Economy

This article is an on-site version of our Chris Giles on Central Banks newsletter. Premium subscribers can sign up here to get the newsletter delivered every Tuesday. Standard subscribers can upgrade to Premium here, or explore all FT newslettersThe past week saw US inflation moderate in April, but everyone ignored the figures. Instead, attention was on signs that inflation is coming to the US. Whether asked by business leaders, importers, academics or officials, the question is: who will pay for Trump’s tariffs? This is both a theoretical and practical question, so let’s look at the initial evidence.Business Ultimately, economists can have all their fancy models and theories, but companies will be the players changing prices. So it is good to ask them. Doug McMillon, chief executive of the world’s largest retailer Walmart, spoke out last week, saying there was no way of getting around the effects of higher tariffs. “We will do our best to keep our prices as low as possible, but given the magnitude of the tariffs, even at the reduced levels announced this week, we aren’t able to absorb all the pressure . . . The higher tariffs will result in higher prices,” he said. The comments threw Trump into one of his frequent rages on social media. The president told Walmart to “STOP trying to blame tariffs for raising prices”, and instructed it to “EAT THE TARIFFS”, adding ominously that “I’ll be watching”. Trying to soothe tensions on Sunday, Treasury secretary Scott Bessent moderated the president’s language, saying McMillon had assured him the retail group would “eat some of the tariffs”. Notice how hard the word “some” is working in this reformulation. Moving away from single company anecdotes to data, the Philadelphia Fed released its latest survey in the past week on its district’s corporate pricing intentions. The results, shown below, suggest that most companies think they are being charged more for supplies, and are themselves setting higher prices. It is not a comforting chart.Some content could not load. Check your internet connection or browser settings.Exporters to the US are not eating the tariffsAfter Trump’s Walmart outburst, he suggested the US supply chain should absorb the tariff increases. This is new from the president. Previously he claimed that exporters to the US would lower their prices in response to higher tariffs, so the real incidence of the levies would be on foreigners. Evidence suggests otherwise. On Friday, the latest data on US import prices was published by the Bureau of Labor Statistics, showing a slight rise in the prices of goods arriving at US ports in April. These prices exclude tariffs, so should be falling significantly if the burden of duties falls on those outside the US. The chart below suggests the tariffs will get passed into the domestic supply chain at the very least. Some content could not load. Check your internet connection or browser settings.The eagle-eyed will notice something of a fall in the price of Chinese goods landing at US ports in April, where the tariff increase has been greatest. The price reductions are not unusual for goods imported from China and not large enough to offset the tariff increases. But there might be some effect at work. Breaking down the Chinese import prices by product type, there is no particular pattern. The one exception is a 5 per cent fall in prices of communications equipment over the past three months, a category that often sees price reductions. Of course, this product type was one of those exempted from “reciprocal” tariffs on April 12, so it is very difficult to make the argument that foreigners are taking the pain. Some content could not load. Check your internet connection or browser settings.AcademicsThe academic work from the 2018 tariffs suggested that the US paid, but much of the costs were borne within the US supply chain. Below I will point to new research carried out at the Fed that disputes the claim that consumers did not pay. First, the researchers who produced much of the academic evidence from 2018 are now publishing an almost real-time indicator of the tariff effect on prices charged using data scraped from retailers’ websites. In the research, Alberto Cavallo, Paola Llamas and Franco Vazquez take the prices of products, use artificial intelligence to determine the country of origin and compare this with the tariff rates. It is early days, but you can see announcement effects of tariffs in the data. The authors are correct to say there have been “rapid but still relatively modest” consumer price effects. Perhaps that is to be expected, given the extensive front-running of tariffs we saw in first-quarter import data. Unsurprisingly, costs of goods from China are rising the fastest and, as suspected in 2018, the price rises extend beyond products that face tariffs. It seems that retailers like to spread the pain.Some content could not load. Check your internet connection or browser settings.Officials For Trump, further unhelpful evidence on whether the US supply chain would eat the tariffs has come this month from the Fed. In a staff note, which does not reflect Fed policy, economists Robbie Minton and Mariano Somale undertook a theoretical exercise to predict where in the inflation figures the 2018 duties on China would show up, assuming full pass-through of prices. The research is heavy on the use of input-output data, tracing the tariff effect through the supply chain. The theoretical predictions suggested that musical instruments would rise in price the most due to their heavy tariffed import content, for example. And that there would be little price effect on pharmaceutical products. They found a good relationship between their predictions and actual price changes, with one big discrepancy. As the chart below shows, the actual price changes in each category ended up being twice the level of the theoretical predictions.The US supply chain had not eaten the tariffs, but had used them to add a bit of extra profit. This shows the opposite of the 2018 research led by Cavallo. The Fed officials think their data and techniques are more comprehensive and, not being based only on web-scraped data, “more representative of the US economy”. Some content could not load. Check your internet connection or browser settings.The researchers then turned their attention to the 2025 tariffs. It is still early days, but again their predictions on where tariffs on China will show up in US inflation are proving quite accurate. With data up to March they find that, in contrast to 2018, the pass-through is running at 54 per cent. So US supply chains have initially eaten up some of the tariffs. Before Trump jumps up and down with glee, they note the results are preliminary, with tariffed goods not yet in the inflation figures. They also note that their input-output data is out of date and Chinese imports have fallen sharply. So it would be unwise to say the duties are likely to be absorbed. The results will develop over time. So far, this Fed study suggests 0.1 per cent of the rise in US core PCE prices has come from tariffs. Not a lot, but it is early days. So, who pays for the tariffs?Trump likes to claim that foreigners or greedy business leaders will pay. The evidence suggests he is wrong about them hitting foreigners. As far as the domestic burden, I’ve compiled views about who pays in the table below. What I’ve been reading and watchingThe Fed is anxious to be seen as a “responsible steward of public resources”, so is planning to cut staff levels by 10 per cent in a scoop by Claire Jones.Still on the Fed, it held a conference last week to examine its monetary policy strategy. Chair Jay Powell’s speech confirmed that flexible average inflation targeting was likely to go. The rest of the papers can be read here.We need to take US consumer confidence data with a pinch of salt, but it is still falling.A former hawkish member of the ECB governing council, Belgium’s central bank governor Pierre Wunsch turns dovish in an interview with the FT.A chart that mattersHave you ever wondered whether the sentiment in the FT’s reporting and commentary accurately reflects what is happening in the world? Of course you haven’t, because you know that the FT is the world’s best business newspaper.But over at the FT’s Monetary Policy Radar, we have undertaken a systematic analysis of the FT’s coverage, using its archive, a large language model, and rather clever filtering and embedding techniques to ensure we do not confuse an effusive restaurant review for commentary on the global economy.The “macro mood” in the FT’s output does indeed reflect what is happening in the world (phew). We think it might also have some predictive power, though that needs further work.Some content could not load. Check your internet connection or browser settings.Recommended newsletters for you Free Lunch — Your guide to the global economic policy debate. Sign up hereThe Lex Newsletter — Lex, our investment column, breaks down the week’s key themes, with analysis by award-winning writers. Sign up here 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 to FirstFT. Here’s what’s on today’s news agenda:China’s battery leader CATL surges on debut after biggest listing of 2025Donald Trump’s “big, beautiful” tax bill heightens concerns over US debtPoland’s stock market emerges as one of the world’s top-performing bourses The market value of Chinese battery maker CATL, already the world’s largest listing of the year so far, just got a lot bigger as shares soared more than 16 per cent on their first trading day in Hong Kong. What happened: The secondary offering raised at least $4.6bn, with the amount set to rise to $5.3bn if an option allowing underwriters to sell more shares than planned is exercised. It is among the largest offerings in Hong Kong by Chinese companies already listed on the mainland in recent years, with CATL also quoted in Shenzhen. CATL founder Robin Zeng, who banged a gong to celebrate the start of trading at the Hong Kong stock exchange, said the company was not satisfied with being “just a battery component manufacturer” and was poised to be the “pioneer” of the zero-carbon economy.Why it matters: CATL accounts for about 37 per cent of the world’s EV and energy storage battery markets. A supplier to Tesla, BMW and Volkswagen, the cash-rich company had sought an offshore listing to raise non-renminbi funding for its overseas expansion, notably a $7.3bn factory in Hungary. The listing had the support of American banks, while a US asset management firm was a key investor, despite the geopolitical tensions swirling around the deal. In January, the battery maker was added to a Pentagon blacklist of companies believed to have ties to the Chinese military, although it has denied any such links.Here’s what else we’re keeping tabs on today:Economic data: Germany issues April producer price index inflation rate data while Canada gives its monthly cost of living update using the consumer price index measure.High-level meetings: G7 finance ministers and central bankers are in Canada for a three-day gathering. In Brussels, Kaja Kallas, the EU high representative for foreign affairs and security policy, chairs a meeting with the bloc’s foreign and defence ministers.Companies: Google holds its annual developer event in California, where it is expected to unveil new products. Shell holds its annual meeting and Home Depot reports first-quarter numbers. See our Week Ahead newsletter for the full list.Join us for a subscriber-only webinar on May 28 for insights into the most consequential geopolitical rivalry of our time: the US-China showdown. Register now and put questions to our panel.Five more top stories1. Donald Trump leaves Russia and Ukraine to settle war in talks The US president has claimed that Russia and Ukraine will “immediately” begin negotiations on preparations for peace talks, but signalled that he was leaving Moscow and Kyiv to find a deal without the US as a broker.2. Poland’s stock market has emerged as one of the world’s top-performing bourses this year, up more than 28 per cent year to date. The rally has been helped by the country’s relatively insulated position from the global trade war and an expected boost from neighbouring Germany’s fiscal “bazooka”. Here’s what analysts are saying. 3. The value of French grocer Casino’s debt has slumped to deeply distressed levels, with traders now quoting a €1.4bn secured loan at 61 cents on the euro. The deep discount to face value suggests lenders are braced for the prospect of steep losses as fears grow that continued weak earnings could trigger a breach of its loan covenants next year.4. Donald Trump’s “big, beautiful” tax bill heightens concerns over US public debt, sparking alarm among investors and fuelling questions over how long the world will finance Washington’s largesse.5. Benjamin Netanyahu said Israel planned to take over all of Gaza as the country escalated its offensive in the war-torn enclave. The Israeli military yesterday told all residents of the southern city of Khan Younis to leave, demanding they move west to the so-called Al-Mawasi “humanitarian zone” ahead of what it called an “unprecedented attack” on the city.Visual story© FT montage/PAA rapidly ageing population and growing numbers of patients with chronic illnesses are placing ever greater demands on an already overstretched NHS. The UK government’s promised 10-year health plan aims to fix this, with ministers arguing that the answer lies in better use of technology and data in the world’s largest publicly funded health service. We’re also reading . . . Chart of the dayWhile markets cheered Donald Trump’s deal with China, big US retailers are warning of higher prices later this year across a spectrum of goods, and small business owners say sales are already down as the chaos of “liberation day” creates a “ripple effect”. Will the US president’s tariff climbdown save the US from recession?Some content could not load. Check your internet connection or browser settings.Take a break from the newsToday’s recommended read poses an important question: do you let your dog sleep on your bed? For Hannah Shuckburgh, the answer is yes, and she explores why dogs make such wonderful bedfellows.A dog belonging to interior designer Flora Soames, who said: ‘Sleeping alongside dogs offers deep comfort. It’s all I’ve ever known.’ Additional contributions by Camille De Guzman and Benjamin Wilhelm More

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For Stonemaier Games, it will be a roll of the dice whether the US-China trade truce can save Christmas.President Donald Trump’s deal with Beijing last week came just in time for the tabletop game publisher based in St Louis, Missouri, to plan orders for year’s end with its Shenzhen-based supplier at reduced tariff rates.But the holiday production run will still be “much more modest than usual”, says Jamey Stegmaier, head of the privately owned company that produces strategy games such as Wingspan. “There’s too much uncertainty.”The company has filed a lawsuit with 10 other small businesses to challenge Trump’s authority to impose tariffs. “There was no due process, just an agent of chaos raising tariffs from 20 per cent to 145 per cent in the span of one week,” Stegmaier adds. On Wall Street, the memory of “liberation day” is fast receding, with the benchmark S&P 500 soaring back to near-record levels this year having recorded heavy losses after the disorder of April 2. But for Main Street, the pain is set to endure, with the president’s haphazard approach to overhauling the global trading system harming confidence in an economy it was designed to help. While April’s consumer price index rose less than expected, most economists believe the cost of goods will soon increase. Diane Swonk, chief economist at KPMG US, says last month’s reading could be “the last subdued inflation print for a while”.And the trade tensions are not over yet. Another cliff edge in the president’s trade policy — a fresh 90-day deadline for talks with China after which tariffs could be pushed up again — has added to a climate of uncertainty. “The market has overbought the deal,” says Steve Hanke, a Johns Hopkins University economist who worked as an adviser to Ronald Reagan. “Trump still thinks he’s running Trump Enterprises, not the US economy.” Some content could not load. Check your internet connection or browser settings.While the détente has cut the chances of a serious recession, the US president’s handling of the trade war could continue to cast a shadow for the rest of 2025, unwinding years of stellar growth and raising the prospect of a bout of stagflation that would leave policymakers at the Federal Reserve in a tough position.Concerns have been intensified by the decision of Moody’s to strip the US of its triple A credit rating, as it warned federal deficits will widen to almost 9 per cent of GDP by 2035, up from 6.4 per cent last year.The anxiety extends to every economy tied to the US. Valdis Dombrovskis, the EU’s economics commissioner, tells the FT the global trade war has had “quite a sizeable negative impact” on its own forecasts, which revealed a sharp downgrade to the global growth outlook. It “creates negative confidence effects which affect first and foremost investment decisions”. The US-China deal “undid a decent amount of the damage”, says Jason Furman, economist at Harvard University who worked in Barack Obama’s Council of Economic Advisers. “But we’re still going to get a bunch of inflation, we’re still going to get slower growth. And we still don’t know how this play is going to end.”The relief among global investors following US Treasury secretary Scott Bessent’s agreement with Chinese vice-premier He Lifeng in Geneva a week ago is understandable. At its height, the chaos pushed the effective US tariff rate at close to 26.8 per cent — the highest since 1903, according to the Yale Budget Lab, and ushered in a month-long freeze in US-China trade. A collapse in transpacific shipping volumes led retailers to warn of empty shelves — and the president to tell US children to content themselves with “two dolls instead of 30” this festive season.During the first week of May, the Port of Los Angeles saw a 30 per cent decline in imports as fears over the Trump administration’s tariff policies chilled trade. Gene Seroka, the port’s executive director, forecast higher costs for US consumers for coffee, avocados, and bananas.US companies responded by throttling production. Church & Dwight, makers of Arm & Hammer baking soda and Trojan condoms, said it would sell or shut down its Flawless hair remover, Spinbrush electric toothbrush and Waterpik showerhead businesses to mitigate a “significant portion” of its exposure to tariffs, which it estimated at $190mn over the next 12 months. Some content could not load. Check your internet connection or browser settings.Even longtime supporters of Trump’s pro-US manufacturing policies were rattled. “On January 1, I felt good. Trump had a pro-business, pro-manufacturing plan and I was positive,” says Harry Moser, president of the Reshoring Initiative, an organisation that supports US companies’ efforts to bring production back home. “On April 2, I felt he had complicated the issue and gone way too high on most of the countries, including our allies.” At meetings of finance ministers in Washington last month, Bessent began attempts to steer the US administration towards a détente. The Treasury secretary tried to reassure his counterparts the period of peak instability had passed, participants said. That culminated in the agreement that averted a hard decoupling of the Chinese and US economies as they slashed respective tariffs by 115 percentage points for 90 days. Hopes for trade pacts with other countries were buoyed by an earlier US-UK accord. Yet even as the dust settles, companies and investors are still warning of enduring damage. The average US effective tariff rate remains at 17.8 per cent, according to the Yale Budget Lab, more than seven times the 2.5 per cent level Trump inherited going into his second term. On January 1, I felt good . . . On April 2, I felt [Trump] had complicated the issue and gone way too high on most of the countriesThe US-China tariffs “are still much higher than they were a few months ago, as are the tariffs from many other countries”, says Karen Dynan, an economist at the Peterson Institute and a former chief economist in the US Treasury under Obama. “So you still have tariffs putting a meaningful amount of strain on consumers and businesses.” Despite few expecting a return of levies as high as 145 per cent, the president’s barriers on Chinese products still look set to lead to higher prices at US retailers.Many helped stave off some price increases by frontloading imports ahead of April 2, but that advantage is expected to dissipate quickly. Walmart, the largest retailer with more than $550bn in US sales, warned of more expensive back-to-school supplies and holiday gifts later this year. “Even at the reduced levels, the higher tariffs will result in higher prices,” said chief executive Doug McMillon in an earnings call. (Responding in a social media post, Trump urged Walmart to “EAT THE TARIFFS and not charge valued customers ANYTHING”.)The Yale Budget Lab says the average US family would pay $2,800 more for the same basket of products purchased last year, should tariffs remain at their current level, with lower-income homes more exposed. Chinese products being sold in the US have already seen marked increases in retail prices, according to analysis of high-frequency data from PriceStats by Alberto Cavallo of Harvard Business School.But it is not only tariffs that are pushing costs up. The scrapping on May 2 of the so-called “de minimis” exemption, which meant importers could bring in products from China worth less than $800, not only free of duties but with next to no paperwork, is set to further add to prices and limit choice. “What we ended up doing with de minimis is we turned supply chains into fast food — you expect it fast and cheap. As a consumer, we just get on the internet and say, ‘I want to order this shirt, I want to pay the lowest price possible, and I want it tomorrow night’,” says Bernie Hart, vice-president of customs at global logistics firm Flexport. “We’re slowly turning that off.” The change is already weighing on corporate thinking. AlphaSense data compiled for the Financial Times showed the number of analysts’ calls mentioning de minimis shot up from five for the whole 2024 to 28 times over the past 30 days alone. Some content could not load. Check your internet connection or browser settings.After the Geneva talks, the tariff rate was also lowered on goods worth less than $800, but importers still face a stack of paperwork that for many small businesses will prove nigh on impossible to fulfil. “The level of granularity that is expected is quite high,” says Brie Carere, executive vice-president and chief customer officer for FedEx to analysts last week. “So there’s not just an immediate financial barrier. There is an audit, a compliance barrier.” Even so, many US companies believe the scrapping of the de minimis exemption will help them in the long run by hurting Chinese ecommerce rivals such as Temu and Shein more than themselves. “Duty-free ultrafast fashion that has flooded the US market over the past few years undoubtedly put some pressure on our price competitiveness,” said James Reinhart, chief executive of online thrift store ThredUp on its latest analysts’ call. “We believe the closure of the de minimis exemption is likely to cause higher prices for these goods and to reduce production volumes.” Government officials say the US economy — the standout global performer since the pandemic — remains strong. In recent weeks, Bessent has claimed Trump’s plans to make his 2017 tax cuts permanent and deregulate housing, energy and finance will, together with tariffs, usher in a “golden age”. We’re at a transformational moment in time. It’s not all worked out . . . but it looks brighter and brighter every single dayArthur Laffer, an economist best known for the eponymous “Laffer curve” which holds that lowering tax rates can increase the revenue raised, says extending the 2017 cuts, which Congress is expected to do over the course of the summer, would produce “spectacularly wonderful” results for the US economy.Others disagree, saying the measures raise the prospect of a fiscal crisis. Moody’s said the extension would add more than $4tn to US deficits over the next decade, citing it as part of the reason for downgrading its credit rating.Laffer — an adviser to several Republican US presidents, including Richard Nixon, Reagan and Trump — believes the administration will eventually lower tariffs to levels that boost free trade. “There’s a good chance that we’re at a transformational moment in time,” Laffer tells the FT. “It’s not all worked out. We have a long way to go. But it looks brighter and brighter every single day from my perspective.” Yet while the hard data show little signs of damage from tariffs so far, surveys of business and consumer confidence point to a dour mood. The University of Michigan’s closely watched sentiment measure hit its second-lowest level on record in May and showed even Republicans were souring on Trump’s economic policies. Misty Skolnick, co-owner of Uncle Jerry’s Pretzels, a small, family-owned bakery operating out of Pennsylvania, says sales are already down as the chaos of April 2 creates a “ripple effect” throughout the economy. “People are unsure of what’s happening,” she says. “Spending money on an artisanal pretzel isn’t necessarily at the top of their mind at this time.” Some content could not load. Check your internet connection or browser settings.Many economists still predict anaemic growth.“The impact on consumer and business sentiment has been very negative, [hitting] capex and spending decisions in the coming months,” says Nikolay Markov, an economist at Pictet Asset Management, who is still forecasting a 1.1 per cent expansion in 2025, less than half last year’s level of 2.8 per cent. “There’s an upside but not to the extent that we need to upgrade now.” Whether or not higher prices become baked into businesses’ and households’ calculations of future inflation will be crucial in determining if the Fed will feel able to cut interest rates from their current level of between 4.25 to 4.5 per cent. The Fed’s vice-chair, Philip Jefferson, said on May 14 that he had “adjusted down . . . expectations for economic growth this year” in the wake of the tariffs, which he predicted would fuel price growth if sustained.How much of the tariff-based price shock will stick will also depend on whether companies feel that their customers will be willing to stomach higher prices. The April CPI release showed signs of a fall in so-called discretionary spending — an indication that Trump’s policies might already be weighing on demand. Airlines and hotel room rates fell outright, while the cost of sporting events slumped by more than 12 per cent month on month. Julie Drews, co-owner of beer specialists The Brew Shop, in Arlington, a prosperous suburb close to Washington, believes it could be difficult to pass on additional costs at a time when their customers have already faced wave after wave of inflation following the pandemic. “I don’t want to raise prices again,” says Drews. “I can feel that people are still feeling sensitive.” Vance Sine, a manager at retailer California Electric Supply, thinks his suppliers might leave him with little choice. “It almost seems like a cash grab — since everyone is increasing the prices, they jump in,” says Sine, whose business is in the city of Chula Vista, near the Mexican border. For now, the sense of uncertainty persists. “There will be relief over the easing of tariffs, but [importers] cannot carry on as if nothing has happened,” says Peter Sand, of shipping data firm Xeneta. “If we have learnt anything in the past few months, it is to expect the unexpected.” Data visualisation by Alan Smith More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Poland’s stock market has emerged as one of the world’s top-performing bourses this year, helped by the country’s relatively insulated position from the global trade war and an expected boost from neighbouring Germany’s fiscal “bazooka”.The benchmark WIG Poland index has climbed 28.6 per cent year to date — despite slipping on Monday after an unexpectedly close first-round presidential vote — placing it ahead of other strongly performing markets such as Chile and Greece. In contrast, the US’s benchmark S&P 500 is up about just 1 per cent.The rally has been driven by a “significant inflow of foreign capital”, according to Tomasz Bardziłowski, chief executive of the Warsaw Stock Exchange, due to Poland’s healthy economy as well as the equity market’s rising dividend payouts and comparatively low valuations. Polish stocks trade at a 15 per cent price-to-earnings discount to the MSCI Emerging Markets index.The market has also proved popular due to the fact that about three-quarters of Poland’s commerce is conducted within the EU. That has made it less vulnerable than others to the trade war launched by US President Donald Trump and a more attractive bet for some investors.“The market is small enough for foreign capital movements to have a visible impact,” said Piotr Arak, chief economist at Poland’s VeloBank. “Trump’s trade war also diverted capital flows from the US to emerging markets like Poland and parts of Latin America less affected by tariffs.” The WIG index is about $135bn in size, compared with $2.9tn for the UK’s FTSE 100 and more than $50tn for the S&P.Poland, which cut interest rates this month for the first time since Prime Minister Donald Tusk returned to power in 2023, is also benefiting from a huge increase in planned spending by neighbouring Germany, its biggest trading partner.Germany’s struggling economy sparked jitters in Warsaw last year. But those concerns had given way to hopes for a positive knock-on effect for Poland from the “bazooka fiscal stimulus” package drafted by the new government in Berlin, said Kamil Stolarski, head of equity market research at Santander Poland. The Polish economy grew 3.8 per cent year on year in the first quarter of 2025, the second-fastest rate in the EU after Ireland and well above the bloc’s average growth of 1.4 per cent, according to Eurostat data. Meanwhile, analysts forecast that earnings per share for Warsaw-listed companies will grow on average by about 10 per cent in 2025. Financial services companies, which account for two-fifths of the WIG, are raising dividends after posting bumper earnings. Polish banks had combined profits of 42bn zlotys ($11bn) in 2024, up from 27.6bn the previous year.Poland should “remain resilient during these turbulent times, thanks to its diversified economy, a large domestic market and limited direct trade exposure to the US”, said Beata Javorcik, chief economist at the European Bank for Reconstruction and Development.Poland will have the strongest economy this year among the EU’s formerly Communist countries, with annual growth of 3.3 per cent, according to the EBRD’s latest forecasts. Domestic politics have also been encouraging investors. The return of Tusk and his pro-EU coalition has unlocked billions of euros in previously frozen EU funds. The government has begun deploying this money — largely on infrastructure and energy transition projects — as it seeks to move away from the country’s reliance on coal.Shares in state-controlled energy groups have surged, with oil company Orlen up 53 per cent and utility PGE rising 56 per cent since the start of the year.The WIG lost 0.8 per cent on Monday, as attention now turns to the presidential run-off election on June 1. Rafał Trzaskowski, who is Tusk’s candidate, is facing an unexpectedly tight contest against Karol Nawrocki of the opposition Law and Justice (PiS) party, after Trzaskowski only narrowly won the first round on Sunday. A Trzaskowski victory in the run-off would enable Tusk’s government to proceed with long-delayed reforms previously blocked by outgoing president Andrzej Duda, a PiS appointee. But a Trzaskowski defeat is seen as likely to destabilise Tusk’s coalition and could even force early parliamentary elections. “A victory of the candidate of Tusk’s party would be supportive for investors’ sentiment towards Polish assets, while a defeat could provoke new concerns about Poland remaining on the reform path,” said Piotr Bujak, chief economist at PKO BP, Poland’s largest bank.Both presidential contenders have placed national security at the heart of their campaigns, echoing Tusk’s November warning about the “serious and real” risk of global war. Yet investors have recently focused instead on Trump’s diplomatic efforts to negotiate a truce between Russia and Ukraine. That could position Poland as a strategic hub for Ukraine’s eventual reconstruction.“I think that one key reason for the market rise is that investors are really betting on peace in Ukraine,” said Andrzej Kubisiak, deputy director of the Polish Economic Institute, a think-tank.“Poland’s strong economic showing in the EU is boosting investor confidence, though the outcome of peace talks still poses a risk to further gains on the Warsaw exchange.” 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 worldPresident Donald Trump’s “big, beautiful” tax bill risks sharply increasing the US public debt, sparking alarm among investors and fuelling questions over how long the world will finance Washington’s largesse.US long-term borrowing costs rose at the start of this week, after a congressional committee on Sunday advanced a budget bill that is estimated to add trillions of dollars to the federal deficit over the next decade by extending tax cuts. The bill progressed after Moody’s on Friday stripped the US of its pristine triple-A credit rating. The bill and credit downgrade have added to anxiety over the sustainability of US public finances at a time when many investors and analysts say the debt and deficit are at uncomfortably high levels.“It’s like being on a boat heading for the rocks and having those running the ship arguing over which way to turn,” Ray Dalio, billionaire founder of hedge fund Bridgewater Associates, told the Financial Times. “I don’t care whether they turn left or right as much as I care that they turn to get the ship back on course.” The proposed legislation, which Trump has repeatedly dubbed as “The Big, Beautiful Bill”, would extend sweeping tax cuts passed in 2017 during the president’s first term.It would also make big reductions to the Medicaid insurance scheme for low-income individuals and to a food aid programme. Hardline Republicans are pushing for greater spending cuts.Karoline Leavitt, White House press secretary, on Monday said the bill “does not add to the deficit”, echoing other Trump administration officials who have suggested the tax cuts would accelerate economic growth.But, the non-partisan Committee for a Responsible Federal Budget estimates the legislation would increase the public debt by at least $3.3tn through to the end of 2034. It would also increase the debt-to-GDP ratio from 100 per cent today to a record 125 per cent, the group said. That would exceed the rise to 117 per cent projected over that period under current law.Meanwhile, annual deficits would rise to 6.9 per cent of GDP from about 6.4 per cent in 2024.The surge in public debt would need to be financed by investors, with the Treasury department accelerating its sales of bonds. However, there are signs that debt investors will insist on higher yields to buy the debt, increasing borrowing costs.The 30-year Treasury yield on Monday rose to a peak of 5.04 per cent, its highest level since 2023 after the House Budget Committee advanced the legislation and on the heels of Friday’s Moody’s rating cut.“We’re at an inflection point in the Treasury market where in order for Treasuries to stay at these current levels, we need some good news on the deficit, soon,” said Tim Magnusson, chief investment officer at Garda Capital Partners. “The bond market is going to be the disciplinarian if there needs to be one.”Edward Yardeni, president of Yardeni Research, reprised a term he coined in the 1980s to describe a market backlash to fiscal looseness: “The bond vigilantes have saddled up, they are ready to make their move,” he said.Dalio said the US needed to rapidly cut its deficit to 3 per cent of GDP by some mix of reducing spending, raising revenues and lowering real borrowing costs.Bill Campbell, portfolio manager at investment group DoubleLine, noted that it was “underweight” 20- and 30-year Treasuries. “It doesn’t look like there is a serious effort to rein the debt in,” he said.The US has long been able to run big deficits compared with other countries because of the vast global appetite for Treasuries, as the world’s de facto reserve asset, and the dollar.This has given the US significant flexibility in its public finances, in the view of rating agencies. But the latest challenge comes at a time when fiscal worries and angst over Trump’s tariffs make investors more concerned about their exposure to dollar assets.“The key problem is that the market has over the past two months structurally reassessed its willingness to fund US twin deficits,” said Deutsche Bank’s George Saravelos. The combination of “diminished appetite to buy US assets and the rigidity of a US fiscal process that locks in very high deficits is what is making the market very nervous”, he said.Additional reporting by Steff Chávez More