Economy

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the world(noun) a tax on imported goodsWe old trade hands spent years telling people trade policy wasn’t about tariffs any more. Tariffs around the world were low and falling, we said. Trade barriers these days were all about complex technical regulations, we said. And then came the soi-disant “Tariff Man” Donald Trump to return trade policy to a simpler, more brutal era.When Trump calls “tariff” the most beautiful word in the English language— “it’s more beautiful than love, it’s more beautiful than anything” — he probably isn’t thinking of its romantically serpentine etymology. It has come to us from a term originally used by Arab traders to mean a notification or an inventory, via some combination of Persian, Turkish, Italian and French routes — the bountiful interchange of medieval Mediterranean commerce embodied in a single word.One Must-ReadThis article was featured in the One Must-Read newsletter, where we recommend one remarkable story each weekday. Sign up for the newsletter hereBut the incoming US president thinks trade is how foreigners in general and China in particular steal from the US and tariffs are how he can stop them. He’s wrongly convinced they’re paid by foreign companies: tariff revenue is actually remitted to tax authorities by importers — and as the duties he imposed in his first term showed, domestic companies and consumers generally end up absorbing the cost.For Trump, however, they’re a universal solvent, not just a crowbar to close trade deficits but also a source of tax revenue and a tool of geopolitical leverage. They certainly get attention: his threat of 25 per cent tariffs on imports from Canada and Mexico unless they sorted out illegal immigration and the fentanyl trade had their leaders rushing to show they were on the case.Most economists hate tariffs, thinking them distortive and damaging. Most governments have moved away from using them on a large scale. Trump’s tariff obsession really does involve dusting down a weapon from a bygone era. We’re going to spend four years learning how a blunderbuss performs in a modern trade war.alan.beattie@ft.com More

A recent feature of the FT’s annual predictions has been that what was once seen as a light-hearted exercise has increasingly had to grapple with issues of war and peace. This year our writers offer predictions on conflicts in Ukraine, the Middle East, Sudan — and another kind of war, of tariffs. Readers may disagree, but the scenarios aim to be plausible. Our chief economics commentator Martin Wolf makes a call on US interest rates, and we have lighter fare including where bitcoin prices might go, AI agents, and a revival (or not) of the CD. Donald Trump’s return to the White House means the US president looms large.Our collective performance last year was not among our best, with five wrong answers. Following polling at the time, we discounted Trump’s re-election chances. Japanese interest rates did rise above zero; investors didn’t move back into bonds as expected; X didn’t go bankrupt; and there was no deal, yet, to return the Parthenon marbles to Greece. Single minds, it seems, can sometimes beat 20: two entrants to our reader competition got all 20 questions right, and the overall winner, Ercole Durini of London, was even spot on with the tiebreaker. Readers are invited to submit their own answers again this year, with their real name and email. Happy New Year! Neil BuckleyFT readers: submit your predictions for 2025 Will Donald Trump start a full-scale tariff war?Yes, on balance, but it’s not a dead cert. By “tariff war” let’s say at least 10 per cent tariffs on at least half of US imports by the year-end. Nobody really knows with Trump. But he will definitely hit imports from China, about 15 per cent of the US total. Mexico and Canada together are around 30 per cent, and their leaders Claudia Sheinbaum and Justin Trudeau — or a successor — will insist on their toughness on immigration to avert Trump’s threatened 25 per cent tariffs. Other trading partners will also make offerings and promise retaliation. Over time some will succeed, but Trump will probably be enjoying the power-trip and the revenue too much to get rid of most tariffs by December. Alan BeattieWill there be a peace deal between Ukraine and Russia?Yes. But the US president will have to threaten tougher sanctions and escalate American support to Kyiv to persuade Moscow to engage seriously in talks. US allies will convince Trump not to take Nato membership for Ukraine off the table, at least at the outset. Ukraine’s Volodymyr Zelenskyy will agree to de facto but not de jure Russian control of the land it currently occupies, with some land swaps, in return for European security guarantees with US support, while Ukraine’s Nato accession is ultimately put on ice. Vladimir Putin will calculate that European resolve will eventually falter. Ben HallWill US interest rates end the year lower than now?No. In the ​aftermath of the forecasts published by ​​Jay Powell’s Federal Reserve after its December meeting,​ marke​ts predicted that the fed funds rate would be 3.9 per cent in December 2025. If so, that would be just a little more than one quarter point cut below December 2024’s target range of 4.25-4.5 per cent. Even that was too optimistic. Trump’s tax cuts, tariffs and deportations will increase inflationary pressure in an economy that is displaying sticky inflation. The Fed will have to be cautious. So it will be, unless (as is conceivable) the stock market collapses. Meanwhile, Christine Lagarde’s ECB and the Bank of England will continue to cut, creating further divergence. Martin WolfWill Emmanuel Macron survive as French president?Yes. But that the question is even being asked shows the weakened position of a man once likened to Jupiter for his top-down style. With about 30 months left on his second term, Macron is smarting from his decision to call snap elections in the summer that his camp lost. The consequences of the vote have put a target on the president’s back: a hung parliament that cannot even pass a budget, four prime ministers in a year, and his signature achievements on the economy eroding. All this has emboldened both his longtime far-right antagonist Marine Le Pen and the far left, who have called for him to step down to unblock the gridlock. Jupiter/Macron has insisted he would never do so. Leila AbboudWill the Magnificent Seven take a fall?No, but they won’t ride a lot higher either. The march of Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla reflects America’s private sector dynamism, Silicon Valley’s leadership in digital tech and investor hype around AI. These factors will hold strong in 2025; the incoming US administration is in essence a quasi-takeover of a stagnant political world by a vibrant private sector, led by tech. But three big caveats will limit further expansion. Capex has exploded to a point where it may undermine profitability; investor hype around AI is so wild that disappointment seems inevitable. And sky-high valuations are already prompting some investors to seek alternatives like smaller tech. Not even AI can escape financial gravity in the long run. Gillian TettWill Chinese export prices fall further?Yes. The disinflationary downdraught that China exports to the world is set to deepen. The competitiveness of Chinese companies — particularly high-tech manufacturers — means on aggregate Chinese export prices, in renminbi, are likely to fall even more sharply. China’s export price index, down by 5.2 per cent year on year in October 2024, could slump as far as 10 per cent in some months in 2025. That will deliver a big competitive shock to companies that compete with Chinese rivals, help Beijing to offset any increase in US tariffs — and amplify the risk of cheap Chinese goods displaced from America flooding other markets. James KyngeWill Elon Musk and Donald Trump fall out? No. Though Trump is famously intolerant of competing egos, the benefit for Musk of staying on the president’s good side is too great to squander. Even before Trump has taken office, Musk’s net worth has soared by roughly two-thirds on the expectation that deregulation will boost Tesla, SpaceX, Neuralink and his other companies. Expect him to stick around at least until July 4 2026 — the day his and Vivek Ramaswamy’s “Department of Government Efficiency” expires. Edward LuceWill Germany relax its debt brake?Yes. Calls to loosen the Schuldenbremse — the constitutional clause that limits central government borrowing to 0.35 per cent of GDP in any given year — are growing louder as Germany grapples with massive spending needs, notably in defence, and a stagnating economy. A key reason for the collapse of Olaf Scholz’s coalition, the debt brake has become a central campaign issue ahead of February’s elections. CDU candidate Friedrich Merz, whose party is leading in the polls, will have to agree to some form of easing in any coalition agreement, whether with the Social Democrats or the Greens, both staunch debt brake critics. Anne-Sylvaine ChassanyWill the bond market buckle?No. It might creak, but it won’t break. Investors are on high alert for any sign that Trump’s relaxed stance on borrowing and urge to cut taxes, in an era when debt levels are already high, could lead to a “Liz Truss” moment in the US government bond market. It’s not impossible given the inflation likely to stem from tariffs and from immigration policy, but a disorderly loss of confidence in Treasuries would be so disastrous for US markets, including stocks, that the comeback president is unlikely to test investors’ nerves. Katie MartinWill China’s carbon emissions fall?No. Emissions from the world’s biggest contributor to greenhouse gases may be peaking ahead of a pledge to do so by 2030, according to some experts, but bringing them down will be the hard part. China’s 2024 levels are expected to be flat or a small increase from 2023, thanks to unrivalled solar and electric vehicle take-up and a depressed building sector that meant less highly-polluting steel and cement. But President Xi Jinping’s economic stimulus efforts in 2025 are likely to offset the big push on solar, EVs and batteries as energy demand rebounds. Emiliya MychasukWill Britain’s Labour government stick to its promise not to raise taxes further?Yes, for now. But the fact that opposition MPs and interviewers are probing this issue like a tongue on a sore tooth tells you it’s a wobbly commitment. Both chancellor Rachel Reeves and Prime Minister Sir Keir Starmer himself have played with various forms of words offering a breather after the £40bn tax hike, primarily on business, in October’s Budget. Commitments not to come back for more will be hard to honour as the parliament plays out, given the squeezed state of finances and public services. Miranda GreenWill Israel and the US strike Iran’s nuclear plants?No. But Israel will be seriously tempted. Prime Minister Benjamin Netanyahu has long vowed to prevent Tehran developing a nuclear weapon. Israel is emboldened and Iran vulnerable after a year of regional conflict. Israel, though, would probably need US support — and its green light — to destroy Iran’s nuclear facilities, and the returning US president, unpredictable as he is, will be wary of igniting the region’s next war. That calculus, however, could change if Tehran moves closer to a nuclear bomb. One legacy of a grim 2024 in the Middle East is that nothing can be discounted. Andrew EnglandWill Bitcoin hit $200,000?Yes. Bitcoin topped $100,000 only in December, so a further doubling might seem a stretch — but why not? The Trump team’s wholehearted embrace of crypto, with digital asset advocates named to top Washington jobs, has already fuelled the post-election ascent to record highs. Under friendlier leadership, the Securities and Exchange Commission is expected to end its aggressive lawsuits against crypto companies and create rules to make Wall Street banks and asset managers more comfortable to trade and hold crypto. An inflow of institutional money, without the fear of lawsuits, will only send the price of bitcoin higher. Nikou AsgariWill India’s GDP overtake Japan’s?No. This will happen soon (and it’s already true at purchasing power parity) but is more likely in 2026 than 2025. Japan will end the coming year with the larger economy by 4.7 per cent, according to the IMF, and with Indian growth slowing in recent quarters it will take longer than 12 months for a sorpasso. Exchange rates could make the difference, but the yen is already weak and the rupee strong, so the odds are against it. Robin HardingWill electric vehicles make up more than a quarter of global auto sales?No. If the trend over recent years continued, they might, but the actual figure may be little over 22 per cent. 2025 will be another difficult year for the automotive industry thanks to waning consumer enthusiasm, outside China, for electric vehicles. But to meet tougher emissions rules in Europe and EV sales targets in the UK, carmakers will launch dozens of new electric cars, and continue to spend billions of dollars in discounts to make them more affordable. China will still drive market growth as EVs reach price parity with petrol vehicles. The biggest uncertainty is the US, where measures by the incoming administration might slow the EV transition. Kana InagakiWill Javier Milei lift Argentina’s exchange controls?Yes. Fearful of triggering a spike in inflation and worried about low reserves, the libertarian president has so far resisted scrapping tight limits on how much foreign currency Argentine individuals and companies can buy. But in 2025 Milei will take the plunge. The need to spur foreign investment and make good on his small-state instincts will loom large in his thinking when judging the moment for what will still be a risky move. Michael StottWill the war in Sudan continue?Tragically, yes. Sudan has become a proxy conflict, sucking in powers from the UAE to Russia. The main Sudanese combatants, Gen Abdel Fattah al-Burhan, the de facto president, and Rapid Support Forces head Mohamed Hamdan Dagalo, known as Hemeti, both still harbour illusions of victory. Too many actors, external and internal, are making money for peace to prevail. The war has displaced 12mn people and brought millions close to famine. It would take a huge international push to stop it. Sadly, Sudan is too far down the world’s list of priorities for that to happen. David PillingWill we have AI agents we can use?Yes. “Agentic AI” is shaping up to be the most-hyped phrase of next year — by big tech, AI start-ups and corporates. An AI “agent” is software that lives on your phone or web browser and can complete digital tasks on your behalf — from filling out online forms to compiling your grocery basket, sending emails or transcribing your calls. We’ll see offerings next year from the likes of Google, OpenAI, Anthropic, Microsoft and others. Ultimately, the agent that sticks could become our main conduit to the digital universe. Madhumita MurgiaWill there be another big Hollywood studio deal?Yes. In 2024 Paramount became the first Hollywood studio to cave under the new economics of streaming, with the Redstone family selling to tech billionaire Larry Ellison and his film-producing son, David. Warner Bros Discovery is next. Like Paramount, Warner is saddled with declining cable TV businesses. CEO David Zaslav practically put a “for sale” sign on the cable channels in December by hiving them off into a separate unit — and hiring three investment banks as advisers. A sale to a rival, possibly the upcoming spin-off of Comcast’s cable TV business, or to a private equity firm, seems on the cards. Christopher GrimesWill CDs begin a long-term revival similar to vinyl?No. The shiny disc is defying predictions of its demise — sales are being fuelled by the format’s popularity in South Korea’s K-pop. But an end to decline is more likely than a take-off in long-term growth. In K-pop, CDs are mostly bought for the packaging (limited edition photos, golden tickets for meet-and-greets). Similar sales tactics have been adopted by western stars such as Taylor Swift. But the CD’s use as a marketing tool isn’t the same as a vinyl-style revival. Ludovic Hunter-TilneyTiebreaker: How many goals will be scored in the Fifa Club World Cup in the US? More

SINGAPORE (Reuters) – The dollar was firm on the last trading day of the year, poised to clock strong gains in 2024 against most currencies as investors prepared for fewer U.S. rate cuts and the incoming Trump administration’s policies.The dollar’s ascent, buoyed by rising Treasury yields, has pushed the yen toward its lowest levels since July, when the Japanese authorities last intervened. On Tuesday, it was at 157.02 per dollar, on course for a 10% drop in 2024, its fourth straight year of decline against the dollar.Japanese markets are closed for the rest of the week, and with most markets closed on Wednesday for the New Year’s Day holiday, volumes are likely to be razor thin.That has left the dollar index, which measures the U.S. currency versus six other major units, at 108.06, not far from the two-year high it touched this month. The index has risen 6.6% in 2024 as traders cut back on bets of deep rate cuts next year.The Federal Reserve shocked markets earlier this month by cutting their interest-rate forecast for 2025 to 50 basis points of cuts, from 100 basis points, wary of stubbornly high inflation.Goldman Sachs strategists though expect three rate cuts from the Fed next year, confident that inflation will still trend lower. “We see the risks to interest rates from the second Trump administration’s policies as more two-sided than widely assumed,” they said in a note.The dollar has also been boosted by expectations President-elect Donald Trump’s policies of looser regulation, tax cuts, tariff hikes and tighter immigration will be both pro-growth and inflationary and keep U.S. yields elevated.”Although the markets’ initial reaction to Trump’s re-election to the White House back in November was euphoric, they now seem to be more carefully analysing the incoming administration’s priorities,” said Gary Dugan, chief executive officer at Global CIO Office.DOLLAR CASTS SHADOWThe possibility of U.S. rates staying higher for longer has put a dent on most other currencies, especially those in emerging markets as traders worry about the stark interest rate difference between the United States and other economies.The euro is set for a 5.7% decline against the dollar this year, with traders expecting the European Central Bank to be sharper with its cuts than the Fed. On Tuesday, the single currency was steady at $1.04025, but staying close to the two-year low of $1.03315 it touched in November.In what turned out to be another turbulent year, the yen breached multi-decade lows in late April and again in early July, sliding to 161.96 per dollar and spurring bouts of intervention from Tokyo.It then touched a 14-month high of 139.58 in September before giving up those gains and is now back near 157, with traders watching out for signs of intervention from Tokyo. The Bank of Japan held interest rates steady at this month’s meeting, and governor Kazuo Ueda said the central bank was scrutinising more data on next year’s wage momentum and awaiting clarity on the new U.S. administration’s economic policies.A Reuters poll taken earlier this month showed the BOJ could raise rates by end-March and interest rates markets are pricing in only a 41% chance of a rate rise in January.Sterling was little changed at $1.2545 in early trading, on course for a 1% fall in 2024. The risk-sensitive Australian and New Zealand dollars were tentative on the day, sticking close to their two-year lows. The Aussie last fetched $0.62155, set for a drop of 8.7% this year, its weakest yearly performance since 2018. [AUD/]The kiwi was at $0.5637, poised for a decline of nearly 11% in 2024, its softest performance since 2015.In cryptocurrencies, bitcoin inched higher at $92,370, well below the record high of $108,379.28 it touched on Dec. 17. The world’s best known and biggest cryptocurrency is set for a bumper 117% rise for the year. More

NEW YORK (Reuters) – U.S. stock exchanges will close on Thursday, January 9 in observation of a national day of mourning in honor of former U.S. President Jimmy Carter, who died on Sunday at the age of 100.The New York Stock Exchange and the Nasdaq announced the closures on Monday, a customary gesture to honor deceased presidents.President Joe Biden directed January 9 to be a day of national mourning for Jimmy Carter, the 39th U.S. President and recipient of the 2002 Nobel Peace prize for his humanitarian work.The Securities Industry and Financial Markets Association has recommended an early close on Jan 9 for the U.S. bond market at 2:00 p.m. ET/1900 GMT. More

The National Association of Realtors (NAR) said on Monday its Pending Home Sales Index, based on signed contracts, rose 2.2% last month to 79.0 – the highest since February 2023 – from 77.3 in October. Economists polled by Reuters had forecast contracts, which become sales after a month or two, would rise 0.9% after increasing 1.8% in October.Pending home sales rose 6.9% from a year earlier. On a regional basis, the Midwest, South and West saw monthly increases while contract signings slipped in the Northeast. All four regions posted annual gains.The increase in contract signings in November dovetailed with a second straight rise in existing home purchase completions last month reported previously by NAR. That earlier report showed the inventory of homes for sale in November was up by nearly 18% from a year earlier.”Consumers appeared to have recalibrated expectations regarding mortgage rates and are taking advantage of more available inventory,” said Lawrence Yun, the NAR’s chief economist. “Mortgage rates have averaged above 6% for the past 24 months. Buyers are no longer waiting for or expecting mortgage rates to fall substantially. Furthermore, buyers are in a better position to negotiate as the market shifts away from a seller’s market.”Indeed, the rate on popular 30-year-fixed-rate mortgages has climbed in the past two months to the highest since July at 6.85%, according to Freddie Mac (OTC:FMCC), essentially counter-acting the interest rate cuts delivered since September by the Federal Reserve. The 10-year U.S. Treasury note, which is the top influence in determining rates on most home loans, has climbed by roughly a percentage point since September. That has occurred as bond market investors have grown concerned about how policies favored by President-elect Donald Trump – such as tariffs, tax cuts and immigration crackdowns – might feed into higher inflation. More

WASHINGTON (Reuters) – The United States has sent $3.4 billion in additional budget aid to Ukraine, giving the war-torn country critical resources amid intensifying Russian attacks on Ukrainian civilians and infrastructure, Treasury Secretary Janet Yellen said on Monday.Yellen said in a statement the direct budget assistance, provided in coordination with the U.S. Agency for International Development and the State Department, marked the final disbursement under the 2024 Ukraine Security Supplemental Appropriations Act.A U.S. official said the funding brings the total in U.S. budget aid to Ukraine to just over $30 billion since Russia’s invasion in February 2022. Most of those funds are used to keep Ukraine’s government running by paying salaries to teachers and other state employees. Earlier on Monday, U.S. President Joe Biden announced $2.5 billion in additional security assistance for Ukraine, which is separate from the direct budget aid. Nearly three years into the war, Washington has committed $175 billion in total assistance for Ukraine.President Joe Biden’s administration has been racing to shore up support for Ukraine before Republican President-elect Donald Trump takes office on Jan. 20, given his public questioning of military aid and vows to end the Ukraine war within 24 hours of taking office.Trump wants Ukraine’s President Volodymyr Zelenskiy to make a deal with Russian President Vladimir Putin to end the nearly three-year-old Ukraine war. Some of his fellow Republicans, who will control both houses of the U.S. Congress starting next month, have also cooled on sending more aid to Kyiv.Yellen said continued economic aid for Ukraine was crucial to allow it to maintain government services and continue to defend its sovereignty, warning against moves to cut funding.”Ukraine’s success is in America’s core national interest,” she said, vowing to continue to pressure Moscow with sanctions and to help position Ukraine to achieve a just peace. “We must not retreat in this effort,” she said.She stressed that U.S. budget aid for Ukraine has been and remains conditioned on reforms aimed at strengthening law enforcement, improving the transparency and efficiency of government institutions, and bolstering anti-corruption efforts.The latest funding came on top of the $20 billion U.S. portion of a $50 billion Group of Seven loan for Ukraine that Treasury transferred to a World Bank intermediary fund for Ukraine earlier this month. Those funds are backed by profits earned on frozen Russian sovereign assets.Biden on Wednesday said he had asked the Defense Department to continue its surge of weapons deliveries to Ukraine, after condemning Russia’s Christmas Day attack on Ukraine’s energy system and some of its cities.   More

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At 05:36 a.m. ET, Dow E-minis were down 78 points, or 0.18%, S&P 500 E-minis were down 12.75 points, or 0.21%, and Nasdaq 100 E-minis were down 43.75 points, or 0.20%.Equities tend to do well in the last five trading days of December and into the first two days of January, a phenomenon dubbed the Santa Claus rally. The S&P 500 has gained 1.3% on average during the period since 1969, according to the Stock Trader’s Almanac.The benchmark index eked out marginal gains last week, with analysts pointing to a strong run earlier in the year that sent valuations soaring. The index has been trading in a bull market for over two years and is poised to end its second consecutive year with gains of more than 20%. Much of this year’s rally was fueled by optimism around interest rate cuts, artificial intelligence integration boosting corporate profitability and on expectations that President-elect Donald Trump’s policies could spur economic growth. However, some analysts expect Trump’s policies to be inflationary, with yields on U.S. Treasury notes across the curve pinned at multi-month highs. [US/]Since early December, the yield on the benchmark 10-year note has risen to touch its highest level since May 2024. On the day, it was slightly lower.Investors tempered their expectations on the total number of interest rate cuts by the Fed in 2025 after the institution struck a cautious tone at its meeting earlier in the month.They now expect the central bank to deliver its first rate reduction in May next year, according to the CME Group’s (NASDAQ:CME) FedWatch Tool. Later in the week, investors will scrutinize the Institute of Supply Management’s manufacturing activity survey for December and a weekly report on jobless claims, ahead of a key employment report due in the following week.Growth stocks weakened in premarket trading. Tesla (O:TSLA) dropped 1.6%, Meta (NASDAQ:META) dipped 0.5%, while chip company Broadcom (NASDAQ:AVGO) lost 0.6% and Nvidia (NASDAQ:NVDA) slipped 0.8%.South Korea ordered an emergency safety inspection of its entire airline operation system after the country’s worst air disaster over the weekend involving a Boeing (NYSE:BA) plane. Boeing’s shares were down 4.5%. Trading is expected to be impacted by thin volumes in the run up to the New Year holiday on Wednesday and is likely to remain subdued until Jan. 6. More