Aurelia Butler

This article is an on-site version of our Swamp Notes newsletter. Premium subscribers can sign up here to get the newsletter delivered every Monday and Friday. Standard subscribers can upgrade to Premium here, or explore all FT newslettersI’ve been in several conversations recently with senior Democrats and advisers who are considering how to play Trump’s disastrous tariff rollout politically. In many ways, this is low hanging fruit — the president inherited the best post-Covid recovery in the rich world, and is now pushing the economy towards recession. His ridiculous “buy” post on social media, which preceded the 90-day pause on additional tariffs, only confirms that we are now officially living in a banana republic. Policy is being made by one guy who is unhinged.But putting that aside, many centrist Democrats are saying this is the moment for liberals to move completely away from the conventional economic wisdom of both the Trump and Biden administrations, which is that the global trading system must be rebalanced. To take that lesson from the past few days would be a mistake.Trump’s tariff chaos was an unnecessary economic own-goal (I’ll have more on that in my column on Monday) that will have lasting consequences. But going back to the 1990s isn’t going to fix what’s broken globally.Let’s do a quick history review. During Trump’s first term, then USTR Robert Lighthizer bravely raised the curtain on the imbalances between the US and China and forced everyone to stop pretending that China would get freer as it got richer. The US put very surgical and strategic tariffs on China, which didn’t cause inflation, mostly because China took the hit with a currency adjustment. Biden then comes in, keeps the tariffs in place, but also rolls out a true industrial strategy, the highlight of which was the reinvigoration of the American semiconductor industry, which happened faster than anyone imagined possible. The fact that this didn’t get more good press is shocking, but what’s even more amazing is that Trump didn’t continue the strategy. Instead he’s actively talking about dismantling the Chips Act.This isn’t how a president that really wants to reindustrialise the heartland acts. Now, to be fair, Biden’s industrial policy wasn’t perfect. He should have paid a bit more attention to the potential short-term hit from inflation, and didn’t do the clean energy transition perfectly. (It would have been great to create shared environmental and labour standards with Europe and avoid giving Brussels the sense that the US was trying to build its own EV industry at the expense of the EU.) But it was a great start, particularly given that the US hasn’t had major government market shaping since the New Deal.Now, we have Trump 2.0, tariffs, and an economic paradigm shift with no rudder. Rather than building demand signals with allies, the president fights the world all at once. And despite his executive order to revitalise US shipbuilding that (finally) came down Wednesday, there’s no real industrial policy.This, I believe, presents an opportunity for Democrats. Rather than saying let’s go back to the Clinton era, as the usual neoliberal suspects inside and outside the party seem to want to do (that’s just not a winning political message for working people), it’s a moment to focus on how and why this tariff strategy is potentially devastating for lower-income voters. First, it would raise inflation significantly because it’s everything, everywhere, at all once, and that always hits the poor hardest. Secondly, the places that would likely scale back jobs and investment in the short-term would be areas like Detroit, because complex machinery like cars have so many imported parts.Rather, Democrats should use the next two years to really focus on a digestible, politically salient message around trade. Policy wise, I think that includes tariffs on China, which is the real problem in terms of mercantilist practices and security issues, but also a clear plan for how to support workers and industries at home. My fear right now is that despite market chaos, Trump’s plan, assuming we end up with some moderate deals around lowering tariffs globally, will seem pretty good to working people, and we will have to deal with yet another four years of Republicans’ unfunded tax cuts, undermining of relationships with allies, and attacks on democratic values.Jonathan, you’ve just come over from the UK to the US as the FT’s US opinion editor. What’s your fresh-eyed view on my political advice to Democrats? And have we just had our own Liz Truss moment, or is that yet to come?Recommended readingJonathan Derbyshire responds Hi Rana. I certainly think this is Trump’s Liz Truss moment — which is to say that he learnt a painful lesson, as the former UK prime minister did with her 2022 “mini” Budget, about the power of the bond markets to discipline elected politicians.I have lost count of the number of times since Trump announced the 90-day pause on “reciprocal” tariffs that I have heard people quote James Carville’s famous line about wanting to be reincarnated as the bond market because “you can intimidate everybody”, including, as it turns out, an unconstrained second-term would-be strongman apparently able to bend corporate America, the legal profession and the Ivy League to his will.Carville might have been right about the power of the bond vigilantes, but, as you suggest, the Democrats should nonetheless be wary of harking back too much to the Clinton era. A few weeks ago, I met a former official in the Biden administration who told me Carville was right to advise the party to “roll over and play dead” — in other words, to stand back and allow the Trump administration to make mistakes and generally wear itself out. That both underestimates the zeal of this administration and overestimates the extent to which the normal rules of political gravity apply to this president, Wednesday’s lesson in the dangers of hubris notwithstanding.It has become something of an article of faith for many Democrats that they lost November’s presidential election because Kamala Harris and her running mate Tim Walz had more to say about the threat Trump poses to American democracy than they did about the price of eggs. I was struck by something Barack Obama said last week, which many in his party would do well to consider: “I think people tend to think democracy, rule of law, independent judiciary, freedom of the press, that’s all abstract stuff because it’s not affecting the price of eggs. Well, you know what, it’s about to affect the price of eggs.”Your feedback And now a word from our Swampians . . . In response to “Are we seeing the fall of Elon Musk?”:“[Elon Musk] built his wealth from the ground up (yes, I know he didn’t found Tesla!) — giving him the same title of oligarch, as Russia/India/etc’s politically connected kleptocrats isn’t fair . . . They’re useless thieves — the worlds greatest nepo babies. Elon Musk, for all his faults, is not that.” — FT commenter Murcielago_BoyIn response to “Is Trump going into nosedive?”:“I sense an ongoing struggle — both in your assessment and across the broader FT and mainstream media — to connect the dots in a way that fully makes sense of the current moment. That struggle, I believe, stems from an assumption that there is still some underlying rational logic driving recent political developments. What the US is grappling with, however, is the ascendance of ideology over facts. In the realm of ideology, facts no longer matter. Figures like Lutnick understand this well. Brazen lies and disinformation aren’t anomalies — they are means to an end, used to reinforce and legitimise a worldview. Repeat it so many times until it becomes the fact.” — FT commenter Third wise manYour feedbackWe’d love to hear from you. You can email the team on [email protected], contact Rana on [email protected] and Jonathan on [email protected]. We may feature an excerpt of your response in the next newsletterRecommended 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

Asia’s developing economies are being squeezed by Donald Trump’s tariff blitz and China’s retaliation after years of benefiting as low-cost hubs for US exports.Stock markets of emerging nations, mainly part of the Asean group of countries in south-east Asia, have been among the year’s biggest losers from the turmoil created by the US president’s trade policies. Despite rallying on Thursday following Trump’s 90-day tariff reprieve, the stock markets of countries such as Taiwan, Thailand and Vietnam are deep in the red this year.Known as China-plus-one nations as western manufacturers snub Beijing and set up manufacturing bases in these countries, they are now hostage to the escalating trade war between the world’s two biggest economies.“With this global tit-for-tat trade war, businesses will probably want to pause fresh investments given all the uncertainty going on,” Brian Lee, an economist with the region’s Maybank Investment Banking Group, warned. “You will probably see slower reconfiguration of supply chains to Asean, at least in the short term.”The main index of Taiwan, where exporters of textiles and electronics have shifted factories from China, is down about 18 per cent for the year in dollar terms, despite a near 10 per cent surge on Thursday. Thailand’s stock market has followed a similar pattern, 18 per cent lower this year in dollar terms, despite a 5 per cent jump on Thursday. Vietnam’s Ho Chi Minh index is still down about 9 per cent for the year in dollar terms, even after rising nearly 8 per cent on Thursday after the US suspended a 46 per cent tariff the day before.Trump’s pause offers immediate relief, but trade uncertainties and rising tensions between the US and China — the main trading partner of Asean countries — pose big challenges.Economists warn that Trump’s focus on Beijing, which is facing US tariffs of at least 125 per cent, could lead to dumping of cheap Chinese products into south-east Asia, putting pressure on domestic manufacturing industries. The broader trade tensions could also slow foreign investments which have driven growth in a region that manufactures goods from Apple MacBooks to Nike trainers.Over the past 10 years, Vietnam’s stock market doubled in dollar total-return terms as investors bet that factories backed by multinationals such as Nike and Samsung would boost the earnings of a young population in an economy officially projected to grow 8 per cent this year.At the same time, the boom also brought diversion of Chinese goods, such as solar panels, through Vietnam to avoid US trade barriers on Beijing from Trump’s first term. That increasingly attracted US ire, even before Trump’s re-election. Vietnam has a $123.5bn trade surplus with the US — the third largest after China and Mexico. The so-called trans-shipment of goods diverted through these Asian economies by Beijing to the US could still pose problems.“China’s retaliation actually complicates Vietnam’s and other [economies’] negotiation with US, due to worries on Chinese firms exploiting Vietnam and others as a backdoor to dodge tariffs,” analysts at Japanese bank MUFG said.However, some investors are looking to markets that are less reliant on US exports or could trade more within the region. “Many of these countries were already moving from US exports to a more intraregional trade model. This trend, which is at a reasonably early stage in many countries, is only going to move forward,” Edward Evans, emerging market equities manager at Ashmore, said. Countries such as Indonesia also have room to cut rates to boost growth if the global economy darkens, he added.In addition, many of these countries, worst hit during the 1997/98 Asian financial crisis, have piled up foreign reserves to avoid a repeat.As the Indonesian rupiah tumbled this week past levels last seen in 1997/98, the central bank could draw on reserves of about $155bn, or enough to cover nearly seven months of imports, to intervene in support of the currency.For Hanoi, however, gross foreign exchange reserves make up less than three months of imports. Vietnam does not have “unlimited firepower to counter FX weakness”, Michael Wan, senior currency analyst at MUFG, said. At the same time, the “country’s competitive edge will ultimately shine over the medium term”, he added. That includes Vietnam’s relatively cheap labour supply and its proximity to trade routes.“The whole reason China is allocating a lot of its own manufacturing to places like Vietnam is because of cost,” James Johnstone, co-head of emerging and frontier markets at Redwheel, said. “The idea that we will have the production of iPhones or textiles in the US is very hard to think [about], even under the most extreme tariff conditions.” More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The decorative cowboy boots and soccer balls covered in stars and stripes in Walmart’s superstore in Grapevine, Texas have a proudly American aesthetic.But like thousands of other products in Walmart’s stores they are imported from China, meaning that when Walmart reorders them they will carry a 125 per cent tariff.Tariffs represent a massive challenge for the largest US retailer, but at a much anticipated investor event in Dallas this week that was overshadowed by questions over the fallout from President Donald Trump’s erratic trade war, Walmart’s executives sought to convince attendees that tariffs were an opportunity to win market share.“We see opportunities to accelerate share gains and we’re maintaining flexibility to invest in price as tariffs are applied to incoming goods,” John David Rainey, Walmart’s chief financial officer, told the audience. Walmart is returning to the same playbook that has seen it win market share from supermarkets, big-box merchandisers, department stores and discount dollar stores during the inflation wave of the past few years.The retail giant used its financial heft to secure favourable terms with suppliers and hold prices down, which kept its existing customers happy and attracted more middle-class shoppers, too.Walmart navigated through the tariffs introduced by Trump on China during his first term in office, but Trump’s 2025 trade war is of an entirely different magnitude and far more unpredictable.As attendees filed out of the formal presentations made by Walmart executives in a downtown Dallas hotel, to make their way on to buses for store tours, Trump announced he was pausing the imposition of tariffs by 90 days on countries willing to negotiate with the US. The decorative cowboy boots in Walmart’s superstore in Grapevine, Texas are imported from China More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The writer is a global economist and author of ‘The New China Playbook: Beyond Socialism and Capitalism’Technological leaps are rarely born in comfort. They are forged in conflict, competition and necessity. From nuclear energy to the space race, and now the unfolding artificial intelligence rivalry between the US and China — innovation accelerates when the stakes are highest. US President Donald Trump’s catastrophic tariff war may inflict serious economic pain on China, but it could also ignite a technological surge — not by design, but by necessity.Although China’s most urgent economic challenge remains internal, 125 per cent US tariffs give Beijing a clear pretext to act — to stimulate aggressively, subsidise strategically, sharpen its survival instinct and double down on technological supremacy.If Washington’s aim is to suppress China’s rise, it’s going about it all wrong.Tariffs don’t just alter trade flows — they redirect resources and reshape industrial structures. If Trump’s goal was to curb China’s technological progress, he would keep tariffs low on the bulk of Chinese exports to the US, locking the country into low-margin basic manufacturing. He would encourage high-tech exports to China, making sure that progress in its advanced components stalls.But this is the opposite of what’s happening. Ironically, just as the “China shock” pushed the US out of low-end manufacturing, the “Trump shock” is propelling China to reallocate resources into higher value, advanced technologies that compete directly with the US.Beijing has drawn its conclusion: innovation and core technology control is the only sustainable defence against tariffs. Companies with proprietary technology — like Huawei and BYD — are more insulated from tariffs and supply-chain shocks. China envisions a new tech supply-chain model: regional production, tech sovereignty and global supply-chain redundancy.Never have technology and innovation been as central to China’s national agenda as they are today. The “AI+” strategy aims to rapidly embed AI in all sectors possible. Low-cost AI model creator DeepSeek was born under constraint. It is now being deployed around the world.In 2019, a Rmb200bn “bottleneck technologies” fund was established to ensure 70 per cent domestic substitution in critical areas within three years. China is investing heavily in photonic quantum computing, building low-orbit satellite networks to rival Elon Musk’s Starlink and laying the foundation for commercial space stations. It is targeting breakthroughs in chipmaking equipment and leads the world in factory robot density.  If China had been drifting towards elevated state-led agendas, the tariff shock is pulling it back to economic fundamentals. The trade war is functioning as a reset, reaffirming the primacy of growth and competition. Support for the private sector is showing signs of revival. Tax relief and business-friendly policies are returning. Technological restrictions often have unintended consequences. Rather than stalling progress, they redirect demand inward. Take semiconductors: China consumes a third of global chips and once relied heavily on US suppliers. Sanctions didn’t reduce that demand — they rerouted it. Now, domestic companies such as SMIC are reporting record revenues and reinvesting in R&D. As the Chinese saying goes, good companies don’t “lie flat” — they adapt. The first wave of Trump’s sanctions sparked a globalisation frenzy. Chinese companies moved quickly to relocate production, expand into new markets and alter their business models. Shenzhen-listed Transsion now holds 51 per cent of Africa’s smartphone market. Smartphone maker Xiaomi derives 75 per cent of its revenue from overseas.Rising tariffs also accelerate the shift towards digital supply chains, service trade and cloud infrastructure — trends that play to China’s strengths in digital platforms, AI and ecommerce. Though still a manufacturing powerhouse, China accounts for less than 6 per cent of global service trade, leaving vast room to grow as that explodes relative to goods.  History has seen this dynamic before. When Napoleon tried to cripple British trade through the Continental System, Britain pivoted towards Asia, Africa and the Americas, towards industrialisation and mechanisation. Rising costs and pressure on wages were the catalysts for the steam engine, textile mills and naval power.   The US may be repeating that mistake. If making America great again is its goal, Trump should not fear a comfortable China; he should fear a constrained one.  More

This is an on-site version of the White House Watch newsletter. You can read the previous edition here. Sign up for free here to get it on Tuesdays and Thursdays. Email us at [email protected] morning and welcome to yet another new global trade order. Follow the latest developments on our live blog and you can measure the impact with our tariff tracker. Today let’s look at:Donald Trump blinked.After vowing not to back down from his aggressive, sweeping so-called reciprocal tariffs, the president made an abrupt reversal yesterday, authorising a 90-day pause in additional levies on a wide range of countries willing to negotiate with the US [free to read]. As he backed down, stocks soared to their best day in 17 years. The massive rally added about $4.3tn to the market value of the S&P 500, according to FT calculations.Trump played chicken with the market for an entire week, but his multi-front trade war had become unsustainable economically, financially and politically. While administration officials tried to paint the stunning shift as part of a master plan, Trump showed that he’s still vulnerable to backlash from Wall Street, lawmakers and donors.  He said he’d been mulling a pause for “the last few days” because “people were “getting . . . a little bit afraid” and “jumping a little bit out of line. They were getting yippie.” Once the market crisis extended to a sell-off in US government debt he buckled. The president started favouring advice from Treasury secretary Scott Bessent instead of trade hardliner Peter Navarro. He was also watching JPMorgan chief executive Jamie Dimon’s cable TV warning that the US was heading into a recession. “The bond market is very tricky, I was watching it . . . people were getting a little queasy,” Trump said as he explained his policy change yesterday.One Wall Street executive close to the White House told the FT’s James Fontanella-Khan that Bessent had helped Trump conclude that the US should pause tariffs on countries with which it has historically had good ties.“Trump is fine with Wall Street taking a hit but he doesn’t want the whole house to come down,” another person close to the White House told the FT’s Aime Williams. The president did, however, get more aggressive with Beijing, increasing additional levies on China to 125 per cent, escalating his trade stand-off with the world’s second-largest economy. As businesses scramble to adapt, some Chinese sellers on ecommerce platforms are raising prices by up to 70 per cent for US consumers.So just because the markets breathed a collective sign of relief yesterday, it doesn’t mean the trade uncertainty is gone. Investors are bracing for price falls ahead of the Wall Street open in 30 minutes.The latest headlinesWhat we’re hearingPodcaster Joe Rogan, left. His endorsement of Donald Trump was a critical moment in his election win last year More

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldDonald Trump rattled global investors again as he pressed ahead with his plan for aggressive tariffs on America’s largest trading partners even as he touted potential deals with some US allies.Equity markets fell sharply as Trump failed to soothe traders’ nerves just hours before he was set to hit countries from the EU to China with steep new levies, tilting the world into a full-blown trade war. White House officials, including Treasury secretary Scott Bessent, had sought on Tuesday to talk up possible trade negotiations with South Korea, Japan and other countries — a message that gave hope to investors that Trump could soften his stance after pressure from billionaire allies, trading partners and Republicans in Congress. But any relief was shortlived as it became clear that Trump was pushing ahead with his plan to unload an arsenal of tariffs against trading partners, ushering in a new era of global trade conflict.The new blitz of Trump tariffs from Wednesday will include additional levies on China, despite Beijing’s warning that it would “fight to the end” in a fast-developing trade conflict.The US’s extra 50 per cent tariff on China, the world’s second-largest economy, would “be going into effect at 12.01am” eastern time on Wednesday, according to White House press secretary Karoline Leavitt. “Everyone keeps hoping, keeps waiting for a pause in tariffs,” said Peter Tchir, head of macro strategy at Academy Securities. “But we’ve just slapped on the extra increased tariffs on China. We’re slowly losing this optimism that this is a negotiating tactic. That’s why trading has been so volatile today.”The benchmark S&P 500 index was up as much as 4.1 per cent early in the trading session, but ended with a loss of 1.6 per cent after Leavitt’s remarks — marking a fourth consecutive day of intense turbulence in Wall Street equities. Apple, which is heavily exposed to China through its supply chains, has dropped more than 8 per cent this week alone as investors worry about its margins. The $29tn US Treasury market has also come under rising selling pressure in the past two days, sending long-term borrowing costs jumping as volatility prompts hedge funds to sharply scale back on risk. “Market price action has been dramatic,” Wall Street bank Goldman Sachs said in a note to clients, adding that “our estimates of ‘shocks’ to market views using the joint movements of US equities and bonds are consistent with a large downgrade to US growth views”. The additional levies on China mean its exports to the US will face duties of more than 104 per cent — a level that will be seen as a provocation by Beijing, which has already retaliated with its own 34 per cent tax on US imports and moved to devalue its currency.Alongside the new China duties, the US will also impose taxes on almost all other imports from Wednesday — the “reciprocal” tariffs announced by Trump during his “liberation day” last week. That announcement has convulsed financial markets since then, wiping $6.2tn in market value from the S&P and sparking warnings of spiralling inflation in the US and a slowdown in the global economy. Oil markets have also slumped in reaction to expectations for a sharp slowdown in global trade, with the US benchmark West Texas Intermediate trading at less than $60 on Tuesday — a level that drillers have said will thwart Trump’s ambitions to increase American crude supply. The US president’s determination to follow through with his ultra-protectionist tariff policies has drawn a fierce backlash from Wall Street, business leaders and some Republican lawmakers.The looming trade war and economic disruption has also opened divisions within Trump’s own circle. While Bessent on Monday described his plan to launch talks with Japan over a new trade deal, Trump’s trade tsar Peter Navarro wrote in the Financial Times that the president’s position was “not a negotiation”. On Tuesday, Elon Musk, the technology billionaire and Trump adviser, attacked Navarro as a “moron” and “dumber than a sack of bricks” after Navarro suggested the Tesla boss’s opposition to tariffs was self-interested. More

US stocks closed sharply lower, reversing an early rally after the White House said Donald Trump would push forward with his threat to hit China with duties exceeding 100 per cent.The benchmark S&P 500 index closed down 1.6 per cent, a significant pull back from a gain of as much as 4.1 per cent earlier in the trading day. The Nasdaq Composite lost more than 2 per cent.Tuesday’s swings were the latest bout of turbulence in US stocks after Trump last week announced a plan to impose steep tariffs on dozens of countries, threatening to ignite an all-out trade war.The White House said on Tuesday that additional 50 per cent tariffs on Chinese goods would go into effect on Wednesday just after midnight in Washington. That would come on top of “reciprocal” measures announced last week, and other levies, bringing the total duties above 104 per cent.Earlier on Tuesday, the White House had signalled an increased willingness to negotiate with US trading partners over reducing their levies, but there were mixed signals as the day went on.Washington agreed to open talks with Japan, with US Treasury secretary Scott Bessent saying on Monday that Tokyo “would get top priority as they came forward very quickly”.Trump posted on his Truth Social platform that he had also spoken to the acting president of South Korea, adding that “we have the confines and probability of a great DEAL for both countries”.By contrast, tensions between the US and China ratcheted up on Tuesday as Beijing vowed to “fight to the end” if the US pressed ahead with steep tariffs on the country.A day earlier, Trump threatened to hit China with a 50 per cent additional tariff, after Beijing last week said it would match his “reciprocal” duty of 34 per cent.The region-wide Stoxx Europe 600, the FTSE 100 and Germany’s Dax were all up about 2.3 per cent on Tuesday.In currency markets, the US dollar was down 0.3 per cent against a basket of trading partners. Oil prices fell, with the international benchmark Brent trading down 3.8 per cent to below $62 a barrel in the New York afternoon, while WTI, the US marker, dropped 3.7 per cent to $58.46 a barrel.US oil prices are now below the level many American producers need to break even on their wells. More

An upbeat Scott Bessent walked into the US Treasury department on Tuesday, optimistic that the tensions between America and some of its allies in the wake of last week’s “liberation day” tariff announcement would soon be eased. “I think you’re going to see a couple of big trading partners do deals very quickly,” he told reporters. In the days before and after President Donald Trump announced steep tariffs on much of the world last week, the Treasury secretary was upstaged by boisterous hardliners such as Peter Navarro, the White House trade tsar, and Howard Lutnick, the commerce secretary.But this week Bessent has burst into the fray as the president has opened the door to negotiations with some allies in the face of the brutal sell-off in equities that triggered a backlash from Wall Street to Capitol Hill. Trump has designated Bessent to lead talks with Japan and South Korea, the first big US trading partners in line for an accord to potentially reduce the levies, alongside Jamieson Greer, the US trade representative. Meanwhile, Navarro, who has been deeply sceptical of negotiations over the tariffs, has been relegated to the sidelines — for now — along with Lutnick, who has been the main interlocutor for foreign trade officials. In recent days, two foreign officials have said the commerce secretary has made clear that he lacks the mandate from Trump to enter into trade talks with them.Commerce secretary Howard Lutnick, right, has been relegated to the sidelines — for now More