Economy

This article is an on-site version of our Trade Secrets newsletter. Premium subscribers can sign up here to get the newsletter delivered every Monday. Standard subscribers can upgrade to Premium here, or explore all FT newslettersWelcome to Trade Secrets. Alan has taken a well-earned break/deserted his post in the great trade war. So with impeccable timing this week’s newsletter comes from Brussels, home of the “nasty”, “rip-off” EU.We’ll try to work out what happens next following US President Donald Trump’s threat of 50 per cent tariffs on the bloc’s exports.Charted Waters, where we look at the data behind world trade, is on US lobster exports, a case of nominative determinism if there ever was one.Get in touch. Email me at [email protected] are from Mars, Europeans from VenusTreasury secretary Scott Bessent said last week that Trump’s ultimatum aimed to “light a fire under the EU”. It worked. Within 48 hours the EU’s top official was on the phone to the president promising to speed up talks — if he retracted his threat.Ursula von der Leyen had previously said she would get involved with final compromises only when a deal needed closing.But Trump’s tirade forced her hand — along with, we are beginning to learn, some EU leaders. He didn’t fully back down, but shifted the deadline for 50 per cent tariffs from June 1 to July 9 — the original date when “reciprocal” rates would have gone back up to 20 from 10.The European tone on Sunday night was very different to that on Friday, when trade commissioner Maroš Šefčovič spoke to Jamieson Greer, US trade representative, and Howard Lutnick, commerce secretary. Šefčovič’s social media post called for “mutual respect, not threats” and said Brussels would “defend our interests”. Von der Leyen said “Europe is ready to advance talks swiftly and decisively”.So will the bloc now start to make the sort of unilateral concessions the US expects, and that the UK did? We picked up US frustration the day before Trump’s threat. (That piece is also a good rundown of US asks and EU offers.)But can the EU really conclude a sweeping deal with the US in just six weeks?There are two big differences in approach. First, Trump can decide — and act — alone. He has an idea, and within hours an executive order is prepared and tariffs can be in place. He can reverse course as quickly, as he did on April 9 when he slashed the “reciprocal tariffs” imposed a week before to allow 90 days for talks.The European Commission has power over trade, but it still has to convince a majority of the 27 member states to approve its decisions. So consultations with representatives in Brussels and national capitals are constant and time-consuming.Second, the US cares little about the legality of its measures. Is there such a deep crisis in a country with a healthy growth rate that it can justify use of the International Emergency Economic Powers Act (IEEPA)? Can you justify tariffs on cars by using Section 232, that says national security is at stake? The courts will eventually decide — but by then Trump might have struck his deals, or found another law to try.The EU is bound together by legal red tape. How else could you compel sovereign countries to allow routine cross-border movement of goods, services and people, and avoid subsidy races? As a soft rather than hard power, it relies on the international system — the World Trade Organization, UN and so on — to maintain a benign environment. An example: with Houthis attacking shipping in the Red Sea, which threatens EU trade more than US, the bloc set up a naval protection mission with just three ships. The US-led Operation Prosperity Guardian, which includes an aircraft carrier, is far bigger. And its strikes on Houthi bases in Yemen have led to a temporary ceasefire.  This feeds Washington’s resentment of what it regards as EU freeriding (though France, the Netherlands and Denmark did at least contribute a ship).European attempts to protect cultural treasures also raise ire, whether that is television quotas for domestic films or restricting who can call a cheese Parmesan. How can the EU complain that the US is using security grounds to justify tariffs, when it bans on cultural grounds American beef from cattle that have been given growth hormones, officials muse.And of course, apart from China, it is the one economic power big enough to stand up to Trump if it chooses. Officials in Brussels believe he will be forced to strike a deal because of the massive investment by US companies in the EU, and vice versa, and the self-harm tariffs will inflict. So they have played for time — but it might be running out.So far the EU has had a muted response to Trump’s trade assault. It has loaded a revolver against Trump’s M240 machine gun (made in the US by a Belgian company, just to make the point). Member states have approved a €21bn package of up to 50 per cent tariffs on US goods such as maize, wheat, motorcycles and clothing, which will kick in on July 14 without a deal. The commission has also drawn up a €95bn list of other targets, including Boeing aircraft, cars and bourbon whiskey.That is likely to be whittled down as member states request sensitive goods be removed. (The Belgians did some smart pre-lobbying to ensure diamonds were exempted from tariffs on precious stones before the list was even published.)European businesses, already struggling with weak domestic growth, are not keen on retaliation. Already commission officials have said that any rebalancing, as they prefer to call it, must be “sustainable”. That is, long-term, low level actions that put steady pressure on Republican-voting states without damaging the EU economy much.Trump’s escalation helps unite leaders behind the commission. If he follows through it will only harden member state support to join the hotheads such as France that advocate hitting US services, where the US has a trade surplus. That would require the first use of the “anti-coercion” instrument, a tool approved after Trump bullied France into dropping its digital services tax last time he was in office.Dubbed the “bazooka”, it allows the EU to blow up any number of multilateral rules on procurement, investment and tariffs when retaliating.  That still seems a way off. And for all the objections in Brussels to the UK decision to accept a 10 per cent “reciprocal” tariff level, how would the EU respond to the same offer — especially if taxes and standards were untouched? Retaliate and suffer, or adapt?Charted watersIn Trump’s first term, the EU dropped tariffs on lobsters after its trade deal with Canada squeezed US crustaceans out of its market. Lobster exports grew. But the deal ends on July 31, and is back on the menu.Some content could not load. Check your internet connection or browser settings.Trade linksTrade Secrets is edited by Harvey NriapiaRecommended newsletters for youChris Giles on Central Banks — Vital news and views on what central banks are thinking, inflation, interest rates and money. Sign up hereFT Swamp Notes — Expert insight on the intersection of money and power in US politics. Sign up here More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.In Peak Human: What We Can Learn from the Rise and Fall of Golden Ages (Atlantic Books £22), Swedish historian Johan Norberg offers a compelling and timely study of what drove history’s most influential civilisations. Through a fascinating examination of seven of the greatest golden ages — from ancient Greece and the Roman Republic to Song China and the Abbasid Caliphate — Norberg finds that cultural flourishing, scientific discoveries and economic growth was powered by two factors: first, a desire to imitate; second, a drive to innovate. Both were facilitated by a passion for exploration and an openness to trade, foreign peoples and ideas, which enabled civilisations to update their technology and knowledge and subsequently, improve upon them. Norberg shows how a constant willingness to challenge inwardness and convention led to social and economic development. Of the 17th-century Dutch republic, he notes “[its] openness to refugees and debate made it the epicentre of the European Scientific Revolution and the Enlightenment”. Downfalls, by contrast, tended to be the result of a series of crises, such as financial crashes, pandemics and geopolitical tensions, combined with bad governance. This often replaced “the confident, exploratory mindset with a sense that the world is dangerous”, leading to stagnation and ideological rigidity. The overcorrection towards protectionism is the preserve of both the hard, national right and the illiberal left, argues Norberg. The book comes with impeccable timing. Many are now questioning whether the drive for globalisation during the past few decades, which has seen immense progress in poverty reduction and economic growth, is now reaching its zenith. As ever, Norberg ends on a hopeful note. He believes that recent progress in creating a global civilisation (in terms of knowledge and skills), in part a function of the international digital economy, means that no one country will hold a monopoly on the ideas that support prosperity. “Every civilization has a bit of the Athenian and of the Spartan within it,” says the historian. “We decide who we let out.” This is an entertaining and informative read for anyone interested in the forces that shape how civilisation’s progress.Ben Chu’s Exile Economics: What Happens If Globalisation Fails (Basic Books £25) reinforces Norberg’s findings. In what will now be familiar to readers, the policy and analysis correspondent at BBC Verify explains how faith in globalisation has weakened in the aftermath of the pandemic, energy crisis, and trade rivalry between the US and China, leading to the rise of zero-sum economic thinking. Indeed, protectionism — restricting the flow of goods, services, people and investment across international borders — has been rising across the world, not just in Trump’s America. However, Chu’s more significant contribution to this genre comes from his convincing exposition of why interdependence and multilateralism will prevail in the long-run, which he achieves through an in-depth illustration of the innate economic advantages of global supply chains, from food and energy to high-tech chips. In this way he shows how the desire for self-sufficiency is itself not attainable without at least a bit of interconnection and community. Germany is a prime example of a country that is facing a backlash against globalisation. In Broken Republik: The Inside Story of Germany’s Descent into Crisis (Bloomsbury £22), Chris Reiter and Will Wilkes detail how the European Union’s largest economy has gone from a case study in successful economic development to a symbol of decline. Rising inequality and industrial decline are part of that story. Echoing Norberg, the authors point the finger at a social and political system that has made Germany resistant to change — which has, in turn, made it easier to scapegoat the forces of global trade and immigration. Although a new government has been installed since this book was released, the authors nonetheless provides a deeply insightful and fresh view of the challenges Chancellor Friedrich Merz will need to overcome if he is to correct Germany’s trajectory.Making Money Work: How to Rewrite the Rules of Our Financial System (Wiley $34.95) by Matt Sekerke and Steve Hanke is a must-read for monetary economics afficionados. The authors provide a rigorous explanation of how monetary, banking and capital market systems work, shedding light on some common misconceptions around how money is created and destroyed in our modern economies. In the process, they outline a few flaws in need of fix, including how regulation and fiscal policy determine and constrain interest rate setters just as much as central bankers’ own actions. More interestingly, Sekerke and Hanke offer an outline of what a better financial system might look like, from banking reforms to transitioning towards a quantity-based monetary policy framework. Tej Parikh is the FT’s economics leader writerJoin our online book group on Facebook at FT Books Café and follow FT Weekend on Instagram, Bluesky and X More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.French President Emmanuel Macron has begun a six-day visit to Vietnam, Indonesia and Singapore in which he will tout France and Europe as trade and security partners of choice for a region buffeted by tensions between China and the US.The push for closer trade and security co-operation from Macron, who arrived in Vietnam late on Sunday, is intended to contrast with an increasingly militarily assertive China and the imposition of tariffs by US President Donald Trump on export-reliant countries in the region.“With France, you have a known, reliable and trustworthy friend . . . and in the times we are living through, that alone has great value,” Macron said on Monday. About 14 contracts were signed for co-operation in defence, civilian aviation, transport and energy, among others. Vietnam’s President Luong Cuong said the defence partnership involved “sharing of information on strategic matters”. Trump last month hit Vietnam, Indonesia and other south-east Asian countries with some of his highest “reciprocal” tariff rates after China. While the US president has temporarily paused those levies, the region’s search for new trade opportunities could strengthen ties with the EU.A French official said Macron would emphasise that the EU still backed international trade rules, unlike the current US administration. “We do not want a jungle where the law of the strongest prevails,” the official said.The French president and his wife Brigitte Macron at the Temple of Literature in Hanoi on Monday More

This article is an on-site version of our Europe Express newsletter. Premium subscribers can sign up here to get the newsletter delivered every weekday and fortnightly on Saturday morning. Standard subscribers can upgrade to Premium here, or explore all FT newslettersGood morning. Donald Trump has said he will delay his threat of 50 per cent tariffs on the EU and extend trade negotiations until July 9, following a call with European Commission president Ursula von der Leyen last night.Today, our Brussels team reports on Spain threatening its EU allies in a bid to force them to support recognition of its minority languages, and explain the state of play as the Mercosur trade deal heads for showdown votes.¿Qué?Spain is attempting to muscle other EU countries into recognising Basque, Catalan and Galician as official languages of the EU — even going so far as to question the deployment of its troops in eastern states, write Barbara Moens and Andy Bounds.Context: Spanish Prime Minister Pedro Sánchez needs the votes of Catalan separatists led by the party Junts per Catalunya to pass substantive legislation in the Spanish parliament. They, as well as Galician and Basque parties, are demanding their language be officially recognised.Spain failed in a 2023 bid to have the languages added to the EU roster, which already boasts 24 official ones. But tomorrow, EU ministers are scheduled to vote on the demand again. Some worry the recognition could set a precedent for other minority languages, balking at the additional translation costs. To garner support for the measure, Madrid has used carrots and sticks — deeply upsetting some EU allies. Madrid has offered to pay for the annual translation and interpretation costs of €132mn, although diplomats doubt whether Spain will continue picking up the tab in the long run. But Spanish diplomats have also threatened that a lack of support could make Madrid rethink their defence commitments to some EU countries, such as their troops in the Baltics, officials from other countries said. Spain, which is the sole major holdout on a plan for all 32 Nato allies to commit to raising defence spending to 5 per cent of GDP, has around 600 troops in Latvia as part of Nato’s forward defence deployments. It also has jets participating in patrols in the Baltic and several based in Romania.A spokesperson for the Latvian permanent representation in Brussels declined to comment on the threats, which come as Nato fears Russian aggression against eastern European states. “It’s bullying,” said a diplomat briefed on the threats. “And outrageous at a time like this.”A person close to Spain’s foreign ministry said: “Spain’s commitment to the security of eastern Europe and the presence of Spanish troops in eastern European countries is firm and unconditional. It is not and has never been in question.”“With regard to the co-official languages, the Spanish government is working with all member states so that the final wording of the document resolves any doubts they may have,” they added.Some countries are pressuring Poland, which holds the rotating EU presidency, to pull the item from the agenda to allow for more talks. Chart du jour: Surprisingly goodThe EU is almost on track to meet its 2030 climate target to reduce greenhouse gas emissions by 55 per cent compared with 1990 levels.Counting votesThe fate of the EU’s blockbuster Mercosur trade deal hangs in the balance, both in the council of EU ministers and in the European parliament, write Andy Bounds and Alice Hancock.Context: Brussels finally inked the accord with four Latin American countries in December after 20 years of talks. But the trade deal with Argentina, Brazil, Paraguay and Uruguay still needs to be ratified by a weighted majority of member states and the European parliament.Officials say that the European Commission, which negotiated the agreement, will submit it for approval in June, after the Polish presidential elections. European farmers don’t like Mercosur as they don’t want to be undercut by Latin American beef and wheat imports. Their opposition has ensured France, Poland, the Netherlands and others publicly oppose the agreement. Poland could change its position after the election, which would ensure enough votes in the council. But things also look tricky in parliament, where MEPs from the far left, far right and the Greens oppose the pact.Five MEPs of the liberal Volt, a pan-European party that sits with the Greens in Strasbourg, have however come out in favour. Damian Boeselager, co-founder of Volt, told the Financial Times that the Mercosur agreement was “an opportunity to deepen ties with South American democracies, promote fairer trade standards . . . and reduce our over-dependence on a few dominant powers like China and the US”.His colleague, Dutch Volt MEP Reinier van Lanschot, said that Mercosur also represented a chance for the EU to exert some soft power: “We shape standards by being at the table, not by walking away.”What to watch today German Chancellor Friedrich Merz to join informal meeting of Nordic prime ministers in Finland.EU development ministers meet.EU ministers for agriculture and fisheries meet.Now read theseRecommended newsletters for you Free Lunch — Your guide to the global economic policy debate. Sign up hereThe State of Britain — Peter Foster’s guide to the UK’s economy, trade and investment in a changing world. Sign up hereAre you enjoying Europe Express? Sign up here to have it delivered straight to your inbox every workday at 7am CET and on Saturdays at noon CET. Do tell us what you think, we love to hear from you: [email protected]. Keep up with the latest European stories @FT Europe More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Denmark has rejected calls from Germany and France to scrap a planned EU supply chain law that has become symbolic of the bloc’s dilemma between meeting its ambitious climate goals and helping its ailing industry.“We don’t agree” on abandoning plans to ask companies to monitor, report and take action against forced labour and mitigate the environmental impact of their operations outside the EU, Danish industry minister Morten Bødskov told the Financial Times.Copenhagen will gain greater policy influence in Brussels when it takes over the rotating presidency of the Council of the EU in July. Denmark is one of the most ambitious countries in the bloc when it comes to adopting green legislation and pushing the EU to go even further than current targets and cut its greenhouse gas emissions by 90 per cent by 2040.EU member states and the European parliament are currently negotiating the postponement of the supply chain rules, which are a key part of the bloc’s ambitious climate and human rights agenda. But both Paris and Berlin have called for the law to be repealed altogether, saying the extra reporting requirements will only hurt the bloc’s competitiveness even further at a time when many European industrial sectors are struggling to keep up with Chinese and US competitors. The CEO of a construction and logistics group that carries out projects in the US and Africa previously told the FT that it had begun to track more than 700 metrics to comply with the supply chain law at a cost of “several million” euros.Bødskov acknowledged that the EU should look into simplifying the reporting obligations for companies, but insisted that “there are many, many positive sides to it that we have to remember”.European Commission President Ursula von der Leyen has pledged to cut red tape, including climate-related legislation, to help close the competitiveness gap.Bas Eickhout, a European lawmaker for the Greens, said the law had already been “heavily butchered” after the commission’s original proposal was heavily watered down and underwent further simplification efforts this year.The EU’s internal watchdog opened an inquiry this week into the commission’s current attempt to rework the law, after NGOs said that the EU executive broke its own rules by failing to consult or do an impact assessment before proposing the simplification measures.Implementing the EU’s simplification strategy is a priority for Denmark during its six months at the helm of the Council, said Bødskov, but a part of that debate is also “to remember that the goals were right, but some of it has developed into too much and to difficult to reach the goals.” Bødskov’s remarks reflect growing concern among some EU countries that the EU’s push for “better regulation” could be used as a vehicle to dismantle green legislation.“Better regulation is not deregulation, it’s simplification,” he said, to avoid moving Europe away from its climate targets.“We have to keep the targets, but we have to make it much easier for our companies and businesses to invest in reaching these targets.” More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.This month the UK has signed trade deals with India, the US and the EU. At a time of worry about the prospects for world trade, this should be a reason for feeling less depressed about the outlook for Britain. But the deals, while better than none, might not merit even one cheer.The deal with the US will merely limit the damage done by Donald Trump’s trade war, one that is particularly unjustified in the case of a loyal ally that does not even have a bilateral trade surplus in goods with his country. The other two are marginal liberalisations. In all, the UK’s trade opportunities have been unambiguously worsened since Brexit and now Trump’s trade war, relative to what they were before 2016.Any improvement in market access might seem a good thing. But it can easily not be good enough, because the deals themselves are too small or because the performance is too feeble. In “A perfect storm: Britain’s trade malaise, weak growth and a new geopolitical moment”, published by the Centre for European Reform last week, Anton Spisak lays out the latter story.Between 2019 and 2024, the volume of UK trade grew at a compound annual rate of only 0.3 per cent. This compares terribly with the 4.9 per cent achieved between 1980 and 2008 and the 2.6 per cent achieved between 2008-19. Declines in growth rates also occurred in France, Germany, the EU, Japan and the US since the financial crisis and even more so since the pandemic. But the UK’s growth between 2019 and 2024 was well below that of those other economies — 0.7 per cent for France, 0.8 per cent for Germany, 1.9 per cent for the EU, 1.4 per cent for Japan and 2.4 per cent for the US. For an open economy such as the UK’s, a trade performance this poor is truly worrying.Not surprisingly, exports have, for the first time in decades, become a net drag on the UK’s economic growth, rather than a contributor to it. Thus between 2020 and 2024, the average contribution of exports to real economic growth was minus 0.4 percentage points.This dire performance was driven by what was happening to exports of goods: in real terms, they were 20 per cent lower in the fourth quarter of 2024 than five years before, while exports of services rose by 22 per cent over the same period. Yet, surprisingly, the performance of UK exports of goods to the EU, which were down 19 per cent over this period, was much the same as that of exports of goods to the rest of the world, which were down by 20 per cent. It is indeed puzzling that exports have fallen to a very similar extent to the EU and the rest of the world. One fairly plausible explanation is that supply chains from the EU have been disrupted and that has undermined the competitiveness of UK goods in third markets.Some content could not load. Check your internet connection or browser settings.Whatever the causes, a trade performance this poor will, if continued, inevitably undermine economic growth, not least via its impact on productivity growth. Unfortunately, there is only one element in the three deals in question that could possibly bring about any noticeable improvement in trade performance. That is the decision of the US to keep in place the 10 per cent tariffs on most British exports. Last Friday, Trump even proposed a 50 per cent general tariff on EU exports to the US. Earlier this month, he also agreed a 30 per cent tariff on China.Such blatant discrimination violates the most fundamental principle of the World Trade Organization. Yet, on the face of it, this situation might be beneficial to the UK. Two rather large caveats to such optimism can be identified, however. One is that this relatively favourable relationship might shift many times. The other is that even a 10 per cent tariff is about four times higher than average US tariffs used to be before this presidential term. So UK exporters of goods to the US, while perhaps in a favourable position relative to those from China and the EU (and maybe many others), will be at a big disadvantage vis-à-vis domestic US producers.Some content could not load. Check your internet connection or browser settings.Moreover, the deal with the EU, welcome though it is, will not change the situation on trade to any significant extent. The main exception is the agreement to work towards an agreement to ensure that the “vast majority” of agrifood exports to the EU will happen without checks or certificates. Yet, in the end the UK is never going to get rich by expanding exports of farm products.What we are seeing then is an economy whose trade performance is dire, above all in goods. This reflects an underlying loss of competitiveness and dynamism. A possible response would be deeper integration with the EU. More important still would be to focus all attention on strengthening the underlying fundamentals of economic performance for an unfriendly [email protected] Follow Martin Wolf with myFT and on X More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Ireland’s government will this week present plans to ban trade in goods with Israeli businesses in occupied Palestinian territories, becoming the first EU country to take such a step.Simon Harris, foreign and trade minister, said the planned legislation came in response to an escalation in what he called the country’s “war crimes” in Gaza.Harris will on Tuesday launch the process of drafting legislation, days after a majority of EU states voted to review the bloc’s trade deal with Israel. The move comes amid legal debate over whether trade in services such as Airbnb can be included in the bill.“It is clear war crimes are taking place, children are being starved and food is being used as a weapon of war,” Harris told the Financial Times. “The world has not done enough and we need to act.”Ireland’s goods imports from Israeli businesses in the occupied territories of the West Bank and East Jerusalem are tiny. But the Dublin government, which last year recognised the state of Palestine together with Spain and Norway, wants European countries to follow its lead.“There has never been a targeted trade measure of this nature before at an EU level,” said Conor O’Neill, head of policy and advocacy at Christian Aid Ireland, who co-drafted a previous occupied territories bill in 2018, sponsored by an independent senator.Ireland’s move comes as legal debate continues over whether trade in services like Airbnb — with its European headquarters in Dublin — can be included in the bill More

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