Economy

Giorgia Meloni is under pressure from Italy’s EU partners to “choose a side” in the transatlantic trade war as she wields an effective veto over a push by some big member states for Brussels to hit back hard against US tariffs.The Italian premier — who has friendly ties with US President Donald Trump — is opposing a Franco-German push to escalate the EU’s response to the 20 per cent so-called “reciprocal tariff” to be imposed on its exports.Paris and Berlin are among member states urging the European Commission to hit US services exports such as technology in response to Trump’s measures affecting more than €360bn of its trade.At a meeting of ambassadors on Thursday, France, Germany, Spain and Belgium said the EU should be prepared to use its “trade bazooka”, the anti-coercion instrument, for the first time ever to achieve this, said two EU diplomats. But a move using the instrument could be blocked by a weighted minority of member states. Given Italy’s size, it would be the decisive member of the No camp, which also includes Romania, Greece and Hungary, the diplomats said.Giorgia Meloni has criticised Donald Trump’s tariffs on the EU this week as ‘a wrong decision’. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.In an early interview as US Treasury secretary back in February, Scott Bessent made it clear that bond yields, rather than stock prices, were the financial market metrics that he and President Donald Trump cared most about.While he didn’t elaborate why, it’s not hard to guess. US bond yields set the price for new mortgages. They determine the price and availability of finance for most US company borrowing. And, perhaps most importantly to Trump, bond markets hold the purse strings to government.Since the interview, US stocks have bombed — down 13 per cent by mid-morning on Friday in New York. Equity markets hate uncertainty and there has been no shortage of that since Donald Trump’s return to the White House. Tariff flip-flopping, public sector job cuts amid upheaval over government policy and a broader assault on multilateralism have cast a dark shadow over the economic outlook. But bond prices have risen, meaning that yields have dropped.In the context of weaker global bond markets, this is impressive. British, French and German ten-year government bond yields have risen over the same period. American exceptionalism lives on in their bond market, if no longer across their newly-sagging equity indices.Furthermore, this exceptionalism has occurred despite higher inflation expectations and an increasingly worrying debt trajectory — the traditional bogeymen of bond markets. Since Bessent’s interview, both private sector economists and markets alike have revised higher their forecasts for US inflation. And the nonpartisan Congressional Budget Office not only expects ever rising levels of federal debt, but has also increased its projected path of federal deficits.Moreover, there has been much market chatter over a so-called Mar-a-Lago Accord involving what would effectively be a coercive exchange of Treasury bonds upon America’s allies. The idea was discussed in a report written by Stephen Miran before he became chair of Trump’s Council of Economic Advisors. When asked about the idea last week, Miran would only say that Trump’s focus was on tariffs. We don’t know how much of the $3.8tn of US Treasury holdings marked as foreign official holdings are owned by its allies, but talk of a debt exchange is unlikely to encourage them to add more.And yet, despite rising inflation expectations, the government debt burden and the talk of a debt exchange, the US market has had no Liz Truss moment.Some content could not load. Check your internet connection or browser settings.What explains the strength of US government bonds? Well, yield declines have been accompanied by the sort of news that administrations tend to fear and bond markets tend to relish: leading economic indicators have fallen off a cliff. This is because bad economic news tends to be a prelude to cuts in short-term interest rates, making existing bonds with higher yields more valuable. And they’re betting that a weak economy will overwhelm rising consumer prices in the Federal Reserve’s rate-setting calculus.The collapse in leading indicators looks largely self-inflicted. So-called “soft data” series — such as surveys of consumer confidence and manufacturing purchasing managers — reflect heightened uncertainty about the economic outlook. Both central bankers and bond markets are watching closely for signs that harder economic data will begin to follow the softer data south.In a note entitled “There will be blood” on Friday, JPMorgan raised its estimate of the risk of recession in the global economy this year to 60 per cent from 40 per cent if the tariff increases are maintained. Since Bessent’s February interview, the bond market has priced in almost three additional rate cuts by the Fed.Given the dominant role of the dollar in global commerce, Treasury bonds also have a special place not only in global financial plumbing, but also on the balance sheets of the world’s governments and firms. This guarantees that, should the US economy slow sharply, the Fed can cut rates and the government can cover revenue shortfalls with additional bond issuance. And substantial demand for Treasuries will be forthcoming for as long as the US retains monetary hegemony.Bond traders cannot imagine that the administration would be so reckless as to threaten the dollar’s reserve currency status by enacting the coercive exchange idea. Or at least they are unwilling to price it. Loss of this so-called exorbitant privilege would be devastating. Moreover, these losses would probably stretch far beyond American shores given the interconnectedness of the global financial system. So — perhaps ironically — investors seeking shelter from the damage being done by US tariffs continue to find it in its government’s bonds. At least for now.“Wall Street, where you and I came from, has had it great”, Bessent told his interviewer. “Under this administration, it’s Main Street’s turn”. The bond markets are betting that the Trump administration is engaging in an act of economic self-harm. If it’s right, Main Street will have to wait. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Europe is tallying the potential cost of President Donald Trump’s tariffs. The trade war will fray ties between the world’s two most closely bound continents, unstitching some of the trillions of dollars of sales by European companies’ foreign affiliates in the US. The UK, of course, has been somewhat cushioned by a lower tariff rate. That’s important because — fittingly given its special relationship with the US — it tops the charts of countries with the biggest sales across the Atlantic. The FTSE 100 derives a quarter of its sales from the US; the FTSE 250 a tenth.  Decades of integration have borne fruit. European companies’ income in the US rose by almost a fifth year-on-year to $205bn last year, reckons AmCham EU. ​​The business body estimates that European affiliates in the US reaped sales there of $3.3tn in 2023, more than treble the value of comparable exports.Multinationals have long banked on broad geographic reach to smooth earnings. Heavy industry is not far behind, including defence. BAE Systems, Europe’s biggest defence company, derives 44 per cent of its sales from the US, more than it garners from its home UK market and the rest of Europe combined.Or look at tech, another sector caught in the geopolitical riptides. ASML, which produces machines to make chips and is Europe’s biggest tech stock, almost doubled the portion of sales from the US over two years to 16 per cent last year. Its boss has warned that geopolitics threatens to stifle collaboration and thus innovation.True, European affiliates’ sales in the US are usually backed by at least some production in the country, reducing the tariff threat. Some 20 FTSE 100 companies already have more than a fifth of their facilities in the US, says AJ Bell, led by industrial equipment rental company Ashtead.European companies will no doubt seek to shift production to the US where possible. In some sectors, there is existing spare capacity. Bernstein estimates that carmaker Volkswagen’s North American production will be only 67 per cent of its capacity this year. But re-localisation opportunities are limited and building new plants and factories will take time.There are other ways of mitigating tariff impacts — including passing on costs to consumers, sharing them with the supply chain, or diverting shipments to other countries. But the likeliest affect of taxing goods is to reduce demand for them. Expect ports and shipping lanes to be a lot emptier.louise.lucas@ft.com More

China’s Finance Ministry on Friday said it will impose a 34% tariff on all goods imported from the U.S. starting on April 10.
The ministry criticized Washington’s decision to impose 34% of additional reciprocal levies on China — bringing total U.S. tariffs against the country to 54% — as “inconsistent with international trade rules.”
U.S. stock futures and European markets fell sharply on news of the reciprocal tariffs.

China’s Finance Ministry on Friday said it will impose a 34% tariff on all goods imported from the U.S. starting on April 10, following duties imposed by U.S. President Donald Trump’s administration earlier this week.
“China urges the United States to immediately cancel its unilateral tariff measures and resolve trade differences through consultation in an equal, respectful and mutually beneficial manner,” the ministry said, according to a Google translation.

It further criticized Washington’s decision to impose 34% of additional reciprocal levies on China — bringing total U.S. tariffs against the country to 54% — as “inconsistent with international trade rules” and “seriously” undermining Chinese interests, as well as endangering “global economic development and the stability of the production and supply chain,” according to a Google-translated report from Chinese state news outlet Xinhua.
Separately, China also added 11 U.S. firms to the “unreliable entities list” that the Beijing administration says have violated market rules or contractual commitments. China’s Ministry of Commerce also added 16 U.S. entities to its export control list and said it would implement export controls on seven types of rare earth-related items, including samarium, gadolinium and terbium.
CNBC has reached out to the White House for comment.

Beijing, which also entertained a tenuous trade relationship with Washington under Trump’s first term, had warned that it would take “resolute counter-measures” to safeguard its own interests after the White House disclosed its latest sweeping tariffs on Wednesday.
Other U.S. trading partners had held off from announcing retaliatory tariffs amid hopes of further negotiations, with the European Union nevertheless voicing a readiness to respond.

The mutual U.S.-China levies are set to impact a trade relationship worth $582.4 billion in goods in 2024, according to the Office of the U.S. Trade Representative.
Analysts expect the U.S.’ protectionist trade policies to steer China toward other trading partners and see it implement further stimulus measures in an effort to galvanize the economy. China has been battling a property crisis and weak consumer and business sentiment since the end of the Covid-19 pandemic.
China’s retaliatory tariffs announced Friday exacerbated declines in global markets which had already been thrust into turmoil by fears of inflationary, recessionary and global economic growth risks following the White House’s tariffs.

El-Erian says U.S. recession risks are now ‘uncomfortably high’ More

Nonfarm payrolls in March increased 228,000 for the month, up from the revised 117,000 in February and better than the Dow Jones estimate for 140,000.
Health care was the leading growth area, consistent with prior months. The industry added 54,000 jobs, almost exactly in line with its 12-month average.
Average hourly earnings increased 0.3% on the month, in line with the forecast, while the annual rate of 3.8%, the lowest level since July 2024.

Job growth was stronger than expected in March, providing at least temporary reassurance that the labor market is stable, the Labor Department reported Friday.
Nonfarm payrolls increased 228,000 for the month, up from the revised 117,000 in February and better than the Dow Jones estimate for 140,000, according to the Bureau of Labor Statistics.

However, the unemployment rate moved up to 4.2%, higher than the 4.1% forecast as the labor force participation rate also increased.
Though the headline number beat estimates, the report comes against a highly uncertain backdrop after President Donald Trump’s tariff announcement this week that has intensified fears of a global trade war that could damage economic growth.
Stocks reacted little to the report, with futures tied to the Dow Jones Industrial Average off their lows but still down by more than 900 points while Treasury yields held sharply negative.
“Today’s better than expected jobs report will help ease fears of an immediate softening in the US labor market,” said Lindsay Rosner, head of multi-sector fixed income investing at Goldman Sachs Asset Management. “However, this number has become a side dish with the market just focusing on the entrée: tariffs.”
Trump announced a flat duty of 10% against all trading partners along with a wide menu of so-called reciprocal tariffs that already have provoked retaliation from China and others. Wall Street has been aggressively in sell-off mode for the past two days, with stocks tumbling and investors flocking to the safety of fixed income.

Previous indicators showed the labor market holding up, but the tariff moves raise the possibility that companies will hold back on hiring as they assess just what the new trade landscape will look like.
The March numbers, though, pointed to a still-strong labor market, though the January and February counts saw substantial downward revisions. In addition to the cut of 34,000 from the initial count for February, January’s growth is now at just 111,000, down 14,000 from the previous estimate.
Average hourly earnings increased 0.3% on the month, in line with the forecast, while the annual rate of 3.8% was 0.1 percentage point below the estimate and the lowest level since July 2024. The average work week was unchanged at 34.2 hours.
For March, health care was the leading growth area, consistent with prior months. The industry added 54,000 jobs, almost exactly in line with its 12-month average. Other growth areas included social assistance and retail, which both added 24,000, while transportation and warehousing showed a 23,000 increase.
Federal government positions declined by just 4,000, despite the Elon Musk-led efforts, though the Department of Government Efficiency, to pare the federal workforce. However, the BLS noted that workers on severance or paid leave are counted as employed. A report Thursday from consultancy firm Challenger, Gray & Christmas indicated that DOGE-related layoffs have totaled more than 275,000 so far.
“While Friday’s jobs report showed that the economy is still adding jobs even with the tariff uncertainty and Federal job cuts, the data is backward looking and doesn’t say anything about how employers might fare over the coming months,” said Glen Smith, chief investment officer at GDS Wealth Management.
A broader unemployment indicator that includes those not looking for work as well as workers holding part-time jobs for economic reasons — the underemployed — edged lower to 7.9%.
The survey of households, which is used to determine the unemployment rate, was closely in line with the establishment payroll count, as it showed a gain of 201,000 workers. Moreover, full-time workers increased by 459,000, while part-timers fell by 44,000.
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Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldSir Keir Starmer will discuss the “shifting” global economic landscape precipitated by Donald Trump’s trade war with fellow world leaders over the coming days, and press the need to strengthen partnerships in response.The UK prime minister will hold a flurry of bilateral calls with British allies across multiple regions, according to officials. On Friday, Downing Street rebuffed the US president’s suggestion that Starmer was “very happy” that Washington has slapped a 10 per cent levy on British exports, reiterating London’s “disappointment” over the move. “We accept that the tariffs imposed on the UK put us in a relatively more favourable position than other countries, but of course, the impact on the UK will be real,” Number 10 said. Trump’s tariff schedule is ushering in a “new era” for world trade, which will have “an economic impact . . . both here and globally”. Starmer’s spokesperson added: “The global economic landscape is shifting. It means we have a responsibility to work even more closely with other countries to maintain stability and strengthen our partnerships abroad.”The flurry of diplomatic activity this weekend is expected to involve Starmer, who will be at Chequers, calling leaders from Europe and other regions.The US hit the UK with the lowest baseline tariff, along with many other countries, half the 20 per cent rate applied to the EU.Trump told reporters on Air Force One he thought the UK prime minister was “very happy about how we treated them with tariffs”. British Treasury minister James Murray said on Friday the UK’s priority now was to negotiate a trade deal with Trump “at pace”. He told the BBC: “We want to see the additional tariffs removed.”However, British officials admit that it will be tough to persuade the Trump administration to cut the baseline tariff below 10 per cent, although talks on a deal are continuing.A key aim for British ministers is to cut the 25 per cent global tariff applied by the US to car exports — the automotive sector is one of the most directly exposed parts of the UK economy to the Trump tariffs.“That is a particular concern to me,” business and trade secretary Jonathan Reynolds told MPs on Thursday. The IPPR think-tank estimated that 25,000 direct jobs in the car industry could be at risk, with employees at Jaguar Land Rover and Mini seen as most vulnerable.While the UK’s car industry mainly exports to Europe, the US accounts for one in six models shipped abroad and is the largest market for high-end manufacturers such as JLR, Bentley and McLaren.Reynolds has started a four week consultation with British business on possible retaliatory measures against the Trump tariffs, including targeted measures against selected products. However, Reynolds has made it clear that business does not want an escalation of a trade war.British negotiators, including Britain’s US ambassador Lord Peter Mandelson, are looking at scrapping or scaling back Britain’s digital services tax, which mainly affects US tech firms, along with other concessions, such as cutting tariffs on certain meat and seafood products.The UK is also trying to secure a tech partnership with the US as part of a broader economic deal, including regulatory changes to facilitate transatlantic co-operation.Reynolds has dismissed suggestions that American criticisms of free speech in Britain are part of trade negotiations and rejected the idea that the UK would water down its online safety laws to appease US tech firms.“The talks I have had with my US counterparts are to do with goods, services, the regulation of professional bodies and all the things we would associate with normal trade talks,” Reynolds told MPs on Thursday.“The United States is not seeking to make our children unsafe or more vulnerable. That is not the right approach to take to our key and core ally.” More