Economy

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The EU urgently needs to classify a substance used to line furnaces and kilns for making cement, glass and steel as a critical raw material or supplies will become hostage to China, the world’s biggest producer of high-end industrial ceramics has warned.Stefan Borgas, chief executive of London-listed RHI Magnesita, told the Financial Times that while magnesite was essential to basic chemical processes underlying Europe’s industrial base, its absence from a list of strategically important materials had disincentivised homegrown production.Magnesite is used to make refractories, materials that allow furnaces to handle extremely high temperatures above 1,200C. Europe imports most of its magnesite from China, which controls two-thirds of global production.“We have enough magnesite in Europe that we could secure supply to the European heavy industries,” Borgas said, adding that EU critical materials designation was helping to boost investment in the mining and processing of lithium, nickel and other metals where China also dominated supply.RHI Magnesita’s plant in Kufstein, Austria More

BENGALURU (Reuters) – The South Korean economy barely grew last quarter as political chaos weighed on consumer spending, according to a Reuters poll of economists who expect the Bank of Korea to cut interest rates next month following a surprise hold last week.Asia’s fourth-largest economy grappled with uncertainty from President Yoon Suk Yeol’s brief Dec. 3 martial law attempt, weakening economic sentiment and sluggish domestic demand which overshadowed the recovery in exports.After only growing 0.1% in the July-September quarter, South Korea’s economy likely expanded a seasonally adjusted 0.2% in Q4, according to the median forecast of 24 economists.On an annual basis, the economy expanded 1.4% last quarter, according to the median forecast of 25 economists polled Jan. 15-20, barely changed from 1.5% in the previous quarter.”We expect Q4 GDP data to show lackluster growth. High-frequency indicators point to domestic demand weakness, particularly in December as political events hurt consumer and business confidence,” said Krystal Tan, an economist at ANZ.Exports rose 6.6% in December compared to a year earlier. Semiconductor exports increased 31.5% during the same period.The Bank of Korea (BOK) unexpectedly held its key rate steady on Jan. 16 to prevent the Korean won – which fell more than 12% last year – from weakening further, as political instability undermined investor confidence. The currency has seen a modest gain since the decision.Although currency stability took precedence over domestic demand concerns in last week’s meeting, BOK Governor Rhee Chang-yong indicated a rate cut was still on the table.All 25 economists in a Reuters snap poll taken after the BOK’s January decision expected it to lower borrowing costs by 25 basis points in February and median forecasts showed a total cut of 75 basis points by end-Q3.”Even if the USD/KRW climbs back, as long as the current political situation does not worsen and it is driven more by the global dollar strength, the BOK is likely to deliver a rate cut in February,” noted Min Joo Kang, senior economist at ING.”After that, the BOK will keep a close eye on political developments, growth, inflation, and the won to gauge when to cut rates.”The BOK has lowered its 2025 economic growth projection from 1.9% in November to a range of 1.6% to 1.7%, reinforcing the rate cut view. More

WASHINGTON (Reuters) – President Donald Trump did not immediately impose tariffs on Monday as previously promised but directed federal agencies to “investigate and remedy” persistent U.S. trade deficits and unfair trade practices and currency manipulation by other countries. Trump, sworn in on Monday, said in his inaugural address the U.S. would collect “massive amounts” of income from foreign trade duties as his administration works to rebuild American industry.”Tariffs are going to make us rich as hell,” Trump later told supporters at Capital One (NYSE:COF) Arena in Washington. “It’s going to bring our country’s businesses back that left us.”His first day reprieve signals a possibly more deliberative approach to imposing tariffs, an issue that has shaken global policymakers and investors, and prompted a relief rally in global stocks and key foreign currencies against the dollar.While Trump mentioned no specific tariff plans in his inaugural address, he and members of his cabinet said they were coming, to be collected by a new agency called the External Revenue Service.Trump added that his policies would make America “a manufacturing nation once again.”In a broad presidential trade memo draft seen by Reuters, Trump also directed federal agencies to assess China’s performance under the “Phase 1″ trade deal he signed with Beijing in 2020 to end a nearly two-year tariff war.The deal required China to increase purchases of U.S. exports by $200 billion over two years, but Beijing failed to meet the targets as the COVID-19 pandemic hit.”China’s adherence to this agreement will now be assessed, to determine whether enforcement or changes are required,” the memo reads.DAY ONE REPRIEVEDuring his election campaign, Trump vowed to impose steep tariffs of 10% to 20% on global imports into the U.S. and 60% on goods from China to help reduce a trade deficit that now tops $1 trillion annually. He also vowed to impose 25% duties on goods from Canada and Mexico on his first day in office, if they failed to clamp down on the flow of illicit drugs and migrants entering the U.S. illegally.Such duties would tear up longstanding trade agreements, including the U.S.-Mexico Canada Agreement (USMCA) upend supply chains and raise costs, according to trade experts.The memo directs agencies to ensure that USMCA and other trade agreements “prioritize American workers, farmers and businesses,” signaling plans for a 2026 renegotiation. Some industry groups and trade lawyers in Washington had expected Trump to invoke the International Emergency Economic Powers Act, a law with sweeping powers to control imports, to impose broad tariffs.But Trump will coordinate closely with Congress on tariff measures, a senior administration official said, downplaying differences of opinion within his fledgling cabinet on how quickly to enact Trump’s promised tariffs.The source said that Trump’s Commerce secretary nominee, Howard Lutnick and his nominee for Treasury secretary, Scott Bessent, would push Trump’s trade agenda forward soon, but gave no specific timetable.RELIEF RALLY The U.S. dollar slumped broadly on the news against a basket of major trading partners’ currencies, with particularly large upswings in the euro, Canadian dollar, Mexican peso and Chinese yuan. MSCI’s measure of global stock markets rose. U.S. financial markets are closed for the Martin Luther King Jr. Day holiday.Canadian Finance Minister Dominic LeBlanc told reporters in Ottawa that it would be a positive step for the U.S. to study bilateral trade ties rather than impose tariffs. Industry groups also expressed relief at the reported lack of immediate duties.”U.S. businesses would welcome a deliberative approach that identifies unfair trade practices and helps Americans succeed in the global economy,” said Jake Colvin, president of the National Foreign Trade Council, which represents a broad swath of large American companies on trade matters.Trade analysts said they still expect Trump to press ahead with a global tariff early in his administration.”The universal tariff was a core part of the economic plan he ran on and I think he’s going to do what he said he would,” said Kelly Ann Shaw, a former White House trade adviser during Trump’s first term.”This is an idea he’s supported for a long time,” Shaw, now with the Hogan Lovells law firm, said in an interview last week. More

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(Reuters) – New Jersey Governor Phil Murphy on Monday asked President Donald Trump to reexamine the federal government’s approval of New York City’s first-in-the-nation congestion pricing program that began on Jan. 5.Murphy, a Democrat, said the program is a “disaster for New Jersey commuters and must receive the close look it deserves from the federal government.” Under the program, passenger vehicles are charged $9 during peak periods in Manhattan south of 60th Street. Trucks and buses pay up to $21.60. The fee is reduced by 75% at night.It is designed to reduce traffic and raise billions for mass transit, with most of the revenue generated targeted to upgrade the city’s subway and bus systems.The White House did not immediately comment, but a spokesperson for Trump in November criticized the plan.During the first week after the fee was imposed, traffic in Manhattan’s central business district fell by 7.5%.The fee went into effect after New Jersey failed to convince a judge to halt it.Charged via electronic license plate readers, private cars pay once a day regardless of how many trips they make into the central business district. Taxis pay 75 cents per trip and ride-share vehicles reserved by apps like Uber (NYSE:UBER) and Lyft (NASDAQ:LYFT) pay $1.50 per trip.A few other cities around the world already have congestion pricing systems. London, which implemented its system in 2003, now charges 15 pounds ($18.49). Singapore and Sweden also have congestion pricing plans.Before the fee went into effect, New York said more than 700,000 vehicles entered the Manhattan central business district daily, slowing traffic to around 7 miles per hour (11 km per hour) on average, which is 23% slower than in 2010.The city estimates the congestion charge will bring in $500 million in its first year. New York Governor Kathy Hochul said the money would underpin $15 billion in debt financing for mass transit capital improvements, with 80% of the money to be spent on the subway and bus system, and the other 20% spent on two commuter rail systems. More

The memo, expected to be signed shortly, also directs federal agencies to assess China’s performance under the “Phase 1″ trade deal he signed with Beijing in 2020 to end a nearly two-year tariff war. The deal required China to increase purchases of U.S. exports by $200 billion over two years, but Beijing failed to meet the targets as the COVID-19 pandemic hit.”China’s adherence to this agreement will now be assessed, to determine whether enforcement or changes are required,” the memo reads. More

COMMENTS:RICK MECKLER, PARTNER, CHERRY LANE INVESTMENTS, NEW VERNON, NEW JERSEY”The biggest reaction is what appears to be the delay on the tariffs. Of all the proposals that are being put forward, that was the one that was most likely to affect the market more dramatically both for its inflationary-potential and just for whatever retribution that would have been for it.””When you say you’re going to study and try to negotiate it after you said that you will do it on Day 1, I think that’s encouraging for the market.””I also think that the market’s view is that a lot of the proposals of the Trump team are aspirational. They may not necessarily implement them or they will implement them slowly. But they did help him get elected. And also some of the proposals need development. The new team is just in place and so the idea of doing it on Day 1 was not realy realistic. So that’s why the market is a little relieved on that.”MATT GERTKEN, CHIEF GEOPOLITICAL STRATEGIST, BCA RESEARCH (Research Note)”We expect significant tariffs early in his administration, whether this week or in the coming three months, since the U.S. labor market is strong and the midterm elections are far away. Weak global manufacturing also gives Trump the advantage.. Later the ability to ratchet up trade pressure will decline and Trump will risk losing the historic opportunity he has to remake US trade relationships.”EUGENE EPSTEIN, HEAD OF TRADING AND STRUCTURED PRODUCTS, NORTH AMERICA, MONEYCORP NE,W JERSEY”There are so many people surprised in some ways of how things are shaping up even though the playbook that Trump basically runs is exactly the same as the first four years. He uses tariffs as a negotiating tool. It seems like he will impose tariffs regardless. The question is how severe. He has a lot of flexibility though in how he can impose them.””In terms of the dollar reaction, it certainly weakened a bit today, but utimately, the dollar has strengthened substantially and I think today’s action changes the playbook for the forseeable future. Just because he did not sign sweeping tariffs on day one doesn’t mean that that’s not going to happen. Everybody is on the negotiating table.””As far as position-taking goes, it’s very important to stay calm and cautious. This is just the first day and there really have not been been much answers just yet. Just because he hasn’t announced sweeping tariffs the first day, it means absolutely nothing in terms of long-term tariff policies. Trade policies with specific numbers, even for him, will probably have to have some semblance of official negotiations before making a decision.”ZACHARY GRIFFITHS, SENIOR INVESTMENT GRADE STRATEGIST, CREDITSIGHTS, CHARLOTTE, NORTH CAROLINA”The rally in the dollar and equity futures was due to expectations that Trump will..not be putting direct tariffs on any country today. That seems to be a relief trade.””But if you look at what Trump said in his speech, it looks like he’s quite firm on tariffs. I think there’s more to come there.” “In terms of opting to not impose tariffs today and that being a market-positive, I’m a little skeptical of that and I am not sure that holds. If you have a more gradual, but still large tariffs in terms of percentage on a broad swath of countries, and if that is rolled out over time, that could be more challenging from an inflation-perspective for the Fed and could even result in policy being tighter for longer.”JAMIE COX, MANAGING PARTNER, HARRIS FINANCIAL GROUP”Energy prices are going to come down in big way — consumers will rejoice in the savings and the inflation data in 6-7 months is going to look far better.”NIGEL GREEN, CEO, DEVERE GROUP “The energy sector will undoubtedly be the most immediate beneficiary of this sweeping policy shift.””Companies involved in oil and gas exploration, extraction, and infrastructure stand to gain as regulatory barriers are dismantled and investment in domestic production soars. Shares of U.S. energy giants and mid-cap firms are likely poised for significant upward momentum as the markets price in increased output and profitability.””Global oil prices, already sensitive to geopolitical developments, could see sharp adjustments.” GABRIELA SILLER PAGAZA, DIRECTOR FOR ECONOMIC ANALYSIS, GRUPO FINANCIERO BASE “At the beginning of Trump’s speech, the (Mexican peso) exchange rate was at 20.5751…At the end of the speech, it fell to 20.5289 pesos per dollar, which implies an appreciation of 4.6 cents or 0.22%, since there was no announcement of tariffs.”MARC CHANDLER, CHIEF MARKET STRATEGIST, BANNOCKBURN GLOBAL FOREX, NEW YORK”There is a relief rally in foreign currencies, right now.” “Even though Trump did not specify, it’s very clear that when he says that the U.S. is going to be a big auto manufacturer, he’s talking about tariffs. So whether he imposes them in Day 1 or Day 5 or Day 10, I’m not sure it makes that much of a difference.””The idea that he is going to be able to raise $2 trillion in tariffs seems to be an exaggeration. The U.S. imports only $1 trillion of goods, so what does he mean that he will be able raise $2 trillion and over what time period? It doesn’t make sense.” More

At an informal dinner, the EU’s 27 finance ministers also agreed that deeper ties with the U.S. were in the best interests of both the EU and the U.S., EU diplomats familiar with the discussions said.There was also agreement among the ministers that low and stable energy prices were key to prosperity in Europe, because the bloc’s industry and consumers pay twice as much as their counterparts in the U.S. and four times as much as in China.Lowering energy prices was therefore crucial for Europe to stay competitive in the global economy, diplomats said.The IMF said in a paper prepared for the discussions that further EU energy-market integration and joint investment would solve the issue.”Most ministers agreed that further integration of the energy market would be beneficial,” an EU diplomat said. More