Aurelia Butler

The Trump administration had a bullish message after Wednesday’s wrenching volte-face on tariffs: the continuing turmoil will do nothing to dim the US’s lustre as the world’s most attractive trading power.The entire world is calling Washington, said press secretary Karoline Leavitt, speaking to reporters in front of the West Wing. “They need our markets, they need our consumers, and they need this president in the Oval Office to talk to them.”The mood in other capitals could hardly have been more different. Ever since the November election, trade officials from Asia to Europe and South America have been seeking ways to diversify their economies away from a US that appears determined to shred the global trading order.Those efforts have only accelerated since Donald Trump’s “liberation day” tariff package unveiled on April 2. Economic ministers from across south-east Asia met on Thursday afternoon for emergency talks, while the EU stepped up discussions this week with trading partners from the Middle East to the Asia-Pacific region.Top trade officials and economists see a seismic shift under way. Much of the world is doubling down on globalisation while the US turns its back on the postwar trading system it played such a central part in forging. “There will be more trade deals among the regions of the rest of the world as they seek to recover markets that they have been locked out from in the US,” says Maurice Obstfeld, former IMF chief economist who is now at the Peterson Institute for International Economics. Some content could not load. Check your internet connection or browser settings.Declarations of independence from US trade will undoubtedly prove easier to voice than to put into practice given exporters’ ongoing reliance on America’s voracious consumer goods market. And despite vows by leaders in Asia, Europe and the Middle East to seek more amenable partners than Trump, there is much that will continue to divide other parts of the world when it comes to trade policy. The biggest flashpoint lying ahead is the potential for Trump’s vertiginous tariffs on China — escalated to 125 per cent as part of Wednesday’s announcements — to provoke a flood of cheap Chinese products pouring into other markets. On Friday, China raised its own tariff on US goods to 125 per cent. Yet the attempts to forge new partnerships outside America’s orbit reflect a calculation among global leaders that Trump’s hostility to trade will drive an enduring period of uncertainty. Coming on the heels of the president’s moves to abandon decades-old agreements on defence, security, health and foreign aid, it heralds a permanent reorientation in global relationships with a US no longer seen as a reliable ally.“This is the end of an era,” says Vivian Balakrishnan, Singapore’s foreign minister. “The recent developments have convinced us that we need to accelerate this process of making common cause for multilateralism, economic integration, free flow of trade and investments and technology with as wide a group as possible.”Even before Trump’s “liberation day”, trade ministries around the world were stepping up diplomatic efforts to forge fresh links that might exclude the US. In recent weeks, government officials from several south-east Asian nations have visited countries as far flung as New Zealand, France, Brazil and India to discuss strengthening trade ties. These talks are building on several longer term initiatives to sign free trade agreements that cover huge geographic areas.European Commission president Ursula von der Leyen has agreed to a request from the UAE to start trade negotiations as each seeks alternative markets as a result of tariffs More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The Federal Reserve “would absolutely be prepared” to deploy its firepower to stabilise financial markets should conditions become disorderly, according to one of the central bank’s top officials. Susan Collins, head of the Boston Fed, said “markets are continuing to function well” and that “we’re not seeing liquidity concerns overall”. But she said the central bank “does have tools to address concerns about market functioning or liquidity should they arise”. “We have had to deploy quite quickly, various tools” she told the Financial Times, referring to past interventions to address chaotic conditions in markets. “We would absolutely be prepared to do that as needed.” Collins’s remarks come amid a week of intense turbulence in US markets after President Donald Trump launched a global trade war, triggering fears of recession. Selling that began in Wall Street stocks last week has now cascaded into the $29tn Treasury market, which sits at the heart of the global financial system. The Boston Fed chief spoke to the FT as another top US central bank official, the New York Fed’s John Williams, warned that Trump’s tariffs could send inflation sharply higher, push up unemployment and significantly weaken the country’s economic growth.The Boston Fed president also expected inflation could well be above 3 per cent this year. She said emergency rate cuts would not be the primary tool for responding to any deterioration in market function. “The core interest rate tool we use for monetary policy is, certainly not the only tool in the toolkit and probably not the best way to address challenges of liquidity or market functioning,” she said. The 10-year Treasury yield, a benchmark for trillions of dollars in assets worldwide, has jumped 0.5 percentage points to 4.5 per cent over the past week, a huge move for an asset that usually trades in small increments. Wall Street banks and investors have said that liquidity, or the ease at which traders can buy and sell without moving prices, has worsened as volatility has picked up in the Treasury market. Jay Barry, a JPMorgan fixed-income strategist, said on Friday, “liquidity is bad because volatility is high . . . The moves are enormous but the market functioning is OK.” He added that the sell-off in Treasuries had so far been “orderly”. Collins said any intervention by the Fed would depend on “what conditions we were seeing”. The central bank intervened during a period of major market dysfunction during the coronavirus crisis in 2020, when critical funding markets seized up as investors were gripped with fears over how the pandemic would affect the global economy. The Fed stepped in by reinstating financial crisis-era programmes that work as a pressure release valve for borrowing markets, while also launching unprecedented purchases of corporate debt. The central bank also cut rates to near-zero and removed its cap on the amount of Treasuries it could purchase as part of its 2020 interventions. Collins said on Friday that the Fed has at its disposal “additional standing facilities that can help to support market function, that are already in place”. More

At a cabinet meeting on Thursday, as US equity indices showed new signs of distress at Donald Trump’s trade policies, the president turned to Scott Bessent for an update on the markets. “I don’t . . . see anything unusual today,” the Treasury secretary responded, trying to offer Trump some comfort by citing lower inflation figures, a decline in oil prices, a well-received US bond auction and the expected positive outcome of talks to defuse tensions with America’s big trading partners.“We will end up in a place of great certainty over the next 90 days on tariffs,” he promised. That may be wishful thinking on the part of the 62-year-old former hedge fund manager from South Carolina. Treasury secretaries before him have faced bouts of serious economic and financial trouble, from Tim Geithner and Hank Paulson during the financial crisis to Steven Mnuchin and Janet Yellen at the height of the pandemic. But Bessent is charged with managing the repercussions of a shock delivered to the world by the president he works for, after Trump imposed across-the-board duties of 10 per cent on a wide range of imported goods from around the world, higher tariffs on many major trading partners and massively increased levies on China. While Trump abruptly rolled back some of his plans this week in response to investor pressure, US asset prices have continued to suffer. Bessent risks becoming known for presiding over not only America’s detachment from the global economy, but a self-inflicted hit to US markets, which could jeopardise the dollar’s status as the world’s reserve currency. “We may be headed for a serious financial crisis wholly induced by US government tariff policy,” Lawrence Summers, former US Treasury secretary, wrote on X earlier this week. To his supporters, however, Bessent has emerged as a potential saviour, the most senior official standing between Trump and a full-blown global trade war, in an administration otherwise stacked with hardliners. After he met with Trump in Florida last Sunday, the US president opened the door to talks with Japan and South Korea, putting Bessent in charge. Bessent was also in the Oval Office on Wednesday when Trump announced a 90-day pause in the steepest tariffs, with the exception of China. “He’s the perfect person to bring President Trump’s agenda back on course, so that we don’t tank the economy or the financial markets,” says Michael Oliver Weinberg, a professor of finance and economics at Columbia University’s Business School. “Some people in the administration are not as knowledgeable on economics, markets, booms and busts, whereas Scott is”. Bessent was born in 1962 in Conway, near the coastal city of Myrtle Beach, South Carolina. His father was a property investor and his mother helped run the family’s businesses.At Yale University, he obtained a degree in political science before developing a passion for finance: his first big break came in the early 1990s when he joined Soros Fund Management, run by billionaire liberal investor George Soros. From the London office, he played a key role in the group’s lucrative bet against the pound. “Scott was the person on the ground in London, really providing the economic basis, rationale and thesis for why Britain would have to exit the exchange rate mechanism,” said Weinberg. During a second stint working for Soros, Bessent led another successful bet — this time against the Japanese yen. In 2011, he married John Freeman, a former New York prosecutor: they have two children and recently sold their multimillion-dollar historic pink mansion in Charleston, South Carolina. “If you had told me in 1984, when we graduated, and people were dying of Aids, that 30 years later I’d be legally married and we would have two children via surrogacy, I wouldn’t have believed you,” he told Yale alumni magazine in 2015. In 2015, Bessent left Soros to found Key Square Group, his own hedge fund. The move coincided with his growing support for Trump’s political aspirations. He donated to Trump’s 2017 inauguration and became a major campaign donor in 2024 — embracing his pitch of tax cuts and deregulation. “He’s always had money,” said one financier who is close to him. “He’s lived well — private planes, beautiful homes.” Following Trump’s second win, Bessent’s champion to become Treasury secretary was Stephen Bannon, the political strategist. “He’s my guy,” Bannon wrote in a text message to the FT. “A ‘War Room’ contributor for 2 years — Maga loves him,” Bannon added, referring to the podcast he now hosts. Bessent has not had an easy ride in his first few months in office. Trump tasked him with securing a deal with Ukraine to secure access to its minerals and natural resources. It has yet to be signed. The S&P 500 index is down 13 per cent since he was sworn in, and the 10-year Treasury bond yield, the market indicator he watches most closely, has risen slightly despite the sell-off — suggesting investors are losing faith in its safe-haven status. Democrats have attacked him as hapless and aloof. “We need a Treasury secretary who is in the real world,” said Elizabeth Warren this week. The jury is still out on whether Bessent will be able to shape Trump’s trade war in a way that will be palatable to markets, the economy and foreign governments. “He’s always been a very private person, working in small teams . . . under the radar,” said the financier who knows him. “And now, suddenly he’s this high-profile public figure at the centre of absolute chaos.”Additional reporting by Myles [email protected], [email protected], [email protected] More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Germany and other European countries have cautioned against Brussels potentially hitting Big Tech if trade negotiations with the Trump administration fail over the next few months.US President Donald Trump earlier this month said he would impose a 20 per cent “reciprocal tariff” on all EU imports, which has since been reduced to 10 per cent over a 90-day period in which he is seeking talks with global partners. European Commission president Ursula von der Leyen in an interview with the Financial Times said Brussels was readying retaliatory measures should these talks fail, including a possible tax on digital advertising revenues that would hit tech groups such as Amazon, Google and Facebook.But Germany on Friday cautioned against such a move. “We simply have to be cautious with digital corporations because we have no real alternatives to the offering by the American digital industry,” said German finance minister Jörg Kukies, mentioning data centres for cloud services and artificial intelligence.“There are products where the ability to substitute from other services and other goods from other regions of the world is easy, and there are sectors where it is more difficult,” he said ahead of a meeting of European finance ministers in Warsaw to discuss the economic impacts of trade tensions. Kukies said that the bloc should prepare retaliatory measures, but added: “We just have to be nuanced and differentiated.” The EU has suspended its own retaliatory tariffs on US products such as yachts, motorcycles, clothing and foodstuffs for 90 days to allow for the talks to play out. Those levies had been imposed in response to Trump imposing 25 per cent tariffs on European steel and aluminium, which remain in place. France and most other EU member states support von der Leyen’s decision to draw up retaliation options on US services companies, according to people briefed on discussions between capitals. But countries with a large US tech presence such as Ireland and Luxembourg are more reticent.Eric Lombard, the French finance minister, told the FT: “We have said everything is on the table. Among the set of measures that we could take there could be measures that concern the digital industry. It is one of the elements on the table.” He added that the measure had not yet been decided and that the first objective remained “to reach an agreement with the Americans”. French President Emmanuel Macron has also raised the possibility of hitting digital services — an area that, contrary to trade in goods, the US enjoys a large surplus with the EU.EU economy commissioner Valdis Dombrovskis on Friday also said that “when we are discussing the trade response we obviously have to look also at trade in services including digital services”.Poland’s finance minister Andrey Domański, who chaired the discussions in Warsaw, appealed to the bloc to “remain united”. “We would rather prefer to first hear the Commission official proposal and then to comment,” he said. More

As news broke on Friday that Britain’s economy had grown by a striking 0.5 per cent in February, well above analysts’ expectations, chancellor Rachel Reeves was having breakfast in Downing Street with economists.The GDP bump was relayed to Reeves by an aide over WhatsApp, prompting the chancellor to surreptitiously reply with a “heart” emoji. “She was surprised, everyone was surprised,” said one ally of Reeves.For the chancellor, it was a welcome respite: a sign, perhaps, that her autumn Budget’s £25bn employer national insurance “jobs tax” rise, which kicked in this month, had not had quite the chilling effect many surveys had suggested. But Reeves was quick to note this was only a snapshot for a single month and that the Office for National Statistics data covered a moment in time before US President Donald Trump unleashed his global trade war. “The world has changed,” as Reeves put it on Friday morning. Her task is to ensure that signs of a British economic spring are not wiped out by the icy winds blowing through the global trading system. Reeves’ breakfast was part of a series of meetings this week to chart a way forward for the economy and to consider how to protect those sectors most exposed to the tariff disruption.Her starting point is that Trump’s 10 per cent baseline tariff — which hits Britain along with most other countries — will probably be in place for the foreseeable future, whatever trade deal the UK might strike with the US.While ministers hope they can persuade Trump to cut the 25 per cent tariff on British car exports, Prime Minister Sir Keir Starmer warned this week that the US president’s trade offensive was not “a passing phase”.Starmer has promised to “turbocharge” existing government plans — rather than bringing forward a suite of new policies — to deal with the new environment and Reeves is also looking to speed things up.Still, some Labour MPs believe Starmer and Reeves have yet to find the policy response to match their dramatic rhetoric about “the end of globalisation”. One said: “It’s all very well talking about it but where’s the action?”Reeves’ allies speak of a four-pronged response — or “four buckets”, to use Treasury parlance — one of which includes the chancellor playing a global role in building up trade alliances and defending free trade. Remarkably, Reeves is now the second longest serving G7 finance minister — after Italy’s Giancarlo Giorgetti — even though she has only been in post for nine months. The IMF and World Bank meetings in Washington later this month are seen as a key moment.Allies of Reeves claim she can play a convening role on trade in the same way that Starmer took a leading role in trying to shape a “coalition of the willing” to secure any peace deal in Ukraine. That initiative has, in the absence of peace, inevitably stalled.The second element will see the government accelerate decisions around the public spending review and industrial policy — both of which were due to come to fruition in June — to support the economy. Reeves wants to make some announcements in the coming weeks, including settling parts of the spending review — a “ground zero”, multiyear look at all Whitehall expenditure plans — ahead of the June 11 deadline.The spending review will focus on the £20bn of extra borrowing for capital expenditure allowed every year under Reeves’ fiscal rules, set out last October, to support areas such as transport infrastructure and energy projects.“We don’t want to see this money just used to fix school roofs,” said one ally of Reeves. “We want to invest in technology in the public sector. There’s a large amount of cash to invest in high growth areas.”A third “bucket” relates to propping up sectors most affected by Trump’s tariffs, notably cars, life sciences and potentially pharmaceuticals — linked to the development of the industrial strategy.Some content could not load. Check your internet connection or browser settings.Ministers are also preoccupied with saving the steel industry, which was stricken by structural problems before Trump imposed a 25 per cent global tariff on US steel imports. Emergency legislation will be introduced on Saturday to try to save the British Steel plant at Scunthorpe, the country’s last blast furnace facility.The problem, according to people working closely on the new industrial strategy, is that it does not measure up to the scale of the global change that is taking place — in Reeves’ favourite phrase — “before our eyes”.One person working on the strategy, which is intended to focus on eight key growth sectors, said simply: “As it stands at the moment, it’s a complete red herring.”Reeves’ team insist the industrial strategy is not all about money — regulatory reform and the removal of barriers to growth are viewed as critical — but they are aware of being seen to pursue “Bidenomics” but without the funds. One ally said: “Keir and Rachel see this as a priority. There’s definitely renewed energy going into the industrial strategy.”The fourth part of Reeves’ plan is to complete a US trade deal, heavily focused on closer tech co-operation, although an “economic pact” with Trump does not appear to be high on the White House’s agenda for now.Just as politically tricky is Starmer and Reeves’ attempt to develop closer economic ties with Europe — a crucial UK-EU summit takes place on May 19 — building on a proposed pact to link up British and EU military capabilities.Even more sensitive is an attempt to build up trade links with China, apparently hoping that Trump does not notice. Douglas Alexander, trade minister, was in China this week.Reeves, who is more accustomed to receiving bad economic news than good on her phone, now faces a crucial few weeks as she attempts to nurture against the elements the “green shoots” glimpsed in February’s growth figures. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The US-China trade war has escalated to new heights. This week Donald Trump focused his protectionist zeal firmly on his longtime economic foe. On Wednesday, the US president paused “reciprocal” tariffs — above a 10 per cent flat rate — on all trade partners bar Beijing. US imports from China now face total duties as high as 145 per cent — retribution for its retaliation against the White House’s April 2 tariff announcements. Trump’s team will also soon enter tariff negotiations with nations supporting Chinese supply chains. On Friday, Beijing returned fire, increasing its tariffs to 125 per cent. The world’s largest exporter and largest consumer market are now, in effect, walled off from each other.The US president’s next moves remain, as ever, uncertain. For China, the upheaval of the global trading system leaves it with a strategic choice over how to shape its economic policy. In the near term, losing access to US markets and the rising risk of a global recession will erode its external demand. As it is, domestic consumption is still languishing from a real estate crunch. President Xi Jinping also wants technological production to underpin its long-run growth model, which leaves the country vulnerable to Trump’s rambunctious approach to international trade.China could take advantage of the turmoil. The White House’s readiness to impose hefty duties and cause chaos in financial markets has sapped US credibility with trading partners. Trump has given Beijing a motive and opportunity to integrate more with those nations. After all, most countries still believe in the benefits of trade and China is already the top trading partner for many countries worldwide.But Beijing needs to read the room. Right now nations are on alert for cheap Chinese products previously bound for America being diverted into their markets. This builds on growing concerns that the Chinese export machine is crushing domestic industries, from mining to automaking, across the world. Last year China’s global trade surplus in goods hit a record $1tn. The US is far from alone in accusing Beijing of using unfair tactics. Since becoming a member of the World Trade Organization in 2001, allegations raised against China include dumping, unfair subsidies, and weak intellectual property protections.If China ignores these concerns it risks a backlash in more countries, not just Trump’s America. That would stymie the nation’s growth prospects, broaden global protectionism, and slow growth worldwide. Instead, Beijing should be more engaged in assuaging trade partners’ concerns, particularly those of the EU, the world’s largest trading bloc. European Commission President Ursula von der Leyen told the FT that China’s Prime Minister Li Qiang had promised to stimulate domestic consumption to avoid flooding European markets with Chinese products. Beijing ought to abide by that. Relying on exports is not sustainable for its long-run trading relations or its own economic development.China cannot afford to write off the US market either. Although it began decoupling from America in Trump’s first term, the US consumer will still be an important source of demand for Chinese products. It is true that Beijing has leverage in the trade war: it has significant holdings of US Treasuries and it could clamp down on US businesses operating in China. But continuing the tit-for-tat cycle of economic sanctions with America is not in either country’s interests, or those of the global economy. Both sides need to find an off-ramp and negotiate their way out of this crisis.Trump’s chaotic agenda and focus on trade deficits has put international concerns with China’s overproduction into the spotlight. As the global trading order shifts, its own prosperity also depends on adjusting its economic model. More

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldDonald Trump’s tariffs will send US inflation soaring to as high as 4 per cent this year, push unemployment higher and hit economic growth amid “pervasive” uncertainty, a top Federal Reserve official has warned. New York Fed chief John Williams said in prepared remarks on Friday that a “pervasive sense of uncertainty is becoming increasingly evident, especially in so-called soft data such as surveys and information from business contacts”. He added that there had been “a sharp decline in consumer sentiment, and business sentiment measures have weakened, too”. Williams said that he expected inflation to reach 3.5 to 4 per cent this year as a result of Trump’s tariffs, much higher than the Fed’s 2 per cent mandate and far above the 2.5 per cent February reading for the central bank’s preferred PCE inflation measure. He also said that he expected growth to “slow considerably from last year’s pace, likely to somewhat below 1 per cent”, while unemployment could rise from 4.2 per cent currently to 4.5 to 5 per cent. The gloomy assessment from one of the Fed’s most prominent officials comes as US financial markets have been rocked over the past week by Trump’s announcement of ultra-protectionist trade policies that he only partially rolled back. Last week, Jay Powell, the Fed chair, had warned that the tariffs proposed by the administration had been larger than expected and the result was likely to be higher inflation and slower growth. But Williams’ comments are more dire and more specific, and are far gloomier than the projections posted by Fed officials during their March meeting, which had inflation rising by 2.7 per cent and GDP expanding at a rate of 1.7 per cent. Despite the gloomy outlook, Williams said “the current modestly restrictive stance of monetary policy is entirely appropriate given the solid labour market and inflation still above our 2 per cent goal”.The comments from Williams came as data showed US consumers’ inflation expectations surging to their highest reading since 1981 in April, as sentiment fell sharply for a fourth consecutive month. Some content could not load. Check your internet connection or browser settings.The University of Michigan’s consumer sentiment index fell to a preliminary reading of 50.8 in April, its fourth successive drop and the lowest reading since June 2022, according to LSEG. Economists polled by Reuters had estimated a fall to 54.5 from 57 in March.  More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.China said it would increase its retaliatory tariffs on US goods to 125 per cent, in the latest escalation of the trade war between the world’s two biggest economies.China’s finance ministry said the increase from current additional levels of 84 per cent would take effect from April 12.But the ministry added that it would ignore any further US tariff rises on Chinese exports, “given that at the current tariff level, there is no market acceptance for US goods exported to China”.“The US’s imposition of abnormally high tariffs on China seriously violates international economic and trade rules, basic economic laws and common sense, and is completely unilateral bullying and coercion,” it said.The move is the latest in a week-long tit-for-tat between the two countries in which US President Donald Trump’s administration has attempted to isolate China after pausing some tariffs on other trading partners.It comes alongside a mounting wave of shipping disruption that threatens to break down international trade between the countries, with cancellations of shipments set to disrupt transpacific voyages.According to the state news agency Xinhua, Chinese President Xi Jinping said on Friday that “there are no winners in a tariff war” and “confronting the world will only lead to self-isolation”.The world was “undergoing accelerated changes unseen in a century, with overlapping risks and challenges”, Xi said.The chaotic rollout of Trump’s aggressive tariff agenda has convulsed markets since his “liberation day” announcement on April 2, wiping trillions of dollars from global stock indices and sending bond yields soaring.On Friday, the dollar slumped to a three-year low against the euro, which rose as much as 2.4 per cent against the US currency to $1.147, its highest level since February 2022, before paring some of its gains.Earlier this week, Trump introduced a 90-day pause for dozens of countries from his so-called reciprocal levies announced at that time, prompting a recovery in market prices. China was excluded from the reprieve.Trump last week introduced additional tariffs on China of 34 per cent, which added to two previous increases of 10 per cent. He has since repeatedly increased duties after retaliation from Beijing.Trump’s latest escalation this week has raised US duties on Chinese imports as high as 145 per cent.China’s average tariff on US imports now stands at 147.6 per cent, according to Chad Bown, senior fellow at the Peterson Institute.Some of China’s largest companies have begun rolling out measures to soften the impact of the US tariffs. Ecommerce group JD.com on Friday unveiled a Rmb200bn ($27bn) initiative to help suffering exporters, saying it would buy made-for-export goods to resell in China’s domestic market.The retailer added that Chinese companies that had been “going global” for years faced “challenges when shifting from exports to domestic sales, such as unfamiliarity with the local market and a lack of operational experience”.The supermarket unit of internet giant Alibaba also said it would work with exporters to expand their domestic sales.Additional reporting by Gloria Li in Hong Kong More