Economy

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The US dollar’s status as a haven for global capital is under threat from erratic policymaking and rising trade barriers, fund managers have warned.On Friday the currency fell to a three-year low against the euro, extending a slide that started last week after President Donald Trump announced steep “reciprocal” tariffs on US trading partners.The moves triggered alarm among investors, who warned of a “tectonic shift” for the global economy if the dollar could no longer be relied upon to provide a refuge during periods of market volatility.“There is [now] a very good case for the end of American dollar exceptionalism,” said Bob Michele, chief investment officer of JPMorgan Asset Management, with $3.6tn under management.For decades, the relative stability of the US economy has allowed the dollar to function as the world’s reserve currency — held by central banks around the globe.That has permitted the US to borrow at low cost and finance “twin deficits” in the country’s current account and its government budget. But a simultaneous sell-off in equities, bonds and the dollar in recent days, prompted by the president’s aggressive trade agenda, point to a loss of faith in US assets among international investors, money managers said.“Trump’s chaotic tariff policy undermines the United States’ position as a safe haven,” said Bert Flossbach, the co-founder and chief investment officer of Flossbach von Storch, Germany’s largest independent asset manager. “There is certainly a possibility that increased policy uncertainty in the US could lead to shifts in the dollar’s use in the global economy,” said Brad Setser, a fellow at the Council on Foreign Relations.Edward Fishman, author of Chokepoints, a book on US economic warfare, said that in addition to Trump’s tariffs, the president’s threats to the rule of law and the Fed’s independence may also be damaging the dollar’s allure.He predicted that over time this could result in a shift to a “multi-polar” system in which currencies, including the euro, play a larger role.The dollar slump is particularly unusual because global financial stress typically strengthens the currency, as investors rush to dollar-denominated assets such US Treasury bonds that are perceived to be havens.Some content could not load. Check your internet connection or browser settings.Economists also said that the currency of any country that imposed import duties was expected to strengthen.Mike Riddell, fixed income portfolio manager at Fidelity International, said the recent sharp move higher in longer-dated government bond yields, coupled with a weaker US dollar, looks like “good old capital flight”.However, economic advisers to the US president have in the past emphasised the costs that have come with a strong dollar.Stephen Miran, chair of Trump’s Council of Economic Advisers, argued before the president’s inauguration that the dollar’s status as a world reserve currency had artificially inflated the exchange rate, undermining the global competitiveness of US manufacturing.Economists have disputed Miran’s argument and raised concerns that his reasoning could lead the Trump administration to take further steps to depress the value of the dollar.Michael Krautzberger, global CIO of fixed income at Allianz Global Investors, said: “The more the conflict escalates, people think, what could be the next steps?” More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.A recent plunge in oil prices, prompted by Donald Trump’s trade war, has started to deplete Vladimir Putin’s war chest. Moscow’s budget — about a third of which comes from oil and gas — may be as much as 2.5 per cent lower than expected in 2025 if crude prices stay at current levels. That would force the Kremlin to increase borrowing, cut nonmilitary spending or draw down its remaining reserves.The average price of Urals crude, Russia’s main export grade, has fallen to the lowest in almost two years, after the US president’s tariff announcements and an unexpected move by the Opec+ coalition to boost output. Urals was trading at about $50 a barrel as of Thursday, according to price reporting agency Argus. Russia planned its budget for 2025 based on Urals at $69.70 a barrel.The price drop adds to pressure on the Russian economy, which is expected to slow this year after being fuelled by war-related spending. Moscow already has used some of its sovereign wealth fund to support the economy after the fallout from Putin’s full-scale invasion of Ukraine, and the accessible portion of those funds is dwindling.In a rare acknowledgment of economic uncertainty, Russian officials have voiced concerns over the drop in oil prices. “This indicator is very important for us in terms of budget revenues . . . The situation is extremely volatile, tense and emotionally charged,” Kremlin spokesman Dmitry Peskov told reporters earlier this week.The shift also shows how Trump’s tariff war is indirectly hurting the Russian economy despite the US president’s recent overtures to Moscow and promise to rekindle economic ties as part of negotiations to end the war in Ukraine. Oil is still down this week, despite Wednesday’s announcement of a 90-day pause to the sweeping tariff programme. Russia’s central bank chief Elvira Nabiullina warned on Tuesday, on the eve of Trump’s 90-day pause announcement, that “if trade wars continue, they usually lead to a global economic slowdown and possibly lower demand for our energy exports”.If oil prices hold near current levels, Russia could lose about a trillion roubles this year, the equivalent to 2.5 per cent of its expected budget revenues, according to chief economist at Moscow-based T-Investments Sofya Donets. That would mean GDP growth falling by 0.5 percentage points, she said. Still, it would take several months for lower oil prices to feed through into budget revenues, according to Janis Kluge, a Russia expert at the German Institute for International and Security Affairs. Russia’s economy is already running at full capacity, with growth — fuelled largely by war-related government spending — expected to slow. Official forecasts suggest an expansion of 1-2.5 per cent in 2025, down from about 4 per cent over the past two years.That makes it unlikely that the state can offset falling oil revenues with funds from non-energy sources.As Putin’s full-scale invasion of Ukraine has dragged into its fourth year, the government’s ability to cushion the economy has been diminishing. Since 2020, the liquid portion of Russia’s sovereign wealth fund — known as the national welfare fund — has fallen by two-thirds. If it is used to cover a widening budget deficit, it might not last far beyond the end of the year, according to Benjamin Hilgenstock, head of macroeconomic research and strategy at the Kyiv School of Economics Institute. “Whether the regime can do anything about this aside from painful cuts to non-war expenditures is a different matter,” Hilgenstock said.About $340bn of the central bank’s reserves also remain frozen under western sanctions, sharply limiting the room for manoeuvre. With the welfare fund running lower, Moscow may be forced to cut spending, which would be a shift from its wartime increases. Economists warn any cuts will probably fall on nonmilitary budget areas, such as social spending.If the oil price stabilises at a very low level, Russia will probably have to tax export companies more to offset some of the revenue decline, according to Oleg Kuzmin, chief economist at Renaissance Capital. “After taxation adjustment and debt financing, Russia will have to consider spending cuts — which also remains an option but beyond ‘plan A’’ or ‘’plan B’,’’ he added.Moscow could also try to raise more debt on international markets, as its public debt burden currently stands below 30 per cent of GDP, a low level by international standards. But for many foreign investors Russian bonds remain toxic. At home, banks were focused on lending to the private sector and had shown little interest in financing deficits, said Hilgenstock, who expected serious constraints for the Russian economy but not a sudden collapse.“It is all not great for the budget, but not catastrophic,” he said. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Motorists looking to buy a luxury car face paying thousands more as the global tariff war drives up the cost of prestigious vehicles.For American drivers, some of the Ferrari cars built in Maranello, Italy, have already become 10 per cent more expensive after Donald Trump imposed higher tariffs against all foreign-made cars. The concern for luxury-car enthusiasts in the UK and worldwide is that a Rolls-Royce or an Aston Martin could soon become far more expensive to buy if the global trade war is not brought to an end.Scott Sherwood, an independent analyst of supercars and luxury car brands, said prices of high-end marques will rise for consumers outside of the US since car manufacturers will try to spread the financial hit across their entire market and customer base.“For customers, it’s inevitably going to lead to higher prices. There is a very high probability of job losses on both sides of the Atlantic,” Sherwood added.This week, the US president announced a 90-day pause on the so-called “reciprocal” tariffs against its trading partners, with the exception of China. But Trump’s 25 per cent levy on imports of all foreign cars remains in place except for a few exemptions made for Canada and Mexico, as well as for vehicles over the age of 25 years.Britain’s car industry is heavily reliant on European exports but it is still exposed to the tariffs since around one in six of the cars shipped goes to the US — and it is the largest market for high-end brands such as Jaguar Land Rover, Bentley and McLaren. The impact for the luxury car segment has been immediate as JLR suspended all shipments of its cars to the US for a month, while Ferrari announced a 10 per cent increase in prices for some of its models. Aston Martin has also said it wants to pass on some of the tariff cost to consumers. Another UK brand, Morgan Motor, plans to pass on about half of the tariff costs to US consumers, meaning its $85,000 Plus Four model would cost 10 per cent more.According to the Institute for Public Policy Research, more than 25,000 direct jobs in the UK car manufacturing industry could be at risk if exports to America fall.  Luxury brands have already been taking measures ahead of the tariffs to minimise their impact but the damage will depend on how much pricing power the companies have, their cash position and the ability to cut costs. People close to Aston Martin said the company had invoiced all stock that landed in the US in March and minimised shipments in April to avoid suspending them. It will also seek higher margins on customisation offers in addition to cutting costs further. To address its weak cash position, the company also announced plans to raise more than £125mn via the sale of its minority stake in the Formula 1 racing team and additional investment from its chair Lawrence Stroll.But Aston Martin still expects as much as a £30mn hit to its gross profit as a result of the 25 per cent tariffs. Analysts had been estimating £30mn in earnings before interest and taxes for 2025.“We anticipated some risks in the plan and built in contingencies,” Aston Martin chief executive Adrian Hallmark said in a recent interview. “This now makes it tighter to hit what we promised but we’re not fundamentally changing our guidance or forecasts as a result of the tariffs.” Ferrari has told investors that the pricing of Ferrari 296, SF90, and Roma families will remain the same, meaning the company and its dealers are likely to absorb the full tariff cost. But other models are likely to be hit by a 10 per cent price increase. Still, strong luxury brands such as Ferrari will fare better than others since their customers may be willing to pay 10 per cent more to get hold of their vehicles.“Does anyone really want a Ferrari that isn’t built in Maranello?,” Sherwood said.© Francesca Volpi/Bloomberg More

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the world The writer is an FT contributing editor, chief economist at American Compass and writes the Understanding America newsletter No one doubts at this point President Donald Trump’s intention to tear down the international economic system that the United States has fostered since the end of the second world war. The confusion is about what might replace it. Comments from the Trump administration have offered some clues as to the potential contours of a new US-led economic and security alliance, but the biggest of open questions concerns Europe. In February, secretary of state Marco Rubio gave an answer that provides the best starting point for understanding the Trump administration’s actions. “It’s not normal for the world to simply have a unipolar power,” he observed. “That was an anomaly. It was a product of the end of the cold war, but eventually you were going to reach back to a point where you had a multi-polar world.” This belief that American hegemony has ended is foundational to the “New Right” view that has become increasingly influential in Washington. As Elbridge Colby, who was confirmed this week as the Pentagon’s policy chief, wrote in 2021: “For the last generation, one nation has wielded unmatched military power [and] bent the international financial system to its will.” For its allies, “America’s tutelage was easy, its burden light — certainly compared to history’s other real or aspiring hegemons. Those days have come to an end.” In the new multi-polar world that would supplant the “liberal world order” of the post-cold war decades, the US would lead an economic and security alliance anchored by the major market democracies, while conceding to China a sphere of its own. Participation in the US-led bloc would require compliance with certain demands, chief among them balanced trade, with no country running a large surplus or deficit at the expense of the others; each member taking the lead in providing for its own security; and a joint commitment to exclude China from their markets. This is a fair deal and one that any market democracy should prefer to falling into China’s orbit. Mexico and Canada, which faced the initial brunt of US actions, and are now engaged in an accelerated renegotiation of the North American trade agreement, would inevitably be core members alongside the US. As China’s chief regional rivals, Japan and India also seem obvious participants — indeed, India’s trade minister has already indicated that negotiations with Washington are “moving in the right direction” while Japan appears poised to move to the head of the line for its own talks. But whither Europe? And here, largely speaking, Europe means Germany. To address trade imbalances, Germany would have to abandon its export-intensive economic model and accept the need to boost domestic consumption, buy more from the US and send more of its producers to set up shop there. But its economy has been in recession since 2023. Germany would also need to take the lead in rebuilding the continent’s military power and squaring off against Russia. For all its rhetoric on Ukraine, the German army is somehow less battle-ready than on the eve of the Russian invasion, and also shrinking. Rather than confront the threat from heavily subsidised Chinese competitors, the German automakers have generally argued against any trade protection, for fear that retaliatory action in China would put their short-term profits at risk. Instead they are encouraging Chinese firms to begin manufacturing within Europe’s borders. Mercedes is now one-fifth owned by the People’s Republic. The US strategy relies upon its most valuable allies preferring its partnership to China’s, even under a revised arrangement that asks more of them. In most cases, that seems a safe bet. But with Europe the question is more acute. From its declining population and self-sabotaging energy policies to its crisis of democratic legitimacy and lack of innovative technology, the continent’s strategic value and leverage is at a low ebb. As is its will to make hard choices, accept sacrifices and resist the short-run allure of access to the Chinese market. This was the subject of vice-president JD Vance’s controversial remarks at the Munich Security Conference in February. “When I look at Europe today, it’s sometimes not so clear what happened to some of the cold war’s winners,” he lamented. On Wednesday, Treasury secretary Scott Bessent warned European leaders that moving towards China “would be cutting your own throat”. On Thursday, the EU began discussions on lowering barriers to Chinese electric vehicles. If the US puts Europe to the test, will it pass? If Europe tries to call what it perceives to be a bluff, will the Americans just walk away? Choosing China would seal its fate and ensure continued decline. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Americans thinking of purchasing a new microwave might soon have to order a takeaway instead: 90 per cent of those imported into the US last year came from China, and Beijing controls three-quarters of the global export market.The product is one of more than 50 items with an import value above $1bn that is subject to Donald Trump’s new 125 per cent tariffs. More than three-quarters of the mobile phones, video game consoles, food processors and electric fans shipped to the US last year were produced in China.Parents hoping to purchase toys will also have to grapple with the fallout. China made 75 per cent of the dolls, tricycles, scooters and other wheeled toys that the US imported last year. The toymaker behind the Barbie doll, Mattel, warned that it could raise US prices to offset the impact — and that was before Trump’s latest escalation in the tit-for-tat tariff war. The California-based company, which also makes HotWheels cars and the Uno card game, said 40 per cent of their products were made in China.Some content could not load. Check your internet connection or browser settings.The speed and scale of Trump’s reciprocal tariffs means the costs are more likely to be passed on to US consumers, according to Chad Brown, a senior fellow at the Peterson Institute for International Economics.Tariffs on China were being imposed ‘‘at much higher levels, at significantly greater speed, and on a lot of new consumer products” that were not affected during Trump’s first term, Brown said. “There is a much bigger chance of significant price increases for consumers buying these types of products today.”Staying cool during the summer months may now prove expensive for those not already prepared: nine in 10 electric fans bought from abroad in the US last year came from China, as did 40 per cent of self-contained air conditioning units. China dominates the global export market for both.Some content could not load. Check your internet connection or browser settings.China’s dominance of so many global exports means finding alternative manufacturers will not be easy, according to former UK trade department official Allie Renison, now at consultancy SEC Newgate. “American and Western businesses have been shifting their supply chains out of China and to other Asian countries in recent years,” she said. “But with so many Chinese raw materials and component parts still going into the products they’re assembling, much will depend on how exacting these product-specific rules are and how US-friendly the countries are.”She added: “The challenge is less about finding alternative suppliers, given much of south-east Asia has already been increasing its industrial goods production, and more about what kind of conditions the US will place on its agreements with those countries.”Moving manufacturing out of China is particularly difficult for electronic products such as games consoles and mobile phones, because of their complex supply chains and the skill required to make them.“Rapid decoupling will be quite difficult, especially for goods like smartphones where additional capacity must be created, workers trained, and alternative supply lines for inputs established,” said Jason Miller, a professor at Michigan State University’s College of Business.For example, Apple has tried to move some of its manufacturing away from China, with a small but growing push into India. But 80 per cent of the company’s smartphone production for the US remains in China, according to technology market research company Counterpoint. If Apple were to reserve its entire iPhone output from India for the US market, it would still only cover about half of the 50mn-plus models the company ships to America each year, according to Bank of America analyst Wamsi Mohan. Overall, four in five of the smartphones and games consoles imported into the US last year were made in China. Trump has not ruled out some US companies being exempted from reciprocal tariffs — but the worry for shoppers is that other products may not be available at all.“The greatest concern for consumers is that importers, fearing they can’t pass along tariff cost increases to consumers, discontinue imports of some goods from China,” Miller said.Additional reporting by Jonathan Vincent More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Argentina has agreed to relax its strict currency controls as part of a $20bn loan from the IMF, as pressures mount on libertarian President Javier Milei’s plan to revive the economy.The country’s central bank on Friday said it would lift the controls, which limit the movement of dollars outside of Argentina, for individuals while maintaining some restrictions for companies.It will also partially float the peso’s official exchange rate, allowing it to fluctuate between 1,000 and 1,400 pesos to the dollar, compared with 1,108 pesos to the dollar today. This replaces a controversial policy that has strengthened the peso dramatically in real terms by devaluing the currency just 1 per cent a month despite much higher monthly inflation.Economy minister Luis Caputo denied the change constituted a devaluation of the peso, something he has long pledged to avoid. He said the IMF would on Tuesday transfer an initial $12bn to Argentina, and another $2bn in June, which would be used to replenish the central bank’s nearly empty hard currency reserves and calm volatile markets. “It’s true that such a large first disbursement is unprecedented, but it’s also unprecedented for a country to have fulfilled all of [the fund’s fiscal demands] in one year,” Caputo said.The IMF’s board confirmed approval of the deal late on Friday, while the World Bank and Inter-American Development Bank announced separate funding packages worth $12bn and $10bn respectively.The IMF deal, the 23rd for Argentina, a serial defaulter, had become increasingly urgent for Milei. While the former economist has curbed severe inflation, eliminated a chronic fiscal deficit and ended a recession, he has been unable to lift Argentina’s strict currency controls or rebuild the central bank reserves needed to prop up the peso and pay debts.Javier Milei has managed to curb runaway inflation but has failed to lift Argentina’s strict currency controls or rebuild central bank reserves More

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldTreasuries dropped on Friday in volatile trading, as market participants warned of growing strains in the $29tn market for US government debt.The 10-year Treasury yield climbed as much as 0.19 percentage points to 4.58 per cent on Friday, amid a deepening slump for an asset traditionally considered the global financial system’s premier haven. The yield later reversed some of those gains to trade at 4.48 per cent after Boston Fed President Susan Collins told the Financial Times the US central bank “would absolutely be prepared” to deploy its firepower to stabilise financial markets should conditions become disorderly. President Donald Trump’s erratic tariff policies have shaken investors’ faith in US policymaking and the economy, sparking an exodus from American assets. The 10-year yield rose almost 0.5 percentage points this week, the biggest rise since 2001, according to Bloomberg data. While Trump backed down from his so-called reciprocal tariffs on non-retaliating countries earlier this week — agreeing to a 90-day hiatus for most major US trading partners — he placed steeper levies on Chinese imports. “There is real pressure across the globe to sell Treasuries and corporate bonds if you are a foreign holder,” said Peter Tchir, head of US macro strategy at Academy Securities. “There is a real global concern that they don’t know where Trump is going.” “We are concerned because the movements you see point to something else other than a normal sell-off,” said a European bank executive in prime services, a division that facilitates leveraged trading for firms including proprietary traders and hedge funds. “They point to a complete loss of faith in the strongest bond market in the world.”Traders said poor liquidity — the ease with which investors can buy and sell Treasuries without moving prices — was exacerbating market moves. Analysts at JPMorgan said market depth, a measure of the market’s ability to absorb large trades without significant shifts in price, had significantly worsened this week, meaning even small trades were moving yields significantly. As he travelled to his Mar-a-Lago resort on Friday, Trump said: “The bond market’s going good. It had a little moment, but I solved that problem very quickly.”When asked to what extent the bond market factored into his 90-day pause of reciprocal tariffs to non-retaliating countries, the president suggested it did not, despite saying so earlier in the week. “I want to put the country in an unbelievable economic position. Which is where we should be,” he said.The head of Treasury trading at a major US bond manager said liquidity was “not great today” and explained that “market depth was running 80 per cent below normal averages” on Friday. “If a stiff breeze blew through the Treasury market today, rates would move a quarter point,” added Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott. Friday’s Treasury volatility was accompanied by a drop in the dollar.A gauge of the currency’s strength against major peers fell as much as 1.8 per cent on Friday. Sterling, the Japanese yen and the Swiss franc all made significant gains. Trump said of the dollar: “We’re the currency of choice. We’re always going to be . . . I think the dollar is tremendous.” More

Donald Trump’s tariff war has been wreaking havoc in global markets, but among exporters in China’s “trinket town” — the eastern city of Yiwu famous for making everything from Christmas trees to Donald Trump campaign caps — the mood is more of stoic defiance than panic.Amid government invocations of late dictator Mao Zedong that are intended to project national strength, Chinese business people on the front lines of the trade war said they were confident their nation would prevail.“Trump wants to steal a slice of China’s pie,” said exporter Kenny Qi in his small store festooned with “Make American Great Again” T-shirts in a vast Yiwu trade exhibition centre.But Qi said Trump got a shock when Beijing retaliated with its own 125 per cent tariffs this week. He predicted the US president, whose visage glowered at him from a Maga T-shirt above his desk, would back down “in half a month at most”.Trump’s new duties on Chinese goods are more than twice the 60 per cent tariffs he threatened during his election campaign — a level that many economists had at the time considered a worst-case scenario. Beijing has stepped up its nationalist rhetoric to steel the public for the economic fallout from a hard decoupling with the US. Foreign ministry spokesperson Mao Ning posted on the social media site X a video of Mao giving a speech during the 1950-53 Korean war, when Chinese soldiers fought against US-led UN forces.“No matter how long this war is going to last, we’ll never yield, we’ll fight until we completely triumph,” then-chairman Mao says in the clip. We are Chinese. We are not afraid of provocations. We don’t back down. 🇨🇳 pic.twitter.com/vPgifasYmI— Mao Ning 毛宁 (@SpoxCHN_MaoNing) April 10, 2025

In another post, the spokesperson quoted Mao as saying in 1964: “The US intimidates certain countries, stopping them from doing business with us. But America is just a paper tiger. Don’t believe in its bluff. One poke, and it’ll burst.”Beijing has accompanied its retaliatory tariffs with a host of other measures, vowing to reduce access for Hollywood movies and warning citizens against travelling to the US or studying there. Meanwhile, state media have pumped out stories about how Americans are struggling to afford basic necessities. The Communist party nationalist tabloid Global Times described one shortage as an “‘egg crisis’ sweeping the nation”.“The news says Americans are already scrambling to buy eggs, flour and cooking oil,” said Nie Ziqin, who runs a store in Yiwu offering Halloween decorations intended for sale to the US and other countries.A hat vendor at the Yiwu International Trade Market More