Economy

Unlock the White House Watch newsletter for freeYour guide to what Trump’s second term means for Washington, business and the worldBrussels has dangled some fresh bait to hook a trade deal with Donald Trump: American lobsters.During the US president’s first term, the bloc agreed in 2020 to eliminate tariffs on the shellfish, as Trump sought to claw back support for his re-election bid in the fishing state of Maine.But the deal expires on July 31, just after the scheduled end of a truce in the two sides’ current trade war.The European Commission is open to extending the lobster deal as part of a package to remove tariffs imposed by Trump since his return to power in January, two officials told the Financial Times. The commission declined to comment.Talks began in earnest last week after the two sides exchanged negotiating documents for the first time, outlining areas of discussion ranging from the EU trade surplus in goods to investment opportunities and regulations that the US believes are barriers to trade.Trump imposed 20 per cent tariffs on almost all EU imports on April 2 as part of his global “reciprocal” tariff plan, but he then halved the rate until July 8 to allow for negotiations.At the same time, the US leader has maintained additional 25 per cent tariffs on steel, aluminium and cars and has threatened more levies on pharmaceuticals, semiconductors, copper, lumber, critical minerals and aerospace parts.The EU has said it is willing to reduce the goods trade deficit with Washington by buying more US gas, weapons and agricultural products. It has also readied its own retaliatory tariffs. The 2020 deal, which scrapped EU tariffs of 8 per cent on lobster imports from all countries, came after Trump complained that an EU trade deal with Canada had hit American exports. Canadian lobsters were not subject to any tariffs under that deal.As part of the same agreement with the US, commission president Jean-Claude Juncker and trade commissioner Phil Hogan persuaded Trump to halve tariffs he had imposed on EU exports worth about $160mn annually. They included some prepared meals, crystal glassware, cigarette lighters and lighter parts.US lobster exports to the EU were worth $111mn (€93mn) in 2017 but by 2020 had fallen to €22.3mn, just 11 per cent of the EU market, according to the EU’s statistics agency Eurostat. By 2024, they had increased to €69.2mn, a quarter of the market.Bernd Lange, chair of the European parliament’s trade committee, said the lobster trade was “not so economically important” but led to de-escalation from Trump. “[The deal] is expiring at the end of July. I’m really in favour of extending it,” he said.“We have to be really creative in looking also at what in the mind of our American counterparts could be recognised as unfair.”He suggested the EU could also examine its standards on food and animal health imports as part of any deal.“In general, of course, our food safety standards and animal health standards cannot be touched,” Lange said, but “we have to look at [each] restriction to see if they are really based on scientific evidence”. However, the German Social Democratic party MEP said the EU would not change environmental regulations or taxes under US pressure. More

Bets that currency deals will form part of trade negotiations with the US have helped lift a string of Asian currencies against the dollar, as traders look for signs that countries will offer to scale back intervention to appease President Donald Trump.The Korean won, Japanese yen and Taiwan dollar have rallied strongly in recent weeks, making them Asia’s top-performing currencies this year, in the expectation that talks on lowering sweeping US trade tariffs will touch on how countries manage their dollar exchange rates. “It is quite likely that the market believes that the US will look to introduce some language around exchange rates, as part of broader trade agreements with some trading partners,” said Nathan Venkat Swami, head of Asia-Pacific FX trading at Citigroup. Some content could not load. Check your internet connection or browser settings.“Exchange rates will be part of negotiations,” said one investor at a large Chinese fund. “The market will front-run before the negotiations play out.” The large US dollar reserves of wealthy Asian exporting nations such as Taiwan, Korea and Japan have fed the speculation. “There’s a bit of a coiled spring” in Asian currencies, said Timothy Moe, co-head of Asia macro research at Goldman Sachs. “The conditions are at hand for a currency appreciation.” Many traders and analysts believe a so-called Mar-a-Lago Accord — a grand multilateral currency deal in the style of the 1985 Plaza Accord, when Washington negotiated a depreciation of the dollar with Japan, the UK, France and West Germany — is unlikely. Instead, they say the market is moving in the expectation that a series of smaller, bilateral currency deals could be simpler to strike. It will “probably be easier to get to bilateral agreements than a single multilateral one”, said Meera Chandan, JPMorgan’s co-head of FX strategy.Last week, the won surged as much as 2.2 per cent against the dollar on reports, later confirmed by South Korea, that it had discussed exchange rates with the US in early May. The move in the won followed a historic surge in the Taiwan dollar earlier in the month, partly fuelled by speculation that US trade talks would drive the currency higher. The surprise lack of intervention by the Taiwan’s central bank was seen by the market as a sign of a shift in policy towards allowing the currency to appreciate. The recent jump in the Taiwan dollar was a signal from the central bank to the market “that a regime change is coming”, said one portfolio manager in Hong Kong.Taiwan’s central bank said at the time that the US Treasury department had not asked for currency appreciation as part of negotiations.Nevertheless, a growing number of analysts think the US could make limited currency intervention a condition of trade deals. “At this stage, I’d expect any FX deal to be along the lines of commitment to freely floating exchange rates and limiting FX intervention, particularly intervention to sell the local currency,” said ING’s global head of markets research Chris Turner. Foreign exchange traders from the region are adjusting positions on expectations that appreciation of local currencies is a long-term trend.“I think the appreciation will not be a vertical line like what happened earlier in May,” said one treasurer at a large Taiwanese life insurer who works in FX. “But we do agree that the appreciation move is a trend.” On Wednesday, when asked by lawmakers about the sharp appreciation, Taiwan’s central bank deputy governor Yen Tzung-ta said managing exchange rate volatility was the prime concern.Traders in the region see the shape of any trade deal that Japan strikes with the US as key to determining what happens to other currencies in the region,” said a portfolio manager in Hong Kong. “This will have a “knock-on effect on other Asian currencies.”According to investors and analysts, the yen and renminbi anchor regional exchange rates. Japan’s trade negotiations with the US have been delayed as Prime Minister Shigeru Ishiba’s deeply unpopular administration holds out for a complete exemption from tariffs in an attempt to win over voters ahead of elections in July. As most analysts predicted, a meeting between US Treasury secretary Scott Bessent and Japanese finance minister Katsunobu Kato on the sidelines of the G7 finance meeting in Canada on Wednesday resulted in no formal agreement on currency actions. However, there was an unusually clear affirmation in a statement from the US Treasury that exchange rates should be determined by the market and that the current dollar-yen rate reflected fundamentals.At a press conference, Kato said neither exchange rate levels nor Japan’s massive holdings of US Treasuries were discussed.Ahead of the meeting, analysts in Tokyo speculated that conditions were in place for what Nomura’s chief FX strategist Yujiro Goto called a “hidden deal”.Despite being the first country to open formal tariff negotiations with Trump, Japan’s efforts to reduce a 25 per cent levy on automobiles have yet to produce a result. But the US may now agree to a lowering to 10 per cent, said Goto, on the tacit understanding that Tokyo will not stand in the way of the yen rising between 3 and 5 per cent against the US dollar. The yen would rise naturally, said Goto, if the Bank of Japan stuck to its efforts to raise interest rates, and if the Japanese government held off any verbal intervention whenever the yen rose sharply.As for the renminbi, Goldman Sachs now forecasts it will appreciate to Rmb7 to the dollar over the next 12 months, from Rmb7.20 currently. “The situation is favourable for the market to allow a gradual appreciation of the renminbi,” said Goldman’s Moe. “That could open the door for other currencies like the yen, won and Taiwan dollar to appreciate further.” Additional reporting by Haohsiang Ko in Hong Kong More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.It is not often that habitual complacency makes you an astute judge of world events, particularly those involving geopolitical conflict. But for decades a shrug has been the best response to the perennial panics over shortages of critical raw materials for the green transition. The causes have ranged from China threatening to cut off exports of rare earths and other minerals to the soaring global prices of metals such as nickel and lithium. In practice, the routine operation of market forces, plus some support from diplomatic and legal efforts, ensured they had only passing impact.The latest iteration is the most threatening yet, with China imposing licensing requirements on the export of seven rare earth elements on April 4, apparently to retaliate against President Donald Trump’s tariffs. The burden of proof about serious shortages remains on the pessimists, but if conflict over global mineral trade does arrive the US remains hugely unprepared.Scarce minerals have, as it were, cried wolf many times. Policymakers worry about bottlenecks — the EU is currently on its fifth list of critical raw materials — but it’s very hard to point at any manufacturing industry in a major economy where a shortage has caused serious damage.The issue became prominent after China’s threat in 2010 to cut off sales of rare earth elements to Japan, though it’s not clear Beijing actually stopped exports. Spot prices of the more widely traded “light” rare earths duly surged. But the controls were undercut by smuggling out of China — mining-rich provinces were notably lax at enforcing restrictions — plus increased supply from places such as Australia and a World Trade Organization ruling against China in 2014. China relearnt the old commodity market wisdom that the best cure for high prices is high prices, and that manipulating supply for political leverage risks losing control of market dominance.Similarly, during panics over lithium and nickel supplies in the early 2020s, producers such as Chile and Indonesia were courted (or taken to the WTO) by big users like China, the US and the EU. In the event, surges in supply meant prices for the two metals collapsed. China’s threat in 2023 and 2024 to cut off the US and Europe from supplies of the minerals gallium and germanium, used in semiconductors and electronics, were undercut by exports from Vietnam and the possibility of new supply from the end users themselves.The rare earth restrictions announced on April 4 are much more serious. Rather than raw materials in bulk they involve finished articles, particularly magnets, made by only a few Chinese companies and traceable through the supply chain. Unlike previous export controls, they are executed via end-user licensing requirements for materials with dual military and civilian use, which restricts foreign companies selling them on. If China really does maintain and enforce a ban on sales to the US, it could affect the manufacture of F-35 fighter jets as well as electric vehicles.The materials involved are so-called medium and heavy rare earths, which are harder to extract and process. Industry experts say that increasing supply from elsewhere is likely to take years, as is retooling EV or other supply chains to use other technologies. Prices of heavy rare earths such as dysprosium shot higher after the controls were announced.Whether China really wants to target the US is anyone’s guess. As the FT has reported, the licensing requirements threaten production networks worldwide, suggesting the Chinese authorities have over-reached. Some of the first licences have been granted to suppliers of the German company Volkswagen, which makes cars in China and which opposed the EU imposing anti-subsidy duties on Chinese exports of EVs to Europe. “It will probably be easier to get a licence if you’re a country, perhaps in Europe, with closer political links with China or companies owned by China,” David Merriman, research director at Project Blue, a critical materials consultancy, told me. “In the US, there is a pretty elevated risk of supply-chain disruption.”China’s stop-gap deal with Trump on May 12 to roll back some of the tariffs may have reduced the immediate incentive to cut the US off. But America remains vulnerable. It has made only modest attempts to increase domestic rare earth production and processing. It has minimal stockpiles of critical minerals. Trump has risked a geoeconomic war with China without any discernible attempt to prepare or even assess the dangers.Precedent suggests the current episode of export restrictions will pass without catastrophe as China loosens supply. But it’s also clear that Beijing has developed sharper and more precise weapons if it does choose to fight a conflict over critical raw materials. The case for complacency remains arguable, but it becomes ever weaker as time goes [email protected] 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 worldUS government bonds and stocks fell after a weak Treasury auction highlighted investor unease over the country’s rising debt burden, as Donald Trump attempts to push sweeping tax cuts through Congress.The 30-year Treasury yield was up 0.11 percentage points to 5.096 per cent in evening trading in New York, the highest level since late 2023, as the price of the bonds fell. Wednesday’s move added to a multi-day rise in longer-dated Treasuries. The S&P 500 share index fell 1.6 per cent.The fresh bout of selling came as Republican leadership in Congress held intense talks to advance the US president’s tax legislation to a vote in the House. Trump’s proposal, which he has dubbed a “big, beautiful bill”, would extend many tax cuts made during his first term in 2017 and is forecast by independent analysts to add at least $3tn to US debt over the next decade.House Speaker Mike Johnson said early on Wednesday that he was hopeful he could bring the bill to a vote in the chamber after striking an agreement with party holdouts over state tax deductions. But the deal drew a backlash from fiscal conservatives, who have lobbied for steeper cuts to spending on healthcare programmes and clean-energy tax credits.The White House invited the far-right Freedom Caucus to hear their concerns on Wednesday afternoon and dispatched National Economic Council director Kevin Hassett to meet with other Republicans at the Capitol.“The meeting was productive and moved the ball in the right direction,” press secretary Karoline Leavitt said.The talks come just days after Moody’s stripped the US of its pristine triple-A credit rating on concerns over rising debt and deficits.The US sold the debt on its $16bn auction on 20-year Treasuries with a 5 per cent coupon, the highest interest rate for 20-year bonds at auction since the maturity was reintroduced in 2020.Primary dealers — banks that are obliged to sop up any bonds not absorbed by other investors — purchased 16.9 per cent of the offering, compared with an average of 15.1 per cent, according to BMO Capital Markets. “We had a soft 20-year auction and when combined with the focus on the budget deficit, the market has a bias towards higher yields,” said Ian Lyngen, head of US rates strategy at BMO Capital Markets.“Markets really have no appetite for duration here,” added Pooja Kumra, a rates strategist at TD Securities, referring to longer-dated securities. “Especially in the case of the US, we expect all long-end auctions to be highly scrutinised by markets,” Kumra said, citing the budget bill.Jay Barry, head of global rates strategy at JPMorgan, noted that “the equity market is finally starting to wake up to the fiscal issues facing the Treasury market”.More than 95 per cent of the S&P 500’s member stocks were negative on the day. The financials, real estate and healthcare sectors were the benchmark index’s worst performers.Compounding the decline was a sell-off in Big Tech stocks, after ChatGPT maker OpenAI said it had agreed to buy former Apple design chief Sir Jony Ive’s hardware start-up io for $6.4bn. The acquisition extends OpenAI’s bet on alternatives to smartphones.News of the deal emerged around the same time as the results of the weak Treasury auction. Shares in Apple were down 2.3 per cent. Amazon, Nvidia and Microsoft all fell more than 1 per cent. The tech-heavy Nasdaq Composite was down 1.4 per cent.The dollar index, tracking the US currency against a basket of peers, was down 0.6 per cent. More

Unlock the White House Watch newsletter for freeYour guide to what Trump’s second term means for Washington, business and the worldLVMH boss Bernard Arnault has criticised the EU’s efforts to strike a deal with the US to reduce Donald Trump’s tariffs, saying the bloc’s negotiations with Washington had got off to a “bad start”.The chief executive of the French luxury company, one of Europe’s largest businesses by market capitalisation, urged the EU to engage “constructively” in negotiations with the Trump administration as he highlighted how the UK had quickly struck a trade deal with Washington.“The United States is the world’s largest market, and it is very important to reach an agreement with the US for Europe,” Arnault told a French parliamentary hearing on Wednesday. “So far, things seem to me to be off to a relatively bad start.”Trump and British Prime Minister Sir Keir Starmer unveiled the UK-US trade deal earlier this month, about five weeks after the president first announced “reciprocal” tariffs that hit many of America’s major trading partners, including Britain.By contrast, it transpired last week the EU had only just started detailed talks with the US about a deal after a period of deadlock.Trump’s 20 per cent “reciprocal” tariff on EU goods exported to the US has been halved until July 8 to allow for negotiations between the two sides.Arnault said: “The negotiations must be conducted constructively . . . and therefore with reciprocal concessions. You saw what the British did, who negotiated very well. I hope to be able to convince Europe, with my limited resources and contacts, to take a similarly constructive stance.”The US is LVMH’s biggest market, and tariffs threaten to further dent the luxury industry’s sales at a time when the sector was already contending with a slowdown due to weaker Chinese demand, among other things.The majority of luxury goods are made in Europe, with little prospect of shifting the industry’s production en masse to the US, although Arnault said earlier this year that LVMH was looking at options to expand its limited manufacturing footprint there. Arnault has built a personal relationship with Trump, whom he has known for decades, and attended the president’s inauguration in January.So far, only the UK has finalised any relief from Trump’s trade war through a deal, by securing a tariff-free quota for its steel exports to the US and a lower levy of 10 per cent for 100,000 cars bound for America.The US and China agreed a ceasefire in their trade war this month, slashing tariffs on each other’s goods for at least 90 days, to allow for negotiations. Trump has paused reciprocal tariffs on most of America’s trading partners, but maintained a baseline levy of 10 per cent on imports.The talks between the US and EU have been progressing slowly, with the bloc saying it has struggled to clarify what Washington wanted until last week, when the Trump administration sent a letter listing its demands.Sabine Weyand, the European Commission’s top trade official, told EU member state ambassadors in a briefing note that the bloc should not succumb to the US desire for “quick wins”.But Arnault said a US-EU agreement was critical for industries like France’s cognac sector, which employs some 80,000 people.LVMH owns Hennessy cognac, which has already been hit by falling sales in the US and China, where an anti-dumping probe in response to EU restrictions on Chinese electric vehicle sales is under way. In the worst-case scenario where both the Chinese and US markets become closed to cognac, it would be “catastrophic” for the European economy, leading to job losses, Arnault said.“We must do everything with Europe to prevent this . . . because the day it happens it will be too late,” he added. More

Unlock the White House Watch newsletter for freeYour guide to what Trump’s second term means for Washington, business and the worldThe writer is the author of ‘Chip War’Donald Trump’s dealmaking tour of the Middle East last week saw the sales of Boeing aircraft, the signing of defence contracts and the announcement of oil investments. But the most significant decision may be to allow hundreds of thousands of AI chips to flow to the region. The US will now allow Nvidia to sell 500,000 AI chips per year to the UAE, according to media reports, while at least 18,000 will be transferred to Saudi Arabia. By comparison, Elon Musk’s world-leading Colossus data centre in Tennessee currently has 200,000 high-end chips on site. If the UAE imports half a million high-end chips annually, by the end of the decade its capacity might outstrip the US-based Stargate project, the joint venture between OpenAI and SoftBank, according to Rand Corporation AI expert Lennart Heim.The decision to let Middle Eastern countries acquire top-notch computing clusters is a major reversal. The US government previously saw Saudi Arabia and especially the UAE as AI rivals and friends of China. Yet before leaving for the Middle East, Trump repealed the rule that had limited chip transfers to the region in favour of a new policy of bilateral dealmaking.In Washington there were three risks cited to justify limiting chip sales to the Middle East: that the region’s autocrats would use AI to violate human rights; that computing capacity would be diverted to China; and that generously subsidised data centres in the Middle East would crowd out investment in America’s own AI infrastructure. Trump declared in Riyadh that “we are not here to lecture”. Either way, the link between AI infrastructure and human rights was never very clear. The region’s autocrats have plenty of experience locking up dissidents and repressing minorities even in the absence of high-tech tools.More complex are ties to China. Both Saudi Arabia and the UAE have previously said they will cut ties with China to obtain better access to American tech. Yet both countries have every incentive to play Beijing and Washington off one another. It was less than a year ago that the UAE air force conducted joint military exercises with the PLA in Xinjiang, the epicentre of the Chinese government’s efforts to harness technology for repression. Saudi officials reportedly requested in negotiations this month to deploy Huawei equipment in data centres with US AI chips.Much therefore hinges on the efficacy of US monitoring mechanisms. Eighty per cent of the chips deployed in the UAE will be in data centres operated by American companies, according to media reports. The US has a shaky record of export control enforcement, illustrated by reports this year that a Huawei shell company illicitly procured millions of chips from Taiwanese chipmaker TSMC.Despite these risks, Trump has highlighted the ways his dealmaking is good for business. It certainly benefits semiconductor companies like Nvidia, which will sell more chips, and US cloud computing companies, which will get capital, land and power to build AI clusters across the region. In exchange, Middle Eastern money is supposed to flow into America’s AI sector. Some already has. Emirati investment vehicle MGX has been a big investor in OpenAI, for example.Yet Trump and Middle Eastern leaders now promise vastly more. The White House says the UAE, Qatar and Saudi Arabia will invest $1.4tn, $1.2tn and $600bn respectively across sectors including technology. These are huge numbers with sparse details. Even a fraction of these sums could be transformative. But the impact of Trump’s dealmaking will depend on whether his Gulf partners actually invest billions in America’s AI infrastructure, or whether they focus their spending on building their own data centres and tech companies instead. More

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