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Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldIn his first address to Congress since beginning a tumultuous second term, US President Donald Trump proudly claimed on Tuesday night that he was “just getting started”. That is a bad omen for the world’s largest economy. The optimism among companies and investors that came with the businessman’s election victory is rapidly waning. After the president confirmed tariffs on Mexico, Canada and China on Monday night, the S&P 500 initially erased all the gains it had made since the November polls. Consumer confidence has plunged. Manufacturers are reporting steep declines in new orders and employment, and bearish investor sentiment has shot well above its historic average.Uncertainty is clouding the data and forecasts. Still, it is clear that the president has squandered what was a decent economic inheritance. Not long ago price pressures were fading, the US Federal Reserve was on the cusp of a steady rate-cutting cycle into a resilient economy, and the S&P 500 was gliding upwards. This is no longer true.The depressing turnaround is a product of the administration’s pursuit of on-and-off import duties, and a chaotic policy agenda. The White House may believe it has a plan but America’s economic exceptionalism, from its relentless consumer spending and booming stock market to its reputation for dependable economic governance, is the collateral damage.Personal expenditure — a bulwark of recent US growth — fell in January, by its most in nearly four years. With pandemic-era inflation not yet fully extinguished, and the reality of Trump’s price-raising tariff plans now dawning, consumers’ expectations for inflation in the year ahead have surged. The Fed has so far responded to forthcoming price pressures by putting rate cuts on hold, leaving borrowers facing a higher cost of credit. Elon Musk’s planned clear-out of public sector employees is also set to raise joblessness in an already cooling labour market.Animal spirits are under pressure too. Perhaps naively, many businesses and investors expected import duties to be merely a negotiating tool. But Trump also believes tariffs are about “protecting American jobs”. After the latest salvo towards North American neighbours, the president offered a one-month reprieve for automakers on Wednesday, and was moving to broaden it on Thursday. The unpredictability of tariff carve-outs, reversals and steps against other trading partners makes it impossible for businesses to plan. Retaliatory measures will also hurt exporters. The broader deluge of policy announcements — some of which have had significant geopolitical ramifications — adds to the decision-making paralysis facing boardrooms and traders. Faith in US economic and financial institutions is also being tested. Trump has filled regulatory bodies with his chums. The Fed’s independence is an ongoing concern. Then there are zany economic ideas, from building a cryptocurrency reserve to a rumoured “Mar-a-Lago accord” to devalue the dollar. Some analysts note that the dollar’s recent weakness amid economic turmoil suggests financial markets may be beginning to question the safe haven status of the currency.It is true that the administration’s tax cuts and deregulation efforts are yet to get started. But since they are likely to be paired with tariffs on more trading partners, rash policymaking and a clampdown on undocumented immigrants — which make up an estimated 5 per cent of workers — optimism around near-term US economic growth feels increasingly like blind hope. The contours of Trump’s economic agenda have sharpened. It is already worse than everyone thought, and he is just six weeks in. More

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldUK business secretary Jonathan Reynolds has vowed to “stand up” for the British steel industry and warned Washington that retaliatory measures “already exist”, as the reimposition of US sanctions loom.Reynolds said he was due to speak to US commerce secretary Howard Lutnick on Thursday night in a bid to seek a carve-out from a 25 per cent levy set to be imposed globally on steel and aluminium imports to the US from Wednesday. In an interview with the Financial Times, the business secretary said he wanted to keep the conversation with Lutnick “constructive” but signalled that tit-for-tat measures remained an option.Asked about possible retaliatory measures, Reynolds noted the UK had measures on the shelf that the country had used in response to steel and aluminium tariffs President Donald Trump imposed in his first term in office.They “already exist, because obviously there were the tariffs in place [previously under Trump] and the set of retaliatory measures in the UK . . . It’s not so much about drawing up contingencies, because we know what was there in the past,” he said on a trip to Tokyo.The tariffs between the UK and the US were suspended under a deal agreed in March 2022 between the then-Conservative government in London and then-president Joe Biden.Reynolds stressed no decisions had been made on retaliation. However, British officials said they were aware that Indian and other investors in UK steel were watching to see Britain’s response to Trump’s threatened tariffs. Failing to retaliate if the tariffs were imposed could chill inward investment, the officials said.The UK steel industry is dominated by Indian-owned Tata Steel and Chinese-owned British Steel, which still employ the majority of workers. Smaller players include Liberty Steel and UK state-owned Sheffield Forgemasters.“We’re proud of the inward investment that we have received over the years. The British steel industry has foreign ownership in it, but that has brought at times expertise, capital that we’d be seeking to defend,” Reynolds said, vowing to “stand up for the whole of the sector”.Trump in 2018 imposed tariffs of 25 per cent on steel and 10 per cent on aluminium from most countries, citing national security grounds. The EU, which at the time included the UK, responded by imposing tariffs on a range of US imports, including steel but also iconic US products such as bourbon whiskey. Since returning to office in January, Trump has again unsettled global markets with tariff threats as investors in exposed industries fret over whether he will follow through or grant exemptions. Trump last month signalled the UK could yet escape any tariff action, telling reporters he was working on a trade deal with Britain after a White House meeting with Prime Minister Sir Keir Starmer.Describing Starmer as a “very tough negotiator”, Trump said the two countries could “very well end up with a real trade deal where the tariffs wouldn’t be necessary”. Reynolds said a UK exemption to the steel and aluminium tariffs was “very strongly in the US’s interests”, pointing to “the supply of steel to the US Navy for the submarine programme”.UK business secretary Jonathan Reynolds More

When Donald Trump rang the opening bell at the New York Stock Exchange on December 12, the chants of “USA” from the trading floor epitomised the investor exuberance that had greeted the president-elect’s victory and powered US stocks to a series of record highs.But just a few months later, investors betting that the new president’s America First agenda would boost US equities and the dollar, while hitting the currencies and stocks of its trading partners, have been confounded. Investors now worry that his much-vaunted policy of trade tariffs will hurt domestic growth. Meanwhile, the US’s foreign policy has galvanised Europe’s politicians into promising a defence spending boom that has lifted the region’s assets. “You’d be hard pressed to find another period where the disparate trends across the Atlantic have switched gears like this so profoundly,” said Robert Tipp, head of global bonds at PGIM Fixed Income.The US had hit a “saturation point” where headlines on tariffs and lay-offs had created a “budding economic pessimism” that had sent investors rushing for haven assets, he added. “Right at that moment, Europe has switched to stimulus.”Donald Trump rings the opening bell on the trading floor of the New York Stock Exchange in December More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Show video infoThe European Central Bank has signalled a possible slowdown in cuts to borrowing costs, as rate-setters reduced their benchmark interest rate by a quarter point to 2.5 per cent. Thursday’s widely expected move was the sixth reduction in the ECB’s deposit rate since the central bank started its rate-cutting cycle last June, when the benchmark stood at a record high of 4 per cent to counter surging inflation. In a change of tone that signalled a more hawkish stance, the ECB said that “monetary policy is becoming meaningfully less restrictive”.The language suggested a possible slowdown or pause in future interest rate cuts, since it compared with the ECB’s previous wording that “monetary policy remains restrictive”. Christine Lagarde, ECB president, said the shift in wording was “not an innocuous little change”. Lagarde raised the prospect of pausing the ECB’s run of rate cuts, saying rate-setters would be led by what “the data indicates”.Lagarde also said there was no opposition to the decision to cut rates — though one rate-setter, Austria’s hawkish central bank governor Robert Holzmann, abstained. In the aftermath of the decision, traders trimmed their bets on future rate reductions. While they continued to fully price in one further quarter-point cut this year, according to levels implied by swaps markets, the chance of a second cut in 2025 fell from about 85 per cent to roughly 70 per cent by late afternoon.The euro rose against the dollar after the ECB decision, before later giving up some of the gains, up 0.1 per cent at $1.080. Frederik Ducrozet, head of macroeconomic research at Pictet Wealth Management, said the ECB was “no longer on autopilot” and had made a “meaningful, albeit conditional, hawkish shift”.Some content could not load. Check your internet connection or browser settings.Inflation has fallen from a peak of 10.6 per cent in October 2022 to 2.4 per cent in February and the deposit rate is now at its lowest since February 2023.The prospects for the Eurozone economy could also be affected by moves by Friedrich Merz, Germany’s chancellor-in-waiting, to unleash hundreds of billions of euros in borrowing to boost defence spending and overhaul his country’s infrastructure.Merz’s fiscal bazooka had prompted traders to reduce their expectations for ECB rate cuts even before Thursday’s decision. Some analysts forecast that a quick implementation of the plans could double Germany’s expected growth next year to 2 per cent.In projections that did not take into account the German plan, the ECB cut its growth forecast for 2025 — its sixth successive downgrade for the year — as well as for 2026 and 2027.It now expects Euro area GDP to increase by only 0.9 per cent this year, compared with its December projection of 1.1 per cent. “High uncertainty, both at home and abroad, is holding back investment and competitiveness challenges are weighing on exports,” Lagarde said on Thursday afternoon, adding that rate-setters were facing an acutely uncertain environment. Growth last year was a sluggish 0.7 per cent.But Lagarde added that “an increase in defence and infrastructure spending could also add to growth” and “could also raise inflation through its effects on aggregate demand”.Ahead of the ECB decision, Goldman Sachs economists wrote in a note to clients that Germany’s debt-funded push for much higher defence spending and infrastructure investment “clearly lowers the pressure” for the ECB to cut interest rates below 2 per cent.The ECB also raised its forecast for inflation this year from its December estimate of 2.1 per cent to 2.3 per cent on the back of higher energy prices.It added that “most measures of underlying inflation” suggested that it remained on track to meet its 2 per cent target.Pooja Kumra, a rates strategist at TD Securities, said the ECB was “certainly more cautious” on future cuts, as she alluded to US President Donald Trump’s threatened tariffs on the EU.“With uncertainty around fiscal [policy] and tariffs, they cannot commit to any path,” she said.“We think if inflation and growth data come in line with expectations over the coming months, the ECB is likely to cut one more time to 2.25 per cent in April, before pausing in June when the fiscal and tariff impact becomes clearer,” said Neil Mehta, portfolio manager at RBC BlueBay Asset Management. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The euro has a “clear path” to bolster its position as a global reserve currency to rival the US dollar and must take advantage of the huge opportunities it now faces, according to the president of the Eurogroup.Paschal Donohoe, who is Ireland’s finance minister as well as chief of the group of Eurozone finance ministers, said on Thursday there was a “heightened level of urgency” behind efforts to expand EU capital markets and adopt a digital euro.“I believe that offers a clear path to strengthening the role of the euro on the global currency stage,” he told an EY summit for chief financial officers in Dublin, held in partnership with the Financial Times.Donohoe’s comments come at a time of increased speculation over whether US President Donald Trump’s protectionist economic policies could affect the dollar’s central role in the global financial system.Trump’s apparent retreat from transatlantic alliances has also spurred European leaders to borrow more to fund increased military spending. Germany on Wednesday announced a historic €500bn debt deal to fund investment in defence and infrastructure. The relative scarcity of German government bonds — the eurozone’s de facto haven — has in the past been seen as a barrier to wider adoption of the euro in central bank reserves around the globe.The European single currency makes up 20 per cent of global reserves, roughly the same level as five years ago, according to the most recent IMF data. The dollar’s share has slipped to 57 per cent from 61 per cent over that time.George Saravelos, at Deutsche Bank, said this week that Trump’s imposition of tariffs on trading partners had unexpectedly piled pressure on the dollar — something that partly reflected “the potential loss of the dollar’s safe-haven status”. “We do not write this lightly, but the speed and scale of global shifts is so rapid that this needs to be acknowledged as a possibility,” Saravelos wrote.Global investors have long questioned the ability of other currencies, including the euro, to rival the dollar’s long-standing role as the primary reserve asset, not least because of the vast $28tn scale of the US Treasury market, which dwarfs the €1.8tn market for German government bonds.“Until you have a credible alternative [to the dollar], what can you do?” said Sonal Desai, chief investment officer at Franklin Templeton Fixed Income. “You need vast pools of deep liquid capital markets” to be seen as a haven region, “and at the current point in time, the crown sits with the US”. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The writer is the author of ‘Chip War’“I’m a little bit nervous,” admitted CC Wei, the CEO of Taiwanese chipmaker TSMC, taking the podium at the White House this week as he announced the largest foreign investment in American history. The entire chip industry has been nervous while watching President Donald Trump’s tariff escalation. Trump has threatened retaliation against Taiwan for having “stolen” US business. Yet TSMC is doubling down on its US manufacturing footprint with a new $100bn commitment.What exactly is TSMC planning to build? In addition to the chip plants — called fabs — already on their Arizona campus, TSMC will add three more. The company will also build two advanced packaging plants and an R&D facility. The timeline, capacity, and technology capabilities of these plants is not clear, but TSMC says they will produce AI chips. Even if the new plants have a similar volume to TSMC’s current facility, the US operations would still be a small share of the company’s overall production, though a higher share of its advanced manufacturing.This investment cements America’s position as a significant player in advanced chipmaking, behind only Taiwan and South Korea. TSMC’s customers — mostly big US chip designers like Nvidia, Apple, and AMD — will welcome the further geographic diversification of its manufacturing operations. Yet they will also ask about the cost. TSMC has learnt efficiencies during its time in the US, but its manufacturing there is still more expensive than in Taiwan. Both TSMC and its customers may now avoid tariffs, but they will find themselves with higher manufacturing costs instead.Still this announcement poses tough questions for Samsung and Intel, the two other primary manufacturers of advanced processors, who have pitched themselves as reliable suppliers with less exposure to China-related risk. As TSMC’s US footprint grows, this argument gets harder to make. Has this investment addressed America’s fears of being cut off from Taiwan’s chipmaking capabilities? Standing alongside Wei, Trump noted pointedly that TSMC’s new plants would be built in a “very safe place”. Yet even $100bn only goes so far in the capital intensive semiconductor supply chain. Products like smartphones and consumer electronics will probably remain entrenched in Taiwan and China.For AI chips, however, the new investment may represent a more significant shift. TSMC has reportedly been discussing manufacturing Nvidia’s advanced Blackwell AI chips in Arizona. If the company’s new facilities include its advanced packaging technology, then AI accelerators could be fully produced in the US. Other Taiwanese firms such as Foxconn are also planning new US plants to assemble these AI chips into servers, though some key inputs would still be sourced from Japan or Korea. After these new investments, the US still won’t have an end-to-end AI supply chain, but it will be less dependent on production in Taiwan.What do TSMC and Taiwan get from the announcement? Relief from tariff threats, they hope. Trump warned Taiwan it could face levies of “25 per cent or 30 per cent or 50 per cent” in the future. As the industry’s dominant supplier, TSMC could no doubt pass some tariff-induced price increases on to customers. But if these new plants prevent tariffs in the first place, the investment may prove to be money well spent.    A second concern for TSMC is, as Trump put it, “Taiwan pretty much has a monopoly” over high-end processors. From AT&T to IBM, Microsoft to Alphabet, tangles with antitrust authorities have historically been common for tech companies with 90 per cent market share, as TSMC has in advanced chipmaking. This is another rationale for solidifying ties with an administration that has talked tough on tech antitrust.A final explanation is less about TSMC and more about Taiwan. Some in the country worry that TSMC’s international expansion undermines the “silicon shield” they believe has helped to deter Chinese escalation. However, even with these new plants, the majority of TSMC’s production will remain onshore. Taiwan’s leaders hope that by investing in the US economy they can keep Trump invested in their security. So TSMC is betting its future on being even more deeply bound to the US.   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] back to White House Watch. Treasury secretary Scott Bessent will speak at the Economic Club of New York today. For now, let’s get into:The US stopping intelligence sharing with Ukraine Trump giving carmakers a tariff reprieve Why farmers are so frustrated The Trump administration has furthered its break with Ukraine by announcing that it will stop sharing intelligence with Kyiv, just days after halting military aid to the war-torn nation. “[Donald] Trump had a real question about whether [Ukrainian] President [Volodymyr] Zelenskyy was committed to the peace process, and he said let’s pause,” John Ratcliffe, director of the CIA, said of the decision. He added that there was hope that the support could be restored. “I want to give a chance to think about that, and you saw the response that President Zelenskyy put out,” Ratcliffe said. “So I think on the military front and the intelligence front, the pause that allowed that to happen, I think will go away.”US intelligence has been essential in helping Ukraine to identify and strike Russian military targets. “If they don’t reverse it soon, it will become really difficult for the Ukrainians because it takes away their battlefield advantage,” said a senior western official.After Trump’s heated Oval Office clash with Zelenskyy last week, relations between Washington and Kyiv deteriorated before more recent signs of repair. Zelenskyy made a show of contrition on Tuesday, saying the meeting was “regrettable” and Ukraine was “ready to come to the negotiating table as soon as possible”. He expressed readiness to sign a deal with Trump “at any time” that would give the US the rights to profit from exploiting Ukraine’s natural resources. (Our commodities correspondent breaks down why rare earths have been in the spotlight.) Amid halting efforts to stop the fighting in Ukraine, UK defence secretary John Healey flew to Washington yesterday for talks with his US counterpart Pete Hegseth on the “parameters” of a European peace plan for Ukraine.Healey will aim to convince Hegseth that the US needs to offer a security guarantees in order for the plan to work. “That’s a work in progress,” admitted one British official, with studied understatement.The latest headlinesSome content could not load. Check your internet connection or browser settings.What we’re hearingFarmers across the US are already struggling because of depressed commodity prices. With Trump’s tariffs on Mexico and Canada — and follow-on retaliatory levies — rural America is bracing for impact. [Free to read] “Contrary to what the president thinks, this means nothing but pain,” said Aaron Lehman, head of the Iowa Farmers Union. “Our domestic markets aren’t prepared to pick up the slack and that means lower prices for what we grow.”While farmers supported Trump’s goal of ensuring fair trade with other nations, his current plans were going to hurt, said Zippy Duvall, head of the American Farm Bureau Federation.“For the third straight year, farmers are losing money on almost every major crop planted,” said Duvall. “Adding even more costs and reducing markets for American agricultural goods could create an economic burden some farmers may not be able to bear.”After Washington hit most Canadian and Mexican imports with 25 per cent tariffs this week and outlined plans to double levies on Chinese products, Beijing responded by threatening 10 per cent to 15 per cent tariffs on US agricultural goods from March 10. Canada has imposed levies on US imports, and Mexico said it would follow suit.Some content could not load. Check your internet connection or browser settings.“Farmers are frustrated,” said Caleb Ragland, president of the American Soybean Association. “Tariffs are not something to take lightly and ‘have fun’ with.” “Not only do they hit our family businesses squarely in the wallet, but they rock a core tenet on which our trading relationships are built, and that is reliability,” he added.Meanwhile, other nations are well positioned to step in if trade tensions prompt importers to turn their backs on the US. Brazil and other soyabean producers were expecting abundant crops this year, Ragland said, and “are primed to meet any demand stemming from a renewed US-China trade war”.ViewpointsEconomics commentator Chris Giles has a useful primer on the 10 things you should know about Trump’s tariffs but were afraid to ask.Trump’s address to Congress on Tuesday night is more likely to be remembered as a spectacle than for the content of what he said, writes Edward Luce. Elon Musk is the fox in the henhouse of science, argues Anjana Ahuja, as critics within the UK’s Royal Society protest against fellow member Musk’s role in threatening scientific research. The Washington strategy team at Jefferies sought to find out whether there’s any truth to Doge’s claim to have saved $105bn. The takeaway: no, writes Bryce Elder in Alphaville.Recommended newsletters for youFT Exclusive — Be the first to see exclusive FT scoops, features, analysis and investigations. 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