Economy

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The world’s largest consumer goods groups have warned that US President Trump’s trade war is denting already fragile consumer sentiment and threatens to leave consumers dealing with a fresh round of price rises. Food and personal care giants PepsiCo and Procter & Gamble (P&G) cut their financial outlooks for the year on Thursday as a result of tariff-related uncertainty. Meanwhile, Unilever and Nestlé said weary shoppers would have to swallow higher prices.Pepsi, the maker of soft drinks and Doritos chips, said profits were likely to stagnate in 2025, scrapping a forecast for single-digit growth. The company blamed tariffs and economic uncertainty for a 1.8 per cent drop in sales during the first three months of the year. “We probably aren’t feeling as good about the consumer now as we were a few months ago,” chief financial officer Jamie Caulfield told analysts. P&G, whose brands include Tide laundry detergent and Gillette razors, lowered its sales and profit guidance for the year even as it modestly raised prices in the latest quarter. “The main driver . . . is a more nervous consumer reducing consumption in the short term,” Andre Schulten, chief financial officer, told reporters. He said consumers were taking a “wait and see” attitude because of uncertainty over the stock market, the jobs market, mortgage rates and politics. P&G now expects organic sales to grow by 2 per cent this year, down from a previous expectation for growth of between 3 per cent and 5 per cent. The group’s results revealed “just how heavy the external pressures are on the industry”, said Blake Droesch, senior analyst at Emarketer, adding that declining demand in essential categories, such as laundry detergent and toothpaste, underscored the fragility of consumer spending. P&G’s share price dropped by 5 per cent following the trading update, while Pepsi’s fell 4 per cent. The warnings from the US consumer goods giants added to widespread corporate concern over the toll Trump’s tariffs will take on the US economy. While the European consumer groups, Unilever and Nestlé, maintained their financial guidance, they also warned on Thursday of growing consumer unease. “We entered 2025 with a consumer who was not optimistic, to say the least,” said Nestlé chief executive Laurent Freixe, during an investor call on Thursday.Fernando Fernandez, newly appointed chief executive of London-listed Unilever, said the direct impact of tariffs on the group’s profitability would be limited, but warned the knock on effects to consumer sentiment still posed risks. Fernandez also cited higher commodity prices and currency volatility as causes for concern.During a period of high inflation following the Covid-19 pandemic, manufacturers of household brands largely passed on their substantially higher costs on to consumers. However, with Trump’s tariffs threatening to push up inflation once more, there are increasing concerns that many consumers will not stomach further price rises.Jefferies analyst David Hayes said companies were struggling with how to cover rising costs without losing customers. “Nestlé and to some extent Unilever were both flagging that the reaction to price rises is still not yet clear,” he said, adding that P&G had indicated they will not be able to fully pass higher costs through to consumers.Nestlé, the Swiss group behind Nespresso and KitKat, said it had cut prices in the US by 1 per cent in an attempt to win back market share after shoppers traded down to cheaper products — demonstrating the limits of its pricing power. Fernandez said Unilever was seeing the return of some commodity price inflation, particularly in its personal care and ice cream divisions, but remained “cautious” about raising prices. The maker of Magnum ice cream and Dove soap increased prices by 1.7 per cent in the first quarter, but the volume of goods it sold rose by only 1.3 per cent. Overall, its underlying sales increased by 3 per cent in the first three months of the year.P&G’s Schulten said the group would consider raising prices further to compensate for any impact from Trump’s tariffs. The company also plans to look at switching sources of supply, changing how it formulates products and boosting productivity. More

So-called durable goods orders soared a seasonally adjusted 9.2% on the month, up from a 0.9% gain in February and well ahead of the Dow Jones forecast for a 1.6% increase.
In other economic news Thursday, the Labor Department reported that initial claims for unemployment insurance rose to a seasonally adjusted 222,000.

Companies in March accelerated their orders for big-ticket long-lasting goods ahead of President Donald Trump’s aggressive tariffs on U.S. imports, the Commerce Department reported Thursday.
So-called durable goods orders soared a seasonally adjusted 9.2% on the month, up from a 0.9% gain in February and well ahead of the Dow Jones forecast for a 1.6% increase. Excluding defense, the increase was even higher, at 10.4%, though the ex-transportation number was flat.

Transportation equipment orders surged 27%, led by a 139% increase in nondefense aircraft and parts. In addition to aircraft and autos, the durables category also includes items such as appliances, computers and jewelry.
In other economic news Thursday, the Labor Department reported that initial claims for unemployment insurance rose to a seasonally adjusted 222,000 for the week ending April 19, an increase of 6,000 though roughly in line with the Wall Street consensus of 220,000.
On the durables goods side, the advanced report reflects a pull-forward effect as Trump dangled threats against U.S. trading partners through March before announcing his “Liberation Day” duties on April 2. Trump slapped a 10% tariff against all imports as well as a select charges against dozens of countries that he ultimately tabled for 90 days for negotiations.
A Federal Reserve report Wednesday indicated that companies were adjusting behavior to get ahead of the Trump tariffs.
The economic summary, known as the “Beige Book,” said companies in particular saw an increase in vehicle sales, which would fall under the durables category, “generally attributed to a rush to purchase ahead of tariff-related price increases.”

The report otherwise showed apprehension about economic conditions, particularly in light of the tariffs, indicating that the burst in durables orders for March is likely not indicative of the long-term broader environment.
On the labor front, the jobless claims report showed that layoffs are not rising despite Trump’s efforts to slice the federal employment rolls.
In addition to the stable weekly numbers, continuing claims, which run a week behind, declined to 1.84 million, down 37,000 from the prior week. Claims in Washington, D.C. also fell, down to 753, or a decrease of 112 from the prior week, according to unadjusted numbers.
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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 worldSay what you like about Scott Bessent, but the Treasury secretary’s insistence on claiming logic in every tergiversation of Donald Trump’s haphazard tariff policy is providing much amusement abroad. Bessent and other administration officials are now beetling around the world desperately trying to sign dozens of trade deals while fractious financial markets metaphorically hold a gun to their heads, and we’re asked to believe it is all a cunning plan.Obviously, Trump’s strategy is terrible: it’s not even clear what he wants. But a less inept administration would also be struggling. Over the decades, the US’s leverage to remake the global trading system — capital flows, advanced technology and access to its vast consumer market — has weakened relative to China. Barack Obama used to call the US the “indispensable nation”. In trade and tech terms that is increasingly untrue.During the post-second world war Marshall Plan, the US created a largely Atlanticist political economy in western Europe. It offered not just financial Marshall Aid but also advanced technology, and access to its growing consumer market.Those advantages have dissipated. US aid budgets have massively shrunk relative to China’s, and the so-called Department of Government Efficiency has more or less closed down their last vestiges in the US Agency for International Development.The US, particularly under Joe Biden, worked hard to deprive China of advanced technology, especially semiconductors. But the failure to match Chinese official and corporate investment, while sending the wrong signals to US industry, mean it’s well behind in much of green tech. If a country wants to adopt solar or wind power or replace internal combustion engines with electric vehicles, including batteries, it will generally get the heavily subsidised kit from China.The Rhodium Group consultancy estimates that China’s share of global exports in solar cells and modules was 53.5 per cent in 2023, up from 35.5 per cent 10 years previously, and had risen above 50 per cent for lithium-ion batteries and semi-finished EVs.The US, using subsidies and protective tariffs on imports, has attempted to build up its own battery, EV and solar production for the domestic market. This week, a Biden initiative came to fruition in the announcement of mesospheric tariffs of up to 3,521 per cent on solar cells from south-east Asian countries. This may be politically necessary to keep solar power alive in the US, but it will never make it a competitive exporter.Similarly, on EVs the EU is trying to integrate cutting-edge Chinese production into its domestic market. But the US, its indigenous car industry skewed by trade protection towards giant gas-guzzling pick-up trucks that no other country wants, is creating a low-tech, high-priced EV sector that cannot compete overseas.If it can’t offer technology to secure trade deals, surely the US still has its domestic market as an incentive? Here it retains an advantage over China, which continues to follow an export-oriented growth model. The OECD told me that in 2019, the latest pre-Covid year for which they can calculate this data, the US share of total global goods imports was 15.4 per cent, but its share of final demand (which takes account of the value added at each stage of production) was 17.5 per cent, well above China’s 9.7 per cent and even the EU’s 11.3 per cent. The US has long used market access as bait for trading partners to cut tariffs, adopt US rules on intellectual property rights and so forth. Probably the last hurrah for this tactic was the painstakingly created Trans-Pacific Partnership, signed by 12 Asia-Pacific countries in 2016 and designed to encircle China with US-oriented economies.But Congress held the agreement up before Trump pulled the US out altogether in 2017. The spurned countries went ahead and turned the TPP into the “comprehensive and progressive” CPTPP without the US, excising IP provisions that had been included at Washington’s insistence.Since then the prospects for using the US market for leverage have shrunk, not just because of the secular decline in America’s share of the global economy but because of the toxicity of trade agreements in Washington. The Biden administration attempted to restore US influence in the Asia-Pacific with the “Indo-Pacific Economic Framework for Prosperity”. But that merely created bemusement in the region by attempting to coax partner countries to adopt US labour standards and other rules without offering export markets in return.Trump’s idea is to threaten to take market access away with high tariffs and then restore it in return for trade concessions. It’s all stick and no carrot. The credibility of his threat to impose permanently high import duties is subject to the whim of the financial markets, and his trustworthiness in keeping those taxes low following a deal exceedingly suspect.In the global game of trade poker, Trump inherited a weakening hand and is playing it extremely badly. Bessent and his other officials are in a precarious position. The US does not have the aid, the technology or the market access to exert control over global trade the way it once did, and Trump’s erratic behaviour is rapidly increasing the probability that it never [email protected] More

Unlock the White House Watch newsletter for freeYour guide to what Trump’s second term means for Washington, business and the worldUS Treasury secretary Scott Bessent has cautioned that any de-escalation in the US-China trade war would have to be mutual, denying suggestions that President Donald Trump would unilaterally cut levies on Chinese goods.Speaking to reporters on Wednesday, Bessent said “there would have to be a de-escalation by both sides”, echoing comments he made to a JPMorgan conference on Tuesday, where he warned that the US-China trade war was “not sustainable”.Bessent said the high level of tariffs the US and China had imposed on each other was “the equivalent of an embargo”. Trump has imposed a 145 per cent levy on Chinese goods and Beijing has retaliated with a duty of 125 per cent.“A break between the two countries on trade does not suit anybody’s interests,” Bessent said.When asked if the US would make a unilateral offer to de-escalate trade tensions with China, Bessent responded: “Not at all.”His remarks came after The Wall Street Journal on Wednesday said Trump was considering unilaterally cutting tariffs on China.When asked later on Wednesday how soon the US could cut tariffs on China, Trump told reporters “that depends on them”. Responding to a question on whether he was worried about the impact that his 145 per cent tariff on Chinese goods was having on American small businesses, Trump replied: “No”.“It’s a high tariff, but I haven’t brought it down,” he said. “It basically means China’s not doing any business with us . . . because it’s a very high number.”Trump added that the US and China were in direct contact “every day”. Officials have had working-level engagements over the past few months, but there have been no negotiations about trade.The Chinese foreign ministry on Thursday said reports that China and the US were nearing a deal were “fake news”.“There have been no consultations or negotiations between China and the United States regarding tariffs, let alone reaching an agreement,” said spokesperson Guo Jiakun. “This tariff war was initiated by the US, and China’s stance has always been clear: if you want to fight, China will fight to the end; if you want to talk, the door is open,” he added.US stocks gave back some of their earlier gains on the back of Bessent’s comments, with the blue-chip S&P 500 ending the day 1.7 per cent higher in New York. The tech-heavy Nasdaq Composite gained 2.5 per cent.Both indices had sold off heavily on Monday on concerns that Trump was considering firing US Federal Reserve chair Jay Powell. On Tuesday, the president reassured markets by saying he had “no intention” of sacking him.“Uncertainty and inconsistency are economic poison,” said Steven Grey, chief investment officer at Grey Value Management. “By endlessly reversing itself and reneging on earlier commitments, this White House has permanently conditioned everyone to take its statements with a grain of salt.”Bessent cautioned that the two countries had not held any trade talks. Sources familiar with the discussions in Washington and Beijing have said that China had made clear that it viewed Trump’s tariffs as a form of economic bullying and will not capitulate.“Both sides are waiting to speak to the other,” said Bessent, who would not be drawn on the timing of any talks.Asked about China’s stance that the US was using the tariffs as a form of bullying, Trump said: “China has been charging us massive tariffs for many years . . . now we’re reversing it.”Bessent told investors at the JPMorgan conference that based on data from two weeks ago, maritime container bookings from China to the US had fallen by 64 per cent.“It’s both a blessing and a curse that the strongest relationship is at the very top,” he said. “So it’s between President Xi [Jinping] and President Trump, and obviously, in any de-escalation, the talks would not begin at the very top, so I don’t have a timeframe.”Trump has said he wants to negotiate with Xi, but China has made clear that it would not consider a phone call, let alone a summit, until officials from both sides had hammered out the contours of a possible trade deal.One person familiar with the situation said the chief executives of Walmart and Target had delivered a stark warning to Trump about the impact that the tariffs were having on trade in a White House meeting on Monday.A New York investor stressed that it was very hard to interpret the comments from Bessent and Trump. “Who the heck knows what weight you assign to [Bessent’s comments on China and Trump’s pivot on Powell],” the person said. “The market is a perpetual yo-yo.”Additional reporting by Joe Leahy in Beijing More

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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The writer is chief economist at Goldman SachsI admit it: I often dodge questions about the dollar. A large body of academic literature and my own experience as an economic forecaster have taught me that predicting exchange rates is even harder than predicting growth, inflation and interest rates.But with all due humility, I believe that the recent dollar depreciation of 5 per cent on a broad trade-weighted basis has considerably further to go.Federal Reserve data shows that the real value of the dollar still stands nearly two standard deviations above its average since the start of the floating exchange rate era in 1973. The only two historical periods with similar valuation levels were the mid-1980s and the early 2000s. Both set the stage for depreciations of 25-30 per cent.Combined with the ongoing portfolio flows into US assets and the outperformance of the country’s stocks, dollar appreciation has sharply boosted the share of the US in global investor portfolios. The IMF estimates that non-US investors now hold $22tn in US assets. This perhaps accounts for one-third of their combined portfolios — and half of this is in equities, which are often not currency hedged. A decision by non-US investors to reduce their US exposure would thus almost certainly result in significant dollar depreciation.In fact, even reluctance by non-US investors to add to their US portfolios will probably weigh on the dollar. This is because balance of payments accounting implies that the US current account deficit of $1.1tn must be financed via a net capital inflow of $1.1tn per year. In theory, this could come via foreign purchases of US portfolio assets, foreign direct investment in the US, or US sales of foreign assets. In practice, however, most swings in the US current account balance correspond to swings in foreign purchases of US portfolio assets. If non-US investors don’t want to buy more US assets at their current prices, those prices must fall, the dollar must weaken, or (most likely) both.These observations would not matter as much if the US economy were set to continue outperforming its peers, as it has for most of the past two decades. But this seems unlikely, at least for the next couple of years. At Goldman Sachs, we have recently cut our growth forecasts in all major economies on the back of the tariff shock, but nowhere more than for the US. We lowered our estimate of US growth in GDP from the fourth-quarter of 2024 to the same period this year to 0.5 per cent from 1 per cent. With GDP and corporate profits growing slowly at best, a sharp rise in measures of US policy uncertainty and questions about Fed independence, we expect non-US investors to curb their appetite for US assets.Some content could not load. Check your internet connection or browser settings.Dollar depreciation should not be confused with loss of the dollar’s status as the world’s dominant currency. Barring extreme shocks, we think the dollar’s advantages as a global medium of exchange and store of value are too entrenched for other currencies to overcome. We have had large exchange rate moves without loss of the dollar’s dominant status in the past, and our baseline expectation is that the current move will be no different.What are the economic consequences of a weaker dollar? First, it will exacerbate the tariff-related upward pressure on consumer prices. Tariffs alone are likely to push up core inflation — as measured by the Personal Consumption Expenditures Price Index — from 2.75 per cent now to 3.5 per cent later this year, and we estimate that dollar depreciation could add another 0.25 percentage point or so. While this is modest, dollar depreciation reinforces our view that the “incidence” of higher US tariffs will fall predominantly on American consumers, not foreign producers.Second, a weaker dollar not only raises import and consumer prices but also lowers export prices (measured in foreign currency). In the medium term, this relative price shift should help shrink the US trade deficit, one of the Trump administration’s goals. US policymakers are therefore unlikely to stand in the way of dollar depreciation, even without any type of “Mar-a-Lago accord”.Third, a weaker dollar could, in principle, ease financial conditions and help keep the US economy out of recession. But the drivers of the depreciation matter. Reduced appetite for US assets, including Treasury securities, could offset the impact of a weaker currency on financial conditions.In any case, the most important determinant of whether the US enters a recession is not the dollar. A decision to implement additional “reciprocal” tariffs following the current 90-day pause, an ongoing US-China trade war, or aggressive further goods-specific tariffs could make recession inevitable, no matter where the dollar goes. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Corporate America is counting the cost of Donald Trump’s trade war, with executives warning of escalating expenditures, gummed-up supply chains and a hit to the world’s largest economy. While company leaders have generally avoided public criticism of the US president, they have been forced to confront his tariffs — which include levies of 145 per cent against export powerhouse China — on quarterly earnings calls with analysts this month.Transport, energy, telecommunications and homebuilding companies were among those to discuss the tariffs with Wall Street. In their comments, executives raised the alarm about the consequences of Trump’s sweeping duties, echoing economists’ warnings of recession. “CEOs are a really unhappy bunch at the moment,” said Steven Purdy, head of credit research at fund manager TCW.Trump was warned of the impact his tariffs were having on trade by the chief executives of Walmart and Target in a meeting at the White House on Monday, according to one person familiar with the situation.While fewer than a fifth of the blue-chip stocks in the S&P 500 index had held first-quarter earnings calls by Tuesday, tariffs were cited on more than 90 per cent of them, according to FactSet. The term “recession” was mentioned on 44 per cent of calls, compared with less than 3 per cent on those covering the fourth quarter of 2024.Norfolk Southern, a big US freight railroad group, on Wednesday said tariffs could slow down shipments of cars and intermodal containers, while coal production might cool “amid significant uncertainty around export trade”. Boeing also said on Wednesday that the US trade war with China would force it to find alternative buyers for some of its aircraft.Tariffs will drive up the cost of gas-fired power generators, just as US electricity demand grows at a rate “unlike anything we’ve ever seen since the end of World War II”, John Ketchum, chief executive of NextEra Energy, owner of the largest US power utility, said on Wednesday. Gas turbine manufacturer GE Vernova said its costs could rise as much as $400mn this year, while oilfield services groups Halliburton and Baker Hughes warned that Trump’s trade war could dent earnings, disrupt supply chains and push down oil prices, causing a pullback in drilling.Baker Hughes’ shares fell 6.4 per cent on Wednesday after it said tariffs could cost the company up to $200mn in earnings before interest, tax, depreciation and amortisation this year, a hit of about 4 per cent.AT&T and Verizon, two of the biggest US telecoms groups, warned that tariffs could raise the price of phone handsets and wireless routers. “If the tariff is going to be as high as they say on the handsets, we are not planning to cover that in our work. That’s just not going to be possible,” Verizon’s chief executive Hans Vestberg told analysts this week. Boston Scientific said tariffs would cost the medical-device maker about $200mn this year, even as it raised its profit guidance. Johnson & Johnson last week maintained its annual earnings forecast but noted $400mn in costs related mainly to tariffs on medical devices.At 3M, chief executive William Brown said “tariffs are going to be a headwind this year”. The manufacturer of Scotch tape and Post-it notes said it would try to soften the blow by moving production and inventory around its network of 110 factories and 88 distribution centres, by cutting costs and by raising prices. “We’re trying to be pretty smart, strategic and surgical about this,” Brown said.At builder PulteGroup, chief executive Ryan Marshall said tariffs would add about $5,000 on average to the sale price of new homes. “Whether it’s the volatility in the stock market, concerns about tariff-induced inflation, the fluctuation in interest rates or the growing talk of recession, demand in April has been more volatile and less predictable day-to-day,” Marshall told analysts.Aerospace and defence company RTX said it could suffer an $850mn hit to pre-tax operating profit from Trump’s tariffs if they remained in place to the end of the year. GE Aerospace said it would raise prices to help offset roughly $500mn in extra costs.Executives have been responding to fast-changing US trade policy. Trump in early April suspended so-called reciprocal tariffs against most countries for 90 days hours after they took effect, while raising tariffs on China. He plans to spare carmakers from some tariffs, the Financial Times reported on Wednesday.TCW’s Purdy said chief executives were stuck in a kind of suspended animation as trade policy changes. “They don’t know if they’re going to wake up in six months into an entirely new world order, or if this is going to feel like a really bad dream,” Purdy said. Reporting by Gregory Meyer, George Steer, Jamie Smyth, Peter Wells, Zehra Munir, Will Schmitt and Demetri Sevastopulo More

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