Economy

Unlock the White House Watch newsletter for freeYour guide to what Trump’s second term means for Washington, business and the worldAfter much debate, US House Republicans have reached an agreement over Donald Trump’s multitrillion-dollar legislative plan to cut taxes. On Tuesday, the US president urged his party to approve his “big, beautiful bill” in a rare visit to the US Capitol. It now awaits approval from the House of Representatives. If passed, it will go on to the Senate. Lawmakers ought to think twice. Trump gets the bill’s branding only partly right. It is, indeed, enormous. It could raise US debt by more than $3.3tn over the next decade. Yet, in its current form, the economic consequences risk being far uglier than the president portrays. Concerns over America’s growing debt pile predate Trump’s second term. But, his administration’s erratic approach to policymaking has raised further alarm. Last week, Moody’s downgraded the US from its top-notch triple-A sovereign credit rating, becoming the last of the big three credit rating agencies to do so. That pushed US long-term borrowing costs even higher. Over recent months, the White House’s stop-start tariff agenda has also raised questions over the safe haven status of American assets, which has put upward pressure on Treasury yields. Trump’s fiscal plans add insult to injury. The bill would push the US debt-to-GDP ratio up around 25 percentage points to a record 125 per cent by the end of 2034, according to projections from the Committee for a Responsible Federal Budget. The annual deficit as a share of the economy is expected to rise to 6.9 per cent, from around 6.4 per cent. This raises the risk of a sharper and disorderly rise in US borrowing costs, as fears over US debt sustainability grow.The package delivers on some of the president’s key campaign pledges. It extends tax cuts passed in his first term, while slashing taxes on tips and overtime pay. Spending is set aside for defence and border security. Elsewhere, the bill is more generous, boosting child tax credit and the standard income tax deduction. There are also stronger-than-anticipated investment incentives for manufacturing facilities. The GOP has put sunset clauses on some of the largesse, to make it appear more palatable. But many of the tax cuts will be hard to reverse.Any boost to households and companies will be curbed by the bill’s slapdash efforts to offset the outlays. For instance, there are significant cuts to Medicaid entitlements, which could leave millions of vulnerable Americans without health insurance cover. The bill gives the biggest bump to the top quintile of earners, while the bottom 40 per cent are worse off by 2026, according to the Penn Wharton Budget Model. A slashing of green tax credits under the Inflation Reduction Act also reduces the overall gains for businesses.In all, the bill is expected to raise US GDP by only 0.5 per cent over the next decade. The White House argues that forecasters are ignoring the effects of its broader policy agenda. This is possibly fair. Though tariff rates are uncertain, customs revenues could help fund the additional spending. That said, the hit to economic growth from Trump’s import duties will more than offset the boost from his fiscal package, according to Goldman Sachs. A higher growth rate is essential to get America’s debt trajectory on to a more sustainable footing. The bill’s passage isn’t guaranteed. The Republicans only have a narrow majority in both the House and Senate, and Trump’s agenda has created a schism between its fiscal hawks and those concerned about the impact of cutbacks on poorer voters. It may evolve. But ultimately, the bond market will have the final say. Without serious attempts to rein in US spending, investors’ reaction won’t be pretty. More

This article is an on-site version of our FirstFT newsletter. Subscribers can sign up to our Asia, Europe/Africa or Americas edition to get the newsletter delivered every weekday morning. Explore all of our newsletters hereGood morning and welcome back to FirstFT. Today I’ll be covering:Nvidia’s condemnation of US chip export controlsPlans to open up US retirement funds to private equityThe “death camp” uncovered by a search group in MexicoAnd why Rome is frustrating Italian AmericansGood morning. Nvidia’s chief executive Jensen Huang has called US export controls on chips a “failure” that has turbocharged rivals in China to develop their own competitive artificial intelligence hardware.What did Huang say? “Chinese AI researchers will use their own chips,” Huang said at a news conference in Taipei. “They will use the second best. Local companies are very determined, and export controls gave them the spirit, and government support accelerated their development.”Why it matters: In a move to curb the global spread of Chinese technology, the Biden and Trump administrations have put in place rules to restrict the flow of advanced chips from the US to China. Huang’s comments suggest the attempts have backfired. Instead they have spurred Chinese rivals to speed up development of their own products. We have more details on how the chipmaker is grappling with competition from Beijing here.Here’s what else we’re keeping tabs on today:US Steel: A national security review of Nippon Steel’s bid is about to be concluded. The Japanese group has quadrupled its investment pledge in the American steelmaker in a push to gain approval.EU-Africa ties: Foreign ministers from the bloc and the African Union meet in Brussels.Results: Lowe’s, Target, Canada Goose, TJX and Baidu report earnings.The FT’s Climate & Impact Summit starts today. Hear from chief executives, politicians and other industry leaders as they discuss innovation and investment in global sustainability. Register now.Five more top stories1. Joe Biden’s cancer diagnosis has sparked attacks from some Republicans, who have used it to scrutinise the former president’s fitness for office. His diagnosis has generated some bipartisan sympathy but has also led to accusations that the Democrats were complicit in a cover-up while he was in power.2. Exclusive: Trump is weighing whether to open the nearly $9tn US retirement market to private equity through an executive order. Sources familiar with the talks said the order would instruct government agencies to study the feasibility of opening 401k plans, a primary vehicle for US retirement savings, to the private funds.3. IMF official Gita Gopinath has urged the US to tackle its “ever-increasing” debt burden, amid concerns about the Trump administration’s tax cut plans. The comments come days after Moody’s stripped the US of its triple A credit rating because of concerns about the fiscal deficit.4. Marco Rubio, US secretary of state, has said Russia will face fresh sanctions if there is no progress on a peace deal with Ukraine. He denied that Washington was tempering its military support for Kyiv. Rubio, speaking in the Senate, defended Trump’s phone call with Vladimir Putin, saying Russia’s leader “hasn’t got a single concession”.Ukraine talks: European capitals have launched a flurry of diplomatic efforts to convince the Trump administration to resume a ceasefire push.The FT View: If the US president is walking away from Ukraine, other allies must step up, writes our editorial board.5. A search group has found a ‘death camp’ run by a drug cartel in Mexico. Authorities said corpses were still burning. The discovery has renewed pressure on President Claudia Sheinbaum to tackle a 20-year battle with the country’s prolific narcotics cartels that has left 120,000 people missing.News in-depth© FT montage/Getty ImagesA market in the Feiyang Times building, a tower in southern China, sells second-hand smartphones from Europe and the US. But it also sits at a location that Apple community message boards, social media commenters and victims of phone theft have identified as China’s “stolen iPhone building”. The Financial Times tracks the roaring trade of mobiles snatched in London and New York then sold in a single district in Shenzhen.We’re also reading . . . Animal speech: If they could talk, would we listen? A prize aimed at cracking inter-species communication could change our views about the welfare of other creatures, writes Anjana Ahuja.Chart of the dayThe dominance of the dollar, the leading currency for a century, is coming into question. Yet those who wish to diversify away lack a compelling alternative, writes Martin Wolf. So what, if anything, might replace its hegemony?Take a break from the newsWhat distinguishes the finest airport lounges? Frequent flyer Andrew Jones has criss-crossed the world to find the answer. Sweeping architecture, shoeshines and “a sense of the journey that awaits you” are some of the things to look out for. For the rest, you’ll have to read his trusty guide.Modernistic seating at Charles de Gaulle/Roissy Airport in 1985 More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Brussels wants EU governments to exclude foreign bidders in public procurement tenders and “buy European”, as the bloc attempts to reassert itself despite the impact of US President Donald Trump’s trade war.Trump’s tariffs and threats to remove US protection from European countries unless they spend more on their militaries has spurred Europe to try and increase its self-sufficiency, from technology to defence and economic security.Stéphane Séjourné, the EU’s executive vice-president for industry and the internal market, on Wednesday presented a plan harmonising rules across the EU and cutting down barriers in the bloc’s internal market. The plan addresses challenges from transferring workers between EU countries, to inconsistent standards for e-commerce and financial services.One key element is introducing European preferences in upcoming changes to the EU’s public procurement rules, which Séjourné told the Financial Times was a “Buy European Act”. “There is a will to remain a continent that is exporting internationally and at the same time to be lucid and less naive about strategic sectors,” Séjourné said.EU governments could be allowed to bar foreign companies from bidding for government contracts for goods and services, if proposed changes to the public procurement rules are agreed next year. Current EU and World Trade Organization regulations prohibit favouring local suppliers. The move represents a major shift in the EU’s attitude to open procurement and adhering to international rules. While it would protect strategic sectors from cheaper competitors from China and elsewhere, it could open it up to potential challenges from other countries at the WTO. Séjourné, a former French foreign minister and close ally of President Emmanuel Macron, has consistently pushed for Europe to be more autonomous. He sees favouring European bidders in public procurement as a “first step”.“Then we’ll look into the private sector with arguments around safety and economic security and see which sectors we can add.”As well as the trade tensions with the US, concerns over privacy and data access have prompted calls for Europe’s tech sector to be more self-sufficient. The EU is also considering “buy European” elements in upcoming legislation on the cloud market, which is currently dominated by US companies such as Amazon, Microsoft and Google.Séjourné declined to discuss specific sectors, but said that action was needed in areas where Europe was totally dependent on one country.“In tech, we’re very, very dependent on the Americans. In raw materials, we’re 100 per cent dependent on the Chinese. These are sectors, in the current geopolitical context, [for which] we don’t want future generations blaming us for not having acted.” Still, Séjourné was hopeful that the geopolitical challenges provided an opportunity for Europe, which has been fighting to boost its stuttering economy since the Covid-19 pandemic and the energy crisis that followed Russia’s full-scale invasion of Ukraine.European companies have complained that they are strangled by the EU’s ambitious climate agenda, undercut by cheaper Chinese rivals and now are suffering the impact of Trump’s aggressive trade policy. But Séjourné argued that Europe was in an “almost ideal” position, “in the sense of the trade-off that you can do one with the other, since the Americans remain our partners and the Chinese want to strengthen the partnership”.It was possible to “make progress on many big difficulties with the Chinese in many sectors,” he said. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.It looked like an easy win for Xi Jinping in the superpower battle for global influence.The Chinese leader played host to three Latin American presidents and a gaggle of foreign ministers at a regional summit in Beijing last week. Trade between China and Latin America exceeded $500bn last year, Xi noted in his speech, a 40-fold increase in 25 years.Then he took a swipe at US President Donald Trump: “There are no winners in tariff wars or trade wars. Bullying or hegemonism only leads to self-isolation.” Brazilian President Luiz Inácio Lula da Silva, Xi’s star guest, was on message regarding his appreciation and “affection” for China. In tow were a clutch of cabinet ministers who joined the state visit on top of the Latin America-China meeting. About 20 different Sino-Brazilian co-operation agreements were signed, along with about R$27bn ($4.8bn) of planned investments. Across the ocean, Brazil’s private sector elite and a group of powerful state governors were courting another superpower. In New York for an annual set of business and bank conferences dubbed “Brazil Week”, executives and politicians played down suggestions that the Trump presidency had fundamentally changed the strong business relationship between the two giants of the Americas.“Brazilian industry is here because it understands perfectly the importance of partnership with the US,” said the president of Brazil’s industry confederation, Ricardo Alban. “We go back more than 200 years together and we will never belittle that history.”Although Brazil’s chief executives and bankers dislike Trump’s tariffs on steel and aluminium (both Brazilian exports), they are less bothered by his politics. Many of them voted for Jair Bolsonaro, the former Brazilian president known as the “Tropical Trump”. They are more worried about the profligacy of Lula’s government, which is running an overall deficit of nearly 8 per cent of GDP, forcing up interest rates, weakening the real and deterring often short-term US investors.“Brazil is more culturally aligned with the US and closer to US values. But Brazilian business people increasingly realise that if they want long-term investment they have more possible partners in China, the Middle East or Singapore than in the US,” said Marcos Troyjo, a former president of the New Development Bank.But US money still matters. While many executives from Brazil’s booming agribusiness sector were glad-handing Chinese officials with Lula, the chief executive and the billionaire owners of the world’s biggest meat producer, Brazil’s JBS, chose to go to New York, perhaps with an eye on the company’s impending US stock market listing.Dario Durigan, Brazil’s deputy finance minister, was also in New York and keen to underline that his country was not picking sides. “In a world with a lot of volatility and where people are very unsure [about the future], Brazil is positioning itself as a safe harbour,” he argued. The relationship between two of the Brics’ founder members is less unequal than some might suppose. Brazil is one of the few nations to run a large trade surplus with China and its dominance of global commodity exports gives it some strong cards.Brazil supplies nearly 60 per cent of the world’s soyabean exports, while China, the world’s top soyabean importer, has few options for diversifying supplies. (The US is the second-biggest exporter and number three, Paraguay, recognises Taiwan instead of Beijing.) The story is similar with meat, where Brazil also leads exports and China is the top importer.Despite the warm words in Beijing, Brazil has not signed up to China’s Belt and Road infrastructure initiative and no big new construction projects were announced during Lula’s visit.Marcos Caramuru, a former ambassador to China, said Lula’s visit was successful in consolidating political dialogue and a personal friendship with Xi, despite the lack of new joint infrastructure projects.“Brazil was pointing in both directions last week and seems to be operating well,” he said of the delegations to Beijing and New York. “In China you need the government to make things happen, while in the US you work with the private sector and you don’t need the government.” Tellingly, Lula’s speech to the China-Latin America forum ended not with a paean to Xi, but a plea for Latin America to unite and forge its own future. If that happens, Brazil, rather than China, may be the winner of last week’s [email protected] 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. Today, the man who proposed a plan to fix the EU’s single market tells our colleagues that Brussels is not being ambitious enough in its remedies. And Laura reveals a cross-party European parliament proposal to cut off all EU funding to Hungary.To the LettaPolicymakers in the EU should focus on fixing the bloc’s internal market rather than spending their energy on tariffs and defence projects, Enrico Letta tells Alice Hancock and Barbara Moens.Context: The former Italian premier last year penned a report on the state of the bloc’s 30-year-old internal market, which diagnosed the gaps and highlighted the areas the EU should focus on to deepen integration. The European Commission will today announce a new strategy for the single market guided by Letta’s ideas. It will list actions such as simplifying compliance for small companies, harmonising waste disposal, and possible joint rules for sending people to work in other EU countries, according to a draft seen by the FT.But Letta said that while this was “positive”, the “top priority” should be for the commission to present more binding rules to member states. This means tabling regulations, which member states have to copy and paste into their rule books, rather than directives, which they can implement as they choose.“We are entering a moment in our history when directives are like the cavalry horses against the tanks,” Letta said.Letta warned that policymakers should focus on strengthening the EU’s internal market rather than putting all their energy into tariff retaliation lists in the trade war with the US, or new defence initiatives. Progress “will not come by inertia”, he said.The “crazy Trump nightmare” of tariffs was a “lose-lose” situation for the EU, not only because of the economic impact, but also because it sucked up all the attention in Brussels, Letta said. Brussels needed the courage for “strong negotiations with the member states”, particularly larger ones, Letta said. He feared big countries “were not ready to accept a big movement of consolidation” and were too preoccupied with protecting their own companies and interests.Chart du jour: Fat trapDanish drugmaker Novo Nordisk has seen its share price fall 60 per cent from its peak, and last week ousted its chief executive. The market stance towards its star drug Ozempic highlights the pitfalls of being a one-trick pony. Turning off the tapEuropean lawmakers across party groups are calling on the European Commission to freeze all funding to Hungary as Budapest continues to chip away at the rule of law, writes Laura Dubois.Context: The EU currently withholds some €18bn in funds dedicated to Budapest over concerns about corruption, discrimination against LGBT+ people and breaches of the rule of law. The European parliament last year sued the commission over the unfreezing of about €10bn in a deal to get Budapest to back aid for Ukraine.Parliamentarians are now stepping up the pressure.“We urge the European Commission to increase pressure on Viktor Orbán’s government to cease violating EU values and EU laws by immediately suspending all EU funding for Hungary,” a group of 26 lawmakers wrote in a letter to the commission, seen by the FT.The letter, initiated by Green MEP Daniel Freund, lists a number of measures which it says constitute an “alarming regression” on the rule of law, including some undermining the independence of the judiciary.They highlight a draft law “enabling the state to blacklist NGOs deemed a threat to sovereignty”. The law, which was discussed in parliament yesterday, would allow a “Sovereignty Office” to investigate NGOs or media organisations receiving foreign funds, and impose potentially heavy fines. Critics view it as a measure by Prime Minister Viktor Orbán to quell dissent.The lawmakers also criticise Hungarian legislation allowing the suspension of citizenship for dual nationals perceived as threats, and a ban on the Budapest Pride march.“Given these troubling developments, we firmly believe the EU must adjust its response,” write the MEPs. “We therefore consider a freezing of all funds proportionate to the risk posed to the union’s financial interests.”The lawmakers also warned against allowing Hungary to claw back some funds using loopholes.In the past three years, Hungary has spent about €6bn from the EU budget per year, according to commission figures.What to watch today Annual EU budget conferenceEU and African Union foreign ministers meet in Brussels.European parliament president Roberta Metsola meets the president of Italy, Sergio Mattarella, and opens the chamber’s plenary session in Brussels.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

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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 top IMF official has called on the US to reduce its fiscal deficit and tackle its “ever-increasing” debt burden at a time of rising concerns about President Donald Trump’s plans for sweeping tax cuts. “The US fiscal deficits are too large and they need to be brought down,” Gita Gopinath, the IMF’s first deputy managing director, told the Financial Times this week.She also warned that the world’s biggest economy was still affected by “very elevated” trade policy uncertainty despite “positive developments”, such as the Trump administration dialling back tariffs on China. Gopinath’s comments came after Moody’s stripped the US of its last remaining pristine triple A credit rating owing to concerns over the country’s growing debt. Trump’s proposal to prolong his 2017 tax cuts beyond this year has added to those worries and prompted unease among investors. The administration says the cuts — combined with deregulation — will pay for themselves with higher growth, but neither Moody’s nor financial markets are convinced. The rating agency said last week that the proposed legislation, which Trump calls “the big, beautiful bill”, would raise US deficits from 6.4 per cent last year to just under 9 per cent by 2035. Treasury secretary Scott Bessent told NBC on Sunday that the Moody’s downgrade was “a lagging indicator”, blaming the fiscal situation on the Biden administration. He added that the administration was “determined to bring the spending down and grow the economy”. He previously said he would cut the deficit to 3 per cent by the end of Trump’s term. But Gopinath noted that US debt to GDP was “ever-increasing”, adding: “It should be that we have fiscal policy in the US that is consistent with bringing debt to GDP down over time.” The federal government debt held by the public amounted to 98 per cent of GDP in fiscal 2024, compared with 73 per cent a decade earlier, according to the Congressional Budget Office. Although the IMF said last month that it expected the US fiscal deficit to fall this year as long as tariff revenues grew, those projections did not account for Trump’s tax bill, which is winding its way through Congress. Gopinath added that Bessent had been right to make a “clear call” to bring down fiscal deficits. Trump is pressuring Republicans in the House of Representatives, where he has a slim majority, to support the legislation, arguing that doing otherwise would increase voters’ tax bills. Deficit worries and Moody’s downgrade have driven the dollar lower and pushed prices down and yields up in the Treasury market. The 30-year Treasury bond yield on Monday rose to 5.04 per cent, its highest level since 2023. A bigger deficit means the government will have to sell more bonds at a time when foreign and domestic investors have begun to question the stability of the US market. The IMF in April cut its US growth forecast by nearly a percentage point to 1.8 per cent in 2025, while dropping its global growth projection to 2.8 per cent, as it incorporated the impact of Trump’s tariffs. Since then, Trump has announced sharp cuts to American levies, as China and the US agreed to slash respective tariffs by 115 percentage points for 90 days. “The tariff pause with China is a positive development,” said Gopinath, who also welcomed the US-UK agreement. But she stressed that the US effective tariff rate remained far higher than it was last year and that high levies on China had only been paused. First-quarter GDP figures had been roughly in line with IMF expectations, she said, adding that data remained difficult to read because businesses rushed to buy supplies ahead of the introduction of Trump’s tariffs. “It is going to take a little while before the effects of all these developments work through the data,” she said. “It is absolutely a positive to have lower average tariff rates than the ones we assumed in [April] . . . but there is a very high level of uncertainty, and we have to see what the new rates will be.” Additional reporting by Kate Duguid in New York More