s attempt to destroy democracy in its tracks if everyone can see plainly the plan he is trying to hide. More

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldItaly’s Giorgia Meloni will meet Donald Trump in Washington on Thursday after a first round of EU-US talks failed to shed light on the US president’s demands for de-escalating his tariff war. The Italian prime minister, a conservative nationalist, has forged a personal rapport with Trump, who has called her “a wonderful woman” and a “strong” leader. She has warned Brussels not to retaliate to Trump’s trade war and instead called for negotiations with Washington to resolve differences. The EU and US held a first round of talks this week about Trump’s tariffs — now set at 25 per cent on steel, aluminium and cars, and at 10 per cent on all other exports during a 90-day pause. If talks fail, Washington has said it will reinstate a 20 per cent “reciprocal tariff” rate on EU exports.However, EU trade negotiators engaging with the Trump administration have complained that they were not presented with the US demands, something officials hope Meloni can clarify.“We know we are in a difficult moment,” Meloni told a group of Italian business people ahead of her departure for Washington. “We have overcome far greater obstacles.”“We will do our best, as always,” she said, quipping that she did not feel any pressure. Meloni has publicly backed the EU offer to drop all tariffs on industrial goods if the US did the same. But diplomats briefed on the talks said Washington had shown no interest in reducing its levies — and that the 10 per cent tariff rate was likely to be permanent.The Italian premier has been in regular contact with European Commission president Ursula von der Leyen about the trip, including in a call on Tuesday.Meloni “has an advantage on the EU mediators — she is talking to the decider”, said Stefano Stefanini, Italy’s former ambassador to Nato. He said her meeting with Trump could be useful for the EU to find out what he wanted. “The US trade representative doesn’t really know [that]”, Stefanini added.Stefanini said Trump was likely to press for Europe to further distance itself from China. “If the EU makes a deal with the US, it will be forced to further de-risk or decouple from China as a consequence. It’s either China or the US.”The bloc has launched a series of anti-subsidy investigations against Chinese companies and levelled its own tariffs on Chinese imports, but they are far lower than Trump’s rates of up to 145 per cent. Beijing has upped its lobby efforts with European leaders, with China President Xi Jinping recently urging China and the EU to “jointly resist unilateral bullying”.But Meloni has long been wary of China, which she views as a strategic rival of the west. In 2023, she formally pulled Italy out of China’s Belt & Road Initiative, Xi’s flagship international infrastructure development project, which one of her predecessors joined. While Italy’s soft stance on EU retaliatory tariffs has irked some member states, diplomats from four member states said they had no problem with Meloni’s trip. “We are aware that she has a relationship with Trump and that can be valuable,” said one.Lucio Malan, a senator from Meloni’s rightwing Brothers of Italy party, said the Italian premier was showing “courage” by talking directly to Trump, given that trade policy is Brussels’ competence.“It would have been simpler to stay home, and say ‘after all, it’s EU business’,” Malan said. But Meloni has “chosen another way”. Stefanini said Meloni would probably emphasise the damaging impact US tariffs were having on Italy, a country that Trump claims to “love” and from which the US imported merchandise worth $70bn last year. “When you engage Trump on the basis of ‘national interest’, that’s his favourite language,” Stefanini said. “He might not give in, but it is something that he understands. If you talk to him about transatlantic solidarity, that is a waste of time.”Additional reporting by Andy Bounds in Brussels More

On August 15 1971, President Richard Nixon interrupted an episode of Bonanza to announce “a new economic policy” to American families gathered in front of their television sets that Sunday evening. Among the myriad measures the president outlined was a 10 per cent import tariff — and the suspension of the US dollar’s convertibility into gold.Nixon himself was more worried about the political backlash from Americans expecting to spend their evening with the Cartwright family at Ponderosa Ranch than the nefarious “international money speculators” his announcement targeted. Yet the consequences were enormous. Although couched as a temporary measure, the US would never again return to the so-called gold standard. What became known as the “Nixon shock” marked the end of one financial era and the beginning of a new one. The global monetary framework thrashed out at the Mount Washington Hotel in New Hampshire’s Bretton Woods in 1944 — with the gold-backed US dollar as the Sun around which every other currency circled — was dead. The Nixon shock helped usher in a new age of freely traded floating currencies, rapid credit creation and global capital flows, untethered by gold and increasingly unrestricted by governments. More than half a century later, the world is grappling with a shock of similar magnitude. Earlier this month the US administration of Donald Trump unveiled an aggressive tariff regime where both the size of the levies and the facile methodology underpinning them shocked even many supporters. Faced with a revolt in financial markets, the president announced a 90-day partial pause, but investors remain on edge. The dollar, which normally strengthens at times of financial and economic strife, has instead nosedived.Coming amid an increasingly bellicose attitude towards historical allies and an ambivalent attitude to the dollar’s hegemony by some key figures in the administration, it has forced investors and analysts around the world to confront the possibility of a new era where the US dollar’s dominance might fade — or even end.  “The trade war is just the latest example of this administration’s contempt for the rest of the world,” says Mark Sobel, US chair of OMFIF, a financial think-tank, and a former senior Treasury official. “Being a trusted partner and ally is a key pillar of the US dollar’s dominance, and has been tossed to the wind.”There are two related but subtly different questions now being asked around the world’s financial centres after this “Trump shock”. First, how far can the dollar’s recent decline go? Foreigners own $19tn of US equities, $7tn of US Treasuries and $5tn of US corporate bonds, according to Apollo’s chief economist, Torsten Sløk. If even some of these investors start to trim their positions, the dollar’s value will come under sustained pressure. Second, if the outflows gather pace, could it eventually even erode the dollar’s unique role in the global economy and financial system? Although the dollar’s value has always waxed and waned, and critics have constantly sought to tear it down, the greenback’s primacy has remained undiminished. Yet some analysts and investors now think the scale of the Trump shock could end a near-century of dollar dominance. “The US has benefited from reserve currency status for 100 years. It’s taken less than 100 days to unwind it,” says Gregory Peters, co-chief investment officer at PGIM Fixed Income. “It’s a very big deal.”When Nixon’s Treasury secretary, John Connally, attended a G10 meeting in Rome shortly after the US ended the dollar’s convertibility, the bombastic Texan told his shocked international counterparts: “The dollar is our currency, but it’s your problem.” The Trump administration’s view is the opposite: the dollar is everyone’s currency, but America’s problem. And this is not as perverse as it might seem.Despite Nixon severing the dollar’s link to gold in 1971, the greenback has remained at the centre of the monetary universe. In fact, thanks to the dollar’s importance in the expanding and increasingly interconnected global financial system, its importance has only grown. Far from eroding the dollar’s importance, the Nixon shock entrenched it in new ways.Nowadays, the US only accounts for about a quarter of the global economy, but more than 57 per cent of the world’s official foreign currency reserves are in dollars, according to the IMF. While much has been made of its relative decline in central bank reserves over the past few decades, the reserves statistics arguably underplay the dollar’s centrality. There are many other pots of sovereign and quasi-sovereign money that are not captured by the IMF’s data on foreign exchange reserves, and whether you are a bank in Mongolia, a pension plan in Chile, a European insurance group or a Singaporean hedge fund, dollars are the ultimate reserve asset.The dollar is equally central in trade, with 54 per cent of all export invoices denominated in dollars, according to the Atlantic Council. In finance, its dominance is even more total. About 60 per cent of all international loans and deposits are denominated in dollars, and 70 per cent of international bond issuance. In foreign exchange, 88 per cent of all transactions involve the dollar. Even physical US bank notes are widely held abroad, thanks to the dollar’s broad acceptance. In fact, about half of the more than $2tn worth of US bank notes in issue are held by foreigners, according to the Federal Reserve.This enormous international demand for dollars translates into an embedded premium to US assets and means that the US borrows more cheaply than it would otherwise do — what France’s former president, Valéry Giscard d’Estaing, once famously referred to as America’s “exorbitant privilege”. It also gives the US the power to sabotage another country’s financial system through sanctions. President Richard Nixon, right, talks to his Treasury secretary, John Connally, in the White House. Donald Trump’s measures this month could be as seismic as Nixon’s 1971 economic policy changes More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Donald Trump’s on-off tariffs have pushed currency volatility to multiyear highs and boosted demand for foreign exchange hedging products as companies struggle to adjust to market swings.Currency volatility has surged in recent days to levels last reached during the collapse of Silicon Valley Bank and Credit Suisse in March 2023, according to JPMorgan’s G7 and emerging market currency volatility indices.The uncertainty around Trump’s tariffs has created more demand for FX hedging products to offset sudden fluctuations in exchange rates that are hitting businesses with global operations, according to banks and executives at multinational companies.Nathan Venkat Swami, head of Asia-Pacific FX trading at Citigroup, said demand for hedging products had accelerated since November, when Trump was elected, on the back of uncertainty over his administration’s trade policies.“February saw a slowdown in activity due to the lunar new year holidays across a lot of Asia, but we saw volumes pick up again in March, with strong activity from corporate hedgers,” said Swami.Most multinationals hedge a portion of their earnings and raise or lower that level depending on the perceived risk of currency fluctuations. The heightened trade uncertainty has led companies to increase their hedging exposure.“As we became more risk-averse, we wanted to hedge more,” said a senior executive at a European healthcare company that manufactures and exports medical equipment from Europe to Asia.The company records sales in China’s renminbi, which until recently had been strengthening against the euro.It used the favourable exchange rate to buy FX contracts that offset the risk of the renminbi falling in value against the euro — an event that subsequently occurred following Trump’s “liberation day” tariff announcements on April 2.“Going forward, with high volatility, corporates are likely to reduce risk by entering into more hedging,” said the executive.In addition to greater corporate demand for FX instruments, a rotation out of US equities into other stock markets had further increased FX hedging volumes, said Wei Li, head of multi-asset investments for China at BNP Paribas. Investors can hedge their foreign equity holdings by shorting the local currency.“This year the whole market changed,” said Li. “That basically creates a lot of demand for FX hedging.”This has helped boost Wall Street banks, which reported strong first-quarter trading revenues amid high volatility triggered by the Trump administration’s market-moving announcements.Most hedging transactions, especially for lesser-traded currencies, are conducted “over the counter” between clients and banks, but public markets data shows growing demand for futures contracts too. Investors said this reflected a broader trend of increased demand for FX hedging products.In Hong Kong, open interest in renminbi futures — a measure of market activity — has risen to its highest levels since 2016, the year after a currency devaluation increased demand for hedging against the renminbi. On the Singapore stock exchange, FX futures volumes are on track to hit a record high this year.“Global investors are increasingly using SGX FX futures as effective and cost-efficient hedging instruments to manage heightened market and currency volatility,” SGX said in a statement to the Financial Times.But as Trump pushes to rework the global trade system, companies were “finding it harder to determine what their longer-term hedging requirements will look like given trade compositions will likely change”, said Swami.The threat of an economic slowdown could add to the pressure and lower demand for hedging.“If global growth gets affected by prolonged tariff uncertainty and trade starts getting hit, that’s a scenario where we could see FX volumes drop,” he said. More

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Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldThe US House of Representatives China committee has asked Nvidia to explain whether and how Chinese company DeepSeek obtained export-controlled chips to power its artificial intelligence app, which lawmakers say poses a national security threat.John Moolenaar, the Republican chair of the panel, and his Democratic counterpart Raja Krishnamoorthi on Wednesday wrote to Nvidia to obtain information about their sales to China and south-east Asia. The letter came after the panel released a report that said DeepSeek, which trained its model on Nvidia chips, posed a “profound threat” to US national security.Moolenaar said DeepSeek was a “weapon in the Chinese Communist party’s arsenal, designed to spy on Americans, steal our technology, and subvert US law”.The US has in recent years introduced sweeping export controls designed to make it harder for Chinese groups to obtain advanced American technology that could help its military.Scrutiny from the committee increases pressure on Nvidia over whether its sophisticated chips are being covertly sold to China, which the company has long said it works to avoid.Moolenaar claimed DeepSeek “exploited US AI models and reportedly used advanced Nvidia chips that should never have ended up in Chinese Communist party hands . . . That’s why we’re sending a letter to Nvidia to demand answers”.Nvidia on Wednesday pushed back strongly against any suggestion it might be responsible for export-controlled chips falling into the wrong hands, saying it followed the government’s directions on where it can or cannot sell chips “to the letter”.“The technology industry supports America when it exports to well-known companies worldwide. If the government felt otherwise, it would instruct us,” Nvidia added.The report came a day after it emerged that the US had imposed export controls on Nvidia selling H20 chips to China, blindsiding the company, which had expected relief from the restrictions. In a regulatory filing, it said the controls would lower its earnings by $5.5bn in the quarter to April 27. Nvidia relies on a complex network of supply chain partners such as Dell and Supermicro, which package its chips into servers and sell on to customers.It addressed suggestions in the congressional report that customers in China may be accessing its export-controlled chips via subsidiaries in Singapore, which accounted for 18 per cent of its 2025 fiscal year revenue, or $23.7bn.Nvidia said the revenue it reports from Singapore was based on billing addresses, meaning it often included subsidiaries of US companies. “The associated products are shipped to other locations, including the United States and Taiwan, not to China,” it said. The China committee’s report said DeepSeek transmitted data using infrastructure that was connected to China Mobile, a major Chinese telecoms provider that the Pentagon has designated as having connections to the country’s military.It added DeepSeek also integrated tracking tools from large Chinese tech groups, including ByteDance, the owner of TikTok, in addition to Baidu, a Chinese internet search engine, and Tencent.“This entangles DeepSeek’s data harvesting architecture with [People’s Republic of China] companies known for their roles in surveillance and CCP control, heightening the risk that foreign adversary entities could gain access to Americans’ private information,” the report said.DeepSeek did not respond to a request for comment. China’s embassy in Washington said the committee’s claims were “groundless” and Beijing opposed the “overstretching of the concept of national security and the politicisation of economic, trade and technological issues”.“The Chinese government attaches great importance to data privacy and security and protects them in accordance with the law. It has never required, nor will it require, companies or individuals to illegally collect or store data,” said Liu Pengyu, the embassy spokesperson.DeepSeek sparked a tech market rout earlier this year when it announced breakthroughs that appeared to shift the balance of power in an AI arms race between Washington and Beijing. In January Nvidia had about $600bn wiped off its market valuation as investors reacted to reports that DeepSeek had trained models that were competitive with the latest offerings from groups such as OpenAI at a fraction of the cost and using far less computing power.DeepSeek said it trained its “R1” model using clusters of Nvidia’s H800 chips, which are less powerful versions of its H100 chip. The H800 was specifically designed for the Chinese market to comply with US export controls and was later blocked by Joe Biden’s administration in 2023. More