Economy

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Elon Musk’s electric-car maker Tesla has warned that President Donald Trump’s trade war could make it a target for retaliatory tariffs against the US and increase the cost of making vehicles in America.In an unsigned letter addressed to US trade representative Jamieson Greer, Tesla said it “supports” fair trade but warned that US exporters were “exposed to disproportionate impacts when other countries respond to US trade actions”.“For example, past trade actions by the United States have resulted in immediate reactions by the targeted countries, including increased tariffs on EVs imported into those countries,” the Austin, Texas-based company wrote in the letter dated March 11.The letter follows two weeks of erratic trade policy announcements from the government that have rattled businesses and financial markets as investors worry about the growing risks of the world’s largest economy being plunged into a recession.The letter underscores how even Tesla, a group led by close Trump ally Musk, is concerned about the potential effects of the wide-ranging tariffs. The EU and Canada have both threatened sweeping retaliations for tariffs on steel and aluminium imports into the US, which went into effect earlier this week. One person familiar with the process of sending the letter said: “It’s a polite way to say that the bipolar tariff regime is screwing over Tesla.” The person added: “It is unsigned because nobody at the company wants to be fired for sending it.”Tesla did not immediately respond to a request for comment. The group said in its letter that tariffs could increase the costs of making vehicles in the US and make them less competitive when exported overseas. It also urged the administration to avoid making minerals that are in short supply in the US — such as lithium and cobalt — even more expensive to import.Tesla said it had been overhauling its global supply chain to find and build as many materials and components in the US as possible for its electric vehicles and lithium-ion batteries. It pointed to its battery manufacturing plant in Reno, Nevada, and its lithium processing in Corpus Christi, Texas.“Nonetheless, even with aggressive localisation of the supply chain, certain parts and components are difficult or impossible to source within the US,” the company added. It urged Greer to “further evaluate domestic supply chain limitations to ensure that US manufacturers are not unduly burdened by trade actions that could result in the imposition of cost-prohibitive tariffs on necessary components”.The letter was filed to the trade representative’s office as part of the agency’s broad request for comment from US businesses as it reviews foreign trade practices and tries to identify any tariffs, taxes, regulations or subsidies that could be harming companies. Tesla sent a similar letter in response to widespread tariffs imposed during the first Trump administration, a person familiar with the process said. The March 11 letter was uploaded to the USTR website by Miriam Eqab, an associate general counsel at Tesla.Musk has emerged as one of Trump’s top advisers after spending more than $250mn to help his re-election campaign. In return, the world’s richest man has received a broad mandate to influence policy and slash the federal government, being named head of the so-called Department of Government Efficiency (Doge).Earlier this week, Trump hosted an event at the White House promoting Tesla and promised to buy one of its vehicles in a show of support for Musk.Tesla’s stock has plunged 40 per cent since the start of the year on concerns about declining sales and amid a wider market sell-off triggered by growing nervousness about US economic and trade policies. The carmaker has also been hit by a consumer backlash in Europe as people balk at Musk’s interventions in support of rightwing political parties, while its US showrooms have become a magnet for protesters unhappy with the cuts to the federal government being spearheaded by Musk. More

The comments come after Bessent said Friday that the U.S. would undergo a transition period as the federal government tries to cut spending, including laying off public sector workers.
Bessent on Thursday reiterated his view that current levels of government spending are “unsustainable.”

Treasury Secretary Scott Bessent said Thursday that his previous comments about a “detox period” for the U.S. economy did not mean that a recession was necessary.
“Not at all. Doesn’t have to be, because it will depend on how quickly the baton gets handed off. Our goal is to have a smooth transition,” Bessent said on CNBC’s “Squawk on the Street.”

The comments come after Bessent said Friday that the U.S. would undergo a transition period as the federal government tries to cut spending, including laying off public sector workers. Bessent on Thursday reiterated his view that current levels of government spending are “unsustainable.”
“We have excess employment in the government, and those people can be moved to the private sector,” Bessent said.
The Treasury head’s comments last week came as several recent economic indicators have pointed to weakening growth. Job growth was slower than expected in February, and surveys of consumers and small business have shown a decline in confidence.
The stock market has also struggled in recent weeks, with the S&P 500 down 6% in March.

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SPX in March

The federal spending cuts are not the only policy changes that President Donald Trump’s administration is pushing. The White House has also increased tariffs on major U.S. trading partners, and a deal to extend existing tax cuts is expected to be a key part of political negotiations later this year.
“There’s two parts to this: It’s accelerating the economy, growing the revenue base — and controlling expenses. In the U.S., we do not have a revenue problem, we have a spending problem,” Bessent said Thursday. More

Treasury Secretary Scott Bessent said Thursday the administration is more focused on the long-term health of the economy and markets and not short-term gyrations.
While Bessent said the administration is attentive to market moves, he predicted that both the real economy and markets would prosper over time.

Treasury Secretary Scott Bessent said Thursday the Trump administration is more focused on the long-term health of the economy and markets and not short-term gyrations.
“We’re focused on the real economy. Can we create an environment where there are long-term gains in the market and long-term gains for the American people?” Bessent said on CNBC’s “Squawk on the Street.” “I’m not concerned about a little bit of volatility over three weeks.”

The comments come with markets in a state of turmoil largely centered on President Donald Trump’s near-daily moves on tariffs against major U.S. trading partners such as Canada, Mexico and China. Major averages have moved toward correction territory, as the Dow Jones Industrial Average has lost more than 7% over the past month.
While Bessent said the administration is attentive to market moves, he predicted that both the real economy and markets would prosper over time.
“The reason stocks are a safe and great investment is because you’re looking over the long term. If you start looking at micro horizons, stocks become very risky. So we are focused over the medium-, long-term,” he said in the interview with CNBC’s Sara Eisen. “I can tell you that if we put proper policies in place, it’s going to lay the groundwork for a both real income gains and job gains and continued asset gains.”
Stocks again were volatile in morning trade, with the averages around even as Bessent spoke.
Earlier in the morning, the Bureau of Labor Statistics reported that wholesale inflation was flat in February, well below Wall Street expectations for a 0.3% increase. That followed a report Wednesday indicating that the consumer price rate had nudged lower as well, providing some welcome news amid concerns that the Trump tariffs would aggravate inflation.
“Maybe the inflation is getting under control and the market is going to have some confidence in that,” Bessent said.

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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The writer is group chief economist at BNP Paribas A compass is useful for a long walk in unfamiliar woods. Less so if you come across a bear and have to run for your life. And so it is with the European Commission’s so-called Competitiveness Compass. This is a serviceable follow-up to last year’s Letta and Draghi reports, but it is inadequate to deal with the radically changed geopolitical context in which the EU now finds itself. Europe urgently needs a show of strength, both military and economic. Encouragingly, European leaders signalled at their March 6 security summit that they grasp this, not least by including UK Prime Minister Sir Keir Starmer in their deliberations. Meanwhile, Germany’s “whatever it takes” fiscal moment is a tangible sign that people are ready to shift. But beyond this, there are precious few ideas for boosting growth quickly and permanently — as is essential if public debt is to remain sustainable despite higher deficits and rising interest rates. So here are five things European heads of government should decide to do when they meet in Brussels on March 20.First, boost intra-EU trade. The EU is its own largest trading partner — so much so that it would only take a 2.4 per cent increase in intra-EU trade to make up for a 20 per cent fall in exports to the US. As Mario Draghi, former president of the European Central Bank, has noted, the myriad differences in domestic rules and VAT rates across member states add up to the equivalent of internal tariffs of 45 per cent on goods and 110 per cent on services. EU leaders should decide to provide, within six months, mutual recognition of other member states’ rules for the majority of traded goods and services. Further, they should ask the commission to increase the so-called one-stop shop thresholds (currently at a measly €10,000 of annual sales) for collection and reporting of VAT and excise duties on intra-EU trade. According to the European Investment Bank, 60 per cent of exporters cite regulatory inconsistencies as a barrier to expansion.The second priority is to increase trade with the UK. The commission has been busy finalising new free trade agreements with other countries. While these are welcome, the quickest way to boost trade would be to remove frictions with the UK, its closest trading partner. One way to do this would be to quintuple reciprocally the “de minimis” threshold for the collection of customs duties and VAT for EU-UK exchanges (currently a mere €150).Third, the EU ought to be regulating for growth. Taking a leaf out of UK chancellor Rachel Reeves’ book, the commission and all EU and national regulators should be asked to review their mandates, making growth and competitiveness part of their objectives.The fourth thing is incentivise the savings and investment union. In the decade since the idea of capital markets union was first mooted, the gap between words and action has hardly narrowed. Proper incentives are needed. On the savings side, a powerful move would be to create an EU investment savings account that would give households across the bloc access to all the financial products available in any member state. On investment, it is time to relax the overly conservative prudential constraints on securitisation, notably capital surcharges on both issuers and investors. They currently make it uneconomic for both. As a result, just 1.9 per cent of outstanding EU loans are transformed into securitised vehicles, compared with 7 per cent in the US. A 2024 report led by Christian Noyer, former governor of the Banque de France, made specific recommendations to change that. EU leaders should ask the commission to fast-track them.The final priority is to find new ways to fund defence spending. Germany, the UK and France have already said that they intend to increase defence spending. But the latter pair are constrained by their fiscal situations, as are the next largest two EU economies — Italy and Spain. Multiple channels will need to be mobilised, alongside banks, private savings and public-private partnerships. An ambitious solution would be a multilateral rearmament bank, based on a “coalition of willing” EU and non-EU countries, with enough paid-in capital to ensure that the bank could issue debt at an AAA rating. This would help increase defence spending more quickly and with less upward pressure on national governments’ bond yields. A rearmament bank could also usefully co-ordinate procurement efforts so that equipment sourced from European (including UK) companies can be produced quickly at scale and at lower cost to the taxpayer.So European leaders should stash away the compass for now. It’s time for them to take action that yields quick and lasting results.  More

Last week, President Donald Trump paused tariffs on some Canadian and Mexican imports, granting a reprieve for a month.
Should the duties go through, they could raise material costs for the average new home by as much as $10,000, according to the National Association of Home Builders.
The trade group said that softwood lumber is mainly sourced from Canada, while gypsum primarily comes from Mexico. Steel and aluminum, along with completed home appliances, come from China, the NAHB said.

A home is constructed at a housing development on June 21, 2023 in Lemont, Illinois.
Scott Olson | Getty Images

President Donald Trump’s tariffs could increase material costs for the average new home by as much as $10,000, according to the National Association of Home Builders.
The trade group said it has received anecdotal reports from members that Trump’s plan for levies would raise material prices by between $7,500 and $10,000 for the average new single-family home. While the association is planning a formal survey in the future, this figure offers an early glimpse of what businesses and consumers can expect if Trump’s controversial taxes on Canadian and Mexican imports go forward as planned.

“For years, NAHB has been leading the fight against tariffs because of their detrimental effect on housing affordability,” the association wrote in a blog post published last week. “In effect, the tariffs act as a tax on American builders, home buyers and consumers.”
Trump last week delayed 25% tariffs for some Canadian and Mexican imports by a month after implementing them just days earlier, a stunning reversal amid financial market turmoil. His additional hike to levies on China, which lifted duties on that nation’s goods to 20%, went forward.
The NAHB said softwood lumber is mainly sourced from Canada, while gypsum, a component of drywall, comes primarily from Mexico. Other materials like steel and aluminum — in addition to completed home appliances — are imported to the U.S. from China, the group said.
An implementation of the 25% tariff on Canada and Mexico as previously laid out by Trump would raise total costs for imported construction materials by more than $3 billion, according to the NAHB.

Homebuilders react

Homebuilders have had to respond to analysts and investors wondering what these taxes could mean for their bottom lines. The SPDR S&P Homebuilders ETF (XHB) has tumbled more than 22% from highs seen in late November as uncertainty rattled investors.

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The SPDR S&P Homebuilders ETF over the last 6 months

For D.R. Horton, around 20% of lumber is estimated to come from Canada. The Texas-based firm, like others, has made strides in recent years to shift supply chains away from China coming out of the Covid pandemic. But it still has to contend with the possibility of new taxes on components coming from Mexico, said Jessica Hansen, head of investor relations.
Tallying a total impact is difficult given the potential for Trump’s policy to change and a lack of clarity about how much of certain products are imported, Hansen said at a Barclays conference last month.
There’s “really no way to proxy what that could ultimately cost, but we’ll navigate it like we do anything,” Hansen said. “If we’ve got a cost category that’s inflating and we’re in a gross margin compressing environment, we’re going to renegotiate anything and everything that we can.”
There can also be a knock-on effect for builders that don’t rely as much on imports, like K.B. Home, whose Chief Operating Officer Robert McGibney said earlier this year sources a “majority” of products domestically. Tariffs can drive up prices for those American-made materials, he said, as competitors increase demand by localizing their supply chains.
Just last week, as international focus narrowed in on U.S. tariff policy, Taylor Morrison Home held its first-ever investor day. As part of the presentation, the homebuilder brought in Ali Wolf, chief economist at housing data provider Zonda, to explain the state of the market following years defined by high interest rates and little inventory.
Wolf said Zonda expects Trump’s tariffs to raise costs on materials for homebuilders between 6% and 14%. She also said builders in border states could also take a hit if Trump’s promise for mass deportations shrinks the workforce.
As Wolf evaluates where the market is heading in 2025, she said Trump is top of mind. The positive impact for homebuilders stemming from the administration’s posture for deregulation, she said, needs to be weighed against the concerns tied to immigration and trade policies.
“The first thing we’re paying attention to is the new administration: pro-growth, less regulation. We’re here for it. We love it,” Wolf said. “We want to see removing a lot of the red tape in particular that takes it particularly long to get new homes built.”
“With that being said, when you look at some of the policies — tariffs, immigration, interest rates — all of these disproportionately negatively impact our industry.” More

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldSteve Daines, a senator with close ties to Donald Trump, is trying to get the president to name him as a special envoy to China to help secure a meeting with Xi Jinping that could pave the way for a summit between the leaders.The Montana Republican will travel to Beijing next week to attend the China Development Forum (CDF), a high-profile annual event in Beijing that is attended by dozens of US, European and Japanese chief executives. Several people familiar with the situation said Daines wanted the envoy designation to facilitate a meeting with the Chinese president after the forum — which would be much more difficult without Trump’s backing.Two people said Daines had floated the proposal to people in Trump’s orbit. But none of the people who spoke to the Financial Times on the condition of anonymity could confirm whether Daines had spoken directly to Trump. The White House declined to comment. Daines’s office said he “does not have the title of special envoy” but was co-ordinating closely with the White House about his trip to China. Asked prior to publication whether Daines was trying to arrange a meeting with Xi and was still trying to get the special envoy designation, his office did not comment.After publication, his office said he was not seeking the designation and has not requested it.“Senator Daines is planning to travel to China next week and will carry the president’s ‘America First’ message on the need to protect US jobs, establish fair trade between the two countries, and stop the flow and financing of fentanyl coming from China,” his office said.Daines, who spent six years in China with Procter & Gamble, has told associates that a meeting with Xi on behalf of Trump could help improve US-China relations, according to the people familiar with the idea.His idea has been welcomed by some US companies who want to prevent more turbulence in relations with Beijing. Trump has imposed a 20 per cent tariff on imports from China, but he has struck a less hostile tone with Beijing than he has with allies such as Canada and Mexico and the EU.Beijing uses the CDF to promote investment in China. The event also provides chief executives with an opportunity to engage with top Chinese officials. Last year, Apple chief Tim Cook met Chinese Premier Li Qiang. While dozens of corporate leaders participate in the forum each year, US politicians have typically not attended.People familiar with discussions between Washington and Beijing since Trump took office said the two sides had not engaged in serious talks about a possible summit between the two presidents. Daines was one of the first Republican senators to endorse Trump for president ahead of his 2024 campaign. Trump last year returned the favour by urging the Montana lawmaker to run for Senate Republican leader.The senator and his private sector backers wanted to keep the envoy proposal quiet to make it less likely that hawkish administration officials, such as White House trade adviser Peter Navarro, would try to persuade the president that it was a bad idea, according to people familiar with the situation.Some US chief executives fear they could face a backlash in Washington for attending the CDF, which will be held on March 23 and 24, given the hawkish sentiment towards China on Capitol Hill. Business leaders are holding out hope for a possible meeting with Xi after the CDF event.While Trump has appointed several vocal China hawks, including Marco Rubio as secretary of state and Mike Waltz as national security adviser, experts in Washington are struggling to work out what stance Trump will take on a range of national security-rated issues. More

Chickens stand next to stacks of eggs in a henhouse at Sunrise Farms on February 18, 2025 in Petaluma, California. 
Justin Sullivan | Getty Images News | Getty Images

Egg prices have fallen sharply so far in March on some progress in ending a shortage, giving consumers some much-needed relief with the supermarket staple.
The cost of white large shell eggs declined to $6.85 per dozen, on average, last week, according to data from the U.S. Department of Agriculture. That represents a decline of $1.20 per dozen, and a 15% pull back the USDA’s prior update on Feb. 28.

“Demand for shell eggs continues to fade into the new month as no significant outbreaks of HPAI [highly pathogenic avian influenza] have been detected in nearly two weeks,” the USDA wrote in its March 7 weekly update. “This respite has provided an opportunity for production to make progress in reducing recent shell egg shortages.”
Egg prices have become a key pressure point for consumers that are tired of sticky inflation and worried about more potential price increases due to President Donald Trump’s tariffs on a wide array of imports. While it is still unknown the full ramifications of the duties on Canada, China and Mexico, stocks have so far pulled back in 2025 on concern the moves could further raise prices of goods and tip a sagging economy into a recession.
To be sure, the price of eggs have still skyrocketed more than 170% from a year ago, USDA data shows. The rise has spurred an investigation by the U.S. Department of Justice into allegations of anticompetitive practices from some of the largest egg producers in the country. Firms including Cal-Maine Foods have touted a crushing avian flu outbreak, which has forced the culling of millions of egg-laying hens, as the major catalyst for the rise in egg prices.
“The primary reason for the drop is actions taken by the administration’s Department of Justice to investigate the companies for possible antitrust violations,” said Joe Maxwell, president of Farm Action Fund, told CNBC. “The dominant firms have so much control over the market that they can increase prices and lower prices almost at will.”
“There has been a softening of demand for eggs by consumers, but we do not see this as a significant factor, considering this has been an ongoing trend,” Maxwell added.
Egg prices were a key factor in the February consumer price index report, with the Bureau of Labor Statistics noting prices advanced 10.4% last month and 58.8% year-over-year. The marked-up price tag for eggs has even pushed consumers to begin shifting their breakfast habits. More

Ongoing U.S. tariffs could push Europe’s largest economy into a recession, German central bank President Joachim Nagel warned.
“Now we are in a world with tariffs, so we could expect maybe a recession for this year, if the tariffs are really coming,” he said during a BBC podcast interview.
The tariffs-led uncertainty come at a time when the EU nations could be set to loosen their budgetary strings and accommodate additional defense expenses, with Germany also planning a potential reform of key fiscal policies.

The German parliament building, the Reichstag, which has been the seat of the Bundestag since 1999.
Fhm | Moment | Getty Images

U.S. tariffs could push Europe’s largest economy into a recession, German central bank President Joachim Nagel warned Thursday, as Berlin faces a debate over the potential overhaul of its fiscal policies.
“Now we are in a world with tariffs, so we could expect maybe a recession for this year, if the tariffs are really coming,” Nagel, who leads the Bundesbank and serves as a member of the Governing Council of the European Central Bank, said during a BBC podcast interview.

Global tariffs are set to exacerbate the existing symptoms of what Nagel described as Germany’s “stagnating economy,” which has contracted for two consecutive years amid the combined aftershocks of the Covid-19 pandemic and the energy crisis triggered by Western sanctions on Russia for its three-year invasion of Ukraine.
Mere months after inflation and interest rates began descending in the euro zone last year, returning U.S. President Donald Trump’s tariff-heavy strategy, aimed at reducing his country’s perceived deficits with trade partners, is rattling markets – and fracturing Europe’s traditionally strong relationship with its transatlantic ally.
On Wednesday, the European Union retaliated against Trump’s 25% duties on steel and aluminum imports that came into effect that day with a spate of counter-tariffs set to affect 26 billion euros ($28.26 billion) worth of U.S. goods, starting in April.
“This is not a good policy,” Nagel said, bemoaning the “tectonic changes” now facing the world at large. “I hope that there is understanding within the Trump administration that the price that has to be paid is the highest on the side of the Americans.”
As the world’s third-largest exporter, according to 2023 data, and numbering the U.S. as the foremost importer of its goods, Germany is especially vulnerable to tariffs, which could erode its automative and machinery sectors.

Cripplingly, exports of good and services accounted for 43.4% of Germany’s gross domestic product in 2023, according to World Bank data, although federal statistics office data indicate its typically high foreign trade surplus most recently slimmed to 16 billion euros in January, compared with 20.7 billion euros in December.
The tariffs-led uncertainty come at a time when the EU nations could be set to loosen their budgetary strings and accommodate additional defense expenses, under the bloc’s ‘ReArm’ plan revealed last week amid uncertainty over the U.S.’ ongoing commitment to assist Ukraine.
Fitch Ratings on Thursday warned that the initiative, which could mobilize close to 800 billion euros of defense expenditures, risks lowering the headroom of the EU’s current AAA rating because of the additional debt likely to be undertaken, without leading to an outright downgrade.

Foot on ‘debt brake’ pedal

Germany set the tone last week as the Conservatives’ Friedrich Merz, who is expected to emerge as chancellor in the country’s upcoming ruling coalition, announced plans to overhaul the national so-called “debt brake” to allow for higher defense spend – in a move that sparked a rally in German bund yields and broader stocks.
The initiative, which combines the fiscal change proposals with a 500 billion euro fund for infrastructure, has been met with resistance from the Green Party – which Merz’s conservatives and probable future coalition partner, the Social Democrats, must sway in a bid to clinch a two-thirds majority needed to change the constitutionally-enshrined debt brake.
Ahead of a parliament session debating the potential reform, senior Green official Britta Hasselmann flagged “serious gaps and errors in the conception” of the debt plans toward items like climate change prevention, according to comments reported by Reuters. The Thursday session will only lead to a draft law, while the March 18 reading will likely be decisive for the legislation.

In a Wednesday note, Deutsche Bank analysts retained their base case of the reforms ultimately undergoing what is “unlikely to be a smooth passage” in parliament over the course of the next week, signaling that a “compromise proposal would not significantly alter the expected fiscal stimulus of 3-4% of GDP by 2027 at the latest” that the bank previously calculated based on the Conservatives’ original proposal.
The analysts also factored in the possibility of a splintered fiscal package, with the immediate passage of defense and debt brake policies and the later adoption of the infrastructure plans under a new parliament.
“This would potentially change the composition of the infrastructure package and gear it more towards social housing,” they noted. More