Aurelia Butler

Germany reported its first monthly trade deficit in goods for more thanthree decades as a result of higher costs for energy imports and disruption to trade with Russia and China.Soaring energy prices pushed up the value of imports to Europe’s largest economy, while global trade disruption weighed on exports, causing the $1bn deficit in May.“In the past. Germany could always rely on strong exports to revive the economy and today’s numbers show the trade balance will not return as a positive element for growth for at least the next couple of years,” said Carsten Brzeski, head of macro research at ING.Exports from Germany fell 0.5 per cent to €125.8bn in May from April, while month-on-month imports increased 2.7 per cent to €126.7bn, according to data released on Monday by the federal statistical agency. The trade deficit was the country’s first since 1991. Russia’s invasion of Ukraine and the subsequent sanctions imposed onMoscow by western countries have hit trade, along with China’s coronavirus lockdowns, squeezing demand for goods from Germany’sexport-focused economy.The fall in overall German exports was partly because of a 2.8 per cent monthly drop in exports to other EU countries, while imports fromthose countries increased 2.5 per cent. Exports to the US increased 5.7 per cent and those to China were up 0.5 per cent, but exports to the UK fell 2.5 per cent.Economists expect high energy prices and weak exports to hit German growth this year. ING is forecasting German gross domestic product will shrink in the second quarter and Brzeski said: “There is a high probability that Germany and the rest of the euro area will enter recession this year.”Prices of German imports rose more than 30 per cent in the year to May — reflecting soaring energy and commodity prices — while export prices rose almost 16 per cent in the same period. While trade data is reported on a nominal basis, the data is adjusted for inflation when calculating GDP.“Germany’s trade surplus has now evaporated, thanks mainly to soaringimports, offsetting otherwise decent momentum in exports,” said Claus Vistesen, an economist at Pantheon Macroeconomics, adding that heexpected Germany to continue running a trade deficit over the summer.German exports to Russia recovered some of their recent falls, rising almost 30 per cent from the previous month to €1bn, but they remain less than half the level of a year ago. German imports from Russia fell almost 10 per cent to €3.3bn. Moscow has cut the supply of natural gas to Germany in recent weeks, raising fears of a shortage that could force some industrial production to be shut down.Many German companies announced they were severing ties with Russia after the EU imposed sanctions on thousands of Russian individuals and businesses. Brussels plans to ban EU imports of Russian oil as part of a sixth package of sanctions against Moscow.There has been a similar deterioration in the trade balance of the overall eurozone, which had a trade deficit in goods of €32.4bn in April, a reversal from a surplus of €14.9bn a year earlier. Eurozone trade figures for May are due to be released on July 15. More

Hello. Good news last week for fans of preferential trade agreements and chatter about shared progressive values as New Zealand, very much the Europe of the southern hemisphere, signed a bilateral deal with the EU, the New Zealand of the northern one. Lots of good liberal stuff about the environment and transparency and rules-based trade, and what have you. Not so much of the actual market access for meat and dairy exporters that the Kiwis got in their bilateral with the UK, though, Brussels being less willing than London to shaft its farmers to get a quick deal. See the Links section for more excitement in UK trade policy and how I might have been a bit optimistic about its quality. Today’s main piece is on carbon emissions and the trading system, and just how far away we are from any coherent international attempt to address the issue of carbon leakage. Charted waters looks at whether low cost-air travel in Europe is too low cost for consumers.As ever, if you have thoughts on any of this or anything else, I’m on [email protected] all-too-obvious emissionThere’s an initiative launched every other day to tackle global warming. The one to emerge from last week’s alpine G7 meeting in Germany was a “carbon club” of like-minded governments banding together to reduce emissions. The name’s got a friendly vibe in a nerdy kind of way, membership presumably including an iron-on badge, a smart pen-and-pencil set and maybe a loyalty card: buy nine credits from the EU’s emissions trading system and the tenth is free, especially if you’ve got heavy industry to protect.What it does not entail, unfortunately, is any kind of coherent plan to deal with the “carbon leakage” problem of companies that face emissions pricing losing international competitiveness, an issue lumbering inexorably towards the world trading system. The debate on addressing leakage is being dominated by partial EU and US initiatives rather than a systematic discussion in a broader forum.The idea of a carbon club was embraced by German chancellor Olaf Scholz while finance minister under Angela Merkel’s coalition government. The principle of collective action on emissions with mutual benefit for those doing it is politically astute: it reassures energy-intensive industries that they won’t be the victims of first-mover disadvantage. Confusingly, it sounds a bit like the well-known “climate club” proposal from Yale economist William Nordhaus, which envisages a group of countries with emissions pricing regimes imposing tariffs on outsiders to equalise carbon costs. But at this stage the G7 carbon club mainly involves an analytical exercise on best practice in emissions reduction and mitigation, drawing heavily on work at the OECD. The World Trade Organization, which is name-checked in the G7 statement, is keen to be involved in the leakage issue: its director-general Ngozi Okonjo-Iweala wrote in the FT last year about the (hugely ambitious) goal of creating a single global emissions price. But beyond setting up some “structured discussions” on trade and environmental sustainability in the WTO, its member governments see carbon border pricing as too contentious to start anything that looks like an actual negotiation.Into this multilateral vacuum of discussions come two main initiatives. One is the EU’s unilateral proposed carbon border adjustment mechanism (CBAM), which envisages targeted import tariffs to equalise emission costs to domestic and foreign producers. The other is the US’s bid to replace former president Donald Trump’s absurd “Section 232” national security tariffs on steel and aluminium on its trading partners with “green steel” clubs where the US and those partners, particularly the EU, jointly put tariffs on emissions-heavy third countries.The problem here is that the processes envisage different outcomes, are on different timelines and, some would say, have different purities of motive and concerns about compatibility with WTO law. There was suspicion from the beginning from the EU side (shared by me, I must say) that the US wheeze, which doesn’t even require it to impose its own carbon pricing first, looks dangerously like transforming unilateral into club-based protectionism. (To be fair, a group of Democratic senators have introduced a bill that would have domestic and border carbon pricing, but it’s reckoned to have a low chance of success.)Last week the European Parliament came up with its proposal for the CBAM. More radical than the European Commission’s version, as is the Parliament’s wont, it would cover a much wider range of products — including organic chemicals and hydrogen — which would start to hit significant chunks of US exports to the EU, so might help focus minds in Washington. It would also give rebates to EU exporters, an issue that the commission has flatly rejected as incompatible with WTO law. The different EU institutions will now go into negotiations with each other.The CBAM design process has at least worked through the detail and taken its time: the parallel talks between the EU and US over Washington’s green steel club rather less so. The deadline for completing the EU-US talks is next October, a date set just last year when the EU gave the US a two-year ceasefire on retaliation against its Section 232s. Brussels really doesn’t want to extend that deadline: while talks are going on, the 232s have temporarily been replaced by a cumbersome system of jury-rigged US steel and aluminium import quotas, the kind of “managed trade” the EU instinctively hates.The talks are going on behind closed doors, but it’s pretty clear that no substantive ideas have yet emerged on how to create a green steel club that would cleanly pass WTO muster. (I’ll get into the technicalities of this in a future newsletter). There’s a serious risk of the EU agreeing to some cynical deal of going along with the American plan and trying to use legal loopholes (the “exhaustible natural resources” exception under Article XX (g) of the WTO treaty, if anyone’s taking notes) to defend it if challenged on discrimination grounds.Global public policy isn’t generally best made by a couple of governments in private working to an artificial deadline set by the threat of a renewed conflict over an absurd set of tariffs originally put in place by a ghastly president with a crazed, pitiful set of ideas about trade. But that’s where the carbon leakage debate is happening. It’s a hell of a way to run a planet.As well as this newsletter, I write a Trade Secrets column for FT.com every Wednesday. Click here to read the latest, and visit ft.com/trade-secrets to see all my columns and previous newsletters too.Charted watersOne of the big selling points of free markets is the driving down of prices through greater competition. But the reality is that this can go too far, such that prices become unsustainably low. Ryanair’s chief executive Michael O’Leary has now called time on this in the airline sector.The chart — using data from Kayak.com — shows that median fares from London to summer destinations in Portugal, Spain and Greece have all jumped compared with a year ago. However, they are significantly lower than 10 years ago.Budget airlines are being hit by the same headwinds that are pushing up prices in other sectors — staff shortages and fuel costs — and Ryanair may be in a better position than its rivals, having hedged the majority of its future fuel requirements for the rest of this year at $65 a barrel before Russia invaded Ukraine and kept staff, albeit on lower wages, rather than cutting headcount during the pandemic. (Jonathan Moules)Trade linksLooks like I was rather too kind saying that British trade policy was pretty well run with the (massive) exception of relations with the EU: the UK last week not only fiddled its own rules to safeguard tariffs on steel imports but went out of its way to say it was breaking WTO law to do so. I mean, what?Using satellite evidence (I find this extremely cool), an investigation by my FT colleagues shows how Russia is busting sanctions by smuggling grain across the Black Sea.The hoped-for nearshoring bonanza for Mexico as US companies moved their sourcing closer to home hasn’t happened, FT analysis says.Officials from the Biden administration are continuing to disagree in public about whether to remove some of the tariffs on China it inherited from Trump to help combat inflation.The EU member states and parliament have reached provisional agreement on a legal instrument to deter state-subsidised foreign companies from taking over businesses or bidding for public procurement contracts in the European single market. (This is a big deal: I’ll come back to it.)Trade Secrets is edited by Jonathan Moules More

The following are the main measures so far flagged by the government or in leaks from the draft text to the press. TRANSPORT COSTSThe government is to extend a 0.18 euro per litre discount on fuel until the end of August, and Finance Minister Bruno Le Maire has proposed that it should last until the end of the year if lawmakers accept.Tax-free payments that employers give workers to help cover their transport costs will be raised to 700 from 500 euros for this and next year with the amount specifically for fuel doubled to 400 euros.People who rely on their cars for work will also be eligible for a subsidy.BENEFITS, WAGES AND BONUSESBasic pensions and various welfare payments are to be increased 4% while civil servants will see base salaries increased by 3.5%.Tax-free bonuses that companies can pay employees will be increased to 3,000 euros from 1,000 and up to 6,000 when payments are made through a profit-sharing scheme. Rent increases will be capped at 3.5% for one year while housing subsidies will be increased by 3.5%. A food voucher worth 100 euros may also be created for people on low incomes.A 138-euro annual tax that people pay when they own a television will be scrapped and public television will henceforth be financed by the state budget. More

PARIS (Reuters) – President Emmanuel Macron’s government will get its first taste of life under France’s new political order in the days ahead when it tables a bill to help households cope with runaway inflation without a controlling majority in parliament.Macron’s party lost its absolute majority in parliamentary elections last month as voters handed big gains to the far-right Rassemblement National and the left-wing Nupes alliance.Why does the purchasing power bill matter?With households increasingly struggling in the face of record inflation, the government is under pressure to pass the bill quickly while opposition parties are impatient to wield their new power to substantially rewrite proposed legislation.Rival parties from the left and the right are already demanding amendments that would strain the fragile public finances unless the government and Macron’s party can convince them to back down.The tricky political horse-trading in the coming days will be a harbinger of what awaits Macron’s government for the next five years in parliament. With memories still fresh of the large-scale “yellow vest” street protests and violence in 2018, the government is eager to avoid adding a political crisis to a cost-of-living crisis.What does the bill mean for the public finances?The package is likely to cost more than 25 billion euros ($26 billion), according to finance ministry sources, on top of existing measures already worth 26 billion euros. Its main inflation-relief measures include a 4% increase to welfare and pension benefits, raising civil servant pay by 3.5% and prolonging a state-financed rebate on fuel prices at the pump.Despite the extra spending, Finance Minister Bruno Le Maire says he can keep the budget deficit to 5% of GDP thanks to stronger-than-expected tax revenues so far this year.However, he has warned the opposition that the post-COVID public finances are in the “danger zone” and there is no room for costly measures on top of those proposed by the government.So far, opposition parties are not heeding his warnings. The far-right Rassemblement National (National Rally) is seeking a huge cut in value added sales tax on car fuel. The conservative Les Republicains party, whose support Macron is most likely to count on to pass laws, is also demanding a huge cut in fuel tax.Meanwhile, the Nupes coalition, whose biggest constituent is the radical left La France Insoumise (France Unbowed) party, is demanding that the minimum wage be hiked to 1,500 euros net from 1,300 currently. It also wants civil servants salaries increased 10% and tied in the future to inflation.What does the bill mean for future legislation?As the first major bill to come before parliament since the elections, it will set the tone for other legislation and reveal how obstructive opposition parties are willing to be to secure concessions.After the summer, the next big test will be the annual budget bill due at the end of September which is not usually passed into law until the end of December.Lawmakers elected Eric Coquerel of La France Insoumise last week to head the lower house’s finance committee, which plays the key role of tweaking the bill and revising or weeding out amendments before the full house votes.As president of the commission, he will have considerable power to decide which amendments get voted on and which do not.France Unbowed tried in 2019 to block a pension reform by adding more than 20,000 amendments to the bill to bog down its passage through parliament. Macron eventually abandoned the reform due to the COVID-19 crisis, but aims to resurrect it during his second term.If a budget law is not adopted after 70 days, the government can bypass the parliament and implement it by decree, averting a U.S. style-government shutdown.($1 = 0.9583 euros) More

Investing.com — It’s Independence Day in the U.S., and all domestic markets are closed, leaving the field open to Asia and Europe. Bonds are under pressure after a report saying that the ECB intends to end a hidden subsidy for the banking sector, while the leaders of Germany and Italy both hold crisis talks as they struggle to contain the economic fallout of the war with Russia. Russia completed the conquest of the last major city in the region of Luhansk at the weekend, bringing it a step closer realizing one of its most consistent war aims, control of the Donbas region. Elsewhere, base metals fell after Chinese real estate developer Shimao missed a payment on a $1 billion bond, and President Joe Biden may cut tariffs on Chinese imports this week. Here’s what you need to know in financial markets on Monday, 4th July.1. Eurozone bonds, bank stocks slump on ECB reportEurozone bonds and bank stocks slumped after the Financial Times reported that the European Central Bank intends to end a long-running subsidy for the sector that has allowed banks to pad their profits simply by parking their excess liquidity at the central bank.Yields on benchmark 10-year Eurozone government bonds rose by between 8 and 12 basis points, while bank stocks fell by as much as 3.8% on a morning when European stock markets were broadly higher.Peripheral Eurozone assets came under the most selling pressure, reflecting the fact that countries such as Italy and Spain use the ECB’s facilities more proportionately than those in northern Europe. Italy’s markets came under particular pressure after a report saying that Prime Minister Mario Draghi would hold crisis talks with the Five Star Movement leader Giuseppe Conte later, in an effort to keep the party in a coalition that is fraying over the economic cost of supporting Ukraine.2. Germany posts first trade deficit in 31 yearsThose economic costs were in full view again as Germany posted its first monthly trade deficit in over 30 years in May, due to a 28% annual rise in its import bill. Exports also suffered as supply chain constraints and soaring energy prices constrained key manufacturing sectors such as autos and chemicals.German Chancellor Olaf Scholz is also holding crisis talks over the state of the economy later Monday with representatives from trade unions and employers’ federations. The head of the trade union movement warned at the weekend that entire industries such as glassmaking and chemicals could be destroyed if the sharp rise in energy prices is sustained.3. Biden eyes tariff cut this week – WSJU.S. President Joe Biden may announce the lifting of some Trump-era tariffs on Chinese imports as early as this week, The Wall Street Journal reported on Monday, citing people familiar with Biden’s thinking.The tariffs, which have been criticized as “a drag” on the U.S. economy by Treasury Secretary Janet Yellen, are keeping prices for some imports higher than would otherwise be the case, and lifting them would take some of the heat out of goods price inflation. However, it would also expose Biden’s administration to charges of being weak on China, making the electoral benefits of any such measures doubtful.Biden elsewhere found himself embroiled in a fresh row with Amazon (NASDAQ:AMZN) founder Jeff Bezos, who criticized his appeal to gasoline retailers to cut their prices. Bezos accused Biden of a “deep misunderstanding of basic market dynamics.”4. Iron ore falls as Chinese real estate group Shimao misses bond paymentChinese stocks advanced but industrial commodities came under pressure after real estate developer Shimao became the latest in the sector to miss a payment on its international debt.The missed payment is an uncomfortable reminder that the country’s real estate debt problems remain far from solved and that the central bank has so far resisted the temptation to cut interest rates aggressively to allow the sector to try to borrow its way out of trouble, as it has in the past.September iron ore futures on the Dalian Commodity Exchange fell as much as 6.3% to 716 yuan a ton, extending their losses to a third straight session, and touching their lowest in over a week, on the read across to demand for steel.5. Oil drifts; Italy eyes extension to fuel tax holidayCrude oil prices drifted in the absence of U.S. participants over the holiday weekend. Biden’s appeal to gas station operators wasn’t able to do much to U.S. retail gas prices which, at an average of over $4.80 a gallon, are still close to record highs.By 6:35 AM ET, U.S. crude was down 0.3% at $108.07 a barrel, while Brent was down 0.2% at $111.40.The market remains focused on the risk of recession and a sharp drop in demand toward the end of the year. However, governments are still trying to sustain demand where they can by cutting duties, Italy becoming the latest to eye an extension of its current gas tax holiday. More

Protesters brought parts of the UK’s motorway network to a standstill on Monday in a demonstration over high fuel prices.Police warned drivers that a “slow-moving rolling roadblock” was causing delays on parts of the M4 motorway near the border between England and Wales and on the M5 near Bristol.There were also “significant delays” in both directions on the Prince of Wales Bridge that links England to southern Wales, police said. With protesters driving between 25mph and 30mph motorists were warned to expect delays and to reconsider their journeys. Elsewhere, similar demonstrations and delays were reported on the M180 in Lincolnshire, while West Yorkshire Police said it was “negotiating with a small group of fuel price protesters” at a motorway service station, but reported no disruption during the morning rush hour.The protests represent the most visible backlash yet against the soaring cost of fuel, which is deepening the cost of living crisis for many motorists.The protesters did not appear to be operating under the umbrella of a single campaign group but were discussing and organising the protests on social media.A Facebook group called “Fuel Price Stand Against Tax”, which was created in March, had almost 50,000 members on Monday morning, while an online petition to reduce the tax on fuel by at least 30 per cent had received 140,000 signatures. Chancellor Rishi Sunak in March cut duty on fuel by 5p a litre, but that has had little impact as the price of oil has risen.The UK competition watchdog has also launched an investigation into competition in the retail fuel market, following government concerns over whether the cut in fuel duty was being passed on to drivers.Fuel prices have been hitting new records on a daily basis, and the average cost of filling a family car with petrol hit £100 for the first time last month, up from £71 the previous year, the RAC has said. The average cost of a litre of diesel was just under £2 on Monday morning, while a litre of unleaded petrol was £1.91, according to the motoring group. Wholesale prices, which take into account the costs of the raw materials and taxes but not retailer costs such as delivery, have risen roughly 50 per cent this year. Monday’s protests were the latest disruption to hit roads in the UK over the past year, after climate change protesters repeatedly stopped traffic on busy motorways, leading the government to bring in new legislation against what it called “guerrilla protests”. More

SRINAGAR, India (Reuters) – Fruit growers in Indian-administered Kashmir said on Monday they were facing huge losses as truck-loads of apples, pears and other produce got caught up in traffic jams caused by a security crackdown during an annual Hindu pilgrimage.Hundreds of thousands of people come through the contested region to visit a shrine in a Himalayan cave for the Amarnath Yatra pilgrimage.Numbers are even higher this year, as the event was shut down in 2021 during the pandemic – and security is tighter after police said last week they had uncovered a militant plot to attack pilgrims. Fruit-laden trucks were stranded as security forces held up traffic to check for threats, Bashir Ahmad Basheer, from the Kashmir Valley Fruit Growers and Dealers Union, told Reuters.”Freshly harvested plums, peaches, pears and apples need to be transported outside Kashmir or else they may rot in this heat and we will face heavy losses,” he said.Lieutenant Governor Manoj Sinha, who leads the region, acknowledged there was a problem and said the government was working on plans to ease traffic. “Trucks will only be stopped when pilgrims travel on the highway and trucks loaded with perishables won’t face any inconvenience,” he told reporters.Indian soldiers carrying automatic assault rifles and wearing flak jackets have been out guarding roads since the Hindu pilgrimage began in the Muslim-majority region in June.”Pilgrims are our guests but our trucks should not be stopped,” orchard owner Ghulam Mohammad Malik told Reuters.He said farmers and traders would together face losses of 30 million Indian rupees ($380,000) per day if congestion did not ease.Fruit cultivation is the backbone of Kashmir’s economy, and gives work to about 3 million people, according to the growers union. During the pilgrimage, Hindus cross glaciers and waterlogged trails to reach the mountain cave which contains an ice stalagmite that is considered a physical manifestation of the god Lord Shiva.The cave is covered in snow for most of the year, but authorities let pilgrims visit it for 45 days over the summer as rising temperatures clear the passes.India and Pakistan have twice gone to war over Kashmir, which is divided between them but both claim in full, and it remains at the heart of decades of hostility.($1 = 78.9375 Indian rupees) More