Aurelia Butler

Beijing has warned the US to “hit the brakes” over its attempts to contain China, highlighting the Chinese Communist party’s concerns over escalating tension between the rival superpowers.Meanwhile, the US stock market ended the day with a sell-off following Federal Reserve chair Jay Powell’s testimony before the Senate. The S&P 500 closed 1.5 per cent lower in New York while the Nasdaq fell 1.25 per cent.Today I’m keeping tabs on:World Trade Organization: Christine Lagarde, president of the European Central Bank, is due to speak at a World Trade Organization event today.Earnings: The insurance sector will feature heavily today, with figures from Admiral, Royal London and Legal & General. We also expect results from Cathay Pacific and Vivendi.International Women’s Day: Join the FT for a free webinar on four things women need to know about money, led by the Financial Literacy & Inclusion Campaign charity. Happy to hear any feedback on FirstFT at [email protected]. Thank you for reading.Today’s top news1. China’s foreign minister Qin Gang sent a stark warning to the US over its containment of China from the annual session of his country’s rubber-stamp legislature, highlighting the Chinese Communist party’s concerns over escalating tension between the rival superpowers. Catch up on yesterday’s session of the National People’s Congress. Related read: China will overhaul supervision of its financial system and bolster science and technology to try to catch up with the west — one of the biggest reforms of the state apparatus in years. 2. US Federal Reserve chair Jay Powell warns on interest rates. The central bank said it is prepared to return to bigger interest rate rises to fight inflation at a congressional appearance on Tuesday. Powell’s remarks prompted a stock market sell-off.3. China has agreed to support Sri Lanka’s debt restructuring in a crucial step towards securing a $2.9bn IMF rescue package and pulling the country out of an economic crisis. The fund’s Asia-Pacific director Krishna Srinivasan said it “paves the way” for the IMF board to consider finalising the assistance programme at a meeting on March 20. Here’s why.4. Ukraine has denied involvement in last year’s explosions that damaged the Nordstream gas pipelines connecting Russia and western Europe, after media reports in the US and Germany suggested pro-Ukrainian operatives may have been behind the attacks. Mykhailo Podolyak, an adviser to president Volodymyr Zelenskyy, dismissed the reports as “conspiracy theories”.5. Private credit groups are set to write the largest direct loan on record, with Apollo, Ares and Blackstone confident that they can land a deal to help Carlyle acquire 50 per cent of healthcare analytics company Cotiviti, sources said. Read the full story. The Big Read

Disposable e-cigarettes at a recycling plant © Amit Lennon/Material Focus/Recycle Your Electricals

Electronic cigarettes have cemented their status as a less harmful way of consuming nicotine — but at a big cost to the environment. Tonnes of electronic waste are being produced, with critical metals inside the disposable “vapes” more likely to be dumped than recycled.We’re also reading . . . Singapore politics: Lawmakers face fresh questions over transparency after one of the country’s biggest technology companies appointed an MP to an influential position.‘London palace’: The sale of a £250mn “London palace” shines a spotlight on the decades-long love affair between Saudi money and the UK capital.El Salvador’s mega prison: The country’s penal experiment will set records for overcrowding by design, an FT investigation has found, with only 0.6 sq metres of cell space for each of its 40,000 prisoners.Chart of the dayChina’s political leadership announced an unambitious 5 per cent growth target this weekend, despite optimism following three years of Covid closures. Why has Beijing set its lowest goal in decades? Read our analysis to find out.

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Take a break from the newsTowering, timeless and welcoming, David Attenborough stands atop the white cliffs of Dover. Having spent eight decades journeying to the most remote and exotic places on the planet, the 96-year-old makes a homecoming in new BBC documentary Wild Isles. Read Dan Einav’s review.Additional contributions by Darren Dodd and Tee Zhuo More

Inflation has eroded the value of childcare subsidies offered to poorer working families in the UK, potentially preventing hundreds of thousands of low-income parents from working as much as they would like, according to new analysis by a leading charity.Citizens Advice, whose staff and volunteers help families coping with personal finance and benefits problems, estimates that in 2016 subsidies could be expected to cover up to 33 hours of childcare for a lower-income parent in full-time work with a one-year-old child. By 2022, they would cover only 27 hours. Business groups have already flagged childcare as a critical issue contributing to labour shortages ahead of the Budget on March 15. Bringing more people into the workforce is a priority for ministers, as they seek to increase the UK’s long-term growth prospects.The squeeze identified by Citizens Advice has occurred because universal credit, the part of the benefit system that supports people on lower incomes, has a limit on funds available for childcare — just £646 a month for one child under two, for example. Christine Farquharson, economist at the Institute for Fiscal Studies think-tank, said: “The caps on childcare support through the in-work benefits system have been frozen in cash terms since 2005-06, leaving them almost 60 per cent lower in real terms than when they were introduced.” While there is a focus on attracting older workers and the long-term sick back into the labour market, measures to make work pay for parents could have a more immediate effect.

The government has a range of options, depending on which part of the labour market it wishes to target. Childcare subsidies are delivered through a complex mixture of policies that vary with the age of the children, household shape, income and working patterns.Think-tanks say that increasing the generosity of schemes such as “tax-free childcare” would largely help parents who are already working and have a small impact on employment rates. However, improving the way support is offered through UC could have a far bigger effect. Citizens Advice estimates that the UC squeeze means that a single parent in a minimum wage job outside London with children under two can work a maximum of 26.5 hours before reaching the point where paying for childcare makes working further hours uneconomical. In London, the figure is under 20 hours. Rebecca Rennison, a policy analyst at Citizens Advice, said: “Parents on UC can quickly find that working more hours can mean that they pay more in tax, childcare and clawed-back benefits than they earn. We know the government wants to see more people in work, and yet we have people, in effect, being asked to pay to work.”A recent report by the Resolution Foundation think-tank argued that ministers should reform childcare support for low-income parents on benefits. It found that just 50 per cent of women aged 25-54 in the poorest fifth of households work, compared with 94 per cent in the richest fifth.

But childcare support for low-income families is “both administratively confusing . . . and often off-putting in the first place since claimants must pay childcare costs upfront”, the think-tank noted. These upfront costs are seen as a crucial deterrent to work. UC is paid five weeks in arrears, so people returning to work must cover the costs of childcare for a month before receiving their first pay cheque from their new jobs. This can mean accepting a new job causes cash flow problems for low-income families. Rennison said: “This is not a hypothetical problem. Our advisers meet people who have debt, in particular, who struggle to work their way out of it because they cannot pay for the upfront childcare costs.” Another issue identified by Citizens Advice relates to a scheme called the Flexible Support Fund, which helps people unable to pay for initial costs related to new work — including the first month of childcare. But the fact that families have not paid their childcare bill themselves in the first month means that they are still not allowed to claim UC for childcare in the following month. Rennison said: “The FSF delays, rather than eliminates, the cash flow problem.”The department for work and pensions noted that, over the past five years, the government has invested more than £20bn to help with the cost of childcare. More

“The Law of Nations Shall be Founded on a Federation of Free States.” Thus did the great German philosopher Immanuel Kant lay down the foundations of his plan for a “perpetual peace”. No part of the world has embraced his idealism more completely than post-second world war Europe. Yet is this great dream now dead?The British diplomat Robert Cooper argued brilliantly that we can divide the world into the “pre-modern”, by which he meant the parts where anarchy reigns, the “modern”, by which he meant the world of nation “states”, and the “post-modern”, by which he meant Europe’s effort to create a federation of states, as Kant had called for. Cooper argues that “what came to an end in 1989 was not just the cold war or even, in a formal sense, the second world war . . . What came to an end in Europe (but perhaps only in Europe) were the political systems of three centuries: the balance of power and the imperial urge.”Nobody acquainted with the history of Europe should be in the least surprised by the desire for a different way for states to behave and relate to one another. Indeed, one would have to be an imbecile not to understand it.Yet how does this idealistic EU adjust to our new world, in which the imperial urge is horrifyingly visible on its frontiers? How does it adjust to a world no longer characterised by anything that could plausibly be called a “rules-based international order”, but rather one of economic crises, pandemics, deglobalisation and great power conflict?Theoretically, perhaps, the “post-modern” EU might survive in this new world, with its frightening impulses towards destruction. But the post-1989 dream of a very different world order made it far easier for the EU to be the prosperous and pacific continent it wanted to be. The US exploited the “unipolar moment” by throwing its military weight around the world. That was not what Europe wanted, as its reaction to the war in Iraq demonstrated.Some of the problems the EU faces derive from the fact that it is a confederation of states, not a state. The difficulties of managing divergent economies within a monetary union are an inevitable result. The European Central Bank plays an essentially political role in keeping the economies together. Again, the single market is not integrated in the way the US market is. The lack of dynamism in information and communications technology must be partly explained by this reality: after all, only one European company, ASML, a producer of chipmaking equipment, is among the 10 most valuable technology firms in the world. (See charts.)Such difficulties are only likely to grow in this more nationalist and more fragmented world economy. The open world markets on which Germany, in particular, depended are becoming less so. That is bound to be costly. Moreover, the US is moving towards an interventionist and protectionist industrial policy. For the EU, such a shift creates existential problems. Similar efforts there are bound to be more national than European. This would threaten the single market and give the whip hand to the member countries with the most resources. Germany will be the best positioned. At the same time, the higher costs of energy in Europe than in the US are a threat to its own heavy industry.Meanwhile, there have emerged two huge threats to EU security. One is the confrontation with Russia, which, many fear, might soon be backed militarily by China. This, however, is just one aspect of splitting the world into rival blocs, with incalculable longer-term consequences for everybody, but especially for the bloc that wants peace above all. The other threat is from the global environment. While the EU has been in the lead on climate policy, this is a problem it cannot solve on its own, since it produces only 9 per cent of global emissions and is responsible for none of their growth.So, how might the EU, liberated from the internal obstacles created by a sovereignty-obsessed UK, respond to a global environment so different from the one it hoped for some three decades ago?Globally, it needs to decide whether it wishes to be an ally, a bridge or a power. So long as the US remains a liberal democracy and committed to the western alliance, the EU is bound to be closer to it than to other great powers. In this world, then, that makes it most likely to be a subservient ally. A role as a bridge would come naturally to an entity committed to the ideal of a rules-governed order. The question, though, is how to be a bridge in a deeply divided world in which the EU is far closer to one side than the other. The third alternative is to seek to become a power of the old kind in its own right, with resources devoted to foreign and security policy commensurate with its scale. But for this to happen the EU would need a far deeper political and also fiscal union. The obstacles to that are legion, including deep mutual distrust.Internal reforms must depend in substantial part on what role the EU wishes to play in this new world. The more active and independent it wishes to be, the more crucial it will be to deepen its federalism. Such a deepening would be risky, no doubt, since it will awaken nationalist reactions. It may also be impossible to agree. But a degree of deepening may be inescapable, given the need for a more robust security posture and the fragility visible in divergence across the eurozone.The Kantian dream has not proved exportable. We live in a world characterised by disorder, nationalism and great power conflict. This is not the world of which the EU dreamed. But if its leaders wish to preserve their great experiment in peaceful relations, they need to strengthen it for the [email protected] Martin Wolf with myFT and on Twitter More

Mexico’s peso has touched its strongest level in more than five years as the country’s relatively high interest rates, tight fiscal policy and investment opportunities accruing from its proximity to the US make it a favourite for currency investors.The peso is the top performing major currency this year, according to Bloomberg, and has more than recovered from its coronavirus pandemic weakness. It has risen 8.5 per cent this year to trade above 18 to the dollar. That compares with the South African rand weakening 7.1 per cent and the Brazilian real gaining 2.4 per cent in the same period.Moreover, the peso has increasingly become the vehicle for emerging market investors who want to borrow in a currency with a low interest rate, like the dollar, to buy assets offering higher rates of return, known as the carry trade.The trends that have propelled Mexico’s currency are likely to have some staying power, analysts said.“In the medium term we see a strong peso,” said Gabriel Casillas, head of Latin America Economics at Barclays. “Within Latin America, Mexico looks very good in almost every way.”Mexico’s currency is benefiting from a confluence of domestic and international factors. The country, which shares a 2,000-mile border with the US, is set to be a prime beneficiary of companies focusing on their supply chains nearer critical markets and away from China in a phenomenon known as “nearshoring”. Mexico is part of the USMCA free trade agreement with the US and Canada and was included in recent green subsidies under Washington’s Inflation Reduction Act. These have helped it attract investment in its traditionally strong auto sector, which has lower wages than its northern neighbour.BMW said last month it would spend €800mn to expand electric vehicle production in Mexico while Tesla announced last week it would build a factory in northern Mexico that officials said would start off as a $5bn investment, one of the country’s largest in recent years. The news helped push up the peso even further against the dollar.Foreign direct investment in Mexico hit $35.3bn last year, the highest level since 2015, according to economy ministry data. Transport manufacturing accounted for 12 per cent of that.Another source of foreign income has been resilient remittances from Mexican migrants in the US.The transfers from abroad now make up 4 per cent of the country’s gross domestic product. Even after growing to record levels last year, in January remittances were 12.5 per cent higher than the same month a year earlier, according to Bank of Mexico figures.Mexico’s central bank, which has had a new governor Victoria Rodríguez Ceja since last year, has also proved to be more hawkish than many expected. The bank’s five-member board began raising interest rates in June 2021, nine months before the US Federal Reserve, and has increased its benchmark rate at 14 consecutive meetings from 4 per cent to 11 per cent.The spread over the Fed’s fed funds target rate has grown from 3.75 per cent to 6.25 per cent, adding to the peso’s attractiveness.The market is betting on further hikes since inflation started rising again in December after peaking in September and dropping in the following two months.Mexican president Andrés Manuel López Obrador’s fiscal austerity has also helped prop up the peso. The populist leader, who flies commercial and prides himself on being a man of the people, has slashed government spending and run small deficits.During the pandemic, he resisted intense pressure to implement large support packages for businesses and individuals. His stance has won him favour with currency investors relative to other leaders in Latin America, like Gustavo Petro in Colombia and Brazil’s new president, Luiz Inácio Lula da Silva.“We have a lot of new presidents . . . and it’s not clear whether they are going to be fiscally responsible,” Casillas said.The news is not all positive. Despite investor confidence in the peso and healthy levels of foreign investment, Mexico’s economic growth has fallen short of potential for decades, economists said. Since López Obrador took office in 2018 the economy has barely grown and lagged behind regional peers in recovering from the pandemic. This year analysts expect growth of just 1.2 per cent, according to a central bank poll.

Banco Base analyst Gabriela Siller said it was not a coincidence that the peso was now back close to levels seen in 2018, just before López Obrador won the presidency. Early fears that he would try to end the central bank’s autonomy or stay in power beyond the strict six-year term limit had dissipated, she said.However, structural problems remain, such as the fragile rule of law, with little expectation of improvement in the medium term. Moves by López Obrador to weaken autonomous bodies and change the rules in the electricity market have also raised investor concerns. Those long-term challenges will continue to hold back investment, JPMorgan economist Gabriel Lozano said in a recent note.“Had a long-term strategy to boost investment been in place, we think Mexico could have been ready to boost nearshoring earlier,” he said. More