Economy

TOKYO (Reuters) – The Bank of Japan is likely to raise interest rates in coming months with January emerging as the most likely timing, when there will be more clarity on political and market developments, former BOJ board member Makoto Sakurai said on Tuesday.The central bank will eventually aim to raise short-term borrowing costs – currently at 0.25% – to 1.5% or 2% by the end of Governor Kazuo Ueda’s term in April 2028, he said.”The BOJ probably wants to hike rates once more by March next year. The exact timing will depend much on market and political developments,” Sakurai told Reuters in an interview.”With domestic politics still in flux, acting in December might be tricky. January seems to be more likely as the BOJ would have more data including on whether consumption and wage growth will hold up,” said Sakurai, who retains close contact with incumbent policymakers.But the chance of a December rate hike would heighten if the yen resumes its decline towards the three-decade trough near 162 to the dollar hit in July, Sakurai said. The dollar stood at 152.45 yen on Tuesday.”Governor Ueda emphasised his resolve to keep raising rates at last week’s news conference, which seems to reflect the BOJ’s desire to avoid triggering excessive yen falls,” Sakurai said.The dollar fell below 152 yen on Thursday when the BOJ kept rates steady, but signaled the chance of near-term action by dropping language that it can “afford to spend time” scrutinising the fallout from U.S.-related downside risks.The BOJ next meets for a policy meeting on Dec. 18-19, followed by another meeting on Jan. 23-24.The BOJ made a landmark exit from a decade-long stimulus programme in March and raised its short-term policy target to 0.25% in July on the view Japan was making progress towards sustainably hitting its 2% inflation target.Ueda has stressed the BOJ’s readiness to keep raising rates if the economy and prices move in line with its forecast.While most analysts expect the BOJ to hike again by the March end of the current fiscal year, they are split on whether the bank would act in December – or wait until January or March.The loss of a majority by Japan’s ruling coalition in an election on Oct. 27 has heightened concerns about policy paralysis with Prime Minister Shigeru Ishiba being forced to court opposition parties to stay in power.The political uncertainty, coupled with potential market turbulence after the U.S. presidential election, could prod the BOJ to stand pat in December, Sakurai said.Another key factor for the BOJ is whether wage hikes would broaden to smaller firms and underpin consumption, he added.After hiking rates again by March next year, the BOJ will probably aim to raise short-term rates once or twice a year from fiscal 2025 to 2027, to bring it to 1.5% or 2%, Sakurai said.”There’s too much uncertainty to predict the exact pace of further rate hikes. But the BOJ is probably hoping to hike rates to around 2% in the long-term horizon,” he added.Japan’s expected huge debt issuance and political calls for bigger fiscal spending, however, could constrain the BOJ’s plan to taper its bond purchases, Sakurai said.The BOJ announced in July a plan to halve its monthly JGB buying to 3 trillion yen ($19.7 billion) as of January-March 2026, which would reduce its huge balance sheet by up to 8%.The central bank will conduct a review of its existing quantitative tightening (QT) programme in June next year, to come up with a tapering plan from April 2026 onward.While the BOJ may prefer to further reduce its bond buying, it may find it hard to do so given expected increases in debt issuance to pay for roll-overs of maturing bonds and additional spending plans, Sakurai said.”The BOJ may be forced to keep buying roughly 3 trillion yen worth of bonds well beyond fiscal 2026,” he said. ($1 = 152.3900 yen) More

BEIJING (Reuters) – Fears of a widening tariff war between China and other major exporting nations are keeping diplomacy between the world’s second-largest economy and the European Union alive, even as trade talks over electric vehicles stall.While the U.S. election on Tuesday is almost certain to result in more American curbs on Chinese goods, European negotiators are investing in a longer game that may yield no immediate resolution but would at least stop an escalating trade conflict.Some EU member states are even using the dispute to bolster bilateral ties away from the Brussels-Beijing negotiations and attract fresh investment from China.”I don’t think China wants this thing to significantly torpedo the EU-China relationship, especially given the fact we will probably be seeing a very different world (after the U.S. election),” said Bo Zhengyuan, a Shanghai-based partner at Plenum, a consultancy.New EU tariffs of up to 45.3% on Chinese EV imports came into effect last week after a year-long investigation that divided the bloc and prompted retaliation from Beijing.Brussels maintains that Beijing doles out unfair subsidies to its auto industry and refuses to accept China’s counter-offer of minimum import prices. Beijing hit back with probes into Europe’s pork and dairy industries and imposed curbs on brandy imports.Beyond the headlines, however, is a more complicated series of negotiations.Beijing has in recent months hosted a procession of official visits from the EU and its member states.A French junior trade minister is visiting Shanghai this week, with Paris keen to continue developing commercial ties in China’s financial capital.France is also a “Country of Honour” at China’s annual flagship import expo, despite Beijing having placed retaliatory import tariffs on its brandy.While little progress has been made in even approaching a resolution, engagement remains a priority, analysts say.”I am not terribly optimistic that the Chinese side will put anything on the table that the EU will accept, but I probably should also be curbing my pessimism a bit, and would not discount a solution,” said Max Zenglein, chief economist at Merics, a Berlin-based China studies institute.”I am sure certain member states will be pushing for this to demonstrate their willingness or ability to work out a deal.”A DIVIDED UNIONAs Washington steps up its curbs on Chinese products, Beijing is wary of broader damage to its trade ties with the EU, worth $783 billion last year.For its part, the EU is conscious of widening the division the tariffs have already created among its members.Among the bloc’s 27 member states, 10 voted for the tariffs, five voted against and 12 abstained. Germany, Europe’s biggest economy, was among the dissenters.”The definitive lack of a majority against the tariffs meant that some countries’ ‘no’ votes were symbolic,” one European diplomat said.”Some EU countries want more in-country investment from China and hoped for less retaliation by not voting for the tariffs outright,” they added.Slovakian Prime Minister Robert Fico is the latest European leader to visit Beijing, seeking deeper two-way trade and investment ties as insurance against a wider fallout with China.Finland, which abstained, last week also agreed to deepen commercial ties with China during a visit by President Alexander Stubb, following Spain’s and Italy’s lead.CONSTRUCTIVE MUDDLE-THROUGHChina has incentives to contain the dispute: Its economy is slowing and it needs to find buyers for its EVs to ward off deflationary pressures.European diplomats, veterans in complex multilateral negotiations that can take years to iron out, said it was clear Beijing wanted to avoid a trade war, but it only started talks with Brussels relatively late in the process.While both China and the EU have launched challenges against each other at the World Trade Organization, that arbitration could take years.”Chinese action on brandy, pork and dairy imports from the EU is probably baked in at this point,” said Noah Barkin, senior advisor at Rhodium Group.”A win for the EU would be Beijing limiting its response to brandy, pork and dairy, and then both sides hashing it out at the WTO,” he added.Barkin warned a less contained response could see China curb EU access to the critical raw materials it needs for a green energy transition.During his visit to China in September, Spanish Prime Minister Pedro Sanchez said Spain would seek to resolve the EV dispute within the WTO.While that would signal a failure of bilateral talks, it would head off a worsening in relations.”I think there is a chance they will come to some agreement, regarding the minimum prices, but this will not lead to the removal of the tariffs, just a readjustment of the rates,” said Plenum’s Bo on EU talks. “That is probably the best outcome.” More

This article is an on-site version of our Europe Express newsletter. Premium subscribers can sign up here to get the newsletter delivered every weekday and Saturday morning. Standard subscribers can upgrade to Premium here, or explore all FT newslettersGood morning. Today, I write on how Europe is prepared — or at least is telling itself it has prepared — for the US election, and our parliament correspondent has news on the latest crackdown on Chinese online retailers.Judgment dayIn 2020, European Commission president Ursula von der Leyen’s cabinet set up a special TV room in the EU’s headquarters to watch the US election results roll in. This time, her aides would be wise to make sure there’s space to hide behind the sofa.Context: America goes to the polls today to elect their next president, with Republican Donald Trump and Democrat Kamala Harris in a virtual dead heat, according to most of the opinion polling. The dollar and US government debt yields fell yesterday in signs investors had pared their bets on a Trump victory, as both candidates focused their final hours of campaigning on the critical swing state of Pennsylvania.Months of pearl-clutching, prophecies and attempted preparations by the EU for a possible return of President Trump end today as polls open, in a race that could have seismic impacts on European defence, trade and generations of transatlantic policy.“In 2016, we were basically hoping for the best,” said one senior EU diplomat, referring to Trump’s first election. “Now, at least there has been some preparation . . . in theory.”That preparation has been done by major EU capitals, but also inside the commission. A small working group set up earlier this year has drawn up potential response strategies to Trump, including a pre-cooked trade deal to avoid his threat to impose blanket import tariffs, and possible initiatives to partially offset any withdrawal of US military support to Europe. But most senior officials around the EU are privately sceptical about the tangible benefits of such work, aside from providing a theoretical comfort blanket should Trump win.“We say we know what he is like,” said a senior EU official involved in the Trump-proofing talks. “[But] we don’t know what he is like.”Many also caution against the complacency of interpreting victory for Harris as a major relief for the EU. On structural, long-term issues such as Europe’s widening competitiveness gap with the US and its over-reliance on America for defence and security, the EU needs to push ahead with remedies regardless of who is the next US president.According to internal assessments seen by the Financial Times, the commission believes that a Harris administration would broadly continue Joe Biden’s approach, including existing soft protectionist policies and viewing China as the major geopolitical priority, even if that means collateral damage against Europe.“Whoever wins those elections, we will work with Kamala Harris, we will work with Donald Trump. I have no doubt,” Nato secretary-general Mark Rutte said yesterday.Though Rutte offered a rather sobering reference to back up his confidence: “It is in our interest here, but also in the United States’, because they are not in this to repeat the mistake after the first world war of withdrawing from Europe.”Gulp.Chart du jour: DeindustrialisationOver the past three years, Europe’s largest economy has slowly but steadily sunk into crisis. But what is happening now is “unprecedented”.UnboxingIt is “almost impossible to control” the contents of parcels entering the EU from China and elsewhere, the EU’s incoming trade commissioner has admitted, as the bloc tries to better police foreign online retailers, writes Andy Bounds.Context: Consumers are increasingly ordering cheap goods from websites such as China’s Temu and Shein. The European Commission has launched an investigation into Temu for allegedly selling counterfeit goods.Maroš Šefčovič told a European parliament confirmation hearing yesterday that the EU had to introduce a proposed new customs regime two years early, in 2026 rather than 2028, as the number of packages hits 4bn this year.He said some imports, most of which arrive by plane, were dangerous and did not comply with EU standards.When asked by Green MEP Anna Cavazzini what the EU should do about the “unsafe and illegal goods flooding our market”, Šefčovič said it was “almost impossible to control without proper tools”. The planned reform would introduce an EU customs authority and centralise data. It would also scrap a threshold exempting items worth less than €150 from duties. In 2023, 2.3bn in customs-exempt items were imported into the EU, according to the commission.But member states have opposed the new legislation for years, over fears of transferring more powers to Brussels. Šefčovič now wants them to agree a joint position in the first half of next year, so it can come into force the following year.He also said national enforcement teams for product safety needed more training and co-ordination.What to watch today EU finance ministers meet.Nato secretary-general Mark Rutte meets Italian Prime Minister Giorgia Meloni in Rome.Now read theseRecommended newsletters for you Trade Secrets — A must-read on the changing face of international trade and globalisation. Sign up hereSwamp Notes — Expert insight on the intersection of money and power in US politics. Sign up hereAre you enjoying Europe Express? Sign up here to have it delivered straight to your inbox every workday at 7am CET and on Saturdays at noon CET. Do tell us what you think, we love to hear from you: europe.express@ft.com. Keep up with the latest European stories @FT Europe More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Just days into his presidency, Indonesia’s new leader has sent a strong message to foreign tech companies looking to sell in the world’s fourth-most populous country: invest locally or lose access to the market. But analysts warned that strategy, which remade Indonesia’s economy as a commodities powerhouse, could backfire against the likes of Apple and Google as competition in the region for foreign direct investment heats up.Over the past week, Prabowo Subianto’s government has banned sales of Apple’s iPhone 16 and Google’s Pixel phones, citing the companies’ failure to meet requirements for 40 per cent of products to be made with locally sourced raw materials.“We’re encouraging the local content policy to create fairness for all investors, as well as to create added value domestically,” said Febri Hendri Antoni Arief, a spokesperson for the industry ministry, on Friday.The bans, which came a week after Prabowo was inaugurated, signal that south-east Asia’s largest economy could step up the use of restrictive trade policies to secure investments from foreign companies.Critics said such policies could dent Indonesia’s appeal — which is hampered by red tape and corruption — against more investment-friendly nations in the region such as Vietnam and Malaysia. The restrictions also come as Prabowo has set out ambitious plans to boost annual economic growth to 8 per cent.“Indonesia takes a hit in its competitiveness compared to other countries in south-east Asia as a result of this kind of policy,” said Lydia Ruddy, managing director of the American Chamber of Commerce in Indonesia. Ruddy said it could be “very challenging” for foreign companies to meet local content thresholds because domestically made products were not available for some sectors such as electronics, pharmaceuticals, medical devices and renewable energy.“This becomes a real deterrent for foreign investors. If they cannot import the products or materials they need and they are not available on the local market yet, companies will look to other markets in the region,” she said.Indonesia has long used trade regulations to attract foreign investment and onshore manufacturing to protect its domestic industries. The local content requirement is one of its strongest mechanisms, requiring industries from energy to agriculture machinery to locally source a certain percentage of goods. For power plants, it is as high as 70 per cent.This year, Indonesia relaxed the local content requirement for solar power plant projects in a bid to facilitate foreign investment. The energy minister at the time, Arifin Tasrif, said the requirement had made projects much more expensive for foreign companies.Indonesia’s protectionism has been even more aggressive in commodities. Prabowo’s predecessor Joko Widodo banned nickel ore exports in 2019, forcing foreign companies to invest in domestic nickel processing facilities. The policy drew record investment in the steel and electric vehicle sectors, both of which use nickel extensively.While Prabowo has said he will be investment-friendly, he is yet to set out detailed plans. He has vowed to continue Widodo’s policy of “downstreaming”, or adding value to commodities, to boost the value of the country’s exports.At the Qatar Economic Forum in May, Prabowo pushed back against criticism of Indonesia’s “downstreaming” policies. “We are not protectionist,” he said. “What we are doing is very logical. Every country in the world will fight or protect the national interests of its people.”His government’s recent moves indicate a focus on technology companies. In the final weeks of the Widodo administration, officials said they would ban Chinese ecommerce platforms Temu and Shein because of the potential harm to small- and medium-sized enterprises from cheaper foreign products.Prabowo’s administration has not commented on the bans on Temu and Shein. Indonesia holds great potential for companies such as Apple and Google due to its young, tech-savvy population. The number of active mobile phones in Indonesia totals 354mn, according to the country’s industry ministry, exceeding the population of 280mn.Indonesia has previously called for more investment from Apple, which has four developer academies in the country to train students and engineers to develop apps but no manufacturing facility.The Widodo administration had asked Apple to set up a factory or research and development centre, saying the developer academies were not enough, but Apple’s chief executive Tim Cook, who met Widodo in Jakarta this year, did not make any commitments.The ban on Apple and Google is an attempt by Indonesia to have more bargaining power, but it is a tough sell because “Indonesia still lacks the manufacturing capabilities”, said Bhima Yudhistira, director of the Center of Economic and Law Studies in Jakarta.“This is a bad precedent for investors and potential partners for Indonesia under the Prabowo administration,” he said. “The government has failed to increase the fundamental competitiveness to attract more investments.” More

Argentina’s long-simmering legal fights with many of its former investors are coming to a head, and the billions of dollars in damages at stake could complicate President Javier Milei’s attempts to fix the country’s struggling economy. Lawsuits over decisions taken by previous governments, from expropriations to changes to bond payments, are winding their way through courts in the US and Europe, and plaintiffs are piling pressure on the government to negotiate. While Milei says he will pay his country’s obligations, behind closed doors officials warn the government will fight to the bitter end to reduce them and protect Argentina’s scarce resources.“Unfortunately for Milei, a tsunami of judgments that has been building for two decades is now breaking, with final rulings in all the [major] cases due in his four-year term,” said Sebastián Maril, a director at consultancy Latam Advisors.Maril estimates that awards in ongoing cases against Argentina could total up to $31bn without interest, although government sources argued the figure was “highly speculative” as it includes more than $12bn in estimated awards for claims on which judges have not yet ruled. By far the largest judgment is the $16bn that a New York court awarded last year to former minority shareholders of state-controlled energy firm YPF, which Argentina expropriated in 2012. Argentina is appealing, arguing that the New York court’s decision was flawed and the award “grossly inflated”.The court is weighing up whether to compel Argentina to hand over the 26 per cent of YPF shares owned by Milei’s government as payment, while it awaits a ruling from the higher courts. The plaintiffs are largely financed by litigation funder Burford Capital. Other claims are also quietly adding up. Last month the UK supreme court declined to hear Argentina’s appeal of a $1.5bn judgment over changes to the way the country calculates GDP, which reduced payouts on its growth-linked bonds. The government has until November 28 to pay bondholders or face enforcement action.In August, a US court refused to throw out a $340mn arbitration award over the Argentine government’s 2008 expropriation of airline Aerolíneas Argentinas. Another US court ruled that a group of holdouts from Argentina’s 2001 sovereign default may recoup three-quarters of an earlier $417mn award by seizing some Argentine funds held in the US.Milei’s administration has been deeply critical of the leftwing Peronist governments that made the disputed policy decisions and has pledged to shed Argentina’s reputation as a serial defaulter.“Populist [governments’] ‘creative’ solutions have brought tragic economic consequences and discredited our country,” said Milei’s cabinet chief Guillermo Francos on X following the UK Supreme Court decision. “Our greatest commitment is to work each day to become a serious country in the eyes of the world again.”But Argentina has no money to pay. The country’s central bank has negligible hard currency reserves, and it already faces questions about how it will make more than $14bn in sovereign debt repayments due to bondholders and multilateral lenders next year.Jaime Reusche, vice-president and senior credit officer at Moody’s Investors Services, said the judgments were increasing pressure on Argentina’s limited capacity to make external payments — the main reason Moody’s has yet to upgrade the country’s bottom-of-the-barrel credit rating, despite macroeconomic improvements under Milei.“There is a 50-50 chance that Argentina’s government can meet its commitments in the next two or three years,” he said. “The outlook is so sensitive that if a couple of variables change, they may need to [renegotiate] debt repayments, and these judgments are a very real contingent liability.”Argentine officials say they will exhaust legal possibilities to protect the public purse. That goes both for cases without a final ruling and the nearly $2.4bn worth of judgments where the decision may no longer be appealed but enforcement can still be challenged.“We will exercise our right to protect our assets like any sovereign would,” said one government official. “Nobody relishes keeping litigation open, but we have many demands on our resources, especially given the constraints on the fiscal sector, which the judgment creditors are well aware of.”Critics of the government argued that statements by Milei, such as a recent post on X that referred to “the illegal expropriation of YPF”, were muddying the waters on that case and may hurt Argentina’s chances of prevailing on appeal.Plaintiffs in the YPF case have attempted to get Argentina to negotiate a settlement, but the government has not engaged with those efforts.Those who advocate for Argentina coming to the table say that a drawn-out battle would increase interest bills, while attempted asset seizures would embarrass Argentina, undermining Milei’s effort to attract badly needed foreign investment. “Kicking the can down the road has never gone well for us, because we almost always lose in these cases,” said Maril, noting that Argentina had already paid out $17bn since 2000 to defaulted bondholders, expropriated shareholders and others.Marcelo García, Americas director at intelligence firm Horizon Engage, said the litigation had weighed down on investors’ decisions by highlighting Argentina’s severe cash flow problem. But he added that it would be harder than in the past for plaintiffs “to turn Argentina into an international pariah” when Milei is making many reforms demanded by investors.Claimants who were pushing to be paid quickly should expect a wait, the Argentina government official said.  “It is not always obvious for the private sector how a government deals with these claims. We can’t sacrifice equity in the short term like a corporation might, because a state can’t go into liquidation. We don’t have the same timelines,” they said. “But we do want problems solved, as expeditiously and efficiently as possible.” Plaintiffs in many of the cases are searching for Argentine assets to seize in lieu of payment. Experts say that will be difficult, as the few assets held abroad, such as diplomatic properties or central bank holdings, are protected from seizure in most jurisdictions.There are exceptions. During US hedge fund Elliott Management’s 15-year battle to collect on defaulted Argentine bonds, Dennis Hranitzky, currently head of sovereign litigation and global asset recovery practices at law firm Quinn Emanuel, successfully seized $70mn from Argentina. His team also briefly seized an Argentine naval vessel in port in Ghana in 2012, which embarrassed Buenos Aires — but it was soon released. Hranitzky’s team also identified the $312mn of Argentine state funds held in New York that a US appeals court ruled in August must be turned over to the holdout bondholders.“I’ve been doing this continuously for the last 22 years and can say from experience that while collecting from Argentina isn’t easy, it can be done,” said Hranitzky.Additional reporting by Alistair Gray in London and Joe Miller in New York More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The writer is leading a review of international development for the UK government and is a member of the House of LordsTrade policy is probably the area in which the views of the public and those of economists diverge most substantially. Polls in the US regularly show that the majority of people think that protectionism is a good thing, whereas only a minority of professional economists would agree. But when asked if they would be willing to pay more for goods and services in order to have more domestic production, people tend to change their minds.Public opinion is one reason why politicians sometimes reach so quickly and easily for tariffs and other trade restrictions as a solution to many problems. But so is the fact that even though there are many better alternatives to tariffs for achieving growth in jobs, industrial development, fairer outcomes and national security goals, these are often harder to sell to voters. So it is easy to opt for the politically expedient but often ultimately ineffective imposition of tariffs, provision of subsidies and state aid, and localisation of public procurement.Some current supporters of trade restrictions have a zero-sum view of the world and reject the classical arguments for the gains from trade that originate in the work of David Ricardo and Adam Smith. They ignore the fact that a rules-based trading system has contributed hugely to prosperity and poverty reduction, especially for developing countries. Since 1990, global trade has contributed to a 24 per cent increase in global incomes, including a massive 50 per cent gain for the poorest 40 per cent of the world’s population. Supporters of trade restrictions often also fetishise trade deficits and manufacturing exports. But trade deficits are not a problem if they can be financed sustainably and are often a consequence of other macroeconomic imbalances. And there is nothing better about dollars earned from manufacturing exports than dollars earned from services exports.More interesting are those who believe in economic openness but want to use trade policy to achieve other objectives such as competitiveness, redistribution of incomes, climate change mitigation or national security. In most cases, however, there are better ways to achieve those worthy goals than through trade policy.Consider the case of industrial policy, where a variety of trade restrictions have been imposed in the US and elsewhere in the hope of achieving competitive advantage in industries such as electric vehicles or chips and artificial intelligence. The history of such industrial policies is long and the successes have arguably been fewer than the failures. But the main point is that there are much better and more successful policies to build competitiveness, such as financing research and development, building a skilled labour force and providing incentives for investment. Using trade policy as the answer to regional inequality and income inequality is far less effective than building a proper social safety net and investing in declining regions and in people. Countries that have adequate safety nets and policies that help workers reskill and adjust to economic change experience far less protectionism than those that allow global shocks to be felt across the population. It is possible to build safety nets that act like trampolines — enabling workers to bounce back with support that kicks in early and comprehensively to support incomes and also gets people into new jobs.As for accelerating progress to address climate change, it bears repeating that the most efficient way to do this is through a carbon tax with a rebate to protect the poor. Trade restrictions, such as local content requirements or tariffs, make it more expensive to transition to a green economy. Some argue that new green technologies will emerge behind protectionist barriers. But targeted subsidies to research and development would do a better job of making that happen. If we want to address the urgent challenge of climate change, we should focus on policies that make it cheaper and faster to deliver emissions reductions. Similarly, national security is better served by diversifying supply chains. In other words, we need more trade not less. Trade policy is first and foremost about fostering competition to create growth and jobs and to serve consumers efficiently. In most cases, there are better alternatives for achieving competitive industries, fairer income distribution, mitigation of global warming and national security objectives. As the old saying goes, “use the right tool for the job”. Not every nail needs to be hammered with trade policy. A bigger and more varied toolkit would get the job done better and preserve the global trading system that has done so much to improve lives in recent decades.  More

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldThe writer is president of Queens’ College, Cambridge, and an adviser to Allianz and GramercyIt is in the nature of electioneering that, whatever their starting point, politicians will tip more populist, promise big things and be economical with the policy details. This US presidential election has been no different. But whoever is declared the winner only stands a chance of delivering on their promises if they formulate specifics to address five areas that influence the future wellbeing of the economy.This year’s presidential candidates made many ambitious policy statements. They even agreed on some: job creation, ending inflation, protecting domestic companies, eliminating the taxation of tips and improving housing affordability. Donald Trump also opted for additional tax cuts, ambitious deregulation, high tariffs, lower federal spending, expanding fossil fuel production and curtailing environmental initiatives. Kamala Harris has focused on reducing the cost of healthcare and improving access to it, fighting corporate price gouging, expanding tax credits and creating an innovation fund.Yet both Harris and Trump lack the specifics to meet their promises. It’s not something that should be left unaddressed, even in an economy that has outperformed other advanced countries. Measures are needed to be taken in five areas to stand a good chance of delivering on promises.First, the incoming president must find a way to maintain growth while repositioning the economy to take advantage of the drivers of tomorrow’s prosperity. This involves removing the brakes on existing economic engines, such as manufacturing and services, and promoting future sources of growth by supporting the smart dissemination of innovations in artificial intelligence, life sciences, green energy, defence, healthcare and food security. Both the Inflation Reduction Act and the Chips Act should be evaluated for course corrections to fulfil their restructuring aims. This needs to be accompanied by more dynamic regulatory approaches to foster innovation and a better understanding of the risk of the balance between job losses and the upside of skills enhancement.The second challenge is to come to grips with high budget deficits and rapidly rising debt. It was once unthinkable that the US would have almost three years with an unemployment rate around or well below 4 per cent and yet run budget deficits of 6-8 per cent of GDP. To paraphrase John F Kennedy, this is the time of “sunshine” when governments should be “fixing the roof” and not creating additional holes. Yet, whether it is the current deficit at over 6 per cent of GDP or government debt at 120 per cent of GDP, both are on an ultimately unsustainable path.It’s not just about the size of the imbalances. The incoming administration needs to build much greater operational flexibility for public finances that lack sufficient resilience and agility. This requires reforms to the tax system, including removing distortive exemptions and anti-growth biases; rationalising spending; and liberating more resources for investment and precautionary buffers.Third, both candidates need to resist the excessive use of the economic tools they favour. For Harris, this means avoiding overregulation and blunt industrial policy. For Trump, it means containing the use of tariffs and tax cuts.Fourth, the new administration needs to restore credible American leadership at the centre of the global economic and financial order. This is not about a globalist ideology. It is about countering fragmentation which undermines growth and national security. Active US involvement is also needed to develop common responses to shared threats. The alternative is greater vulnerability to more frequent and more violent shocks.The final issue is proper communication. You need only look at the UK to see how an ambitious economic initiative can fall victim to obfuscation. The Biden-Harris administration learnt this lesson the hard way when it followed the 2021 lead of the Federal Reserve in wrongly characterising inflation as “transitory” only to see it surge to more than 9 per cent. Trump managed it better in the immediate aftermath of his 2016 election victory when his conciliatory tone on the economy flipped equity market losses into gains and set an economic narrative that has served him well since.Overpromising in electioneering is neither new nor unexpected. The issue now is for the winning candidate to pivot from promises to economic governing lest the US lose its economic exceptionalism and the world lose its one major growth locomotive. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.If Europe wants to see how Chinese manufacturers could affect its all-important car industry, it could do worse than look to Norway. Fully 94 per cent of cars sold in the Nordic country in October were electric, putting it on course to hit a target of no new fossil-fuel passenger vehicles next year.Chinese carmakers sold no cars in Norway in 2019; this year so far, they have managed to take 11 per cent market share. Brands such as MG, BYD and Xpeng are common sights on Norwegian streets. Perhaps most telling is that Oslo’s main shopping strip Karl Johans Gate has only one car dealership on it: Nio, a relatively new Chinese brand. Just around the corner, under the Financial Times’ Nordic bureau, an upmarket estate agent has been replaced by a flashy showroom for Voyah, replete with modern art.It is hard to exaggerate the importance of Europe’s car industry either in economic terms or in symbolic value. It employs more than 13mn on the continent directly or indirectly, and accounts for one in 10 manufacturing jobs. It is equally hard to underplay the gloom in the sector right now. Amid the profit warnings being handed out by European carmakers, taboos are being threatened everywhere from Volkswagen planning its first closure of a factory in its homeland of Germany in 87 years to Europe’s oldest car plant in Turin being shut for large parts of the year.But just as European manufacturers are being laid low by the move to electric vehicles, Chinese carmakers (and Tesla) are prospering. “I looked at VW, Toyota, Volvo, but I just think the Chinese have better technology, look cooler,” said Ivar, standing outside Nio’s dealership in Oslo. He added that the touchscreens so crucial to electric cars were far slicker in Chinese models than, say, VW’s.Nio’s main storefront looks like a coffee shop, perhaps because it is one, selling everything from a matcha latte to pistachio cookies. “I had no idea it was a Chinese car store,” said one American tourist last month. Further on in the Nio store, it looks more like a lifestyle brand with jackets, suitcases and other bags for sale. It is only around the corner that cars such as ET5 saloon — with a starting price of NKr426,000 ($39,000) — make an appearance.Manufacturers such as VW, Audi and Mercedes had become heavily dependent for their global sales on China, where they had to strike collaborations with local carmakers. Many Chinese companies are now beating the European marques where it hurts: by making arguably better cars in some cases. The German carmakers’ sales in China are falling hard as local manufacturers increasingly dominate. “Look at how the Chinese are now building better cars than the Europeans after starting cooperations with the Europeans decades ago. It’s amazing,” said one Nordic automotive executive.The picture is less dramatic in Norway, even though the direction of travel is still clear and challenging for the Europeans. Tesla, the US industry upstart, is the biggest-selling brand in Norway this year, and is not far off selling as many as the next two — VW and Japan’s Toyota — combined, according to statistics from the Norwegian Road Association. Volvo, based in Sweden but owned by China’s Geely, is not far behind that duo in fourth place. The pace of the Chinese advance in Norway has been uneven. It has been led by MG, the former UK brand that is now owned by SAIC Motor, one of VW’s partners in China. Chinese makers had reached 5 per cent market share already in their first year of sales in 2020, and 10 per cent by 2022. In 2023, their share declined before rebounding to a fresh record level this year.Established brands are far from finished: both Toyota and Volvo have increased their market share in the past five years, but VW and BMW have seen their share drop by more than a fifth. As to where it could lead, a simulation published this year by the European Central Bank provides for alarming reading. If China’s car industry receives subsidies similar to those applied to its solar panel sector, an ECB simulation forecast Chinese carmakers’ global market share would increase by 60 percentage points and the Europeans’ would decrease by 30 percentage points. EU domestic production would fall 70 per cent.The US and EU have sought to stem the rise of Chinese electric cars with tariffs, but Norway has pointedly refused to follow suit. How much tariffs will check the rise of Chinese manufacturers remains to be seen. For now, Norway serves as a local warning for European carmakers of what could happen if they do not move quicker.richard.milne@ft.com More