Economy

The United States bought more goods from Mexico than China in 2023 for the first time in 20 years, evidence of how much global trade patterns have shifted.In the depths of the pandemic, as global supply chains buckled and the cost of shipping a container from China soared nearly twentyfold, Marco Villarreal spied an opportunity.In 2021, Mr. Villarreal resigned as Caterpillar’s director general in Mexico and began nurturing ties with companies looking to shift manufacturing from China to Mexico. He found a client in Hisun, a Chinese producer of all-terrain vehicles, which hired Mr. Villarreal to establish a $152 million manufacturing site in Saltillo, an industrial hub in northern Mexico.Mr. Villarreal said foreign companies, particularly those seeking to sell within North America, saw Mexico as a viable alternative to China for several reasons, including the simmering trade tensions between the United States and China.“The stars are aligning for Mexico,” he said.New data released on Wednesday showed that Mexico outpaced China for the first time in 20 years to become America’s top source of official imports — a significant shift that highlights how increased tensions between Washington and Beijing are altering trade flows.The United States’ trade deficit with China narrowed significantly last year, with goods imports from the country dropping 20 percent to $427.2 billion, the data shows. American consumers and businesses turned to Mexico, Europe, South Korea, India, Canada and Vietnam for auto parts, shoes, toys and raw materials.Imports from China fell last yearU.S. imports of goods by origin

Sources: U.S. Census Bureau; U.S. Bureau of Economic AnalysisBy The New York TimesWe are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.January is usually one of the busiest times of the year for Australian fruit exporters, as they ship thousands of tonnes of nectarines, plums and grapes to China for lunar new year festivities.But thanks to a months-long battle over wages between the country’s maritime union and Dubai-based port operator DP World, much of this year’s cargo is only now being shipped and might not make it in time for the weekend’s celebrations.DP World — which handles about 40 per cent of Australia’s trade — and the maritime union last week struck a deal to deliver a near-25 per cent increase in pay to the company’s stevedores over the next four years. It could take up to six weeks for the backlog of 54,000 containers of fruit, meat, wool and aluminium to be cleared.The stand-off, and its successful outcome for the dock workers, is the latest sign of rising union power in Australia, where labour shortages and the election in 2022 of the first Labor government in almost a decade have strengthened the hand of organised labour, a development that potentially threatens investment.“There has been a sense of making up for lost time with the union movement,” said Innes Willox, head of employers’ association Australian Industry Group, referring to the preceding nine-year period of Conservative rule. Unions had pushed back at Conservative reform efforts they said favoured employers.“The world already judges Australia to be a high-cost location and a heavily regulated economy. It is not the easiest place to operate. They’ll hesitate about investing here,” he said.A worker harvests Valencia oranges at an orchard near Griffith, New South Wales. Industrial action has surged in Australia in recent years as wages have stagnated despite price inflation More

OTTAWA (Reuters) -Members of the Bank of Canada’s (BoC) governing council were concerned about cutting borrowing costs too soon amid persistent inflation when they decided to keep the key overnight rate on hold on Jan. 24, minutes published on Wednesday showed.The policy-setting governing council was “particularly concerned about the persistence of inflation and did not want to lower interest rates prematurely,” the minutes said.The Bank of Canada (BoC) aims to keep inflation at 2% and has increased its key overnight rate 10 times in 17 months to a 22-year high of 5% to tame inflation. Shelter price inflation, which includes mortgage interest costs, rent and components related to house prices, remained the biggest contributor to above-target inflation, the minutes said.”Members expressed concern that, going forward, shelter price inflation would continue to keep overall inflation elevated,” the summary of deliberations said.The governing council was worried that if the housing market rebounded more than expected in the spring of 2024, shelter inflation could keep inflation materially above the target even while other price pressures abated, the minutes said.”Bank of Canada cannot ignore shelter costs … and they know if shelter costs did not moderate, they would need to remain restricted for longer,” said Andrew Kelvin, chief Canada strategist at TD Securities. He said the deliberations at the governing council meeting seem to point to that.Canada’s shelter costs, which account for over a quarter of its CPI basket, rose 6% in December year on year even as the overall inflation figure came in at 3.4%.Governor Tiff Macklem, while addressing a press conference at the Montreal Council of Foreign Relations on Tuesday, said the BoC expects a modest increase in prices in housing in 2024 and that was built into its forecasts.The minutes showed that the BoC was also fretting about an increase in wages amid zero productivity growth, which could have further inflationary pressures. Wages have been growing between 4% and 5% annually. “Members expected wage growth to moderate gradually,” the minutes said.The central bank also sees risk to growth, as restrictive monetary policy could impact consumer spending and cause a marked contraction in economic activity, forcing the BoC to ease interest rates “earlier and more quickly than anticipated.”A raft of recent data where some indicators suggest inflation is easing even as shelter and food costs remain elevated has left policymakers in “wait-and-see mode,” said Royce Mendes, head of macro strategy for Desjardins Group.The governing council minutes showed that they agreed that the current rise in the overnight interest rate above the policy rate target was primarily because of an increased demand for government bonds. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The US’s budget deficit is set to soar by almost two-thirds over the next 10 years, from $1.6tn to $2.6tn, Congress’s independent fiscal watchdog has warned, as higher interest rates weigh on the government’s finances. The Congressional Budget Office said on Wednesday that interest payments on US government debt would account for about three-quarters of the rise in the deficit between now and 2034. The deficit’s share as a proportion of gross domestic product would increase from 5.6 per cent in 2024 to 6.1 per cent in 10 years’ time, due to the debt-servicing costs, remaining well above the average of 3.7 per cent over the past 50 years, the CBO said.The projections highlight the mounting fiscal challenges facing governments around the world that spent heavily to prop up economies during the Covid-19 pandemic but are now grappling with much higher interest rates as they repay their debts. The Federal Reserve raised interest rates by 525 basis points between the spring of 2022 and the summer of 2023 to a 23-year high of 5.25-5.5 per cent to counter the worst bout of inflation for a generation. The Fed’s actions pushed up yields on US Treasuries, raising the government’s cost of borrowing. The widening deficit — the amount by which government spending exceeds revenue — led rating agency Fitch to strip the US of its triple A rating in August, saying that the country’s fiscal predicament meant its debt burden would far exceed levels seen in other nations that held its top rating. The CBO on Wednesday said the US’s total public debt burden would rise above 100 per cent of GDP in 2025 and was expected to be about 116 per cent of GDP by 2034. While the dollar’s status as the global reserve currency means US Treasuries remain attractive assets, the surge in spending and deficits has also concerned more moderate US economists, along with multilateral bodies such as the IMF. Economists are worried that neither of the likely US presidential candidates, Joe Biden and Donald Trump, are talking of raising taxes to close a widening gap between what the government spends and receives. The fractious nature of the debate over the US’s debt ceiling, with the federal government at risk of shutdowns, has also triggered concerns. The CBO said the scale of the 2024 deficit was smaller than it previously projected in May, following passage of legislation explicitly designed to rein in spending this year. Jason Furman, an economist at Harvard University, said the CBO “confirms what we all knew, which is that the [US government] debt is on an unsustainable course. But they also show that the adjustments to get it into a sustainable course aren’t as large as we thought before seeing the latest projections.”However, interest rates were expected to be higher than anticipated in the May projections between now and 2027, raising the government’s cost of borrowing. Phillip Swagel, the CBO’s director, said that while in 2024 the government’s net interest costs were similar to the amount the authorities spent on defence, they would be “roughly one and a half times larger . . . at $1.6tn” in 10 years’ time. More

This article is an on-site version of our Disrupted Times newsletter. Sign up here to get the newsletter sent straight to your inbox three times a weekToday’s top storiesHamas is demanding a four-and-a-half month ceasefire in Gaza, an Israeli withdrawal and the release of at least 1,500 Palestinian prisoners as part of a proposed deal to release the remaining hostages it holds.US President Joe Biden blamed Donald Trump for encouraging Republicans to torpedo what had been a bipartisan deal on funding for Ukraine.Uber reported its first full year of operating profits, thanks to strong demand for ride-hailing, deliveries and a growing advertising business. Expectations are rising of an imminent share buyback programme.For up-to-the-minute news updates, visit our live blogGood evening.A rare bit of M&A to create the UK’s leading housebuilder and new data showing property prices continuing to rise offer new hope for a sector that has been badly hit by higher mortgage rates.Barratt’s £2.5bn offer for Redrow is the first move to consolidate by two big national developers since the market soured, leaving housebuilders to cut costs and slow land buying as profits and output sank. Based on current performance, the combined group would build about 22,000 homes a year, although some (including the Lex column) are sceptical.New data from lender Halifax this morning showed house prices rising for the fourth consecutive month in January to their highest level since October 2022. It’s the latest sign that the market is recovering from the hit to demand stemming from the Bank of England’s programme of interest rate rises, which began in December 2021. The trend was confirmed by new purchasing managers’ index data yesterday showing construction sector optimism at a two-year high. Tim Moore of survey organisers S&P Global said construction companies were “increasingly optimistic that the worst could be behind them soon as recession risks fade and interest rate cuts appear close on the horizon”. Average UK mortgage rates fell for the first time in more than two years last week while home loan approvals have hit a six-month high, according to BoE data.Sector optimism, however, isn’t universal, with a question mark still hanging over office property. A Canary Wharf building that went into receivership last year is to be sold at a 60 per cent discount to its last sale price, one of the largest distressed sales in London so far and a sign of how sharply the value of some offices has fallen. Housebuilding has also steadily risen up the British political agenda and is likely to be a key feature in the general election likely to be held later this year. Housebuilders have been throwing support behind the opposition Labour party after accusing the Tories of “bowing to Nimbyism”. Industry executives say the government has capitulated to backbench MPs by scrapping plans to ease planning restrictions, a move they argue will lead to fewer homes being built. Redrow founder and largest shareholder Steve Morgan, formerly a Conservative donor, has been among the critics, saying “it’s like the government wants to destroy the industry”.Frosty relations have not been helped by the high turnover of housing ministers: there have been 15 since the Conservatives came to power in 2010. Developers were also bruised by the government’s response to the deadly Grenfell Tower fire in 2017 and their perceived characterisation as “moustachioed Victorian barons”.The FT also revealed last month that more than two-thirds of a government fund aimed at unlocking hundreds of thousands of new homes remained unspent more than six years after its launch, despite the chronic shortage of housing.  Labour for its part has promised a “blitz of planning reform” should it win the election, fast-tracking brownfield sites, building new towns and improving the supply of affordable housing. Need to know: UK and Europe economyBank of England policymaker Swati Dhingra told the FT that an interest rate cut was needed immediately to ward off “downside risks”. BoE chief economist Huw Pill said it did not need inflation to hit the 2 per cent target before implementing cuts. The NIESR think-tank said the UK might have narrowly slipped into technical recession — defined as two consecutive quarters of contracting GDP — at the end of 2023.The world’s biggest tech companies are pressing the UK to speed up its safety tests for AI systems.The FT revealed that the UK would wave through animal products from the EU if ports were overwhelmed by new post-Brexit border checks. Trade bodies had warned that paperwork and physical checks, introduced last week, risked disrupting supply chains and causing supermarket shortages. The European Commission opened up another stand-off with Hungarian Prime Minister Viktor Orbán over his sweeping new domestic security law, which Brussels says “will harm democracy”.Isabel Schnabel, the most hawkish member of the European Central Bank’s executive board, warned that the “last mile remains a concern” in the fight against inflation and that cutting rates too soon risked a “flare-up”. German industrial production fell for the seventh month in a row in December, passing the 2008 financial crisis for its longest-ever downturn. Factory output declined 1.5 per cent over the whole of last year and is down 10 per cent since before the Covid-19 pandemic hit. Need to know: Global economyFederal Reserve official Loretta Mester said the still strong labour market in the US would not derail plans to cut interest rates this year.The US Supreme Court tomorrow begins the process of deciding whether former president Donald Trump can be kicked off the primary ballot in Colorado. It will be the first time the court tackles how the constitutional measure originally designed to stop Confederates from holding office after the civil war affects today’s presidential candidates. Separately, a federal appeals court ruled Trump could not use presidential immunity as a shield against criminal charges over alleged interference in the 2020 election.The US said it would restrict visas for abusers of commercial spyware, including those selling the encryption-busting malware as it tries to rein in a multibillion-dollar industry that has been tied to the repression of dissidents around the world. In the latest instalment of our Climate Exchange series, Tina Stege, climate envoy for the Marshall Islands, says financing must be prioritised to protect the world’s most vulnerable countries.Need to know: BusinessOil major BP expanded its share buybacks after reporting its second-highest annual profit in more than a decade of $13.8bn, although less than half of last year’s record total when soaring fossil fuel prices delivered an earnings bonanza across the industry. The head of Brazil’s Petrobras said his company intended to be one of the last remaining oil producers on the planet. Not that it’s all plain sailing in the renewables sector. Denmark’s Ørsted today axed its dividend, announced job cuts and said it would exit offshore wind. Its struggle reflects pressures facing the wider industry, which has been hit hard by higher interest rates, overly ambitious expansion plans and supply chain disruption over the past two years.Brewer Carlsberg warned that input costs were still rising and that it needed to keep raising prices to cover the increases. Weaker consumer demand and “sticky” cost inflation led to weaker than expected full-year earnings.J Sainsbury, the UK’s second-biggest grocer, said it would buy back £200mn of shares and cut a further £1bn in costs. A strategy overhaul aims to offer more choice and consistent value for shoppers, a refined loyalty scheme and “a right-sized organisation”.China’s biggest chipmaker SMIC expects to make next-generation smartphone processors as early as this year, despite US efforts to restrict their development. New production lines in Shanghai will mass produce the chips, designed by tech giant Huawei. Nvidia chip prices are soaring in Asia because of the US export curbs and the boom in AI. The World of WorkAs the return-to-the-office debate heats up once again, the Working It podcast discusses what might bring people back in, why it’s important for younger staff and how better tech could win remote workers over.The treatment of victims in the UK’s Post Office scandal has raised the question of whether race played a role — some 40 per cent of sub-postmasters are from an Asian background — and comes as boardrooms experience a backlash against corporate diversity, equity and inclusion initiatives.Some good newsDiscussion of electric bikes usually focuses on the positive impact they can have in polluted cities. New research, however, shows they may also transform the way people experience rural areas and reduce the negative environmental effects of tourism.Recommended newslettersWorking it — Discover the big ideas shaping today’s workplaces with a weekly newsletter from work & careers editor Isabel Berwick. Sign up hereThe Climate Graphic: Explained — Understanding the most important climate data of the week. Sign up hereThanks for reading Disrupted Times. If this newsletter has been forwarded to you, please sign up here to receive future issues. And please share your feedback with us at [email protected]. Thank you More

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LONDON (Reuters) -If the drugs don’t work, the dosage may be wrong.With January’s blowout U.S. job gains defying gravity, Federal Reserve officials are puzzling over just how much pressure the brutal interest rate rises of the past two years have actually exerted on the wider economy.Some have started to opine again about whether the Fed’s running estimate of the ‘neutral’ interest rate – the theoretical rate that would keep the economy growing sustainably over time without spurring inflation – has in fact risen since the pandemic, unlike what most Fedsters still assumed as recently as December. And if that thinking on a higher neutral rate gains traction, it could cut short the path of rate cuts ahead.While it won’t necessarily mean even higher policy rates are in store, the level of ‘restrictiveness’ the central bank is placing on the economy may be judged to be less than thought, imply fewer cuts ahead than markets are praying for if the central bank needs to keep a rein on activity.So far, so wonky. A sometimes nebulous debate over the years, estimates of the sustainable ‘real’ rate – or so-called ‘r*’ from the related algebra – ebb and flow. But it takes on importance for Fed watchers and investors right now in the way this elusive rate may be used by officials to assess just how ‘restrictive’ or ‘accommodative’ they think actual policy rates are now in the wider economy. And it’s not hard to see why they’re scratching their heads, with U.S. economic growth purring above 3% last year at full employment even after the 5-plus percentage points of interest rate tightening since March 2022 – and with workers returning to the labor force and productivity rates rising.On Monday – three days after news that the U.S. economy again trumped forecasters by adding more than a third of a million new jobs last month – Minneapolis Federal Reserve president Neel Kashkari restarted the debate.”These data lead me to question how much downward pressure monetary policy is currently placing,” he wrote. “The current stance of monetary policy, which … includes the current level and expected paths of the federal funds rate and balance sheet, may not be as tight as we would have assumed given the low neutral rate environment that existed before the pandemic,” added Kashkari, who’s not a voting member of the Fed policy committee this year. “It is possible, at least during the post-pandemic recovery period, that the policy stance that represents neutral has increased.”Kashkari went on to say that disinflation wasn’t necessarily being caused by Fed policy, more healing supply-side problems. And it was a question going forward how much the Fed needed to stay restrictive if it wasn’t yet sapping growth.LOSING THE PLOTSo where exactly is the rest of the Fed at on all this?In December, the Fed’s 19 policymakers updated their quarterly projections for policy rates and the economy – electrifying markets at the time by pencilling in as much as 75 basis points of rate cuts for this year.But the median of Fed forecasts for where they saw the policy rate over the ‘longer run’ – seen as a proxy for assumptions about the neutral rate – stayed at 2.5%. That makes for an ‘r*’ of 0.5% when adjusting for inflation rate back at target.That longer-run Fed rate assumption has stayed at 2.5% since the middle of 2019 despite all the dramatic upheavals around COVID-19 and its aftermath – disruption which some private investors suggest may have reshaped domestic economic dynamics, global supply chains, international trade and energy considerations for good.And it has been cut steadily from as high as 3.8% when the Fed ‘dot plot’ of projections was introduced in 2015.Practically, a neutral rate of that level now means current Fed policy rates in the 5.25-5.50% range are ‘restrictive’ to the tune of about 238bps – leaving considerable room to cut nominal rates while still bearing down on credit and economic activity.But if others on the Fed’s policymaking committee were to lean to Kashkari and rethink their neutral rate higher at the next meeting, it could reduce what the Fed sees as its scope for cutting while still keeping a rein on a healthy economy.Where might that go? The median estimate is 2.5%, but outliers in December had at least three Fed officials with neutral rate assumptions of 3.5-3.8% – or back to where Fed officials at large saw it 2015.Hypothetically, if that were suddenly to became everyone’s assumption in March, then it would reduce the view of current restrictiveness to 150bps – and compare to the 100bps of rate easing priced in over two years in U.S. Treasury yields.Another gauge of where the Fed is at is what it sees as the ‘central tendency’ – stripping out the three highest and lowest projections. That was 2.5-3.0% in December, although a touch lower than the previous ‘dot plot’. Whatever happens in March, this shift in thinking about the economy’s extraordinary resilience toward higher interest rates will now be watched closely. And it’s not just at the Fed, as European Central Bankers suggested this week too.And yet nudges higher or lower in the neutral rate may also be as ephemeral as all other rates.Just prior to last week’s Fed meeting, Bank of America’s U.S. economists did a deep dive on neutral rate assumptions and reckoned ‘r*’ had increased since the pandemic and currently sat at about 40bps in real terms – roughly where the Fed sees it.But it said the factors driving the higher neutral rate may not be as durable as it now seems, with the seemingly resilient jump in U.S. growth, greater labor force participation and higher productivity facing headwinds again ahead. “Demographics will likely reassert itself in coming years, returning participation rates toward their longer run trend, though how quickly this happens remains an open question.” The opinions expressed here are those of the author, a columnist for Reuters. More