Economy

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.These are tricky times to be a big automaker — though less so if you’re Chinese. President Donald Trump’s planned 25 per cent tariffs on imported cars and key auto parts are meant to force manufacturers to relocate production to the US and create jobs. European and Asian carmakers’ shares have dropped, but so have those of US carmakers, whose costs will rise. Shares of China’s BYD, however, now the world’s biggest maker of electric vehicles, rose on Thursday. The US tariffs may put western carmakers further behind BYD and its compatriots — by pushing their prices up just when Chinese firms are coming out with ever more affordable offerings and whizzy EV technology.The tariffs come soon after what some analysts have called a “DeepSeek moment” — referring to China’s recent AI breakthrough — for the global auto industry. BYD last week announced a superfast EV charging system that it says can add about 470km of range in five minutes. By enabling drivers to charge up an electric car about as easily as filling up a petrol one this could remove a key deterrent to consumers going electric. Weeks earlier, BYD unveiled another techno-leap: a free, advanced self-driving system called God’s Eye that it plans to install across its range.Grid capacity might yet restrain BYD’s plans for 4,000 fast-charging stations across China, and political and practical barriers could thwart ambitions to build such networks in other big markets. Foreign rivals may, in time, replicate its charging achievements. Yet BYD’s prowess shows the focal point of EV innovation is now China. Beijing’s state-led industrial policy has built a formidable manufacturing base and catalysed a striking shift in purchasing patterns. Pure battery and plug-in hybrid cars are expected to outsell internal combustion engine (ICE) cars in China in 2025, years ahead of western rivals.All this is happening while the EU is proposing to relax emissions rules — a perhaps predictable response to European automakers’ failure to keep up with targets, but one that will slow EV momentum. US policy, meanwhile, has in effect been going into reverse on EVs. Trump wants to cut consumer tax incentives to go electric, and roll back clean technology subsidies in favour of his “drill, baby, drill” approach to oil.US carmakers such as General Motors were still promising to invest revenues from higher ICE car sales into reducing EV prices. If tariffs go ahead as billed — though little is certain with Trump — they would in theory have an opportunity to use some of their excess capacity to boost domestic sales to replace imports. In practice, applying import levies to auto parts as well as whole vehicles will disrupt their supply chains, raise costs and force prices up — which may put US consumers off buying.While most other big global carmakers rely on the US for a portion of their sales, the likes of BYD are already largely shut out of importing into the US, as well as Canada and the EU, by existing tariffs on Chinese EVs. But Chinese groups are being welcomed into emerging markets such as South Africa, Brazil, India and Turkey, helping China to overtake Japan in 2023 as the world’s largest car exporter. Many of those exports are ICE cars, but as demand develops, China has highly competitive EV models ready to go.BYD’s arch-rival Tesla, whose cars are largely US-made, is among the best-positioned automakers to weather the tariffs. But even Tesla faces threats from BYD’s advances. And for western carmakers as a whole, US tariffs threaten to be a further brake on their transition to the clean technology that is the future of the industry — just when they should be applying the accelerator. More

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldThe US’s federal debt burden is set to surpass the peak it reached in the wake of the second world war in coming years, Congress’s fiscal watchdog has warned, underscoring growing concerns over America’s public finances. The Congressional Budget Office said on Thursday that the US’s debt-to-GDP ratio would reach 107 per cent during the 2029 fiscal year — exceeding the 1940s era peak — and continue rising to 156 per cent by 2055. The debt-to-GDP ratio is forecast be 100 per cent for the 2025 fiscal year.The projections come just days after Moody’s delivered a warning about the sustainability of the US’s fiscal position, with the rating agency saying that President Donald Trump’s trade tariffs could compromise attempts to bring its large federal deficit under control by raising interest rates. “Mounting debt would slow economic growth, push up interest payments to foreign holders of US debt, and pose significant risks to the fiscal and economic outlook; it could also cause lawmakers to feel constrained in their policy choices,” the CBO said on Thursday. Despite the scale of the rise in the debt burden, the rate of expansion is forecast to be less drastic now than anticipated a year ago due to the CBO’s assumptions of lower interest rates, less spending on Medicare and higher revenues. Some content could not load. Check your internet connection or browser settings.The Trump administration has pledged to find the fiscal headroom to deliver on its campaign pledge of substantial tax cuts for businesses and households. Trump has tasked tech billionaire Elon Musk with finding $2tn in federal spending cuts by the middle of next year as the president looks to renew tax cuts put in place in 2017, during his first administration. The president has also raised the possibility of lowering corporation tax on domestic activity from 21 per cent to 15 per cent. The CBO calculations do not take into account the impact of Trump’s tax cuts becoming permanent — a move which the fiscal watchdog said last week would add 47 percentage points to the US’s debt-to-GDP ratio by 2054. The Trump administration believes revenues from sweeping tariffs could plug the gap left by lower revenues from income and corporate taxes. However, economists at the Peterson Institute, a Washington think-tank, have disputed the claim that the levies on trade will be enough to compensate for the potential loss of trillions of dollars in income tax revenues. Some content could not load. Check your internet connection or browser settings.The US federal government has been running substantial budget deficits each year since the pandemic, with outlays exceeding revenues by 6.4 per cent of GDP last year. The CBO said that deficits would likely remain high, rising to 7.3 per cent by 2055 — slightly lower than anticipated in March 2024. The calculations assume long-term US growth will be slightly lower than anticipated a year ago. The CBO believes that lower growth is largely down to less immigration, with the US population set to start shrinking in 2033.Video: Why governments are ‘addicted’ to debt | FT Film More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Argentina said on Thursday it had agreed a $20bn loan deal with the IMF to replenish the country’s central bank reserves, in a key step forward for libertarian President Javier Milei’s economic plan.Economy minister Luis Caputo said the deal still needed approval from the fund’s board, which could take several weeks, but that he had asked IMF director Kristalina Georgieva’s permission to announce the figure after uncertainty over the agreement prompted a sell-off of Argentine pesos over the past week.“What we are aiming for with this agreement is that people can rest assured that pesos are backed by the central bank. That will give us a healthier currency,” Caputo said.Milei is betting that a fresh loan from the IMF, to whom Argentina is already the world’s largest debtor with more than $40bn owed for a previous programme, will keep his revival of the troubled South American economy on track. While he has slashed inflation and stabilised the economy, Milei has been unable to rebuild the scarce foreign exchange reserves he inherited, which he needs to prop up the peso, repay debts, weather external shocks and lift Argentina’s strict currency controls. IMF cash gives him firepower to do so.Luis Caputo said the central bank’s gross reserves would rise from $26bn to $50bn after deals with multilateral lenders More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Like a handful of nails tossed into a busy road, here come President Trump’s punitive car tariffs. A 25 per cent levy on vehicles imported into the US from everywhere else in the world — with partial exceptions for Mexico and Canada — will force companies such as General Motors, Ford, Stellantis, Volkswagen and BMW to bunny hop, swerve and reverse. While a flat tariff is a simple thing to announce, auto supply chains are complex. Almost half of US vehicles are imported, reckon Bernstein analysts. Even those assembled domestically get more than 50 per cent of their components from outside the US, and those parts will be subject to tariffs under current plans.The outcome: $440bn of taxable value, and a potential tariff take of $110bn, a veritable crater for a sector with operating margins of 5-10 per cent. Nonetheless, some carmakers are better placed than others to navigate the disruption. Three types of company could prove relative winners. First, those that actually produce their vehicles in the US. Elon Musk’s Tesla laps rivals here. As well as being American-assembled, its cars also — largely — rely on domestically-produced parts. That’s not an easy lever for others to pull. While European and Asian carmakers will no doubt seek to move as much of their production as possible to the US, there is limited slack in the system. Building new capacity takes time and money. Then there are carmakers that sell few or no cars in the US, and will therefore be mostly unharmed. That includes Chinese manufacturers and Europe’s Renault. Finally, those whose cars are madly expensive already. Ferrari, for example, has already said that it will raise prices by up to 10 per cent and does not expect much of a profit dent this year. After all, when customers already fork out hundreds of thousands of dollars on a car — and are proud to do so — a mark-up is unlikely to curb their enthusiasm. Ferrari might even prove to be a Veblen good: one that gets more coveted as it gets more expensive.At the other end of the spectrum, of course, carmakers that sell imported bargain basement basic motors are likely to find they have to eat up more of the cost. Otherwise, customers who simply want something that gets them from A to B might forgo new purchases altogether. Seen from space, the purpose of these tariffs is threefold: raise some revenue, encourage more domestic manufacturing and advantage local carmakers over foreign ones. That is unlikely to work as planned. US carmakers may make more of their cars locally than Europeans do, but are also more exposed to the chaos. Trump has reordered the car trade’s winners and losers — albeit maybe not how he [email protected] More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The writer is a fellow at Stanford University’s Institute for Human-Centered Artificial Intelligence and the Cyber Policy Center. She is the author of ‘The Tech Coup’Europeans keen to escape the dark clouds of concern over the continent’s security may benefit from a trip to India, where optimism prevails. While some schadenfreude at the waning influence of former colonial powers is understandable (India’s foreign minister, S Jaishankar, recently told this newspaper that the virtues of the old world order were “exaggerated”) the prevailing sense of opportunity comes from within. Indians are optimistic not just because of the emergence of a multipolar world but also because of the country’s economic growth and technological advances.In technology policy circles, the EU is often positioned as the “third way” — an alternative to the laissez-faire approach in America, where market forces steer tech development, and China’s state-controlled model, where technology is instrumentalised for political control. The EU’s rights-based regulatory approach offers a democracy-driven alternative. But India is keen to claim its own role offering an alternative to Chinese and American tech governance. After a decade of Digital India policies, this is well under way. Since its launch by Prime Minister Narendra Modi’s government in 2015, the Digital India initiative has delivered spectacular results. The uptake of digital identities, payment systems and internet access has steadily climbed, although a significant gender gap remains. Nearly 6mn Indians work in the technology sector, and the country is now exporting its digital public infrastructure model to emerging economies. From Aadhaar, the world’s largest biometric ID system, to Unified Payments Interface, the payments network, Indian tech is gaining traction across the global south.But there is a flip side. India also holds the dubious distinction of being the global leader in internet shutdowns — with more than 800 reported in the past decade. Critics argue that these shutdowns are human rights violations, as are restrictions to press freedom, digital rights and data privacy. Significant numbers of content moderation requests are made by the government itself. Elon Musk’s X is suing over what it considers illegal requests to censor content on the platform.Against this backdrop, it was striking to see Joel Kaplan, Meta’s chief global affairs officer, take the stage at the Raisina Dialogue conference in New Delhi this month. Kaplan celebrated the virtues of US government support against perceived unfair treatment, particularly from the EU. He had less to say about India, despite Meta’s Facebook, Instagram and WhatsApp apps appearing at the top of user charts in India. Meta’s plan to relax content moderation and embrace far-reaching “free expression” is likely to have raised eyebrows from India’s ruling BJP. Content moderation has been a topic of confrontation between Meta and the Indian government but civil society has also criticised Meta for its concessions.Whether the new US administration will help or complicate India’s role on the world stage remains undecided. While there are similarities between Modi and US President Donald Trump’s nationalist politics, the two may still end up clashing. India First and America First do not mix well. India also receives $33bn annually in remittances from Indians working in the US, many of whom could be directly affected by Trump’s immigration policies. This may have an impact on economic ties between the two nations.Another potential pain point is Washington’s escalation of trade restrictions, such as the proposed 100 per cent tariffs on Brics nations. Hastily planned negotiations that aim to strike a trade deal ahead of the April 2 deadline leave little time for comprehensive talks. By way of comparison, the EU and India have been in on-off talks since 2007 without concluding a trade deal. Understanding how the shifting tectonic plates of global politics look from New Delhi’s point of view is necessary and important for anyone trying to anticipate the future of geopolitics. And it is easy to conclude that there is nothing but momentum for India: warm ties between Trump and Modi, as well as the chance for India to rise as other nations decline. But the jury remains out on whether the age of nationalist politics will benefit the Indian people. The narrative of India as a rising global power is compelling but it must ensure that its rule of law grows with the same ambition as its digital economy. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Rachel Reeves’ “tiny” room for manoeuvre on public finances was thrown into stark relief on Thursday after Donald Trump announced 25 per cent tariffs on foreign-made cars, with warnings it made the prospect of tax rises later in the year more likely.Within hours of the UK chancellor announcing her Spring Statement, the prospect of an escalating trade war posed a new threat to the £9.9bn of headroom she had given herself against the many risks facing the economy.Richard Hughes, head of the independent Office for Budget Responsibility, warned that a full-blown global trade war could eliminate that headroom, while some economists said the chancellor could be forced to raise taxes in her autumn Budget.“This represents the crystallisation of one of the risks that we highlighted around our central forecast,” Hughes said on Thursday.Reeves said she hoped the US president could be persuaded to exempt Britain from the tariffs before they were introduced on April 2, saying: “We are in intense negotiations with our US counterparts on cars, steel and every other type of tariff.”Sir Keir Starmer, prime minister, indicated that Britain would not immediately retaliate. “I’m very clear in my mind that the sector, the industry, does not want a trade war,” he said.Business secretary Jonathan Reynolds told an international trade conference at the Chatham House think-tank that the UK had not “wanted any tariffs applied” during negotiations with the US.But Reynolds also gave clear hints that the UK could water down its digital services tax (DST), which raises £800mn a year largely from US tech giants, to secure a tariffs deal with Washington.“It’s not as though DST was put in place as if it can never change or we would never have a conversation about it,” he said.The OBR’s Hughes said that, in a worst-case scenario where the US levied additional 20 percentage point tariffs across the world and the UK retaliated, “we would lose about 1 per cent of GDP at its peak”.He said that would weigh heavily on growth next year — which the OBR has forecast will hit 1.9 per cent — and would lower growth in the medium term by 0.75 per cent.“That kind of shock would be enough to wipe out the £10bn of headroom Rachel Reeves has set aside.”Hughes warned that the chancellor’s headroom was “a tiny fraction of the array of risks and shocks that could hit the UK economy in the next five years”. He said that on top of tariffs there were risks to the UK’s domestic productivity outlook, a warning to Reeves that the OBR might re-evaluate its consistently optimistic assessment of Britain’s growth potential.“There’s a lot of uncertainty about recent figures and what they mean for UK growth and output for workers,” he said. “If growth were just 0.1 per cent less per year over the next five years, that would be enough to wipe out that headroom.”Many economists think Reeves could be forced to raise taxes this year to put the public finances on a more stable footing — even after Wednesday’s welfare and other spending cuts.Paul Johnson, head of the Institute for Fiscal Studies, said Reeves’ headroom was “tiny”, adding: “There is a good chance that economic and fiscal forecasts will deteriorate significantly between now and the autumn Budget.“If so, she will need to come back for more, which will probably mean raising taxes even further.”Some content could not load. Check your internet connection or browser settings.The US is the second-largest export destination for UK-made cars, accounting for 17 per cent of the industry’s exports after the EU, which accounts for 54 per cent, according to the Society of Motor Manufacturers and Traders. Car exports were worth £6.4bn, according to the Office for National Statistics. While the UK exported £60.4bn of goods to the US in 2023, it sold services of £126.3bn in the same year, according to the most recent figures available from the ONS. UK luxury car brands such as Jaguar Land Rover, Aston Martin and Bentley would be hit hard by the tariffs since they do not produce any cars in the US. Ian Henry, an automotive production expert who runs the AutoAnalysis consultancy, said some luxury brands such as Rolls-Royce and Bentley might have more flexibility to absorb the higher tariffs by cutting margins at dealers or by trying to reduce the cost when vehicles arrive in the US.“For UK car exporters, this is a very challenging development,” said Tomasz Wieladek, economist at T Rowe Price. “Some of the very high-end producers might be able to pass the cost of tariffs on to consumers, because their customers are price-insensitive. For all other UK automakers, this policy will severely restrict market access.”Downing Street played down the prospect of the UK’s retaliating by targeting Elon Musk’s Tesla, the US electric vehicle maker. “We’re not singling out individual companies,” a spokesman for Starmer said. More

The global car industry has been thrown into turmoil by Donald Trump’s new “draconian” tariff regime that automotive executives expect will raise the prices of American vehicles, cut production of US cars and cost carmakers up to $110bn. The US president’s announcement on Wednesday evening that he would impose a 25 per cent tariff on imports of foreign-made cars sparked a scramble to understand the details of the policy and to identify potential exemptions that could alleviate the hit to the industry. Within hours, it was becoming clear that every carmaker, including Tesla and the US Big Three of General Motors, Ford and Stellantis, would be affected. “We are all on the same boat,” said one senior executive at a European carmaker. The tariffs are intended to boost US industry but shares in Ford and GM fell as much as 4.4 per cent and 8.2 per cent respectively on Thursday morning in New York. Ford manufactures fewer vehicles in Mexico and Canada than its fellow Michigan rival.The pair could suffer a 30 per cent slump in earnings before interest and taxes this year as a result of the policy, even if they raised prices and rejigged their supply chains to use more parts made in the US, according to estimates by Bernstein analysts. Some content could not load. Check your internet connection or browser settings.Almost half of vehicles sold in the US are imported, while those assembled in the US on average source nearly 60 per cent of their parts from overseas. Bernstein said the tariffs could introduce up to $110bn in annual costs for the carmakers. The policy, which analysts and investors have described as “a worst-case scenario”, “heavy-handed” and “devastating”, is unparalleled in its scale and determination, dashing industry hopes that Trump would row back from an escalating trade war.The 25 per cent levy will come on top of tariffs that Trump has already announced against imports from Mexico, Canada and China. They will take effect from April 2, alongside reciprocal levies against US trade partners that are expected to be unveiled on the same day. “It’s certainly possible we could see tariffs on some vehicles imported from outside North America reaching 40 per cent or 50 per cent in aggregate,” said Barclays analyst Dan Levy. The tariff also applied to core car components such as engines and transmissions while processes were in place to expand the levy to other parts if necessary, the White House said. Bank of America estimated that prices on some vehicles could rise as much as $10,000 and US auto sales could fall by as much as 3mn, or almost a fifth of last year’s 15.9mn. “The concern is on affordability of our products that are made in America and the implications on demand,” said Stellantis chair John Elkann. If the tariffs are implemented next week, market research company Cox Automotive predicted that the confusion in the supply chain would lead to vehicle production in North America being disrupted by mid-April, resulting in US plants making 20,000 fewer vehicles per day, or about 30 per cent less than now. If the costs are passed on to customers and vehicle prices in the US become too expensive, car manufacturers may choose to sell more cars in other markets. Even before Trump’s announcement, one “mid-range” carmaker, which manufactures vehicles in Mexico, was considering cutting sales to the US and selling more in Central America, according to a person with knowledge of the plans. The carmaker is thinking “there is no way these cars will sell in the US” if it increases the price by 25 per cent, the person added. Elon Musk’s Tesla would be the best positioned among US carmakers, with its strong manufacturing base in America, although its electric vehicles also use many foreign components. One major source of confusion over the policy has related to cars and parts that are compliant with the 2020 trade agreement between the US, Mexico and Canada. Trump earlier granted a 30-day reprieve from the duties for vehicles and components that met the rules of USMCA. Those will remain tariff-free but only until a process is established to apply the levies to non-US content, according to a US government official. “It’s not clear what tariff applies to what part. Not everything is in the executive order,” said an official at a European parts maker, noting also the ambiguity over the USMCA compliant parts. Parts makers warned that they could not absorb the tariffs and were planning to pass on the costs of additional tariffs to consumers accordingly, the person added. Staff check electric Porsche Taycan cars at the company’s factory in Stuttgart, Germany More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Poorer families in Britain will endure “recession level” falls in income over the next five years fuelled by the Labour government’s cuts to health-related benefits, according to analysis from the Resolution Foundation.The think-tank said on Thursday that the cuts confirmed by Rachel Reeves’ Spring Statement on Wednesday amounted to £8.3bn a year taken from some of the most vulnerable people in the country, although this was offset by other welfare measures that brought the net saving to £4.8bn.The chancellor had chosen to “concentrate the pain” of her fiscal consolidation on sick and disabled benefit claimants, while making relatively modest cuts to spending on public services, the Resolution Foundation said. James Smith, the think-tank’s research director, said the policy decisions would contribute to “recession level” falls in living standards for households in the bottom half of the income distribution.Their disposable income after housing costs would fall by an average of 3 per cent, or £500, over five years, the think-tank estimated. This marked “a really tough, recession-like outlook for living standards . . . similar to the 2000s or 1990s”, Smith said, calling it “a really bleak outlook”. The overall outlook for living standards would also be affected by low real wage growth, higher rents, council tax and water bills, and an ongoing squeeze on other areas of welfare.Labour MPs are highly anxious about the political fallout from the welfare cuts. On Thursday several expressed concern in the House of Commons about the reforms and the way ministers had communicated them. Some said their constituents were afraid.Dame Meg Hillier, Labour chair of the Commons Treasury select committee, pointedly added that “every minister should be very careful about clumsy and inappropriate language”.That was an apparent reference to Treasury chief secretary Darren Jones using an analogy to explain the welfare reforms by referring to his children taking a Saturday job on top of their pocket money. Jones later apologised.The Resolution Foundation said the current parliament would be among the worst on record for living standards, with growth of 0.6 per cent in households’ real disposable incomes over the course of the parliament.The 2020s as a whole — the first 4.5 years of which had a Conservative government — would be the weakest decade for living standards in 70 years of records, the think-tank said.The decade has so far included the Covid-19 pandemic, a period of high inflation, and elevated energy costs.“The 2020s are looking like a disaster of a decade, even relative to the two preceding it, in terms of living standards,” said Smith. “It is worse if you zero in on the bottom half.”Reeves on Wednesday said she would save £4.8bn from the welfare budget by 2029-30 by cutting health-related benefits while increasing unemployment benefits, a figure scored by the Office for Budget Responsibility.She said this was offset by another £1.4bn spent on schemes to get people back into work, meaning a net saving of £3.4bn.But the Resolution Foundation said the cuts that some of the poorest families in the UK would experience were much larger than the net figure presented by the fiscal watchdog suggested. Gross cuts to spending on disability and incapacity benefits total £8.3bn. The OBR has set against this a £1.9bn increase in spending on basic jobless benefits.It has also scored a £1.6bn increase to welfare spending from Labour cancelling cuts to incapacity benefits planned by the Tories and included in previous fiscal forecasts but never implemented — totalling to £4.8bn in cuts.This was the correct approach “in strict scorecard terms” but “as it represents the cancellation of a never-implemented cut, it will never be felt as a positive impact by households”, the Resolution Foundation said.Reeves said on Wednesday that household income was set to grow in 2025 at twice the rate expected at the Autumn Budget, with people set to be “£500 a year better off under this government”.She has also argued that estimates of the impact of the welfare cuts have not taken into account the benefits of the government’s back-to-work programmes.Gauging the impact of the welfare changes could be difficult, however, given concerns raised on Thursday by the Institute for Fiscal Studies about the accuracy of official data used to measure poverty.New figures showed real median household income after housing costs fell 2 per cent in 2023-24, with the largest decline of 18 per cent for the poorest tenth, and record numbers of children in poverty.But the figures are based on an Office for National Statistics survey that — like many of the agency’s surveys — has suffered a sharp drop in its response rate to just 31 per cent.Sam Ray-Chaudhuri, a research economist at IFS, said other data sources such as tax records did not corroborate the “concerning” trends outlined in the latest survey-based data published on Thursday.“Policymakers are once again left in the dark as they try to navigate an increasingly unreliable statistical landscape, and this can only hinder effective policymaking,” he added. 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