Aurelia Butler

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The problem for European investors in disentangling themselves from the US is that, deliberately or otherwise, they are in deep. Portfolios everywhere, retail and institutional, are stuffed to the gills with US stocks.This can lead you to one of two conclusions: First, that the outperformance in European stocks now under way is fun but ultimately a blip, and therefore the great disentanglement won’t happen. Or second, that we are at the start of a long and painful process for the US. I lean heavily towards the latter.By now we all know the score: The widespread, almost universal belief among institutional investors that the US would dominate global stocks in 2025 has proven to be badly misplaced. The pro-growth, low-tax, anti-red-tape narrative of Donald Trump’s second presidency has collapsed under its own weight and given way to fears of a recession or stagflation. On-again-off-again trade tariffs and widespread federal jobs cuts are gnawing away at corporate and consumer confidence. And the depth of the administration’s loathing for supposed allies in Europe has shocked investors there deeply. Fund managers at global investment houses recognise that vice-president JD Vance’s speech in Munich was problematic, but European investors were offended in a way that Americans perhaps have not recognised.Markets are reacting as you might expect. The dollar is sliding, and European markets are streaking ahead of the US. It’s important to understand just how unusual this is. Germany’s Dax stocks index has outperformed the US S&P 500 in just two of the past 12 years. Analysts at Deutsche Bank point out that at the current pace — and yes, it is still early in the year — this is shaping up to be the best year for outperformance in the Dax in any year since 1960. Similarly, the dollar’s woes are for the history books. It has fallen further by this point in the year only six times since 1969.Some content could not load. Check your internet connection or browser settings.Barclays is among those warning against getting overexcited. The rush of money in to Europe-focused funds is substantial, its analysts say, but it will struggle to keep running at this pace. Similarly, Germany’s announcement of fiscal stimulus does point to higher European growth, but Trump’s trade tariffs are likely to pull in the opposite direction — a “tug of war” that means “reports of the end of US exceptionalism may well prove greatly exaggerated”.What we do know is that European exceptionalism is still a very young investment theme, and US dominance is hard-baked in to the financial system. Data from the US Federal Reserve shows that European investors held about $9tn in US stocks at the end of last year — around 17 per cent of the overall value of the US market and not far off the market capitalisation of all the equities in Europe.Some content could not load. Check your internet connection or browser settings.This gigantic overallocation to the US has not happened by magic. It has just made financial sense over the long term. Paul Marsh of the London Business School, one of the authors of UBS’s Investment Returns Yearbook — a sacred text for markets nerds — points out that one dollar invested in the US at the start of 1900 was worth $899 by the end of the century in real terms. The same dollar invested in the rest of the world was worth just $119.The first quarter of the 21st century shows a similar gap. A dollar invested in the US at the start of 2000 was worth $3.28 by the end of 2024, again, after inflation. For the rest of the world, you end up at a rather humdrum $1.63. As a rule, non-US investors who have failed to make a significant allocation to the US have not been doing their jobs properly.The US has been hard to avoid, in fact. By the end of last year, 10 stocks made up nearly a quarter of the global total of market capitalisation in public equities. Nine of them are from the US. The US makes up 64 per cent of the value of all global stocks, or nearly 73 per cent of developed markets. Any investor tracking a global stocks index such as the MSCI Global may think this is a neutral strategy — a nice, easy way to achieve diversification. It’s not — it’s a nice, easy way to run a massive positive bet on the US. “We have argued over time that the merits of the US must be fully discounted,” Marsh said at the launch of his latest yearbook earlier this month. “It’s not that the US will stop being a dominant market or the US will stop being a hugely entrepreneurial country. It’s just that all has to be in the price at some point.”Investors everywhere are hugely overexposed to the US. That was uncomfortable enough before Trump began his second presidency, and it feels rather more reckless now. It is hard for global investors to shake off more than a century of evidence that buying US assets is simply in the best financial interests of themselves or their clients, but lighter allocations to Trump’s America represent basic risk management at this point.Trillions of investment dollars can leave the US if the rest of the world chooses to get back towards a neutral position. The question is how easily the rest of the world’s markets can absorb that money. As Trump said in a social media post outlining one of his many sets of trade tariffs: “Have fun!”katie.martin@ft.com More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.France, Ireland and Europe’s powerful farming unions are pushing Brussels to drop many food and drink products from its proposed retaliation against US tariffs.The European Commission has received floods of objections from business and member states to its list of measures, underlining how the 27 member block might struggle to respond collectively to US pressure.Jack Chambers, Ireland’s public expenditure minister, warned against “retaliatory and tit-for-tat measures that could worsen a trade dispute” on Friday while Italian prime minister Giorgia Meloni told the FT the EU should negotiate over its high duties on some items. “There are big differences on the single goods,” she said. “That’s what we have to work on to find a good, common solution.”Her agriculture minister Francesco Lollobrigida also called for talks, saying: “We fear any further burden that will create more difficult conditions [for wine exports]. But we aren’t terrified.” France, Italy and Ireland were spooked after the commission announced tariffs of 50 per cent on bourbon whiskey in response to US levies of 25 per cent on steel and aluminium. Donald Trump threatened to hit back with 200 per cent tariffs on European drinks including wine, champagne and whiskey.In response Paris requested Brussels delay the measures from April 1 until mid-April to create space for talks. However, EU officials say that attempts to negotiate have made little progress. Rather than heed overtures, this week Trump went further with 25 per cent tariffs on cars. He also confirmed that April 2 would be “Liberation Day” with sweeping levies on all goods, on top of existing tariffs. The EU’s top negotiator told colleagues he expects to have to pay at least 20 per cent.  The package of tariffs on €26bn of US imports will be put to member states for approval to take effect on April 12. With its proposals the commission published a 99 page list of possible targets — from soyabeans to beauty products and underwear — with companies and governments able to object until March 26 before the final list is produced. Peter Burke, Irish trade minister, told parliament this week that the “government has made our concerns clearly known to the EU including in relation to the dairy and spirit drinks sectors”.He said the EU was “open to fine-tuning its rebalancing measures so that they strike the right balance of products, taking into account the interests of EU producers, exporters, and consumers”. The spirits industry has also called for bourbon to be exempted, while the EU timber industry wants wood taken off the list for fear of retaliation, one industry figure said. It exports about three times more than it imports.Copa-Cogeca, which represents farmers, is pushing to remove soyabeans, which are vital to feed animals. “Agrifood sector should be kept out of the scope of the retaliation or any disputes that don’t concern it,” a spokesperson said.“Many EU countries have a deficiency in production of raw materials for animal feed and therefore any imposition of additional tariffs on key products such as: maize, soyabeans and distillers dried grains with solubles would seriously hinder the livestock production and create market disruption and price increases for consumers.” Diplomats say the commission has considerable sway on such trade proposals as it would take a weighted majority of member states to block its plan in a vote.“It’s not surprising that governments are doing this — they are standing up for their interests,” said one European diplomat.“But I am confident that there is going to be a strong package from the commission that will be approved. If we block this then we are screwed — and member states know that.” More

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldThe Trump administration has sent a letter to some large French companies warning them to comply with an executive order banning diversity, equity and inclusion programmes.The letter, sent by the American embassy in Paris, stated that Trump’s executive order applied to companies outside the US if they were a supplier or service provider to the American government, according to a person familiar with the matter.The embassy also sent a questionnaire that ordered the companies to attest to their compliance. The document, which the Financial Times has seen, is titled “certification regarding compliance with applicable federal anti-discrimination law”. The document says “Department of State contractors must certify that they do not operate any programs promoting DEI that violate any applicable anti-discrimination laws and agree that such certification is material for purposes of the government’s payment decision and therefore subject to the False Claims Act.”The documents appear to signal that the Trump administration is widening its campaign against DEI to foreign companies after launching a crackdown against US media groups such as Disney. A senior banker in Paris said he was shocked by the letter. “It’s crazy . . . but everything is now possible. The rule of the strongest now prevails.”The French finance ministry expressed concerns after some of the companies involved notified it about the move. “This practice reflects the values of the new US government. They are not the same as ours,” said a person close to France’s economy minister Eric Lombard. “The ministry will remind his counterparts in the US government of that.”The existence of the letter was first reported by Les Échos newspaper.The extraterritorial move by the US comes amid heightening tensions between the Trump administration and Europe over economic and security policy as nation pivots away from its traditional allies, especially on trade and Russia’s full-scale invasion of Ukraine. Trump this week imposed an additional 25 per cent levy on auto sector imports into the US and has increased tariffs on European steel and aluminium imports. The EU is working on reciprocal tariffs in response, but has not yet decided which products to target.Top Trump officials’ attitude towards Europe was cast into stark relief this week when messages about US attack plans in Yemen were leaked to American media. “I just hate bailing Europe out again,” vice-president JD Vance wrote in a Signal chat group. “It’s PATHETIC,” responded defence secretary Pete Hegseth.France has not traditionally been a place where DEI programmes have taken root because of legal limitations on the collection of racial and ethnic data. Employers are not allowed to factor people’s origins into hiring or promotion decisions. But French companies that are potentially exposed to the US demands include aviation and defence groups, consulting providers and infrastructure companies. The FT could not immediately determine which companies had received the letter.According to Les Échos, the letter concluded: “If you do not agree to sign this document, we would be grateful if you could kindly provide us with detailed reasons, which we will forward to our legal department.” 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 described his first phone call with Mark Carney as “extremely productive” amid escalating trade war tensions between the US and Canada.The US president posted on Truth Social that their conversation on Friday “was an extremely productive call, we agree on many things”, with the Canadian prime minister telling Trump that his government would implement retaliatory tariffs “to protect Canadian workers and our economy”.The call took place following Trump’s announcement this week that he would place additional 25 per cent levies on imports of foreign-made cars in a move he said was intended to boost the US car industry.The pair had “a very constructive conversation” and agreed to “begin comprehensive negotiations” about a new economic and security relationship and would meet after Canada’s April 28 election, according to a statement from the prime minister’s office.Relations between the two allies and trading partners have been rocked by the tariffs announcement despite the USMCA free trade deal that the US president negotiated during his first term, along with his threats to make Canada the 51st state.On Thursday evening, Carney said that Canada’s old relationship with the US was “over” and vowed that there would be a “broad renegotiation” of the trade agreement between the countries.He added that Ottawa would fight American tariffs with retaliatory trade actions “that will have maximum impact in the US and minimum impacts in Canada”.Since March 13, the Canadian government has put a 25 per cent tariff on products imported from the US worth C$29.8bn as part of its retaliation.In his post on Friday, Trump said he and Carney had agreed to “work on elements of Politics, Business, and all other factors, that will end up being great for both the United States of America and Canada”.Carney said they also agreed that talks between Canadian ministers and the US secretary of commerce Howard Lutnick “will intensify to address immediate concerns”.Carney, a former Bank of England and Bank of Canada central bank governor, became leader of the Liberal party on March 9 after former prime minister Justin Trudeau resigned due to widespread national dissatisfaction with the party and his leadership.Trump repeatedly referred to Trudeau as “governor” and threatened to annexe Canada. The succession of Carney as prime minister has been touted as a potential reset for US-Canada relations.The US’s hostile stance towards its northern neighbour has led to a surge in support for the Liberal party, with some polls showing it could win the election — a remarkable turnaround after several years of trailing in the polls.The Angus Reid Institute reported on Thursday that 56 per cent of voters who have switched to the party since the beginning of the year say it is because of the new leader.“About the same number also say US president Trump’s threats have pushed them to support the incumbents,” the report stated.While USMCA-compliant components are temporarily exempt from the car tariff Trump announced this week, the levy could have a big impact on the Canadian economy.Trade between the two countries is worth about C$1tn a year, according to the Canadian Chamber of Commerce trade tracker. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Show video infoXi Jinping has urged global business leaders to work together to protect supply chains at a meeting with a group of executives including Rajesh Subramaniam of FedEx, Ola Källenius of Mercedes-Benz and Georges Elhedery of HSBC.Amid a deepening trade war with the US, the Chinese leader told the group of more than 40 business leaders, which also included Pascal Soriot of AstraZeneca, Miguel Ángel López Borrego of Thyssenkrupp and Amin Nasser of Saudi Aramco, that foreign business leaders should resist behaviours that “turn back the clock” on history.“We hope everyone can take a broad and long-term view . . . and not blindly follow actions that disrupt the security and stability of global industrial chains and supply chains, but instead contribute more positive energy and certainty to global development,” Xi told the gathering in Beijing on Friday.The event at the Great Hall of the People marked the second consecutive year that Xi held a carefully staged meeting with foreign chief executives in the Chinese capital. Last year’s event was held exclusively with US business leaders.The meeting came at the conclusion of a busy week for Chinese policymakers, who are trying to strengthen relations with international business amid rising tensions with US President Donald Trump’s administration.China’s premier annual CEO conference, the China Development Forum, was held in Beijing this week, followed by the Boao Forum for Asia in the tropical resort island of Hainan. Beijing is seeking to promote itself as a bastion of stability in global trade in contrast to the US, where Trump has launched successive waves of tariffs on products from aluminium to cars. The president has vowed widespread, reciprocal duties on US trading partners on April 2, threatening further disruption to international trade.“A few countries are building ‘small yards with high walls’, setting up tariff barriers, and politicising, instrumentalising, weaponising, and over-securitising economic and trade issues,” said Xi, who was accompanied by his foreign, commerce and finance ministers.He said these actions were forcing companies “to take sides and make choices that go against economic principles”. “This runs counter to the overarching trend of open markets,” he said.He added that foreign enterprises, especially multinational corporations, had “considerable international influence”. “We hope everyone will . . . resist regressive moves that turn back the clock,” Xi said. “Together, we must safeguard the stability of global industrial and supply chains.“Decoupling and severing ties harms others without benefiting oneself; it leads nowhere.”While Beijing is trying to present itself as a champion of globalisation, trading partners including the EU as well as the US have accused it of running huge surpluses while not doing enough to stimulate lagging domestic demand. They have also alleged China supports its domestic companies with favourable industrial policies, deep subsidies and cheap financing. Foreign companies operating in the country have long complained of formal and informal barriers that protect the domestic market from international competitors.Xi promised better conditions for international companies, saying products made by groups with foreign investment in China — which has plummeted in recent years — would receive equal treatment in government procurement.“We believe that foreign-invested enterprises in China should be guaranteed national treatment, which means consistency in the application of laws and equal status and treatment,” he said. More

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldBritain’s carmakers have backed a decision by Prime Minister Keir Starmer not to retaliate against President Donald Trump’s 25 per cent tariffs on foreign-made cars imported to the US, as hopes fade of a transatlantic trade deal before they hit on April 2.Instead, manufacturers demanded that ministers develop a “holistic approach” to supporting the UK auto industry, including through lower energy costs, increased training and better regulation.Sarah Jones, industry minister, held talks with UK-based auto groups on Friday, including Jaguar Land Rover, Ford and Vauxhall owner Stellantis Friday, where the industry underlined the damage the tariffs would cause.Three people briefed on the meeting said the industry did not want retaliation against the Trump tariffs but rather a “holistic approach” to boost Britain’s competitiveness.While the UK’s car industry is overwhelmingly reliant on exports to Europe, the US accounts for one in six models shipped abroad and is the largest market for high-end manufacturers such as JLR, Bentley and McLaren.Starmer and his team — including the UK’s ambassador in Washington Lord Peter Mandelson — are trying to take what Downing Street calls a “cool headed” approach to the Trump’s escalating trade offensive.British officials privately admit that a UK-US economic deal may not be in finalised before April 2, when Trump’s auto tariffs and global reciprocal measures are due to be announced. But they remain hopeful that a deal can soon be reached to soften the impact of tariffs on the UK. A draft “term sheet” for a deal is being negotiated by Mandelson, according to a person briefed on the talks. The deal would set out areas for future agreement in sectors such as technology, artificial intelligence and space, but in the short term Washington wants Britain to cut taxes affecting US companies.One US official said the UK would definitely be hit with lower tariffs than the EU, mainly because Starmer was considering cutting or dropping Britain’s digital services tax that targets US tech firms.Trump has said he will announce “reciprocal” tariffs on trading partners who had taken advantage of low US trade barriers while maintaining higher tariffs and taxes on American goods.One person familiar with the talks between the US and UK said a deal between the two sides would be unlikely to emerge by next Wednesday, given the complication of making changes to the UK’s digital services tax, which raises about £800mn a year.In talks with foreign officials more broadly, Trump’s commerce secretary Howard Lutnick has said the US will be announcing steep tariffs on its major trading partners on April 2.Earlier this week, the EU’s top trade negotiator told other European officials that he expected the US to issue tariffs “in the realm of 20 per cent” against all 27 member states, according to two people familiar with his briefing.The UK government said it was “disappointed by the US decision to impose global tariffs on the auto industry”, but added: “We continue to have productive discussions on securing a wider economic deal.” More

Mexico’s economy is slowing sharply and will soon fall into recession, several economists predict, as Donald Trump’s changing tariff plans cast uncertainty over the relationship with its largest trading partner.Mexico is one of the countries most vulnerable to the US president’s drive to reshore investment and close trade deficits. The country’s economy was already fragile, with the government cutting spending due to a gaping budget deficit and investors spooked by its radical judicial reforms.Mexico’s GDP shrank 0.6 per cent in the fourth quarter of last year from the previous three months, while economic activity fell 0.2 per cent in January.The central bank cut its key interest rate by 50 basis points on Thursday, warning that the economy would show weakness in the first quarter and that trade tensions posed “significant downward risks”.Deputy central bank governor Jonathan Heath said fourth-quarter data showed a broad-based downturn. “All the components of the internal economy are in negative territory,” he told the Financial Times. “It’s broad enough to say it’s a generalised fall.”Five economists from global banks said it was very likely that Mexico’s GDP would shrink for the second straight quarter in the three months to March.“It is also increasingly likely that growth for the full year will also be negative, and there is not much the authorities can do about it,” said Alberto Ramos, chief Latin America economist at Goldman Sachs. The Mexican peso had weakened significantly against the dollar long before Trump’s victory in November, as President Claudia Sheinbaum’s party embarked on a sweeping overhaul of the economic and political system. Her government is introducing elections for judges, dissolving independent regulators and reforming the electoral institute.The combination of Trump’s tariffs and controversial domestic reforms had inflicted a double blow on investor confidence, said Ernesto Revilla, chief Latin America economist at Citi.“This near-certain recession for Mexico is not only due to tariff uncertainty, but also to the negative domestic confidence shock associated [with] the deep constitutional reform,” said Revilla, former chief economist at Mexico’s finance ministry. Sheinbaum says the reforms will encourage investment by eliminating corruption in the courts and simplifying regulations. “The economy is strong,” she insisted last week. “That’s something we should all be proud of because it’s not just an achievement of the Mexican government but an achievement of all Mexicans.”Claudia Sheinbaum’s government is introducing elections for judges, dissolving independent regulators and reforming the electoral institute More