Aurelia Butler

Donald Trump and his team of economic advisers are racing ahead with an attempt to radically reshape the US economy from a consumption behemoth with a huge trade deficit to a manufacturing powerhouse. The economic pivot, which has focused on aggressive tariffs and significant cuts to government spending, has sent US equities reeling and prompted concerns about a potential slowdown in growth in the world’s largest economy. But Trump has insisted in recent days that he will press ahead.“Markets are going to go up and they’re going to go down but, you know what, we have to rebuild our country,” the president said on Tuesday.He later added in a speech to leaders of big US companies that levies against America’s biggest trading partners were designed to boost domestic jobs and industrial production: “The biggest win is if [businesses] move into our country and produce jobs. That’s a bigger win than the tariffs themselves,” he told the Business Roundtable. White House press secretary Karoline Leavitt said earlier on Tuesday that the Trump administration had kicked off an “economic transition”. “The president is unwavering in his commitment to restore American manufacturing and global dominance,” Leavitt said, as she vowed that “the America last globalist era is ending” and would be replaced by an “America first economic agenda”.Trump has tapped a cadre of former business leaders to direct his economic efforts. But compared with his first term, the new team is missing figures such as former Goldman Sachs chief operating officer Gary Cohn and ex-Treasury secretary Steven Mnuchin to moderate the excesses of his economic shock therapy.Top officials have instead backed the president’s message that the US may need a period of recession before reaping what they claim are the substantial benefits of Trumponomics.Kevin Hassett, the director of the National Economic Council, told CNBC on Monday that there were still “a lot of reasons to be extremely bullish about the economy going forward” and that any slowdown in the first quarter of this year was the result of “blips in the data”.Remarks by Treasury secretary Scott Bessent — a former hedge fund manager initially welcomed by Wall Street as a moderating influence — that the US economy would need a “detox period” and that there was no longer a “Trump put” preventing a fall in stocks have also provoked concern among investors.“Their approach is that you can’t make an omelette without breaking some eggs first,” said Paul Mortimer-Lee, a US-based economist for the National Institute of Economic and Social Research. “Trump has always said there would be pain before there was gain. I guess at some stage he will blink. If [stock markets] are down 20 per cent, there will be somebody to blame, somebody will get the sack.”Bessent in November also backed another broadly held view among Trump’s economic team — that Washington should push countries with big trade surpluses with the US to seek “Bretton Woods realignments” and peg their currencies at a higher level against the dollar. If they do not, they will no longer be seen as allies and face tariffs and fewer security guarantees.While Cohn publicly stood against tariffs during his time as head of the National Economic Council, and eventually resigned in March 2018 after losing a battle against steel and aluminium levies, Trump’s current advisers have tended to keep any disagreements about trade policies private.Differences in approach — such as commerce secretary Howard Lutnick’s more moderate stance and Bessent’s idea for any tariffs to be introduced gradually — have remained largely behind the scenes, even while markets have slumped and Wall Street banks have cut their growth forecasts.That has handed more power to Trump loyalists such as Peter Navarro, a staunch supporter of aggressive trade policy who often struggled to get his views turned into policy during the first administration. The rise of more radical figures during the president’s second term has helped turn an initial bump in stocks, amid promises of tax cuts and rapid deregulation, into a rout as investors wake up to just how fierce the administration’s resolve to press ahead with its agenda is.Some content could not load. Check your internet connection or browser settings.The uncertainty stoked by the possibility of more punitive tariffs on Mexico and Canada, two of the US’s biggest trade partners, as well as levies on the EU and other traditional allies, have driven the stock market sell-off.“As [businesses and investors] have started to see the effects come through, they realise these tariffs really are a killer,” said John Llewellyn, partner at advisers Independent Economics. “They work in the exact opposite direction to everything that has brought prosperity in the whole period of 80 years since the second world war.”The climate of uncertainty surrounding the new administration is also leading markets to second guess what comes next, with investors flagging up potential risks from several unorthodox policies Trump’s economic team has tabled.Some content could not load. Check your internet connection or browser settings.Lutnick earlier this month said he was considering ripping government spending out of the commerce department’s calculations of GDP to mitigate the impact of Elon Musk’s attempts to rein in federal spending on US growth through the tech billionaire’s so-called Department of Government Efficiency.“We’ve seen, not least in the collapse of inward investment into China, the extent to which it can sap confidence if people lose confidence, including in the data,” said Llewellyn. “People think the authorities must be hiding something and that therefore the economy must be doing less well.”Market speculation of a so-called Mar-a-Lago Accord — an idea dreamt up late last year by future chair of Trump’s Council of Economic Advisers Stephen Miran to weaken the dollar — has also raised concerns about the administration’s understanding of the complexities of the US Treasury market.An idea Miran put forth is his November paper — that countries hand over their current holdings of US government debt in return for century bonds and security guarantees — “could be seen by rating agencies as a technical default”, said Mahmood Pradhan, global head of macro at Amundi Asset Management.Some think the idea of an accord to weaken the dollar, which — as proposed by Miran and Bessent — would aim to mirror an earlier agreement signed in the Plaza hotel in New York in 1985, is wishful thinking in an environment where the US administration is destroying its relationship not only with markets, but also with foreign governments.“For the Plaza [Accord] of course, we had [James] Baker and [Ronald] Reagan and they were artists at making friends and influencing people. So they got a lot of people on board,” said Steve Hanke, a professor of applied economics at Johns Hopkins University who served under the Reagan administration. “I can’t really think of any country now, except maybe Argentina, that is very friendly with the United States.”Hanke added: “The idea of getting the gang together? I mean, can you imagine China agreeing to it?” Additional reporting by Steff Chávez in Washington; data visualisation by Oliver Roeder in London More

In its most recent survey of national eating habits, Japan’s government discovered something unsettling. Adults in this wealthy, healthy country were now eating the smallest daily volume of vegetables since 2001.The reason? Inflation. At the beginning of March, prices of the three key ingredients of Japanese hotpot, a traditional winter dish — Chinese cabbage, leek and carrots — were respectively 227, 167 and 140 per cent above their long-term average. The Engel coefficient, which measures food as a proportion of household spending, is at a 43-year high. The collective decision to cut back on greens has come as the country undergoes what some see as its biggest economic inflection in over 30 years: the much-heralded “normalisation” of Japan’s relationship with money after a long period of stagnant prices and moribund growth. While many other countries have fought to keep inflation down, in Japan its return has been encouraged — at least by the central bank, and specifically in a broad-based form led by consumption and growth. In March 2024, the BoJ ended negative rates for the first time in 17 years, and has twice raised rates since then. The bank has implied that it will gradually push interest rates from 0.5 per cent, their current level, towards an unimaginable 1 per cent.The aim is to foster a virtuous cycle of rising prices and wages that could spur demand and generate moderate and steady growth. But, despite some positive signs, it has been a bumpy ride. A small increase in interest rates to 0.25 per cent in July caused a record one-day crash in the Tokyo equity market. And the increases are putting unfamiliar pressure on everyone from mortgage holders to chief financial officers, just as shareholders are pushing companies to make huge structural changes.Some content could not load. Check your internet connection or browser settings.Even if the broad measure of inflation excluding energy and fresh food shows prices still increasing steadily — 2.5 per cent in January — the acceleration in food costs is stoking a perception that the overall pace is faster. This has introduced fears about whether Japan’s attempt to normalise is actually producing the “wrong” type of inflation.Although companies are increasing wages at near-historic rates, they are not keeping pace with consumer prices. And consumers, rather than spending more, are feeling the pain and struggling to adjust. “When you go shopping for food, everything is going to be a bit more expensive,” says Ritsuko Ikeda, who is buying vegetables in Tokyo’s Sangenjaya district. “A couple of years ago, shops and food companies used to apologise when they raised prices, but now they don’t seem sorry: they just go ahead and do it.”For many Japanese people these new realities are disconcerting, says Naomi Fink, chief global strategist at Nikko Asset Management. “Your experience over years matters. But expectations can be broken suddenly.”“We are now at the point of shock,” she adds. “Even [with inflation] at 2 per cent, that for Japanese households is a shock.” Japan’s great inflection is happening under an extraordinary confluence of pressures. Geopolitics have pushed up prices of energy as well as food, both of which Japan imports in abundance. The yen, partly because of the Japanese corporate and institutional tendency to invest abroad, has been weak for an extended period. And the rate of population shrinkage in the country is approaching an average of two people every minute, reordering the way business thinks long term about labour supply and a historic duty to keep unemployment low. A crowded Ameyoko shopping street in Taito Ward, Tokyo, in December. While companies are increasing wages at near-historic rates, they are not keeping pace with consumer prices More

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Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldDonald Trump has backed down from plans to double US tariffs on Canadian steel and metal imports to 50 per cent just hours after first threatening the levies, rattling investors by intensifying the North American trade war. The move by the president comes after the Canadian province of Ontario earlier in the day suspended its own surcharge of 25 per cent on exports of power to the US, which Trump had cited as a reason for boosting tariffs on imports from Canada. The reversal marks a swift de-escalation of unprecedented trade warfare between the world’s largest economy and one of its three largest trading partners, and marks the second consecutive week in which Trump has softened planned tariffs on Canada. The US would still impose tariffs of 25 per cent on Canadian steel and aluminium imports from midnight, the White House confirmed, as part of broader tariffs on all steel and aluminium imports.In a statement released late on Tuesday, hours after Trump announced he would issue tariffs of 50 per cent on the Canadian metals, the White House said the president had “once again used the American economy . . . to deliver a win for the American people”.Ontario premier Doug Ford said earlier on Tuesday afternoon that he would suspend the 25 per cent surcharge following a “productive” conversation with US commerce secretary Howard Lutnick. Ford said he would meet Lutnick and US trade representative Jamieson Greer in Washington later this week to discuss the trade tensions.The premier’s U-turn was announced just a day after the surcharge was imposed, and came hours after Trump said the US would impose 50 per cent tariffs on Canadian steel and aluminium on Wednesday. “I have instructed my Secretary of Commerce to add an ADDITIONAL 25% Tariff, to 50%, on all STEEL and ALUMINUM COMING INTO THE UNITED STATES FROM CANADA, ONE OF THE HIGHEST TARIFFING NATIONS ANYWHERE IN THE WORLD,” the US president wrote on his Truth Social platform on Tuesday morning.The latest trade dispute sparked a further increase in volatility on Wall Street, briefly sending the US S&P 500 index sharply lower on Tuesday following a heavy sell-off the previous day. The S&P closed 0.8 per cent lower, cutting some of its losses. Shortly after his inauguration, Trump said he would impose 25 per cent tariffs on Canada and Mexico, but last week he granted a one-month reprieve for goods that met the rules of a 2020 free trade deal.The aluminium and steel tariffs are part of a separate set of duties to be imposed on producers across the world, which is due to take force on Wednesday.White House officials said the global 25 per cent tariffs on imports of the metals were intended to protect US domestic industry.Show video infoMark Carney, Canada’s incoming prime minister, described Trump’s latest escalation as “an attack on Canadian workers, families, and businesses”.Carney added that his government would “ensure our response has maximum impact in the US and minimal impact here in Canada”.The White House on Tuesday continued to dismiss widespread concerns over the market turmoil.“When it comes to the stock market, the numbers that we see today, the numbers we saw yesterday . . . are a snapshot of a moment of time,” said press secretary Karoline Leavitt.“We are in a period of economic transition,” she added.A closely tracked measure of the difference in US and London aluminium prices, called the Midwest premium, rose sharply on Tuesday, underscoring the rising costs facing American industrial groups. Futures tracking the premium, which follows prices of the metal delivered to plants in the US Midwest, rose as much as 18 per cent, according to FactSet data.Trump said that if Canada did not drop its “long time” tariffs, he would “substantially increase” levies on cars coming into the US, a move he said would “essentially, permanently shut down” the country’s carmaking industry. The president, who also suggested the US’s northern neighbour could no longer be assured that Washington would protect it militarily, added that “the only thing that makes sense is for Canada to become our cherished Fifty First State. This would make all Tariffs, and everything else, totally disappear.”Canada has strongly rejected such suggestions by Trump since his inauguration in January.Additional reporting by Steff Chávez in Washington More

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Investors fear Donald Trump’s tolerance for a steep stock sell-off is far higher than it was in his first term as they lose faith that financial markets will restrain the US president’s tariffs and spending cuts.US stocks have slumped in recent days, with the S&P 500 sinking more than 8 per cent from a record high hit less than three weeks ago, as Trump’s tariffs have triggered concerns over the trajectory of the world’s largest economy. Many investors and Wall Street banks had bet Trump would ultimately back off his most severe tariff threats and cuts to the federal government if markets respond violently, but hopes for a so-called Trump put have dimmed as markets shudder.“Markets are questioning the notion that the Trump administration would adapt policies in response to equity market volatility or economic growth concerns,” UBS told clients on Monday evening. Alex Kosoglyadov, a managing director of global equity derivatives at Nomura, said in late February “people were wondering whether [Trump] was going to take his foot off the gas pedal on tariffs and some of the federal spending cuts that were spooking markets”. “In the last couple of trading days, sentiment turned in the sense that there were very clear signs that the Trump ‘put’ either didn’t exist or was set lower than where people thought it was,” he said. The rising sense of gloom has not been limited to the stock market: Goldman Sachs and Morgan Stanley have trimmed their expectations for US economic growth on worries about tariffs, and retaliation from trading partners. Delta Air Lines on Monday evening also warned economic “uncertainty” had hit its business, prompting the carrier to sharply reduce its outlook for sales and earnings in the first quarter. The Vix index, a measure of expected volatility in US stocks, has soared from 12 to 28, above its long-term average of 20. The tech-focused Nasdaq Composite, which has surged in the previous two years, is down more than 13 per cent from its mid-December record high.During Trump’s first term, financial market turmoil was widely seen as a crucial guardrail in forcing him to reverse course on policies that were seen by investors as harmful, at least in the short term, to US economic growth. “Everyone thought the only way he backs off is if the stock market plummets,” said one trading executive at a Wall Street bank. “What people didn’t see was he’d change his narrative if the stock market plummets.” The White House doubled down on its dismissal of the financial market tumult following Monday’s steep equities sell-off.“We’re seeing a strong divergence between animal spirits of the stock market and what we’re actually seeing unfold from businesses and business leaders, and the latter is obviously more meaningful than the former on what’s in store for the economy in the medium to long term,” a White House official said.As US stocks have fallen sharply in response to the threat of tariffs against its trading partners, Trump made a big U-turn, delaying most of the levies on Canada and Mexico until April but has kept tariffs on China in place. On Tuesday, the president announced an additional 25 per cent tariff on Canadian steel and aluminium imports that will take effect on Wednesday. The move comes on top of an existing plan to impose a 25 per cent levy on steel and aluminium imports from all of America’s trading partners. US stocks extended their declines in early trading on Tuesday, with the S&P 500 down 1.5 per cent and the Nasdaq dropping 1.2 per cent.The White House on Tuesday continued to dismiss widespread concerns over the market turmoil, saying the US is undergoing an “economic transition”. “When it comes to the stock market, the numbers that we see today, the numbers we saw yesterday . . . are a snapshot of a moment of time,” said White House press secretary Karoline Leavitt.“We are in a period of economic transition,” she added.The drumbeat of comments from top Trump officials playing down fears of stock market trouble has been consistent.Treasury secretary Scott Bessent fanned investor concerns at the weekend, when he appeared to dismiss the idea that Trump would curtail some of his economic policies if the stock market were to keep tumbling.“There’s no put,” he said. “The Trump call on the upside is, if we have good policies, then the markets will go up.”Bessent also said the US economy might need a “detox period” to be less dependent on government spending.“There’s going to be a natural adjustment as we move away from public spending to private spending,” he said. “The market and the economy have just become hooked. We’ve become addicted to this government spending. And there’s going to be a detox period.”For Trump, “time is the only constraint”, said Barry Bannister, chief equity strategist at US bank Stifel. “Year one of any new administration is the time to break some eggs to make an omelette and the [Trump] administration’s ambitions are a broad revamp of the economic order.”But the risk that growth cools and inflation rises — known as stagflation — was growing as Trump pressed ahead on tariffs on America’s biggest trading partners, he added, leaving US equities exposed to a “pincer movement” of potentially slowing earnings per share and lower price to earnings ratios. “Will [Trump] have the fortitude to take serious pain? That’s an open question,” said Shep Perkins, chief investment officer at Putnam Investments. More

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the world“We were at war with a dictator; now we are fighting against a dictator supported by a traitor.” Thus, in a brilliant speech, did Claude Malhuret, hitherto a little-known French senator, define the challenge of our age. He was right. We now know that the US and so the world have been transformed for the worse. But this should no longer be all that surprising. The doubt rather is over how Europe can and will respond.In the 1970s, I had the good fortune to live and work in Washington DC. This was the era of Watergate. I watched the congressional hearings on the ill-doing of President Richard Nixon with admiration. It swiftly became evident that members of Congress of both parties took their obligation to protect the constitution both seriously and literally. Nixon was about to be impeached and convicted. Warned of this, he duly resigned.Contrast this with the second impeachment of Donald Trump in February 2021 on the far greater crime of inciting an insurrection aimed at overturning the results of the 2020 presidential election. It is impossible for anybody sane to doubt his guilt. But only seven Republican senators voted for conviction. It was not enough. In letting him off, Congress killed the constitution. What has happened since that moment was predictable and predicted.Some content could not load. Check your internet connection or browser settings.Since the 1970s the US has suffered a moral collapse from which it is unlikely to recover. We see this daily in what this administration is being allowed to do to US commitments, to allies, to the weak, to the press and to the law. My colleague John Burn-Murdoch has also shown that Maga attitudes are close to those of today’s Russians: power will not be yielded easily.This is a truly historic catastrophe. But if the US is no longer a proponent and defender of liberal democracy, the only force potentially strong enough to fill the gap is Europe. If Europeans are to succeed with this heavy task, they must begin by securing their home. Their ability to do so will depend in turn on resources, time, will and cohesion.Some content could not load. Check your internet connection or browser settings.Undoubtedly, Europe can substantially increase its spending on defence. While there has been a rise in the share of GDP spent on defence over the past decade in the 10 most populous EU countries, plus the UK and US, Poland is the only one that spends more than the US, relative to GDP. Fortunately, ratios of fiscal deficits and net debt to GDP of the EU27 are far lower than those of the US. Moreover,the purchasing power of the GDP of the EU and UK together is bigger than that of the US and dwarfs Russia’s. In sum, economically, Europe has the resources, especially with the UK, even though it will need the reforms recommended by Mario Draghi last year if it is to catch up technologically. (See charts.)Some content could not load. Check your internet connection or browser settings.Yet this economic potential cannot be turned into strategic independence from the US overnight. As the London-based International Institute for Strategic Studies shows, European weaponry is too dependent on US products and technology for that to be possible. It will need a second and scarcer ingredient — time. This creates a vulnerability shown, most recently, by the feared impact of the cessation of US military support for Ukraine. Europe will struggle to supply what will be missing.The third ingredient is will. Europeans have to want to defend the vaunted “European values” of personal freedom and liberal democracy. To do so will be economically costly and even dangerous. In Europe, too, rightwing elements with views similar to those of Maga Republicans exist, even if these are not as dominant on the conservative side of politics as in the US. But some countries — Hungary, Slovakia and maybe soon Austria — will have pro-Putin governments. Marine Le Pen in France has more than merely flirted with being pro-Putin in the past. Also frightening is the rise of the far right and far left of Germany. In short, Europe has “fifth columns” almost everywhere.Some content could not load. Check your internet connection or browser settings.At the same time, some important European leaders and countries, Germany above all, are showing some will. In particular, Friedrich Merz, expected to be the next German chancellor, and his potential coalition partners agreed to amend the “debt brake” and spend hundreds of billions of euros on infrastructure and defence. Merz also said that Germany would do “whatever it takes” to fend off “threats to freedom and peace” in Europe. Yet will he deliver? The answer to that question is unclear.Some content could not load. Check your internet connection or browser settings.Last but not least is the essential ingredient of cohesion. Unlike the US, China or Russia, Europe is not a state. Indeed, contrary to the hysteria of the British Brexiters, it is far from being a state. Its ability to act strategically is fundamentally hampered by the twin facts that it lacks a shared politics and shared finances. It is better seen as a club that needs a high degree of unanimity if it is to act effectively and legitimately in matters of foreign policy and defence. Europeans were free riders on the US because that was the natural thing for each of them to do. Unfortunately, much the same still applies if the US abandons them. Many members will be inclined to leave the burden to a few big powers. But even co-ordinating the policies and militaries of Germany, France and the UK will be hard, because this is to be done by a committee of rough equals — it lacks a leader.Some content could not load. Check your internet connection or browser settings.In brief, we have an irresistible force and an immovable object: Trump’s unreliability is the force; and the difficulties in getting Europe to mobilise its will are the immovable object. Moreover, overcoming the latter has to be done quickly. Until it is done, Europe will still rely heavily for its security on an unreliable US.If Europe does not mobilise quickly in its own defence, liberal democracy might founder altogether. Today feels a bit like the 1930s. This time, alas, the US looks to be on the wrong [email protected] Martin Wolf with myFT and on X More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Sir Keir Starmer will not impose immediate counter-tariffs against Washington if Donald Trump hits Britain on Wednesday with his 25 per cent global levy on steel and aluminium imports to the US.Downing Street said the UK premier would take a “cool-headed” approach as he tries to keep Britain out of any wider transatlantic trade war. “You won’t get immediate counter-tariffs,” said one UK official.Starmer urged the US president on Monday in a phone call not to target British steel and aluminium makers, but is braced for the first Trump tariffs to be imposed on the UK in the early hours of Wednesday.The prime minister has pinned his hopes on Trump exempting the UK from wider tariffs as part of a possible US-UK economic deal — initially focused on technology — discussed by the two leaders in the White House last month.The US accounted for about 182,000 tonnes of Britain’s steel exports in 2024 — about 7 per cent of total exports but 9 per cent by value and worth more than £400mn.Allies of Jonathan Reynolds, business and trade secretary, said the minister will stress the government support already being given to the UK steel industry as he attempts to avoid inflaming trade relations with Washington.Reynolds’ colleagues say the minister could issue some kind of response if the US steel tariffs are applied, but it will not include an immediate wave of counter-tariffs of the kind seen during Trump’s first term in office. Officials declined to say what it might include.In 2018 Britain, which was then part of the EU, levied tariffs on iconic US products such as motorcycles, whiskey and jeans after Trump imposed tariffs of 25 per cent on steel and 10 per cent on aluminium from most countries.Those tariffs were suspended in March 2022 under a deal with the Biden administration and replaced by a tariff-rate quota system, allowing 500,000 tonnes of UK steel to enter the US annually without incurring duties.Reynolds told the Financial Times in Tokyo last week that he would “stand up” for the British steel industry and that retaliatory measures “already exist”, as he tried to exert pressure on the US administration not to hit the UK with steel tariffs.But the UK position has softened as officials in Whitehall took the view that Trump was determined to press ahead. Ministers have reserved the right to reactivate the suspended tariffs.British officials stressed that only 5 per cent of steel production by volume goes to the US, much of it highly specialised. For example, steel made in Sheffield is used by the US Navy for submarine casings.Reynolds, who is expected to give a statement to MPs on Wednesday if the US tariffs are imposed, will also note that the government has committed up to £2.5bn to rebuild the steel sector, British officials said.He will point to a new scheme capping energy costs for industries such as steel that comes into force next month, which would cut the electricity costs of energy intensive sectors such as steel by between £320mn and £410mn this year.British steel exports have fallen in recent years amid a wider industry decline but the US is the UK’s second-largest export market after the EU.Britain’s steel industry has warned that the US tariffs could deal a “devastating blow” to the sector at a time of shrinking demand and high costs. Chrysa Glystra, director for trade and economic policy at UK Steel, the trade lobby group, said on Tuesday that it was “disappointing” that the UK government had so far not secured any exemptions to the incoming tariffs although the industry was mindful of the effort made by ministers. Some UK producers, said Glystra, were already seeing their “commercial position in the US being challenged”, with anecdotal reports that US customers had paused additional orders given the uncertainty over the tariff situation.Nadine Bloxsome, chief executive of the Aluminium Federation, said UK producers were already reporting “early signs of business uncertainty”. The concern, she said, was not just about “immediate loss of contracts but the longer-term risk of trade diversion, where materials originally destined for the US are redirected into alternative markets, including the UK”. The US accounted for about 10 per cent of exports of aluminium by volume last year, worth around £225mn. More