Economy

US stocks closed sharply lower, reversing an early rally after the White House said Donald Trump would push forward with his threat to hit China with duties exceeding 100 per cent.The benchmark S&P 500 index closed down 1.6 per cent, a significant pull back from a gain of as much as 4.1 per cent earlier in the trading day. The Nasdaq Composite lost more than 2 per cent. Tuesday’s swings were the latest bout of turbulence in US stocks after Trump last week announced a plan to impose steep tariffs on dozens of countries, threatening to ignite an all-out trade war.The White House said on Tuesday that additional 50 per cent tariffs on Chinese goods would go into effect on Wednesday just after midnight in Washington. That would come on top of “reciprocal” measures announced last week, and other levies, bringing the total duties above 104 per cent. Earlier on Tuesday, the White House had signalled an increased willingness to negotiate with US trading partners over reducing their levies, but there were mixed signals as the day went on.Washington agreed to open talks with Japan, with US Treasury secretary Scott Bessent saying on Monday that Tokyo “would get top priority as they came forward very quickly”.Trump posted on his Truth Social platform that he had also spoken to the acting president of South Korea, adding that “we have the confines and probability of a great DEAL for both countries”.By contrast, tensions between the US and China ratcheted up on Tuesday as Beijing vowed to “fight to the end” if the US pressed ahead with steep tariffs on the country.A day earlier, Trump threatened to hit China with a 50 per cent additional tariff, after Beijing last week said it would match his “reciprocal” duty of 34 per cent.The region-wide Stoxx Europe 600, the FTSE 100 and Germany’s Dax were all up about 2.3 per cent on Tuesday.In currency markets, the US dollar was down 0.3 per cent against a basket of trading partners. Oil prices fell, with the international benchmark Brent trading down 3.8 per cent to below $62 a barrel in the New York afternoon, while WTI, the US marker, dropped 3.7 per cent to $58.46 a barrel. US oil prices are now below the level many American producers need to break even on their wells. More

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldComputer-driven hedge fund Renaissance Technologies was wrongfooted after Donald Trump’s “liberation day” tariff announcement last week sent shockwaves across global financial markets. The Renaissance Institutional Equities Fund, one of the group’s flagship strategies offered to external investors, was down about 8 per cent for April as of Friday last week, according to three people familiar with the figures. The losses reduce the fund’s 2025 gains to 4.4 per cent. Renaissance’s losses underscore the tumult in financial markets since Trump last Wednesday said the US would impose universal 10 per cent levies and far higher duties for many of America’s leading trading partners. One of Renaissance’s smaller strategies fared better in the recent market turbulence. The Renaissance Institutional Diversified Alpha Fund, which as of last September managed just $3.6bn, was down 2.4 per cent in April and has returned 11.5 per cent for the year, the people said. The institutional equities fund, which managed $19.6bn as of September last year, gained 22.7 per cent last year, while the Diversified Alpha fund rose 15.6, according to a person who had seen the numbers. Founded by quant pioneer Jim Simons, who was known as the “quant king” and died last May, Renaissance is one of the world’s best-known quantitative hedge funds. Quant funds shun human decision making and instead rely on computer algorithms to make trades, often identifying patterns in market data and trying to surf trends. Hedge funds and other investors faced some of the most challenging trading days last week since the 2020 coronavirus pandemic shook global markets. Stocks around the world fell sharply on Thursday and Friday, with the US S&P 500 dropping more than 10 per cent. This week, even ultra-safe assets such as US government debt sold off, as hedge funds moved their money into cash and pared back their exposure to the market.Hedge funds have also been hit with the steepest margin calls since the pandemic, as Wall Street banks last week asked their clients to provide more money as backing for their loans, the Financial Times reported. That leverage allows hedge funds to amplify profits when they make lucrative trades, but it can also magnify losses.After decades of high returns, Renaissance’s external funds recorded big losses from the volatile swings during the pandemic, which led to its external assets under management falling steeply. The firm’s Medallion fund, often called the greatest moneymaking machine in history, has been fully closed to external investors for about two decades. 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.Donald Trump’s global tariffs on US imports will depress economic activity, a top Bank of England official has warned, while adding that the impact on inflation will be more difficult to untangle for policymakers.Clare Lombardelli, deputy governor, said on Tuesday that the US president’s policies were increasing uncertainty as well as affecting asset prices, in the first comments from a senior BoE figure since Trump’s April 2 tariffs announcement.Investors have hardened their bets on a series of additional UK interest rate cuts this year, with markets pricing a further quarter-point reduction in May from 4.5 per cent now, and more reductions to come later in the year.“We know the tariffs are likely to depress activity overall,” Lombardelli told an event hosted by the Resolution Foundation think-tank. “The direction there is relatively clear. On inflation it depends a lot more on the circumstances of actually how other countries respond, how that feeds through to the UK.”Lombardelli declined to spell out how Trump’s policies would affect decisions on interest rates. She said the implications for the UK would be brought together by the BoE’s Monetary Policy Committee in its May meeting.Earlier, chancellor Rachel Reeves said the BoE had reassured her that markets were “functioning effectively” and Britain’s banking system was resilient, but that the import taxes would have major implications for the global economy. Acknowledging the anxiety felt by many British households and businesses, Reeves told them: “We have your backs.”Trump’s fresh tariff regime, unveiled last Wednesday, “has had — and will continue to have — huge implications for the world economy”, Reeves said in the House of Commons. But BoE governor Andrew Bailey had “confirmed that markets are functioning effectively and that our banking system is resilient”, she added, with UK financial authorities continuing to monitor reaction in the global markets “closely”.Trump’s trade war is hitting the UK at a time when its economy has barely grown in recent quarters. The Office for Budget Responsibility, the fiscal watchdog, last month halved its growth forecast for this year to just 1 per cent even before the full extent of the US policies was clear. Reeves reiterated that her fiscal rules remained “non-negotiable”, despite growing pressure from some Labour MPs to loosen the constraints on borrowing, as she attempted to further reassure markets.“All of the decisions that we make as a government will be underpinned by the stability of our non-negotiable fiscal rules,” she said. Speaking to MPs separately, Sir Keir Starmer confirmed that Britain was not about to retaliate against the US tariffs. “My instinct is that we should not jump in with both feet to retaliate,” the prime minister said.Some Labour MPs have questioned in recent days whether Starmer has a sufficiently bold set of policy solutions to address what ministers claim is the “end” of globalisation.Starmer told the Commons liaison committee: “Our plans don’t so much change as turbocharge.” He said existing policies, including setting out a “modern industrial policy” and plans to strike new trade deals, would be accelerated. Reeves in the Commons said she would meet US Treasury secretary Scott Bessent “shortly”. The meeting is expected to take place in the coming weeks, but no further details on the timing or location have been confirmed.Trump said on Monday that Japan was sending a team to Washington to negotiate on trade, suggesting Tokyo was first in the queue to open talks on tariff rates.Japanese exports have been slapped with a 24 per cent US tariff, a higher rate than the 10 per cent imposed by America on UK exports. But both nations’ automotive industries are facing damaging 25 per cent US tariffs on vehicles.Speaking in parliament, Reeves said the UK Treasury was among a number of Whitehall departments that were in “ongoing” discussions with the US government in response to the imposition of tariffs.“The focus is on reducing tariff and non-tariff barriers to trade, with a particular focus on those sectors that are subject to the higher tariffs . . . on cars, on steel and potentially on life sciences,” which are among Britain’s biggest export markets, Reeves said.She declined to support an idea proposed by Daisy Cooper, Liberal Democrat Treasury spokesperson, for the UK government to back a “buy British campaign”. “In terms of ‘buying British’, I think everyone will make their own decisions. What we don’t want to see is a trade war, with Britain becoming inward-looking,” Reeves said. More

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldFor years, Vietnam and several south-east Asian neighbours seemed to have a winning growth formula. They followed the export-led path already trodden by the likes of China. They were big beneficiaries of the reordering of supply chains prompted by Covid and US tensions with Beijing, becoming part of “China plus one” strategies for US and other businesses seeking a second export manufacturing base. Now those policies have come back to bite them. When Donald Trump unveiled his “liberation day” tariffs, some of the highest were the 46 per cent rate on Vietnam, and 49 per cent on Cambodia.Though a big rise in US tariffs on China was expected, the hit to south-east Asian manufacturing was a surprise. Writing in the Financial Times, Peter Navarro, Trump’s trade adviser, made clear the White House wants to make countries such as Cambodia and Vietnam choose between the US and China, and “stop allowing China to evade US tariffs by trans-shipping exports through your countries”. Some Trump administration insiders insist China is their main target; other countries affected are collateral damage. The damage, though, is substantial — and far from one-sided. Major US companies including Apple, Nike and Intel have manufacturing or suppliers in Vietnam, following a strategy they believed made sound business and political sense. While efforts to improve domestic capabilities in some high-end manufacturing may have merit for supply chain resilience, moreover, the economics of reshoring T-shirt making to the US is questionable.China has opted for retaliation, vowing to “fight to the end” if Washington presses ahead with punitive levies. It probably felt bound to take a stand against the bullying by its biggest single trading partner — and has more scope to hurt the US than smaller Asian counterparts. South-east Asian countries have so far chosen negotiation over confrontation, trying to keep exports flowing as far as they can. That makes sense. Since their comparative advantage still lies overwhelmingly in low labour costs, changing their economic model is hardly realistic.Malaysia’s Prime Minister Anwar Ibrahim is aiming to co-ordinate the response of Asean, and a delegation from the south-east Asian trading bloc travelled to Washington on Tuesday. Anwar’s efforts may be hindered by the group’s economic diversity: Indonesia, for instance, exports more commodities to the US; the Philippines has a current account deficit and exports more services. Some members have already made their own overtures to Washington. Vietnam has offered to remove all tariffs on US imports, earning warm words from the US president. But Navarro and other US officials have accused Vietnam and others of “cheating” via non-tariff barriers such as export subsidies, as well as being platforms for Chinese exports to evade tariffs. That may limit any chance of negotiated deals. So Asean countries must also try to further deepen inter-regional trade, as they have through their Regional Comprehensive Economic Partnership with China, Japan, South Korea, Australia and New Zealand, and the Asia-Pacific CPTPP pact. They should also seek to improve free trade ties with the EU and western markets.Yet in the end, despite their deep US trade links, it is very hard for, say, Cambodia or Vietnam to plump for America over China, the economic giant on their doorstep; much of the recent growth in Vietnamese manufacturing exports comes from Chinese companies relocating operations to Vietnam. If Trump’s White House pushes them too hard to choose, without making concessions, it may drive them deeper into the arms of the very country at which it says its hardline trade policy is mainly targeted. More

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldElon Musk has lambasted the architect of Donald Trump’s trade war in the most public display to date of a potential rift between the US president and the world’s richest man.In an extraordinary broadside on Tuesday morning, Musk, a long-standing critic of tariffs, called trade tsar Peter Navarro a “moron”, and “dumber than a sack of bricks”, after the economist dismissed the Tesla boss in a TV interview as a “car assembler” and accused him of “protecting his own interests”.The feud comes after days in which Musk, who spent more than a quarter of a billion dollars on Trump’s campaign and who runs the so-called Department of Government Efficiency (Doge), repeatedly hinted at his dissatisfaction with the White House’s trade policy.Show video infoAppearing virtually at a conference organised by Italy’s rightwing deputy prime minister Matteo Salvini over the weekend, Musk said he was hopeful the US and Europe would reach “a zero-tariff situation, effectively creating a free-trade zone”.Musk also shared a video on his social media platform X in which the free-market advocate Milton Friedman extolled the virtues of a globalised economy by pondering the different parts and labour that are necessary to make a single pencil.On Monday, Musk’s brother Kimbal, who is on the boards of Tesla and SpaceX, called Trump’s tariffs a “structural, permanent tax on the American consumer”, in a post on X. “A tax on consumption also means less consumption. Which means less jobs,” Kimbal added.Musk’s political influence was under pressure before Trump unveiled his sweeping tariffs last week, after the billionaire’s preferred candidate in a Wisconsin supreme court race lost heavily in a contest that became a referendum on Doge’s cost-cutting tactics. The White House also confirmed last week that Musk’s government role, which was originally meant to continue into 2026, could end within weeks, once his work with Doge is complete. Trump said the billionaire was at some point “going to get back to his businesses full time”.In the meantime, some of Musk’s enterprises appear to have suffered from his association with the president. Tesla’s stock has plunged more than 35 per cent since the start of the year amid concerns about a growing trade war and anger towards the company from consumers opposed to Musk’s aggressive cost-cutting mission within the government.In an unsigned letter addressed to US trade representative Jamieson Greer last month, Tesla warned that a trade war could make it a target for retaliatory tariffs and increase the cost of making vehicles in America. The electric-car company’s second-biggest market is China, where Tesla also has a large plant. Musk opened a $200mn battery factory in the country just weeks ago.Starlink, SpaceX’s satellite internet service, has also lost contracts with various governments as tensions between the US and its allies intensify.Musk did not immediately respond to requests for comment. Navarro did not immediately respond to a question about Musk’s interventions in US trade policy.The White House directed the Financial Times to a statement by press secretary Karoline Leavitt that read: “Whatever. We are the most transparent administration in history, expressing our disagreements in public.” Additional reporting by Demetri Sevastopulo in Washington More

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldNow we know which economy is the gravest threat to the US after China: Lesotho. China currently has a combined tariff of 54 per cent under Donald Trump’s new plan. But Lesotho apparently deserves a “reciprocal” tariff of 50 per cent on its exports to the US, just ahead of the 49 per cent on Cambodia and 46 per cent on Vietnam, followed by 32 per cent on Indonesia and Taiwan, 26 per cent on India and 20 per cent on the EU. The UK gets away with 10 per cent. (See charts.)What is perhaps most extraordinary about the overthrow of close to a century’s trade policy is that nobody, apparently, told the president that a procedure that puts Lesotho on the naughtiest step would make the US look ludicrous. But it did — and it did so because that procedure was ridiculous. Here was no subtle analysis of all those alleged tariff and non-tariff barriers from which, says Peter Navarro, echoing his boss, the exploited US has been suffering so terribly. No, it was far simpler and stupider. The proposed tariffs are proportional to the bilateral trade deficit divided by bilateral imports. The implicit assumption is that, in a fair world, trade would balance with every single partner. This is utter lunacy. Yet it has now become the intellectual basis of the trade policy of the world’s most powerful country — alas, poor thing, apparently victim of a global trade plot.Some content could not load. Check your internet connection or browser settings.It is not just lunacy. It is wicked. Think of the history of US involvement in Vietnam. Yet now, the US has decided to try to halt its economic development. Vietnam is not alone in seeking to exploit the benefits of openness. Indeed, trade policy has converged on liberalism in emerging economies quite broadly. They were responding to a promise the US has now snatched away.This is not even all of Trump’s work. Canada and Mexico are still victims of his “fentanyl tariffs”. There is a 25 per cent tariff on automobiles and those on steel and aluminium have also been raised.Some content could not load. Check your internet connection or browser settings.Yet tariffs will not close trade deficits. In the 1970s, I worked on the Indian economy, then among the world’s most highly protected economies. Did it run huge trade surpluses? No. Yes, it had a tiny ratio of imports to GDP. But it had a still smaller income from exports. This was because of the adverse impact of protection on export competitiveness. This will now happen to the US: imports will shrink, but so will exports. The deficits, determined by income and spending, will remain roughly unchanged. The world will just end up poorer. As Germany’s Kiel Institute argues, the biggest negative effects are likely to fall on the US: protection is usually an own goal.Some content could not load. Check your internet connection or browser settings.The people who founded the global trading system in the 1930s and 1940s had experienced the results of beggar-my-neighbour protectionism in the 1920s and 1930s. The system they created was based, for good reason, on the principles of non-discrimination, liberalisation through reciprocal bargaining, the binding of tariffs and impartial adjudication of any use of the escape clauses in the system. All this was designed to create a predictable, transparent and liberal trading regime. Over eight completed rounds of negotiations, the result became an open and dynamic world economy. This was a product of US statecraft. Trump has not just brought US protection to levels not seen in a century, but has destroyed everything his predecessors sought to achieve. This is an act of war against the entire world.Some content could not load. Check your internet connection or browser settings.The debate over whether to take Trump literally or seriously is over. He has now learnt how to be the tyrant he always wished to be. That took a while. But, with the help he has received, he is there. His administration is engaged in a comprehensive assault on the American republic and the global order it created. Under attack domestically are the state, the rule of law, the role of the legislature, the role of the courts, the commitment to science and the independence of the universities. All these were the pillars on which US freedom and prosperity rested. Now, he is destroying the liberal international order. Soon, I presume, Trump will be invading countries, as he proceeds to restore the age of empires.Some content could not load. Check your internet connection or browser settings.The application of all these tariffs is a perfect symbol of what Trump is about. He has appealed to a non-existent “emergency”, allowed by a foolish legislature, to impose a highly regressive tax increase that will bear particularly heavily on his own political base, partly to fund a budget-busting extension of his own hugely regressive tax cut of 2017.It seems inevitable that these tariffs, plus the uncertainty created by the unanchored, and so unpredictable, new policy environment, will damage the world and US both now and in the longer term. Our economies are far more open than ever before. Sudden and huge increases in protection will have correspondingly bigger economic effects than before. Stock markets are surely right to guess that a good part of today’s productive capital stock will turn out to be scrap: continued market turmoil is likely.Some content could not load. Check your internet connection or browser settings.This offers a perverse kind of hope. The attempt by Trump and his associates to undermine the republic would take time. It is now more likely that he will run out of it. Imagine that as a result of all this turmoil, the economy indeed falters and so the Republicans are hammered in the midterms. This would make the Maga project far more difficult to carry out. Who knows? US institutions might begin to show a little backbone. Above all, the next presidential election might actually be a fair one.So long as Maga dominates the American right, the US potential for unpredictable, irrational and pernicious behaviour will remain. That is, alas, a huge gift to China. But the worse it now gets, the more likely it is that Maga will be an interlude, not America’s destiny. This is a consolation and a [email protected] Martin Wolf with myFT and on X More

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