Economy

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldThe world looks different from the North Pole. Most maps chart the planet from east to west. But look at the world from the top down, and you suddenly see America’s relative position anew. Russia dominates the region. Greenland suddenly seems important, as does Canada. China, a “near-Arctic” nation, is a bit too close for comfort. The US, by comparison, is small. Alaska, its biggest state by territory, is a fraction of the view.That world view is at the centre of the Trump administration’s new goal to “make shipbuilding great again”, courtesy of an upcoming executive order (which may drop as early as this week). This lays out the most ambitious industrial strategy in the shipbuilding sector since the Americans turned out 2,710 “liberty ships” in the space of four years during the second world war.It will also be a topic at Monday’s Office of the US Trade Representative hearings on proposed remedies to combat China’s ringfencing of the global maritime, logistics and shipbuilding sectors.In the 19th century, the British and Russian empires battled for primacy in central Asia, in a multi-decade struggle that became known as the “Great Game”. The territorial lines drawn across Persia, Afghanistan, Tibet and India in this period defined the geopolitics and economics of the next century.Today, there is a new Great Game being played — not in central Asia, nor even in modern hot zones such as Ukraine, Gaza or the South China Sea, but rather in the frigid waters of the Arctic. Dominance in this region will be crucial to strategic control of the entire western hemisphere, which is a goal of the Trump administration.BlackRock’s agreement to buy ports in the Panama Canal from Hong Kong billionaire Li Ka-shing goes some way towards that goal. This comes at a time when military experts say risk is as high as it has been in decades thanks to increased piracy, Russia’s invasion of Ukraine and the Black Sea, underwater cable snapping in the Baltic, Houthi rebel attacks in the Red Sea and more Chinese military activity in the Pacific.But the Arctic, where the Chinese and Russians conducted naval drills together last year, is one of the few places where new sea routes are actually opening (due to climate change). A key element of the new Great Game will be building US maritime capacity to exploit mineral resources and lanes of commerce, lay new fibre optic communication cables that can be better policed by America, and create more security presence in the region.Icebreakers are top of the list for Donald Trump, who came up with the plan to build polar cutters with the Finns and Canadians at the end of his first term (a deal that was inked by the Biden administration, proving maritime and Arctic security are a rare bipartisan point of agreement). The US hasn’t built one in over a quarter of a century, but a White House source tells me Trump would like to see this done by the end of his second term.The US also wants to control more of its own commercial shipping. America today has 185 ocean-going commercial vessels. China has 5,500. In theory, Beijing could turn off the American economy by choking off access to that shipping fleet and blockading the most important supply chains through the South China Sea. Given that it is from commercial fleets that the US military gets most of its supplies, even in wartime, it could also incapacitate any future American war effort.A key pillar of the Trump strategy will be to bring together the commercial and military sides of shipbuilding. “This new office aims to reform procurement, boost demand and remove barriers to US shipbuilders’ competitiveness — giving them the confidence to invest in the industry’s long-term future,” says Ian Bennitt, special assistant to the president and senior director for maritime and industrial capacity at the National Security Council. This is a big deal. It is very much the industrial strategy that put the Chinese on top in this domain and so many other industries, and it also represents a radical departure from the Reagan approach of decoupling the two areas, as part of a larger decrease in public subsidy of industry.By contrast, many people within the Trump administration — from national security adviser Mike Waltz to secretary of state Marco Rubio, to White House economic adviser Peter Navarro and USTR Jamieson Greer — are pushing ships as the new chips, to paraphrase former Biden security adviser Jake Sullivan, who praised the Trump plan.A leaked draft of the executive order shows the administration is planning to use a variety of carrots and sticks, from port fees on Chinese vessels, to a Maritime Security Trust fund (utilising tax credits, grants and loans for building and workforce training) to trade sanctions to bolster the industry. That will inevitably require working with allies such as South Korea (Hanwha has bought the Philadelphia shipyard), Japan, Finland, Canada and others.  Can Trump stay the course here? He’s already told the Canadians he won’t let them use US icebreakers until they become the 51st state of the union, though sources tell me that the ICE Pact work with Canada and Finland is continuing, unaffected by trade issues. America’s maritime capacity has atrophied to such an extent that alliances will be crucial to rebuilding it. This Great Game can’t be played alone.rana.foroohar@ft.com      More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Belatedly but determinedly, Europe is taking up the burden of its own defence. Part of this will be to spend more on weapons. As big a part will be to overcome the parochialism that has left arms procurement across the region uncoordinated and inefficient. That parochialism was made a lot worse by Britain leaving the EU. Goodwill and political footwork are helping to contain the impact of Brexit on the joint European security effort. The British, in particular, are keen to keep a common interest in defence collaboration uncontaminated by differences in other policy areas. The risks of that are low. The dismay registered at the EU’s decision to reserve the bloc’s common funding for its members and closest associates will dissipate if the UK decides to enter a defence and security pact.But pooling some defence spending will not change the UK’s self-exile from European supply chains that its hard Brexit entailed. Trade frictions between the EU and UK are, admittedly, not the greatest obstacle to Europe’s rearmament. But they are not irrelevant.Even within the EU itself, the European Commission identifies what are essentially trade frictions as obstacles to fully efficient defence procurement. Brussels lists insufficient recognition of product certifications, excessive red tape on military mobility, non-harmonised customs procedures and overregulation of intra-EU transfers of defence-related products.These and other frictions are much more severe vis-à-vis the UK, whose chosen form of Brexit puts it demonstratively outside any EU rulemaking or adjudication. The resulting barriers — for trade, people, data and capital — hamper exchange in all economic sectors, defence included. Finding a way to lower those threatening Europe’s common security is a worthwhile cause.What would it mean to create a frictionless market specific to the defence industry? Its goal would be, for activities within the sector, that companies could ignore national location and the associated costs of diverging rules or crossing borders. Frictions must be minimised not just for physical goods but for the delivery of services, flow of capital and movement of specialised workers.A sectoral version, in other words, of the EU’s internal or single market (in its ideal version, not its present incomplete form) and customs union. To avoid triggering the UK government’s neuralgic attitude to those terms, it is best to call it a “common market” for defence. A pan-European defence-industrial common market would face practical and political challenges. Practical ones include how to delineate the sector. This would be more complex than the exclusion of the primary sectors from the European Economic Area agreement, since defence work includes much more than goods only. On the other hand, countries already treat the defence sector as special — with regard to licensing requirements, for example — so there is something to build on.Another issue would be how to remove frictions at the border. Inspiration could be taken from the creative solutions in Northern Ireland. Special transport lanes could be accessible for pre-certified shipments from defence contractors, for example. Passport stamps could authorise non-EU/EEA nationals working in defence to enjoy greater professional mobility rights. As for capital, service and data exchanges, these are regulated behind rather than on the border, so it is largely a matter of adapting laws and putting resources behind policing any abuse.It’s the politics that would be the greater hurdle. There is no way around such a scheme having to run on EU legislation, including European court jurisdiction (again, Northern Ireland offers lessons). That has been anathema for successive British governments — although Labour has opened the door a crack with its product regulation and metrology legislation and its openness to a veterinary agreement.The EU, for its part, would have to abandon the dogma of “the indivisibility of the four freedoms”, according to which frictionless economic exchange with it is an all-or-nothing affair. This was always slightly hypocritical, as shown by the EEA’s exclusion of agriculture and fish. More recently, the EU’s new agreement with Switzerland shows that it can give partial frictionless access to partners willing to align dynamically with the bloc’s relevant rules.So it should be possible to find a meeting of minds. If the greater good of common security cannot justify concessions from both sides, what could? Even British Eurosceptics and continental Britain-bashers should acknowledge the overarching advantage of smooth Europe-wide weaponry supply chains — an advantage exceeded only by the greater trust and unity such a common market could build over time. martin.sandbu@ft.com More

Investors are bracing for a busy day on Wednesday in the UK with the release of the Chancellor’s Spring Statement and February inflation data. Both could influence investors views on monetary policy.The Office for Budget Responsibility is expected to cut its GDP growth forecast for this year from the 2 per cent forecast in October to closer to the 1 per cent forecast by economists polled by Reuters. Chancellor Rachel Reeves has said she will not raise taxes. However she is expected to announce further cuts to public spending, following a £5bn reduction on welfare.“Britain’s public finances are operating under increasingly fine margins and Chancellor Rachel Reeves faces tough spending decisions at the 26 March Spring Statement, amid rising debt interest cost,” said James Smith, an economist at the bank ING.Earlier on Wednesday, an ONS data release is expected to show that annual consumer price inflation has marginally declined to 2.9 per cent in February from 3 per cent in January, according to economists polled by Reuters.Economists anticipate higher food price inflation being offset by weaker price pressure in clothing.In February, the Bank of England forecast that the inflation data would slow to 2.8 per cent. Still, Philip Shaw, economist at Investec said he did “not expect an overshoot of this size to jeopardise a further cut in rates in May”. The BoE left interest rates unchanged at 4.5 per cent this week, saying that inflation should rise to 3.7 per cent by this summer. Domestic cost pressures, the BoE said, had boosted goods inflation despite weaker wholesale energy costs.“The committee will continue to monitor closely the risks of inflation persistence and what the evidence may reveal about the balance between aggregate supply and demand in the economy,” according to the BoE minutes. Valentina RomeiWill signs of growth finally emerge for the Eurozone?Investors hoping for renewed Eurozone growth will be looking for clues in business activity survey data next week. The S&P Global purchasing managers’ index has hovered around a neutral reading for several months, indicating stagnation. Economists polled by Reuters expect only a slight expansion to 50.5 for March from 50.2 last month. A reading above 50 indicates expansion.“Unless the PMI data shows a substantial move in either direction, I don’t think it will change what the [European Central Bank] wants to do,” said Athanasios Vamvakidis, Bank of America’s Head of G10 Foreign Exchange strategy. Most expect the ECB to hold interest rates steady in April after its quarter-point cut earlier this month.  “At this point, the focus is more on inflation, and also on tariff risks,” added Vamvakidis. US President Donald Trump has pledged to introduce new tariffs on the Eurozone in the coming weeks. This trade tension, as well as the continuing war in Ukraine, has driven the recent pessimism about the bloc’s growth prospects. This has eased somewhat after the German parliament passed a historic €1tn fiscal stimulus package this week. Economists at RBC Capital Markets predict a positive “sentiment shift” thanks to the German fiscal measures. They expect an above consensus figure of 51 this month, but noted they will be looking out for a “burst in new export orders from the US” ahead of looming tariff threats. Emily HerbertHow is corporate America dealing with America’s aggressive trade policies?Intensifying fears about slowing growth and rising inflation in the world’s biggest economy have punctured a shortlived post-election Wall Street rally.With sentiment surveys already pointing to increasing pessimism among consumers, investors will scrutinise upcoming gauges of business activity for clues about how well corporate America is handling Donald Trump’s aggressive trade policies and an increasingly uncertain economic backdrop.S&P’s purchasing managers’ index for manufacturing is expected to give a reading of 52.2 for March, according to a preliminary consensus estimate from FactSet — slightly below the previous month’s figure of 52.7.At the same time, S&P’s services PMI due on Monday is expected at 50.1, down from 51. While any reading above 50 signals expansion, such a figure would teeter on the edge between growth and contraction.Signs of greater weakness in either survey could spark a deepening of the sell-off in US stocks, which has already sent the benchmark S&P 500 well into “correction” territory.The Federal Reserve this week lowered its growth forecast and lifted its inflation outlook, while keeping interest rates steady, intensifying fears about ‘stagflation’ — a toxic combination of stagnating economic growth and rising prices.Economists at Deutsche Bank say that their “long-standing view” is for the Fed to keep interest rates on hold this year. Still, they add, “a realisation of downside risks to the economy, in the absence of a material increase in inflation expectations, could require the Fed to reduce rates in 2025.”“Like the Fed, we hope to get a better sense of the details around policies before deciding whether an adjustment is needed,” Deutsche says, but “the data and financial markets might not allow us (or the Fed) to be so patient.” Harriet Clarfelt More

This article is an on-site version of Free Lunch newsletter. Premium subscribers can sign up here to get the newsletter delivered every Thursday and Sunday. Standard subscribers can upgrade to Premium here, or explore all FT newslettersHappy Sunday. Many thanks for your responses to the last newsletter, which went viral in Canada. I waded into the online debate on Ben Mulroney’s radio show (link here).Now to this week. Tariffs, uncertainty and a slowing US economy are leading analysts to cut their 2025 and 2026 annual growth projections for the global economy. That’s hardly surprising. Most did not expect Donald Trump’s return to the White House to be this disruptive from the get-go. Given the gloominess, I went looking for pockets of optimism. So here are five scenarios that could mean global economic forecasts surprise on the upside in the near term.Scenario 1: Trump dilutes his tariff plansThe recent plunge in the S&P 500 has not been enough to deter the US president from his tariff-raising agenda. But, as the Biden administration showed, the stock market and approval ratings don’t always move together. The latter tends to track consumer confidence (particularly for Republicans when Trump is in power), which has dipped recently as inflation expectations have risen. Some content could not load. Check your internet connection or browser settings.As the effects of import duties come through to households, confidence and approval could dip further. With Americans still reeling from a 20 per cent post-pandemic jump in the price level, their threshold for further pain is limited. This could raise pressure from the White House or the GOP to dial things down. The 2026 midterms will quickly come into view.Most analysts reckon this is unlikely. But Trump has a knack for watering down tariffs and easing deadlines. Even a slight pull back — including carve-outs, a more structured approach to trade policy or a delay to his April 2 “reciprocal” tariffs — would improve global growth forecasts relative to how damaging his tariff agenda could be in totality. Some content could not load. Check your internet connection or browser settings.Scenario 2: European growth surprises Most forecasters expect Germany’s plans for higher investment spending — and appetite for higher defence expenditure across Europe — to boost euro area growth. But there are three further potential upsides to consider.First, a number of positive developments are converging in the EU. Higher government spending, rising domestic stock markets and a “rally round the flag” effect in reaction to Trump’s tariff and Nato threats will boost consumer and business confidence. That could then generate a higher-than-anticipated real economic impact.For instance, with household savings ratios still close to 3 percentage points higher than pre-pandemic, there is ample room for less cautious consumers to rev up euro area growth. For companies, higher equity valuations and capital inflows could push more investment decisions over the line. Policy reform might be more forthcoming, too. Some content could not load. Check your internet connection or browser settings.Second, how the continent interprets its security spending needs matters. Goldman Sachs estimates that building up Europe’s materiel and matching Russia’s annual investment in new supplies could require at least €160bn per annum (around 0.8% of GDP). How the spending impacts near-term growth depends on its size, pace and nature, again leaving room for upside. (For instance, defence R&D spending could have positive impacts on other industries.)However, Andrew Kenningham, chief Europe economist at Capital Economics, is more sceptical. “Few countries will match Germany’s increase in deficit spending, multipliers on defence are likely to be low-ish as a lot of the money will be used for equipment rather than current spending, and some will be imported,” he said.Third, a ceasefire in Ukraine could bring down gas prices, increase risk-on sentiment in markets and raise confidence — boosting the euro area’s GDP by up to 0.5 per cent, according to Goldman.Some content could not load. Check your internet connection or browser settings.Scenario 3: China picks up global growth slackLikewise, upsides in China — the world’s largest exporter and manufacturer — would also boost global forecasts. How?First, rising private sector confidence could boost hiring and investment activity above expectations. Chinese artificial intelligence company DeepSeek’s shock progress in model development, Beijing’s stimulus measures and President Xi Jinping’s efforts to rebuild ties with China’s business titans following a clampdown on private wealth and tech are all positives. Global investors are encouraged, too; inflows into China-exposed equities have surged. Some content could not load. Check your internet connection or browser settings.Second, AI could boost China’s growth. DeepSeek’s low-cost, open source large language model raised optimism that the technology might be adopted faster. It will spur higher investment in data centres. Productivity gains may come through faster, too. Recently, businesses spanning the auto industry to telecoms have announced plans to use DeepSeek’s technology.Third, Beijing’s economic support could surprise. In this month’s National People’s Congress, the government committed to a fiscal deficit target of 4 per cent of GDP — the highest in three decades. Though analysts were hoping for more evidence of support for households, the communist party has become more vocal on the need to prop up demand.“A key difference in this year’s policy messaging compared to previous years is Beijing’s emphasis on maintaining flexibility and adaptability in policymaking,” said Jing Sima, China Strategist at BCA Research. “This suggests the central government remains open to providing additional economic support if necessary.”Some content could not load. Check your internet connection or browser settings.For both European and Chinese exporters, the hit from US tariffs will also depend on how easily American importers can switch to domestic suppliers. That could be harder than expected for some sectors, particularly amid broader US economic uncertainty. Scenario 4: US growth surprisesEven if Trump pursues tariffs, other domestic economic developments could cushion their effect. First, tax cuts and deregulation are still in the White House’s back pocket. An extension of the provisions in Trump’s Tax Cuts and Jobs Act (most of which expire at the end of 2025) will support consumption and investment at the margin. The Tax Foundation estimates this will boost long-run economic output by 1.1 per cent. Some content could not load. Check your internet connection or browser settings.A plan to cut corporation tax would build on that. Concerns over higher borrowing — which could push yields higher — risk eating into any upsides. (Extending the TCJA alone without offsets would raise the deficit by $4.6tn.) But if the bond market allows Trump to enact even some of his tax plans, that could reduce the growth hit from tariffs. A further boost would come from efforts to cut red tape, particularly to onerous planning requirements.Second, faster AI adoption is in the realm of possibility. Matthew Martin, senior US economist at Oxford Economics, suggests a combination of lower interest rates and tax reliefs next year could expedite AI investment. Though AI use across American businesses remains tame, diffusion is rarely a linear process. It’s possible breakthroughs and new applications of the technology could speed up its impact on productivity. Some content could not load. Check your internet connection or browser settings.Scenario 5: Lower interest ratesFinally, central bank policy rates could fall faster and further than consensus expects, propping up consumption and business activity. Right now inflation in advanced economies is driven by domestic factors — particularly services inflation, which is underpinned by wage growth. But indicators of labour market tightness such as hiring intentions and vacancy rates are easing. This means salary price pressures could fall faster than expected, allowing central bankers to make extra cuts.Some content could not load. Check your internet connection or browser settings.The prospect of imported inflation (as a result of tariff wars) is pushing up inflation expectations and raising concerns that high rates could have staying power. China could be an offsetting factor here. Sima at BCA Research notes that, in the last trade war, Beijing mobilised tax subsidies to cushion its exporters. This, combined with the possible diversion of US-bound Chinese exports to elsewhere, could help offset the inflationary impact of retaliatory tariffs on America.Some content could not load. Check your internet connection or browser settings.Are these scenarios too hopeful? Possibly. Each is underpinned by assumptions, ranging from blind spots around policy developments to the hard-to-measure economic effects of household, business and investor mood swings.Still, gauging how economic trajectories might change is a valuable exercise in itself, given that several prevalent market narratives have done a 180 in recent months (see: US exceptionalism, China’s “un-investability” and Europe’s unloved equities).However, the sheer scale and influence of the US economy and its capital markets means that for global growth forecasts to surprise notably on the upside (rather than being simply less bad than currently projected), the White House would need to alter its economic agenda. That’s not impossible. But I’ll leave the precise odds to the Trump- and MAGA-ologists.Send me your upside scenarios and thoughts at freelunch@ft.com or on X @tejparikh90.Food for thoughtFollowing a series of recent breakthroughs in automatons enhanced by AI, the University of Edinburgh unveiled the world’s first AI robot barista. The associated research paper underscores the economic opportunities that could come with smarter robot technology, beyond cups of coffee.Recommended newsletters for youTrade Secrets — A must-read on the changing face of international trade and globalisation. Sign up hereUnhedged — Robert Armstrong dissects the most important market trends and discusses how Wall Street’s best minds respond to them. Sign up here More

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldChina said it was ready for any “unexpected shocks”, ahead of US President Donald Trump imposing higher tariffs on the world’s second-biggest economy.Premier Li Qiang, responsible for the Chinese economy under leader Xi Jinping, told foreign business leaders gathered in Beijing on Sunday that uncertainty and instability were rising, but China would choose the “correct path” of globalisation and multilateralism. “We have preparations for possible unexpected shocks, which of course mainly come from external sources,” Li said. And in a thinly veiled swipe at what Beijing sees as western protectionism, Li urged attendees at the China Development Forum to be “staunch defenders” of globalisation and “resist unilateralism”.The US is expected to impose additional levies on imports from China on April 2, when it unveils “reciprocal tariffs” on countries around the world. Since taking office, Trump has already slapped 20 per cent tariffs on goods from China, in a move the White House says is designed to pressure Beijing to crack down harder on companies that make the ingredients for fentanyl, a sometimes deadly synthetic opioid that has triggered an epidemic of drug use in the US.The cautionary tone from the Chinese premier comes as Beijing tries to improve consumer and investor sentiment, while also preparing potential retaliatory measures against future US tariffs and sanctions.While Xi’s administration was caught off-guard by Trump’s 2016 election victory, Beijing is now armed with a quiver of potential countermeasures to new US pressure. They include curbing American access to supply chains for strategic minerals and resources.Amid calls from economists for Beijing to be bolder in addressing slowing economic growth, Xi’s government is pivoting towards more investment in cutting-edge technology and manufacturing, in part to steel itself for a more hostile geopolitical environment.There have been very few top-level talks between the US and China since Trump took office, barring one phone call between the president and President Xi Jinping. Trump last week said Xi would come to the US in the “not too distant future”, but people familiar with the conversations in Washington and Beijing said there had been no discussion about Xi travelling to America.Also on Sunday, Li met Steve Daines, a Republican senator from Montana who is very close to Trump, in a rare meeting between a senior American lawmaker and top Chinese official. Li, flanked by senior officials including finance minister Wang Wentao, called for improved ties between Washington and Beijing. “History tells us that China and the United States both stand to gain from co-operation and lose from confrontation,” he said to the US side, who also included Pfizer executive Albert Bourla and Qualcomm chief executive Cristiano Amon.According to Daines’ office, at a meeting on Saturday with vice premier He Lifeng, the senator reiterated Trump’s call for China to halt the flow of chemicals used to make fentanyl. It added that Daines had “expressed hope that further high-level talks between the United States and China will take place in the near future”.Earlier this month the State Council, China’s cabinet, released a new white paper outlining Beijing’s “rigorous control” over fentanyl-related substances and precursor chemicals. State media also pushed back on the pressure from Washington, saying the US had “shifted the blame” for its drugs problem “rather than taking responsibility itself”.Additional reporting by Joe Leahy in Beijing More

Argentina’s imports are rising rapidly as libertarian President Javier Milei bets on a strong peso and cheap foreign goods to help fight inflation, even as they put pressure on the country’s scarce hard currency reserves.As Argentina recovered from a recession that depressed imports and Milei began opening up the protectionist economy, the country’s inbound trade surged 30 per cent in the past six months compared with the previous period on a seasonally-adjusted basis, according to the national statistics agency.Italian pasta, Brazilian bread and Uruguayan butter have become increasingly visible on supermarket shelves, as retailers almost doubled food imports in the first two months of 2025 from a year earlier. Solar cell imports have grown tenfold, while farmers quadrupled overseas tractor purchases. The strategy of strengthening the peso while loosening import restrictions has helped tame spiralling inflation, but is not without risk. As the country spends more dollars abroad and fails to build up reserves, it becomes more vulnerable to an external market shock or a big devaluation that would undo Milei’s progress on inflation.The situation has piled pressure on the president to secure an IMF loan to replenish reserves, which he says will be delivered in April.Some content could not load. Check your internet connection or browser settings.The peso’s strength has become a politically fraught subject in Argentina, with Milei repeatedly attacking economists who describe risks in its appreciation as “econo-swindlers”. Several retailers declined to speak on the record about the peso’s role in rising imports, citing fear of angering the president and local manufacturers.Chinese imports are growing fastest, more than doubling in February compared to the same month last year, as business leaders visit the country to shop for suppliers. Previously restricted overseas purchases via ecommerce services such as Alibaba have skyrocketed.“People are filling the cargo stores of Buenos Aires airports with boxes,” said Ruben Minond, owner of cycling retailer Tienda Bike, who has stepped up purchases of Chinese bike lights and bags, and plans to start shipping bicycles by container.“I’m buying more overseas than locally now, because it costs less and it’s much, much easier than it used to be,” he added.Current import levels, of $5.9bn in February, are not unprecedented in Argentina, where trade flows have swung dramatically over the past decade.But the rapid growth reflects the tricky balancing act Milei must perform to deliver lasting stability.To tackle the normally conflicting goals of slashing Argentina’s severe inflation while at the same time restarting economic growth, the president has turned to the country’s strict currency controls.Following a big initial devaluation when he took office in December 2023, Milei let the peso slide only 2 per cent a month last year, despite inflation well above that rate. That has strengthened the currency 47 per cent in real terms, according to consultancy GMA capital. The peso’s appreciation has dragged down price pressures but made domestic goods much more expensive in dollar terms compared to other countries, while increasing Argentines’ purchasing power abroad.Alongside rising imports, Argentines are holidaying abroad in near-record numbers, as the strong peso makes Brazilian beaches and Chilean shopping malls affordable. The country recorded its second-highest monthly tourism dollar spend in January, at $1.5bn.As a result, Argentina has been running a current account deficit since June, while its trade surplus for goods narrowed to $224mn in February, down from well over $1bn a month for most of 2024.“This is the collateral damage of the strict exchange rate policy,” said Ramiro Blazquez Giomi, Latin America and Caribbean strategist at financial services group StoneX. “In the short term, the growing current account deficit puts pressure on the availability of dollars that the government needs to keep the currency stable [and avoid spikes in inflation].”Many healthy developing economies run current account deficits, mostly financing them with inflows of foreign investment, Blazquez noted. But crisis-stricken Argentina is receiving very little foreign investment and cannot borrow on capital markets. Therefore, without a current account surplus, Milei cannot build up the negligible central bank reserves he inherited, which remain about $6bn in the red excluding liabilities.But the government is undeterred and is slashing tariffs and cumbersome customs regulations on hundreds of goods.“We are continuing to cut taxes and tariffs to stimulate competition and keep lowering inflation,” economy minister Luis Caputo said this month as he chopped duties on textiles, one of Argentina’s most protected industries.Manufacturing leaders say the imports surge will force lay-offs in a sector that employs almost a fifth of the nation’s workers. Government officials say manufacturers are benefiting from cheaper imports of parts, and that businesses must become more competitive.Argentina’s President Javier Milei is aiming to avoid a big devaluation of the peso More

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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.International carmakers are rushing to ship vehicles and core components to the US to get ahead of the next round of President Donald Trump’s tariffs, which threaten to wreak havoc on automotive supply chains. In response to requests from auto manufacturers, car-carrying vessels have been dispatched to Asia and Europe amid plans to carry “thousands” more vehicles than usual to the US, according to industry officials.Lasse Kristoffersen, chief executive of the leading vehicle shipping line Wallenius Wilhelmsen, told the Financial Times that there was “more volume out of Asia than we’re able to take from our customers”. The company has added capacity to address the demand, he said, adding that the increase would be larger were it not for the industry’s shortage of car-carrier vessels.Trump has said that “reciprocal” tariffs on the US’s trading partners will come into effect on April 2 — the same day that a 30-day reprieve ends on the president’s pledge to impose 25 per cent tariffs on imports from Mexico and Canada. South Korean carmakers Hyundai and Kia were among those trying to ship more vehicles to the US before the new tariff deadline, according to another shipping executive. Hyundai declined to comment on its strategy but said: “We continuously optimise our shipment plans to adapt to market conditions.” An official at a German carmaker said it was shipping more vehicles from Europe to the US to address the tariff threat. The rush has led to a 22 per cent per cent year-on-year rise in vehicle shipments from the EU to the US in February, while those from Japan increased 14 per cent. Shipments from South Korea to North America were up 15 per cent.Stian Omli, senior vice-president at Esgian, a platform monitoring car carriers, said there was a “noticeable increase” in vessels heading from Europe to the US. “We do see an increase out of Europe and we will probably soon see an increase out of east Asia,” he said, adding that vessels needed to complete their journey to be counted. “There are a lot of car carriers reporting they will go to the US, which is a clear indication of increased activity.” Companies producing cars and components in Mexico and Canada are also preparing for tariffs on imports to the US. Honda is trying to bring forward shipments from these two countries, while Chrysler and Jeep owner Stellantis said it was moving stocks across the border into its US plants and producing more vehicles during the one-month hiatus.“When you look at the vehicles we produce in Canada and Mexico, we have a pretty good supply on the ground right now with our dealers, probably 70 to 80 days of most of those units,” Doug Ostermann, Stellantis’s chief financial officer, said at a conference on Tuesday. Another logistics executive who works in the car supply chain said manufacturers of electronic goods used in cars such as stereo systems were “looking to stockpile more into the US”. The approach is not uniform across the industry, however. Toyota said it “has not been increasing vehicle imports to the United States from Japan (or from other countries) in anticipation of possible future tariffs” while two Japanese car carriers reported little change in demand.While the 30-day delay to tariffs have given carmakers additional time to ship inventory to the US, Cody Lusk, chief executive of the American International Automobile Dealers Association said the bigger uncertainty was over how long the tariffs would last and who they would ultimately apply to. “We’re all waiting to see,” Lusk said. “Is each country treated differently? Is everybody the same?”Wallenius Wilhelmsen’s Kristoffersen said: “The bigger question is how will it affect the car trade over time . . . Customers are very uncertain which direction this will take.” Additional reporting by Claire Bushey in Chicago and Patricia Nilsson in Frankfurt More