Economy

Policymakers are grappling with “exceptionally high” uncertainty, Christine Lagarde, the president of the European Central Bank, said on Wednesday, just hours after the European Commission announced tariffs on U.S. imports in response to levies imposed by the Trump administration. Later, Canada announced a new round of retaliatory tariffs on U.S. imports.The unpredictability of trade policy and geopolitics, which is likely to mean more large economic shocks, will make it harder for central bankers to keep inflation at their 2 percent target, Ms. Lagarde said.There was a somewhat bewildered mood among some of the E.C.B. officials, economists and analysts at an annual gathering held in Frankfurt, where Ms. Lagarde delivered her speech. Participants reflected on the rapidly shifting economic environment stemming from the escalating trade tensions and a substantial increase in military spending planned by European countries, particularly Germany.Under different circumstances, this year’s conference could have seemed like more of a celebration: Inflation in the eurozone slowed to 2.4 percent in February, near the central bank’s target, and policymakers have been able to cut interest rates six times since the middle of last year.Instead, President Trump’s imposition of sweeping tariffs, and his shifting policies on military aid to Ukraine, are unnerving European leaders. In response, European officials are proposing to borrow more to fund defense and infrastructure investments, significantly altering the region’s fiscal situation. The conference began with one speaker emphasizing the importance of preparing for war in order to avoid war.“Established certainties about the international order have been upended,” Ms. Lagarde said. “Some alliances have become strained while others have drawn closer. We have seen political decisions that would have been unthinkable only a few months ago.”When introducing a panel, François Villeroy de Galhau, the governor of the French central bank, said, “We are aware this environment can change tweet by tweet from one day to the next.” He invited panelists to begin their presentations but noted they could be referring to something that may be reversed by the same afternoon.“We live in a world not only of uncertainty, but still more unpredictability and still more, these last days, irrationality,” he said. More

Show video infoThe EU and Canada retaliated against US President Donald Trump’s 25 per cent tariffs on steel and aluminium within hours of them taking effect, escalating a trade war that has rattled financial markets and threatened the global economy.The European Commission said its measures would affect up to €26bn ($28bn) of American goods, matching the US tariffs on European exports, and would take effect in April, leaving some time to negotiate with Washington.Commission president Ursula von der Leyen said the EU regretted Trump’s decision and that tariffs were “bad for business, and even worse for consumers”. “These tariffs are disrupting supply chains. They bring uncertainty for the economy. Jobs are at stake. Prices will go up,” von der Leyen said.Canada also hit back swiftly as Ottawa announced tariffs on almost C$30bn ($21bn) of US goods. Dominic LeBlanc, the country’s finance minister, branded the US levies as “completely unjustified, unfair and unreasonable”. The retaliations came after the US tariffs came into force on Wednesday, as Trump pressed ahead with his protectionist trade agenda despite growing concern over the risk of a domestic recession.The move to impose the tariffs followed a turbulent day on Wall Street as the spectre of a deepening trade war and the administration’s erratic policymaking on tariffs shook investors.US and European stocks were up on Wednesday, snapping two days of declines, with the S&P 500 rising 0.8 per cent and the Stoxx Europe 600 climbing 0.8 per cent.As part of its retaliation, Brussels has reinstated measures introduced during Trump’s first term on €4.5bn of US exports from April 1. These include levies of up to 50 per cent on products such as bourbon whiskey, jeans and Harley-Davidson motorcycles.The EU has also drawn up levies on a further €18bn of US goods, which could include cosmetics, clothes, wood, soyabeans, chicken, beef and other agricultural produce. The measures, which could be expanded to include another €3.5bn of goods, require approval by EU countries and would come into force on April 13.A senior EU official said soyabeans were on the list of targets because they were grown in Louisiana, the home state of House of Representatives Speaker Mike Johnson.“We’re happy to buy our soyabeans from Brazil or Argentina,” they added.“We want to ensure there is pressure within the American system to lift their tariffs,” a second official said, referring to efforts to hit goods from Republican states. Trump’s tariffs are the latest salvo in an aggressive trade policy that the president has said will boost US manufacturing and penalise countries he claims have ripped America off.Last month the president announced that he would impose the duties on metals, tearing up agreements struck between his predecessor Joe Biden and US trading partners to allow certain quantities of steel and aluminium to enter the country duty free.US administration officials have framed the move as a response to “foreign players” that they say are responsible for “surging exports” of metals to America that are undermining domestic producers.Trump has also expanded the metals tariffs to apply to a wide range of products containing steel and aluminium, including tennis rackets, exercise bikes, furniture and air conditioning units.UK trade secretary Jonathan Reynolds said the tariffs were “disappointing” but Britain did not respond with immediate countermeasures. Despite the US being the UK steel industry’s second-biggest export market, Reynolds said the government was “focused on a pragmatic approach” as it sought to negotiate a broader economic deal with the White House.China, the world’s largest steelmaker and exporter, warned it would “take all necessary measures to safeguard its legitimate rights and interests” but did not immediately announce retaliatory tariffs.Australian Prime Minister Anthony Albanese said the tariffs were “entirely unjustified”, adding: “This is not a friendly act.” The country was exempt from similar tariffs implemented during Trump’s first term, and the country’s steel producers supply the American defence and manufacturing sectors.The full list of steel and aluminium products subject to the levies represented $151bn of imported goods in 2024, according to an analysis by Simon Evenett and Johannes Fritz of the St Gallen Endowment for Prosperity Through Trade.Ted Murphy, a partner at law firm Sidley Austin, said Trump’s sweeping new metals tariffs represented a “big change” from his approach when he introduced similar levies in 2018 and allowed exclusions for some products. “The product exclusions were vetted through a US government process to confirm the products weren’t available in the US,” said Murphy. “So taking that away will mean a lot of folks will have to pay the tariff because they can’t source these products domestically.”Additional reporting by Nic Fildes in Sydney, George Parker in London, Joe Leahy in Beijing and Ilya Gridneff in Ottawa More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Canada’s central bank has cut its benchmark interest rate to the lowest level since 2022, warning that a trade war with the US will probably slow the pace of Canadian economic growth and increase inflationary pressures.The Bank of Canada on Wednesday reduced rates by 0.25 percentage points, as expected, to bring its policy rate to 2.75 per cent. It marked the seventh consecutive cut in the BoC’s monetary policy easing cycle.The move came hours after US President Donald Trump’s tariffs on steel and aluminium imported from Canada took effect earlier on Wednesday. Trump has also imposed, then delayed, 25 per cent tariffs on Canada and Mexico, despite the US having a free-trade pact with the two countries.BoC governor Tiff Macklem told reporters that Canada’s economy ended 2024 in “good shape” but was now facing a “new crisis” due to the trade war with the US.“Depending on the extent and duration of the US tariffs the economic impact could be severe; the uncertainty alone is already causing harm,” he said. He added that a weaker Canadian dollar is adding costs to importing goods and unemployment is likely to rise over the coming months due to weaker consumer demand.Alongside its policy decision, the BoC published survey data that suggested threats of new tariffs and uncertainty about the US-Canada trade relationship were having a “big impact” on consumer and business confidence.Macklem said the survey indicated Canadian businesses, particularly those in manufacturing and sectors dependent on discretionary consumer spending, had lowered their sales outlooks.“Our surveys also suggest business intentions to raise prices have increased as they cope with higher costs related to both uncertainty and tariffs,” Macklem said. The BoC also cautioned that “monetary policy cannot offset the impacts of a trade war” and Macklem warned that the severity of the impact of new US tariffs on the Canadian economy would depend on their extent and duration.On Sunday the minority government’s Liberal party chose former Bank of England and Bank of Canada governor Mark Carney as their new leader and prime minister, replacing Justin Trudeau. Carney has pledged to “build the strongest economy in the G7”.Carney is expected to call an election that will be held probably in late April or early May. Canada must hold a national vote before October. More

Steven Kamin was previously head of international finance at the Federal Reserve and is now senior fellow at the American Enterprise Institute. Mark Sobel was previously head of international finance at the US Treasury and is now US chair, OMFIF.In recent weeks, the buzz has been mounting about a new American plan — a “Mar a Lago Accord” — to upend the global monetary system. We can only hope it remains idle chatter. In brief, based on a detailed discussion paper by CEA Chair nominee Stephen Miran, the accord would have America’s trading partners help weaken the dollar and commit to providing low-cost, long-term financing to the US government, enforced by the threat of higher tariffs or removal of security guarantees.  Intriguingly, there has been no announcement by the Trump administration or even a tweet by Trump, but Miran’s paper — along with various utterances by Treasury Secretary Scott Bessent — have led Wall Street observers to believe such an initiative is indeed in the offing. And that’s too bad, because a Mar-a-Lago Accord would be pointless, ineffectual, destabilising, and only lead to the erosion of the dollar’s pre-eminent role in the global financial system.The Mar-a-Lago Accord is premised on the view that the dollar’s global dominance is bad for America. Unnatural demand has caused gross overvaluation. This has in turn led to reduced export competitiveness, persistent trade deficits, and the erosion of US manufacturing. In response, an Accord would call for the US and its trading partners to intervene in foreign exchange markets to sell dollars for foreign currency in a bid to get the dollar down. However, since foreign sales of US Treasuries and prospects of dollar losses could push up US interest rates and jeopardise the financing of federal budget deficits, foreign governments would have to increase the duration of their remaining holdings of Treasuries, even buying 100-year zero-coupon bonds from the US government — in essence, free financing for a century! And because they could not be expected to do this voluntarily, they would be threatened with higher tariffs or the loss of American military support if they failed to comply.So, what’s wrong with all that? First, contrary to Miran’s view that the dollar’s global role is harmful for America, it is actually a net plus, facilitating our business activities abroad, lowering the cost of capital, and increasing our geopolitical reach. And even if the plan succeeded in lowering the dollar, it would do nothing to help the US economy or its workers.   Much of our trade deficits reflect a buoyant economy and large fiscal deficits, not the strong dollar. Moreover, our trade deficits aren’t really a problem per se. Despite them, US economic growth has outstripped that of our major trading partners, and the unemployment rate is only 4 per cent — very low by historical standards. In fact, there’s no logic to the notion that all countries should have balanced trade. We need trade deficits in order to provide an outlet for spending that otherwise would show up as economic overheating and inflation. Moreover, the strong dollar clearly isn’t the cause of the shrinking share of US workers in manufacturing (now less than 10 per cent of total employment). The same trend has been at work the world over, in countries with both trade surpluses and deficits, on account of the rapid productivity growth in this sector.Second, the plan would not succeed. As countless studies have shown, pushing the dollar down on a sustained basis would require the Federal Reserve to lower interest rates and foreign central banks to raise rates; but with US inflation stubbornly exceeding the Fed’s 2 per cent target and foreign economies languishing, that’s not going to happen. By the same token, if foreign governments were busy selling Treasury bonds in order to depress the dollar, it’s unlikely that increasing the duration of their remaining dollar bonds could be enough to keep US interest rates from rising. And while threats of higher tariffs and ejection from the security umbrella might coerce Japan and Europe to play ball, China — which should be America’s main concern — is going to be less willing to kowtow to Trump.Third, a Mar-a-Lago Accord risks undermining the global dominance of the dollar. That dominance is based not only on the safety and liquidity of US Treasuries, but also on the long-standing historic prudence of US economic policymaking and its support for a stable, rules-based global trading and financial system. Mistreating our allies, breaking trade agreements, and undermining support for global institutions, as is now under way, will only encourage other countries to seek alternatives to the dollar. Trump has threatened countries with tariffs if they abandon the dollar, but nothing could accelerate that process more effectively than reckless actions against our trading partners.Finally, an effort to force a Mar-a-Lago Accord on resistant trading partners could trigger a global financial crisis. The stock market is already in freefall on account of Trump’s capricious tariff policies. Consider what would happen if Trump threatened our allies with ejection from the US security umbrella, a “user fee” on Treasury repayments abroad, or a selective freezing of Treasury repayments altogether, as Miran has suggested in his magnum opus. Ditto forcing others to “reprofile” into 100-year zero coupon bonds. As the safest and most liquid asset in the world, US Treasury bonds are the bedrock of the global financial system — if they suddenly became less safe and less liquid, a financial panic akin to the Lehman Brothers and coronavirus meltdowns could ensue, taking the US and global economies down with it. The dollar might indeed fall, but not in a way that Trump would like.All told, a Mar-a-Lago Accord would represent huge downside risk for approximately zero upside gain. It is doubly amazing that Trump officials seem to be drawn to it when there is another policy that could simultaneously lower the dollar, narrow our trade deficit, reduce interest rates, and put the federal budget on a sustainable path for years to come: cut spending, responsibly raise taxes, and reduce the fiscal deficit. Instead, we get DOGE, tariffs with a half-life of 1 1/2 hours, threats to our closest allies, and the trashing of America’s credibility. It’s going to be a long four years. More

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldSir Keir Starmer, UK prime minister, has said he is “disappointed” that the US imposed tariffs on British steel and aluminium imports, but stopped short of following the EU in announcing retaliatory measures.Downing Street on Wednesday said Starmer would take a “pragmatic approach”, attempting to strike an economic deal with US President Donald Trump, which he believes could shelter Britain from future levies. Speaking at Prime Minister’s Questions in the House of Commons, Starmer said he was “disappointed” the global levies had been imposed on the UK by the US. He said he would “keep all options on the table” in response to the move and that Britain was “negotiating an economic deal which covers and will include tariffs if we succeed”.But Liberal Democrat leader Sir Ed Davey called on Starmer to be “more robust”, after Canada and the EU launched retaliatory measures.Starmer’s comments echoed remarks earlier on Wednesday by business and trade secretary Jonathan Reynolds after a 25 per cent levy on steel and aluminium came into force overnight. Number 10 said Reynolds would travel to Washington next week to discuss the wider economic bilateral deal, which will initially focus on closer ties in technology.Starmer’s spokesperson said the government’s approach reflected the desire of British industry to avoid “a trade war where both sides escalate the situation”. He reiterated ministers’ support for the UK steel sector, citing £2.5bn of state investment to aid the industry.Britain’s decision was starkly different from the EU, which immediately hit the US with €26bn of retaliatory tariffs on American goods. Trade body UK Steel warned that the tariffs “couldn’t come at a worse time” as the industry battles high energy costs and sluggish demand. Exports to the US from the UK accounted for 7 per cent of total UK exports last year by volume but 9 per cent by value, and were worth more than £400mn.Some steel contracts had been put on hold or cancelled before the tariffs took effect. One industry executive said their main concern was that the UK, by not responding as the EU had done, would be left exposed and could end up being flooded by imports originally destined for the US.Tata Steel, which owns the Port Talbot steelworks in south Wales and exports products used in packaging and the oil and gas sector in the US, said the tariffs were causing a “lot of uncertainty” for customers. With other governments likely to tighten safeguard measures, the UK should follow suit “to avoid cheaper imports flooding our market and pushing down prices as competitors look to redirect steel originally destined for the US”, said the Indian-owned group.The calculation in London is that the US tariffs, which will add £100mn to the cost of UK steel exports, are not big enough to trigger a full-scale response that would inflame relations with Washington.British officials say Starmer and Reynolds hope an “economic deal” with Washington could take Britain out of the line of fire in what could be an escalating transatlantic trade war.That proposed agreement was discussed by Starmer and Trump at the White House last month, but it is far from clear whether it can be negotiated.Last month Trump told Starmer at the White House he thought the UK and US could end up with a “real trade deal” without tariffs and called the prime minister a “tough negotiator”.Starmer urged Trump not to impose new steel tariffs on Britain in a phone call over the weekend and Reynolds made similar pleas to his US counterpart Howard Lutnick, but to no avail.Britain’s softly-softly approach to the Trump trade war, enabled by the UK’s exit from the EU and its common commercial policy, will be viewed warily in Brussels, especially as Starmer is seeking to “reset” relations with the EU in the coming months.In the short term Britain’s response to the US steel and aluminium tariffs will be focused on wider government support for the sector, including a plan to cut the energy bills of heavy industry. “We remain resolute in our support for UK industry,” Reynolds said. More

The consumer price index for both all-items and core increased 0.2% in February, slightly below expectations.
On an annual basis, headline inflation was at 2.8%, while core was at 3.1%. Both also were 0.1 percentage point below the Wall Street consensus and the previous month’s levels.
The report provided some relief as consumers and businesses worry about the looming impact tariffs might have on inflation

Prices for goods and services moved up less than expected in February, providing some relief as consumers and businesses worry about the looming impact tariffs might have on inflation, the Bureau of Labor Statistics reported Wednesday.
The consumer price index, a wide-ranging measure of costs across the U.S. economy, ticked up a seasonally adjusted 0.2% for the month, putting the annual inflation rate at 2.8%, according to the Labor Department agency. The all-item CPI had increased 0.5% in January.

Excluding food and energy prices, the core CPI also rose 0.2% on the month and was at 3.1% on a 12-month basis. The core CPI had climbed 0.4% in January.
Economists surveyed by Dow Jones had been looking for 0.3% increases on both headline and core, with respective annual rates of 2.9% and 3.2%, meaning that all of the rates were 0.1 percentage point less than expected.

Stock market futures added to gains after the release while Treasury yields rose.
Shelter costs moved up 0.3%, less than in January but still responsible for about half the monthly increase in the CPI, the BLS said. The category makes up more than one-third of the total weighting in the CPI, with particular focus on a measure in what homeowners estimate they could get in rent for their properties, which also increased 0.3%.
Food and energy indexes both increased 0.2%. Used vehicle prices jumped 0.9% and apparel rose 0.6%. Within food, egg prices soared another 10.4%, taking the 12-month increase to 58.8% and pushing a broader measure that also includes meat, poultry and fish up 7.7% on the year. Beef prices also climbed 2.4% in February.

Motor vehicle insurance posted a 0.3% increase on the month and was up 11.1% annually. However, airline fares slipped 4% in February and were down 0.7% from a year ago.
Inflation-adjusted average hourly earnings increased 0.1% for the month and were up 1.2% from a year ago, the BLS said in a separate release.
The report comes at a potentially critical juncture for the U.S. economy and financial markets, which have been shaken lately as President Donald Trump escalates a trade war and concerns rise of a growth scare.
In the latest developments, Trump’s 25% duties on steel and aluminum took effect Wednesday, prompting retaliatory measures from the European Union. Trump also has slapped 20% levies on goods from China.
Federal Reserve officials are watching the developments closely. Central bank policymakers generally consider tariffs to have modest impacts on inflation and often are viewed as one-off measures that don’t have lasting impact on longer-term gauges.
However, a broader trade war could change that if the pace of increases becomes more ingrained in the economy. Markets currently expect the Fed to resume cutting interest rates in May, with a total of 0.75 percentage point in reductions by the end of 2025.
“The February CPI release showed further signs of progress on underlying inflation, with the pace of price increases moderating after January’s strong release,” said Kay Haigh, global co-head of fixed income and liquidity solutions at Goldman Sachs Asset Management. “While the Fed is still likely to remain on hold at this month’s meeting, the combination of easing inflationary pressures and rising downside risks to growth suggest that the Fed is moving closer to continuing its easing cycle.”
The Fed meets next week and is widely expected to hold its key borrowing rate in a target range between 4.25%-4.5%.
Economic growth is trending negative in the first quarter, according to the Atlanta Fed’s GDPNow tracker of incoming data. The measure has pegged Q1 growth at a 2.4% decline, which would be the first negative growth quarter in three years.

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As a presidential candidate, Donald J. Trump promised an economic “boom like no other.”But eight weeks into his presidency, Mr. Trump is refusing to rule out a recession — a striking change in tone and message for a man who rode widespread economic dissatisfaction to the White House by promising to “make America affordable again.”His comments come as the stock market is tumbling — the S&P 500 fell 2.7 percent Monday after falling 3.1 percent last week — and business leaders are spooked about the uncertainty over his tariffs. Even some Republicans, who fear retribution if they cross Mr. Trump, have started to raise concerns about his levies.The moment captures a fundamental challenge for Mr. Trump, a showman who makes absolute and sweeping promises that inevitably run into the reality of governing.The economy Mr. Trump inherited was by many standards in solid shape, with low unemployment, moderate growth and an inflation rate that, while still higher than what the Federal Reserve wants, had declined substantially. But the uncertainty that his policies have injected into the outlook is a jarring contrast with the picture Mr. Trump painted on the campaign trail.“We will begin a new era of soaring incomes,” Mr. Trump said at a rally in October. “Skyrocketing wealth. Millions and millions of new jobs and a booming middle class. We are going to boom like we’ve never boomed before.”That vow to create an economic boom has come into conflict, at least for now, with the president’s favorite economic tool: tariffs. He promised those too during the campaign and, as economists warned, they are the primary driver of the country’s cloudy economic outlook. Forecasts from both JP Morgan and Goldman Sachs say a recession over the next year has become more likely because of Mr. Trump’s tariffs.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

The European Union is putting tariffs on a range of products from the United States in retaliation to President Trump’s steel and aluminum tariffs, and items that come from Republican-held states rank high on the hit list.The European Union plans to institute the tariffs in two phases: The first wave will take hold on April 1, and will impact goods that already had tariffs applied during Mr. Trump’s first term, such as bourbon, boats and motorcycles. For certain products like whiskey and Harley-Davidson motorcycles, those tariffs would be as much as a crushing 50 percent.The second wave is still being figured out, though the list of products that could be affected is already public — and is 99 pages long. In that phase, the E.U. is planning to add levies to goods worth about 18 billion euros, or 19.6 billion dollars, and is aiming for them to go into effect on April 13.The proposed goods include:Poultry, beef and porkSoybeansWine and sparkling wineBeerPants, shirts and other clothingHandbagsRefrigeratorsWashing machinesMowersExactly what those tariffs will look like remains to be seen. For now, Europe is consulting consumers, companies and policymakers across the 27-nation bloc as it finalizes the list. Many of the potential targets are largely produced in Republican-held areas, such as crops from the Louisiana district that elected Mike Johnson, the House speaker, and livestock from Nebraska and Kansas.The goal? Officials want to hit America where it hurts in order to force the United States to the negotiating table, while doing as little damage as possible to Europeans. More