Economy

There’s an undercurrent of Democratic support for elements of President Trump’s tax agenda, a dynamic that Republicans are trying to exploit as they make the case for enactment of their sprawling domestic legislation.Democrats have no shortage of criticism for the massive Republican policy bill winding its way through Congress carrying President Trump’s agenda. It would cost too much, they contend, rip health coverage and food assistance away from too many people and strip vital support from clean energy companies.When it comes to some of the tax cuts in the bill, however, Democrats have been less resistant. Some of them concede that they would support many of those provisions if they were not rolled into the larger piece of legislation. In recent weeks, they have taken pains to demonstrate that support.Last month, Senator Jacky Rosen, Democrat of Nevada, successfully moved to have the Senate unanimously approve a version of Mr. Trump’s “no tax on tips” proposal. While the effort was almost entirely symbolic — under the Constitution, the House must originate tax measures — it was still an opportunity for Democrats to go on the record backing a campaign promise of Mr. Trump’s that is broadly popular with the public.“I am not afraid to embrace a good idea, wherever it comes from,” Ms. Rosen said on the Senate floor at the time.The undercurrent of Democratic support for elements of the Republican tax agenda reflects the political potency of some of Mr. Trump’s campaign promises, even those that have been derided by tax policy experts. It also suggests that temporary provisions in the Republican bill, like exempting tips and overtime pay from the income tax, could ultimately become long-term features of the tax code.And it helps to explain why Mr. Trump and Republicans chose to wrap their policy agenda into one huge bill. By pairing the palatable tax cuts — including an extension of tax cuts set to expire at the end of the year — with less savory measures, like Medicaid cuts, Republicans can make the political case that anyone who fails to support the bill is voting for a tax increase.We 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.Beijing has agreed to fast-track approvals for rare earth export licences for some European companies after China’s strict controls on shipments of the critical minerals rocked global supply chains.European officials and industry groups have complained that a new licence system for rare earths and related magnets, introduced in the wake of Donald Trump’s “liberation day” tariffs in April, risked causing widespread factory stoppages. However, according to a statement published by China’s commerce ministry on Saturday, Beijing is now “willing to establish a green channel for qualified applications to speed up approval”. No details were given as to how fast the process would be, or which European companies would be included. One European executive in Beijing, who asked not to be named, warned that manufacturers might still face delays in receiving their rare earth and magnet shipments in the short to medium-term given the “huge backlog” of licence applications. The announcement followed a meeting between Chinese commerce minister Wang Wentao and Maroš Šefčovič, EU commissioner for trade and economic security, in Paris last week. Wang urged the EU to “take effective measures to facilitate, safeguard and promote compliant trade of high-tech products to China”. Beijing has become increasingly concerned that Europe has followed US-led restrictions on sales of semiconductors and chipmaking equipment to China. On Friday Trump said a new high-level round of trade talks between the US and China would take place on Monday in London, paving the way for further de-escalation in the trade war between the world’s two biggest economies. Rare earths are just one of many disputes between Brussels in Beijing. The sides have also been in talks over China’s opposition to the bloc’s tariffs on Chinese electric vehicles, as well as Beijing’s tariffs on French cognac. According to the commerce ministry, discussions on prices of Chinese electric vehicles sold in the bloc have entered “the final stage” but further efforts “from both sides were needed”. China plans to announce the result of its investigation into European brandy imports on July 5. Beijing has sought to improve ties with Brussels since Trump returned to office but EU officials said that, despite warm words, there had been little compromise on issues of concern until now.Šefčovič on Wednesday said he had pressed his Chinese counterpart over the rare earth delays, which were slowing deliveries for manufacturers of a wide range of items from cars to washing machines.The European Commission said in a statement that it welcomed the announcement. “Resolving this issue is of strategic importance for the EU due to the alarming situation for EU industry. We will follow up closely to see how any such measures are implemented on the ground. The Commissioner and the Minister therefore remain in contact,” the statement said.“As Commissioner Šefčovič said in Paris, we ultimately seek a more systemic solution covering a longer period or a distinction between civilian and dual use products,” it added.During talks with Wang, Šefčovič proposed that controls should be lifted on products destined for civilian use or, failing that, companies should be granted an annual licence to import.The Financial Times reported on Thursday that European businesses had lobbied officials in Beijing to set up a special channel to fast-track export licences for “reliable” companies. On Friday the European Chamber, a Beijing lobby group, warned that despite Beijing approving urgently needed shipments, progress had “not been sufficient” to prevent severe supply chain disruptions for many companies. Jens Eskelund, the chamber president, said member companies were “still struggling” with both the delays and the lack of transparency. Additional reporting by Cheng Leng in Hong Kong More

Donald Trump may have been mocked as the president who “always chickens out”, but when world trade ministers gathered in Paris this week the message from Washington was clear: we are going it alone.For the first time since Trump imposed his “liberation day” tariffs, the OECD annual meeting brought together a quorum of the world’s leading trade ministers in one place — and the collective challenge was clear. While ministers queued up in public to defend and reform the multilateral “rules-based” system, behind closed doors, in the splendour of the OECD’s Parisian château, the mood was dark. Governments seem busier than ever cobbling together deals with Washington, but all outside a global system that is buckling under the strain.“The US message was unmistakable: ‘We’ve got a big trade deficit we need to deal with; what matters is unilateral power, which we have,” said a diplomat who attended meetings with the US trade representative Jamieson Greer. “This is the way the world is going to look, so you better get used to it.” When a clutch of ministers later met to discuss reforming the World Trade Organization, the 30-year-old global body that has become increasingly marginalised, the conversation was no easier. Rather than pitch what should change, the organisation’s director-general Ngozi Okonjo-Iweala asked those around the table to suggest where their governments might be willing to compromise. Nobody spoke up, according to one attendee. “We’re really where we were before the meeting, which is nowhere,” they said. “The US said that the multilateral process has not delivered and its unilateral approach is working, while India said the same as it’s been saying for the last 10 years, blocking reform.”Some content could not load. Check your internet connection or browser settings.The US push to act unilaterally on tariffs and compel countries to cut deals has already rattled the world economy. The OECD warned that the Trump trade war risked sending global growth to its weakest levels since Covid-19, with the US suffering some of the largest hits to GDP.“Weakened economic prospects will be felt around the world, with almost no exception,” the OECD said. Álvaro Pereira, its chief economist, warned that countries urgently needed to strike deals to lower trade barriers, or the repercussions would be “massive” for everyone.However, the Trump administration has continued to signal its intent as it conducts multiple negotiations with trade partners hoping to avoid the “reciprocal tariffs” imposed in April, but suspended until July 9. At the start of the week, the Office of the US Trade Representative dispatched letters with what US officials described as a “friendly reminder” that the deadline for offers to the White House was fast approaching.Experts said that Trump’s desire to strike a series of nonbinding deals with individual nations, starting with the UK last month, posed profound questions about the viability of the WTO — another issue hanging over the Paris gathering. The WTO’s dispute settlement system has been struggling to function since 2019 when the US decided to block the appointment of new appeal panel members, while efforts to resolve disputes over fishing and agricultural subsidies are perennially blocked.Informal Ministerial Meeting at the OECD in Paris More

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Unlock the White House Watch newsletter for freeYour guide to what Trump’s second term means for Washington, business and the worldA senior Federal Reserve official has put the chances that Donald Trump’s trade war leads to a sustained burst of inflation at “50-50”, as he warned US rate-setters would face uncertainty “right through the summer”. St Louis Fed president Alberto Musalem told the Financial Times that while Trump’s levies could boost inflation for “a quarter or two”, there was “an equally likely scenario where the impact of tariffs on prices could last longer”. The Trump administration has already brought US tariffs on the country’s trading partners to the highest level in almost 90 years, threatening to fuel higher inflation and slow economic growth. The competing forces have prompted policymakers to adopt a wait-and-see approach after cutting interest rates by 1 percentage point during the second half of last year. Bond markets have also been rattled in recent weeks by Trump’s “big, beautiful” budget bill, which Congress’s fiscal watchdog estimates will add $2.4tn to the public debt over the next decade. The bill passed the House last month but is still being debated in the Senate. Musalem, who holds a vote on the Federal Open Market Committee this year, said officials could benefit from a favourable scenario where uncertainty over trade and fiscal policy “goes away in July”. He said that such a scenario would potentially put the Fed back on track to cut rates.However, Musalem also raised the prospect of another scenario “where inflation begins to rise materially and we will not know whether that is a temporary, one-off increase in the price level or whether it has more persistence”.Musalem added that “right now, it’s probably a 50-50 assessment” that either situation would emerge. Economists say the Fed’s reluctance to cut is in large part due to the expectation that tariffs will raise US prices in the coming months and push headline PCE inflation from 2.1 per cent to levels well in excess of rate-setters’ goal of 2 per cent. Recent surveys show consumers and businesses expect higher inflation in the coming months and years as tariffs take effect. Those expectations have raised concerns among Fed officials that people could lose faith in the central bank’s ability to keep inflation low. The Fed’s deliberations come at a politically fraught moment for the central bank. Trump has repeatedly attacked chair Jay Powell for not cutting rates, and on Friday called for a “full point” reduction in borrowing costs. Political interference could make it more difficult for the central bank to lower interest rates. Musalem said independence was important as it allowed for “more anchored inflation expectations”. Fed officials — including Musalem — see keeping inflation expectations in check, or “anchored”, as a vital precondition for cutting rates. “If market-implied and/or survey measures of medium- to long-term inflation expectations begin to rise, at that point it becomes very important to prioritise price stability,” the St Louis Fed president said.Musalem’s remarks, made on Friday, come ahead of the blackout period for the Fed’s mid-June policy vote, where officials will almost certainly keep interest rates on hold. The FOMC will also publish a fresh round of quarterly economic projections. Musalem said he did not “expect to change my numbers very much relative to the March round”, despite the more precarious economic environment following Trump’s so-called liberation day tariff announcement in early April. “I think we still have some uncertainty. Through the summer, we need to understand what the trade negotiations may be, what legal challenges there may be, or how that resolves in terms of the tariffs. I’m also focusing on fiscal policy and what the shape of that is going to be along with immigration policy and regulatory policy.” He said the market reaction to “liberation day” “certainly caught my attention”. Musalem, who spent decades working in finance before joining the Fed, said: “There are days when markets send you a very clear message and that was one of those days.” Investors responded to Trump’s policies by selling US equities and the dollar, as well as 10-year Treasury bonds. The unusual correlation signalled concerns among investors of the US’s long-held haven status. Conversations with asset managers suggested that they were looking to gradually rebalance their portfolios even as markets had stabilised in recent weeks, Musalem said. “The situation had been one of overweight US assets and underweight assets in other countries,” the St Louis Fed president said. “And asset managers are indicating that may change going forward.” More

Unlock the White House Watch newsletter for freeYour guide to what Trump’s second term means for Washington, business and the worldDonald Trump has intensified his attacks on Jay Powell, calling on the US Federal Reserve chair to slash interest rates by a “full point” after official figures pointed to a weakening labour market. The US economy added 139,000 jobs in May, compared with a downwardly revised 147,000 posts added in April, according to data released by the Bureau of Labor Statistics on Friday. The BLS also revised down the March figures, bringing the average jobs gains for the year until May to 124,000, compared with 168,000 in 2024. “‘Too Late’ at the Fed is a disaster!” Trump wrote on his Truth Social platform following the release, using a nickname he has given to the Fed chair. “Despite him, our Country is doing great. Go for a full point, Rocket Fuel!”“He is costing our Country a fortune,” Trump added, referring to borrowing costs on US debt. Asked by reporters later who he expected to be the next Fed chair, Trump replied: “It’s coming out very soon.”He had a “pretty good idea” who that person would be, he added, without elaborating.Congress’s fiscal watchdog warned this week that the president’s landmark “big, beautiful bill” would add $2.4tn to the US debt by 2034. The Congressional Budget Office report came when many senior executives on Wall Street were already warning that such high debt levels could hit the bond market, sending yields rising. Trump’s fresh attacks on Powell come after the European Central Bank on Thursday cut rates by a further quarter point. The ECB has halved borrowing costs over the past year. The Fed has paused a rate-cutting cycle that began in 2024 as policymakers weigh the effects of Trump’s tariffs, which many economists expect to increase inflation while cooling growth. Trump and Powell met last week, with the US president telling the Fed chief he was making a “mistake” by not cutting rates.Powell has held firm in the face of Trump’s pressure, however, telling the president that its policy decisions would “depend entirely on incoming economic information”.Friday’s data from the BLS beat market expectations, coming in ahead of the 126,000 predicted by economists polled by Bloomberg. The unemployment rate held steady at 4.2 per cent. Despite the better than anticipated May figure — which Trump hailed as “GREAT JOB NUMBERS” — economists said that the revisions to prior data suggested the market was weakening. “The headline beat isn’t nearly as impressive as it appears at first glance,” said Thomas Simons at US investment bank Jefferies, noting the revisions. “Job growth has clearly shifted into a lower trajectory.”Marc Giannoni, chief US economist at Barclays, added: “We expect more slowing over the course of the year.” The OECD warned this week that the global economy was heading into its weakest period of growth since the Covid-19 pandemic as Trump’s trade war weighs on the world’s top economies.Some content could not load. Check your internet connection or browser settings.Average hourly earnings rose by 0.4 per cent to $36.24, the BLS said, bringing to 3.9 per cent the increase over the past year. Treasury yields rose after the data was released as traders marginally scaled back expectations for interest rate cuts this year. Futures markets are now pricing in a small chance that the Fed could cut rates one more time this year, although two reductions remains their central expectation.“For the Fed this means they are on hold for a while,” said Giannoni. “The latest employment report does not give them any reason to be alarmed.”The S&P 500 rose 1.1 per cent in afternoon trading in New York. Friday’s jobs numbers were dragged down by a continued slide in the number of government jobs amid a cost-cutting effort by the so-called Department of Government Efficiency, led until last week by Elon Musk.Musk and Trump’s relationship erupted into acrimony this week after the billionaire tech executive left his role and blasted the president’s signature tax bill as “a disgusting abomination” that would swell US debt. But Doge’s efficiency drive has already led to the loss of 59,000 federal government workers since January, according to the BLS. That has been offset slightly by a rise in hiring in the leisure and hospitality sectors. More

Top American economic officials will meet with their Chinese counterparts next Monday in hopes of breaking a trade stalemate, President Trump said.President Trump said on Friday that the United States and China would begin their second round of economic talks on Monday in London, resuming negotiations over tariffs and global supplies of rare earth minerals that have begun to threaten the global economic growthThe American delegation will be led by Treasury Secretary Scott Bessent, Commerce Secretary Howard Lutnick and Jamieson Greer, the United States trade representative, Mr. Trump said in a post on Truth Social. It was not immediately clear who would represent China, but He Lifeng, China’s vice premier for economic policy, led the previous round of talks in Switzerland.The talks come at a fragile moment for the global economy, which has been slowed by uncertainty and supply chain disruptions. The United States in April paused some of the tariffs that Mr. Trump imposed on dozens of countries to provide time for trade negotiations.Those levies, as well as steep import taxes on Chinese goods, were thrust into further uncertainty in late May, when a U.S. trade court deemed them illegal. The tariffs, however, currently remain in place while an appeal process unfolds. As the U.S. delegation meets in London, the Trump administration has a deadline to make its case to a federal appeals court for why the tariffs should continue.The announcement of Monday’s talks came a day after Mr. Trump held a call with Xi Jinping, China’s president, that was intended to break a deadlock that threatened to derail a trade truce that the countries reached in early May in Geneva. Under that truce, the United States reduced Mr. Trump’s tariff on Chinese imports to 30 percent from 145 percent, and China lowered its import duty on American goods to 10 percent from 125 percent.But in recent weeks, the tension between the two countries returned, tied to mineral exports to the United States, which China had recently halted. The Trump administration also proposed a plan to revoke visas for Chinese students associated with the Communist Party or studying in critical fields.Mr. Bessent, who has been leading the negotiations with China for the United States, recently acknowledged that the talks had stalled and suggested that it would be up to the two leaders to get them back on track.Then, last week, Mr. Trump said on social media that China had “violated” the agreement that was brokered in Switzerland. Beijing rejected that notion, accusing Washington of severely undermining the trade truce.The back and forth continued this week when Mr. Trump wrote on social media on Wednesday that Mr. Xi was “VERY TOUGH, AND EXTREMELY HARD TO MAKE A DEAL WITH.”A day later, however, Mr. Trump said that his 90-minute call with Mr. Xi had been productive.“I just concluded a very good phone call with President Xi, of China, discussing some of the intricacies of our recently made, and agreed to, Trade Deal,” Mr. Trump said, adding that it “resulted in a very positive conclusion for both Countries.” More