Aurelia Butler

This article is an on-site version of Free Lunch newsletter. Premium subscribers can sign up here to get the newsletter delivered every Thursday and Sunday. Standard subscribers can upgrade to Premium here, or explore all FT newslettersWelcome back. Now that Donald Trump has paused his “reciprocal” tariff plans (as predicted in last week’s newsletter), this edition will unpick the US president’s broader agenda to turn America into a “manufacturing superpower”.In his April 2 “liberation day” speech, the commander-in-chief invited retired autoworker Brian Pannebecker to say a few words: “I have watched plant after plant after plant in Detroit . . . close. [The president’s tariff] policies are going to bring product back into those underutilised plants . . . I can’t wait to see what’s happening three or four years down the road”.How might one debate against this viewpoint? That’s what I’ll attempt to outline here. First, empathy. Over the past four decades, manufacturing jobs in America have declined. Competitive imports from abroad have contributed to factory closures, and many former industrial regions have failed to regenerate. (I recommend Peter Santenello’s YouTube channel, which documents life in these US counties.) In that time, US income inequality has risen. And the most capital-rich have increased their share of overall wealth.Some content could not load. Check your internet connection or browser settings.Research by Jim Reid, Deutsche Bank’s head of global macro research, finds that the US wealth-to-income ratio tends to track international trade as a share of global GDP over time.“[This potentially reflects] the benefits [of globalisation] accruing to shareholders through more efficient global supply chains, a wider marketplace, and the access and influence of lower-cost labour in emerging markets,” he wrote in a client note. “This has arguably squeezed developed market labour, particularly low-skilled workers.”Indeed, US capital markets tanked as the reality of America’s global protectionist agenda kicked in. But the president used the stock market falls to reinforce his platform: “I’m proud to be the president for the workers, not the outsourcers; the president who stands up for Main Street, not Wall Street; who protects the middle class, not the political class.”Some content could not load. Check your internet connection or browser settings.The allure of onshoring manufacturing is, then, clear. But to support the president’s plans, one must also believe that America can, and should, bring back labour-intensive factory jobs, and that tariffs are the best way to do so.Commerce secretary Howard Lutnick spelt out the ambition in a recent interview: “The army of millions and millions of human beings screwing in little, little screws to make iPhones, that kind of thing is going to come to America.” (Notably, Trump exempted smartphones and other consumer electronics from his “reciprocal” tariffs on Friday, but sector-specific duties are in the works.) Either way, if the goal is to recreate the scale and specialisation of the developing world’s factories, the US will need workers and capital.But few Americans want to go into industrial work. A 2024 Cato Survey found that only one in four believe they would be better off in a factory over their current employment. (Much of Trump’s “middle class” work in non-goods-producing sectors today.) The administration is also hostile to immigration.Some content could not load. Check your internet connection or browser settings.As for capital, impelling factory owners to set up in America by raising import duties has its limits. Given the costs of moving production to the US, investors will need labour, reliable access to domestic input chains and clarity over how long tariffs will remain in place. All are in short supply.For measure, take Apple. Dan Ives, a Wedbush analyst, estimated that the iPhone maker would need at least three years and $30bn just to shift a tenth of its supply chain from Asia to the US.The administration reckons these are a “transition cost” on the path to bringing back blue-collar jobs. And, as Pannebecker’s remarks suggest, some are willing to give it time.Even if some factory jobs did return to America, my question to Trump and his supporters is what cost they are willing to pay for it.It’s true that some factory jobs have been lost to outsourcing (although automation has played a significant role too). But focusing on that loss — and seeking to curb US trade openness — obscures the greater, economy-wide benefits that have arisen because of it. US manufacturing output has actually risen over the past four decades, even as factory jobs have declined. American industry is more productive today. It makes higher-value products at higher wages with fewer workers (and more robots).Some content could not load. Check your internet connection or browser settings.In fact, measured by value added per worker, US manufacturing ranks first among the major economies (estimated to be almost seven times that of China). Over one-fifth of US manufactured exports are products with high research and development intensity, such as advanced tech and aerospace products. The US ranks second only behind China in its share of overall global manufacturing output. By most measures, America is already “a manufacturing superpower”. It ceded the top spot in part by outsourcing lower wage jobs and shifting into higher value added economic activities: services, research and development, and advanced manufacturing. This has allowed incomes, jobs and the economy to grow.“Americans now design and engineer products such as tennis shoes and iPhones assembled elsewhere,” said Colin Grabow, an associate director at the Cato Institute. “They may not toil in factories, or even work for companies that own factories, but are nonetheless vital cogs in production lines.”Since 1990 America has lost over 5mn manufacturing jobs. In that time, it has gained 11.8mn roles in professional and business services, and 3.3mn in transportation and logistical activities, linked to multinational supply chains.Some content could not load. Check your internet connection or browser settings.But, if the aim of a tariff wall is to force labour-intensive parts of the supply chain to move onshore, it will come at the cost of these higher-value activities. US businesses will need to shift resources towards them, which would mean scaling back on services and R&D operations. (As mentioned, foreign capital is unlikely to be forthcoming and labour supply is limited.)This also means accepting higher costs. Given less scale, higher wages (relative to developing economies) and the “transition costs”, Trump’s plan would raise consumer prices for low-income households that currently get cheap goods via international markets. Until domestic supply chains are established, higher import costs thanks to tariffs will have the same effect. A considerable portion of demand for any new production of physical goods would also have to come from abroad. Higher factory-gate prices and retaliatory tariffs by US trade partners will hinder that. Americans spend a greater portion of their income on services (health, services and entertainment). A lot of goods have also become “dematerialised” in the digital world (eg DVDs, maps). For measure, research by the Tax Foundation highlights how Trump’s Section 232 tariffs on steel and aluminium imports in his first term raised production costs for manufacturers (reducing employment in those industries), raised consumer prices and hurt exports. The Peterson Institute for International Economics estimated that the cost of “saving” a single job in steel-producing industries was around $650,000. Imagine this across Trump’s panoply of tariffs.Some content could not load. Check your internet connection or browser settings.If creating labour-intensive factory work will be hard, undesirable and difficult to achieve with tariffs, what’s the alternative? Should former industrialised parts of America just accept relative income decline?“What we have learned is that adjustments to big negative shocks to manufacturing employment — including the great recession, automation and import competition — are very slow and have big long-term consequences for communities,” said Kyle Handley, associate professor of economics at the University of California, San Diego. That means supporting people and businesses to adapt faster rather than protecting jobs. This would include easing planning rules to support regeneration, incentivising financial markets more towards investments in the real economy, backing retraining initiatives to help people upskill and ensuring robust competition policy. (Tariffs add barriers to entry and make it harder for smaller businesses to scale.) Some content could not load. Check your internet connection or browser settings.Globalisation has become a convenient scapegoat for domestic policy shortcomings in these areas. Fixing them would also incentivise more foreign investment and job creation in the US than protectionism.Building economic resilience and agility — to enable post-industrial communities to respond to and benefit more from the forces of international trade — is not easy. Nor is working with trade partners to deal constructively with disputes. But persevering at least preserves the growth-enhancing effects of global supply chains.Trump’s plan instead amounts to moving America back several decades. If that’s what his supporters want, they must also be content with making the nation as a whole poorer.Send your rebuttals and thoughts to [email protected] or on X @tejparikh90.Food for thoughtHow many “lost Einsteins” and “lost Marie Curies” are there, and what can be done about them? This IMF blog highlights how talented children from disadvantaged backgrounds end up innovating far below their potential.Recommended 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

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldThe writer is founding partner and head of research at Gavekal DragonomicsA week of tariff trauma has left the world economy not much worse off than it was on President Donald Trump’s “liberation day”. Trump climbed down from his most extreme reciprocal tariff threats, but we are still left with a 10 per cent minimum levy on almost all US imports, 25 per cent duties on steel, aluminium and cars, and an outlandish 145 per cent tariff on China. The president’s team is scrambling to rationalise the chaos as a master plan to build a coalition to defeat Chinese mercantilism. But any such plan is doomed to fail. To understand why, we first need to get at what Trump really wants from tariffs. The usual claims — that he wants to crack down on unfair trade practices, eliminate trade deficits, reindustrialise America, confront China — do not hold up. Trump often invokes these goals. But these stated aims often contradict each other, are contradicted by other policies or are obviously unachievable. A better explanation is that Trump is motivated mainly by a desire to accumulate and exercise power, and tariffs are the best instrument of that power. The purpose of his general trade war is to remove the constraints imposed by the global economic order on the unilateral exercise of US power, and in particular the exercise of power by the president. Tariffs are the preferred tool for two reasons. First, Trump has believed for decades that the rest of the world will pay any price to gain access to the US market. Second, and perhaps more important, until Congress chooses to stop him, Trump has unlimited personal authority to impose (or withdraw) tariffs on any country, at any time, for any reason. What Trump wants above all is to display dominance and extract submission. Countries that did not actively resist his tariffs were graciously granted reprieves from the higher rates. The country that dared to defy him was savagely punished. Most countries now understand that the various economic rationales offered by Trump’s advisers are just window-dressing. So long as Trump is in charge, the US is unreliable, and no sane leader will join him in a crusade against China.A second reason why Trump’s trade war on China will fail: last Wednesday’s ignominious retreat from “reciprocal” tariffs showed that the bond market sets the size of his tariff stick, and it is much smaller than he thought it was. Trump had to back off from high tariffs after an adverse market reaction.So Trump has lost his leverage in trade negotiations. He cannot raise tariffs again, because the Treasury market will revolt again. The incentive for most global leaders will be to cut quick deals where tariffs are lowered in exchange for cosmetic concessions and tokens of deference. These will not include promises to blow up their trading relations with China.The third reason why the China trade war will fail is China itself. At first glance China seems worse off now than the US: it has lost access to one of its biggest export markets, and seems diplomatically isolated. But in fact, it is well prepared to fight a war of economic attrition against the US. China may be losing demand from the US, but this can be replaced by domestic consumer demand, which has been abnormally weak thanks to overly tight monetary policy, and an obsession with pouring state resources into manufacturing. Xi Jinping has reversed course and is now serious about boosting domestic demand. China can also get along fine without imports from the US. Five years of export controls have helped it get very good at making things without American technology.Despite some market fears, China can stabilise without a major currency depreciation. Beijing has slightly relaxed its controls on the renminbi to absorb some of the tariff pressure, and might let it fall another per cent or two. But a convincing move to demand stimulus will bring in fresh capital flows, supporting the exchange rate.Meanwhile the US faces much higher inflation thanks to its tax on Chinese consumer goods. Its reliance on Chinese industrial inputs is three times that of China’s reliance on US components. Higher input prices are already hurting business investment. China has a demand problem that it can solve with better macro policy. The US faces a supply shock and possible stagflation, which can only be solved by economic regime change.If the aim of Trump’s new trade war with China is to get Beijing to bend the knee before US power, the result will only be frustration and disappointment. More

The European Central Bank is widely expected to lower interest rates at its meeting next week, but investors will be more interested in any clues on what an escalating global trade war means for monetary policy later in the year.Markets have moved to price in a faster pace of rate cuts as Donald Trump’s tariff blitz intensified. Even after announcing a 90-day pause on tariffs for countries other than China, traders are betting on three quarter-point reductions this year with the first coming on Thursday.Greece’s central bank governor Yannis Stournaras — a member of the ECB’s rate-setting council — warned in an interview with the Financial Times this week that a trade war would expose the currency bloc to a large “negative demand shock” that would create significant deflationary pressures. “Fears about a global trade war have upended hopes that the Euro area was on the cusp of a durable economic recovery in 2025,” said Michael Krautzberger, global chief investment office for fixed income at Allianz Global Investors. “The optimism from the recently announced German fiscal stimulus has quickly evaporated and been replaced by fears of a looming negative demand shock for the region.”Krautzberger added that he expected the ECB to be “sensitive to the downside growth risks facing the region, supporting its bias to ease policy further in the coming months”. Despite the expectation of rate cuts, the euro shot to a three-year high against the dollar this week as investors ditched US assets. Tommy StubbingtonWill the dollar continue to tumble?The pressure on the dollar is likely to continue as uncertainty surrounding Trump’s policies undermines confidence in the world’s reserve currency, investors warn.The greenback has plunged to three-year lows against the euro and has dropped 4 per cent against a basket of major currencies since the “liberation day” tariff announcements on April 2. The dollar index has also dropped below a key level of 100 for the first time since July 2023. Goldman Sachs predicted the currency, which has been weakening since the US president’s inauguration in January, could tumble further as Trump’s actions unsettle the markets. The White House was “eroding the exorbitant privilege long-enjoyed by US assets, and that is weighing on US asset returns and the dollar”, said Kamakshya Trivedi, head of global foreign exchange and rates research at the bank. Asset managers fear the reputation of the US financial system is being tested by Trump’s aggressive trade policies.The recent slide could be the start of a much broader shift of capital away from the US, according to John Butler, macro strategist at Wellington Management, which manages more than $1tn in client assets.“From a global investor perspective, such a scenario would imply that the US no longer offers the same protection against rising inflation,” Butler said.“If the Fed keeps rates elevated to combat above-target inflation, it will face increased political pressure,” he added. “[This] could undermine its credibility, which again is a negative for investors.” Alan LivseyIs UK inflation still falling?Investors will closely monitor UK inflation and wage growth data this week to assess the price pressures faced by the Bank of England as it prepares to lower interest rates.The annual inflation rate for March, released on Wednesday, is expected to fall to 2.7 per cent from 2.8 per cent in February before it starts to climb again, peaking in September.Falling fuel prices and distortions from last year’s early Easter are expected the be the main factors depressing the rate, according to economists.The Bank of England forecast in February that inflation will rise to 3.7 per cent by the middle of the year, but lower energy prices following the US tariff blitz might change those expectations.“The US tariff hikes have far-reaching consequences, which should ease the Bank of England’s worries about potential persistence in inflation,” Sandra Horsfield, economist at Investec, said. Weaker global demand, the possibility of lower import prices as Chinese goods planned for the US are diverted to Europe as well as lower energy costs will all ease pressure on inflation, she added.This means the March inflation numbers “may carry less weight in the Monetary Policy Committee’s assessment than in other, more normal, times”, she explained.The labour market data published on Tuesday is expected to show “payroll jobs falling, unemployment ticking up, but wage gains staying strong”, according to Rob Wood, economist at the consultancy Pantheon Macroeconomics.In normal times, this combination would support policymakers’ guidance for “gradual and careful” rate cuts, but the “ructions from President Trump’s tariffs will probably make the MPC more dovish for now”, he added. Valentina Romei More

For Nick Jarmoszuk, an Ohio industrialist, the trade war President Donald Trump has unleashed against China has not come a moment too soon.America’s trade imbalance with the rest of the world was “something that’s been festering for a long time, and it’s a good thing to address”, he said. “The longer you leave it, the tougher it is to fix.”Jarmoszuk is the founder and chief executive of Skylift, a small company in Lorain, Ohio, that makes equipment for electricity utility companies. He said he would not be hurt by the severe 145 per cent tariffs on China because his company used components manufactured in the US. “If most people did that we’d be in a better place,” he said.Many in Lorain agree with Jarmoszuk, despite the turmoil Trump’s protectionist agenda has caused across global markets, and believe the president’s policy can trigger a renaissance in US manufacturing.“The companies that produce in foreign countries should have to pay for taking jobs away from the US,” said Belinda Durm, who runs a used car showroom in downtown Lorain. “I think the stuff should be made here.”Nick Jarmoszuk, CEO of Skylift in Lorain, Ohio, which makes equipment for electricity utility companies More

The US and China’s dizzying tariff tit-for-tat has spurred Brazil’s agricultural sector and pummelled American farmers, as Beijing looks to Latin America’s largest economy for a swath of goods from soyabeans to beef.Brazil was a major winner in President Donald Trump’s first trade war with China, dramatically expanding its then-narrow lead over the US as Beijing’s biggest food supplier. It now looks set to pull further ahead, with exports to China already surging before Trump hiked his tariffs on the country by 145 per cent and Beijing added levies of 125 per cent.“It is a boon for farmers in Brazil and Argentina, and it will help their industry a lot,” said Ishan Bhanu, lead agriculture analyst at commodities data provider Kpler. “The ramifications of this will be longer lasting than the actual measures — in Asia, countries will build better relationships with South America.” Brazil’s beef sales to China climbed a third in the first quarter of 2025, compared with a year earlier, while Chinese imports of its poultry increased 19 per cent year on year in March, according to local trade associations. Meanwhile, foreign demand has seen Brazilian soyabeans trading at a $1.15 premium to their US counterparts on global markets, having sold at a 25-cent discount only in January.“China is moving quickly to secure supplies of not only soya, but other commodities,” said Rodrigo Alvim, international director of Brazil’s Minas Port Group. “This will result in less demand for American grains.”Some content could not load. Check your internet connection or browser settings.US agricultural shipments to China sank 54 per cent in January compared with a year earlier. The Asian giant typically buys 90 per cent of US sorghum exports and about half its soyabean exports.US farmers were “still reeling” from Trump’s first trade war and “certainly not thrilled about an extended” second one, Kentucky soyabean farmer Caleb Ragland, a three-time Trump voter, said on Thursday.In an open letter, Ragland, president of the American Soybean Association, pleaded with Trump to make a deal with China.“It is urgent that a deal happens. The farm economy is much weaker now than it was in his first term. After the first trade war, we lost nearly 10 per cent of market share to China that we never regained,” he wrote.China also last month in effect blocked a significant share of the entry of US beef exports to the country, valued last year at $1.6bn, by not renewing registrations that allow hundreds of US meat facilities to export there. There had also been only limited soy, wheat, corn or sorghum shipments this year, said a person familiar with US agricultural exports, who requested anonymity as they were not authorised to speak to the media.Some content could not load. Check your internet connection or browser settings.Many Chinese grain crushers had halted imports from the US, as tariffs eviscerated their margins, the person familiar with the industry said. “If the situation continues, grain shipments could go to zero by May,” they said. “The only way we could have a normal year is if tariffs go back to zero.”Brazil was in a strong position to capitalise on the shift, said Aurélio Pavinato, chief executive of SLC Agrícola, one of Brazil’s largest grain producers. “With China looking to diversify its suppliers and Europe increasingly viewing Brazil as a stable option, we’re seeing increased foreign demand and a significant uptick in prices,” he said.Europeans could also be forced to switch to sourcing from Brazil instead of the US, according to European trade association FEFAC More

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldAmerica under Donald Trump is an emerging market. That’s my takeaway from the last few days of tariff chaos and its fallout. When I first raised this idea last October, I pointed out that emerging markets are often characterised by uncertain economics, corrupt politics, institutions that are too weak to enforce democratic norms, violence and social polarisation. The US has been heading fast in that direction since 2016, for reasons we know all too well, though asset prices and borrowing rates hadn’t yet reflected it.   Instead, we frequently saw US equities and currency rising during periods of political and economic stress between 2016 and 2024, thanks to the haven status of the dollar. It didn’t seem to matter that all the things that had bolstered American companies, from low rates to financial engineering to globalisation itself, were tapped out. US asset markets seemed impervious to the notion of a dollar-doomsday scenario that would send both currency and asset prices tumbling.Trump has finally ended America’s exorbitant privilege. The president’s erratic leadership style, which reminds me of the guy who pulls off his steering wheel so that the other driver will be forced to swerve, is now endangering his country’s currency and equity values, as has always been the case in other, non-exceptional political economies with this much turmoil. As Mark Rosenberg, the founder and co-head of research at the research firm GeoQuant, pointed out last week, “we now see strong, emerging market-level negative correlations between political risk, and both the USD and S&P 500”. This is not a surprise, though many in the business and investment community have acted as though it should be. Too many CEOs were looking only at the possibility of tax cuts and deregulation in Trump’s second term rather than the broader instability and economic paradigm shift that it heralded.Trump’s personal behaviour certainly sent plenty of emerging market-like signals. Is there anything more EM than a leader who surrounds himself with lieutenants vetted mainly for absolute loyalty? The more leadership is about cult of personality, the more economic outcomes are determined by the individual ruler, who can give and take with impunity. And the weaker the institutions, the more likely it is that the ruler will get away with it.Trump’s election was “in many ways a product of the emerging market-like trends in social and institutional stability in the US that we’ve seen growing since 2017”, notes Rosenberg. Still, it took the threat of economic war on allies and adversaries alike, waged in ways that left even Trump’s own policymakers struggling to keep up, to shift risk perceptions. Poor US trade representative Jamieson Greer was in Congress defending tariffs even as Trump was granting a 90-day reprieve to many countries. Who will take him, or any of Trump’s cabinet, seriously in any future negotiation?Equity markets, at least until last week, acted as though Trump had some control over the situation he unleashed. When the president posted that it was a “great time to buy” stocks, they rose. That too is EM-like behaviour. I remember back in 2008, when Russia’s then prime minister Vladimir Putin spoke five sentences criticising a coal and steel oligarch, and $6bn was wiped off the company’s value in real time. In Turkey, the lira and other assets move significantly on President Recep Tayyip Erdoğan’s speeches and pronouncements.But the bond market knows better, and it has for some time been telling us what equities did not, which is that borrowing rates aren’t going down, and political risk isn’t going away. Even as equities enjoyed the post-election “Trump bump,” yields remained elevated. The fact that bonds, usually a haven, also sold off during last week’s equity market rout tells us that investors were either selling less risky assets to deal with losses elsewhere, or that trust in the US and its future is simply gone.In fact, last week may be remembered as the true, quantifiable beginning of the end of American economic exceptionalism. “Fear exists all over,” Euronext chief executive Stéphane Boujnah told France Inter radio a few days ago. “The country [United States] is unrecognisable and we are living in a transition period. There is a certain form of mourning, because the United States that we had known for the most part as a dominant nation resembled the values and institutions of Europe and now resembles more an emerging market.”I suspect that will be true under Trump with or without tariffs. Even if China backs down and humours the president (I don’t think it will), or we end up with only moderate shifts to the global trading system, the damage has been done. Trust is gone. Wall Street and Main Street alike are uneasy, and that changes behaviour.The capriciousness of Caligula capitalism is going to be with us at least until the midterms (I’m personally planning to be in cash and gold till then). But the legacy will linger much longer, particularly as the Trump tax cuts coming down the pike in a few months create a completely unsustainable debt picture. Is it possible that America could become the epicentre of the next emerging market-style debt crisis? I would have ruled it out once. Not any [email protected]       More

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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The founder of the private equity owner of AC Milan football club has predicted the sports sector can cope with the new US tariff regime but warned that if the trade war escalated it would not be immune to a damaging decline in consumer confidence and spending.Gerry Cardinale, managing partner and chief investment officer of RedBird Capital Partners, acknowledged that escalation in the trade war sparked by US President Donald Trump would hit sport indirectly through its effect on consumers. But he said sports operations had proved “resilient” in past downturns, including the 2008 global financial crisis and the coronavirus pandemic.Cardinale, a former partner at Goldman Sachs, was one of a series of figures associated with sports businesses who said the sector was in a good position to withstand the challenges of the US president’s tariff regime.Trump on April 9 imposed tariffs of 125 per cent on all Chinese exports to the US, prompting Beijing on Friday to impose similar levies on US exports to China. The president has delayed many tariffs on other countries but has retained a 10 per cent levy on most goods from countries other than China — and special, higher duties on imports of cars, steel and aluminium.Gerry Cardinale acknowledged there would be problems because consumers would have less money to spend on tickets and media subscriptions More