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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The British government is looking to build a three-way “steel alliance” with the US and the EU in order to protect their industries from a glut of the metal caused by global overproduction, the UK minister for trade has said.Sir Chris Bryant told the Financial Times that the British government was in “continuous discussions” about the possibility of a 1950s-style tariff pact in which the US, the EU and the UK would agree to forge an alliance to protect against unfairly subsidised steel, much of which comes from China.“We’re in continuous discussion about how we could make this happen — about whether there should be a three-way [alliance], a two-way, and if so, which two-way,” he said.Although Bryant said discussions had not reached the stage of a written proposal, he added that a UK-EU-US “steel club” was a natural response to a global challenge that had led to the US imposing 50 per cent tariffs on steel imports, with the EU poised to follow suit.“The three [of us] have a shared perception that there is overcapacity in the world. We all need to have our own sovereign steel capacity for economic security reasons, for building tanks and all the rest of it,” he said. Earlier this month Brussels announced proposals to slap a 50 per cent tariff on steel imports from July next year while halving available quotas. The UK industry warned the move left it facing the “biggest crisis” in its history unless steps were taken to defend it.The EU plan came in response to US President Donald Trump imposing 50 per cent tariffs on steel imports, citing national security requirements — although the UK negotiated a 25 per cent tariff in a bilateral deal agreed last month.UK trade minister Chris Bryant: ‘An alliance between like-minded countries would be a breakthrough in resolving the global overcapacity issue’ More
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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.This article is an on-site version of our Unhedged newsletter. Premium subscribers can sign up here to get the newsletter delivered every weekday. Standard subscribers can upgrade to Premium here, or explore all FT newslettersGood morning. Donald Trump has done a fine job of calling attention to Ronald Reagan’s profound dislike of tariffs by denying its existence. Unhedged is just happy to see The Gipper back in the news. Email us with fond memories of the 1980s: [email protected]. InflationFriday’s CPI inflation report was good news. Inflation remains above the Fed’s 2 per cent target, but the trend in September was down:Both durable goods (where there has been upward pressure from tariffs) and core services showed a declining trend:But on both the goods and services sides of the ledger, lower inflation comes with an asterisk. For goods, the readings for new and used cars were very low and, as many commentators pointed out, if you exclude autos, the annualised rate of core goods inflation was more than 4 per cent. Omair Sharif of Inflation Insights provides the chart of core goods without autos: Similarly, if you exclude the low (and, notoriously, lagging) shelter component of services, “supercore” services inflation remains around 4 per cent (with high air fares providing a lot of upward pressure). Of course, low auto and shelter inflation matter a lot, and this month’s low overall reading is positive. The point is just that there are still lots of categories of inflation that are still running hot, and the volatility of a few large categories is a reminder not to put too much weight on any one month. Looking ahead, two trends to watch. Where tariffs matter the most, in categories such as apparel and furnishings, we don’t know if companies that are currently absorbing most of the tariff costs will ultimately decide to pass them on to consumers. That will matter a lot economically and politically. And we are still waiting for “supercore” services inflation to cool, which will be a key signal for the Fed that the way is fully clear for a series of rate cuts. European deregulationMany European policymakers don’t like the term “deregulation”; they prefer “simplification”.“Simplification must never be confused with deregulation: deregulation implies abandoning key policy objectives — most notably, in the EU’s case, green transition and social inclusion,” notes Marcello Messori of Bocconi University. “Simplification, by contrast, enhances regulatory efficiency”.Stephen Schwarzman of Blackstone, by contrast, is happy to call it deregulation — and he is one of the group of economists and financiers who have turned more positive on Europe this year, citing hopes for regulatory accommodation. According to Jacob Kirkegaard of the Peterson Institute for International Economics, There is an acceptance across a widespread share of the political spectrum that the EU needs to course correct, and that fundamentally, regulation has become too cumbersome for economic growth. It doesn’t mean the EU is about to undergo some Margaret Thatcher-style deregulation revolution, but there is a clear political drive of trying to roll back some of the cumbersome types of regulation, particularly the reporting requirements The first portion of the EU’s “Omnibus package” has been passed, exempting small businesses from prior due diligence and sustainability reporting requirements. Omnibus II, currently being debated in the European parliament, is more of the same; it simplifies requirements for investment programs.Enrico Letta of the Jacques Delors Institute and former prime minister of Italy, told Unhedged the Omnibus packages are “not enough, but show the goodwill of the European Commission”. They do not address a core form of European problem: the labyrinth of national regulatory regimes and the amplification of EU regulation at the national level (“gold plating”).The more significant development, Letta believes, is the European Council and the European Commission deciding last Thursday to set 2028 as the final deadline for the single market integration strategy. With this, 2028 can be the new 1992. 1992 was the turning point because it was the date when we completed the single market launch — a very symbolic moment because that was the starting point for the Euro Letta said one of the most important next steps will be integration of pensions funds and investment accounts, creating a single pool of European savings available for European investment. “We need to move,” he says. Kirkegaard also points to the recent EU-Indonesia free trade agreement, which came after nine years of talks between the two countries. The EU ultimately relaxed some of its demands for regulatory compliance to get the deal done. “The fact that there is now an EU-Indonesia FTA indicates that ultimately, the EU will adopt a pragmatic interpretation of these directives” he says. Judging by the performance of European stock indices, global investors are giving the continent a fresh look. If the deregulatory momentum subsides, that could change quickly. (Kim)One good read Scott Bessent.FT Unhedged podcastCan’t get enough of Unhedged? Listen to our new podcast, for a 15-minute dive into the latest markets news and financial headlines, twice a week. Catch up on past editions of the newsletter here.Recommended newsletters for youDue Diligence — Top stories from the world of corporate finance. Sign up hereThe AI Shift — John Burn-Murdoch and Sarah O’Connor dive into how AI is transforming the world of work. Sign up here More
The US government’s debt burden is on track to exceed levels in both Italy and Greece for the first time this century, according to IMF forecasts, underscoring the parlous state of America’s public finances. General government gross debt in the US will rise by more than 20 percentage points from now to reach 143.4 per cent of the country’s GDP by the final year of the decade, IMF forecasts show, exceeding previous records set after the pandemic.That comes as the IMF estimates that the US budget deficit will hover above 7 per cent of GDP every year until 2030 — the highest of any rich nation tracked by the fund for this year and the rest of the decade.Italy and Greece have long been highlighted by economists for their fragile public finances. Both countries were at the heart of the euro area sovereign debt crisis of 2010-2012, with Greece requiring a bailout and restructuring overseen by the IMF and EU.But government debt burdens in both European countries are projected to be on a downward trajectory at the end of the decade as they keep a tight grip on their budget deficits.By contrast, the US debt-to-GDP ratio will still be rising in 2030, according to the IMF data released this month, with the Congressional Budget Office expecting it to increase for decades thereafter. “It is a symbolic moment, and according to the CBO the projections are for US debt to carry on rising — that is the impact of running perpetual deficits,” said Mahmood Pradhan, head of global macro at the Amundi Investment Institute. “But Italy has a weaker growth outlook than the US, so this should not be read as meaning Italy is out of the woods.”As it boasts the global reserve currency, the US has much more borrowing capacity than European nations.However, said James Knightley, US economist at ING, “many US politicians and investors look down somewhat on Europe and its slow growth and struggling economies, but when you have metrics like this, the conversation changes”.The US federal deficit expanded rapidly under the Biden administration, despite unemployment hovering around record lows. The IMF projections show officials believe the Trump administration is doing little to address the problem.Joe Lavorgna, economic counsellor to US Treasury secretary Scott Bessent, said this month that the Trump administration had made progress in cutting spending and raising revenues through tariffs on US imports. “What people are missing is the fact that much of the improvement in this year’s fiscal deficit has happened from April onwards,” Lavorgna told the Financial Times. US gross general government debt has remained below the levels of both Italy and Greece since at least the beginning of the millennium, according to the IMF data. The gauge is a broad measure of indebtedness that includes both central and local government. An alternative measure — net government debt, which offsets financial assets — shows the US still around 10 percentage points below Italian levels of indebtedness at the end of the decade.Joe Gagnon, of the Peterson Institute think-tank, said the net measure was a better read on the US’s debt burden, as it closely reflects the portion of debt that investors need to hold. “But this net measure is rising too,” he said.By contrast, the IMF expects Italy’s net debt burden to be falling from 2028 onwards. It did not give net debt projections for Greece.Italy has long struggled to curb its debt load because of feeble GDP growth rates, with the IMF forecasting growth of just 0.5 per cent this year and 0.8 per cent in 2026.Still, Italian Prime Minister Giorgia Meloni’s government has won plaudits from foreign investors for its efforts to pare back Rome’s budget deficit. This year, Italy is forecast to end the year with a primary surplus of 0.9 per cent of GDP, higher than its initially forecast 0.5 per cent. Rome expects a fiscal deficit — which was 8.1 per cent of GDP in 2022, the year Meloni took office — of 3 per cent of GDP this year, which would allow Italy to exit the EU’s excess deficit proceedings a year earlier than planned.“There is a continuing, cautious approach to fiscal policy,” said Filippo Taddei, senior European economist at Goldman Sachs. DBRS Morningstar upgraded Italy’s sovereign rating to “A low” from “BBB high” this month. Analysts say Italy’s quest to strengthen its public finances has been buoyed by its access to more than €200bn in funds from the EU’s pandemic recovery programme. Carlo Capuano, deputy head of the sovereign rating team at Scope Ratings, said Italy also benefited from a pick-up in the labour market and higher tax collection, buoyed in part by growing use of digital payments. By contrast, Gagnon said the US political situation made it difficult to see how the country’s yawning deficits could be narrowed, no matter who was in power. “Democrats don’t want to cut spending and Republicans don’t want to raise taxes,” said Gagnon. “They both want to cling on to that. I don’t know when that dynamic will change.”Maury Obstfeld, a former IMF chief economist who is now a professor at Berkeley, said any forecast that the US’s fiscal position was sustainable “has to be based on wishful thinking about future US productivity growth, tariff revenue, demographics or interest rates, or possibly all of the above”. More
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