Aurelia Butler

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldCurrency markets are increasingly dismissive of Donald Trump’s tariff threats, raising the risk of big swings if the US president follows through on his promise to hit China, Canada and Mexico with levies next week.Trump’s proposal to bring in levies against the EU and China unsettled the euro and currencies of other US trading partners on Thursday. But the falls were less dramatic than some of the upheavals seen in recent weeks when he began spelling out his plans. Measures of expected short-term volatility in currencies such as the euro and the Mexican peso have fallen since the inauguration in January.“Having been burned on tariff trades already this year, investors are less reactive to unsupported tweets” and political rhetoric, said Jerry Minier, co-head of G10 forex trading at Barclays. Exchange rates have been buffeted by tariff headlines, with the dollar strengthening sharply against currencies of major trading partners on February 3 after Trump announced tariffs against Mexico, Canada and China. But the moves reversed by the end of the trading day after the president postponed the introduction of the levies against the first two countries.Since then, market moves in response to his announcements have been smaller. Having fallen after Thursday’s broadside, the euro steadied against the dollar on Friday and at just below $1.04 remains well above the low of less than $1.02 touched in early February.Akshay Singal, global head of short-term interest rate trading at Citigroup, said that after “trusting and believing” tariffs were coming, the currency market “wants to see them in action”.He added: “Previously it was ‘I believe what you tell me’, and now it is ‘show me.’” The announcement and then deferral of tariffs against Mexico and Canada had shaken investor confidence that tariff headlines could be trusted, Singal said.Investors’ expectations of swings in euro-dollar over the next month are down about a fifth from their peak in mid-January, according to an index from CME Group based on options prices.Its index of expected volatility in the Mexican peso has also fallen since January — and is now almost half its level at the US election last year — while the equivalent measure for the Canadian dollar is also down from its early February peak. That is despite looming deadlines such as the tariffs on Mexico and Canada that are due to go into place next week.“Our models indicate that tariff premium has unwound in recent weeks with little now priced in key [currency pairs]”, said Goldman Sachs in a note on Friday.One currency trader at a big European bank said work days had become “weirdly slow” in recent weeks. “Trump will shout about some tariffs, row back from those announcements, the White House will say something totally contradictory and then Trump might post the opposite on Truth Social 10 minutes later,” the trader said. “You can’t trade that.”Analysts said this inertia had crept into rates markets too, where fears of a boost to inflation from tariffs drove yields higher at the end of last year. The Ice BofA Move index, a gauge of bond investors’ expectations of Treasury market volatility, is well below the highs reached in the run-up to the US election.“You would think volatility would be higher given how little clarity the market has now, but the market has become numb to it, until [investors] actually see the path forward,” said Gennadiy Goldberg, head of US rates strategy at TD Securities. However, some investors and analysts say there is a growing risk that the market is no longer taking the potential economic fallout from tariffs seriously enough, with “complacency” now a danger, according to Barclays’ Minier.Some believe that expectations of lower volatility make a big sell-off more likely if significant trade taxes are eventually implemented.The day Trump “does follow through [on blanket tariffs], there would be a knee-jerk reaction, because most people think it is not priced in”, said Finn Nobay, a trader at investment firm Payden & Rygel. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.When commodity prices plunge, producers turn off the taps. The Democratic Republic of Congo, home to three-quarters of the world’s cobalt, has done the next best thing by slapping a three-month suspension on exports. This is unlikely to reverse the pounding taken by the blue metal.Cobalt, named for the evil spirits old-time miners took to be responsible for noxious fumes in their ore, is used in phones, jet engines and electric vehicle batteries. Optimism over electric vehicles pushed the price up to about $40 per pound in 2022, giving a nice ride to miners like London-listed Glencore, which ruled the roost until being elbowed aside by China’s CMOC in 2023. Naturally, supply boomed. As a byproduct of copper mining, production of cobalt rose alongside growing production of the red metal. CMOC deployed the low cost, high volume China playbook with aplomb, increasing production to the tune of 114,000 tons last year. That left Glencore well behind and vaulted CMOC’s own guidance of 60,000-70,000 tons. This year — pre-export halt — it is guiding for up to 120,000. Cobalt stockpiles have also risen. In December, warehouses were holding 128 metric tons, according to the US Geological Survey, much of it likely in China.Low prices, now around one-quarter of the 2022 peak, have not put the brake on CMOC’s ambitions. This is a low-cost operator and the incremental cost of producing cobalt alongside copper is small. And think of CMOC as a vertically integrated behemoth. Major shareholder CATL is the world’s biggest manufacturer of EV batteries. In addition to its near-25 per cent indirect holding in CMOC, the battery maker also took a 25 per cent stake in one of the mines.Suspending exports is one of the few levers DR Congo can pull, but it is a weak one. Enforcement is one reason: borders are porous, and all the more so when conflict with neighbouring Rwanda is raging. Even assuming policing, more mining is coming on stream, including in Canada. Indonesia, producing cobalt from nickel, has more capacity. On the demand side, technologies are changing. Car manufacturers are starting to switch from nickel manganese cobalt batteries to cobalt-free lithium-iron-phosphate (LFP) batteries, which have longer life cycles and fewer environmental issues. For now they pack less power but as technology improves, more will follow the likes of London electric buses powered by LFP batteries. That suggests the picture will not change much for DR Congo. History shows those doing the extracting typically win when it comes to tussles over resources. Extractivism has had a long history in the global south; that is one thing technology has done nothing to [email protected] More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.South Africa’s central bank chief has warned counterparts in the world’s largest economies that their authority to set interest rates independent of political influence was under threat from rightwing populism.Lesetja Kganyago, governor of the South African Reserve Bank, said institutions such as central banks were increasingly becoming the target of attacks, as democracies shifted to the right of the political spectrum.“It used to be that the concern was about leftwing populism. But what the world’s now facing is rightwing populism,” he told the Financial Times from the G20 finance meetings in Cape Town, which he co-chaired. “And there’s one thing populists always do, which is to attack institutions.”The remarks underscore the anxiety created by the rise of a radical brand of populism, tending to authoritarianism, that threatens the independence not only of leading central banks but also of multilateral institutions such as the World Bank.Central bank independence was enshrined during the 1970s and 1980, as bank authorities across the world were handed control of interest rates after a wave of inflation proved difficult to tame in an environment where political interference in monetary policy was rife.But the principle has come under renewed threat, notably from Donald Trump, who critics have accused of undermining the authority of the Federal Reserve. The US president told the World Economic Forum in January that he would “demand that interest rates drop immediately”, and recently criticised the Fed of doing “a terrible job”.Only a limited number of elected leaders before Trump have sought to interfere in monetary policy, although Turkey’s President Recep Tayyip Erdoğan fired several central bank governors for not lowering interest rates as he wanted.South Africa’s central bank also came under pressure from then-president Jacob Zuma in 2016, as his supporters demanded the constitution be amended to alter its mandate, arguing it should be “nationalised”. In an address to the Arbitration Foundation of Southern Africa last month, Kganyago said the bank “felt duty bound to defend the independence of the SARB as a key institution of our democracy”, so it went to court to overturn official reports arguing that the mandate be altered. “The court ruled emphatically in our favour,” he said.The G20 meetings of top finance ministers and central bankers concluded on Thursday without any agreement on priorities after some countries — understood to include the US — took dissenting views on issues including climate finance and the introduction of trade tariffs.A summary of the meetings did find general agreement from members that the independence of central banks was “crucial” to ensuring price stability. Kganyago, who has been bank governor since 2014, said the new wave of economic protectionism triggered by Trump’s return to the White House had cast a shadow over global co-operation and risked a dangerous game of tit-for-tat.“To the extent that any country decides to impose tariffs on others, it impacts on global trade,” the governor said, adding that retaliation — potentially via measures other than tariffs — risked undermining the post-pandemic global recovery.This scenario began to play out this week, after Trump threatened to impose 25 per cent duties on goods from the EU, saying the bloc had been created “to screw the United States”.French finance minister Eric Lombard responded: “It is clear that if the Americans maintain the tariff hikes, as President Trump announced, the EU will do the same, [as] we too must protect our interests.”Kganyago said monetary institutions that were complacent about the “populist charge” were the most vulnerable.“Central banks are not immune,” he said. “In any democracy, where there’s contestation about the role of institutions, central banks must understand there will be contestations about their role.”“Our best defences are honesty with the public and excellence in pursuing our mandates.” More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Businesses in parts of Syria formerly held by the Assad regime are struggling to sell their wares as a deluge of cheap imports undercuts local producers, sparking widespread anger at the new government’s move to cut import tariffs. Foreign goods, which had been restricted for years, were allowed into the country in January after rebels led by Islamist militant group Hayat Tahrir al-Sham ousted president Bashar al-Assad a month earlier.Under Assad’s rule, most goods were produced domestically or smuggled in through a system of exorbitant taxes, duties and fines, steeply increasing costs. Electricity shortages also meant businesses had to pay extortionate amounts for power.Some businesses are opting to shut shop temporarily rather than sell goods at enormous losses, underscoring the challenge faced by the new government in reviving the shattered economy and maintaining social stability.One car dealer said that a car costing $10,000 in Beirut, for example, would have sold for $60,000 in Syria under Assad, but now the same vehicle would go for $11,500. “Two months ago, all the products on the market were Syrian,” said a Damascus-based banker. “Nowadays, a ready-made product from Turkey is cheaper than the cost of imported fabric.”A textile businessman in the capital said he expected consumers would eventually realise the imported products were lower quality, “but by then the market will have been disrupted, and a lot of factories that could not handle the loss of business will have closed”.A vegetable vendor waits for customers in front of a damaged building in Homs, west Syria More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.China’s ecommerce suppliers are rethinking how they do business after US President Donald Trump said he would soon close a tax exemption that has proved a crucial lifeline to thousands of small-scale export businesses.Trump announced the end of the so-called de minimis rule, which exempts shipments under $800 in value from tariffs and rigorous customs checks, in an executive order last month.He later paused efforts to end the exemption for packages from China but the US still plans to halt de minimis as soon as “adequate systems” are in place to screen and tax the millions of packages that arrive in the country each day. Trump on Thursday announced another 10 per cent tariff on Chinese goods, on top of 10 per cent tariffs that he imposed in February, to take effect from Monday.The combined moves have forced Chinese sellers on cross-border ecommerce platforms — who had rapidly taken up the tariff-free form of trade in recent years — to expand production in the US, seek new customers in alternative markets or pass costs on to consumers.“Tariffs . . . will definitely reduce sales and market share in the US,” said Yarong Wuliu, former deputy secretary-general of the cross-border ecommerce division of the Communist party-backed Chinese Association for Small and Medium-sized enterprises. “The ecommerce industry should be prepared.”Many traders started selling small-value orders on or via online platforms after tariffs and trade restrictions initiated during Trump’s first presidency hit orders from traditional buyers in western markets. Cross-border ecommerce ballooned more than 60 per cent in the four years to 2024, totalling Rmb2.63tn that year. In 2023, it accounted for almost 6 per cent of all of China’s goods trade, officials said last year.Zhao Xiuxiu, a factory boss in Guangzhou’s textile-producing Baiyun district that supplies goods to sellers on platforms such as Shein for the past five years, said her business would focus on traditional, large shipment trade with her customers in Africa and the Middle East.Sales had already halved in the second half of last year, around the time former president Joe Biden first proposed tightening de minimis rules.“If there are tariffs, it’s definitely bad news,” she said. “Starting from last year it started to be hard, and this year it’s been no good either.”Concerns about an overhaul of the de minimis rules pushed Casetify, a Hong Kong-based phone case maker that counts the US as its largest market, to build printing facilities in the US last year. “Casetify needs to move quickly, so it ships blank cases in bulk to the US first and then prints them there,” according to a person familiar with the matter. “Production lines are not firing on all cylinders like they were a year earlier,” said Zhang Zhongbao, founder of Xingcheng Excellent Swimwear Consultancy, which helps Shein and rival platform Temu source swimwear suppliers. “Factories don’t dare stock up due to concerns over US tariffs.”Chinese exporters are also expected to step up efforts to expand production in countries less likely to be targeted by Trump, logistics executives said.Ecommerce merchants that “hitherto have been running big manufacturing [and] distribution facilities ex-China to the rest of the world [were] long before the tariff discussion” looking to boost production elsewhere, said John Pearson, chief executive of DHL Express, which helps Chinese businesses deliver their goods. Now they have “had some of those plans accelerated”.Even with tariffs, many believe their goods would remain competitive and that they could simply pass any additional costs on to US consumers.Huang, who prefers to go only by one name and sells home decor and holiday decorations on Temu, said he had only increased prices “slightly” following Trump’s executive order.“For us individual sellers, a tariff only means a slight reduction in profit margins,” he added. “Consumers can afford it, and it hasn’t affected the orders.”Prices of goods on Temu that the company sets itself increased 42 per cent after the executive order before falling when the move was put on pause days later, according to a Goldman Sachs survey.Liu, another seller who asked to be identified by his surname, and who sells circuit boards to the US and other markets on platforms including Amazon and eBay, agreed that consumers would bear the brunt of cost increases, suggesting that sellers would one day itemise customs duties on bills separately.“In the end, tariffs will definitely be passed on to consumers,” he said.Additional reporting by Oliver Telling in London More

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldDonald Trump has ordered a probe into dumping in the US lumber market, setting the stage for the industry to join the widening basket of commodities targeted by Washington’s global trade war. The president on Saturday directed the Department of Commerce to investigate whether imports of lumber and wood products were undermining domestic loggers in a way that posed a risk to US national security, days after ordering a similar review of the copper industry.If the investigation finds evidence of dumping, the president can impose retaliatory measures including quotas and tariffs. Canada, by far the biggest source of US lumber imports, would be hardest hit. “Clearly, something is going on here. We know that there’s massive subsidies with these exporters who are taking advantage of our market,” said a White House official ahead of the order. “But it’s up to [Commerce] Secretary Howard Lutnick to investigate this and come back to the president with a report.” While Canadian lumber imports are already subject to tariffs of 14.5 per cent, the announcement marks the first formal step towards dragging the industry into Trump’s global trade war. Any new tariffs would be in addition to the pre-existing Canadian levies. It comes on the eve of sweeping 25 per cent tariffs set to be introduced on Canada and Mexico next week, plus a further 10 per cent duty on Chinese imports as Trump ratchets up the pressure on US trading partners. The president has also sought to target specific industries where he argues imports are undermining domestic industry. He is set to impose 25 per cent tariffs on steel and aluminium imports from March 12, following a similar probe into that sector during his first term.On Tuesday he announced an investigation into imports of copper, sparking fears that the metal would be the next sector slapped with tariffs. The US has had a long-running feud with Canada over lumber imports. It imported about 34mn cubic feet of softwood lumber in 2023. The vast majority of that — over 28mn cu ft — came from Canada. The next biggest, Germany and Sweden, shipped less than 3.5mn cu ft combined. Forestry is big business for Canada. In 2022, the sector contributed C$33.4bn to real GDP, or about 1.2 per cent. In the same year Canada’s forest product exports were valued at C$45.6bn, with the majority destined for the US, according to government data. British Columbia province, where there is a high concentration of Canada’s forestry industry, as well as companies, have spent decades in the courts fighting US levies and anti-dumping duties.In 2016 the US lumber industry launched the most recent round of litigation, urging the commerce department to act as “Canadian lumber is unfairly subsidised and dumped into the US market,” according to a statement from the BC government. The dispute hinges on the Canadian forestry industry’s practice of sourcing wood from Crown land, or parks run by the provinces, so production and administration costs are lower than for US forestry companies who rely on private land.Since becoming president, Trump has repeatedly raised the issue and threatened tariffs on wood imports. Derek Nighbor, president of the Forest Products Association of Canada, said any increase in tariffs on lumber would hurt forest sector employees on both sides of the border, and on American families seeking affordable housing.“We should be focused on strengthening our competitive advantages, building more affordable housing, working together to address worsening wildfire risks, and bringing more North American wood to the world,” he said in a statement last month. But Andrew Miller, owner of Stimson Lumber and the chair of the US Lumber Coalition, said: “Canada’s unfair trade comes at the direct expense of US companies and workers.” 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 worldThe US trade goods deficit surged to a record high in January as companies hoovered up supplies of foreign products and metals ahead of the expected imposition of tariffs by President Donald Trump. The gap between exports and imports of goods jumped by more than 25 per cent from the previous month to $153bn, according to figures from the commerce department. That massively outweighed economists’ predictions for a shortfall of $116bn, according to a Bloomberg survey ahead of the numbers. The figures suggested American companies had been stockpiling goods purchased overseas as they prepared for tariffs on a host of the country’s closest trading partners, including Canada, Mexico, China and the EU, analysts said. Among the possible drivers were shipments of gold bullion into the US, they added. “It’s a massive increase,” said James Knightley, an economist at ING. “It strongly hints that a lot of US retailers and manufacturers are very nervous about supply chains and are wanting to get ahead of the threat of any tariffs.” While US exports rose a seasonally adjusted 2 per cent on the prior month, imports were up by more than 11 per cent, according to the advanced data for the month. Imports of industrial supplies were up nearly 33 per cent. Full breakdowns of the geographical pattern of the data are not yet available. One possibility, analysts said, is that the data had been driven by a surge in gold shipments from Europe to New York amid fears that Trump would impose tariffs on bullion. Analysts at Goldman Sachs said they expected this impact on the data to reverse “relatively quickly”. The value of the gold stored at the New York Comex exchange surged by about $25bn in January, according to Financial Times calculations, as traders pulled gold from London and moved it to New York to get ahead of potential tariffs.However, shipments of consumer goods were also up sharply on the month, jumping by more than 8 per cent, according to the US data — although automotive imports rose a modest 2 per cent. The ports of Los Angeles and Long Beach, California — two of the nation’s most active container ports — each recorded their busiest January on record. Long Beach said the rise was “largely driven by retailers moving cargo ahead of the anticipated tariffs on goods from China, Mexico and Canada”. Imports of photovoltaic panels and other solar energy equipment increased fourfold between December and January to more than 59,000 20-foot equivalent container units, according to ImportGenius, a trade data aggregator. US-based manufacturer First Solar this week told analysts that warehouse rental rates had increased in part because of “a surge of imports as manufacturers seek to mitigate the expected tariff risk following the November election”.This week Trump said he would press ahead with 25 per cent levies on EU products. He has already imposed an extra 10 per cent duty on China, and reiterated that 25 per cent tariffs on Canada and Mexico would come into force on March 4. Further tariffs loom on China, as well as reciprocal tariffs on countries around the world later in the spring. Many US corporate executives have downplayed concern over the levies. “We’ve been through this before and we have a great track record of working with our suppliers to make sure we stay as sharp as possible on value,” Richard McPhail, chief financial officer at Home Depot, said in an interview on Tuesday.“At this point, though, we don’t know how much might be implemented or which products.”Brad Setser, a senior fellow at the Council on Foreign Relations, said the 25 per cent tariffs that Trump had threatened on some economies’ products were “pretty brutal”, meaning that companies would seek to get ahead of them. “These are big enough tariffs that people are not indifferent to them but will try to avoid them,” he said. Knightley said the latest data would contribute to downside risks to first-quarter GDP data. “The narrative is shifting to the idea that [economic] euphoria around Donald Trump might be a bit overplayed,” he said. Additional reporting by Valentina Romei More