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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Elon Musk’s electric-car maker Tesla has warned that President Donald Trump’s trade war could make it a target for retaliatory tariffs against the US and increase the cost of making vehicles in America.In an unsigned letter addressed to US trade representative Jamieson Greer, Tesla said it “supports” fair trade but warned that US exporters were “exposed to disproportionate impacts when other countries respond to US trade actions”.“For example, past trade actions by the United States have resulted in immediate reactions by the targeted countries, including increased tariffs on EVs imported into those countries,” the Austin, Texas-based company wrote in the letter dated March 11.The letter follows two weeks of erratic trade policy announcements from the government that have rattled businesses and financial markets as investors worry about the growing risks of the world’s largest economy being plunged into a recession.The letter underscores how even Tesla, a group led by close Trump ally Musk, is concerned about the potential effects of the wide-ranging tariffs. The EU and Canada have both threatened sweeping retaliations for tariffs on steel and aluminium imports into the US, which went into effect earlier this week. One person familiar with the process of sending the letter said: “It’s a polite way to say that the bipolar tariff regime is screwing over Tesla.” The person added: “It is unsigned because nobody at the company wants to be fired for sending it.”Tesla did not immediately respond to a request for comment. The group said in its letter that tariffs could increase the costs of making vehicles in the US and make them less competitive when exported overseas. It also urged the administration to avoid making minerals that are in short supply in the US — such as lithium and cobalt — even more expensive to import.Tesla said it had been overhauling its global supply chain to find and build as many materials and components in the US as possible for its electric vehicles and lithium-ion batteries. It pointed to its battery manufacturing plant in Reno, Nevada, and its lithium processing in Corpus Christi, Texas.“Nonetheless, even with aggressive localisation of the supply chain, certain parts and components are difficult or impossible to source within the US,” the company added. It urged Greer to “further evaluate domestic supply chain limitations to ensure that US manufacturers are not unduly burdened by trade actions that could result in the imposition of cost-prohibitive tariffs on necessary components”.The letter was filed to the trade representative’s office as part of the agency’s broad request for comment from US businesses as it reviews foreign trade practices and tries to identify any tariffs, taxes, regulations or subsidies that could be harming companies. Tesla sent a similar letter in response to widespread tariffs imposed during the first Trump administration, a person familiar with the process said. The March 11 letter was uploaded to the USTR website by Miriam Eqab, an associate general counsel at Tesla.Musk has emerged as one of Trump’s top advisers after spending more than $250mn to help his re-election campaign. In return, the world’s richest man has received a broad mandate to influence policy and slash the federal government, being named head of the so-called Department of Government Efficiency (Doge).Earlier this week, Trump hosted an event at the White House promoting Tesla and promised to buy one of its vehicles in a show of support for Musk.Tesla’s stock has plunged 40 per cent since the start of the year on concerns about declining sales and amid a wider market sell-off triggered by growing nervousness about US economic and trade policies. The carmaker has also been hit by a consumer backlash in Europe as people balk at Musk’s interventions in support of rightwing political parties, while its US showrooms have become a magnet for protesters unhappy with the cuts to the federal government being spearheaded by Musk. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The writer is group chief economist at BNP Paribas A compass is useful for a long walk in unfamiliar woods. Less so if you come across a bear and have to run for your life. And so it is with the European Commission’s so-called Competitiveness Compass. This is a serviceable follow-up to last year’s Letta and Draghi reports, but it is inadequate to deal with the radically changed geopolitical context in which the EU now finds itself. Europe urgently needs a show of strength, both military and economic. Encouragingly, European leaders signalled at their March 6 security summit that they grasp this, not least by including UK Prime Minister Sir Keir Starmer in their deliberations. Meanwhile, Germany’s “whatever it takes” fiscal moment is a tangible sign that people are ready to shift. But beyond this, there are precious few ideas for boosting growth quickly and permanently — as is essential if public debt is to remain sustainable despite higher deficits and rising interest rates. So here are five things European heads of government should decide to do when they meet in Brussels on March 20.First, boost intra-EU trade. The EU is its own largest trading partner — so much so that it would only take a 2.4 per cent increase in intra-EU trade to make up for a 20 per cent fall in exports to the US. As Mario Draghi, former president of the European Central Bank, has noted, the myriad differences in domestic rules and VAT rates across member states add up to the equivalent of internal tariffs of 45 per cent on goods and 110 per cent on services. EU leaders should decide to provide, within six months, mutual recognition of other member states’ rules for the majority of traded goods and services. Further, they should ask the commission to increase the so-called one-stop shop thresholds (currently at a measly €10,000 of annual sales) for collection and reporting of VAT and excise duties on intra-EU trade. According to the European Investment Bank, 60 per cent of exporters cite regulatory inconsistencies as a barrier to expansion.The second priority is to increase trade with the UK. The commission has been busy finalising new free trade agreements with other countries. While these are welcome, the quickest way to boost trade would be to remove frictions with the UK, its closest trading partner. One way to do this would be to quintuple reciprocally the “de minimis” threshold for the collection of customs duties and VAT for EU-UK exchanges (currently a mere €150).Third, the EU ought to be regulating for growth. Taking a leaf out of UK chancellor Rachel Reeves’ book, the commission and all EU and national regulators should be asked to review their mandates, making growth and competitiveness part of their objectives.The fourth thing is incentivise the savings and investment union. In the decade since the idea of capital markets union was first mooted, the gap between words and action has hardly narrowed. Proper incentives are needed. On the savings side, a powerful move would be to create an EU investment savings account that would give households across the bloc access to all the financial products available in any member state. On investment, it is time to relax the overly conservative prudential constraints on securitisation, notably capital surcharges on both issuers and investors. They currently make it uneconomic for both. As a result, just 1.9 per cent of outstanding EU loans are transformed into securitised vehicles, compared with 7 per cent in the US. A 2024 report led by Christian Noyer, former governor of the Banque de France, made specific recommendations to change that. EU leaders should ask the commission to fast-track them.The final priority is to find new ways to fund defence spending. Germany, the UK and France have already said that they intend to increase defence spending. But the latter pair are constrained by their fiscal situations, as are the next largest two EU economies — Italy and Spain. Multiple channels will need to be mobilised, alongside banks, private savings and public-private partnerships. An ambitious solution would be a multilateral rearmament bank, based on a “coalition of willing” EU and non-EU countries, with enough paid-in capital to ensure that the bank could issue debt at an AAA rating. This would help increase defence spending more quickly and with less upward pressure on national governments’ bond yields. A rearmament bank could also usefully co-ordinate procurement efforts so that equipment sourced from European (including UK) companies can be produced quickly at scale and at lower cost to the taxpayer.So European leaders should stash away the compass for now. It’s time for them to take action that yields quick and lasting results.  More

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldSteve Daines, a senator with close ties to Donald Trump, is trying to get the president to name him as a special envoy to China to help secure a meeting with Xi Jinping that could pave the way for a summit between the leaders.The Montana Republican will travel to Beijing next week to attend the China Development Forum (CDF), a high-profile annual event in Beijing that is attended by dozens of US, European and Japanese chief executives. Several people familiar with the situation said Daines wanted the envoy designation to facilitate a meeting with the Chinese president after the forum — which would be much more difficult without Trump’s backing.Two people said Daines had floated the proposal to people in Trump’s orbit. But none of the people who spoke to the Financial Times on the condition of anonymity could confirm whether Daines had spoken directly to Trump. The White House declined to comment. Daines’s office said he “does not have the title of special envoy” but was co-ordinating closely with the White House about his trip to China. Asked prior to publication whether Daines was trying to arrange a meeting with Xi and was still trying to get the special envoy designation, his office did not comment.After publication, his office said he was not seeking the designation and has not requested it.“Senator Daines is planning to travel to China next week and will carry the president’s ‘America First’ message on the need to protect US jobs, establish fair trade between the two countries, and stop the flow and financing of fentanyl coming from China,” his office said.Daines, who spent six years in China with Procter & Gamble, has told associates that a meeting with Xi on behalf of Trump could help improve US-China relations, according to the people familiar with the idea.His idea has been welcomed by some US companies who want to prevent more turbulence in relations with Beijing. Trump has imposed a 20 per cent tariff on imports from China, but he has struck a less hostile tone with Beijing than he has with allies such as Canada and Mexico and the EU.Beijing uses the CDF to promote investment in China. The event also provides chief executives with an opportunity to engage with top Chinese officials. Last year, Apple chief Tim Cook met Chinese Premier Li Qiang. While dozens of corporate leaders participate in the forum each year, US politicians have typically not attended.People familiar with discussions between Washington and Beijing since Trump took office said the two sides had not engaged in serious talks about a possible summit between the two presidents. Daines was one of the first Republican senators to endorse Trump for president ahead of his 2024 campaign. Trump last year returned the favour by urging the Montana lawmaker to run for Senate Republican leader.The senator and his private sector backers wanted to keep the envoy proposal quiet to make it less likely that hawkish administration officials, such as White House trade adviser Peter Navarro, would try to persuade the president that it was a bad idea, according to people familiar with the situation.Some US chief executives fear they could face a backlash in Washington for attending the CDF, which will be held on March 23 and 24, given the hawkish sentiment towards China on Capitol Hill. Business leaders are holding out hope for a possible meeting with Xi after the CDF event.While Trump has appointed several vocal China hawks, including Marco Rubio as secretary of state and Mike Waltz as national security adviser, experts in Washington are struggling to work out what stance Trump will take on a range of national security-rated issues. 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 White House Watch! Our dignitary of the day is Nato secretary-general Mark Rutte, who will visit Donald Trump at the White House in a hugely consequential meeting. Europe’s security is on the line.In the meantime, let’s talk about:Trump is sticking to his guns as he wages his trade wars.He and his advisers are moving to radically reshape the US economy, aiming to transform the country from a black hole of consumption with a huge trade deficit to a manufacturing beast. His primary tools in this economic pivot — aggressive tariffs and government spending cuts — have roiled the stock market and raised fears about a potential slowdown in growth. Yesterday the EU and Canada retaliated against Trump’s steel and aluminium levies, escalating the trade war. And this morning, Trump threatened to slap 200 per cent retaliatory tariffs on alcohol imports from the EU if the bloc doesn’t get rid of its duty on US whiskey, which kicks in on April 1.The president has so far shrugged all this off, with the White House dubbing it a period of “economic transition”.The cadre of former business leaders administering his economic shock therapy are not interested in moderating the president. Instead, they’re backing his message that the US may need a recession before reaping what they claim are the sweeping benefits of Trumponomics.Treasury secretary Scott Bessent, a former hedge fund manager that Wall Street was really excited about, has signalled that the new administration won’t come rescue the market.Meanwhile, Howard Lutnick, the commerce secretary, has privately expressed scepticism about imposing significant tariffs on imports, according to people familiar with the matter.This has emboldened Trump loyalist Peter Navarro, who is a staunch supporter of aggressive trade policy.The increased power of more radical figures in the White House has helped turn an initial bump in stock prices — amid promises of tax cuts and rapid deregulation — into a market rout as investors realise that the administration has not come to play.Investors are also worried about the so-called Mar-a-Lago Accord, a plan by Stephen Miran, chair the Council of Economic Advisers, to weaken the dollar, which could further destabilise markets. Kevin Hassett, director of the National Economic Council, has not been a check on the president the way Gary Cohn, who did the job in Trump’s term, was. Also egging Trump on are the financial elite. Two of Wall Street’s most powerful executives — Goldman Sachs chief executive David Solomon and Blackstone chief executive Stephen Schwarzman — have vaunted the upsides to Trump’s policies.The latest headlinesSome content could not load. Check your internet connection or browser settings.What we’re hearingSince his dad won the election, Donald Trump Jr has rapidly expanded his business interests.He has investments across industries including the financial, media, pharmaceutical, gun, cryptocurrency, betting and alcohol sectors — all with an anti-woke twist. Trump Jr is focused on companies that draw conservative audiences, capitalising on the backlash to DEI and ESG that is a hallmark of his father’s second administration.Out of the president’s five children, Trump Jr, who helps run the family’s golf and resort business, is the most politically active. He was instrumental in the selection of JD Vance as his father’s running mate and promotes their “America First” worldview on his podcast, Triggered.Donald Trump’s fortune is closely intertwined with his eldest son’s. The president has made Trump Jr the sole trustee of what’s thought to be his largest financial asset: his $3.2bn stake in Trump Media & Technology Group Corp (TMTG), the parent company of Truth Social. Trump Jr is a board member of TMTG too.Trump Jr told the FT that despite his control of his father’s businesses, he works “very carefully to ensure that we have proper conflict protocols”.He’s also entrenching himself further in the so-called parallel economy — a nascent ecosystem targeting consumers with conservative or Christian values who are critical of “woke businesses”. He has become an adviser to three publicly traded US companies: drone manufacturer Unusual Machines, conservative online marketplace PublicSquare and fintech Dominari Holdings. In each case, the company’s share prices jumped on the news. Some content could not load. Check your internet connection or browser settings.ViewpointsRecommended newsletters for youFT Exclusive — Be the first to see exclusive FT scoops, features, analysis and investigations. Sign up hereBreaking News — Be alerted to the latest stories as soon as they’re published. Sign up here More

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldDonald Trump has threatened a 200 per cent retaliatory tariff on alcohol imports from the EU if the bloc imposes a duty on US whiskey, in the latest salvo in his escalating trade war.Posting on his Truth Social platform on Thursday, the US president said the move was a response to the EU’s decision to impose a “nasty” 50 per cent tariff on whiskey.“If this Tariff is not removed immediately, the U.S. will shortly place a 200% Tariff on all WINES, CHAMPAGNES, & ALCOHOLIC PRODUCTS COMING OUT OF FRANCE AND OTHER E.U. REPRESENTED COUNTRIES. This will be great for the Wine and Champagne businesses in the U.S.,” Trump wrote.Shares of drinks companies sank following Trump’s message. Pernod Ricard tumbled 2.9 per cent, LVMH dropped 1.7 per cent and UK-listed Diageo fell 1.8 per cent.US equities were set to open lower on Thursday, with futures tracking the blue-chip S&P 500 down 0.3 per cent and those following the tech-heavy Nasdaq 100 off 0.5 per cent.Since his inauguration in January, Trump has imposed a series of escalating tariffs on the US’s biggest trading partners. The chaotic rollout of these levies, which has been marked by several sudden U-turns, has rattled businesses and financial markets.Earlier this week, the US imposed tariffs of 25 per cent on all imports of steel and aluminium, ripping up several country-specific agreements that had been struck by former President Joe Biden.The European Union on Wednesday announced it would retaliate against the metal tariffs by applying duties of up to 50 per cent to $28bn of US goods, including bourbon whiskey, jeans and Harley-Davidson motorbikes, from April 1.EU officials have said they deliberately targeted products made in the states of Republican senators in a bid to boost opposition among lawmakers to Trump’s aggressive trade measures.This is a developing story More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Investors are souring on America’s riskiest corporate borrowers as fears deepen that Donald Trump’s aggressive trade agenda is slowing growth in the world’s largest economy.The gap in borrowing costs between junk-rated companies and the US government has jumped by 0.56 percentage points since the middle of February to a six-month high of 3.22 percentage points, according to a closely watched index collated by Intercontinental Exchange.The pressure on the junk bond market comes as Trump’s chaotic rollout of tariffs on the US’s biggest trading partners has alarmed businesses and rattled stocks.The reversal in investor sentiment follows a prolonged rally in the riskiest part of the corporate bond market fuelled by a buoyant US economy and record highs for stocks.“Credit spreads have widened over the past couple of weeks, driven by fears over a US recession and tariff uncertainty,” said Eric Beinstein, head of US credit strategy at JPMorgan.Investors and analysts said that steep declines in some of the most highly valued tech stocks, including Palantir and Tesla, had also chilled appetite for the debt of the riskiest corporate borrowers.Neha Khoda, a credit strategist at Bank of America, said that junk bond investors were no longer able to shrug off the declines in equities after they accelerated in March. The S&P 500 has fallen 6 per cent, putting it on track for its worst month since 2022, and the tech-heavy Nasdaq is down 6.4 per cent.The increase in the spread, or the extra yield investors demand to own US junk bonds over Treasuries, this month is “payback for the lack of movement in February”, said Khoda.Federal Reserve chair Jay Powell last week played down concerns over growth, saying the economy remained in “good shape”. But Powell acknowledged that the central bank was “focused on separating the signal from the noise” amid the turmoil from tariffs.Analysts at Goldman Sachs this week raised their forecast for junk bond spreads at the end of the third quarter to 4.4 percentage points, up from 2.95 percentage points previously. The Wall Street bank noted that spreads were still too low given the risks of a “significant deterioration” in the economic outlook.High-grade US corporate bonds have also come under selling pressure. The spread on the Ice index tracking investment-grade debt has risen 0.13 percentage points over the past month to 0.94 percentage points, the highest level since the middle of September.Despite the recent rises, spreads on both investment-grade and junk bonds remain low by historical standards. But bankers say the recent tumult has prompted investors to be choosier on corporate bond deals.“Investors are walking away from transactions quicker if they think they’re priced too tight,” said Maureen O’Connor, global head of high-grade debt syndicate at Wells Fargo.A steadier performance in European credit markets this year had also led to some US groups issuing debt in euros rather than dollars, Beinstein said. There has been $37bn in “reverse Yankee” issuance this year, on track for the biggest first quarter for such deals since 2020. More

This article is an on-site version of Free Lunch newsletter. Premium subscribers can sign up here to get the newsletter delivered every Thursday and Sunday. Standard subscribers can upgrade to Premium here, or explore all FT newslettersThere has been an astonishing acceleration in the way European policymakers are engaging with the need to scale up defence procurement. How to pay for rearmament will be discussed by EU heads of state and government at the European Council next week. It is also likely to feature at the informal Economic and Financial Council in April. Poland, which currently holds the rotating presidency of the EU Council, is pushing hard to make progress on committing funding to rearmament.So a lot of attention is being paid, in and out of governments, to the funding questions I discussed in last week’s Free Lunch. This is overdue, but all the more welcome for that. In addition, of course, there are defence and military policy discussions going on about what capabilities to grow, what kit to buy, how to co-operate operationally and so on. A big question is how well policymakers manage to link up the economic and military discussion — how well, so to speak, finance and defence ministers manage to work together. Even inside the EU, most of the heavy lifting will probably be done by national governments — hence the importance of Germany’s Damascene conversion in favour of borrowing to invest enough in projects of vital national interest (see “Other readables” below). But there are serious questions to ask about how Europe can co-ordinate its collective financial firepower — to give an incentive for greater national spending commitments, to encourage more co-ordination in procurement itself to overcome inefficient duplication and incompatibility, and, finally, to better help Ukraine.This is essentially a question of how European countries can overcome a big collective action problem — where they have obvious common interests but where national decision-making does not fully take into account the benefit or cost of particular national decisions on allies. One solution lies in finding a common funding structure for such priorities.  There are a number of schemes being proposed, by analysts outside of governments, that are separate from the EU’s €150bn common borrowing project tabled by the European Commission last week. Here are three that have caught my eye.In a new policy brief, Daniel Gros at Bocconi University’s Institute for European Policymaking highlights the effectiveness of the European Financial Stability Facility in the Eurozone debt crisis. The EFSF was a special purpose vehicle (SPV) to borrow in markets against guarantees from willing EU member states and to on-pass loans to countries experiencing balance of payments crisis. It was an extremely lean structure — essentially a funnel to pool and co-ordinate fiscal rescue loans. Gros points out that it was proposed in May 2010, created by July, and started lending later that summer. It had financial firepower of €780bn thanks to state guarantees exceeding 8 per cent of the members’ GDP. Because countries such as the UK did not want to take part in rescue loans it saw as the Eurozone’s business (except in Ireland, which it supported bilaterally), the EFSF was set up by intergovernmental agreement rather than within EU structures. Gros proposes that the same type of construction be set up for a “European security fund” whose role would be to raise loans to Ukraine to substitute for disappearing US aid. A coalition of willing countries friendly to Kyiv, including the UK and Norway, could with guarantees of 5 per cent of a single year’s GDP (less than for the EFSF) borrow as much as €1tn at low cost. Much of the money would be spent on buying weapons, of course. A very similar proposal, also based on the EFSF, was made independently this week at a closed gathering of UK, Nordic and Baltic policymakers.What both proposals have in common is that the intergovernmental structure allows the UK and Norway to take part and potential spoilers to be excluded. Both designs are extremely lean — little more than SPVs which would give the involved finance and defence ministers a quick-to-use tool to channel money to Ukraine. Both mention the possibility of using Russia’s blocked foreign exchange reserves to service some of the loans to Ukraine. Both also suggest that, beyond Ukraine, such a fund could in time also finance the participating coalition’s own defence expenditures. I see no reason why a fund could not be set up to serve both purposes right away: support Ukraine and help with re-arming the coalition countries themselves. The objective is the same — the defence of Europe — and so would be the political decision makers. A third proposal that is circulating — including in a letter to the editor of the FT — is for a rearmament bank. This proposal, which originates in the UK but has been cautiously namechecked by the Polish prime minister, would be an institution on the model of the other multilateral development banks such as the European Investment Bank and the European Bank for Reconstruction and Development. When all these proposals are fully formulated and put on the table, the question that has to be addressed is what a bank — a bigger institutional undertaking — is needed for that a mere SPV — which is much leaner and quicker — cannot do. One suggestion is that a bank would also lend to private industry. But as long as governments choose to commit serious spending to long-term contracts — the bigger issue to ensure — I struggle to see arms companies failing to get whatever finance they need on the back of such order books. The goal for either a fund or a bank is to enable national governments to commit to large enough multiyear orders so industry has confidence to expand capacity. If they do, everything else follows.These ideas are about how to be clever about the way of raising money. But we should also think of how to be clever about the way we spend it. So here are two blue-sky thoughts of my own on making the most of the coming European rearmament effort.First, there is a lot of unexplored opportunity in the industrial policy aspect of defence spending. The spin-offs from defence-related spending programmes in the US are legendary — from the internet to microwaves. Those tasked with spending the hundreds of billions about to be added to European defence budgets should look kindly on projects for technological innovation with commercialised spin-offs.It’s important to be clear that a lack of particular military capability is not an inability to acquire that capability. It is clear that Europeans lack certain capabilities at the moment, relying on the US to provide them, and depending on US components and services for even some of the kit they do have to work. But, as Sander Tordoir writes in an essay for Foreign Policy, Europe’s traditional manufacturing strengths are well suited for rearmament. It’s a continent of rich, technologically advanced and highly educated countries. There is no reason why it should not be able to produce all the hardware the US does — so long as it spends the money and puts in the orders. There is an element of “just do it” to the capability challenge.There is one area, however, where Europe is relatively weak even in terms of its ability to acquire capabilities. That is software. It has now been well established that much of the EU’s productivity, research and innovation gap with the US is in the tech sector, and specifically software. Autonomous defence capability will suffer until this is addressed, even if hardware manufacturing is more a matter of putting in the orders so weapons makers have the confidence to scale up.It makes sense, then, to use defence procurement money to create a strong software development ecosystem in Europe. Creating a big enough sector, attracting programmers (back) from Silicon Valley, and putting in enough and valuable enough orders for entrepreneurs to throw themselves at the technical challenges — these should be high-priority goals. They would at the same time help address Europe’s underperformance in tech more generally.My second thought has to do with the UK. As one of the Old World’s pre-eminent military powers, both in terms of capacity and willingness to use it, it is incontrovertible that the UK must be as integrated in Europe’s rearmament effort as possible. Now, the UK has not made things easier for itself (or others) by leaving the EU and by holding on to rigid fiscal rules that make little sense economically and less sense geostrategically (as mentioned, even Germany has seen the light). Brexit has put barriers into cross-border European supply chains; this will be a problem for building or boosting such supply chains in defence, too.But there is strong political interest in making defence-industrial co-operation between the UK and the rest of Europe work as smoothly as possible. One conclusion people have drawn from this is that defence should be isolated from other parts of the UK-EU relationship so as not to be contaminated by the more general “Brexit reset” conundrum.That’s a fine thought when it comes to operational co-operation — preparing to actually fight together should not be troubled by Brexit legacies. But rearmament is essentially an industrial and economic challenge — the nature of which is unavoidably bound up with the hard form of Brexit chosen by the then UK government. That was not the only alternative. The current discussions of how to involve the UK have reminded me of the doomed attempt by Theresa May to propose a sectoral single market — a subset of the economy (only goods, perhaps, or not even all goods) — where the UK would have frictionless market access in return for aligning dynamically with EU rules and jurisdiction. The idea fell flat with EU leaders, who rejected it in the name of a supposed indivisibility of the “four freedoms” (of movement of goods, services, capital and people). But could the desperate need for urgent and efficient rearmament be enough of a motivation to revisit this? Could one envisage a partial but frictionless common market for defence goods and services, defence-related investments and movement of defence industry personnel? There would be technical problems, for sure: how to delineate “the” defence sector, and how to ensure friction-free economic movements in practice. (Special customs lanes? Special passport stamps?) But if the political obstacles were overcome, technical solutions could be found. So the question is whether the current security situation is desperate enough to make the UK willing to accept some EU jurisdiction in this delineated area, and make the EU willing to give up its single market purism. And if so, it would be an excellent foundation on which to build a UK-EU reset that was not in name only.Other readablesRecommended newsletters for youChris Giles on Central Banks — Your essential guide to money, interest rates, inflation and what central banks are thinking. Sign up hereIndia Business Briefing — The Indian professional’s must-read on business and policy in the world’s fastest-growing large economy. Sign up here More