Economy

Unlock the White House Watch newsletter for freeYour guide to what Trump’s second term means for Washington, business and the worldSoftBank founder Masayoshi Son has floated the idea of creating a joint US-Japan sovereign wealth fund to make large-scale investments in tech and infrastructure across the US.The idea has been raised at very high political levels in Washington and Tokyo, according to three people close to the situation, and has been proposed by Masayoshi Son’s team as a template for other governments to forge closer investment ties with the US.The plan, which has been discussed directly between Son and US Treasury Secretary Scott Bessent and outlined to other top government figures in both countries, has not yet crystallised into a formal proposal, according to three people close to the situation. The joint fund idea has been raised several times in recent weeks, however, as Japanese negotiators and the Trump administration edge towards a trade deal. Japan has dug into a position where it will push for zero tariffs, while the US side has made it clear that it will go no lower than its “baseline” tariff of 10 per cent.But following a call between Donald Trump and Japanese Prime Minister Shigeru Ishiba on Friday, the latter told domestic media he now expected that a planned meeting between the two on the sidelines of the G7 meeting in Canada in mid-June would be a “milestone” in negotiations.Under the suggested wealth fund structure, the US Treasury and the Japanese ministry of finance would be joint owners and operators of the fund, each with a significant stake. They would then open the vehicle to other limited partner investors, and could potentially offer ordinary Americans and Japanese the chance to own a slice.Japanese Prime Minister Shigeru Ishiba, left, with US President Donald Trump at the White House in Washington in February More

Unlock the White House Watch newsletter for freeYour guide to what Trump’s second term means for Washington, business and the worldA multibillion-dollar push by US President Donald Trump to tax money sent from the US abroad is likely to hurt poor Central American families the hardest while driving migrants to use informal, underground routes to send cash back home.The “big, beautiful” tax bill passed by the US House of Representatives on Thursday included a 3.5 per cent tax on remittance transfers made by anyone who is not a US citizen or national.The levy comes as part of a broader plan to try to halt illegal migration and deport more of the roughly 11 million undocumented migrants already in the country.The US is the largest origin country for remittances in the world, with more than $656bn sent overseas in 2023, according to the World Bank.Experts said there were several ways the tax could be circumvented. Migrants could ask a US citizen friend or family member to send the money, use cryptocurrencies or even drive the black market of informal cash services — like “mules” who move money physically. The tax would add to the costs of remittances, though, reversing years of effort by policymakers to make formal channels for sending money more competitive. “It is essentially a tax on the very poor,” said Andrew Selee, president of the Washington-based Migration Policy Institute. The measure could also be an irritant for US citizens who send money abroad, he added — since they would now be required to affirm their nationality in order to claim a tax refund under the rules.Mexico’s president Claudia Sheinbaum has pushed back multiple times against the US tax. More

Stay informed with free updatesSimply sign up to the More

Donald Trump loves to make deals. And he may be calculating that his sudden escalation of tariffs on the EU will squeeze Brussels into making big concessions as he opens a new front in his global trade war. But it is a risky bet. Although trade talks between the US and the EU had been moving slowly, Trump’s threat to put 50 per cent tariffs on all imports from the bloc from June 1 has raised the economic and diplomatic stakes dramatically.The move threatens to jeopardise a recent recovery in global equity prices triggered by Trump’s tilt towards dealmaking and de-escalation with other trading partners, including the UK and China. It could also further damage strained transatlantic relations.The gamble reflects the frustration of the president and his top officials with what they view as the EU’s obstruction in the negotiations — and a belief that Brussels will concede first or suffer more than the US if there is no deal.“It’s a classic Trump bullying tactic, it’s what he does. If he doesn’t get what he wants, he pushes back and makes more threats, and then he waits to see what happens,” said Bill Reinsch, a trade policy expert at the Center for Strategic and International Studies in Washington. “It’s intended to get the Europeans to back down — my reading of them is that they won’t,” he added. In the Oval Office on Friday afternoon, Trump insisted he wasn’t looking for a quick agreement with Brussels, and vowed that the 50 per cent tariffs would take effect on June 1 as planned. “That’s the way it is,” he said. US Treasury secretary Scott Bessent told Fox News that the purpose of the planned tariffs was to “light a fire under the EU” — suggesting that there was some leeway for negotiations before or after the June 1 deadline. But the brinkmanship creates uncertainty, warn economists. “The proposed tariffs on the EU highlight a key forecast risk, whereby tariffs remain an ongoing tool to be wielded by the Trump administration whenever negotiations hit a snag. Repeated tariff threats and rollbacks will keep policy uncertainty elevated,” consultancy Oxford Economics wrote in a note on Friday.Washington’s precise demands on Brussels are unclear. In his social media post on Friday, Trump rattled off his dissatisfaction with many aspects of EU tax, regulatory and trade policy that would be hard to address quickly. Trade experts in Washington say the administration is frustrated that the EU’s offers are no different from those it has made to the US in the past. “Normal methods of diplomacy and traditional approaches to trade negotiations have not resulted in a US-EU trade agreement by any administration. So I’m not surprised to see the president take a very different tack with the EU,” said Kelly Ann Shaw, a former White House official during Trump’s first term, and a partner in international trade policy at law firm Akin Gump. “These threats of much higher tariffs do create an action forcing event, where the two sides are either going to come to an agreement or they aren’t,” she added. “The American point of view is that the Europeans don’t understand that this time is different, and it’s not a conventional negotiation,” said Reinsch at CSIS. On Friday, EU trade commissioner Maroš Šefčovič spoke with US commerce secretary Howard Lutnick and trade representative Jamieson Greer, but there did not appear to be a breakthrough. “EU-US trade is unmatched & must be guided by mutual respect, not threats. We stand ready to defend our interests,” Šefčovič wrote on X after the discussions.EU officials chafe at Trump’s demands, questioning why the world’s biggest trading bloc should offer unilateral concessions.They argue that there is only about a 1 percentage point difference between EU and US tariffs and say that value added tax is roughly equivalent to US sales tax.Brussels is also reluctant to give the US market access denied to other countries, which would breach World Trade Organization rules.Officials also point out that while trade policy is handled by the European Commission, many of the barriers the US has issues with are national. “EU negotiators should hold their nerve. It certainly signals Washington’s edginess and impatience to get a deal,” said Georg Riekeles, associate director at the European Policy Centre in Brussels. Riekeles urged the EU to copy Canada and China by retaliating strongly. “If the EU is ready to fight back, US bullying and escalation is ultimately so self-harming that you can enter deal territory.”However, countries such as Ireland and Italy, which rely on US exports, have lobbied hard against strong countermeasures — and Trump will be counting on schisms within the bloc to force the EU’s hands.But Michael Smart, a former Democratic congressional trade counsel at Rock Creek Global Advisors, a consulting group in Washington, warned that “if Trump’s plan is to divide the bloc, it likely will have the opposite effect”. Most member states have so far backed the commission’s approach of engaging but eating up time, believing that eventually Trump will back down because of the damage his tariffs will inflict on the US economy. They have indicated that Brussels is minded to stand firm.“One of the reasons markets have calmed down is that they have already factored in more concessions from Trump,” said one EU diplomat.“We don’t make policy decisions on the basis of tweets, at least not on this side of the Atlantic,” said another.  More

One day after House Republicans approved an expensive package of tax cuts that rattled financial markets, President Trump pivoted back to his other signature policy priority, unveiling a battery of tariff threats that further spooked investors and raised the prospects of higher prices on American consumers.For a president who has fashioned himself as a shrewd steward of the economy, the decision to escalate his global trade war on Friday appeared curious and costly. It capped off a week that saw Mr. Trump ignore repeated warnings that his agenda could worsen the nation’s debt, harm many of his own voters, hurt the finances of low-income families and contribute far less in growth than the White House contends.The tepid market response to the president’s economic policy approach did little to sway Mr. Trump, who chose on Friday to revive the uncertainty that has kept businesses and consumers on edge. The president threatened 50 percent tariffs on the European Union, and a 25 percent tariff on Apple. Other tech companies, he said, could face the same rate.Since taking office, Mr. Trump has raced to enact his economic vision, aiming to pair generous tax cuts with sweeping deregulation that he says will expand America’s economy. He has fashioned his steep, worldwide tariffs as a political cudgel that will raise money, encourage more domestic manufacturing and improve U.S. trade relationships.But for many of his signature policies to succeed, Mr. Trump will have to prove investors wrong, particularly those who lend money to the government by buying its debt.So far, bond markets are not buying his approach. Where Mr. Trump sees a “golden age” of growth, investors see an agenda that comes with more debt, higher borrowing costs, inflation and an economic slowdown. Investors who once viewed government debt as a relatively risk-free investment are now demanding that the United States pay much more to those who lend America money.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

.css-13hw3ep{margin-bottom:var(–o3-spacing-s);}.css-eh7lb7{margin:0;}Join FT EditOnly .css-79fz17{-webkit-text-decoration:none;text-decoration:none;}$4.99 per month.css-1h69zf4{margin:0;white-space:pre-wrap;font-family:var(–o3-type-body-base-font-family);font-weight:var(–o3-type-body-base-font-weight);font-size:var(–o3-type-body-base-font-size);line-height:var(–o3-type-body-base-line-height);color:var(–o3-color-use-case-support-inverse-text);}Access to eight surprising articles a day, hand-picked by FT editors. For seamless reading, access content via the FT Edit page on FT.com and receive the FT Edit newsletter. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The writer is an FT contributing editorThis month the Federal Reserve decided it would cut its own workforce by a tenth over the next several years. The move has been reported as a way to find savings at the Fed before the so-called Department of Government Efficiency knocks on the door. That may be right, but the Fed has another problem it doesn’t like to talk about: it’s operating at a loss. On purpose.When a commercial bank lends you money, it’s adding both an asset and a liability to its own balance sheet. The asset is the loan itself, which you will repay over time. The liability is brand-new deposits, which it marks up from scratch in your account. Those deposits are brand-new money.The Federal Reserve is a special bank, but it’s still a bank. When it adds assets to its own balance sheet like treasuries or mortgage-backed securities, it matches those with liabilities — either brand-new physical dollar notes or brand-new deposits. We call deposits at the Fed reserves, but they’re just deposits. There is no magic to this, no special money creation. It’s just banking.The point of a commercial bank is to operate at a profit, keeping returns on assets higher than the costs of liabilities. But macroeconomists have come to believe that this just isn’t true of the Fed. It issues dollars and can always issue more, therefore losses don’t matter. But this is an assumption, not a law of physics. What it misses is the political importance of seigniorage — the profit to the sovereign nation’s coffers for manufacturing money.Until 2023, the Fed consistently made a profit. The returns on its assets were higher than the costs of its liabilities. It returned some of this profit to the government, demonstrating its strength both as a bank and as political institution. It is easier to remain independent of the White House when you’re the one paying for the privilege.The Fed’s liabilities used to cost it nothing. First, even though physical dollar notes are a liability for the Fed, they don’t pay interest. Second, commercial banks have always had to hold some of their assets as deposits at the Fed — reserves. The Fed didn’t pay interest on these either, until a 2006 law, implemented during the beginning of the Global Financial Crisis in 2008. Traditionally, bankers have felt about holding reserves the way children feel about taking a bath. They’re against it, but that’s not really the point, because it’s not their decision. Reserves aren’t supposed to be profitable — they’re supposed to be safe. Once the Fed started paying interest on reserves, however, this necessity didn’t seem that painful. Banks got used to holding a safe asset with a small but guaranteed return. They started holding way more reserves than they needed to.Now the Fed is stuck in an operating system it calls the ample-reserves regime, one where bankers love bath time. Under this regime, the Fed carries out interest-rate policy by moving the interest it pays on reserves up and down. It decides, essentially, how much to lose on its liabilities. This isn’t quantitative easing in an emergency, it’s just normal operations. In 2023, the Fed reported a loss of $114bn; in 2024, $78bn.This is a departure without a discussion. The reason we assume the Fed cannot possibly fail is that Congress will always protect its central bank with the promise of new capital in an emergency. Now, in perfectly normal years, the Fed can incur losses when it raises its rates.The Fed books these losses as what it calls deferred assets, a note of how much profit it will have to earn back before it can start paying its contribution to the Department of the Treasury again. This is a privilege unique to the Fed, a tacit understanding that there will be lean and fat years, which will balance each other out as rates fall again in the future.The profit the Fed makes on issuing dollar cash may be going away as well. Cash continues to decline as a share of total payments. The White House and Republicans in Congress have made clear that the Fed is not to replace dollar cash on its own balance sheet with any other kind of liability, such as a digital currency.At the same time, a bill in the Senate would instead bring stablecoins providers into a regulatory regime where they have to hold assets against every coin in either Treasuries, reserves at the Fed, insured bank deposits, or treasury repurchase agreements. This means over the long term, the Fed’s profits on cash are moving to the private sector.None of this mattered in normal times, when the Fed was supported by a consensus with Congress and the White House on the norms of monetary policy. But these are not normal times. The Federal Reserve is a bank. And we should be clear about exactly whose bank it is, whether Congress and the White House expect a profit, and what they plan to do about a loss. More

Your browser does not support playing this file but you can still More