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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The writer is president of Queens’ College, Cambridge, and an adviser to Allianz and GramercyOver my career, I have witnessed quite an evolution in how economists, market participants and policymakers have tried to group those countries that are not classified as “advanced economies”. What started decades ago as references to the “third world” and “less developed” countries evolved into “developing” and “emerging” economies. They were recently supplemented by the broader notion of a “global south”.Shifts in the global economy are not only eroding the analytical usefulness of such an approach but also making it potentially damaging. In some countries, it has resulted in misleading policy thinking as well as unrealistic aspirations for bargaining power and strategic autonomy. The international order is being turned upside down. Unifying structural trends such as rising global trade and financial integration are being undermined by fragmentation. The imposition by President Donald Trump of further tariffs on China and the similar moves now delayed against Mexico and Canada mark the most recent escalation in this process.To quote the World Bank’s latest global economic outlook for 2025, we are now in a world of “falling graduation prospects” for less affluent economies. They have to navigate a global economy that is vulnerable to more frequent and more violent external shocks — and at a time when countries need to position themselves to benefit from innovations such as artificial intelligence. In such an environment, both individual and collective problems will prove more challenging to solve. This calls for resisting fanciful thinking on new groupings and strategic autonomy.When I first joined the IMF’s “Economist Programme” back in 1983, I was tutored on the importance of two operational principles that, at first sight, may appear contradictory to some: the uniformity of treatment for all the member countries and the pursuit of case-by-case approaches. The aim was to ensure that, from a top-down perspective, the adherence to important overarching principles was accompanied by granular and customised approaches that reflect bottom-up differences.Similarly, the use of “global south” has sought to capture common attributes while making room for important country differences. Some see it as a unifying tool to pursue common objectives, and an umbrella for groupings such as Brics. But the ability to turbocharge domestic development efforts through closer global economic and financial integration is undermined by the weaponisation of trade and investment flows and less respect for the rule of law. The current weakening of multilateral institutions also undermines the resolution of conflicts between countries and the robustness of support measures, including pooled insurance mechanisms to tackle issues such as debt overhangs and vulnerability to climate change. It is also not clear that the US will tolerate long-term dollar appreciation as an orderly contributor to global realignment, meaning less affluent countries might have less of a future currency advantage. All this comes at a time when, according to the World Bank, such economies are forecast to finish the first quarter of this century with the weakest long-term growth outlook in more than two decades.The notion that, in response to actual and potential threats, a large grouping of these countries can quickly achieve strategic autonomy and prosper is unrealistic. This is not just about geopolitical choices that will be forced on many countries, except for a handful that have attributes that allow them to be “swing states” such as Brazil, India, Saudi Arabia and the United Arab Emirates. It is also about the structural fragmentation of the international order that will result in an increasing number of changing “coalitions of convenience” and, for some, dangerous marginalisation. With that, the effectiveness and, indeed, desirability of a conceptual air cover such as the “global south” are seriously challenged. It will take time for the world to realise that its current path will undermine its collective wellbeing and that of the majority of countries. While some may be tempted to wait around for threats to lift or rely on new coalitions, this is not a good strategy, nor is continuing on policy autopilot.Individual countries need to opt for more timely policy adjustments, stronger financial resilience and much greater agility in responding to adverse external shocks. This will be needed in a world that loses the presumption of global convergence and experiences more significant divides between advanced countries and less affluent ones — and also greater divergence within the latter group.  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 worldUS President Donald Trump halted sweeping tariffs on Mexico and Canada just hours before they were due to come into force, pulling North America back from the brink of a damaging trade war. Deals to delay tariffs on America’s two biggest trading partners by a month were announced on Monday following separate bilateral calls between Trump and Mexican President Claudia Sheinbaum and Canadian Prime Minister Justin Trudeau. Trump had unnerved allies and investors with a weekend announcement of huge levies on Canada, Mexico and China.The 10 per cent tariff on China — which comes on top of existing levies — is still due to take effect on Tuesday. Trump on Monday described those duties as an “opening salvo” in his renewed trade offensive against the world’s second-largest economy. Beijing is considering its options for retaliation, including counter-tariffs, export controls and currency depreciation, and has already said it would file a lawsuit with the World Trade Organization in objection to the tariffs. Trump is expected to speak with China’s leader Xi Jinping in the coming days, the White House said on Monday.Trump’s reversal with America’s neighbouring trade partners came after Sheinbaum and Trudeau both agreed to place 10,000 troops at their borders with the US and combat drug trafficking, winning them a 30-day reprieve from levies that would have disrupted hundreds of billions of dollars a year in trade and potentially ignited a tit-for-tat skirmish. As part of the package of border measures, Trudeau vowed to provide C$200mn ($138mn) of funding tied to “organised crime and fentanyl” and appoint a “fentanyl tsar”. Ottawa will also list cartels as terrorist organisations and launch a “Canada-US Joint Strike Force to combat organised crime, fentanyl and money laundering”.“The Tariffs announced on Saturday will be paused for a 30 day period to see whether or not a final economic deal with Canada can be structured,” Trump said late on Monday on his Truth Social platform, having hours earlier indicated that he would hold a month of “negotiations” with Mexico.The Canadian dollar, Mexican peso and US stocks had taken a hit early on Monday after Trump at the weekend said he would follow through with threats to hit Canada and Mexico with 25 per cent tariffs, with a few carve-outs. The tariffs were broadly expected to have a profound impact on businesses and the broader economy in all three countries. Asia-Pacific equities rose in early trading on Tuesday. Wall Street stocks sharply trimmed their losses, however, as Trump wound back his stance on imminent tariffs. The Canadian dollar and peso also recovered by Monday evening. “This is a huge relief, getting a deal,” said Flavio Volpe, president of Canada’s Automotive Parts Manufacturers’ Association, an industry that was expected to sustain a heavy blow from the tariffs. Despite the pause, the White House said in an executive order on Monday evening that “if the illegal migration and illicit drug crises worsen, and if the government of Mexico fails to take sufficient steps to alleviate these crises, the president shall take necessary steps to address the situation”.Trump insists the tariffs on Mexico and Canada are needed to get the two countries to do more to stop migrants and drugs crossing into the US.US companies have pushed back against the tariff plans, warning they would push up prices for Americans and upend supply chains.Sheinbaum said her call with Trump, which she described as a “good conversation”, lasted about 45 minutes. She said she explained Mexico’s concerns over the smuggling of sophisticated weapons from the US that were being used by the country’s criminal groups. She added that the US president had agreed to help stop the arms trafficking.The Mexican leader said Trump also brought up the trade deficit between the countries.“I told him that, in reality it wasn’t a deficit, that we had a trade deal, that we were trade partners and that this was the result of being trade partners; and that either way it was the best way to keep competing against China and other regions of the world,” Sheinbaum said.Trudeau similarly said he had a “good call” with Trump, adding that “Canada is implementing our C$1.3bn border plan — reinforcing the border with new choppers, technology and personnel, enhanced co-ordination with our American partners, and increased resources to stop the flow of fentanyl.” Reporting by Christine Murray and Michael Stott in Mexico City, Aime Williams in Washington, Harriet Clarfelt in New York, Joshua Oliver in Ottawa, Ilya Gridneff in Toronto and Joe Leahy in Beijing More

Chinese manufacturers say they will speed up efforts to move production to other countries to circumvent US tariffs, after President Donald Trump announced a new trade offensive against the world’s second-largest economy.Beijing is considering how to retaliate against Trump’s decision on Saturday to impose an additional 10 per cent tariff on Chinese exporters, with options ranging from counter-tariffs to export controls and currency depreciation.The relatively muted initial response from the Chinese government, combined with Trump’s truce with Canada and Mexico on Monday and his plans for a call with China’s President Xi Jinping in the coming days, have fuelled hopes in Beijing that there may be room for negotiation.But with the tariff set to take effect on Tuesday, companies in China’s southern manufacturing heartlands said their strategies included moving some production to locations including the Middle East, passing the cost to US customers and seeking alternative markets.“A lot of Chinese exporters, especially in the consumer products market, had already lost part of their US market over the past few years after tariffs kicked in,” said Michael Lu, president of China-based gift box producer Brothersbox, referring to levies Trump imposed as part of a trade war during his first term in office.Lu said Brothersbox planned to move part of its production to the United Arab Emirates this year to target the US market. “We hope to win them back,” he said of his US customers.Some content could not load. Check your internet connection or browser settings.Trump’s threat of an additional 10 per cent tariff on Chinese goods — which he attributed to Beijing’s alleged inaction on fentanyl exports to the US — was raised during his election campaign.But Chinese companies have already been diversifying their trade in recent years. The country’s direct share of US imports fell eight percentage points between 2017 and 2023, according to a report by Rhodium Group last year.Some Chinese production has moved to third countries, from where it is exported to the US. The share of US imports from Vietnam and Mexico, for example, increased substantially during the same period.Lynn Song, greater China chief economist at ING, said the tariff would have a limited effect because “a lot of the price-sensitive exports to the US have already been redirected as a result of the first trade war”.With Trump targeting Mexico, Chinese companies would probably shift more trade towards south-east Asia and Latin America, he said.Beijing has relied on external demand to offset domestic weakness More

The largest importers of Mexican beer and tequila to the US are at risk of a double-digit hit to earnings owing to the Trump administration’s proposed tariffs, according to Wall Street analysts.Constellation Brands, which produces Modelo Especial, the US’s top-selling beer, and Corona, could take a 33 per cent earnings hit to earnings, according to analysis by Bernstein. Citi analysts estimated the earnings hit to the company, which also owns the Mi Campo and Casa Noble tequila brands, would be a slightly lower 25 per cent.Becle-owned Cuervo, one of Mexico’s oldest and largest tequila producers, which ships brands such as Jose Cuervo, 1800 and Gran Coramino to the US, faced a 30 per cent income hit, Bernstein said.The analysts cautioned that companies would struggle to raise prices while demand for alcohol in the US was so weak. More

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldThe most dangerous thing about tariffs is how simple they sound. What could be plainer than slapping 25 per cent levies on all goods from Canada and Mexico? Yet the impact and the implementation of such trade measures are devilishly complicated. That might explain the market’s muted response.Some stocks followed a predictable script on Monday after tariffs were announced. Carmakers’ shares fell, for example. That makes sense: their vehicles comprise parts that cross borders, in some cases several times, before reaching the dealership. Stellantis is one company that ships kit between facilities on either side of the US-Canada border.Then there are companies that buy now-pricier goods from China and sell them to US consumers. That would include electronics retailer Best Buy, or budget outlet Dollar Tree. They now face the unenviable decision between how much of these increased costs to swallow and how much to pass on to consumers — at the risk of incurring the wrath of President Donald Trump.For corporate America more broadly, further discomfort awaits. Trump’s tariffs have nudged the already strong dollar even higher. That, in itself, isn’t a surprise. A study of Trump’s last presidency suggested that tariffs on China pushed up the dollar and pushed down the renminbi. Citigroup strategists reckon the latest tariffs justify a 3 per cent bump.That’s a drag for companies — from internet search providers to coffee chains — that receive a large share of their revenue and earnings in foreign currencies. It’s as if Trump had slapped a tariff on their overseas earnings.Technology, food and household goods are the most affected, Morgan Stanley strategists reckon; telecoms and utilities the least. The Wall Street bank also found that stocks with lower sensitivity to dollar earnings have outperformed their peers since September.All this augurs an adjustment rather than a crisis. The 1 per cent fall in the S&P 500 doesn’t even make it into the 20 worst trading days of the past year. Perhaps the worst has already been priced in, since Trump has made no secret of his plans. Both Canada and Mexico received a one-month reprieve on Monday after their leaders agreed to concessions, including sending 10,000 personnel to their borders with the US. Even so, BNP Paribas economists note that tariffs are already factored into baseline economic forecasts.But it may equally be that investors don’t know where to begin. Supply chains differ even between companies that are close peers. A trade war, especially when inflicted on supply chains still recovering from a pandemic, is uncharted territory. One of the enduring features of American exceptionalism is that investors flock to US assets in times of chaos, even when Uncle Sam is the cause of that disarray.Either way, the market’s reaction — basically no more than a shrug — is itself a risk. Had share prices slumped, it would have sent a message to the president that slapping on tariffs isn’t as straightforward as it sounds. As it is, investors’ relative inaction gives him little reason to show restraint.john.foley@ft.com More