Economy

Unlock the White House Watch newsletter for freeYour guide to what Trump’s second term means for Washington, business and the worldAlmost 600 years ago, when the Ottomans conquered Constantinople, they learnt the danger of imperial over-reach. In a bid to punish the European merchants they disliked, the Ottomans imposed fees and sanctions on traders using the famed Silk Road. The Portuguese duly responded by developing sea routes to Asia. The resulting struggle led to the long-term decline of the Silk Road; the power-grab backfired. Is this now happening again? It is worth pondering. US President Donald Trump is not only unleashing wildly capricious tariffs (a word, incidentally, drawn from Arabic), he is also implementing sanctions.This week alone, amid his whirlwind tour of the Middle East, Trump announced sanctions on Asian companies that move Iranian oil to China. He is also mulling fresh sanctions against Russia, following a move by Europe.Trump is certainly not the first US president to do this: his predecessors have increasingly embraced the idea since 2001. But the White House appears doubly eager to wield these weapons now, not just around oil, but also sensitive technology such as chips, and finance (by cutting countries out of the Swift payment system). Or as Edward Fishman writes in a powerful new book Chokepoints: “Great powers once rose and survived by controlling geographic chokepoints like the Bosphorus. American power in the globalised economy relies on chokepoints of a different kind.” However, there is a certain irony here: just as the Portuguese responded to Ottoman controls by developing alternative trading routes that undercut their power, Trump’s targets are now threatening to do the same — faster. Consider oil. Back in 2022, after Moscow’s brutal invasion of Ukraine, America and Europe put sanctions on Russia’s oil exports, hoping to hit its economy, just as earlier sanctions did with Iran. But western allies also feared that an outright ban would cause oil prices to soar. So they tried half measures: Russia was permitted to sell to non-western countries, but at sub-market prices, below $60 per barrel, with sanctions imposed on recalcitrants. This inflicted some pain on Russia: fascinating economic research from the Dallas Federal Reserve suggests that when Russian exports were diverted to India, Russia had to “accept a $32 [per barrel] discount on its Urals crude in March 2023 relative to January 2022”, due to higher shipping costs, and India’s newfound bargaining power. But this pain was ameliorated because Russia also started using “shadow fleets” to transport oil — tankers that avoid detection by switching off transceivers. And while such shadow fleets used to be small, they have now exploded in size, creating “a permanent parallel oil trading system beyond internationally recognised policies and controls,” according to a report from the Royal United Services Institute. Indeed, one recent economic analysis that used machine learning models suggests that “between 2017 and 2023, dark ships transported an estimated 9.3mn metric tons of crude oil per month — nearly half of global seaborne crude exports.” China accounts for 15 per cent of the trade.American officials are trying to fight back. Hence this week’s sanctions move against Hong Kong-based companies. But, as Agathe Demarais, of the European Council on Foreign Relations, notes in her book Backfire, past experience suggests that sanctions only truly work well when they are implemented swiftly, clearly targeted and — crucially — backed by allies. It is not clear if Trump can deliver this. After all, his tariff policy has shattered the trust of allies. And efforts by the previous administration to curb tech exports to China partly backfired, since Beijing is developing its own tech and using third parties to smuggle in chips. So too with finance: when America pushed Russia out of the Swift payment system, it “significantly reduced Russian trade with the firms in the west” but was “ineffective in reducing Russian trade with non-western countries,” according to an unpublished paper from economists at the Bank for International Settlements. That was because “the increasing use of partner currencies in Russia’s trade with developing countries has helped mitigate the effects of Swift sanctions”. True to form, Trump has doubled down: he is threatening to impose 100 per cent tariffs against countries that develop non-dollar payment systems. Maybe that will work, given the dollar’s current dominance. But, to echo Demarais’ point, history shows that while sanctions can sometimes be effective, they must be used very decisively, with allies. Even then, they can produce unintended consequences. So all eyes on Iranian oil. Trump may yet roll back his threats: oil prices fell on Wednesday when he said he was making progress in talks with Tehran. But if not, those shadow ships will be a good litmus test of whether Trump’s team really has as much power as it thinks. Time to (re)visit the Silk Road. [email protected] More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Federal Reserve policymakers’ aims to curb inflation while maximising employment are “pulling them in diametrically different directions” as Donald Trump’s trade war upends the economic outlook, the head of Fidelity’s $2.3tn fixed-income business has said. Robin Foley told the Financial Times that the US central bank’s “inflation fighting is all well and good, but employment still remains to be seen”. She added that the central bank was in a “tough spot”.Foley’s comments come as the Fed has this year paused a rate-cutting cycle that began in 2024 as the US president’s levies on big trading partners threaten to increase inflation and hit the jobs market. Recent economic reports have suggested the Fed has made progress in pushing inflation towards its 2 per cent target while unemployment has remained subdued. But surveys have shown Americans are growing increasingly worried about their employment prospects, while many companies have warned tariffs could lead to price increases. Fed chief Jay Powell said last month that “we may find ourselves in the challenging scenario in which our dual-mandate goals are in tension”. Foley, who has worked at Boston-based Fidelity for 39 years and keeps a lower profile than many industry peers, noted that over the past year there had been “wildly volatile” shifts in expectations for interest rates among market participants. Trading in futures markets suggests investors expect the Fed to resume cutting borrowing costs in September, significantly later than forecasts at the start of the year.Foley added that it appeared that the intense volatility in the US government bond market following Trump’s “liberation day” announcement of sweeping tariffs on April 2 had been one reason why the president ultimately eased his stance on levies. Despite the market tumult, Foley said Fidelity had been “overweight risk” against the main benchmarks in some of its fixed-income strategies, “but not excessively so”.Almost a third of the asset manager’s flagship Total Bond Fund sat in corporate bonds as of March 31, relative to just a 25 per cent allocation within a fixed-income index tracked by Bloomberg. The same flagship fund had less than a third of its holdings in US government debt, below the benchmark’s 46 per cent position.With interest rates remaining elevated, “there’s very attractive yield in the market now”, said Foley, “even in the form of US Treasuries; that was not true for a very long time.“With that as a backdrop, you really need to be compensated to take on incremental credit risk.” More

Reading headlines about business in China in the past five years, foreign observers might be forgiven for thinking the country of 1.4bn people is no longer worth considering as an investment destination.From the crushing Covid lockdowns and property sector meltdown to US-led sanctions on Chinese tech companies and now President Donald Trump’s trade war, negative sentiment has abounded.And yet, on the ground in the world’s second-biggest economy that is also a high-tech manufacturing powerhouse, some lawyers and other advisers still consider China to be a land of opportunity that continues to be misunderstood.“There are still a lot of opportunities here,” says Joe Chen, a Shanghai-based partner with JunHe, one of China’s top law firms, who has been involved with some of the biggest private equity deals recorded in China.Some of the merger and acquisition activity is the result of rising geopolitical tensions, as multinational companies act to shift their business out of China. But transactions have also continued for more sanguine reasons, and groups of Chinese investors — such as insurers, some of the most active — remain hungry for deals.These deals included alternative investment manager PAG’s sale last year of a majority stake in AirPower’s industrial gas unit, Yingde, to a Chinese consortium. According to reports, the deal was valued at about $6.8bn, compared with PAG’s equity investment of $1.5bn in 2017, marking a conventional exit for the group, which is led by Weijian Shan, a veteran Hong Kong-based private equity investor. “For them it was a very normal exit,” says a person familiar with the deal.Separately, Spain-based healthcare giant Grifols sold a 20 per cent stake in blood products manufacturer Shanghai RAAS to Chinese consumer electronics group Haier for €1.6bn last June. This, JunHe’s Chen says, was a “good asset” that attracted interest from a handful of potential buyers before Haier secured the deal.Statistics on China’s M&A trends, released this year by PwC’s China team, paint a mixed picture. On the one hand, the value of China’s M&A transactions fell 16 per cent to $277bn last year as the number of so-called megadeals above $1bn fell to the lowest level in nearly 10 years at just 39.However, PwC also spotted a rebound in venture capital activity, with more than 6,000 deals valued at less than $10mn, up nearly two-thirds in 2024. In terms of the outlook, the firm also saw some “positive” signs, including: pent-up demand for investments; a large number of private equity projects seeking exits; growing demand for overseas investments by Chinese capital; and some big transactions stemming from the reform of China’s state-owned enterprises.From the perspective of domestic investors, some green shoots can also be detected via the rise of a group of companies that include artificial intelligence start-up DeepSeek, electric-car maker BYD, battery company CATL and pioneering robot maker Unitree. These businesses have been held up by investors, and government officials, as indisputable examples of the country’s high-tech prowess. And since September 2024, President Xi Jinping’s administration has also touted a series of measures aimed at stimulating growth, helping to further improve local sentiment after several years of malaise.Unitree is hailed as an example of China’s technological prowess  More

Unlock the White House Watch newsletter for freeYour guide to what Trump’s second term means for Washington, business and the worldThe Trump administration plans to put a number of Chinese chipmaking companies on an export blacklist, but some officials want to delay the move to avoid hurting efforts to strike a long-term trade agreement with China.The commerce department has compiled a list of Chinese companies — including China’s memory chipmaker ChangXin Memory [CXMT] — to add to the “entity list,” according to five people familiar with the matter.Several of the people said the Bureau of Industry and Security, the commerce department arm that oversees export controls, had drafted a list that also includes the subsidiaries of Semiconductor Manufacturing International Corporation, China’s biggest chipmaker, and Yangtze Memory Technologies Co, its largest memory chipmaker. SMIC and YMTC are already on the list. But the timing of the move has been complicated by the trade deal agreed by China and the US in Geneva at the weekend. The two sides agreed to ratchet down their reciprocal tariffs for 90 days to help reach a broader trade deal. Some Trump administration officials have argued that putting export controls on critical Chinese groups now could jeopardise the negotiations. But others point out that Republicans criticised the Biden administration for delaying competitive actions against China to facilitate what they called “zombie diplomacy”.China hawks have long pushed to target CXMT, which is rapidly expanding its share of the global Dram memory chip market. The chipmaker is also leading efforts to become a player in developing high-bandwidth memory (HBM), which is critical for operating artificial intelligence models. Adding the chipmakers to the export blacklist is the latest effort by the US to make it much harder for China to obtain advanced American chips and chipmaking technology that could be used to help modernise its military. American companies cannot sell to Chinese groups on the entity list without government licences, which have become increasingly hard to obtain.US security officials are concerned that it has been too easy for China to obtain American technology, which has enabled its military to do everything from developing hypersonic weapons to modelling nuclear weapons.The Chinese companies could not be reached for comment. The Chinese embassy in the US declined to comment on the case, but said: “China firmly opposes the US’s overstretching the concept of national security, abusing export controls, and maliciously blocking and suppressing China.”The commerce department and White House both declined to comment.   More

Big deals to sell chips to the U.A.E. and Saudi Arabia have divided the U.S. government over whether they could be remembered for shipping cutting-edge A.I. overseas.Over the course of a three-day trip to the Middle East, President Trump and his emissaries from Silicon Valley have transformed the Persian Gulf from an artificial-intelligence neophyte into an A.I. power broker.They have reached an enormous deal with the United Arab Emirates to deliver hundreds of thousands of today’s most advanced chips from Nvidia annually to build one of the world’s largest data center hubs, three people familiar with the talks said. The shipments would begin this year, with the vast majority of the chips going to U.S. cloud service providers and about 100,000 of them to G42, an Emirati A.I. firm.The administration revealed the agreement on Thursday in an announcement unveiling a new A.I. campus in Abu Dhabi supported by 5 gigawatts of electrical power. It would the largest such project outside the United States and help U.S. companies serve customers in Africa, Europe and Asia, the administration said. The details about the chips weren’t disclosed, and it’s not clear if they could still be subject to change.As Mr. Trump traversed the region in recent days, the United States also struck multibillion-dollar agreements to sell advanced chips from Nvidia and AMD to Saudi Arabia. The United States and Saudi Arabia are also still in discussions on a larger contract for A.I. technology, five people familiar with the negotiations said.The A.I. deals have caused people inside and outside the White House to wrestle with an unexpected question. Is the Trump administration, in its zeal to make deals in a region where Mr. Trump and his family have financial ties, outsourcing the industry of the future to the Middle East?The question speaks to divisions over A.I. policy that are rippling through the Trump administration. The deals were negotiated in the Middle East by David Sacks, the administration’s A.I. czar, and Sriram Krishnan, its senior policy adviser for A.I., who are both longtime venture capitalists. Leading figures in the A.I. industry, like Sam Altman of OpenAI and Jensen Huang of Nvidia, have also been involved in talks that have continued on the sidelines of the president’s trip in recent days.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

<!–> [–><!–> –> <!–> –><!–> [–><!–> –><!–> [–><!–> –><!–> [–><!–>For now, consumers are still spending, although more slowly than in the past. Their attitudes about the economic outlook have soured in recent months in anticipation of elevated prices, slower growth and higher unemployment. Americans have also become choosier about how they spend their money. Leisure […] More

Unlock the White House Watch newsletter for freeYour guide to what Trump’s second term means for Washington, business and the worldIf there was any doubt that geopolitics has come to play an outsized role in the fortunes of the US artificial intelligence industry, look no further than the recent upturn in the fortunes of leading AI chipmaker Nvidia.The company’s stock market value has just surged by more than half a trillion dollars in the space of a week on the back of US policy that seemed geared to the needs of the country’s AI companies. At first glance, that might look like a strong “buy” signal for US AI, but the whiplash effect on tech stocks from the erratic opening months of the Trump White House makes such optimism premature.The chipmaker’s hot streak on Wall Street started with the news that the new administration was about to suspend measures designed to slow the spread of advanced AI around the world. The so-called AI diffusion rule, announced late in the Biden presidency and due to take effect this week, would have restricted the free sale of the most sensitive AI technologies to 18 close US allies.Most other countries, consigned to “tier two” status, would have had access to only a limited supply of AI chips. Importantly, the blueprints for leading-edge models would also have been barred from export to these countries, keeping the training and operation of the most advanced AI inside a narrow circle of countries. Lifting those restrictions doesn’t just point to potential new markets for US tech, but could give US AI companies a freer hand in deciding the optimal location for their operations, perhaps even leading to an offshoring of advanced AI.That news was followed at the start of this week with a significant reduction in the severe import tariffs imposed last month on China. A day later, and timed to coincide with a Middle East visit by Trump, Nvidia’s stock got another big lift as the company announced a large deal to sell its most advanced data centre chips to Saudi Arabia.The lurch of US policy in directions that seem to favour its leading AI companies looks like welcome relief for Silicon Valley. However, far from being settled, major parts of the new administration’s tech policy are now officially up in the air. That leaves them vulnerable to horse-trading among different interest groups in the White House, as well as the president’s own whim.Areas of uncertainty include what a replacement AI diffusion rule will look like. The new administration may have shown an openness to countries like Saudi Arabia and the UAE, which is also now in line for a large batch of Nvidia chips — but it is still considering what extra restrictions are needed to prevent the re-exporting of sensitive US technology to China.At the same time, it appears to be working on a comprehensive new tariff regime for semiconductors. And export restrictions on direct sales of AI chips to China continue to be a moving target. A month ago, Nvidia’s market cap slumped by $370bn in just three trading sessions after it disclosed the latest controls on its China sales. That brought a nadir for its stock — before, that is, the more favourable moves in Washington that have since helped to send the price back up nearly 40 per cent.At least the signal from the Middle East this week has been that the US is very much open to unrestricted AI business with its favoured allies, and its tech companies have shown they are more than ready to surge through any open door presented to them. Countries such as Saudi Arabia may have a long way to go to develop the wider tech skills and capabilities they aspire to, but at least they have plentiful supplies of energy and cash.The outlook for opening other markets is harder to predict. As the US tries to reach a host of new trade deals, there is a risk that access to its advanced tech will become just one more pawn haggled over in negotiations.US tech investors, meanwhile, may take extra heart from Washington’s warning to international customers not to buy the latest Ascend data centre chips from Huawei. In practice, there is not much of a sign that is a market yet for these chips outside China. To judge by the pace of recent advances, this probably won’t always be the case. At some point, open Chinese AI models tuned to run on a more advanced generation of Chinese AI chips could come to represent a viable alternative on global markets. The question, at that point, will be whether Washington has already done enough to embed its homegrown AI in all the markets that [email protected] More

Sir Keir Starmer will on Friday be urged by European leaders to raise Britain’s offer on youth mobility and fisheries to unlock a deal with the EU at a historic summit between the two sides on Monday.The prime minister is expected to hold talks with leaders including French President Emmanuel Macron and European Commission president Ursula von der Leyen, in a last-ditch effort to end an impasse ahead of the UK-EU summit in London.EU negotiators are dangling in front of Starmer a better deal for UK touring artists — a cause championed by Sir Elton John — and a long-term deal to remove barriers to agrifood trade, according to Brussels officials.In exchange Starmer is being pressed to concede better terms for EU students and other young people wanting to travel to Britain, along with a long-term extension of current fishing rights in UK waters for France and other coastal states.British officials say they expect Starmer to meet EU leaders on the margins of a summit of the European Political Community — a pan-European grouping focused on security issues — in the Albanian capital of Tirana.One EU diplomat said: “There’s a view that, after Brexit, most of the ‘asks’ in this negotiation are British asks.” The Financial Times reported on Thursday that the 27-member bloc wants Starmer to make last minute concessions.Other EU diplomats warned that the EU-UK reset — set to be signed at the first summit between the two sides since Brexit took effect in 2020 — must include a “fish for food” swap with Brussels.“They have to accept a link between fish and [a food products shipping deal] and they are refusing,” said one EU diplomat, referring to a sanitary and phytosanitary agreement that would reduce barriers to trade in food, fish products and animals.The UK has offered to continue current access to its fishing grounds for four years after 2026, but the EU wants at least seven, officials said. Brussels wants to tie the duration of the veterinary deal to the fishing agreement.A vet deal and one to allow British musicians and artists to tour the EU were in the Labour manifesto, and Brussels is offering to compromise on the latter. A senior official told the FT that it would be willing to amend the post-Brexit treaty between the two to allow British truckers and roadies to move freely between EU countries in return for a scheme to permit 18 to 30-year-olds to work and study in the UK more easily. Starmer, speaking in Tirana on Thursday, said he would not negotiate with Brussels via “megaphone diplomacy” but insisted: “We’ve made good progress and I’m confident we will make really good progress into Monday.”The prime minister said that a deal with the EU — including a security and defence pact — would mean that he had concluded agreements with India, the US and the EU within the space of three weeks. “That is incredibly beneficial for our country,” he said.Starmer again declined to rule out what is expected to be a central part of Monday’s deal: that Britain would accept shifting Brussels rules — and “dynamically align” with new EU regulations — as part of an agreement to break down borders in food trade and electricity markets.Conservative leader Kemi Badenoch has criticised Starmer for being willing to compromise British “sovereignty”. She told a conference in Brussels that “we can improve our relationship with European countries, but not by being a supplicant”.Starmer hit back at the Tory leader, saying: “Without knowing what’s in the deal with the EU, she says she’s against it. The only saving grace is that nobody in Europe takes her seriously.” More