Aurelia Butler

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Funny how stuff comes together sometimes.Last month, mainFT’s Valentina Romei and our very own Robin covered how a January surge in US gold imports by traders trying to get ahead of tariffs had temporarily broken the Atlanta Fed’s GDPNow model, leading it to indicate a looming recession. The culprit behind the leap in “finished metal shape” (aka gold bar) imports was Switzerland.And if you’re a Swiss cheese exporter with a large US clientele, that could end up mattering a lot, depending on the future whims of the White House.The reason is simple — again, in a stupid kind of way. We’ve dwelled a lot upon how inane the Trump Administration’s “discounted”, “reciprocal” tariff calculation is.If you’ve somehow missed it, it’s broadly (with some exceptions, including a blanket 20 per cent levy on EU goods): take America’s 2024 trade balance with a country, divide it by the amount the US imported from that country, divide the result by two, and make that the tariff percentage. If the percentage is below 10, make it 10. Sorry to the UK.It’s a crude mechanism, and one that produces particularly wild results for smaller economies that often simply sell the US things the US can’t make or grow itself.But it’s easy to get caught in the stupefying simplicity of the calculation, and ignore the stupefying simplicity of the data pool. Justifying the tariffs, the USTR release says:The failure of trade deficits to balance has many causes, with tariff and non-tariff economic fundamentals as major contributors. Regulatory barriers to American products, environmental reviews, differences in consumption tax rates, compliance hurdles and costs, currency manipulation and undervaluation all serve to deter American goods and keep trade balances distorted. As a result, U.S. consumer demand has been siphoned out of the U.S. economy into the global economy, leading to the closure of more than 90,000 American factories since 1997, and a decline in our manufacturing workforce of more than 6.6 million jobs, more than a third from its peak.So how better to assess that epochal, multi-decade economic shift than by extrapolating an entire policy from only 2024 data?Back to Switzerland. Exports of goods deemed Swiss to the US face a reciprocal tariff of 31 per cent — markedly higher than that flat 20-per-cent EU rate — reflecting $64bn of Swiss exports to the US and a trade surplus of $39bn against the Americans in 2024. Now, the GDPNow-distorting influx of gold fell within 2025, but the US also saw less extreme “finished metal shapes” jumps last year that lined up with rises in imports from Switzerland. In short, the overall Swiss 2024 numbers also seem to be unusually swollen by the yellow stuff.So how different might Wednesday’s tariff announcement have been if “Liberation Day” had been this time last year, based on 2023’s figures, or in another recent-ish year? Well, quite a lot:Some content could not load. Check your internet connection or browser settings.It’s a tough break for Swiss cheesemakers and clockmakers, who now face a bigger tariff barrier than they might have got in 2024 or 2023. But could things get worse? Let’s imagine “Liberation Day” becomes an annual occurrence — a federal stock-market holiday, even! — and on April 2, journalists gather in the Oval Office as the President presents updated tariffs based on the same formula. This would probably create all kinds of odd situations around countries trying to game their trade stats, but for now let’s hand-wave that away. Over enough time, this could mean the long-term average tariffs paid are “fairer”, insofar as the (crude, unfair) tariffs would at least not be biased by any potential oddities of a single year, 2024.Of course, rates could still end up biased by a series of other potential oddities from other individual years. That potential volatility would force exporters to the US to plan for a future in which the price of their goods fluctuates wildly each year based on their country’s annual trade balance. Not great for planning.But there is no clear plan for “Liberation Day” to be an annual occurrence, of course. These tariffs are supposedly going to be the baseline for the rest of the Trump Administration; or until President Trump changes his mind; or possibly forever, depending on how confident you feel about the strength of US institutions. In other words, 2024’s trade data might end up mattering for a long time. Who might then appear be victim of timing, and who might have just got lucky?Well, here are all the countries for whom FT Alphaville could get enough sequential data to roughly answer that question. Relatively bigger 2024 column compare with previous years = more hard-done-by. Relatively smaller = a good year to be tariffed on:Some content could not load. Check your internet connection or browser settings.(Note that in this and the subsequent diagrams we’ve shown EU countries as disaggregated, ie they get a variable 2020–23 implied rate and only receive the blanket 20 per treatment for 2024.)Sequencing them by the spread between 2023’s implied rate and 2024’s actual rate, things look tough for Vanuatu and Laos (and we’re left wondering what happened in Comoros last year):Some content could not load. Check your internet connection or browser settings.We will concede that the Y-axis labels above are unforgivably small, but we refuse to change that because 2023 is of course equally flawed as a single year to look at.A mildly better way to assess fairness is to compare the applied tariffs to some kind of average. So now that we understand the system, let’s compare the announced rates with an theoretical average over five years (even though that will capture some pandemic-era jankiness):Some content could not load. Check your internet connection or browser settings.Vanuatu . . . ouch. Assuming its trade relationship normalises to recent trends this year, Vanuatuan exporters should really hope Liberation Day does become a regular thing. Swiss cheesemakers may feel differently. As a reminder, here’s how the US/Swiss trade relationship shifted in January:Some content could not load. Check your internet connection or browser settings.Managing roughly half an ordinary year’s worth of exports to the US in a single month means — if Liberation Day does return — that Switzerland could be on track for a horrible tariff recalculation.If so — and unless there’s a monumental reversal over the rest of this year — then 2 April 2026 would be a bad day in the Swiss dairy.Further reading:— O dirang, Donald? (FTAV)— Reciprocal tariffs: You won’t believe how they came up with the numbers (FTAV)— The stupidest chart you’ll see today (FTAV) — Academic citation malpractice, reciprocal tariffs edition (FTAV) More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.This article is an on-site version of our Unhedged newsletter. Premium subscribers can sign up here to get the newsletter delivered every weekday. Standard subscribers can upgrade to Premium here, or explore all FT newslettersGood morning. You probably don’t need Unhedged to tell you that it was a very nasty day on Wall Street yesterday. The S&P 500 fell 5 per cent, with banks and tech taking an absolute whipping while hidey-hole sectors such as staples and healthcare rose. Treasury yields fell. A classic flight from risk, with some surprising wrinkles, such as a decline in gold. Below, we look at another move that caught us off-guard: the dollar’s big drop. Send us your thoughts: [email protected] and [email protected]. The dollar’s bad dayUS tariffs, the consensus story goes, push the dollar up. Tariffs lower demand for imports, resulting in fewer dollars getting swapped for foreign currencies. That decreases demand for euros, yen and the rest, and raises the dollar’s relative value.On Wednesday, President Donald Trump announced the highest US tariffs in almost a century, and the dollar weakened thereafter. Yes, weird things happen on days like yesterday, when markets have to quickly rearrange the financial furniture after a major shock. But the 1.6 per cent tumble in the dollar index — the biggest one-day fall since 2022 — looks like the continuation, or acceleration, of a trend that began early this year. It’s important to understand what’s going on here: There are a many possible explanations — and a few may be working in concert. Markets may know there is more news coming on tariffs, and soon. Retaliation from the US’s trading partners is on the way. Trump may back off when pressed, as he has in the past. From Calvin Tse, head of US strategy and economics at BNP Paribas:Our framework for foreign exchange [markets] going into today was that for new tariffs to have an impact, there were both size and duration elements to consider. Specifically, for the USD to materially rally, tariffs would have to be much larger than expected and also stay in place for a significant period. [Only] the first prerequisite has been fulfilled.The second possibility is that the dollar’s decline is a result of falling Treasury yields relative to other sovereign bonds. The opportunity for arbitrage means that currencies follow rate differentials closely. But this can’t be the whole story, as James Athey of Marlborough Group pointed out to us. Look, on the far right in the chart below, how the dollar-euro exchange rate and the differential between the two-year bonds of the US and Germany came apart yesterday, with the dollar falling further:  Some content could not load. Check your internet connection or browser settings.Another possibility is that global investors, who have been very overweight US risk assets, have decided to cut back. The dollar selling that that requires could be outweighing foreign flows into Treasuries. This sort of rebalancing, Athey says, is “a huge (and I mean huge) risk because of the extent of foreign ownership of US assets, for equities in particular — foreigners own 18 per cent of the US equity market, and it was 7 per cent in 2000”. This makes intuitive sense on a day when many Wall Street economists increased their odds of a US recession this year.Historically, however, there have been few if any cases of the US falling into a recession from which the rest of the world emerges unhurt. Trump’s tariffs will hurt the US economy; they will almost certainly hurt other economies more. And during times of global trouble, investors have tended to flock to the dollar and dollar assets as a safe haven (this is half of “the dollar smile”; the other half being when the dollar rises in boom times). If risks to the world economy rise, and yet the dollar weakens, is the dollar’s special status eroding? From Thierry Wizman at Macquarie Group: We know that this role of the USD as a ‘haven’ was already attenuating in the first quarter of 2025. That’s because the weekly gains of the dollar . . . had become more negatively correlated with weekly stock market performance . . . That’s a pattern we attributed to the associated loss of American exceptionalism under the push for a more ‘autarkic’ trade regime for the US.Not everyone agrees with Wizman that a shift away from the dollar was already under way. “There is no evidence that money is leaving the US en masse,” said Michael Howell of CrossBorder Capital. “The [capital] flows data does not support that takeaway; at the end of February, there was no evidence of shifts out of the dollar. [Recent] moves in the dollar index are not sufficient to suggest there is a secular change away from the US.” Unhedged will reserve judgment on the end of dollar exceptionalism. But there is another, less grand explanation for what is happening. Differences in the fiscal impulse in the US and other countries are clearly contributing to relative dollar weakness. The US is coming off years of economic outperformance, powered in part by massive fiscal stimulus. Under Trump and the Republicans, the amount of fiscal stimulus is likely to be lower. Meanwhile, China and Europe look set to crank up their spending.We still have a lot to learn about the economic impacts of Wednesday’s tariffs. When Trump first shocked the world with tariffs back in 2018, we were living in a very different world, Manoj Pradhan of Talking Heads Macro points out:At the time, there were two years to a presidential election, and there was every chance at that point that there would be six more years of a Trump administration . . . there was no inflation, less concern about deficits or debt sustainability, or questions around whether the Fed would continue to be on hold. This time around, we have levels of inflation that are worrisome [and] Trump has razor thin majorities in the House. Whatever retaliation you could have could impact growth, and there is a possibility that the midterms could really change things. We’re in a new world. The dollar won’t be the last thing to surprise us. (Reiter and Armstrong)One good readThis seems like a violation of privacy but we are definitely buying the book.FT Unhedged podcastCan’t get enough of Unhedged? Listen to our new podcast, for a 15-minute dive into the latest markets news and financial headlines, twice a week. Catch up on past editions of the newsletter here.Recommended newsletters for youDue Diligence — Top stories from the world of corporate finance. Sign up hereFree Lunch — Your guide to the global economic policy debate. Sign up here More

This article is an on-site version of our Europe Express newsletter. Premium subscribers can sign up here to get the newsletter delivered every weekday and fortnightly on Saturday morning. Standard subscribers can upgrade to Premium here, or explore all FT newslettersGood morning. News to start: Nato’s European members must agree a “joint road map [and] timetable” with the US to shift the burden of defending the continent, Finland’s defence minister told the Financial Times, to avert a unilateral withdrawal by the Trump administration that Russia could exploit.Below, I have more from the minister on how to sidestep Hungary’s pro-Russian spoiler tactics. But before that, our trade maestro explains Brussels’ stuttering response to Donald Trump’s tariff onslaught.Have a liberating weekend. Delayed reaction The US has whacked the EU three times with tariffs in the space of a month. Yet Brussels’ first response is still being thrashed out by nervous member states, writes Andy Bounds.Context: US President Donald Trump levied tariffs of 20 per cent on almost all EU exports on Wednesday. That is on top of 25 per cent of sectoral levies on steel, aluminium and cars.The European Commission has said it wouldretaliate on up to €26bn worth of US goods for the tariffs on steel and aluminium. But the US is hitting €350mn plus of EU products — and Brussels has yet to come up with a response for the rest of them.France, Italy and Ireland want bourbon whiskey taken off the steel retaliatory list, on the grounds that Trump threatened to escalate with 200 per cent levies on wine and other alcohol.Antonio Tajani, Italy’s foreign minister, met EU trade commissioner Maroš Šefčovič yesterday to plead his case. “Putting a sanction on whiskey means provoking a reaction on the alcohol that we export, wines in particular. And since we export much more alcohol than we import, it would be a form of self-harm,” Tajani said.He also wanted motorbikes taken off the list, fearing for Moto Guzzi and Ducati, as well as jewellery, precious stones and another 30 products.Tajani instead wants talks to eliminate all tariffs between the two sides. Šefčovič will have an online call with his American counterpart tomorrow, but talks have so far yielded no progress. One issue is that Howard Lutnick, the US commerce secretary he talks to, appears to have little sway with Trump. Peter Navarro, Trump’s trade adviser, called the shots, said one EU diplomat. “It seems that Peter Navarro is the architect of these policies. But he will not be the one to negotiate,” said the diplomat.European Commission president Ursula von der Leyen yesterday promised the EU was preparing to respond to the tariffs in kind, but she was “ready to negotiate to remove any remaining barriers to transatlantic trade”. Officials however insist the conversation must be two-way, with Washington dropping some of its non-tariff barriers. The EU will send its revised list of retaliation measures to member states on Monday, with a vote planned for next week. The tariffs would then be passed into law on April 15, but only apply a month later.Stéphane Séjourné, the EU’s industry commissioner, said he would meet industry leaders on April 10 to take the temperature.“The objective will be to assess the consequences for the sectors, discuss the format of the countermeasures and the means of supporting our companies,” his office said.Chart du jour: Flying awayAnother effect of the Trump tariffs: The cost of air freight to the US immediately surged, as businesses rushed to import products before the measures hit.Bypassing BudapestBrussels must be legally “innovative” to prevent Hungary from blocking support to Ukraine or easing pressure on Russia, Finland’s defence minister has said.Context: Hungary, the EU’s most pro-Russian member state, has repeatedly delayed or weakened sanctions against Moscow and vetoed military support for Kyiv. It has also threatened to release some €190bn of frozen Russian state assets in July, when the sanctions immobilising them come up for renewal.“All the [EU] nations are stepping forward with their own national budgets [to support Ukraine]. There are good signs. But Hungary is a problem,” Antti Häkkänen told the FT. “The European Commission has to find a legal and financial instruments for that.”“I know the European Commission’s lawyers, they can be really innovative. So now is the time to use all the ideas,” he added. “How to find different kinds of funds, back ups for loans or something like that, that we can continue even stronger Ukrainian support.”Häkkänen’s fears are shared by many EU capitals worried about Hungary blocking the sanctions extension — which requires unanimity — or preventing new financial support packages for Kyiv from being agreed.“If there’s a bad peace [in Ukraine] and the sanctions are being lifted off too quickly, Russia will get the energy incomes and re-arm themselves faster,” Häkkänen said. “And that’s a problem for the whole of Europe . . . what we have to now use is EU funding to aid Ukraine’s military.”What to watch today European Commission president Ursula von der Leyen and EU Council president António Costa attend the EU-Central Asia summit in Samarkand.Now read theseRecommended newsletters for you Free Lunch — Your guide to the global economic policy debate. Sign up hereThe State of Britain — Peter Foster’s guide to the UK’s economy, trade and investment in a changing world. Sign up hereAre you enjoying Europe Express? Sign up here to have it delivered straight to your inbox every workday at 7am CET and on Saturdays at noon CET. Do tell us what you think, we love to hear from you: [email protected]. Keep up with the latest European stories @FT Europe More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The writer is co-founder and chief investment strategist at Absolute Strategy ResearchDonald Trump has weaponised trade with his “liberation day” tariffs. Up until the announcement, investors had fixated on how the tariff details will impact the stocks in their portfolios. But it is clear the impact will be much broader and consequential. And there is one key risk investors need to appreciate — the potential for tariffs lead to a reduction in capital flows.The first risk is that capital is reallocated away from the US, towards non-US markets. Investor surveys, including by my firm, suggest that this is a trend that is under way and will accelerate. ETF flows also have shifted towards non-US vs US funds in the past six months.The second risk is from reduced cross-border capital flows as trade imbalances fall. Current accounts and capital accounts are inherently linked. The absolute size of current account surpluses and deficits maps closely on to the estimate of cross border capital flows by the Bank for International Settlements. If American tariffs reduce the US trade deficit, then cross-border capital flows will also probably decline.This could have a major impact on US non-bank financial institutions which I calculate now account for 70 per cent of US private sector financial assets. Accessing the large pool of global cross-border capital has contributed to their rapid growth. Their ability to re-intermediate global savings into the US economy in listed and private asset classes has been critical to the robust growth of the US economy since the financial crisis. Reduced access to global capital could constrain not only these institutions, but also those US economic activities that have depended on them for financing. This is something the president’s team may have underestimated.The third risk is the potential repatriation of funds, as capital becomes increasingly weaponised. International investors have already seen their share of US Government debt fall from 33 per cent in 2015 to 24 per cent in 2024. This will clearly fall further if foreign investors see the US as an increasingly unreliable partner and funds are repatriated in response to US tariffs.Stephen Miran, chair of the Council of Economic Advisers, goes as far to suggest in an influential paper that because “China does not have a good record abiding by [US] trade deals . . . the US ought to therefore demand some security — for instance, China’s Treasury portfolio in escrow”. This approach seems guaranteed to reduce international investor willingness to hold US debt.There are also implications for equities. International ownership of US equities has risen almost continuously over the past 20 years (and is now 18 per cent of US market capitalisation). A strategic decision by international investors to repatriate funds in retaliation against US trade actions, or simply to pay for increased defence spending, could result in an equity sell-off that could impose significant negative US wealth effects.America’s vulnerability to retribution and repatriation highlights how a world of “self-sufficient production” is likely to see a shift towards “self sufficient capital”. This may be why the US Administration is rapidly pushing ahead with its sovereign wealth fund. A large-scale privatisation programme, alongside the sale of government-owned land, could easily see the US fund become larger than the Norges Bank’s $1.8tn. This pool of capital could help offset the loss of access to global funds, and support nascent US businesses and key strategic industries.A world of reduced global capital availability will create even greater problems for the EU. European growth could struggle if local pools of private sector capital are not large enough to sustain major new investments. This would place ever greater demand on EU official capital for funding investment in defence, infrastructure, and energy. Without a rapid move towards an EU Capital Markets Union, the EU may face an existential risk. The situation for the UK is even worse, making a rapid, expansion of a National Wealth Fund imperative.While it is easy to focus on the immediate risk to global trade from US tariffs, the bigger investment risk may be from the resulting decline in global portable capital. The more the US administration weaponises trade and the dollar, the greater the risk that it prompts active capital repatriation. Indeed, as the international structures that promoted free trade since the 1980s are unwound, the greater the risk that we return to the capital controls of the 1960s and 1970s. More

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldA flood of discounted Chinese imports is set to compound the economic dangers to Europe from Donald Trump’s tariffs, analysts warn, prompting Brussels to prepare measures to protect itself from a wave of cheap goods from Asia.The direct impact of the US president’s 20 per cent levy on EU products has sparked fears about the outlook for the bloc’s embattled manufacturers, who are already reeling from US levies on cars and steel.But the severity of Trump’s tariffs on economies such as China and Vietnam means Brussels is now on alert for an influx of Asian products like electrical goods and machine appliances being diverted into its own markets. The Commission is preparing fresh emergency tariffs to respond, officials said, adding that they have stepped up surveillance of import flows.“The immediate trade shock to Asia will probably reverberate back to Europe,” said Deutsche Bank’s chief Germany economist Robin Winkler. Chinese manufacturers will try to sell more of their products in Europe and elsewhere as they face “a formidable tariff wall in the US”. Some content could not load. Check your internet connection or browser settings.“We will have to take safeguard measures for more of our industries,” said a senior EU diplomat. “We are very concerned this will be another point of tension with China. I don’t expect that they are going to change their model of exporting overcapacity.”The diplomat added that the EU had already put tariffs of up to 35 per cent on Chinese EVs and that it was possible Brussels would have to go “much higher” on other products.Policymakers around the world are contemplating an epochal upheaval in the global trading system after the Trump administration stunned US trading partners with the breadth and scale of the so-called reciprocal tariffs. The measures have taken the effective US tariff rate to a level not seen since 1909, according to Yale Budget Lab. The EU is among the economies subject to a higher levy than the baseline 10 per cent tariff that the White House is applying to all its partners except Canada and Mexico.But China will be clobbered even harder. Beijing faces a “reciprocal” 34 per cent tariff, on top of a 20 per cent levy already imposed by the president. The president also targeted countries through which Chinese companies have been diverting products to the US, among them Vietnam, which faces a new tariff of 46 per cent. Beijing faces a ‘reciprocal’ 34 per cent tariff, on top of a 20 per cent levy already imposed by the US president More

How can investors parse Donald Trump’s policymaking? That is a burning question right now, as markets tumble after the US president announced tariffs on Wednesday that exceed even those of the protectionist 1930s.Viewed through the lens of mainstream 20th-century economic thinking — be it that of John Maynard Keynes or free-marketeers like Milton Friedman — such tariffs seem strangely self-sabotaging. Indeed, the so-called liberation day declared by Trump smacks of such economic lunacy that it might seem better explained by psychologists than economists. However, I would argue that there is one economist whose work is very relevant in this moment: Albert Hirschman, author of a striking book published in 1945, National Power and the Structure of Foreign Trade.In recent decades, this work has gone largely ignored, as Jeremy Adelman, a Princeton historian who wrote Hirschman’s biography, points out. No wonder. The German Jewish economist suffered such trauma in the Spanish civil war and Nazi Germany that when he arrived at the University of California, Berkeley, as an economist, he decided to study autarky.More specifically, he used the disastrous protectionism of the 1930s to develop a framework for measuring economic coercion and the exercise of hegemonic power (the academic word for bullying). However, this analysis was largely ignored by trade economists, since it ran counter to both Keynesian and neoliberal economic ideas. Instead, the book’s main impact was on antitrust analysis. The economist Orris Herfindahl later used Hirschman’s ideas to create an index measuring corporate concentration, which was adopted by the US Department of Justice, among others. However, if Hirschman had been alive to watch Trump unveil his tariff strategy in the White House Rose Garden this week, he would not have been surprised. Neoliberal thinkers often see politics as a derivative of economics. But Hirschman viewed this in reverse, arguing that “so long as a sovereign nation can interrupt trade with any country at its own will, the contest for more national power permeates trade relations”.And he viewed “commerce as . . . a model of imperialism which did not require ‘conquest’ to subordinate weaker trading partners”, as Adelman says. This is close to how the Trump advisers parse economics. But it is very different from how Adam Smith or David Ricardo saw trade flows (which they assumed involved comparably powerful players). Some economists are leaning into this shift. Just after Trump spoke, a trio of American economists — Christopher Clayton, Matteo Maggiori and Jesse Schreger —  released a paper outlining the growing field of “geoeconomics”, inspired by Hirschman.When the trio first started this research agenda, four long years ago, “hardly anyone seemed interested” in the ideas, since they were so at odds with the current frameworks, admits Maggiori. But interest is now surging, he says, predicting a looming intellectual shift comparable to that which took place after the global financial crisis. This year’s American Finance Association meeting, for instance, featured a novel session on geoeconomics, where Maurice Obstfeld, former chief economist of the IMF (and fan of Hirschman), delivered a forceful speech.This work has already produced three themes that investors should pay attention to. First, and most obviously, the trio’s analysis shows that it is dangerous for small countries to become too dependent on any large trading partner, and they offer tools to measure such vulnerability. Second, they argue that the source of America’s hegemonic power today is not manufacturing (since China controls key supply chains) but is instead financial and structured around the dollar-based system. Trump’s tariffs, therefore, are essentially an attempt to challenge another hegemon (China), but his policies around finance are an effort to defend existing dominance. (The hegemony in technological power, I would argue, is still contested.) This distinction matters for other countries trying to respond.Third, the trio argue that hegemonic power does not work in a symmetrical manner. If a bully has an 80 per cent market share, say, it usually has 100 per cent control; but if market share slips to 70 per cent, hegemonic power crumbles faster, since weaklings can see alternatives. This explains why the US has failed to control Russia via financial sanctions. And the pattern may play out more widely if other countries react to Trump’s aggressive tariffs by imagining and developing alternatives to the dollar-based financial system. Bullies seem impregnable — until they are not.Is this analysis depressing? Yes. But it shouldn’t be ignored. And if shocked investors and policymakers want to cheer themselves up, they might note something else: against all the odds, Hirschman was a life-long optimist — or “possibilist”, as he preferred to say. He thought that humans could learn from history to improve the future. Trump is ignoring that lesson now, with grim consequences. But nobody else should. [email protected] More

One scoop to start: Activist hedge fund Elliott Management is increasing the pressure on oil refiner Phillips 66, kick-starting a proxy battle calling for “sweeping changes” at the US energy conglomerate.Another scoop to start: President Donald Trump has suggested he could cut tariffs on Chinese goods if Beijing allows ByteDance, the Chinese owner of TikTok, to divest the hugely popular video sharing app to avoid a ban in the US.Welcome to Due Diligence, your briefing on dealmaking, private equity and corporate finance. This article is an on-site version of the newsletter. Premium subscribers can sign up here to get the newsletter delivered every Tuesday to Friday. Standard subscribers can upgrade to Premium here, or explore all FT newsletters. Get in touch with us anytime: [email protected] today’s newsletter: Wall Street’s big tariff painMarket turmoil derails Vista dealPlaid’s valuation takes a hitTrump’s tariffs rattle Wall StreetIn early 2025, Bill Ackman converted a stock position of over $1.4bn in footwear giant Nike into call options.The billionaire investor had proclaimed President Donald Trump’s return to the White House as the most “pro-business” and “pro-growth” administration in decades.But the Pershing Square founder nonetheless used the trade to take money off the table on a footwear brand that was exposed to Trump’s planned tariffs.US markets on Thursday plunged after the president unveiled the largest tariffs in about a century. Stocks fell the most since the early days of the coronavirus pandemic when the global economy was shuttered.Ackman had not hedged his $16bn portfolio ahead of Trump’s announcement unlike in the early stages of the pandemic. He is now among legions of Trump supporting Wall Street luminaries who have seen their portfolios pummeled due to the tariffs announcement.Thursday’s market sell-off was a long way from how attendees of the World Economic Forum’s conference at Davos anticipated this year would unfold.Scores of billionaire investors and corporate titans predicted at the Swiss winter resort that the world would soon be subsumed by American exceptionalism. But they were wrong. Trump’s promise to unleash economically destructive tariffs has done just that. The tariffs announcement, branded “liberation day” by the White House, has caused deep pain across Wall Street.Shares in some of the world’s biggest private capital groups were hammered. Apollo Global Management fell nearly 13 per cent while KKR plummeted more than 15 per cent. Blackstone’s stock fell nearly 10 per cent. The risks of inflation, a recession and freezing deal markets threaten to cause the private equity machine to stall anew after years of lacklustre activity and performance. Meanwhile, groups that had boomed during the private credit wave — like Ares Management and Blue Owl — also suffered as investors recalibrated growth expectations. Some dealmakers said rising loan defaults were on the horizon. The trading day was a painful reversal for the legions of financiers who had hyped up Trump’s second term in the White House as a business-friendly era that would turbocharge economic growth.Some now think the economic picture looks positively dire.Robert Koenigsberger, founder of emerging market-focused investment firm Gramercy Funds Management said the deluge of tariffs “increases the risk of a recession and materially increases the risk of stagflation”.Yet there are some investors out there who have de-risked enough that they’ve made some money — or at least haven’t lost a ton. One of them is the Oracle of Omaha.Warren Buffett’s Berkshire Hathaway barely traded down, slipping just over 1 per cent. He spent the past year dramatically cutting his exposure to equities such as Apple, and shifting into short-term Treasury bills. Apple shares fell more than 9 per cent on Thursday.A jumbo private credit refinancing gets spikedVista Equity Partners was able to celebrate earlier this year when it refinanced some high-cost private credit debt on a portfolio company.The leveraged buyout shop was hoping to catch lightning twice. But turbulence in financial markets as Trump ratcheted up his trade war has snarled Vista’s latest attempt.The private equity group has shelved plans to refinance or pay off nearly $6bn of debt and preferred equity of portfolio company Finastra, the highly leveraged financial data company it owns.The deal would have allowed Vista to refinance a $4.8bn private credit loan — which at the end of 2024 carried an 11.7 per cent interest rate — and recoup $1bn of its own money that it was forced to pump into Finastra in 2023 to obtain that private credit loan.Finastra’s private credit loan is one of the largest outstanding and Vista’s push to secure the debt in 2024 became a flashpoint in markets. Lenders were only willing to extend credit if Vista invested its own money into the business.Vista was forced to borrow against the value of one of its flagship funds to raise the cash, turning to a so-called net asset value loan. It was a novel financial manoeuvre and captivated the industry.That’s why when markets rallied earlier this year, Vista dialled up its bankers at Morgan Stanley to try to rework the deal. The bank was successful in raising $2.5bn in the loan markets to refinance private credit debt for another Vista-backed company, known as Avalara.But their efforts misfired for Finastra. Bankers initially pitched a $5.1bn senior loan with an interest rate just 3.75 percentage points above the floating rate benchmark, which would have yielded more than 8 per cent. They were willing to offer larger discounts and coupon payments on a $1bn junior loan, which Vista planned to use to redeem its preferred equity. As market volatility jumped, would-be buyers shied away and sources told DD’s Eric Platt and the FT’s Will Schmitt that the bank went pencils down. One banker who followed the Finastra deal said​ that after the balance of power favoured syndicated markets for the past half year​, “we’re going to see a pendulum swing back towards the private credit market​.”Plaid’s valuation halves on new funding roundRewind just a few years to 2021: interest rates were at rock bottom and in the era of easy money, investors threw cash at start-ups without a second thought.Fintech founders thrived in this environment, building flashy tech outfits in the previously staid business of banking. Valuation multiples soared, and money poured in. At its peak in 2021, fintechs received more than $121bn from venture capital funds. Last year, that figure was just $29.5bn. But the mood music has now changed. Investors have withdrawn their wallets as interest rates have risen and fintech valuations are taking a hiding.US-based Plaid is the latest victim of the high rate environment. The fintech, which helps consumers link their bank accounts to other websites and apps, announced on Thursday that it had its valuation slashed in half in its most recent funding round. Investors including BlackRock, Fidelity and Franklin Templeton put $575mn into the business, valuing Plaid at $6.1bn — less than half the $13bn it was worth when it last raised funds in 2021.Plaid’s chief executive Zach Perret was candid when speaking to the FT. He said the company’s last fundraising round coincided with “the peak of the market” and added that since then, “tech multiples have massively compressed”.Even still, some of the largest fintechs have increased their valuations recently. Revolut became Europe’s most valuable start-up last year with a $45bn valuation. It signals companies in the lossmaking open banking sector — which relies on data-sharing technology — haven’t picked up in the same way. Job movesKlaus Schwab, the founder of the World Economic Forum, will “start the process” of stepping down as chair of its board of trustees, weeks after the organisation promised an overhaul after an investigation into workplace discrimination.Goldman Sachs has named Heiko Weber and Trent Wilkins as co-heads of the bank’s real estate group in Emea. Weber previously focused on various real estate markets throughout Europe, while Wilkins was co-head of corporate investment grade origination in Emea.Morgan Stanley has hired Jon Swope and Mark Filenbaum as managing directors for the bank’s healthcare investment banking group, Bloomberg reports. Swope previously worked for Barclays, while Filenbaum previously worked at UBS.Kirkland & Ellis has hired Susan Burkhardt as a partner in the firm’s investment funds practice, where she’ll focus on credit funds. She previously worked for Clifford Chance. Smart readsBling, bags, booze US consumers are likely to be hit by the price rises across sectors from aviation to cars, the FT reports. Find out which goods will be hit first — and the hardest.Reverse course Meet the lawyer who helped Trump’s in-laws, the Kushners, crack down on poor tenants, and who now helps renters fight big landlords, ProPublica writes. Cost analysis Is college still worth it economically? Yes, Bloomberg writes — but who it benefits the most shifts constantly. News round-upApple loses more than $300bn in market value from Trump tariff hit (FT)Donald Trump’s sweeping tariffs ignite $2.5tn rout on Wall Street (FT)Fitch downgrades China’s sovereign debt over spending and tariffs (FT)Deloitte seeks to avoid liability over US nuclear fiasco (FT)Oil slides as Opec+ lifts output and tariffs spark global growth fears (FT)Due Diligence is written by Arash Massoudi, Ivan Levingston, Ortenca Aliaj, and Robert Smith in London, James Fontanella-Khan, Sujeet Indap, Eric Platt, Antoine Gara, Amelia Pollard and Maria Heeter in New York, Kaye Wiggins in Hong Kong, George Hammond and Tabby Kinder in San Francisco. Please send feedback to [email protected] newsletters for youIndia Business Briefing — The Indian professional’s must-read on business and policy in the world’s fastest-growing large economy. 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 worldDistil grain anywhere on the island of Ireland and you can call it Irish whiskey. But under Donald Trump’s tariffs, the spirits made north of the border might get an advantage.The US president has imposed a 10 per cent tariff on UK exports but 20 per cent on the EU, suggesting that whiskey sold into America from Northern Ireland will face a lower duty than that from the Republic.However, as with many agrifood products, ingredients can be sourced on one side of the Irish border and processed on the other. This potentially complicates the tariff picture for an industry worth $1.1bn in revenue in the US if goods made with inputs from the Republic of Ireland are deemed to be of EU origin.“We’re not 100 per cent sure what’s happening,” said Peter Lavery, director of Titanic Distilleries, a Belfast-based newcomer to the industry which recently announced plans to expand sales in the US.Better-known Irish whiskey brands include Jameson in the Republic and Bushmills in Northern Ireland, but it is a growing industry with more than 40 distilleries now scattered across the island. The Irish whiskey Association says nearly 4.7mn, nine-litre cases of Irish whiskey were sold in the US in 2003. Whiskey produced fully in Northern Ireland, casked there and left for three years to mature is classified as a Northern Irish product, producers say. However, many of the younger whiskey businesses in Northern Ireland buy the young product from the Republic before ageing and bottling it north of the border. “Beyond the headline rates, we don’t know which [tariff] applies,” said one industry figure. Lavery says Titanic buys from both the North and the Republic.John Kelly, McConnell’s Irish Whiskey chief, said the industry was working with the IWA and Spirits Europe “to get clarity . . . as quickly as possible”.Exports from Northern Ireland are counted as UK exports but officials say whether or not EU content sourced in the Republic of Ireland would incur the EU tariff depends on how the US determines rules of origin.“We will always act in the best interests of all UK businesses. This of course includes those in Northern Ireland which is a part of the UK customs territory and internal market,” said a UK government spokesperson. The EU is evaluating how to respond but Trump has already said he will hit back with a 200 per cent tariff on European alcohol if Europe puts counter-tariffs on US whiskey. Adrian McLaughlin, who has developed two Northern Irish whiskey brands, Outwalker and Limavady, and is this month opening the island’s first “whiskey hotel” in a 19th-century property that belonged to Winston Churchill, said tariffs could drive US bourbon prices higher too.As tariffs push up the price of Irish whiskey, “What does Bourbon do? Does Bourbon sit and retain its competitive advantage? Or does it say hold on — there’s a margin opportunity here, we’ll put our pricing up,” he said.Eoin Ó Catháin, director of the Irish whiskey Association which covers producers across the island, said engagement with the Irish government and EU continued in the hope of returning “to the reciprocal, zero-for-zero tariff environment which brought us such success”.If the tariff differential between the UK and EU remained “it’s a huge advantage” but “we are obviously preparing for the worst,” Lavery said.Irish Distillers, which owns Jameson and other Irish brands, declined to comment. Bushmills, owned by Mexico’s Becle, did not immediately respond.Irish whiskey is one of the world’s fastest-growing categories of spirit. US consumption is expected to grow by 2 per cent in volume in 2023-28, according to IWSR, an alcohol data provider.“This is not the end of the world,” said McLaughlin. “We’ll work it out.” More