Aurelia Butler

(Reuters) – President-elect Donald Trump on Monday pledged big tariffs on the United States’ three largest trading partners – Canada, Mexico and China – detailing how he will implement campaign promises that could trigger trade wars.Trump, who takes office on Jan. 20, said he would impose a 25% tariff on imports from Canada and Mexico until they clamped down on drugs, particularly fentanyl, and migrants crossing the border, in a move that would appear to violate a free-trade deal.Trump separately outlined “an additional 10% tariff, above any additional tariffs” on imports from China. It was not entirely clear what this would mean for China as he has previously pledged to end China’s most-favored-nation trading status and slap tariffs on Chinese imports in excess of 60% – much higher than those imposed during his first term.The two posts on Truth Social represent some of Trump’s most specific comments on how he will implement his economic agenda since winning the Nov. 5 election on promises to “put America first”.”On January 20th, as one of my many first Executive Orders, I will sign all necessary documents to charge Mexico and Canada a 25% Tariff on ALL products coming into the United States, and its ridiculous Open Borders,” Trump said.The U.S. accounted for more than 83% of exports from Mexico in 2023 and 75% of Canadian exports. The tariffs may also spell trouble for overseas companies like the many Asian auto and electronics manufacturers that use Mexico as a low-cost production gateway for the U.S. market. Trump’s threatened new tariffs would appear to violate the terms of the U.S.-Mexico-Canada Agreement (USMCA) on trade. The deal which Trump signed into law took effect in 2020 and continued the largely duty-free trade between the three countries.Canada and the United States at one point imposed sanctions on each others’ products during the rancorous talks that eventually led to USMCA. Trump will have the opportunity to renegotiate the agreement in 2026, when a “sunset” provision will force either a withdrawal or talks on changes to the pact. After issuing his tariff threat, Trump held a conversation with Canada’s Prime Minister Justin Trudeau in which they discussed trade and border security, a Canadian source familiar with the situation said. “It was a good discussion and they will stay in touch,” the source said. Trump could be counting on the threat of tariffs to prompt an early renegotiation of USMCA, said William Reinsch, a former president of the National Foreign Trade Council.”This strikes me more as a threat than anything else,” Reinsch said. “I guess the idea is if you keep hitting them in the face, eventually they’ll surrender.”Mexico’s lower house leader Ricardo Monreal, a member of the ruling Morena party, urged “the use of bilateral, institutional mechanisms to combat human, drug and arms trafficking.””Escalating trade retaliation would only hurt the people’s pocketbooks and is far from solving underlying problems,” he said in a post on social media platform X.Trump’s announcement sparked a dollar rally. It rose 1% against the Canadian dollar and 1.6% against the Mexican peso, while share markets in Asia fell, as did European bourses in early trade. S&P 500 futures were little changed.[FRX/][MKTS/GLOB] CHINA: NO ONE WINS TRADE WARSOn China, Trump accused Beijing of not taking strong enough action to stop the flow of illicit drugs into the U.S. from Mexico. “Until such time as they stop, we will be charging China an additional 10% Tariff, above any additional Tariffs, on all of their many products coming into the United States of America,” Trump said.A Chinese embassy spokesperson in Washington said China believed that China-U.S. economic and trade cooperation was mutually beneficial. “No one will win a trade war or a tariff war,” Liu Pengyu said. The embassy also cited steps it said China had taken since a 2023 U.S.-China meeting after which Beijing agreed it would stem the export of items related to the production of the opioid fentanyl, a leading cause of drug overdoses in the United States.”All these prove that the idea of China knowingly allowing fentanyl precursors to flow into the United States runs completely counter to facts and reality,” the spokesperson said.Chinese foreign ministry said in a statement that China was willing to continue anti-drug cooperation with the U.S. on the basis of “equality, mutual benefit and mutual respect.””The U.S. side should cherish China’s goodwill and safeguard the hard-won sound situation of Sino-US drug control cooperation,” the ministry said.Chinese Vice President Han Zheng, speaking at a supply chain expo in Beijing on Tuesday, said China was ready to work with other countries to build an open world economic system and maintain the stability of global industrial and supply chains. China’s economy is in a vulnerable position amid a prolonged property downturn, debt risks and weak domestic demand.In the run-up to the Nov. 5 election, Trump floated plans for blanket tariffs of 10% to 20% on virtually all imports. He also said he would put tariffs as high as 200% on cars coming across the U.S.-Mexico border. Mexico’s finance ministry said of Trump’s tariff pledge: “Mexico is the United States’ top trade partner, and the USMCA provides a framework of certainty for national and international investors.”Economists say Trump’s overall tariff plans, likely his most consequential economic policy, would push U.S. import duties back up to 1930s levels, stoke inflation, collapse U.S.-China trade, draw retaliation and drastically reorder supply chains. More

Villeroy, who is head of the French central bank, said that President-elect Donald Trump’s plans to hike tariffs and cut taxes increased risks for the world economy, adding to U.S. inflation and weighing on growth abroad.”The inflation effect could be relatively limited in Europe, however long-term interest rates set by the market have a certain tendency to cross the Atlantic,” Villeroy told a retail investor conference in Paris.”I don’t think it changes much for European short-term rates, but long-term rates could see a transition effect,” he added. More

The decision concludes a week of speculation and competition among high-profile candidates vying for the influential role, which oversees economic policy, regulation, and international financial relations.Wall Street had been closely monitoring Trump’s pick, given his stated intentions to reshape global trade through tariffs and potentially expand the tax cuts implemented during his first term.The selection of Bessent, a 62-year-old veteran of the finance world, signals a move likely to resonate positively with markets. Analysts suggest his experience and market expertise may help temper fears of aggressive tariff policies.”Scott is widely respected as one of the World’s foremost International Investors and Geopolitical and Economic Strategists,” Trump said in a statement on Truth Social.”[He] has long been a strong advocate of the America First Agenda,” Trump continued, noting that Bessent would “support my Policies that will drive US Competitiveness, and stop unfair Trade imbalances.”Bessent, a known advocate for extending Trump’s initial tax cuts, is expected to champion similar measures in the administration. He has also defended the use of tariffs, which were a cornerstone of Trump’s campaign platform, describing them as a “useful negotiating tool.”But while he supports the use of tariffs, Deutsche Bank (ETR:DBKGn) strategists do not believe that Bessent is “a trade hardliner.”“He has generally argued in support of tariffs as a negotiating device and supported a gradualist approach with substantial forward guidance, even going as far as proposing implementing the 50- 60% tariffs on China by increasing 2.5 percentage points per month,” strategists noted.“Bessent’s presence should therefore act as a counterbalance to Trump’s most extreme impulses on tariffs,” they said, adding that his appointment “supports a baseline of a somewhat more strategic or gradualist approach to trade wars.”Separately, UBS strategists said the initial market reaction to Bessent’s appointment suggests that he is “seen by financial market participants as an anchor of stability and responsibility in the Trump cabinet.”“In fact, we think markets could start to see that the risks of higher inflation and interest rates are implicit constraints on the Trump policy agenda, with the eventual policy outcomes potentially less inflationary than some investors previously feared.”“While we do not rule out further volatility, we expect US Treasury yields to fall in the year ahead following the 65-basis-point rise over the past two months,” they added. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The writer is chief economist of the International Center for Law & Economics and writes the Economic Forces blogDonald Trump has promised a renewed push for tariffs when he returns to the White House. The stated goal is to protect American manufacturing jobs, but some approaches would achieve this far more effectively than others. The historical record shows that, while tariffs can preserve specific manufacturing jobs in the short term, poorly designed trade barriers destroy more American factory jobs than they save.  Understanding these trade-offs is crucial for policymakers determined to use tariffs. Trump has said he will impose tariffs of 25 per cent on all imports from Canada and Mexico, and an extra 10 per cent on Chinese goods. But implementation will be key.The key lies in modern supply chains. Today’s factories rely heavily on imported components. Indeed, nearly 20 per cent of US imports are so-called intermediate inputs used by domestic producers to make other goods. Trump’s 2018 tariffs applied primarily to these intermediate goods. This transforms how tariffs affect jobs. Rather than a simple trade-off between protected workers and hurt consumers, the effects ripple through manufacturing.Steel tariffs illustrate the pitfalls. While they benefit US producers such as Nucor and US Steel, they harm the much larger manufacturing sector that uses the metal — from Caterpillar’s construction equipment to Ford’s auto parts. These downstream industries employ far more workers than steel production. When Trump imposed 25 per cent steel tariffs in 2018, manufacturing employment declined in industries that used steel intensively. These job losses outweighed any gains in steel production.Tariffs on finished goods can sometimes protect jobs effectively, but success requires careful design. The washing-machine industry provides an example. When the US first imposed China-specific duties in 2017, manufacturers simply shifted production to Thailand and Vietnam. Only after the US enacted global tariffs in 2018 did Samsung and LG build American factories. While this eventually achieved the political goal of creating US jobs, it required comprehensive trade protection and came with higher prices for consumers.Protection is also possible when foreign producers cannot easily shift production. Take semiconductors: building new chip fabrication plants requires massive capital investment (typically $10bn to $20bn) and years of construction. In that case, a tariff may raise chip prices, protecting Intel’s employees. But those same barriers — huge capital requirements, specialised worker training, complex supplier networks — also make it harder to establish new domestic production quickly. The auto industry also illustrates both effective and counterproductive approaches to tariffs. The so-called “chicken tax” — named after an initial tariff on poultry — was a 25 per cent tariff on imported light trucks imposed in 1964. It helped Ford and General Motors dominate the US pick-up truck market for decades. The tariff worked because it targeted finished vehicles, not parts, and because domestic manufacturers could readily expand production. Over time, it even prompted companies such as Toyota, Nissan, and Honda to build US plants to avoid the tariff.But modern vehicle production is far more complex. When the Trump administration imposed tariffs on Chinese auto parts in 2018, it did not protect American jobs at all. Instead, it raised costs for US automakers who relied on imported components. Higher input costs led to slower export growth and job losses in affected industries.If the goal is to support high-value manufacturing, policymakers should focus on protecting advanced industries where the US has existing expertise. Targeted support for semiconductor manufacturers such as Intel or electric-vehicle battery producers could help domestic companies to gain scale in strategic sectors. In contrast, broad tariffs on basic materials such as aluminium mainly result in higher costs across manufacturing supply chains.For businesses seeking to plan ahead, the lesson is straightforward: what matters most is where new tariffs hit their income statements. Tariffs on final goods mainly affect revenue through higher prices or units sold. But tariffs on inputs directly inflate the cost side, squeezing margins and often forcing harder choices about moving production. Modern manufacturing involves complex international supply chains that tariffs can easily disrupt. The iPhone is not just “made in China”, but represents a global production network that includes American innovation and Asian manufacturing. Policymakers need to update their thinking accordingly. More

On a blustery October day, the remaining fragments of what was once Shanghai’s hottest bar and restaurant are being liquidated. The champagne glasses cost Rmb28 ($4), waistcoats hang from a Rmb1,500 lime-green screen, and a framed poster from the 1930s leans against the wall.M on the Bund closed its doors for the last time in February 2022, in the midst of China’s Zero-Covid policy. By the time its contents were finally sold off last month, they had already become relics of another era. For more than two decades, the restaurant had been the regular haunt of business people, financiers and visiting delegations to a booming city of over 20mn people. But if they were to visit Shanghai now, “they wouldn’t believe it’s the same place,” says Michelle Garnaut, the Australian restaurateur who founded the venue in 1999.More than 15 years after China pledged to turn Shanghai into an international financial centre, the port city has failed to live up to its early promise. Once positioned as the frontier of China’s gradual incorporation into a global economic system, its recent exceptionalism is today overshadowed by a growing rift between Beijing and Washington.In a city of shipping routes and western concessions, where the distinctive trees that line its avenues were initially introduced from Europe, an inward shift across Chinese politics that accelerated during the pandemic has shaken Shanghai’s international identity. Some content could not load. Check your internet connection or browser settings.A beneficiary of decades of economic growth since the country opened up in 1979, the city is the world’s biggest container port and a base for many foreign companies. But it now sits uneasily amid a new era of trade protectionism and mutual suspicion across the Pacific, and is increasingly disconnected from international finance.American law firms, once participants in huge cross-border financial flows, have left the city as foreign investment plummets. No western bank has participated in a single IPO on Shanghai’s stock market this year, and, in a domestically-focused market, the need for foreign staff is increasingly unclear. Asset management firms that flocked to the city in the hope of a loosening of China’s capital controls must reckon with the prospect that Beijing will tighten them instead.For Xi Jinping’s government, this is not necessarily a problem. A critique of finance that arose after the global crisis of 2008 has gained salience domestically, especially after a 2015 stock market crash and anti-pandemic measures that reasserted the dominance of the state. Beijing is now prioritising an internationalism based around exporting infrastructure and green technology that echoes its domestic model, and in which Shanghai plays a role.Many of the world’s leading foreign financial firms maintain at least a nominal presence in Shanghai, hoping for one of the many U-turns that have characterised its history. But, like the colonial-era banks and counting houses that neighboured the out-of-business M on the Bund, they risk being reduced to a facade.“This was really the last frontier of capitalism [in China],” says one person present at the fire sale, referring to the buzz of the restaurant’s heyday. “It’s all gone. It’s all changed.”In the early 20th century, Republican-era Shanghai was, for some, an oasis of free markets. On the Bund, the waterfront mirrors the architecture of London or New York — a legacy of British, French and American concessions established in the 19th century, carved out of the Chinese government’s sovereignty.A century later, after decades of closure, market forces seemed to be in the ascendancy once again. In spring 2009, Beijing’s state council, the country’s top decision-making body, set an ambitious target: Shanghai would become an international financial centre by 2020.Even if the term was not strictly defined, it signalled a wider opening-up and came a year after the Beijing Olympics had alerted the world to China’s economic miracle. The goal of becoming an international financial hub is “highly desirable” not only for the city, but for China more broadly, the Brookings Institution wrote in 2011. But it also noted the disappointments of Tokyo and Frankfurt, which had once held similar ambitions, and the importance of the rule of law. Shanghai was “on track” to meet its target, the American Chamber of Commerce said a year later in 2012.“I got excited, and I kept telling all the young people, the future of finance is Shanghai,” recalls Han Shen Lin, formerly deputy general manager for Wells Fargo bank in China and now China Country Director for The Asia Group, a US consultancy. At that time, “everyone thought China would succeed in loosening its capital controls,” he adds, a reference to the government’s practice of tightly controlling the flow of money in either direction across its borders. The project, he adds, also hinged on the free movement of information and people — both of which were tightly controlled in China.A view of the Pudong financial district from M on the Bund, which closed in February 2022 in the midst of China’s Zero-Covid policy More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.There is “room” for Chinese wind turbine manufacturer Mingyang to open a factory in Scotland, the country’s deputy first minister Kate Forbes has said, as she targets more jobs for the renewables sector.The company’s proposed manufacturing facility was earlier this year prioritised by a Scottish public-private programme matching the supply chain with developers.However, the proposed deal has triggered criticism from some politicians concerned about handing a critical aspect of the offshore industry to an entity from a “hostile” state.Denmark’s Vestas, another turbine manufacturer, is already pushing ahead with plans for a wind turbine facility in Leith, Edinburgh, although it has not yet made a final investment decision.  “I think there is room [for Mingyang and Vestas],” Forbes said in an interview with the Financial Times.“I think if you look at the ambitions right now for the transition, the transformation required in our supply chain needs to be enormous,” she added.Mingyang is closing in on a preferred supplier agreement for up to 6GW of floating wind capacity to decarbonise the oil and gas sector in the North Sea from UK developer Cerulean Winds, a potential anchor deal.Cerulean Winds, which is exploring options with potential global wind turbine manufacturers, said no formal agreements have been signed.Mingyang, China’s largest floating offshore wind company, is privately owned, but critics of the potential deal remain concerned over perceived risk of interference in corporations’ decision-making.The EU Commission is investigating whether Chinese manufacturers are getting unfair subsidies from Beijing, in a push to protect European industry.  A Mingyang wind turbine factory in China More